This2ShallPass

Thanks. For Freddie, would that be FMCKJ (8.375% non cum)? Also, do ppl here buy a basket of preferreds or just the highest dividend one? Not sure if the various preferreds have different conditions.

I have the common, bought more as a lottery ticket. Now thinking of converting to preferred. Which preferred is better, I want to buy both Fannie and Freddie..

Is that Fairfax India making a move? Wow finally Doubt it, the timing is an election driven rally, probably tied to Trumps' pro India messages (we all know he'll flip on a dime, but will take the 8% pop!). This one is mostly done, the optics of a Canadian company winning one of the high profile deals will be too much for Modi govt. I'm also ok with not winning this one, too big for FFI.

Losing 40% of your pf won't change your life? If that's the case, then taking big swings is ok...you might be at a point in life where investment returns are not meaningful enough for your personal wealth.

30+% in one company is a large position. There's some position where it does become risky, no matter how confident you are about the company. The world is constantly changing, you will have curveballs. Things that are completely outside your ability to predict will happen and sometimes even outside the control of the company. You don't want to get knocked out of the game when something like that hits. And, Fairfax is not Berkshire or Costco. They have done nothing but make great decisions these past 5 years, but they do tend to take big swings, positive (GFC) or negative (hedging). Do you think it'll happen in the next 6 months or so? We have been waiting for it for a while.

How do you all feel about position sizing? It keeps getting bigger for me and is now at 33%. Starting to get a bit scary, I have trimmed once and thinking of bringing it to 30% again..but my cash is also starting to pile up.

I bought Exco (following Chou) when it was ~$0.7. Then in a moment of dumbness sold it for a good % gain ~$5.5 (but $ wise less as I had a small position). Should have just let it ride, now we cannot buy Exco, brokers only allow closing. Here's what Francis Chou had to say about Exco in his semi annual report. Might give you another perspective on value. "In early July 2019, the company emerged from bankruptcy and the 1.75 lien term loans were converted to 28.38 equity shares for every US$1,000 in par value, after netting out certain adjustments. The equivalent price was US$9.51 per share of EXCO. Since it is a private company, I am not at liberty to divulge the latest financial statements, but what I can tell you is that my calculation of its PV-10 value was more than US$1.8 billion (roughly US$38 per share) based on the New York Mercantile Exchange (NYMEX) forward pricing as of December 31, 2023, and the net proved reserves were 2.9 trillion cubic feet equivalent. Its number of outstanding shares as of December 31, 2023 was 47,386,708. We estimate its EBITDA for the year ending 2024 will be between US$200 million and US$250 million. As a comparison, in 2018, the PV-10 value was US$750 million. As of June 30, 2024, the share of EXCO was valued at $21.05 by Kroll, an independent third-party valuator."

Nice post. I didn't think about the China +1 angle. Can you elaborate more on the bull case for 10 bagger? What assumptions get you here, is it the $5-6B BIAL valuation?

Wow..you have been one of the longest bulls here. But I hear you, I reduced by 30% as well. The relative underperformance (vs. how well India has done) is staggering. Also, some real headscratchers on strategy. BIAL is a true crown jewel asset and I'm hoping for IPO soon (maybe more wishful thinking). I'll be fully out after the IPO. Be careful what you wish for Minority investors have never done well (some may say screwed over) on Fairfax takeouts..

"Bottom 6 positions all worth only 10% of pf ($270M total, equal to Sanmar). They're all slow growers / bad industries - discount rate ranging from 13 to 28% and growth rates 1.5-5%." From their last quarterly report @SafetyinNumbers. Btw, can you explain what their strategy is when they buy a $50M company one year and going for $5B next year?

Bit of a headscratcher when they're in the bidding for IDBI. Last 3 companies they bought are small and industries that have very small growth rate. Then you have a portfolio dominated by a huge BIAL position and going after another even larger buy w IDBI. Both are multi billion positions and last 3 buys combined for <$150M. What's their strategy? Are they going big or small? Do they want to be in industries that are seeing a boom in India or slow traditional ones?

