Fairfax stock positions

[nwoodman]

1 hour ago, glider3834 said:

looks like they put most of their position on Q3'22 , Q1'23 https://www.dataroma.com/m/m_activity.php?m=FFH&typ=b 

 

not sure their avg cost but Micron was trading in a band from low 50s to low 60s - so if we assume high 50s cost & their position in MU unchanged since Q4'23, would be 2x based on AH pricing

 

 

Thanks @glider3834.  Nice to see a bit of instant gratification come their way.  MU’s forward guidance was strong too.  This may be another $500+m position in the making.

Edited March 21 by nwoodman

[Xerxes]

https://www.dataroma.com/m/m_activity.php?m=FFH&typ=b 

 

I love that one single share of BRK.A that they have like forever in their portfolio. Like a single piece of artwork just hanging on the wall. 

 

I guess they want some exposure to Prem Watsa of Omaha, just in case

[dartmonkey]

15 hours ago, glider3834 said:

looks like they put most of their position on Q3'22 , Q1'23 https://www.dataroma.com/m/m_activity.php?m=FFH&typ=b 

 

not sure their avg cost but Micron was trading in a band from low 50s to low 60s - so if we assume high 50s cost & their position in MU unchanged since Q4'23, would be 2x based on AH pricing

 

Blackberry 46.725m shares, trading at $2.74, so it's a $128m position

Micron 3.912m shares, trading at $111.85, so it's a $438m position

 

Fairfax got all it's money back on its $500m in convertible shares, plus $200m in interest, roughly a 4% annual return in an era of low interest rates, so that is not so bad. But the huge loss on the common ($802m now worth $128m) has to be Watsa's worst ever investment, with a $674m loss. At least this quick $220m gain on the Micron position takes some of the sting out of the BB losses. 

 

Still, I would love to see that Blackberry line gone from the Dataroma list, especially since many investors think that these $1.5b in US and Canadian public company holdings accurately represents their $6.9b in total mark to market public equity or their $16.5b in total public equity, or their $92b in total assets. The unfortunate $128m Blackberry position stills looks like a big deal given that it is almost 10% of that $1.5b, but looking at it as  context of the $92b in assets, it is only 0.14%, and is fading out of relevance. 

 

But the easiest way for that appearance to be corrected would be to just sell the stake and be done with it. Hopefully, now that the convertibles have been sold, Chen is gone and Watsa has left the board, that is something they may do soon.

[gfp]

5 minutes ago, dartmonkey said:

Still, I would love to see that Blackberry line gone from the Dataroma list, especially since many investors think that these $1.5b in US and Canadian public company holdings accurately represents their $6.9b in total mark to market public equity or their $16.5b in total public equity, or their $92b in total assets. The unfortunate $128m Blackberry position stills looks like a big deal given that it is almost 10% of that $1.5b, but looking at it as  context of the $92b in assets, it is only 0.14%, and is fading out of relevance. 

 

But the easiest way for that appearance to be corrected would be to just sell the stake and be done with it. Hopefully, now that the convertibles have been sold, Chen is gone and Watsa has left the board, that is something they may do soon.

 

Any misconception that helps the stock trade cheaply is a help, not a hindrance.  I hope for many misconceptions like "blackberry is material to fairfax" in my investments.

[dartmonkey]

21 minutes ago, gfp said:

 

Any misconception that helps the stock trade cheaply is a help, not a hindrance.  I hope for many misconceptions like "blackberry is material to fairfax" in my investments.

 

Yes, you have a point - although I myself am unlikely to add to my hugely oversized Fairfax position, the company is still repurchasing shares so I suppose we should rejoice in these misconceptions. And along the same line of thinking, there is no reason for us to wish for Fairfax to be included in the TSX 30, either. We get more shares repurchased for the same number of dollars, the longer the share price languishes. 

