Xerxes

Purchase of Booking.com by Priceline Purchase of Instagram by Facebook Investment in Alibaba by Softbank in the latter case, it wasn't so much about finding Jack Ma, i doubt there were many tech entrepreneur in China in the 90s, so that wasn't the hard part relatively speaking. i think the hard part was holding unto it through IPO in 2014 and beyond.

I guess, it make sense he is putting priority on the investing in the insurance business. FFH can always buy back the shares tomorrow (and i doubt shareprice will move that much), and financial engineering should never be at the expense of creating intrinsic value. You don't want to be like Boeing or GE, hollowing out the balance sheet through massive buybacks for the sake of exiting shareholders and Wall Street, instead of taking a hard look at the pillars of the business and see where you can invest first to maintain one's competitiveness in the market place. And I would also say that if Mr. Watsa had an ownership of 1%, he may have preferred hollowing out the balance sheet through buybacks to keep the numbers up. So despite his weird gymnastics when it comes to common stock investment, I can safely state that I feel that he has an incentive to build the business for the long term shareholders and not to hollow it out. And I understand the counter points about mismatch between voting shares and involvement of his family etc. and agree with those as well. That said, while Prem' is probably doing the right thing balancing capital allocation, the pill would have been easier to swallow, if this hasn't been coming after the long list of disappointments and mistakes, all well documented in this forum. Personally, i don't care too much stock prices not going up for the short term, as i can extremely patient, but what I CANNOT stand is his stubbornness when it comes to technology names, parading the names in the annual shareholder letters, with the most elementary valuation metric (p/e) to make a case. I am sorry, if after 20 years you have not understood that the Big Tech are not the Nortel et al. of 1999-2000, I will classify that as stubbornness. The Economist had an article few weeks ago, where it was saying that how the 2000 stock market crash created a bias for deep value investors. Perhaps that is true, that 1999-2000 bias messes up their framework, as they all eagerly await for the Judgment Day, when Prophecy shall be fulfilled and the technology name halved again. But the point is that even if the Prophecy is fulfilled, why take a short position against the mother of all secular trends, only to lose money in a massive rally and then break-even on the shorts when its goes back down. Short the easy stuff. Short the airlines, the restaurants, short Cara Operations ! ... wait in fact, you had said in past AGMs you will not short anymore, why are we even seeing short positions popping out on the quarterly results. Thankfully, while, his weird equity investment, grabs the headlines and captures not our imagination but our frustration, we can be glad to know that the bulk of the $40 portfolio is not made up equity investments.

Thanks I think it was a good call. No question about TorStar or Fairfax Africa's sale. ---------------- Funny question from an individual investor, who confused Exxon and Chevron with Enron and Chevrolet. I listened to the audio, he actually said Enron and Chevrolet. "Okay. And the second question is the stocks that you guys bought in March like Enron, Chevrolet, Google, have you guys sold any of those positions, or do we have to wait till the next quarterly filings to see those?" ---------------- Anybody understands this statement: "The losses were principally comprised of incurred but not reported losses that represented on a net basis 70% of the COVID-19 losses reported." is that like how banks do loan losses provisions. ? what does it mean incurred but not reported.

That is for the first six months of the year, right? Making money in 6 months during a pandemic? Really? I am stealing Parsad's favourite: cheers! Yes, during the pandemic.

$821 million is over 6 months. For Q1 the investment loss was about $1.3 billion, half of which got recouped by this quarter $600 or so investment gain. So, net, we are at the $821 million mark for the first six months. I don't expect much mark-to-market bounce back on BV from the common stock portfolio. This would have been the peak on mark-to-market bounce back I think. It will be up to the insurance business, capital gains on the bond portfolio and earning pickups from Associates to build up the BV going forward I think.

you are exactly right ! A paltry bounce back both on the bond and common stock portfolio, purely from a realized/unrealized capital gain/loss point of view. That explains the mediocre 3% bounce back on the book, in turn. 494 million return on bonds portfolio of ~$17 billion + 130 million returns on the common stock portfolio of 3.8 billion The crown jewels* are, however, grouped under the Associates (~$4.6 billion in value). For, those unless there is an impairment charge, you wont see the their stock movement captured in page 15, I believe. But overtime, one should see FFH's portion of earning to do better if those associate perform better. I should state however that one-quarter of S&P500 is made of BigTech/FANG, and the aggregate bounce back of the BigTech lifted the S&P500 far better than Blackberry powerhouse bounce back did within the FFH common stock portfolio. If you are competing against S&P500, you need either of the following two things: (1) either you got the genius to do without Big Tech in the portfolio and still do really well or (2) have at least as much Big Tech as the index, and you can get creative on the remaining 3/4 of the portfolio. *crown jewels net of Resolute, as RFP is no jewel let alone a crown jewel

Unless I am reading wrong book value had a paltry 3% bounce up of March 31 lows. The net investment portfolio loss of $1.3 billion at the end of Q1, reverses by half, for the six months period.

