This2ShallPass

Both these methods give the same IV ($56-58B). Much higher than the $33B market cap. Do you believe Fairfax is still that undervalued?

Yes, bv is the closest proxy to IV and in which case you just need a different P/B multiple depending on the quality of the insurance company. Fairfax underwriting is getting better but their combined ratios are still higher than the best (iirc Chubb 2024 CR was 85%! and WRB hits it out of the park pretty regularly). Fairfax investment is not predictable, they feast or famine which will reduce the multiple you get. Hopefully they're past all the 7 lean years 7 good years stuff and are going to be much more consistent but that remains to be seen. At the next big market dislocation, there's a good chance they might swing for the fences again (it's in their dna).. All that said, I'm still a big believer. I love everything they have done in the last 5 years. FF is my #1 holding at 30% but I'm seriously thinking about reducing it to 25%.

Good point on Fairfax leverage. But, then why did Prem and Buffett use BV growth as the primary measure of the company success all these years? Is it just that's the closest proxy and IV is debatable?

He still set the metric as BV not P/E or anything else because that's the most appropriate metric to value insurance companies. That's all I'm saying, P/B you pay should not be ignored and buying back shares at high multiples to book value won't be accretive in my opinion. At that point, I would rather FF go buy some operating businesses with that cash. He only changed the 1.2x BV stance in his 80s. I think he believed buying a predominantly insurance company at high book multiples was not good. Btw, I'm sure Berkshire IV was higher than their BV for major periods of their existence. I agree BV is not a good metric for the non insurance companies. But the fixed income earnings, they increase BV correct and so shouldn't be an issue? The predictability in those income streams deserve a higher P/B multiple. Agreed, a more predictable investment portfolio + consistently better underwriting performance will be valued at higher multiple.

I don't think this is true for insurance companies, who are primarily valued at P/B multiples. There's a reason Buffett maintained the 1.2x P/B stance. He only changed that once operating companies became a bigger portion in which case agreed P/B is not the right metric (as it's not for many industries). One exception that can be made is if there's significant difference between fair and carrying value.

Ignoring TRS, question is generally on buybacks. At what P/B, would it not make sense to buy?

I did a quick math, if they unwound TRS at today's prices then BV/sh will go down from $1060 to $1026 and Fairfax would have paid $2.5B. Since insurance companies are valued at P/B multiple primarily, is buying back shares the right use of cash? It intuitively feels right to me but the math gets harder when you buy at 1.4x BV. Berkshire had a stated policy of not buying at >1.2V BV until 2018 (when their market cap was ~$400B, 10x size of Fairfax today). I think their switch made sense since their operating businesses were much bigger.

Yes. Looks like employee stock can be issued from treasury stock directly, I thought it'll be an issuance from regular stock and then retiring equivalent number of treasury stock (practically the same thing). "Yes, a company can issue employee stock options from treasury stock, meaning when an employee exercises their option, the shares they receive will come from the company's repurchased shares held as treasury stock; essentially, the company will "re-issue" those shares to the employee instead of issuing new ones."

Yes it'll hit income statement on vest. When Fairfax decides to deploy this, I think they will retire the treasury stock as the employee stock vests. In that case it shouldn't impact diluted shares as they cancel out. Irrespective, treasury stock is something the company has purchased and how can that impact diluted share count which is equivalent of stock issuance?

So if an employee gets 1000 shares of Fairfax today, compensation expense for Fairfax should have been $1.4M but will only be $500k. The fact that they're still not using treasury stock but buying in the market to cover for employee shares tells us that they believe SP is undervalued. Maybe they'll deploy this bazooka when the SP is a double or triple from here! I look forward to Viking writing about this as one of the most imp capital decisions in his 2035 review @Viking based on this discussion, we shouldn't be counting treasury stock towards diluted shares in the table. That's the answer I got in Google as well - "No, treasury stock should not be counted towards diluted shares because it is not considered outstanding."