[Thrifty3000]

7 minutes ago, dartmonkey said:

 

Yes, you have a point - although I myself am unlikely to add to my hugely oversized Fairfax position, the company is still repurchasing shares so I suppose we should rejoice in these misconceptions. And along the same line of thinking, there is no reason for us to wish for Fairfax to be included in the TSX 30, either. We get more shares repurchased for the same number of dollars, the longer the share price languishes. 

 

I want the shares to triple overnight so I can exit and fly private the rest of my life.

[nwoodman]

Cross post to a summary etc of Micron's CC.  MS upgrade to $98/share.  Est EPS $6.84 '25, $8.33 '26.  

[Viking]

Operating Income of Non-insurance Consolidated Companies

 

Over the past couple of years Fairfax has been materially increasing the size of its non-insurance consolidated holdings. Revenue and ‘normalized’ earnings have been moving higher. However, the improving results over the past 2 years has been masked by large temporary or one-time write-downs/losses - so most investors are not aware of the many positive changes that have been happening under the hood. My guess is the earnings power for this group of holdings will begin to shine through fully in 2024. In the coming years, this bucket is poised to become a much more important income stream for Fairfax - in terms of size and consistency.

 

Let’s begin by getting some context.

 

The big picture

 

Fairfax has a very large equity portfolio – as of March 8, it has a total value of about $19 billion (including the FFH-TRS position at its current notional value of $2 billion). From an accounting perspective, equity holdings can be grouped into one of three buckets – based on how much of the company Fairfax owns and how much control it exerts.

 

In this post we are going to review the equity holdings that fall into the ‘Consolidated’ bucket. These are the holdings where Fairfax owns more than 50% (or has more than 50% voting control) and therefore has a control position.

 

The common stock ‘Consolidated’ holdings have a total value of about $2.8 billion, which is about 15% of Fairfax’s total common stock portfolio. I don’t think holdings like AGT Food and Ingredients and Sporting Life are included in the $2.8 billion. Bottom line, the group of ‘Consolidated’ holdings likely has a market value of well over $3 billion.

 

 

From an accounting perspective, the results of ‘Consolidated’ holdings are captured on the Consolidated Statements of Earnings in the ‘Non-insurance revenue’ and the ‘Non-insurance expenses’ line items.

 

What holdings are captured in this bucket?

 

Below is a list of all the companies - with a brief description of their primary business - that are included in the ‘Consolidated’ bucket.

 

 

Non-insurance companies

 

This reporting segment is comprised as follows:

• Restaurants and retail – Comprised principally of Recipe, Golf Town, Sporting Life and Toys “R” Us Canada (deconsolidated on August 19, 2021).
• Fairfax India – Comprised of Fairfax India and its subsidiaries, which are principally NCML and Privi (deconsolidated on April 29, 2021).
• Thomas Cook India – Comprised of Thomas Cook India and its subsidiary Sterling Resorts.
• Other – Comprised primarily of AGT, Dexterra Group, Boat Rocker, Farmers Edge, Grivalia Hospitality (consolidated July 5, 2022), Pethealth (deconsolidated on October 31, 2022) and Mosaic Capital (deconsolidated on August 5, 2021).

How much of each holding does Fairfax own? And what is the value?

 

The information below is from page 15 of Fairfax’s 2023AR and captures what they call the ‘common stock holdings’. My guess is their list does not capture a couple of important holdings: AGT Food and Ingredients, Sporting Life and possibly Meadow Foods. We were given the carrying value for Sporting Life in a different section so I have added that. However, we were not given a carrying value for AGT or Meadow and I have not bothered to guess. So the total for both carrying value and market value in the chart below are likely understated by quite a bit.

 

Interestingly, the excess of market value to carrying value for this collection of holdings is about $373 million. This number is also likely understated by quite a bit.

 

 

What do the financials look like for this group of holdings?

 

Over the past three years, revenue has increased 39% to $6.6 billion. However, pre-tax income has been low and stagnant, averaging about $60 million over the past three years.

 

 

Below is the split by reporting segment.

