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Fairfax Financial 13F


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these holdings are freaking huge like I expected after they closed out the hedge:

 

293 million in kraft shares

234 million in Intel

100 Million in Alcoa

158 million Magna

200 million GE

100 million in WFC

100 million in BNSF

Increased stakes in JNJ 1.1 million shares Dell 10 million shares of dell

6.5% stake in USG

 

Taking away the 400 million dollar increase in value of ORH, looks like they increased their equity investments by about 1200 million this quarter!  Add that to the 1.2 billion the company put to work buying back shares and Northbridge and you have 2.4 billion dollars earnings put to work earning 15-20% a year for shareholders. 

Thanks Guys!

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Magna?!  Farbeit from to me question their investments but man do I hate that company and family.  Frank's line has always been that if you don't like the way he manages and/or gets paid then don't by the stock; so I haven't.  Now am I supposed to root for them?

 

I love the other choices.  Is it just me or is it starting to look like a Berkshire portfolio?

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Quite impressive.  NQ - I agree with you on Magna.  Great company; great management; but very greedy management.  FFH knows the company inside out so it doesn't surprise me.  Maybe Frank will have the decency to keep his pay capped to a reasonable level until they can increase the dividend again. 

 

Now; how much GE do I hold per share of FFH.  Will be back to you on this. 

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Do you remember when they said that they had closed their hedge on equities and said that they were finding opportunities accross the world? Well, we're beginning to see that in action!

 

I think that when we'll take a look back at November 20th 2008 in a decade, we'll conclude that it was the start of the seeding in a great soil for FFH that will have made shareholders harvest a decent growth in book value per share for the following years.

 

It's too soon to say, but I'm confident.

 

And furthermore, we now have some great businesses in our portfolio. At the 2007 AGM, I remember that Prem said something about the "great" businesses. He said something like he was open to invest in them, but was waiting for a good price. Well, thanks to his patience and discipline!

 

 

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Folks,

 

That 13-F is till the end of December 31, 2008.  While broad market prices are fairly close to the lows hit November, some individual stocks are trading far cheaper.  Things like GE at $11, or WFC at $13.50 are just plain stupid!  We said it in our quarterly letter, and I'll say it again here...I don't expect to see these prices for some of these great companies again in my lifetime!  These prices may be available to us for some time, but this era will probably be the bottom for me, as I turn 40 this year and if you assume another 25-30 years of life for me...well that's about it.  Some of the deals on distressed debt are also unbelievable!  Extraordinary times!  Cheers! 

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I'm far more comfortable having Hamblin Watsa make the calls on investing in GE and WFC,

 

at the end of 06 they had less than 100 billion in debt, fast forward to today and they're 375 billion.  Assuming the cost of debt is 5% after taxes, you are talking about nearly 20 billion dollars a year in interest payments. 

On the other hand good banks will probably have their highest returns on capital ever over the next few years.  I sure as heck hope Wells Fargo is on the top of that list, but I know banking is not within my circle of competence.  I don't understand why some banks are able to get away with charging clients for simple services like checking when its available for free, or why people keep significant money on deposit when they could be earning 2-4% risk free with almost no leg work.  I've seen the type of attitude poor people have toward credit cards, how averse they are to any type of credit and think that there will be some habit changing going on.  Its kind of like Charlie Munger and Pavlov's dog, if this is a lollapalooza type economic event we'll have permanent changes to way people behave toward money.

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if there is a theme they are going after the industry leaders in each area with their equity investments - I knew they would step up but not this much this quickly - I am prepared to bet that the world is not going to end & Fairfax will end up making a lot of money buying at rock bottom prices!

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Guest ericopoly

I am looking forward to seeing a lot more WFC in the next filing.

 

 

They bought $328,000 worth of WSC?  It will be less than 10% of book value if it grows to a 1,000 bagger.  What is the point, honestly?

 

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Without the hedges, the equity portfolio value will be a tad more volatile in these tumultuous times. Below is the change in value of the top 19 positions from 12/31/08 to today. A drop of about 8.6% or 435 million.

 

12/31/08    2/17/09 Equity Positions

2,195,441 2,204,769 ODYSSEY RE HLDGS CORP

459,816 430,741 JOHNSON & JOHNSON

317,577 255,532 PFIZER INC

293,676 270,681 Kraft Foods Inc

271,289 235,719 DELL INC

234,720 211,360 Intel

195,414 130,639 General Electric

162,739 141,140 Frontier Communications

158,592 152,340 Magna International Inc

103,625 48,122 Wellsfargo

102,021 61,213 Alcoa

98,713 82,074 Burlington Northern Santa Fe

98,366 79,232 KING PHARMACEUTICALS INC

96,101 126,742 LEVEL 3 COMMUNICATIONS INC

69,019 49,127 INTERNATIONAL COAL GRP

65,074 32,740 Gannett Inc

56,892 47,434 USG CORP

42,645 34,865 Progressive Corp Ohio

36,463 28,669 OVERSTOCK COM INC DEL

 

5,058,183 4,623,137 total

              -8.60%

              -435,046

 

 

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ORH is consolidated so you don't want to count the movement in price one way or another,

which probably makes it worse YTD but really they're not going to be selling many of these positions for decades which explains Prem's recent comments on mark to market.    ::)

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I think they pulled the trigger too early.  One of the reasons I started investing in FFH was how well they were positioned for what Prem was calling a "1 in 100 year financial storm".    Now after experiencing a drop equivalent to something we saw 35 years ago I learn that he is buying.    I think he was right in the first place, and the financial storm is just beginning.  I think companies like GE and WFC have a > 50% chance of outright failure in the next 5 years, and frankly don't see the margin of safety.  Is anyone looking at those balance sheets?  Do people really think that huge numbers of the HELOCs WFC made in CA and AZ aren't going to default?   

 

 

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I've seen downright sub-sub-sub heloc loans ( mostly because of the laughable LTVs which can't be corrected by the highest FICOs!) made by Wells Fargo here in Jacksonville, just from being in the real estate business....

 

I too hope that Buffett and Prem are doing some intense research on WFC, not just "they've been around for 150 years". 

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Someone with the time should take one hundred loans from the banks that that they think are the most investable and check out surrounding property values.  It really doesn't take long once one is used to the local county property appraiser's websites.

 

Also, Buffett bought WFC originally at 3X DEPRESSED earnings not 6-7X inflated earnings.  Of course the Wachovia addition could add to the run-rate earnings but that is unknowable IMO.

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At the end of the day when you evaluate BRK and FFH you have to take into account Buffett's and Prem's investment capabilities. 

 

They can change their minds withouth you knowing.

 

they can (will and had) made mistakes, However I think this environemnt suits their styles and they have been waiting patiently for it.

 

I can not make myself buy WFC (or any other bank for that matter - circle of competence) I defer to them on those desicions.

 

More importanly, in FFH case, we are not seeing the whole port. (international, hedges, etc...)

 

 

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Guest ericopoly

"Is anyone looking at those balance sheets?  Do people really think that huge numbers of the HELOCs WFC made in CA and AZ aren't going to default? "

 

 

Pre-tax Pre-provision earnings in 2008 was $19.6 billion. 

 

Are you expecting defaults per annum in excess of that?

 

 

 

 

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I think what it really comes down to is where you think housing prices are headed.    I fully expect another 50% decline before all is said and done.  I don't have any numbers in front of me right now, but given the loans WFC made themselves in bubble prone areas, plus the Wachovia/Golden West portfolio, I expect them to have massive numbers of defaults.      I need to spend more time looking at numbers to see what % it would take to create $19.6B in losses.

 

 

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