Terrible quarter - public equities down 25% and private investments down 6% when Sensex was up 2%. Silver lining, discount is closing. Not exactly the way you want it to happen by BV going down 10% Also, their private investment valuations seem pretty conservative, so less risk of a downside surprise there. IIFL finance involved in something fraud related. they're of course downplaying it but getting banned by the regulator is a clear sign. Not sure why Fairfax doubled down by providing line of credit. Bottom 6 positions all worth only 10% of pf ($270M total, equal to Sanmar). They're all slow growers / bad industries - discount rate ranging from 13 to 28% and growth rates 1.5-5%. Investment thesis on these unclear, just distraction for management. I reduced my position by 30% early this year. BIAL setup is great, I'm waiting for Anchorage IPO to move out of Fairfax India fully.

I was wondering the same. If you exclude TRS, loss of ~$50M this quarter?

Thanks @nwoodman for following up on this thread! Good to see this year is looking a lot better. But the above highlights the cyclicality of this business and 2% yearly growth rate. I really hope this one works out considering it's a top 3 investment, but it doesn't give me the feeling of a quality compounder. This is great. But why would any counterparty signup for fixed cost to build these ships when delivery is years away? Makes no sense. Not questioning what Sokol is saying, but that's a head scratcher that any rational business would take that kind of risk when cost inflation is always there..

Thanks for the running commentary @Parsad! Much appreciated. Great to see Prem commenting on buying at a fair price, that's the only practical way to invest all the money coming in next few years.

I was only commenting to the question on what are characteristics of a high quality company and hence didn't mention about price / value. Hopefully value investors and quality are not mutually exclusive. With ~$4B coming in next few years, I would be ok with them paying a fair price for better companies (even if it means 10% return vs. their 15% target). "Since 2009, we have invested $978 million, have received $979 million in distributions and still have investments with a year-end market value of $683 million." - Sure IRR could be higher. But, practically I don't see how given these numbers.. Maybe we're splitting hairs here, the word fantastic is what I was referring to and 15% in 5 years is not that (for me). I just assumed they're a investment company and the terms were nothing fancy. If they were able to get downside protections, then 15% is fantastic. Do you think it's realistic for Fairfax to have got special terms from BDT and Shawkwei?

Yes Viking, I just did a cumulative return but we don't have enough details to calculate time weighted CAGR. It's possible they invested small w BDT at the start. Still 15 years is a long time to get 70%. Unless, they just did a token investment in 2009 and 80-90% of the $978M was invested 5 years ago. In this case, commentary while factually correct is misleading, they shouldn't say we're investing with them for 15 years. Also, in that best case scenario, BDT would have only got Fairfax 15% cagr over the last 5 years. I cannot square with Prem's comments about fantastic long term returns - 15% is good not fantastic, 5 years is not long term and 70% total return is so-so. Maybe it's ok to give both BDT and Shawkwei few more years to run, we need places to invest the boatloads of cash coming in next few years. I would prefer if Prem becomes Singleton 2.0 and plows every extra dollar not needed by insurance subs into buybacks. Lowest risk and surefire way to get the stock to double in the next 3 years..

@Viking appreciate the deep dive, it really helped to see each top holding analyzed separately and we can all come to our own conclusions. To me personally, the above is not the definition of quality as even a bad pf could generate >15% in a couple of years if they hit some macro tailwind. If you change the definition to 15% over 10 years, then I agree the only way to achieve that is if underlying investments are higher quality. On the holdings, agree with your analysis on most of them. Recipe - It scares me a bit they're actually expanding to US and India. Even US is similar to Canadian market, but I'm pretty sure Indian restaurant market is very different and they have no advantage entering there (the answer to anything India related cannot be "because Prem"). Haven't proven success in home country, poor industry and expanding is not a good combo. BDT, 70% return in 15 years starting from one of the historically low entry points for markets in 2009. I would say definitely unacceptable performance and no reason to stick w them. That only adds up to 35% cumulative return in 16 years, so not sure how they could have compounded at 12%. Maybe the 2010 fund was a very small inv and the 12% doesn't really matter for overall returns. Same as above unacceptably low returns. BDT and Shawkwei looks more like old Fairfax to me, stubborn and not willing to admit mistakes or move on. The combined inv is $1.2B which is worrisome. With all the tailwinds and how well Fairfax is positioned for the next 4 years, the slam dunk move seems to be take the $1.2B and buyback shares. Will have much better returns. Very well put @giulio. It's ok if Fairfax feels this is their edge, but some here want to ignore good high quality companies because they screen well (implying price is not cheap), which is a mistake imo. At the huge sums Fairfax will have to invest, getting a predictable 10% will surely get the stock to higher prices than a lumpy 15%..

