Fairfax today

[petec]

I have a slightly different view of Fairfax. If the world muddles through, then I expect returns to be mid single digit, lumpy, not outstanding. However, if stock markets crater 40-60%, I expect fairfax to be a fine investment, looking through the crisis, and 3-5 years beyond.

 

I am prepared to accept middling returns on Fairfax in the muddle through scenario, if it gives me optionality in a crisis and an imperfect hedge (not to mention mental resolve). To look at their portfolio of 1. Bonds 2. Cash 3. Market hedges at 100% of equities 4. deflation hedges on CPI - I struggle to imagine a stock that would better preserve capital, in the crash scenario. Have you found a better equity alternative?

 

To the final point on insurance, can we agree it is really reinsurance that is lacklustre? The Fairfax team have reduced the insurance book and are well prepared for the inevitable hard market.

 

I am commenting here in the hope that I will be corrected on any imperfect understanding of Fairfax that I have.

 

Joel I completely agree with your thinking here and especially your point about mental resolve - it is one of the few stocks that I don't have an itch to sell given my macro concerns.  This (macro stress) may be my weakness as an investor but you have to work with what you've got and who you are!  FFH allows me to stay much closer to fully invested and still sleep. 

 

FYI other companies that will preserve capital and have a strong value bent for investing at the bottom are Personal Assets Trust and Capital Gearing Trust in the UK.  The advantage these companies have over FFH is that they are better protected against an inflationary bust as opposed to a deflationary one.

 

I do also agree with SD on the valuation, which is why I started this thread - although the stock has kindly come in a bit since so I don't need to worry as much ;)

[cwericb]

JoelS & Petec. You pretty well express my exact thoughts.

 

I would add that it also seems that every few months Fairfax brings another insurance company into the fold as Fairfax becomes a global insurance company.

[Guest JoelS]

Petec,

 

Thanks for the interesting UK ideas. I have taken a quick look at both and I like what I see.

 

Does anyone know roughly what proportion of Fairfax's conservative investments (LT bonds, cash, hedges etc) can be converted to higher risk assets (equities, convertibles etc) without affecting the ongoing insurance operations and regulatory requirements? It would be interesting to know approximately how much of their dry powder can be put to work.