US$1,000 - Fairfax vs. Markel

[Crip1]

This is thoroughly unscientific and is not really educational or enlightening...just meant to be fun. As both companies are selling for north of US$500, the next milestone for each is US$1,000. Markel is clearly in the lead but Fairfax has been rising at a faster rate for 2014. So, who will it be?

 

 

-Crip

 

 

P. S. Feel free to weigh in on your rationale, or to simply say that this is a stupid poll.

[Partner24]

Dear Crip, have you lost your marbles?  ;)

 

I'll always remember that quote: "The only time I made money with a crystall ball is when I sold it in a garage sale".  ;D

 

But I know what you ask is just for fun! Still, I don't know what to say...I would guess it depends somewhat on what will happen with the general stock market. If it goes down, you'll likely see FFH do better on a relative basis than MKL. If it's the contrary, MKL should do better.

 

But that being said, I don't know what the general stock market will do over the next five years. But if I would be forced to do so, I would take the conservative side of the bet.

 

Oh thanks Lord I'm far from being forced to go that way with my real money!

 

Cheers!

 

 

[KinAlberta]

Fairfax is making a bet, of sorts, on the future by hedging.  They are using imperfect hedges buy holding individual securities while hedging indexes.  Nonetheless, it's a reflection of an uncertain view of the future.  I believe Markel on the other hand is mostly long everything and for an insurance company, is not walking its own talk by insuring its equity positions against loss unless they feel their fixed income positions serve that purpose.  Correct me if I'm wrong - I haven't looked at either company in a long long time deciding that their managements are far more capable than me at managing my money invested in their shares.  I own shares of both companies.

[DCG]

Fairfax would already be well north of $1,000 if their investing results over the last 7 or so years wasn't so awful.

[Mikenhe]

Fairfax would already be well north of $1,000 if their investing results over the last 7 or so years wasn't so awful.

 

Fairfax would already be well north of $1,000 if their underwriting/run off/ asbestos/environmental claim/ blackberry/ hedges/ aquisitions/ exchange rateinvesting results over the last 7 or so years wasn't so awful.

 

[TwoCitiesCapital]

Fairfax would already be well north of $1,000 if their investing results over the last 7 or so years wasn't so awful.

 

Fairfax would already be well north of $1,000 if their underwriting/run off/ asbestos/environmental claim/ blackberry/ hedges/ aquisitions/ exchange rateinvesting results over the last 7 or so years wasn't so awful.

 

I think this is slightly disingenuous.

1) Fairfax has done a great deal to improve and expand its insurance operations. The next hard market will certainly show how much money these guys can generate and you certainly can't blame them for the market conditions or underwriting less.

 

2) they certainly lost alot of money on their initial investments in BlackBerry, but the recent ones have been brilliant. They've moved higher up the capital structure, receive a 6% coupon, and have an option for 10% of the company that is already far in the money. They're near, or above, break even and Blackberry probably wont be the tragedy many thought it would be for Fairfax. The amount they've made in.similar distressed investments (Bank of Ireland) mite than covers the potential losses here.

 

3) they've lost tons of money hedging but they've clearly articulated their strategy and most knew this was a possible outcome. At this point, I'd rather them stay hedged with the U.S. market historically expensive. Also, the deflation hedges have years of life left on them and the CPI strike prices have adjusted upwards and Europe still has low growth and zero rates. Spain could borrow for 10 years for less than the U.S could last week. That sounds like a continent on the brink of deflation if you ask me.  You can't call this a failure until they expire as it was clear that Prem recognized it could take a decade to be "right."

 

I've only owned FFH since 2010, but I've been very happy with the results so far. I'm surprised it has even gone up as much as it has given all of this was known at the time I invested and the anchors of low rates, hedges, and a soft market have persisted. It's all about expectations and nobody should have expected massive gains barring a market collapse.

 

 

[Mikenhe]

I think you missed my point.. Which means I didn’t make it very well.

 

There always seems to be something at Fairfax to point the finger at. Including (but not limited to ) the items I listed. Every single time FFH has a hot topic (trendy thing to blame from people looking at it) it ends up being resolved and disappears into the background  - and then people find something else to say “if it wasn’t for the…..”