 

 

Notes:

• Pre-tax income (loss) before interest expense; excludes interest and dividends, share of profit (loss) of associates and net gains (losses) on investments.
• The majority of Fairfax India’s earnings fall into the ‘Share of Profit of Associates’ bucket.

 

What is driving the significant top line growth?

• Improving fundamentals: Companies in this bucket of holdings were significantly impacted by Covid, which was a significant drag on results from 2020 to 2022. Recipe (full serve, dine-in restaurants), Thomas Cook India (travel) and Dexterra (facilities management). Results from these these companies rebounded in 2023.

• Significant new addition: Grivalia Hospitality was added in 2022 when Fairfax increased its stake from 33.5% to 78.4% at a cost of $195 million. The position was increased further in 2023 to 85.2%.

• Significant increases in ownership: in 2022, Fairfax increased its stake in Recipe from 46% to 84% at a cost of $342 million. In 2022, Fairfax increased its stake in Sporting Life from 71% to 88.5% (funded via retained earnings).

• There also were a few notable sales / deconsolidations:
  • Restaurants & retail: Toys “R” Us Canada (deconsolidated on August 19, 2021)
  • Fairfax India: Privi (deconsolidated on April 29, 2021).
  • Other: Pethealth (deconsolidated on October 31, 2022) and Mosaic Capital (deconsolidated on August 5, 2021).

Bottom line, top line should grow nicely in 2024 and future years. And now a much larger share of earnings for these companies will flow through to Fairfax shareholders.

 

Pre-tax income at this group of holdings has been low the past four years due to significant temporary or one-time items.

 

As mentioned already, Covid was a significant headwind for Recipe, Thomas Cook India and Dexterra from 2020 to 2022. Thomas Cook India had a fantastic 2023. Recipe continues to right-size its business/structure/systems after a decade of rapid consolidation.

 

Farmers Edge took very large write downs in 2022 ($133.4 million) and 2023 ($112 million in losses) and the business is now carried at a $0 valuation. It was taken private by Fairfax in March of 2024. My guess is this business will stop bleeding money later in 2024.

 

Boat Rocker also saw a write down in 2023 ($26 million). This is now a small holding for Fairfax.

 

Grivalia Hospitality took a loss of $66 million in 2023. For the past couple of years, Grivalia has been investing heavily in building out its collection of ultra-high luxury resorts. 5 are now open. Revenue should materially increase in 2024. The company is pivoting its business from the investment phase to the operating phase which should lead to improving financial results.   

 

The significant temporary / one-time events of the past couple of years will likely decline in size moving forward. Headwinds will become tailwinds. And when they do, the earnings power of this collection of businesses will be released like a coiled spring.

 

Summary

 

The companies in this bucket of holdings have been undergoing significant positive changes over the past couple of years. (Just like the rest of Fairfax’s equity holdings.)

 

Poor performers are being wound down. Underperforming companies have been executing turn-around plans for the past couple of years and improved results are starting to show up. New holdings have been added in recent years. And Fairfax owns more of existing holdings.

 

Bottom line, the intrinsic value of the companies captured in this bucket has been increasing over the past three years. We should see earnings start to materially improve in the coming years. This group of companies is poised to become another meaningful and growing income stream for Fairfax.

 

Earnings estimate for 2024 and 2025

 

My current estimate is for this collection of holdings to deliver pre-tax earnings of $150 million in 2024 and $200 million in 2025. For reasons laid out above, these estimates will likely prove to be very conservative.

—————

A strategy question

 

Do we see Fairfax continue to build out this bucket of companies?

 

Do they aspire to become more of a holding company like Berkshire Hathaway in the coming years?

 

Are there strategic advantages to Fairfax of having a few large wholly owned cash generating equity holdings to complement their P/C insurance business?

 

What do board members think?

 

I don’t think Fairfax wants to go full Berkshire in the coming years. Unlike Berkshire, at the appropriate time, Fairfax sells assets - I expect Fairfax will monetize one or more of its non-insurance consolidated holdings in the coming years. And I suspect it is still a priority for Fairfax to grow its P/C insurance business.

