Time to buy Fairfax again?

[frommi]

I am missing 2.5 billion USD in non-US stocks that they have in their books, has someone a clue what bigger holdings these are outside of Eurobank?

From what i know now BV is unchanged in the quarter, but these 2.5 billion+deflation hedges can still have a material impact.

[steph]

I am missing 2.5 billion USD in non-US stocks that they have in their books, has someone a clue what bigger holdings these are outside of Eurobank?

From what i know now BV is unchanged in the quarter, but these 2.5 billion+deflation hedges can still have a material impact.

 

Bank of Ireland +/- 700 million USD. My best guess is that total Greek exposure at the end of the 3rd quarter was over 1 billion. Some Indian stocks??

[benhacker]

frommi, I have a list I maintain / update and just went through it last month, I still have around $2b in undisclosed stock positions that I can't find. Here is the big stuff from my list (estimated values are mostly 9/30/14, some stuff isn't quite right, and I have my assumptions in my spreadsheet, but this list is probably at least decent).  To be clear, this is "equities" at defined by Fairfax, which excludes insurance subs.  I'm guessing their book value is flat to slightly up for Q4... bonds+insurance offset stocks:

 

Equities & Converts Undislcosed Common Stock Bank of Ireland Blackberry Debt+Warrants Eurobank Blackberry Common RFP Various Conv. Preferred Stocks Thomas Cook India KW Funds / LP Eurobank Properties Vairous Derivatives (Long) Ridley IBM Cara / Prime Restaurants Interfor SD India Infoline Common (Synthetic)

$1,243.52 $1,043.20 $722.00 $524.80 $464.00 $454.50 $445.00 $444.35 $351.40 $291.90 $250.00 $214.29 $202.80 $150.00 $144.20 $138.90 $102.00

[colinwalt]

Greece's economy will boom if they leave the EU? What are they going to export? How will they pay for anything (basically everything) they want to import?

 

Well, I guess when you have control over your own currency, you enjoy a freedom that otherwise is precluded to you. In an economic environment of too much debt, at least in Europe, the ability to print money shouldn’t be overlooked!

I agree: it is nothing but another way to default on your debt… the difference is that to print money is easy! And Greece has a desperate need to reduce its overall debt somehow… Anyhow! ;)

 

Gio

 

I believe that only works if the debt is denominated in the currency you are printing... and even then it can lead to hyper-inflation...

[giofranchi]

I believe that only works if the debt is denominated in the currency you are printing... and even then it can lead to hyper-inflation...

 

True.

 

Anyway, the fact still remains Greece needs to lessen its debt burden. If it is successful in doing so, individuals, corporations, and also the government might start borrowing again… and banks might start lending again! That would be a great development for Eurobank and its share price would surely benefit much. Until the overall debt level remains too high, I just don’t see how more borrowing, and therefore more lending, could do any good and be sustainable…

 

Might a country which controls its own currency manage its debt load more easily than a country which doesn’t? Of course I cannot know for sure… But I am inclined to answer Yes! ;)

 

Gio

 

[Warner]

Fairfax will large bond gains in the last couple months. This will offset common stock loses.

[benhacker]

Just updated the table I pasted in above (I had one error on value, and one additional holding that I missed which was added - IFP.T).

 

I did some quick math, and I think they'll have on the order of ~$200-300m in bond gains for Q4, and ~$100m in stock losses, so will probably at maybe $5 to book.  Basically a scratch for Q4.  Post Q4 everything (stocks and bonds) looking much better.

 

Anyway, not that important in the long run, but that's my back of the envelope for where we stand now.  I didn't try to estimate anything with their CPI swaps, I think that is mostly not deterministically valued.

[frommi]

Just updated the table I pasted in above (I had one error on value, and one additional holding that I missed which was added - IFP.T).

 

I did some quick math, and I think they'll have on the order of ~$200-300m in bond gains for Q4, and ~$100m in stock losses, so will probably at maybe $5 to book.  Basically a scratch for Q4.  Post Q4 everything (stocks and bonds) looking much better.

 

Anyway, not that important in the long run, but that's my back of the envelope for where we stand now.  I didn't try to estimate anything with their CPI swaps, I think that is mostly not deterministically valued.