Folks For the uninitiated, is LEAP the same as out of the money call way out in the future ? Or is it a combo option play with something else. Just not sure why folks here call it LEAP instead of out of call calls.

Bingo. RTX is the one to get. They supply the picks and shovels to all. You want exposure to F-35 production ramp-up, well, Pratt & Whitney is the sole-source provider of the F135 engines. You want narrow body exposure, the P&W has duopoly of on that range of thrust. You want actual growth, then look for where the Hypersonic investment money is going => Lockheed and Raytheon. You want have a diversified exposure between production and Aftermarket, it has (i.e. Boeing pendulum is heavily titled toward production, hence all the cash flow problems) Personally, my top 4 are RTX, Northrop Grumman, Lockheed Martin and L3-Harris. There is a bit of overlap on the F-35 program between the first 3 companies though. If you drop Lockheed Martin but keep => RTX, Northrop Grumman and L3-Harris. I think that combination has much less overlaps and really vectored differently.

It could also be said FFH has effectively re-priced the cost basis of its all-in stake (Deb and commons) on BB. Thereby tilting the position into a more all-or-nothing and with the lower blended cost basis on both debs and commons it would be much easier for it to give up its stake in potential acquisition by a third party.

i disagree with this comment specifically. I think 9-10% ownership is a huge incentive. Sure, this is not BRK level of ownership with Buffet. But if i compare to many other companies their CEO ownership is as low as 1%, it is really high. More so, what else is in Watsa's portfolio. Is it >90% FFH stock, if yes, than i think proper economics incentive is there on both dimensions. Personally, i would preferred no dividends as it gives the optics of cash-cow that all it does is to ensure the cash inflows is just enough to cover the cash outflows + $10 per share for dividends. But that is me.