----------

From Prem's Letter, FFH 2023AR: "As the table on page 15 shows, the consolidated investments include the following: Recipe, Fairfax India, Grivalia Hospitality, Thomas Cook India, Dexterra Group and Boat Rocker Media. Our consolidated investments are significant, producing total revenue of $6.6 billion and pre-tax income of $271 million in 2023. Fairfax India had pre-tax income of $380 million, Recipe $38 million, Thomas Cook $27 million and Dexterra $29 million. Those were offset by losses at Grivalia of $66 million, Boat Rocker $26 million and Farmers Edge of $112 million which included impairments of $64 million."

 

From Prem's Letter, FFH 2022AR: "As the table on page 13 shows, consolidated investments include the following: Recipe, Fairfax India, Grivalia Hospitality, Thomas Cook India, Boat Rocker Media, Dexterra Group and Farmers Edge. Our consolidated investments are significant, producing total revenue of $5.6 billion, EBITDA of $743 million and pre-tax income of $303 million (excluding a $133 million writedown of Farmers Edge) before minority interest in 2022."

 

Edited March 22 by Viking

[SafetyinNumbers]

On 3/21/2024 at 12:20 PM, dartmonkey said:

 

Yes, you have a point - although I myself am unlikely to add to my hugely oversized Fairfax position, the company is still repurchasing shares so I suppose we should rejoice in these misconceptions. And along the same line of thinking, there is no reason for us to wish for Fairfax to be included in the TSX 30, either. We get more shares repurchased for the same number of dollars, the longer the share price languishes. 

I think long term holders should prefer a much higher multiple because the optionality of raising money at a low cost of capital if it’s needed because of a shock or an opportunity comes along is worth more than buying shares at 1.2x BV. If the goal is a higher ROE and BVPS, a higher multiple helps a lot more.

[dartmonkey]

13 hours ago, SafetyinNumbers said:

I think long term holders should prefer a much higher multiple because the optionality of raising money at a low cost of capital if it’s needed because of a shock or an opportunity comes along is worth more than buying shares at 1.2x BV. If the goal is a higher ROE and BVPS, a higher multiple helps a lot more.

I see your point about raising money - if shares were at 2x BV they could issue shares rather than selling bonds at 8% or selling preferred shares to OMERS and paying them 8%. 

 

But I don’t see how the company’s share price has much to do with ROE (except marginally, by decreasing interest cost.) Say the share price rose to $2000, or 2x book, how will that help them increase book more quickly?

 

I guess the ideal would be to get the best of both worlds: low share price for a while to repurchase shares cheaply, then a high price to issue shares profitably. I’m just stating the obvious, buy cheap and sell dear, but it would be good to get a little bit of the "sell dear" part for a while. 

[SafetyinNumbers]

46 minutes ago, dartmonkey said:

I see your point about raising money - if shares were at 2x BV they could issue shares rather than selling bonds at 8% or selling preferred shares to OMERS and paying them 8%. 

 

But I don’t see how the company’s share price has much to do with ROE (except marginally, by decreasing interest cost.) Say the share price rose to $2000, or 2x book, how will that help them increase book more quickly?

 

I guess the ideal would be to get the best of both worlds: low share price for a while to repurchase shares cheaply, then a high price to issue shares profitably. I’m just stating the obvious, buy cheap and sell dear, but it would be good to get a little bit of the "sell dear" part for a while. 

Issuing shares above book value increases book value pretty quickly. In the late 1990s, Fairfax (and BRK for that matter) benefited greatly from issuing shares over 3x book on top of booking 20%+ ROE/year for four years. BVPS roughly doubled on the fundamental performance but BVPS was up another ~$90+ off of the share issuance alone as the share count was up 33%. 
 

If the share issuances are used to buy investments with ROI > 10% when combined with the leverage and offset by little dilution increases the ROE. This is the benefit Intact Financial enjoys with its P/B of 2.5x+. They issue equity to do acquisitions at 1x premiums which make them automatically accretive in a big way. The best thing shareholders can do for good capital allocators is to give them a low cost of capital.

