MMM20

My main question is whether reasonable investors are even paying attention. And their tax situations!

One question for anyone else who might try to get cute and round-trip this one. How long does it take to actually receive the cash proceeds in these SIB processes? I saw a couple posts on the Fairfax India board that suggested the cash hadn't hit some accounts even 10+ days later, seemingly dependent on the broker (IBKR sooner, Schwab later). Anyone know?

Ok, so here is the part (see pg 44-45) that I think is most relevant to my situation, in case this helps anyone else. Nothing in here that changes my prior assessment of the current opportunity. Don't come for me if you get stuck with a fat bill.

Thanks. I definitely skimmed over that whole section earlier. Time to sharpen the pencils!

Got it, makes sense. BTW I just found the below on Brookfield's website. Hope it is safe to assume this applies to this FFH situation. Withholding Tax on Dividends Under Canadian domestic law, dividends paid by Brookfield Asset Management Inc. to a non-resident shareholder are subject to 25% withholding tax. Generally, the Canada – U.S. Income Tax Treaty will reduce the rate of dividend withholding tax from 25% down to 15% for a resident of the United States. Where the U.S. resident owns the shares of Brookfield Asset Management Inc. in a 401K, IRA or similar plan, the Canada – U.S. Income Tax Treaty will reduce the rate of dividend withholding tax to nil. https://bam.brookfield.com/stock-distributions/tax-information

Got it. I know you are not my tax guy, so feel free to ignore this. But that is an issue only for Canadian residents, correct? Or will they come after USA residents if done in a taxable account? Sorry if this has already been discussed here.

I might also be too dumb too understand what’s happening here. Usually when I think there's blindingly obvious opportunity to pick up big alpha, it turns out I was just missing something. Why shouldn’t I load up at $450 and, idk, maybe buy some TSX puts, to tender in <10 days? Why shouldn’t I go full Munger and sell all my BRK, index funds, etc in my retirement accounts to raise as much capital as possible for what will almost certainly be a ~10% return? (famous last words, i know) This now feels like a repeat of the Fairfax India SIB where there turned out to be a big opportunity to load up and tender right before the deadline. Is it not obvious based on the funky shareholder base, tax incentives, low trading volume, still-near-all-time-low valuation (even at the high end of the range), etc., that the tender will almost certainly happen at or close to $500? A la $14.90 with Fairfax India not even 6 months ago. Unless the world falls apart over the next week, I guess? Is it simply that the bank prop desks are dead and everyone’s pulled money from the arb hedge funds to buy more FAAMNGTklsjgs? Are flows around the Fed decision (and/or insurance specifically with the tornadoes?) really just pushing this down to $450 when $480+ would clearly make more sense? Is that you, Mr. Market? I'm not afraid to pick up free money if I see it. Just want to be sure I'm not picking up nickels ($100,000 bills?) in front of a steamroller. Where are the arbitrageurs? What am I missing?

Maybe it’s naive but I’d be much more concerned about the Fed if FFH was already trading at 1.5x book.

FWIW, sell-side seems to be getting more, I don't know, realistic? Earnings exploding, valuation on any metric still near all time lows, and now Scotiabank says half of intrinsic value. Can the momentum traders pile in now please?

Got mine from Fidelity today (Schwab and TD last week)

Plus I wonder if the technology ultimately gets commoditized and drives down insurance pricing across the board to the benefit of customers but not necessarily Fairfax. Too negative? Maybe they can cash in first...

Agreed, but why not give them full credit for their ~74% of Digit, so more like $100/share there alone? Why discount it so heavily? b/c Indian markets running hot? What am I missing?

how do you account for something like Digit in this framework? I know they are just now (supposedly) flipping to break even so no major contribution to look through eps, but I feel like it could be analogous (on a much smaller scale I admit) to leaving out aws from Amzn valuation years ago. it’s more ‘explosive growth high tech investment’ vs ‘new insurance subsidiary’ IMHO. I truly still can’t believe there is this 15x investment, $2b+, now-also-sequoia-backed hypergrowth long runway type of investment inside fairfax. feels like it’s still under the radar and needs more attention and some consideration in all SOTP-ish valuations til proven otherwise. maybe the answer is just that FFH is truly now worth 1.5x bv?

