MMM20

What if 2x BV is still a discount to IV? Ultimately don't we want their CoC to be fair? Match rate to risk!

Sounds horrible to think of it as a major growth area over time but it’s seems like that’s the reality. Just need to match rate to risk and avoid the blowups, right? Rich people aren’t gonna just stop living in south Florida anytime soon. One reason FFH will never be an ESG darling and so I think the share count to continue to shrink with buybacks at 20%+ ROIC.

Ive argued here that the lower multiple is justifiable from a permanent owner perspective only insofar as there is a wider range of outcomes, ie real scenario of close to 0 return for a decade in a worst case scenario. But the flip side is that with FFH’s higher float-based leverage, more idiosyncratic investment portfolio, and short duration fixed income starting point, the upside scenarios are much higher than a BRK or a MKL from this point. It is up to how you consider and weight the various scenarios but I think FFH’s intrinsic value to a permanent owner is now roughly the same as those peers, and that’s an opportunity for the permanent owner oriented value investor. More specifically, I put IV at $1500-2000/share, or a ~7-10% FCF yield — with many good reinvestment opportunities, not the least of which is buying back their own stock, such that the median total return on a per share basis would pencil out to a fair low teens ish from that price. I am wrong all the time and could end up looking dumb, but also very happy to own a bunch of this indefinitely alongside things like BRK, tobacco, plain vanilla indexes in my retired parents accounts. Not investment advice.

I just want to add that FFH is now trading at something like 5x what seems to be its sustainable (albeit year to year volatile) underlying free cash flowing power, or like a 20% yield. That ~5x is what matters economically and is, what, roughly a third of peers like BRK and MKL? Book value as an accounting concept seems to obfuscate that reality for many who look at the stock.

Thanks for the good reminder to trade as little as possible. Whenever I’m about to buy or sell, I like to picture Ken’s $100mm (guessing) Miami mansion and think twice. I see FRFHF as a solid core holding going forward and suck at timing so need a damn good reason to do anything but let it sit there.

@Wilmesbm I believe Fidelity is still $0 cost on FRFHF

Same here. If you don't cringe at yourself looking back 5 or 10 years, then maybe you're not growing enough. That said, treat your former self with grace

I wonder if there's any plan to preserve Buffett's office as a museum after his passing. Free entry for shareholders.

Right. If I'm understanding correctly, this gets at the concerns around alignment of interests. While FIH have clearly made shareholder friendly decisions recently, it seems like in the longer run FFH's incentive skews toward FIH getting bigger even if maybe at the cost of higher per share returns. That's not the case in FFH where Prem has the vast majority of his wealth invested and would like to regain majority voting control and it's all about compounding on a per share basis. So even if FIH's underlying returns are good, that could be one reason why they're not as good as they could be and the discount to NAV stays wide. Is this characterization unfair?

The ethics stuff reminded me of one of my favorite business books: The Billionaire Who Wasn't: How Chuck Feeney Secretly Made and Gave Away a Fortune https://www.amazon.com/Billionaire-Who-Wasnt-Secretly-Fortune/dp/1610393341 “If you have the right heroes in life, you’re 90% of the way home. Chuck Feeney is a good hero to have.” - Buffett

The part I always refer back to is below. I think their sort of business ethics will prove enduring and the top down bureaucratic version en vogue these days will fade away. The sociopathic and psychopathic CEO types *should* be called out and shunned - maybe that’s the bright side of all this - but Berkshire should indeed be viewed as a national asset, and it will be by enough of us. Maybe that’s wishful thinking. Buffett: Charlie Munger: Warren Buffett: Charlie Munger:

The Real Story of Buffett, Berkshire, and Tobacco https://invariant.substack.com/p/buffett-berkshire-tobacco

Ah yeah makes sense — I must’ve seen the ~$2.4B ish and now ~$3B in the FFH accounts and just remembered that. I know ~$4B ish is the total FFH minority interest so should’ve figured that could be it. I haven’t looked much at FIH standalone so I wasn’t aware of the exact size of the overall pie. My bad! Ok, so then my question is why FFH hasn’t yet bought more FIH, since FIH is trading at such a discount and FFH has flipped to generating lots of cash. I believe Digit is economically a ~$3B fair value for FFH at this point if you believe the press reports about the potential IPO. Now I know that dwarfs FIH and yet Prem isn’t buying more FIH. I know FIH is buying its own stock so FFH’s % ownership is increasing. Does it make sense to buy more FIH when Prem himself buys more? What am I missing this time?

From latest FFH report — “Fairfax India cash, portfolio investments and associates (fair value $3,079.1; December 31, 2022 – $3,079.6; January 1, 2022 – $3,336.4)” Seems like ~15% of FFH NAV. ~5% of the nearly $60B total investment portfolio including cash and the like… but effectively lots of (good float) leverage on their equity investments. It’s a meaningful allocation for FFH, economically like a ~15% exposure. Am I thinking about this wrong?

+1. FFH is now trading at like 5x earnings and things have really seemed to line up for them. With FFH you also get both the Fairfax India assets *and* others… the potential issue with FIH is that FFH can cherry pick the best assets — like Digit which is in FFH but not FIH b/c it’s an insurance company, I guess? And Digit was prob most squarely in FFH’s circle of competence and has worked out the best so far, right? So in FFH you have full alignment with Prem purely in terms of where his capital is invested *and* arguably his best India investments + the FIH holdings. That said, I would prob swap some FFH into FIH if the valuation discrepancy got wide enough and/or I got really bullish on India and less so on Atlas etc. Short answer = with FFH you get Fairfax’s pretty big as a % of NAV (~15%?) investment in FIH plus others (maybe their best) + full alignment with Prem + valuation much cheaper on cash flows

Thanks @Parsad for the confirmation and insight.

Do you think it’s fair to ballpark a Hurricane Andrew scenario at $500mm-$1b in losses for FFH? In other words likely much less than 1 year of run-rate interest and dividends at this point.

Ah ok, I must’ve misunderstood. I wonder if FFH’s analogous worst case would be about 1 year of interest+dividend income at this new run rate. Maybe I’m way off!

I should really have a more precise sense of that but i guess I put that in the known and manageable risks bucket. [removed incorrect comment on BRK FL exposure] Maybe my glasses are too rose colored, but it seems like from FFH’s current position of strength and generally more long tail oriented exposures, that would of course mean volatility in the stock but might even be accretive to intrinsic value by magnifying and extending the hard market as others retrench further. Wonder if others here see it differently.

Same here. Added a bunch in the low $690s and it was already my biggest by a lot. I’m having trouble recalling a better setup. Hope we’re not missing something. Not investment advice.

$900-1000+ USD stock would be in line with the post-'08 average P/B multiple of ~1.1-1.2x when you adjust for gains from Brit, GIG, and Digit. BVPS is really ~$830+ USD and ~$850+ fully marked to market. Intrinsic value is clearly $1500-2000+ USD.

I think it's also worth highlighting that they bought back 0.7% of shares last quarter and still didn't unwind the total return swaps. There are attractive alternative uses of cash right now, but seems like the Teledyne plan is still on track.

That a majority stake in BIAL would likely trade at a significant premium to that valuation. Everything else is likely valued at a large negative number.

Yup. Looking more and more like (good) endowment style portfolio management. Market is slow to recognize the value of that for high incremental return opportunities across asset classes and geographies. KW stock may or may not be cheap but what we can bank on is that they’ll bring FFH good coinvestment opportunities that may arise from CRE distress, and FFH should have $2-3B+ annual cash flow to allocate to such things over the next few years at minimum. I could see them doubling their capital allocated here over the next few years if things break a certain way.