 

Thanks, i somehow missed your post the first time. I didn`t realize that they have so much at stake in Blackberry, good to know.

[dartmonkey]

frommi, I have a list I maintain / update and just went through it last month, I still have around $2b in undisclosed stock positions that I can't find. Here is the big stuff from my list (estimated values are mostly 9/30/14, some stuff isn't quite right, and I have my assumptions in my spreadsheet, but this list is probably at least decent).  To be clear, this is "equities" at defined by Fairfax, which excludes insurance subs.  I'm guessing their book value is flat to slightly up for Q4... bonds+insurance offset stocks:

 

Equities & Converts Undislcosed Common Stock Bank of Ireland Blackberry Debt+Warrants Eurobank Blackberry Common RFP Various Conv. Preferred Stocks Thomas Cook India KW Funds / LP Eurobank Properties Vairous Derivatives (Long) Ridley IBM Cara / Prime Restaurants Interfor SD India Infoline Common (Synthetic)

$1,243.52 $1,043.20 $722.00 $524.80 $464.00 $454.50 $445.00 $444.35 $351.40 $291.90 $250.00 $214.29 $202.80 $150.00 $144.20 $138.90 $102.00

 

Great list, ben. I was just looking through the Q3 report and didn't see alll that detail - where are you finding it, if you don't mind sharing? And what is the distinction between Eurobank and Eurobank properties?

 

One thing about the Greek and Irish exposure, it makes the Blackberry investment seem positively mundane! BBRY looks a lot less scary now in any case, but do you or anyone else have some more detail about Eurobank and how badly it may have been hurt by the recent events in Greece (i.e. elections, 30% drop in stockmarket, 10-yr bond rates going from 6% to 10%? Here's what Watsa said in May 2014: “We believe that markets have already begun realizing the significant opportunities existing in the Greek market and the positive outlook of the country, on the precondition of a stable course of implementing a reform program”. I guess we'll know more about that 'stable course' in 10 days...

 

[link01]

frommi, I have a list I maintain / update and just went through it last month, I still have around $2b in undisclosed stock positions that I can't find. Here is the big stuff from my list (estimated values are mostly 9/30/14, some stuff isn't quite right, and I have my assumptions in my spreadsheet, but this list is probably at least decent).  To be clear, this is "equities" at defined by Fairfax, which excludes insurance subs.  I'm guessing their book value is flat to slightly up for Q4... bonds+insurance offset stocks:

 

Equities & Converts Undislcosed Common Stock Bank of Ireland Blackberry Debt+Warrants Eurobank Blackberry Common RFP Various Conv. Preferred Stocks Thomas Cook India KW Funds / LP Eurobank Properties Vairous Derivatives (Long) Ridley IBM Cara / Prime Restaurants Interfor SD India Infoline Common (Synthetic)

$1,243.52 $1,043.20 $722.00 $524.80 $464.00 $454.50 $445.00 $444.35 $351.40 $291.90 $250.00 $214.29 $202.80 $150.00 $144.20 $138.90 $102.00

thx for the list, ben

but we know ffh is also a 6.41% owner of exco resources (xco) as of 9-30-14

it amazes how much cheaper 'cheap' stocks can get when they are in tough industries or when their mngts are questionable

[benhacker]

Link,

 

thx for the list, ben

but we know ffh is also a 6.41% owner of exco resources (xco) as of 9-30-14

it amazes how much cheaper 'cheap' stocks can get when they are in tough industries or when their mngts are questionable

 

From my post I said Here is the big stuff ... I purposely showed nothing below $100m in value as of 9/30 which left off many many holdings.  They amount to another $1B of holdings, including ~$60m in XCO.  My point was actually to exemplify the point that the US holdings are way overemphasized by investors.  Owning 6.4% or whatever of XCO sounds like a big bet, but in the context of FFH's $8B+ portfolio of equities, it doesn't even register as relevant (especially after continued depreciation).

 

I think this point is really missed by a lot of investors.  We talk 10x more about XCO in the context of FFH than we do about Thomas Cook even though TC is 10x more relevant to FFH.  As far as I can tell, it's because this is a North American focused board, and the 13F doesn't report foreign holdings (generally).

