MMM20

I wanted to close the loop. I sold ~10% of my FRFHF around ~$1,200 to close the margin from buying HIFS then (and to buy SILA now which looks like a fat pitch to me). FRFHF remains my biggest position by ~3x, and I'd keep a large core position at ~$2,500 if it went there overnight. This still looks like the best thing out there, but I'm probably too conservative with sizing and it's a risk management decision that I hope I'll regret.

Interview with Sumeet Nagar of Malabar Investments https://economictimes.indiatimes.com/markets/expert-view/go-digit-to-be-a-great-compounding-story-for-next-10-15-years-sumeet-nagar/articleshow/112674261.cms?from=mdr Q: Let us talk about Go Digit. Now it is a manufacturer. It is manufacturing insurance. I am just bringing it for our viewers, but it is selling that product digitally, that is the difference. But insurance is a brutally competitive space. And if I look at, let us say, the general insurance space, I understand a bit, there are about 20 players and only top five players are making money. How can a small player, which is only selling insurance online can actually make money? A: So, the Go Digit name may be somewhat misleading. So, while they are using technology very well and their internal backbone is all on new tech, it is very-very digital. The selling of insurance in India, if you want to be mainstream, has to be done through agents. But again, technology can allow you to do that a lot more effectively. So, from that perspective, they are like any other traditional player, but just technology is allowing them to do everything far more effectively. So, their ability to come up with new policies, new designs, that is better than everybody else because of the technology benefit, their ability to provide flexibility to agents on pricing, for example, is far better than other insurance companies and because the company was built during this new tech stack, it is far more efficient compared to the others and that is why despite the size, they have been profitable for quite some time. And I think there, the important thing is to look at the IFRS accounting because the GAAP accounting actually does not do a good justice to insurance companies where you are investing or getting customers for many years, but you expense that upfront. So, it sort of depresses your profitability. They have been the fastest growing insurance company. Insurance is a business that is still very under-penetrated in India, has a long runway for growth. It has a huge TAM and within that, you have one of the fastest growing players. So, we think this is a great compounding story for the next 5, 10, 15 years and that is the reason why I had invested while the company was private. We added more into the IPO and then post that.

Yes. I passed around $2-3 a few years ago and it’s looking like a pretty bad error of omission. There’s a good amount of research floating around out there. I think I heard of it from Dave Kim at Scuttleblurb.

Where are the posts about the extreme volatility of the past two weeks?

This probably comes out to something like ~11-13% total returns if the stock derates to ~1x BV over those ~15 years, depending on how much capital they return to shareholders (and how). My expectation (ok, wild guess) is that sort of return would still end up at least a few percentage points ahead of global indexes. Maybe ~2x BV or mid-high teens on earnings is fairer right now across scenarios. Someone tell the robots!

Interesting to see S&P 500 index fund now at ~4% of their 13-F portfolio. Anyone know what's going on there?

I don’t follow your logic at all. How do you value a business if not on discounted future cash flows? The future cash flows are what matters, not the accountant’s view of history. Like how do you own Fairfax without focusing on the earnings power of the business? And have you considered the possibility that Fairfax shares have just traded at a big discount to intrinsic value for most of the past 30 years? You don’t even need the stock to rerate - you just need the company to agree and keep buying back the shares below intrinsic value. Even if it never rerates you end up with a great outcome and that’s exactly what’s happened here! Im still convinced a major reason FFH still trades how it does despite the obvious step change in normalized earnings power over the past few years is that even the smart money is focused on an essentially irrelevant accounting construct more so than in any other business I’ve ever come across.

I just added for the first time since Sept 2020. I'm not a trader and I'd let it sit there for ~4 years = ~17%+ CAGR and seemingly cheaper nowadays. I still own ~10x as much OG FFH but I love the setup in this one too now.

Great post. Yeah this little drawdown has me missing the good ol’ days a few years ago where everyone just knew Fairfax was shit so didn’t bat an eye when the stock went down, b/c of course it would - Prem was a bum and rates would be at 0 forever and they’d keep losing hundreds of millions shorting. Some might need to lighten up their position a bit and/or touch grass!

We are talking about a 10% ish drawdown. This happens like twice a year. If this is causing you pain and suffering, you’re probably too big in Fairfax. I thought Charlie was talking about the ~50% portfolio drawdown that we’ll all go through at some point.

Isn’t that only true if credit (and equity) spreads widen out? Unless it also gets cheaper for new supply to come on and soften insurance, the fair multiple (discount rate) for FFH might go much higher (lower)! It’s a long duration business even if not priced like it!

It’s statistical noise - but also isn’t Fairfax still restricted in buying back stock until today or tomorrow?

The answer is probably “volatility” but I also own HIFS which was up 6% today (and 30% over a few weeks) seemingly because the yield curve is finally coming close to de-inverting. I wonder if it’s as simple as the marginal buyer/seller thinking Fairfax loses as short term rates come down, combined with the fact that they’re in the quiet period so not buying back stock?

Is ZZZ a good business? It doesn't screen that cheap vs ROIC which is nothing to write home about. Can someone please explain why this is a good use of capital? Do Canadians not buy mattresses online? I'm a bit baffled.

Tidefall LP - Q1 2024 Letter.pdf Our guy @hardcorevalue did a nice job highlighting the opportunity here in his Q1 letter.

Wow. Is that really a ~75% premium?

Is that amount of incremental price-insentitive demand for shares (~5%?) typical for a major index inclusion? I do think you're probably on to something with how tightly held the shares are by long-term shareholders.

Bueller? Bueller?

Can anyone explain why specifically index inclusion would be a major catalyst for Fairfax? I’ve seen a bunch of examples recently where stocks have gotten into major indexes and then dropped, or vice versa. Is there something about Fairfax and/or the Canadian markets that makes it an especially strong thesis?

Wondering what the board makes of this... Prop Cat Is Significantly Underpriced This Year https://iansbnr.com/prop-cat-is-significantly-underpriced-this-year/ "One of the great mistakes of the financial crisis was mortgage underwriters and investors thinking they would be OK because their models told them what a bad outcome looked like and that they would be OK under that outcome. The problem, of course, was the models accounted for 'normal' stress and not an extreme stress. I fear the same thing is happening this year in the prop cat market. Underwriters are ignoring the elevated risk of a historically active season and continuing to price off the cat models. You would price the odds of who wins the Presidential election differently before the debate vs. afterwards in response to new information. Well, we have lots of information that suggests it won’t be a normal hurricane season, so why are reinsurers pricing cat treaties like it is a normal year?"

Boom times are back for container shipping https://www.economist.com/business/2024/06/27/boom-times-are-back-for-container-shipping "If the Red Sea remains rough until later this year, the extra demand [from rerouting around Africa] could more or less soak up the growing fleet, whose capacity is poised to expand by 8% this year. If the Houthis stand back sooner, it would leave many of the new ships idle. What of future years? Vincent Clerc, Maersk’s chief executive, concedes that overcapacity is again one possible outcome. Already many of Maersk’s rivals are using the unexpected windfall to order new ships. But Mr Clerc remains optimistic that oversupply can be avoided if shipping firms delay taking vessels from lessors and scrap older ships sooner—not a bad idea as they green their fleets to meet emissions targets. Although things are likely to stay 'volatile and unpredictable', that could still mean 'a decade of robust market conditions' for the industry. Spoken like an old salt."

Even if it’s from FFH, that’s like half a day of earnings, right? Maybe I’m too cynical, but that seems cheap enough for good PR in a important country for them.

Thanks. I assume you are referring to the Ensign Energy TRS @Hoodlum.

Wait, when did that happen?