Spekulatius, probably you will find this interview with the L3 boss interesting. https://aviationweek.com/ad-week/video-interviews/l3harris-eyes-foreign-defense-expansion-shakes-commercial-dip On the overall A&D sector, my view is that in the short term, while defense might to better than commercial, in the long term, the defense budget will be very much impacted due to the massive spending governments around the world have undertaken to re-build their economies. Also defense is not immune, as their supply chain did get impacted. Lockheed Martin for instance for the first time in 10 years its F-35 production deliveries is not growing y-o-y. ------------------------------------------------------------------------------------------------------ L3Harris Eyes Foreign Defense Expansion, Shakes Off Commercial Dip Michael Bruno July 16, 2020 L3Harris executives L3Harris Chairman and CEO Bill Brown (left) and Vice Chairman and Chief Operating Officer Chris Kubasik. Credit: L3Harris L3Harris Technologies is celebrating its first anniversary as a combined company after predecessors L3 Technologies and Harris Corp. came together in the summer of 2019. The merger created a so-called “sixth prime” defense contractor that enjoyed growing civil aerospace work through pilot training, simulation, avionics, FAA support and NASA work. But the merger was envisioned long before COVID-19 upended the aerospace and defense marketplace. Like other companies, Melbourne, Florida-based L3Harris is adapting. Chairman and CEO Bill Brown and Vice Chairman, Chief Operating Officer and President Chris Kubasik talked with Senior Business Editor Michael Bruno about the past year and looking ahead. AW&ST: You just completed the first year of a three-year plan to integrate L3Harris Technologies. How is it going? Brown: Chris and I couldn’t be prouder of the broader leadership team and all the employees for all that we’ve accomplished over the last year to make this merger successful. And it has been a success in an environment that is truly unprecedented in many ways. Strategically, if you remember a year ago, we set out to leverage our broader scale and complementary technologies to create sort of a new agile, innovative mission solutions prime that goes across all of the domains. I think we have proven that out through a lot of the revenue synergies we’ve already started to capture in the big pipeline ahead of us operationally, and we’re making really good progress. We’re also building a strong culture of operational excellence within the company to sustain our performance beyond the integration period. More international defense work targeted Cost-takeout from operations could increase Commercial aerospace drop not alarming Many financial analysts have named L3Harris a favorite stock pick. You have a $300 million goal for cost takeout from the merger, and you just accelerated that by a year to 2021. Do you feel pressure to do even more? Brown: I think maybe what people are excited about is that we were underpenetrated internationally. So we have opportunities to grow there. We’re going after broader end-to-end mission solutions and we’re starting to capture synergy. So we believe we have an opportunity to gain share in a defense market, in a global market. But we also have really good execution on the cost side to allow earnings per share to grow and margins to expand, regardless of what happens on the top line. I think that’s what investors are excited about—just that execution on the fundamentals. If we hit $300 million next year and we keep running it into that third year—calendar 2022—it should be better than we first expected. The merger was marketed in part about becoming a sixth prime defense contractor with accompanying heft. Did it work? How are you growing? Kubasik: We see a lot of opportunities in the classified environment dealing with command and control, with integrating capabilities from both legacy companies. We put in 41 proposals—neither one of us would have primed or put these bids in had we not merged. That gives you an idea of volume. A lot of these start out relatively small, whether they’re with DARPA or other agencies where you’re downselected as one of three, and then a year from now you get another opportunity and keep going. We’re pretty pleased. We’ve had eight awards so far. About 20% of annual revenue comes from international sales. Can you still grow there? Kubasik: There is a couple of billion dollars of opportunity on the international front. We have a pretty big presence in Australia, Canada and the UK. We haven’t seen any budget pressures for 2020. Do we expect many for 2021? That will be something we watch. Most of these countries fund defense as a percent of GDP, so if GDP drops, maybe there’s an impact there in the out years. But we continue to see a lot of interest in the Pacific region. And, of course, the Mideast is somewhere that both companies had worked in historically and continue to work. Since the merger was announced in October 2018, you have been busy with divestitures. Are you interested in more acquisitions, especially as prices may drop for some targets due to COVID-19? Brown: It’s early to talk about it, frankly. We’re busy; we’ve got a lot of stuff going on just integrating the companies, stabilizing it, taking costs out, improving systems, capturing revenue opportunities and dealing with the COVID pandemic. We believe we’re adding a lot of value by focusing on building fundamentals, building a strong foundation upon which to grow over time, and [acquisitions] will play a role. It’s not on the near-term horizon. We’ve got our hands full just executing our game plan as we see it today. Your commercial aerospace businesses took a hit from COVID-19 along with the rest of the marketplace. How much of a setback is that to the business model? Brown: That business might be evolving in the future, but it’s not a big part of the company. Commercial aerospace, which is all the pilot training and academy work plus avionics, is less than 5% of the company. Roughly speaking, it’s about $500 million of revenue this year—down 30-40%, about $300 million. We do see that business under pressure, and we see that also in the pilot training side. It’s very difficult to train new pilots when you can’t have them come to your academies, or have airline pilots that aren’t flying. They’re not going to be in the training systems. So that does slow pretty dramatically. Both of you are veteran leaders and have seen downturns before, but how does COVID-19 differ? Kubasik: This is clearly one of the more significant declines. You look at all the different events over history that have caused commercial aerospace to hit a bump, and most of those have bounced back relatively quickly from events like 9/11 or SARS. This one is global in nature, and I think the whole discussion is going to be about the recovery. Ultimately, I think people are going to get back on planes and fly, clearly. We’ve found some ways to be a little more efficient with Zoom and Skype, and maybe there are fewer business trips. If everything gets back to the same way we were pre-COVID-19, we will have missed an opportunity to reimagine the future of the workplace and productivity. Brown: There are implications for the overall supply base, on both the aerospace and defense sides. Clearly we need more resilience. This has a great impact on some of the smallest suppliers on which we’re leaning to survive. This is not a temporary situation where you advance cash and things get better in three months. This is going to be a longer-term downturn, and we have to make sure that those precious small suppliers who are very vulnerable can see their way through this crisis. Larger companies can; the concern is really the smallest ones.