 

Ben

[giofranchi]

it amazes how much cheaper 'cheap' stocks can get when they are in tough industries or when their mngts are questionable

 

Maybe… But that’s actually the way FFH has operated for most of its existence… Of course there have been ups and downs… But overall their returns from equity investments have been very satisfactory!

 

Moreover, recently they have begun changing their strategy, investing more funds with whom they reckon to be great managers: I remember at last year FFH dinner that both managers from Bank of Ireland and Eurobank were present, and Prem Watsa praised their abilities and said how much it made him feel comfortable to partner with such reliable people.

Thomas Cook and Kennedy Wilson surely are other notable examples.

 

I think today FFH equity portfolio is rightly balanced between a basket of deeply undervalued securities (a la “cigar butts”) and a few names they have great confidence in thinking they have top management and very bright future prospects (high quality companies).

 

Cheers,

 

Gio

 

[plato1976]

wondering how eurobank will fare if Greece exits EURO

too complex to even analyze

 

frommi, I have a list I maintain / update and just went through it last month, I still have around $2b in undisclosed stock positions that I can't find. Here is the big stuff from my list (estimated values are mostly 9/30/14, some stuff isn't quite right, and I have my assumptions in my spreadsheet, but this list is probably at least decent).  To be clear, this is "equities" at defined by Fairfax, which excludes insurance subs.  I'm guessing their book value is flat to slightly up for Q4... bonds+insurance offset stocks:

 

Equities & Converts Undislcosed Common Stock Bank of Ireland Blackberry Debt+Warrants Eurobank Blackberry Common RFP Various Conv. Preferred Stocks Thomas Cook India KW Funds / LP Eurobank Properties Vairous Derivatives (Long) Ridley IBM Cara / Prime Restaurants Interfor SD India Infoline Common (Synthetic)

$1,243.52 $1,043.20 $722.00 $524.80 $464.00 $454.50 $445.00 $444.35 $351.40 $291.90 $250.00 $214.29 $202.80 $150.00 $144.20 $138.90 $102.00

 

Great list, ben. I was just looking through the Q3 report and didn't see alll that detail - where are you finding it, if you don't mind sharing? And what is the distinction between Eurobank and Eurobank properties?

 

One thing about the Greek and Irish exposure, it makes the Blackberry investment seem positively mundane! BBRY looks a lot less scary now in any case, but do you or anyone else have some more detail about Eurobank and how badly it may have been hurt by the recent events in Greece (i.e. elections, 30% drop in stockmarket, 10-yr bond rates going from 6% to 10%? Here's what Watsa said in May 2014: “We believe that markets have already begun realizing the significant opportunities existing in the Greek market and the positive outlook of the country, on the precondition of a stable course of implementing a reform program”. I guess we'll know more about that 'stable course' in 10 days...

[benhacker]

Dartmonkey (missed your comment until just now):

 

Great list, ben. I was just looking through the Q3 report and didn't see alll that detail - where are you finding it, if you don't mind sharing? And what is the distinction between Eurobank and Eurobank properties?

 

One thing about the Greek and Irish exposure, it makes the Blackberry investment seem positively mundane! BBRY looks a lot less scary now in any case, but do you or anyone else have some more detail about Eurobank and how badly it may have been hurt by the recent events in Greece (i.e. elections, 30% drop in stockmarket, 10-yr bond rates going from 6% to 10%? Here's what Watsa said in May 2014: “We believe that markets have already begun realizing the significant opportunities existing in the Greek market and the positive outlook of the country, on the precondition of a stable course of implementing a reform program”. I guess we'll know more about that 'stable course' in 10 days...

 

Eurobank and Eurobank Properties are separate companies and investments.  You can Google for information on them.

 

The information to find all the holding values of Fairfax is just scattered around, there is no central place.  I look at the 10-Q, 10-K's, NAIC filings, news / PR stuff, also, some foreign countries have disclosure rules so you will see FFH's foreign holdings sometimes disclosed.  My list is not necessarily 100% accurate, but I try to cobble together the best info I can without spending too much time on things that don't matter.

