Munger_Disciple

I don't think this is true. Page 52 of 10-Q shows share buybacks on a monthly basis. During Q3, they bought back both A & B shares only in the month of September; A shares were purchased at a premium of just 2.8% above B shares. However they bought back an order of magnitude more (in dollars spent) A shares, so there is clearly a preference for A shares but only when the premium over B shares is reasonable. Very logical & shareholder friendly execution of buyback as always from Warren.

+1

Seems like the relations between Canada & India have gone to hell pretty fast. At a minimum Trudeau seemed to have handled it very poorly with Modi. You don't make such allegations against an important country like India w/o offering significant evidence. I find it interesting that the western allies of India US, UK & Australia have stayed very quiet.

@Viking I think @StubbleJumper explained very well the difference between our views. At a high level you are focusing on 2 or 3-year estimates whereas I am looking at what sustainable normalized earnings may look like. Your arguments about me not taking compounding into account & thus looking at FFH as a non-growing static entity are not valid. With my assumptions, I implicitly assumed FFH can compound at 10% per year by reinvesting earnings back into its business with any added P/B expansion juicing the results a tiny bit (thus adding an additional 1-2% return per annum for awhile, but not forever). And I would be happy with 10% compounded results over the next decade. More importantly, you seem to be thinking that $160 per share earnings for the next couple of years are already in the bag. This ignores a fundamental fact. Insurance underwriting is a probabilistic game. One could be right about the odds and still lose money on any single bet (or in any single accident year). You only know whether you are winning or losing in a probabilistic game with a large number of repeated trials, or in the case of an insurance company over many years covering long cycles. As an example let us say someone offers you 3 to 1 odds on a fair coin toss coming up heads. You would take that bet all day. But on any given coin toss you could lose; that doesn't mean you made a mistake in underwriting that bet. And the Kelly Criterion tells us what % of bankroll we should bet on a game where the expected value of the outcome is positive but we could naturally lose money on any single throw. Similarly, Fairfax could lose a ton of money in insurance next year due to hurricanes, fires, mud slides, terrorism, whatever; that doesn't necessarily mean that their insurance underwriting is bad. It just means that they are playing a probabilistic game. So no, your $160 estimate is not in the bag because you incorrectly assume that underwriting profit is a given in the next year or two.

To each his own

I can only conclude from your post that you disagree that one should look at normalized earnings for FFH. If so, we can agree to disagree. As I said before, it doesn't bother me that others have higher estimates for FFH & it shouldn't bother you that someone else may have lower estimates. That's what makes it a market anyhow.

@Viking I don't expect you or anyone else to agree with my estimate of normalized earnings for Fairfax. I did it for my own benefit. I try to be conservative in my estimates, and that is my margin of safety. Since I received so much value from others' posts including yours, I decided to share my view. It doesn't bother me that you have way higher & different estimates. To each his own..... I would just add a few more things: It is much more important to look at normalized earnings power than temporarily high earnings in the next few quarters for any company. None of the cyclicals like mining companies or commodity companies trade based on cyclical peak earnings for a reason. Believe it or not , insurance is a cyclical business. As you very well know, intrinsic value of any company doesn't take into account just the next few quarters. The main difference (from what I can tell) between your view & mine is that you are willing to assume way better CR for the insurance businesses than I am. I would caution you to heed Buffett's advice that almost all surprises in insurance tend to be negative. Furthermore, assuming 100CR is not the worst case scenario for insurance over the cycles, so I am trying to give benefit to FFH for their possibly improved operations. I would be happy to be wrong on the upside but it would really suck to be wrong on the downside given the high insurance operating leverage at Fairfax. Regarding valuation, I tend to focus more on the downside of any investment than the upside. You can call it a lesson learned at the school of hard knocks. If I am wrong about the upside potential, I would be delighted; it is always the left tail that bites us in the a$$. Finally I would echo @StubbleJumper's sentiment that neither you nor me are saying that FFH is overvalued. We just have different views on its cheapness.

+1 Yes, I have tried to estimate "normalized earnings" of Fairfax, not what they are in the next year or two.