Due to some work commitments, I'm not able to make it this year. I was really looking forward to seeing members from this forum, but will plan ahead for next year. Enjoy the AGM and pls post notes.

"Because of the significant underachievement of passenger traffic in the last year of the second control period and the intended completion of capital projects during the third control period (from April 2021 to March 2026), UDFs were expected to increase significantly in the third control period.With the higher UDFs and the ultimate return of passenger volumes to pre-pandemic growth levels, aero revenue was expected to return to normal levels at some point during the fiscal year ending March 2024. Based on current traffic volumes, this looks likely to happen." From annual letter. We are 3 years into the third control period, when they say UDFs are expected to increase, do they not know yet or am I reading too much into it? I wouldn't be surprised given India's lumbering bureaucracy..

@Viking good question. I can think of some characteristics that make a high quality company. Would love to hear from others also on their definition. Have a defensible moat. Something they do that's different than others (most commodity companies fail this test) Ability to consistently make money through good times and bad (not feast or famine like cyclical industries) Lower capex - no need to pour all the profits back into the business Consistent top and bottom line growth Solid balance sheet Price setters and not takers (again commodity companies fail this one) Metrics could be growth rates, capital intensity (capex as a % of revenue), consistent FCF generation, debt coverage ratios, return on assets, equity, TBV etc..

Yes, that's the question I was trying to ask Viking - is Fairfax equity holdings high quality? They have knocked it out of the park in the last 6 years and it's been amazing. But, looking at the equity portfolio list, are the current holdings that different from this list from 2017 (without the benefit of hindsight of course).. Atlas - most metrics have worsened. Not a good industry Recipe - what has fundamentally changed to make it a better business? Grivalia - yet to be proven, seems like a jockey bet on the CEO Kennedy Wilson - down 50% last year and 35% ytd, temporary blip or fundamental issues? Mining - cyclical industry, why is this different than buying Resolute 10 years back? John Keels / CIB - is Sri Lanka and Egypt the best places for money. What specific advantage Fairfax has investing in these countries? BDT/Shaw Kwei - what are their historical returns and why are they different from Mosaic capital Dexterra - what has changed I'm not suggesting these are poor businesses, but the portfolio is starting to slightly worry me. One of the concerns many here had back in the day was Fairfax always buys very cheap and low quality businesses, how can we be sure they're not going back to old habits.

@Dinar did you find more details on this? The one requirement US has is on FBAR. US citizens have to file every year (during tax time) if they have foreign financial assets above $10k. No implication on taxes unless your end of year balance is >$100k (and >$150k any time of the year). But I don't think this applies to securities held in US brokers.

Thanks @Viking for another great post. Appreciate your deep dives into various aspects of Fairfax. BDT and ShawKwei partners, combined investment is $1.2B. Has anyone followed them, are these good inv managers? They have done great on their big investments, but when looking at this portfolio, first thought that comes to me is why is this high quality? Most investments seem to be in cyclical industries, economically / politically unstable countries (Sri Lank, Egypt) etc. Even Atlas doesn't look to be doing that great from @nwoodman post. Pretty much all the metrics seemed to have worsened. I haven't followed Atlas, is this really a homerun investment? They are in a not so great industry though.

Definitely hope not Good to see Fairfax has stated 1 yr op earnings as their upper limit of loss tolerance. The chart shows they have done pretty well over the years, only year they came pretty close was during Katrina..