Seems like a not-super-improbable upside scenario in which FFH BVPS is up ~$30-50/sh (?) next year from this alone

VIC write-up on Eurobank by miser861, who I believe is Quincy Lee of Ancient Art/Teton Capital (check out the Santangel's Review feature on him from a while back). Will this turn into a big winner for Fairfax? Hey, would be nice. https://www.valueinvestorsclub.com/idea/EUROBANK_ERGASIAS_SERVICES_A/7217319524 "So once this train wreck is cleaned up, we have a bank that trades for .6x tangible book value. It’s not the cheapest the stock has ever been, but it’s the closest it’s ever been to resolving its balance sheet problems. I don't want the whole fish, I just want the fillet. It’s earning €1 billion of core pre-provision pre-tax income. In a recovery year I don’t think it’s crazy to assume 1% provisions per year (€380 million). So Eurobank could earn €.13/share in a year or so. So today it trades for 6.5x one year out EPS. It seems possible that the stock could double in a year or so. And I think there is good downside protection from the low price/TBV and the trajectory of NPLs, and a likely recovery in tourism. I’ve thrown out a lot of numbers but the bottom line is this. There’s a rotation into value going on. There’s nothing more value than Greek banks. Greek banks were value before value was cool."

Agreed, added today too. Maybe the smart move is to size up FFH to the point it’s borderline uncomfortably big and also buy some OOTM puts on a broad index to hedge the ‘world falls apart’ risk

True, I'm assuming it'll be undersubscribed. i think that's a fair bet but of course won't necessarily be the case.

Makes sense. Only question is how we handicap the risk of a material modification to the terms at this point? I know deals break all the time in sharp down markets but I have a hard time seeing that here unless things truly fall apart over the next few weeks. But stranger things have surely happened. I own a lot (for me) and plan to hold for a long time. But might size it up even more for short term trade.

With odd lots first in line, why wouldn’t I tell all my friends to buy 99 shares at <$450 to tender at $500? Of course the deal could be modified but seems like the closest thing to a guaranteed 10%+ return I’ve seen, admittedly not necessarily scalable!

"Digit Insurance aiming for deeper market penetration" https://telanganatoday.com/digit-insurance-aiming-for-deeper-market-penetration

Out ahead of that, no? "Berkshire Hathaway Energy is growing its renewable energy portfolio and continues to de-risk its balance sheet related to carbon-based generation assets. As of December 31, 2020, only 6% of our overall net investment in property, plant and equipment was invested in coal generation assets and 6% was invested in natural gas generation assets" https://www.brkenergy.com/assets/pdf/eei-presentations/2021-eei-presentation.pdf

And sell Digit just in case it’s really a 10-50 bagger from here. Wouldn’t want that sort of concentration. The models tell us that’s too risky.

Sort of off topic but it’ll be interesting if this characterization is still out there if Digit doubles its business over the next couple years and is raising money at a $10B+ valuation. Might be a low probability event but then suddenly you’d have a massive winner “hottest indian startup” inside of a maybe still “poorly constructed/capitalized” FFH at like 5x earnings. I’m probably too bullish on Digit but you must admit it’s a wild setup. That sort of option value seems mispriced IMHO even at $500, but hey, maybe digit ends up a 0 and the crap reverts. Who knows. Or maybe FFH buys back 30-50% of the company over the next couple years with “stunts” + operating cash.

Maybe FFH buys back 20% of shares outstanding over the next couple years, eh? Sure it’s not $50B but in relative terms it’s about the same magnitude. FFH remains small enough that a puny few billion can move the needle. Remains to be seen whether the operating earnings come through in a big way next year so they can fund it without creative financing. If it turns out that way… well, maybe we’ll live to see 1x bv.

So 2021 year-end BVPS might be ~$800/sh? Can that be right?