They deal with it and carry o9n – and its not like  everyone at Fairfax says that topic X is an issue lets all fix that and ignore everything else. All of those things that I mentioned have been issues at some point from the outside looking in. And all of them have now “disappeared” or something else becomes the hot topic to blame.

 

Fairfax covers a lot of ground. You’ll always find something that you don’t like about it.

If you can look at the rest and find enough to encourage you that as a shareholder your money is under good , safe stewardship then you have to live with the fact that  a company with so many fingers in so many pies will always have some issues that need to be addressed. And they do address them.

 

Don’t fret so much about the one issue that pops up – it’s a complex , worldwide corporation with a lot of things on its plate that sometimes won’t look so rosy…  Lets not treat Fairfax hot button issues like Whack a mole… Just let them get on with it.

 

Overall I like Fairfax in general and I think that it leads the component parts of its organization pretty well. Its not perfect and there are areas that could do with improvement. Then again I don’t know of a perfect organization. From my point of view (and its just an opinion) to focus on one area and highlight it saying you don’t like it does an injustice to Fairfax as a whole.  I know its happened before (hence my sarcastic post) and it’ll happen again – but I think you need to look at the “issue” areas and balance it against what Fairfax is doing as an organization overall.

 

 

(Disclosure – I may be slightly biased as I used to work for Fairfax)

 

[TwoCitiesCapital]

I think you missed my point.. Which means I didn’t make it very well.

 

There always seems to be something at Fairfax to point the finger at. Including (but not limited to ) the items I listed. Every single time FFH has a hot topic (trendy thing to blame from people looking at it) it ends up being resolved and disappears into the background  - and then people find something else to say “if it wasn’t for the…..”

They deal with it and carry o9n – and its not like  everyone at Fairfax says that topic X is an issue lets all fix that and ignore everything else. All of those things that I mentioned have been issues at some point from the outside looking in. And all of them have now “disappeared” or something else becomes the hot topic to blame.

 

Fairfax covers a lot of ground. You’ll always find something that you don’t like about it.

If you can look at the rest and find enough to encourage you that as a shareholder your money is under good , safe stewardship then you have to live with the fact that  a company with so many fingers in so many pies will always have some issues that need to be addressed. And they do address them.

 

Don’t fret so much about the one issue that pops up – it’s a complex , worldwide corporation with a lot of things on its plate that sometimes won’t look so rosy…  Lets not treat Fairfax hot button issues like Whack a mole… Just let them get on with it.

 

Overall I like Fairfax in general and I think that it leads the component parts of its organization pretty well. Its not perfect and there are areas that could do with improvement. Then again I don’t know of a perfect organization. From my point of view (and its just an opinion) to focus on one area and highlight it saying you don’t like it does an injustice to Fairfax as a whole.  I know its happened before (hence my sarcastic post) and it’ll happen again – but I think you need to look at the “issue” areas and balance it against what Fairfax is doing as an organization overall.

 

 

(Disclosure – I may be slightly biased as I used to work for Fairfax)

 

Totally didn't get that from your initial post lol. It sounded like you were basically saying they were doing everything wrong.

 

I agree with what you've said here. :)

[Mikenhe]

Totally didn't get that from your initial post lol. It sounded like you were basically saying they were doing everything wrong.

 

I agree with what you've said here. :)

 

Sarcasm doesn't carry over too well on the net does it.. :D

[Buffett_Groupie]

On its way to $1,000: http://finance.yahoo.com/q?s=FFH.TO.  Again, it usually does so sooner than expected! ;)

[Tommm50]

It seems like a lot of people are missing the international piece. It's relatively small now but always been extremely profitable. They've positioned themselves well in markets with exponential growth potential. What happens in 5 to 7 years when international is bigger than U.S.? What's Markel got in that arena? That's how AIG was so profitable for so long. It wasn't their U.S. business it was their international business.

 

My money is literally on Fairfax.