 

[Xerxes]

Berkshire was not designed with an end goal in mind of what it ought to look like. It sort of happened over the decades, as different opportunities came and some were added. Mostly by being an opportunity at the right time. 
 

Markel in contrast was “architectured” with a clear goal of having a non-insurance business (Ventures) to grow in parallel. Copying Berkshire. 
 

Fairfax copied the float idea from Berkshire (easier said than done of course) but ultimately Fairfax was there first as an investor. The insurance outfit was added  as a source of float to invest (what Ackman wishes to have). I don’t think there is any “architectural” copying from Berkshire except for the float. 
 

One could say Fairfax’ international profile is in deep contrast to Berkshire’ largely domestic business. That takes courage !!

[This2ShallPass]

On 3/10/2024 at 10:15 AM, Viking said:

Bottom line, Fairfax looks very well positioned today. But the story gets better: like the past 6 years, I expect the quality of Fairfax's equity holdings to continue to improve in 2024. That will improve future returns. And, like a virtuous circle, the growing cash flows will be re-invested growing the companies even more.

 

Thoughts? Am I missing something? What number below is most wrong? Why?

 

 

Thanks @Viking for another great post. Appreciate your deep dives into various aspects of Fairfax.

 

BDT and ShawKwei partners, combined investment is $1.2B. Has anyone followed them, are these good inv managers?

 

They have done great on their big investments, but when looking at this portfolio, first thought that comes to me is why is this high quality? Most  investments seem to be in cyclical industries, economically / politically unstable countries (Sri Lank, Egypt) etc. 

 

Even Atlas doesn't look to be doing that great from @nwoodman post. Pretty much all the metrics seemed to have worsened. I haven't followed Atlas, is this really a homerun investment? They are in a not so great industry though.

 

[This2ShallPass]

On 3/15/2024 at 4:06 PM, Dinar said:

That is correct.  In terms of IRA, yes, but with a caveat if you put in more than USD 100K, there may be a filing requirement.  I am having my accountant check on it.  

@Dinar did you find more details on this?

 

The one requirement US has is on FBAR. US citizens have to file every year (during tax time) if they have foreign financial assets above $10k. No implication on taxes unless your end of year balance is >$100k (and >$150k any time of the year). But I don't think this applies to securities held in US brokers.

[nwoodman]

@This2ShallPass  I am hoping there a few questions asked about Atlas at the AGM. As referred to in an earlier post Graham Talbot the CFO departed after the last Fairfax AGM. It would be great to get some color around his leaving along with an overall update on their thinking in regard to this very large position.

 

https://www.linkedin.com/in/grahamstuarttalbot?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=ios_app

[Dinar]

6 hours ago, This2ShallPass said:

@Dinar did you find more details on this?

 

The one requirement US has is on FBAR. US citizens have to file every year (during tax time) if they have foreign financial assets above $10k. No implication on taxes unless your end of year balance is >$100k (and >$150k any time of the year). But I don't think this applies to securities held in US brokers.

From what my accountant told me before, FBAR does NOT apply to foreign stocks held in US brokerage accounts.  My accountant is still working on the IRA requirements, once she is done, I will let you know (it is a large firm, she is checking with another department, and my guess is that everyone is trying to cover their behind...)

[Viking]

14 hours ago, This2ShallPass said:

 

Thanks @Viking for another great post. Appreciate your deep dives into various aspects of Fairfax.

 

BDT and ShawKwei partners, combined investment is $1.2B. Has anyone followed them, are these good inv managers?

 

They have done great on their big investments, but when looking at this portfolio, first thought that comes to me is why is this high quality? Most  investments seem to be in cyclical industries, economically / politically unstable countries (Sri Lank, Egypt) etc. 

