Fairfax 2008 Year-end Results (February 19, 2008)

[SFValue]

thank you for the comment, was wondering If I was missing something..

 

how easy to say that you only care about the biz and forget about the quote but how difficult to do...

 

from a risk / reward perspective I kind of agree that at his prices it is a better deal than a few years ago....

 

 

[woodstove]

I don't think Fairfax has "gone all in to equities".  What was said in late 2008, as I recollect, was that they felt it was time to start going in but that it was not yet a bottom - too unpredictable.

 

This gets to the question of strategy - and wondering if it is worthwhile for Fairfax to follow along Berkshire style, investing in operating businesses.

 

Fairfax has a number of investments in over-leveraged firms, which would be better if recapitalized.  Essentially Fairfax's position is large enough that they are the go-to people for recapitalization, first right of refusal.  So Fairfax can pick and choose among its options to place largish-sums, say $100m-ish, for decent returns say 15 pct.  That's 15 pct on a business basis, not necessarily 15 pct cash flow via interest on debt.  Think of Buffett's concept of equity bond.  Should make for some great opportunities.  And perhaps better than share buybacks.

[Uccmal]

I was looking up the past two times when I piled into FFH Leaps.

 

The first time was in Summer of 2006 - The book value was around 145 (restated) and the stock was 100-120.  So it was trading at 70% to 80% Book.  Many of us loaded up and a couple retired.  The company had bonds that were out of the money, CDS contracts that no one was paying any attention to.  The Short game was going full run (then the lawsuit was announced).  Markets were bouyant.  FFH had just finished two winters of selling stock at below book to Southeastern and Markel.  They had just sold out 20% more of ORH.  The SEC/DOJ were hot on their trail over finite re and some comments Prem made in the winter conference call.  Runoff was eating vast amounts of cash.

 

The second time was the summer of 2007 - Book value was about 170 (ended year at 240 after CDS gains) - share price was $200.  Things started to really turn in July when I was buying the Futures.  They started to report gains on the CD portfolio.  Things really begain to turn later in the year.

 

Now:  BV is 285/share.  The situation at FFH is so vastly different than 2.5 years ago as to be non-comparable.  Once need only read the annual from 2005 (February 2006) and the subsequent two Q reports to see what a shambles the company was in.  There is simply no comparison.  The major difference for me this time is that the Leaps are simply not as cheap.  The other difference is that I had 50% of my net in FFH 3 weeks ago before the downtrend so this has really hurt bad.  I would think a 20% increase in the S&P and its associated components (GE, WFC, JNJ etc) should be enough to fire up the stock into the 300s again.   

 

 

[NumquamPerdo]

So Al, does that mean that you're piling into the LEAPS again?  If so, we're on the same wavelength.  I think we had the same timing the last couple of times.  However, I lifted the offer on some today and got filled on... 1 contract.  So much for market makers adding liquidity.

[Viking]

woodstove, regarding strategy and FFH & BRK, I view them each as very different animals. BRK to me is the 800lb Fort Knox. They are so large their investment options are quite limited (although not the case in the current market environment). Buffett also is looking for cash flow machines. And he is looking for companies to buy outright (again he has the size to do this).

 

FFH to me is much more like a shareholder oriented hedge fund. I do not hold them primarily as an insurance company with solid underwriting skills. I hold them because I think they are great investors who care about their partners. The current environment must have them salivating at all the opportunities. Compared to BRK, I think they offer a higher return but also higher risk.

 

Love both companies but hold for two very different reasons. 

[Uccmal]

Hi NP, Yes, Unfortunately I bought a few before the downdraft and am temporarily overextended.  I did by one 220 yesterday.   

 

My ideal scenario:  FFH stock value stays put for now.  S&P rises 20-30%, or more, from here.  I hold about 10000 leaps on the SPY exchange traded fund.  Unfortunately, I expect they will more or less move in tandem since FFH is now perceived as holding a basket case of US mega caps or former mega caps.

 

Al.

[Guest ericopoly]

Conference Call transcript from Seeking Alpha:

 

http://seekingalpha.com/article/121766-fairfax-financial-holdings-q4-2008-earnings-call-transcript?source=yahoo&page=1

 

I can understand why people are put-off by all the discussion of why underwriting was bad in 2008.  A CR of 110 is just not very good, and saying that if all this bad stuff we insured against didn't happen and if exchange rates didn't fluctuate, our CR would have been in the mid 90s is a little weak. 

zarley

 

 

Exchange rates have nothing to do with underwriting.  Otherwise, perhaps we'll just wait for the USD to tank again and be ready to say "well done!" for the fabulous underwriting as the results swing the other way.  Please accept this as a no brainer exclusion.