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FRFHF vs HD in the last 10 years


shalab
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I looked at FRFHF prices in 2009 - opening price was $280. HD opening price was $20. After a decade, we have FRFHF at $464. HD is at $177.0. In the meantime, FRFHF has paid out $100 in dividends whereas HD has paid out ~$18 in dividends.

 

To keep the calculation simple, we will simply add the dividends to the stock appreciation and it is the same calculation for both.

 

Cumulative value generated by HD - $195. Cumulative value generated by FRFHF $564.

 

Compounding rate for 10 years:

 

HD: 25.57%

FRFHF: 7.3%

 

 

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Another example of Buffett's quote "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price". My son (8th grade) and I were looking at these two investments today. The dividends almost covered the price paid over a period of ten years. Fortunately, I don't hold much FRFHF in my portfolio any more - trimmed it down around 2012.

 

shalab,

 

To me, a meaningless comparison you've done. -So what?

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Home Depot is just plainly a great business. A chimpanzee could run it, with outsized returns.

 

FFH IMO is a business that is what you make of it, with a very astute manager. The problem is, even great managers can make mistakes and be wrong. I don't know how you can f*ck up Home Depot...

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FRFHF - 2009 Chairman's letter:

 

This, combined with our ability to invest the float well over the long term, is why we

could achieve our long term objective of 15% per annum compounding of book value per share over time. The table

below shows you the breakdown of our year-end float for the past five years

 

FRFHF - 2018 Chairman's letter:

With $40 billion in investments, a current run rate of $11.5 billion in net premiums written and $12.5 billion in

common shareholders’ equity, we need an investment return of approximately 7% in order to achieve an annual

15% increase in book value per share, assuming a consolidated combined ratio of 95% at our insurance operations.

We  have  drilled  deeper  and  by  analyzing  each  of  our  consolidated  insurance  companies  (a total  of  21), we  have

estimated  the  investment  return  needed  for  each  company  in  order  for  us  to  achieve  our  15%  target.  We  have

delegated investment responsibility for each of our insurance companies to one member of our investment team.

 

10 years is a long time - at some point, they could have dropped the 15% per annum target. There are other issues that people have raised - family members on the board, diluted book value per share etc. It is not all roses and sunshine with this one.

 

shalab,

 

OK, but to me it reads somewhat snide here. Personally, from here, I'll let this topic go. [Not worth my time.]

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FRFHF - 2009 Chairman's letter:

 

This, combined with our ability to invest the float well over the long term, is why we

could achieve our long term objective of 15% per annum compounding of book value per share over time. The table

below shows you the breakdown of our year-end float for the past five years

 

FRFHF - 2018 Chairman's letter:

With $40 billion in investments, a current run rate of $11.5 billion in net premiums written and $12.5 billion in

common shareholders’ equity, we need an investment return of approximately 7% in order to achieve an annual

15% increase in book value per share, assuming a consolidated combined ratio of 95% at our insurance operations.

We  have  drilled  deeper  and  by  analyzing  each  of  our  consolidated  insurance  companies  (a total  of  21), we  have

estimated  the  investment  return  needed  for  each  company  in  order  for  us  to  achieve  our  15%  target.  We  have

delegated investment responsibility for each of our insurance companies to one member of our investment team.

 

10 years is a long time - at some point, they could have dropped the 15% per annum target. There are other issues that people have raised - family members on the board, diluted book value per share etc. It is not all roses and sunshine with this one.

 

shalab,

 

OK, but to me it reads somewhat snide here. Personally, from here, I'll let this topic go. [Not worth my time.]

 

It certainly isn't all roses and sunshine with FFH. I don't think anyone is arguing that it is.

 

I love HD as a business - but I imagine it was trading at a pretty low multiple in 2009, when FFH was flying high because of the success of its CDS bet. FFH has then had a torrid time with the hedges -  a mistake they have said they won't repeat - while HD has benefited from some epic money printing and cheap mortgage availability. HD may well be a better genuinely long term investment than FFH - I have no dog in that fight - but when the 9 year period you've picked happens to coincide with one prolonged upcycle, then I don't think you can argue it's a long time. Any definition of "a long time" needs at minimum to include one complete business cycle IMHO. We are a long way from completing the business cycle that started at the bottom in 2009.

 

 

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This is cherry picking....if you back one or two more years you have a very different result and if you go back 15 years it is likely a better return at Fairfax.

Moving forward I would bet a lot of money on Fairfax having a better return.

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  • 2 weeks later...

My 2 cents:

1) not sure why you chose HD to compare to FFH...

2) while practically every stock suffered price loss due to RE/Financial crisis, drops in prices for real estate related companies was much worse

3) HD in 2009 was at generational lows in terms of normalized valuation, some even saying business was at risk of never looking the same...so, of course rebound was much, much more pronounced

4) Here's another example, which also wouldn't make much sense to me: AXP - AXP went from <$10 to now $111

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