[petec]

It seems like a lot of people are missing the international piece. It's relatively small now but always been extremely profitable. They've positioned themselves well in markets with exponential growth potential. What happens in 5 to 7 years when international is bigger than U.S.? What's Markel got in that arena? That's how AIG was so profitable for so long. It wasn't their U.S. business it was their international business.

 

My money is literally on Fairfax.

 

Agreed...if international was separately listed it would trade at >2x bv imho and it's always worth adjusting FFH's equity for that.

[giofranchi]

It seems like a lot of people are missing the international piece. It's relatively small now but always been extremely profitable. They've positioned themselves well in markets with exponential growth potential. What happens in 5 to 7 years when international is bigger than U.S.? What's Markel got in that arena? That's how AIG was so profitable for so long. It wasn't their U.S. business it was their international business.

 

My money is literally on Fairfax.

 

Agreed...if international was separately listed it would trade at >2x bv imho and it's always worth adjusting FFH's equity for that.

 

+1! ;)

 

And that’s basically what I have been saying for some time now…

 

But I am not voting: MKL and FFH are both great companies led by outstanding leaders imo, and great companies led by outstanding leaders tend to surprise, and surprises by definition are not predictable… I am just content thinking those surprises will mostly be on the upside!

 

Gio

 

[petec]

Is that the multiple other Asian insurance companies are trading at? I am not infront of my computer.

 

Tks,

S

 

Not sure.  But I look at a lot of similar businesses (by type) not quality) in Latin America and they can easily trade at 2x.  Plus, regardless of where peers trade, I'd happily pay 2x for a company that is able to earn a high roe from underwriting (I won't put a number on it because I can't remember the exact number!) while growing fast.  And their international business does underwrite well.

[petec]

It seems like a lot of people are missing the international piece. It's relatively small now but always been extremely profitable. They've positioned themselves well in markets with exponential growth potential. What happens in 5 to 7 years when international is bigger than U.S.? What's Markel got in that arena? That's how AIG was so profitable for so long. It wasn't their U.S. business it was their international business.

 

My money is literally on Fairfax.

 

Agreed...if international was separately listed it would trade at >2x bv imho and it's always worth adjusting FFH's equity for that.

 

+1! ;)

 

And that’s basically what I have been saying for some time now…

 

But I am not voting: MKL and FFH are both great companies led by outstanding leaders imo, and great companies led by outstanding leaders tend to surprise, and surprises by definition are not predictable… I am just content thinking those surprises will mostly be on the upside!

 

Gio

 

You should still vote - one of these companies has an investment with no downside that could catapult bv over 1000, and the other doesn't.  So the odds can't be 50/50 ;)

[TwoCitiesCapital]

It seems like a lot of people are missing the international piece. It's relatively small now but always been extremely profitable. They've positioned themselves well in markets with exponential growth potential. What happens in 5 to 7 years when international is bigger than U.S.? What's Markel got in that arena? That's how AIG was so profitable for so long. It wasn't their U.S. business it was their international business.

 

My money is literally on Fairfax.

 

Agreed. Markel has been the better performer in the last few years, but it is Fairfax's  international exposure (especially India) and their conservative positioning that has had me really excited to be an owner.

 

The Asian side of the business has been very profitable and growing at a nice rate. Only a matter of time before is contributing meaningfully to earnings. If the Indian market blows up we'll have a lot of exposure there too. Things could be really exciting for Fairfax over the next 5 years.

 

 

[giofranchi]

You should still vote - one of these companies has an investment with no downside that could catapult bv over 1000, and the other doesn't.  So the odds can't be 50/50 ;)

 

Realistically, I deem that to be a very unlikely scenario… A scenario in which the policies of all the central banks around the world basically fail… And after Japan, also Europe and the US slide into a prolonged deflationary environment… It is really difficult to believe such an utter failure might actually happen…

 

The two most likely scenarios imo are:

1) Markets from now on drift almost aimlessly up and down for an extended period of time.

2) The Shiller P/E of the S&P500 reaches 29-30 (from almost 27 today) during the next few months, and then the bubble bursts.

 

In scenario 1) I vote MKL, but FFH might do very well nonetheless.

In scenario 2) I vote FFH, but MKL might do very well nonetheless.