Somewhat Conservative Valuation of Fairfax I know several members on this board are posting super high valuations of FFH. I wanted to independently estimate for myself a very crude, somewhat conservative (but not a totally low ball estimate) earnings power of Fairfax. Assumptions: Combined ratio of 100%. So float is cost free but there is no underwriting profit. I know people are throwing around way better numbers for CR but let us keep in mind that the goal of the best insurer on the planet (Berkshire) is to underwrite at 100CR over the cycles. As of Q2, Fairfax had cash+fixed income securities of $40.6B. Given the short duration of FI portfolio, I assume that this bucket earns 4.5% for the next few years. Fairfax has $2.4B of preferred stocks. Let us also assume that this bucket earns 7% (remember this is a crude+conservative estimate). Fairfax also has a total of $13B of equity securities+investment in associates+stake in Fairfax India. Let us assume that this bucket earns 10%. Fairfax has $8.8B of debt costing $520mm in interest payments & annual corporate overhead of $400mm. I ignored everything else (remember this is a crude estimate) and assumed 20% corporate tax rate. So I get an earnings figure of $1.9B after tax. So that gives a P/E ratio of roughly 10 for Fairfax. Pretty decent value but not as ridiculously cheap as others claim.

Can you please provide a more detailed summary? Thanks

BNSF Logistics selling brokerage business to JB Hunt: https://www.wsj.com/articles/j-b-hunt-transport-will-acquire-bnsf-brokerage-business-a7598c10

It is a Canadian company whether you own FFH.TO or FRFHF over the counter. It is the same security. There is more liquidity on TSX. But for tax reasons (all other things being equal, and they never are), it is better to hold it in a US tax deferred account because Canadian company qualified dividends are not subject to Canadian tax withholding in a US tax deferred account but are subject to Canadian withholding tax if the security is held by US resident in a taxable account.

This table is a little misleading as you are comparing insurers that use GAAP with others like FFH that use IFRS.

Yes but hurricane season just began so probably more losses are yet to come in 2023.

If Prem changes his last name to Big Watsa I think we are in trouble .

Hopefully the Sardar analogy doesn't go too far at Fairfax.

Happy Birthday Warren! We will raise toast with what else, Cherry Coke. May you live well past 100! I bought my first share in Berkshire 21+ years ago.

So I understand (from an economic interest) Prem owns 50% of 62 plus another 744K shares directly. But it also means that there are really only 1,548,000/2 = 774,000 multiple voting shares outstanding in the company but Prem gets to vote as if there are 1,548,000 multiple voting shares because of his control of 62.

I just posted the whole article (see my previous post).

Berkshire Hathaway Inc. bet big earlier this year that Florida’s reinsurance market would deliver huge premiums with minimal losses. Hurricane Idalia is about to offer a test of that calculus, with months of potential storms left this season. Warren Buffett’s firm ramped up its reinsurance exposure to the state, looking to take advantage of rising prices. The move has left the firm exposed to as much as $15 billion of losses in the event of a major storm, Berkshire’s head of insurance said in May, while it could lead to several billions in gains. “We have a very unbalanced portfolio,” Ajit Jain, vice chairman of insurance operations, said at the conglomerate’s May investor event. “What that means is, if there is a big hurricane in Florida, we will have a very substantial loss.” A representative for the company didn’t respond to an emailed request for comment on Tuesday. The riskiness of the approach is coming into focus now as Hurricane Idalia bears down on the state’s Gulf Coast, where it’s expected to make landfall Wednesday. Water temperatures are warm enough to set the storm up to intensify further before then, however the sense is that it still won’t deliver major losses for insurers, and thus won’t be a big blow for Berkshire’s reinsurance business. The Atlantic hurricane season runs through November. Depending on its path, Idalia is forecast to cause a fraction of the cost Hurricane Ian inflicted when it struck the state in September as a Category 4 storm, killing at least 150 people and causing more than $112 billion in damage. “I am skeptical that this will impact them much,” said Matthew Palazola, an analyst at Bloomberg Intelligence. “This event is not what they were describing when they were talking about a worst case.” Reinsurance capital has been hard to come by in Florida due to the severity of losses from insurance fraud in the state. When policies came up for renewal on April 1, “prices zoomed up again” and created a window for Berkshire to deploy capital, Jain said at the event in May.

Bloomberg article on Berkshire's exposure to FL storms: https://www.bloomberg.com/news/articles/2023-08-29/buffett-s-bet-on-mild-florida-storm-season-faces-test-in-idalia?srnd=premium#xj4y7vzkg

If the homeowner carries a mortgage, he is required to purchase homeowner insurance.