 

Even Atlas doesn't look to be doing that great from @nwoodman post. Pretty much all the metrics seemed to have worsened. I haven't followed Atlas, is this really a homerun investment? They are in a not so great industry though.

@This2ShallPass you ask a great question: “is Fairfax’s equity portfolio high quality?” (I am paraphrasing your question so please correct me if i got it wrong.)

 

This is a hard question to answer. Compared to what?

 

Here is the question i am asking: “is Fairfax’s total equity portfolio increasing in quality?”

 

Using a time horizon of 6 years or more, I think the answer to this second question is an unambiguous yes.  
 

Go back to 2017 and look at Fairfax’s equity portfolio. Blackberry was a big position (when you include the debentures). Exco. Fairfax Africa. Farmers Edge. APR Energy. AGT Foods. Mosaic Capital. Astarta. Resolute Forest Products. Recipe. Eurobank.

 

Back in 2017, the drag on the equity portfolio was twofold:

- many positions were poor performers - definitely not hitting Fairfax’s 15% return target.
- many holdings were actually bleeding money - in total, hundreds of millions every year (losses, write-downs, etc).

 

The underperformance/losses from equity portfolio was a material amount. For years, this depressed the total return Fairfax was earning on its equity portfolio. This bled through to Fairfax’s total results and structurally lowered earnings and ROE for years. This in turn lowered the P/BV multiple Mr Market assigned to Fairfax’s share price. 

 

Fast forward to 2024. It is amazing to me the transformation that has happened within Fairfax’s equity portfolio. When you look at the change that has happened over the past 6 years, it’s like someone came in and completely cleaned house. Think of a sports franchise where the GM and coach both get fired at the same time and a new regime takes over - with a new philosophy.
 

With Fairfax, it looks to me like a new regime has taken over except we don’t know what happened internally (yes, i am talking metaphorically here). And it is pointless to speculate (and not fair to the people involved). Of course, i am exaggerating to make my point. And as per usual i am getting off topic.

 

What were some of the changes?

 

Internal
1.) restructured: Exco

2.) put into ‘run-off’: Fairfax Africa, Farmers Edge, Boat Rocker

3.) sold: APR, Mosaic, Resolute Forest Products

4.) take private: AGT, Recipe

5.) other: Blackberry $500 million debenture has been exited

 

External

1.) Greece elected a pro-business government in 2019/2023: Eurobank

Six years later, we are almost to the finish line. Farmers Edge and Boat Rocker might deliver another $50 million in losses/writedowns moving forward.

 

The equity portfolio will always have a few laggards. Fairfax’s problem in 2017 was it was stuffed with problem children. 

Looking forward

Importantly, it looks to me like Fairfax has a new framework for how it manages its equity portfolio. Hamblin Watsa is not a turn-around shop. A higher premium has been put on management. All holdings are now expected to deliver an acceptable return - Fairfax will no longer be a piggy bank for chronically underperforming units. Moving forward, capital will go to the best risk/adjusted opportunities. Bottom line, really like what i have seen from management since 2018.
 

Why do we care today? 
 

If the quality of the equity holdings is materially better than it was pre-2017 then the return it will be capable of delivering moving forward will be much higher than in the past. The change is the key. Higher earnings = higher ROE = higher P/BV multiple.

 

The best example of the improvement is the ‘share of profit of associates’ bucket. Driven by Eurobank, is is now delivering +$1 billion per year in pre-tax earnings.

 

I think the non-insurance consolidated holdings are getting ready to pop higher in the coming years.

 

And i think the table is getting set for Fairfax to start delivering higher than expected ‘gains on investments’ - unrealized and realized.

 

The great thing is investors are currently expecting historical (low) returns from Fairfax’s equity portfolio - sustainable higher future returns is not built into Fairfax’s stock price today. 

 

Two things drive earnings at Fairfax:

 

1.) insurance - underwriting profit

2.) investments - average return on investments

 

I think Fairfax’s insurance business and investment portfolio has been slowly, incrementally improving in quality since 2017. If my thesis is correct then future earnings will likely continue to surprise to the upside. It will take years for all the positive changes to fully flow through to earnings. As i stated already, higher earnings = higher ROE = higher P/BV multiple.