One more question, where is the gain for all those 2m shares recorded? Say they purchased those for an average of $500 and are sitting at a $2B gain now. If we just use the 2m shares to increase diluted shares and calculate eps based on that, aren't we knocking Fairfax unnecessarily and not giving credit to that good capital allocation decision?

@Maverick47 Yes I was looking at column that showed shares for share based awards. If they have just stockpiled for future years, then it's great (scarily good) capital allocation. Looks like most of this stock was acquired 2019 and before at much lower prices. $250M/yr for SBC is reasonable for a company of Fairfax's size.

Thanks for the detailed explanation. Yes it's clean structure wise and lot of cash available at FFH. But would be a bummer for all us minorities holding for so many years. The other question is do they shelve the Anchorage IPO? I wouldn't be so bummed if they do the merger some time after Anchorage so everyone can profit from the airport's market value..

We should know employee count that receive stock (unless it's given to all employees). No need to argue the merits of SBC, it's definitely helpful. But Fairfax went from $150M to $2.8B in 11 years. Doesn't that seem excessive?

That's why I'm still holding as well, the airport is such an incredible asset. What do you expect to change w Sanmar next year? Do you think IDBI bid can cause this big move? We don't even know if FFI will get it and even if they do, what economic interest they will have is not clear. I doubt FFI can have a majority interest since they don't have anywhere near the cash for it..

Meh report, only $55m in unrealized gains. Outside of BIAL, there's no reason to own this (bunch of smaller companies that won't move the needle and Sanmar seems like an albatross, only negatives so far). "At December 31, 2024 the company's book value per share decreased 4.1% to $20.96 from $21.85" The discount really closed to <10%. Seems like buying ahead of BIAL IPO, maybe an announcement is coming (it's about time)?

Share based awards increased by 5x and share price increased 4x during the 11 years - 20x ($150M to $2.8B impact). That seems excessive, how much did their employee count grow by due to the big acquisitions? 8% dilution due to SBC - not sure what insurance industry averages are..

Yes this makes a lot of sense. Especially when they're minting money ($2.5B yearly from int & div!), it's good to reduce risk.

Siemens knows all this, why did they agree to then sell at such a price. The only reason I could think of is it's a smaller non controlling share and realizing the actual value could take few years..

Very true, even many shareholders (like me) have under appreciated this aspect. Thanks for your continuous coverage of the various facets of Fairfax! Orla seems to be another big winner, I would have put it in the low quality bucket because of the industry.

Thanks for posting this. I missed the original post by @oscarazocar connecting the dots. I have been one of the Pabrai defendants in this board, followed him closely for a few years (luckily didn't clone). In 2023 I initiated a small position in the Wagons fund, I really liked exposure to some of the stocks that I cannot have. But this is definitely deceptive, he should be ashamed..the brazen switch of the benchmark in the two slides

This seems like a really good idea, I'll add it to my list. My focus on charity is education and scale. Education can meaningfully change the trajectory of not just an individual but their future generations. Pratham is the main one I give to (my company matches the donation) - https://www.pratham.org/. They also do a survey across India every year to assess the status of education for underprivileged kids - https://pratham.org/programs/education/aser/.

This happens all the time in bankruptcy. Given how big the GSEs are I'm sure finding new shareholders is not hard. But I like Ackman vocally pushing the case, govt doesn't act purely with financial gain in mind so maybe he can make them take this deal:) @TwoCitiesCapital so you're arguing that they won't come out of conservatorship. It seems like there's consensus that it needs to end. Also, if the pause on net worth sweep was just to spite Biden, are they going to undo it now? if the new treasury secretary can undo it, don't you think Biden would have done it in the last 4 years?

But can't treasury get much more if current common is wiped out and they become majority owners in new common (similar to BK process)? I don't mind current common getting paid as I bought those at 70 cents a few years back and still have half of my position.

Digit is down 2% since ipo. In last 6 months, it's down 12% vs 4% for sensex. Has anyone been following it closely, any underlying business issues or simply high priced ipo?