Thrifty3000

In addition to a cash buffer I like to keep an untapped HELOC handy. If I need cash at a time when every security in my portfolio is substantially undervalued (like 2020) then I’ll just draw on the HELOC - for a few years if necessary.

Starter position in Sky Harbour common below $10, and warrants below $1.40. Bought a little more FFH in Feb and again a couple weeks ago during the yen turmoil. Also, during the VIX spike I sold McKesson calls for around $25 and bought them back a week later for about $.60. (Sell high, buy low)

I go back and forth on whether to use an average of the common and diluted count since not all dilution will actually occur. But, we know that more than 0% dilution will definitely happen, so I don't let myself use the common.

I think the main difference between your near term estimates and mine is that I use the fully diluted share count (since it hasn't been declining as quickly as the common share count). If I used the common share count I think our EPS estimates would be within a couple dollars of each other's for at least this year and next year.

IIFL getting caught up in another scandal. This time it involves the chairperson of SEBI. Too much corruption… https://hindenburgresearch.com/sebi-chairperson/

When Charlie Munger and I buy stocks — which we think of as small portions of businesses — our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. What will the next 10 years of FFH earnings look like? Will it be the dreaded earnings cliff, where interest rates round trip to the zero bound, FFH hedges equities, combined ratios edge back towards 100, and maybe the Canadian Government raises corporate taxes or a string of mega-cats catch FFH completely by surprise. That nightmare scenario may look something like this... Or, if you're the perpetual optimist, then maybe you assume that after a decade of carefully and deliberately structuring its management team, insurance business and investment team for a future sans Prem, that the "new Fairfax" is finally geared to achieve its dual mandate of a 7% portfolio return and a 95 combined ratio. Maybe your crystal ball foretells this happy future... Or, if we can assume with 80% confidence that real life will land somewhere between our best and worse cases, that some results will turn out better than feared, and others will turn out worse than hoped, then maybe we can assume a result that falls somewhere reasonably between the two - and invest with conviction when Fairfax - as it is today - is fairly priced for even our worst case scenario. The base case... ^ I think a job well done for a value investor is to follow that approach diligently and consistently. Much easier said than done! PS. My forecasts above are necessarily rough and change constantly as new insights arise.

If you want to get rich, concentrate. If you want to stay rich, diversify. If your goal is to own an asset that will pay dividends to your great great grandchildren, while also paying dividends to future generations of Watsas then your interests are probably well aligned with FFH. If you want maximum near term financial engineering to boost share prices so you can flip your shares to the next impatient “investor” then there’s probably more disappointment to come. IMHO, FFH is best viewed as the Watsa and friends family office. A family office wants the best long term - multi-generational - risk adjusted returns.

IDBI Bank IDBI Market Cap: $12 billion USD (FFH Market Cap: $25 billion USD) IDBI Net Earnings: $670 million USD Market Cap at time the sale was announced in 2022: Approx $8 billion Amount being sold: 61% (Currently worth $7.3 billion) Fairfax India Total Assets: $3.6 billion IDBI 3 Year Net Earnings Trend: ^ feels like this is way bigger than Fairfax India and I have a hunch Prem is going to want all he can eat of this one. This is an example of a deal with a high probability of being a better use of funds than share buybacks. If bank performance is largely a reflection of the region's economic performance, then I'd love to own a good bank in the world's fastest growing economy.

What was the gut instinct on the pet insurance business back when FFH entered that one? Personally, as far as business concepts go, I assumed pet insurance ranked right up there with tanning beds for babies. Turns out the FFH investment team saw something I didn’t.

^ feels like an important thing to nail down

+1 Where might that $1b+ come from if they're using free cash to buy back stock.

I stand by it until someone posits a better explanation! Never forget, correlation is causation!

I thought it was perfectly obvious what's been driving FFH price action since Jul 31...

Aww shucks... Thanks!

I’m curious if any of his buddies in Japan gave him a heads up that it might be a good time to reload the elephant gun.

Also, to Prem's $125 you can add expected equity portfolio mark to market gains over time and make adjustments to factor in a shrinking share count. $125 per share of earnings when there are 23 million shares becomes $137 per share of earnings after the share count is reduced to 21 million.

I totally agree. I think anchoring and pre-conceived notions about FFH are the major factors holding prospective investors back. To shed some more light on how impactful the key variables are when estimating FFH's fair value, and to show how incredibly cheap FFH is currently, here is a summary of a DCF analysis showing Base Case, Worst Case, and Best Case scenarios - along with several of the most important assumptions driving each outcome. You can quickly see that even the MOST PESSIMISTIC investors will likely earn a respectable return if they invest at the current stock price (even if FFH performs abysmally with insurance and investing AND if taxes are raised, etc). You can also easily see that FFH doesn't have to do anything heroic to generate a TON of wealth for shareholders over the next few years.

If investors assume the portfolio earnings yield and the combined ratio will regress back closer to what FFH experienced from 2010 to 2015, then they'll be plugging in something like a 4% portfolio yield and a 97 combined ratio into their DCF models (I think the portfolio actually only yielded 3% during that time). If I plug those assumptions - a 4% portfolio yield and a 97 CR - into my DCF model it spits out a present value that's actually pretty close to the current stock price. Of course, I think the portfolio will do better than 4% and I think a 97 CR is probably a bit too conservative, so my best estimate of fair value lands closer to $1,800 per share.