Edited March 25 by Viking

[This2ShallPass]

22 hours ago, Viking said:

Go back to 2017 and look at Fairfax’s equity portfolio. Blackberry was a big position (when you include the debentures). Exco. Fairfax Africa. Farmers Edge. APR Energy. AGT Foods. Mosaic Capital. Astarta. Resolute Forest Products. Recipe. Eurobank.

 

Yes, that's the question I was trying to ask Viking - is Fairfax equity holdings high quality? They have knocked it out of the park in the last 6 years and it's been amazing. But, looking at the equity portfolio list, are the current holdings that different from this list from 2017 (without the benefit of hindsight of course)..

 

Atlas - most metrics have worsened. Not a good industry

Recipe - what has fundamentally changed to make it a better business?

Grivalia - yet to be proven, seems like a jockey bet on the CEO

Kennedy Wilson - down 50% last year and 35% ytd, temporary blip or fundamental issues?

Mining - cyclical industry, why is this different than buying Resolute 10 years back?

John Keels / CIB - is Sri Lanka and Egypt the best places for money. What specific advantage Fairfax has investing in these countries?

BDT/Shaw Kwei - what are their historical returns and why are they different from Mosaic capital

Dexterra - what has changed

 

I'm not suggesting these are poor businesses, but the portfolio is starting to slightly worry me. One of the concerns many here had back in the day was Fairfax always buys very cheap and low quality businesses, how can we be sure they're not going back to old habits. 

 

[Xerxes]

On 3/9/2024 at 3:15 PM, lathinker said:

Do people on this board have toughts on Commercial International Bank ? It is the largest position of the "Common Stocks - Mark-To-Market" section with a value of 480m USD per end of 2023. In the annual letter, Prem states that "The key driver of value to Fairfax and other foreign investors in CIB is the stability of the Egyptian Pound."

 

Well, last week, we learned that the stability is a thing of the past since the EGP was devalued from about 30 to 50 per USD and Egypt received an IMF package. Interest rates stand at 28%:

 

https://www.reuters.com/world/middle-east/egypt-raises-interest-rates-by-600-bps-pound-tumbles-2024-03-06/

 

It is still a small position in relation to FFH and the development may not even harm CIB too much, but it underscores the risks of EM investing.

see this podcast. 
the sheer size of this Emirati FDI in Egypt is staggering. Looks like one of the UAE SWF owns a piece of CIB as well. 
 

[valueventures]

Strathcona is supposed to be releasing earnings tonight and having an earnings call tomorrow. 

[Parsad]

On 3/23/2024 at 9:59 AM, Xerxes said:

Berkshire was not designed with an end goal in mind of what it ought to look like. It sort of happened over the decades, as different opportunities came and some were added. Mostly by being an opportunity at the right time. 
 

Markel in contrast was “architectured” with a clear goal of having a non-insurance business (Ventures) to grow in parallel. Copying Berkshire. 
 

Fairfax copied the float idea from Berkshire (easier said than done of course) but ultimately Fairfax was there first as an investor. The insurance outfit was added  as a source of float to invest (what Ackman wishes to have). I don’t think there is any “architectural” copying from Berkshire except for the float. 
 

One could say Fairfax’ international profile is in deep contrast to Berkshire’ largely domestic business. That takes courage !!

 

Prem was heavily influenced by Sir John Templeton.  They've always had a more global vision for investing/business than any other value team I know of...other than Peter Cundill.  Cheers!

[Parsad]

On 3/25/2024 at 10:39 AM, Viking said:

 

I think Fairfax’s insurance business and investment portfolio has been slowly, incrementally improving in quality since 2017. If my thesis is correct then future earnings will likely continue to surprise to the upside. It will take years for all the positive changes to fully flow through to earnings. As i stated already, higher earnings = higher ROE = higher P/BV multiple.