 

Cheers,

 

Gio

 

[petec]

You should still vote - one of these companies has an investment with no downside that could catapult bv over 1000, and the other doesn't.  So the odds can't be 50/50 ;)

 

Realistically, I deem that to be a very unlikely scenario… A scenario in which the policies of all the central banks around the world basically fail… And after Japan, also Europe and the US slide into a prolonged deflationary environment… It is really difficult to believe such an utter failure might actually happen…

 

The two most likely scenarios imo are:

1) Markets from now on drift almost aimlessly up and down for an extended period of time.

2) The Shiller P/E of the S&P500 reaches 29-30 (from almost 27 today) during the next few months, and then the bubble bursts.

 

In scenario 1) I vote MKL, but FFH might do very well nonetheless.

In scenario 2) I vote FFH, but MKL might do very well nonetheless.

 

Cheers,

 

Gio

 

I agree an actual prolonged deflation is unlikely (although it did happen in Japan), but there's a non-negligible chance that the markets panic and offer to buy FFH's protection at a very high price.

 

Doubling BV might be a bit much but a man can hope ;)

[TwoCitiesCapital]

Maybe I'm a bit more optimistic (or pessimistic) than most.  I see deflation  being a very real possibility.  Debt is deflationary and we have unprecedented levels of debt. Eventually, some of this principal will have to be reduced - the world can't just continue to roll higher and higher debt balances. The only ways to reduce it is to print a lot (massively inflationary long term) or to pay it back/default (deflationary). I think we'll see a mix of both and that deflation will come before the inflation.

 

We've seen a global expansion  of massive amounts of credit. Any reduction of these levels will be massively deflationary (given that printing/increasing  debt by trillions is barely keeping us even).

 

I can't place % on the probability, but I do think that prolonged deflation is a lot more likely than most give it credit for. I also think that Central banks are given too much credit in their knowledge and ability to avert crisis - keep in mind the Fed missed the massive implications in early  2008 and the ECB and Japan don't seem to be getting the results they're  hoping for.

[petec]

Maybe I'm a bit more optimistic (or pessimistic) than most.  I see deflation  being a very real possibility.  Debt is deflationary and we have unprecedented levels of debt. Eventually, some of this principal will have to be reduced - the world can't just continue to roll higher and higher debt balances. The only ways to reduce it is to print a lot (massively inflationary long term) or to pay it back/default (deflationary). I think we'll see a mix of both and that deflation will come before the inflation.

 

We've seen a global expansion  of massive amounts of credit. Any reduction of these levels will be massively deflationary (given that printing/increasing  debt by trillions is barely keeping us even).

 

I can't place % on the probability, but I do think that prolonged deflation is a lot more likely than most give it credit for. I also think that Central banks are given too much credit in their knowledge and ability to avert crisis - keep in mind the Fed missed the massive implications in early  2008 and the ECB and Japan don't seem to be getting the results they're  hoping for.

 

Agreed.  I'm just not sure how likely it is in absolute terms, as opposed to relative to what others expect.

 

I'm also a little sceptical about whether it will show up in CPI (which is what matters for the derivatives) rather than collapsing asset prices.

[Buffett_Groupie]

Let the real race begin!

 

http://finance.yahoo.com/q?s=FFH.TO

http://finance.yahoo.com/q?s=MKL

[Tommm50]

Yes but don't you have to start with the same currencies?

 

http://finance.yahoo.com/q?s=frfhf&type=2button&fr=uh3_finance_web_gs_ctrl2&uhb=uhb2

 

[Buffett_Groupie]

No worries, Cdn$ will be at par with US$ by the time FFH.TO reaches $1,000!  :)

[NormR]

Who'll be the first to pick up a few shares at a new all time high for FFH?  We're only a few dollars away from it...

[Alekbaylee]

A picture is worth a thousand words..

 

http://www.google.ca/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1422478800000&chddm=2208&chls=IntervalBasedLine&cmpto=NYSE:MKL&cmptdms=0&q=OTCMKTS:FRFHF&&fct=big&ei=mQHJVOSmPISh8waIpYDACA