[link01]

Link,

 

thx for the list, ben

but we know ffh is also a 6.41% owner of exco resources (xco) as of 9-30-14

it amazes how much cheaper 'cheap' stocks can get when they are in tough industries or when their mngts are questionable

 

From my post I said Here is the big stuff ... I purposely showed nothing below $100m in value as of 9/30 which left off many many holdings.  They amount to another $1B of holdings, including ~$60m in XCO.  My point was actually to exemplify the point that the US holdings are way overemphasized by investors.  Owning 6.4% or whatever of XCO sounds like a big bet, but in the context of FFH's $8B+ portfolio of equities, it doesn't even register as relevant (especially after continued depreciation).

 

I think this point is really missed by a lot of investors.  We talk 10x more about XCO in the context of FFH than we do about Thomas Cook even though TC is 10x more relevant to FFH.  As far as I can tell, it's because this is a North American focused board, and the 13F doesn't report foreign holdings (generally).

 

Ben

Ben, you're right, of course. Mea culpa. the problem sometimes with making brief, hasty comments is that what you omitted to say is latched onto more than what you did say.

Its just that when I saw SD on your list I had a sort of reflex reaction that immediately tied XCO together with SD as being co.'s not only more or less in the same industry, but sharing similar risk profiles. I've always instinctively performed a bit a shorthand & mentally lumped them together.

I am also aware that both these co.'s were purchased at much higher prices & probably averaged down on over time. Its what FFH has done many times historically. And they'll continue that pattern, generally. Maybe even with SD or XCO or both. Given that possibility perhaps it would be equally instructive to not only think in terms of the current value of FFH's largest known holdings above some threshold but also the cost of holdings at that threshold. Anyone that's been keeping a spreadsheet of updated portfolio values over time probably also has a decent estimate of portfolio holding costs.

[Libs]

I'd just like to verify P/ BV - thanks in advance- all figures US -

 

Shareholders' BV end of Q3 was 9.72 B ( see page 1):

 

http://www.fairfax.ca/files/2014-Q3-Interim-Report-FINAL_v001_w6fw94.pdf

 

Share count 22.3MM diluted.

 

So BV / share $435.

 

Stock price today $514  ( FFH-U.TO)

 

P/ BV = 1.18.

 

If this is correct, anyone in the US holding Fairfax has seen their recent 'gains' almost wiped out by the weakening CDN dollar...I keep seeing FFH.TO soar, yet P/B hasn't gone up much in US$$.....Are there any US holders who are hedging the currency, say by shorting FXC?

 

 

 

 

 

[jwelborn93]

Would this be a good time to initiate a position in the US?

 

 

[Aberhound]

I made the mistake selling Fairfax a few years ago primarily because of the hedges. Also I did not understand his strategy selling Wells Fargo and JNJ which he had described earlier as permanent holdings. I earn Canadian dollars so the price for me is down substantially from the peak. I narrowly missed buying before the run up due to dithering. We are in a government bond bubble so I liked Fairfax due to his track record in bonds. He perfectly timed the bond market repeatedly. Now I believe we are approaching peak government and peak sovereign bonds and I am betting on Martin Armstrong's call that it occurs at the end of September which also matches the end of the Jewish year before Jubilee. Look back in 7 year cycles and there appears to be a correlation where a significant market peaks and falls occurs, not necessarily in the same market. The moves are big, 2015,2008, 2001, 1994 (bonds), 1987 etc.. I intend to buy the common but I am dithering again because I still do not understand the strategy especially when I try to see the logic of his equity holdings. I should ignore them as they equities are mostly hedged so the potential gains in the bonds and deflation bet should dwarf the changes In the equity values. His deflation hedges look appealing to me because if the European sovereign bond market collapses in September, few will buy government debt, many banks collapse and many get nationalized. If you can pick the private survivors the gains will be substantial if governments are then forced to basically copy US and Canada who allow a few big banks to become dominant (in the EU case because only the banks will be willing to buy government bonds after the sovereign bond market collapse). Maybe he has picked Bank of Ireland and Eurobank as survivors? Bureaucrats cannot run banks so the well run private banks should outperform. I hold SAN for this reason. Monetary policy won't work after the sovereign bond market collapse so I expect deflation which in turn means the surviving banks make big gains on their government bond holdings bought after the crash like in the 1930s. I dither because the complexity is way outside my circle of competence. Your encouragement in 2006, especially Ericopoly helped me buy the Fairfax options. Who is buying in expectation of Prem again scoring big due big turns in the markets which few prepare for? I don't see option mis pricing like 2006 so I don't see a way to leverage there. Too bad they no longer trade in New York where the option market is more liquid. Would anyone get leverage by borrowing? I am debt adverse and I agree with Buffet's wisdom never to borrow to speculate. But I can borrow extremely cheaply in Canadian dollars due to Vancouver and rural BC real estate gains (where the gains dwarf any other of my holdings) and I have long looked for a hedge against a decline in my BC real estate. This might be a hedge. My current debt is minuscule. I am bullish on BC real estate. I have been to China so I see why they come here and I can foresee the wealth which will be generated by the 7T project to build the Silk Road (which might make the eastern Med rich again like Syria used the wealthiest part of the Roman Empire). China will generate the wealth as they have a more pure capitalism and that wealth will likely come to BC. Chinese (and Germans) revere nature and that is what we have in excess. When I walk in the nature gardens I love to see the Chinese ladies and gentlemen absorbing the natural forces (that is what it looks like to me as they do their movement exercises by waterfalls etc.). There also is a good chance that the Canadian dollar will depreciate as oil declines when we pass peak storage and peak demand. Is anyone considering Fairfax purchase on leverage? If so in which currency would you borrow? I would not borrow in the reserve currency as big turns cause flight to the safety to the reserve currency. If I lived in US I would go the the TD bank, and give them assets to secure a bank guarantee then use that guarantee from US TD to secure a debt in TD Canada to borrow in Canadian dollars. What I want to do is to buy Fairfax then send him some smart pills. All you Fairfax bulls please help!

