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Is FFH overvalued?


shalab
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Book value at Q2 2018 - 453.99 USD

Book value at Q2 2011 - 379.46 USD

 

7 year growth => 19.8%

 

If one adds in the $10 dividends at $70, total book value growth is 38%

 

Even the gain in India investments only accounts for 6% of book value. (800 mm). India market has lost 10-20% of its value since the beginning of this year.

 

As Buffett has mentioned, ultimately the return on a stock is a reflection of the return on the business. What kind of growth in business can one expect moving forward? Buffett has also mentioned that insurance/re-insurance is not as attractive as it used to be. So is FFH worth anything above book? (especially since it is now at 1.2 times book)

 

Now there are so many cheap stocks in the market - e.g:, MO which has returned 23.7% for the last twenty years!

 

 

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Book value at Q2 2018 - 453.99 USD

Book value at Q2 2011 - 379.46 USD

 

7 year growth => 19.8%

 

If one adds in the $10 dividends at $70, total book value growth is 38%

 

Even the gain in India investments only accounts for 6% of book value. (800 mm). India market has lost 10-20% of its value since the beginning of this year.

 

As Buffett has mentioned, ultimately the return on a stock is a reflection of the return on the business. What kind of growth in business can one expect moving forward? Buffett has also mentioned that insurance/re-insurance is not as attractive as it used to be. So is FFH worth anything above book? (especially since it is now at 1.2 times book)

 

Now there are so many cheap stocks in the market - e.g:, MO which has returned 23.7% for the last twenty years!

 

Rather depends on whether you think the next 7 years looks like the last. It would be odd if they did, given the hedges are gone and they can now earn at least something on cash. But to really juice this you need market weakness so that cash can be deployed. If that happens the next 7 look very different to the last 7.

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Personally I’d be surprised it if didn’t do at least 7% over most 10y periods in the future. Having the 2 year at 2.7% makes a world of difference to that.

 

Also, they don’t, and if history is a guide won’t, invest only in good businesses. They’ll invest in cheap businesses. Some will do very well, some won’t.

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Personally I’d be surprised it if didn’t do at least 7% over most 10y periods in the future. Having the 2 year at 2.7% 2.82% makes a world of difference to that.

 

Also, they don’t, and if history is a guide won’t, invest only in good businesses. They’ll invest in cheap businesses. Some will do very well, some won’t.

 

 

 

Agreed, and made a little fix for you.

 

 

SJ

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When I started investing in FFH many years ago, they were known as investment wizards with poor underwriting.  Today, they are known for their good underwriting and poor investments.  We have yet to see a Fairfax hitting on all cylinders!  That being said, I'm part of the group that believes the future will be brighter for FFH <Please disregard my bias handle>

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This board includes many who are very knowledgable on FFH. What is the long term assumption on FFH stock price?  Is it reasonable to say FFH will double every 5-10 years? - ie: compound at 7-15%/yr over any 10 year period in the future.

 

7-15% is a pretty large range.  I would expect Fairfax to return a compound return in that range over the next 10 years starting from today.  I am not sure what you mean by "any" 10 year period in the future.  If the stock rises 50% in the next year, without a corresponding change in IV, I would be less optimistic on the 10-year return from then.

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The important factor is in what the intrinsic value is...and that will give you an indication of what the future returns will be.

 

Insurance operations-many doubted this for a longtime and it is the backbone to Fairfax now

 

Capital allocation-a lean 7 years to say the least! Are they moving in the right direction?2017 was a an unbelievable year but was tarnished by record hurricane losses.

 

Opportunity-emerging markets may be the in the best shape for value in decades especially India...rising rates will create bond volatility and Bradstreet is the best in the world at buying bonds

 

Capital structure-are we an issuer of shares or a buyer? They bought half a billion back last year

 

Interest rates-if the entire portfolio was put in short term treasuries it would produce $800m more            than it would have two years ago!

 

Rear view thinking is the killer of investing returns.

 

 

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