Just a quick comment since it was not mentioned. On BNN it was alluded that the families prefer the Rivett bid because it was seen as more aligned with the political view that the newspaper has. Something along those lines. In the grand scheme of things, peanuts for FFH but if there is a pattern than that is more problematic. I suspect this wouldn’t be a huge issue if FFH overall return would have been spectacular in the past 10 years. Which says something about us as well. When the tide is high, we tend to look past these things. Well I should speak for myself I guess. On the subs, you cannot blame FFH to prioritize FFH book value above FIH and FAH. We always said there is a permanent discount to BV on them for this very reason. Their discount to BV will widen and shrink but will never close. Even if it widens by huge margin, it is likely that the market is discounting a steep drop that is yet to come on the BV as oppose it to be a great opportunity. At the end of the day, FIH return to its shareholder will be great as long as India massive long term potential holds and exceed despite “structural issues with the vehicle”. But for that you are getting a discount. On OMERS, I like to fly on a wall in their internal meeting to how they really perceive their deals with FFH. Do they keep coming back because it is the devil that they know, or are they somehow perceive that they can get good and fair deals.

I am no expert. I think the marked down ought to happen. But marked down is not as bad as impairment that is typically not reversed back with a mark up.

It is no different than two different investors having a different opinion of a publicly traded stock, thereby moving the stock. In illiquid assets samething happens but at a very slow speed paced by quarterly releases.

Read this book eons ago. i recall it was good.

Agreed Though I should clarify that I never had a position on FAH. Only FFH and FIH. But the lessons applies to FIH as well. I am just more comfortable with India and wrapping my head around the narrative. The governance concern is common though.

They owe it to their minority investors to have a separate conference call walking through the merits of this transaction with Q&A session. That would be a right thing to do. The related Q&A cannot be 5 min of the Q2 main FFH conference call that is couple of weeks or so.

more on Toronto Star on BNN. Interesting clip. https://www.bnnbloomberg.ca/nordstar-raises-bid-for-torstar-to-60-million-days-after-rival-offer-1.1464392

Answering my own question. Reuter’s reports 1.2% of the float. Which I think was about the same last year. https://financialpost.com/investing/buffetts-berkshire-hathaway-reduces-share-count-suggesting-possible-buybacks/wcm/5ead4a26-b7e0-46e8-a107-8cacf4114584/

i don't know which extreme is worse: - buying non profitable technology story companies (don't mean big tech) knowing that a greater fool will be buy it from you at a higher price and then the music stops, and you are left holding the bag - worshipping at the alter of Deep Value; buying stuff 50 cent on the dollar and selling out at 25 cents on the dollar b/c the market forces your hand. what's wrong with finding something in between these styles. On Wilkerson, i was at the 2018 AGM in Toronto; seem like a nice guy. At the end of the Q&A session, two of the older gentlemen (who i believe were FFH shareholders from he crowd) give him a copy of what i believe was Buffet AGM letters in a book form. Hopefully he is reading those.

GPS, approx. what percentage of the float do you have in mind in terms of buyback in Q2. Something a like 3-4% ? or far less.

perhaps neither ABX nor FAH, lets go with Jumia with a $600 million market cap. :-) Fire and forget. See you in 2030. i am not as knowledgeable as everybody else when it comes to FAH, but here some broad strokes from an average joe who has been watching the collapse of Fairfax Africa in slow motion; and lets call it what it is, a collapse: - FFH with all its deep bench, simply didn't not have the needed overhead to support such a far flung operation. There is no shame into that. A lot of companies stay away from what they do not know. When was the last time, you saw a job opening on FFH looking for local talent in Africa to feed its investment vehicle. - it is fine that FAH is permanent capital, therefore not exposed to the same pull as say PE would be when client start to pull in their money, before the investment plays out. But even permanent capital is not immune, when it is trading on the market as an investment vehicle and the message that it sends when the stock takes a massive hit. What was wrong planting these seeds in Africa as part of FFH (and I believe in Africa), rather a separate permanent capital vehicle. - there was no reason for FFH to create FAH and FIH at the same time when it did. I understand FIH, given their historic exposure in India. They could have kept FAH within FFH for a while longer. - i have said this in the FIH thread, the FIH/FAH needed to have some management fee stream that gives their respective management ammunition to deploy. in absence of that the only other two source of cash is either selling a crown jewel at the wrong time or issuing stock at the wrong time. i think issuing debt without having a cash inflow to pay the interest not feasible either.

I listened to 3 of his clips about FFH, BABA and Shopfiy in the same interview. He just doesn’t like anything.

Agreed. Technically speaking though the money created by Fed is not borrowed money. They are an investor in US Gov debt. It is US Gov that is borrowing on an epic proportions from various investors (China, Japan, US public, and the including Fed). BRK cash is also partially borrowed money (float)