[racemize]

I'd just like to verify P/ BV - thanks in advance- all figures US -

 

Shareholders' BV end of Q3 was 9.72 B ( see page 1):

 

http://www.fairfax.ca/files/2014-Q3-Interim-Report-FINAL_v001_w6fw94.pdf

 

Share count 22.3MM diluted.

 

So BV / share $435.

 

Stock price today $514  ( FFH-U.TO)

 

P/ BV = 1.18.

 

If this is correct, anyone in the US holding Fairfax has seen their recent 'gains' almost wiped out by the weakening CDN dollar...I keep seeing FFH.TO soar, yet P/B hasn't gone up much in US$$.....Are there any US holders who are hedging the currency, say by shorting FXC?

 

From their April 30th press release:

Book value per basic share of $394.22 at March 31, 2015 is essentially unchanged from $394.83 at December 31, 2014 (an increase of 2.3% adjusted for the $10 per common share dividend paid in the first quarter of 2015).

 

Why are you quoting 2014 Q3 BVPS?

[benhacker]

Why are you quoting 2014 Q3 BVPS?

 

His post was from 5 months ago Race...

[racemize]

Ha, that's what I get for thinking the post before last was still current.  I'll see myself out.

[cwericb]

Article in Seeking Alpha today:

Fairfax Financial: Intrinsic Value Exceeds Market Price

http://seekingalpha.com/article/3184136-fairfax-financial-intrinsic-value-exceeds-market-price

 

[undervalued]

Which shares do you guys own? FFH.TO or FRFHF? It looks like InteractiveBroker only offers FFH.TO? The price is higher for FFH.TO. Is this because it's in CAD instead of USD?

[giofranchi]

All you Fairfax bulls please help!

 

Aberhound,

Watsa has prepared Fairfax to thrive in an environment with the following characteristics:

1) Stocks go down and stay down for a long time (with equity hedges that appreciate more than the decline in their portfolio of equities),

2) Treasury yields keep going down (with the 10yr bond yield approaching 1%),

3) And deflation setting in.

If this environment never materializes, Fairfax will make some money imo, but not much.

Therefore, it is simple enough: do you think 1) + 2) + 3) might ever come to pass? Or do you think there is no risk at all?

If the answer is: no risk at all, then stay away from Fairfax right now.

 

Cheers,

 

Gio

 

[racemize]

Which shares do you guys own? FFH.TO or FRFHF? It looks like InteractiveBroker only offers FFH.TO? The price is higher for FFH.TO. Is this because it's in CAD instead of USD?

 

FFH.TO is in CAD, but is the main exchange that it trades under.  I would definitely buy it there through IB.