Yes. And when the share count hits 20 million, that $125 per share of “current” earnings power will increase to $143 per share (and that’s without any increase to operating earnings or investment gains). It’s simply the power of share buybacks. With the share price around $1,000, this opportunity to buy dollars for fifty cents should work out pretty well.

In terms of the cause of today's volatility, if the simplest answer is the most likely one, then I'd say today's surprise economic data increasing likelihood of a .5% rate cut in September is the main culprit. However, it's important to remember that if buying treasuries yielding more than 4% was phase 1 of FFH's ideal portfolio repositioning effort, then, according to Prem, the next phase of unreal performance will happen when recession fears cause high grade corporate bond yield spreads to blow out - so FFH can pick up yields over 6%, at which point heretofore unimaginable amounts of cash will rain down on FFH. Volatility like what we're seeing today is our absolute best friend.

Even if a company’s earnings don’t grow, if: - they buy back 10% of their shares then EPS will grow by 11% - they buy back 33% of their shares then EPS will grow by 50%! Now, the real magic happens when a company’s earnings are growing AND the company is buying back at a low multiple to those earnings. At FFH’s current rates we’ll be looking at $200 normalized EPS in no time.

For anyone that may not know how buybacks are accounted for on the balance sheet… When a company buys back its own shares, or repurchases shares, it impacts its balance sheet in a couple ways: Cash The company's cash balance decreases by the amount spent on the buyback, which is reflected on the balance sheet as a reduction in cash holdings and total assets. Shareholders' equity The company's shareholders' equity decreases by the same amount as the cash reduction, which is reflected on the liabilities side of the balance sheet. This is because the treasury stock account, which is used to record the transaction, is a contra-equity account that reduces shareholders' equity. The accounting entry for a share repurchase is as follows: Debit: Treasury stock for the amount paid to reacquire the shares Credit: Cash for the amount paid to buy back the shares For example, if a company buys back 10,000 of its own shares for $15 per share, the entry would be: Debit: Treasury stock: $150,000 Credit: Cash: $150,000 ^ Once a company buys back meaningful amounts of shares, like Fairfax, then per share metrics, like EPS, become more important, and book value metrics, like ROE, start getting distorted (especially if shareholders equity turns negative). Investors that have conditioned themselves to focus on book value growth - thanks to Buffett’s and Prem’s historical emphasis on BV - rather than EPS, will think FFH is underperforming. As long as FFH is buying back below intrinsic value then it should have a VERY positive impact on EPS growth.

If FFH is going to report this in the opening paragraph: "Book value per basic share at June 30, 2024 was $979.63 compared to $939.65 at December 31, 2023 (an increase of 6.0% adjusted for the $15 per common share dividend paid in the first quarter of 2024)." then they should probably also include the amount spent on buybacks in that paragraph. Just like when Berkshire is buying back, book value stops telling investors the whole story.

VERY BIG clues about the investment opportunities at Sleep Country in ZZZ’s Q1 conference call transcript. Key Points: - They have 305 stores - They are opening at least 6 new stores this year - they have a long list of locations they want to open new stores in as soon as space is available. They said the constraint isn’t on their side, that the constraint is finding landlords with space in their desired locations. (Curious if Kennedy Wilson might have any helpful connections here.) - they historically renovate 20 legacy stores annually - over the last 7 ish years the renovated stores experienced average revenue increase from $1.8 mil CAD to $2.4 mil, which is 30% growth (HINT: what happens after renovating the 170 ish stores that haven’t been renovated yet?? What if they renovate immediately instead of waiting 7 more years?? Why would you wait 7 years to increase sales (market share) by 30%?!) - they are testing several concepts that show even better prospects than the existing renovation! - First, they have rolled out a “store in a store concept” that sells higher margin cash and carry items. In their pilot stores the new concept takes up 25% of the floor space, but has generated 35% of the revenue (so it’s not only more revenue, but more importantly, it’s higher margin revenue!). I’m going to make an educated guess that this concept can generate closer to $3 mil revenue per store. - Second, they are rolling out 2 pilot stores this year that they are calling their version 4.0 stores. Obviously, they hope the pilots will generate even higher volume than the version 3.0 concept they’ve been migrating to for years. Hopefully these prove capable of generating at least $3 mil revenue with higher margins. - another nugget… on the call they said the reason they pay out 40% of income as a dividend is because their North American competitors have an average dividend payout ratio of 35%. Well, what do you think happens when ZZZ no longer has to follow the institutional imperative with their divvy policy? #growth Now, if three or so years from now every one of Sleep Country’s stores have been upgraded, all the while Sleep Country has been able to increase marketing spend, then what’s going to happen to their Canadian competition? They get squeezed! Next thing you know, FFH will be buying out the competition for a song, converting those stores to version 5.0 or 6.0, extracting even greater margin, and enjoying even better than 15% growth, until a private equity buyer comes along and begs FFH to sell Sleep Country for $10+ bil!