 

I think this is attributable primarily to Andy Barnard on insurance and Wade Burton/Lawrence Chin on investments.  The culture is now there of quality at a fair price, rather than lesser quality at a great price.  Cheers!

[Viking]

On 3/26/2024 at 9:36 AM, This2ShallPass said:

Yes, that's the question I was trying to ask Viking - is Fairfax equity holdings high quality? They have knocked it out of the park in the last 6 years and it's been amazing. But, looking at the equity portfolio list, are the current holdings that different from this list from 2017 (without the benefit of hindsight of course)..

 

Atlas - most metrics have worsened. Not a good industry

Recipe - what has fundamentally changed to make it a better business?

Grivalia - yet to be proven, seems like a jockey bet on the CEO

Kennedy Wilson - down 50% last year and 35% ytd, temporary blip or fundamental issues?

Mining - cyclical industry, why is this different than buying Resolute 10 years back?

John Keels / CIB - is Sri Lanka and Egypt the best places for money. What specific advantage Fairfax has investing in these countries?

BDT/Shaw Kwei - what are their historical returns and why are they different from Mosaic capital

Dexterra - what has changed

 

I'm not suggesting these are poor businesses, but the portfolio is starting to slightly worry me. One of the concerns many here had back in the day was Fairfax always buys very cheap and low quality businesses, how can we be sure they're not going back to old habits. 

 

 

@This2ShallPass , great discussion. I am preparing a longer post on this topic because I think it is important. 

 

Quick question: how do you define 'high quality'? What metrics/criteria do you look at to help you determine if a company is 'high quality'?

 

[Viking]

16 hours ago, Parsad said:

 

I think this is attributable primarily to Andy Barnard on insurance and Wade Burton/Lawrence Chin on investments.  The culture is now there of quality at a fair price, rather than lesser quality at a great price.  Cheers!

 

@Parsad I wonder if Fairfax has not been a tale of two businesses over the past decade. My guess is the insurance operations have been slowly improving in quality since Andy was put in his role (overseeing all insurance operations) in 2011. Every year Fairfax makes a couple of tweaks to its insurance operations to improve them - in 2023 it was reducing Brit's catastrophe exposure. Bottom line, insurance has been a solid business at Fairfax for the past decade. When I describe Fairfax as a turnaround play I am really doing a dis-service to the insurance operations.

 

Where the wheels came of Fairfax was on the investment side of the business. Yes, global central banks zero interest rate policies stunted the returns of the fixed income portfolio over the past decade (pre-2022). But fixed income wasn't really the problem.

 

Fairfax's problems from 2010-2020 were twofold:

1.) equity hedges / shorts

2.) equity portfolio

 

The first problem has been addressed. And, looking at the decisions the team at Hamblin Watsa has been making over the past 6 years, it looks to me like the second problem has also been addressed. At the AGM I would like to ask Wade Burton a question - what is the investing framework Hamblin Watsa uses today when investing in equities? Have there been any tweaks to the framework over the past 6 years or so? 

Edited March 27 by Viking

[Parsad]

3 hours ago, Viking said:

 

@Parsad I wonder if Fairfax has not been a tale of two businesses over the past decade. My guess is the insurance operations have been slowly improving in quality since Andy was put in his role (overseeing all insurance operations) in 2011. Every year Fairfax makes a couple of tweaks to its insurance operations to improve them - in 2023 it was reducing Brit's catastrophe exposure. Bottom line, insurance has been a solid business at Fairfax for the past decade. When I describe Fairfax as a turnaround play I am really doing a dis-service to the insurance operations.

 

Where the wheels came of Fairfax was on the investment side of the business. Yes, global central banks zero interest rate policies stunted the returns of the fixed income portfolio over the past decade (pre-2022). But fixed income wasn't really the problem.

 

Fairfax's problems from 2010-2020 were twofold:

1.) equity hedges / shorts

2.) equity portfolio

 

The first problem has been addressed. And, looking at the decisions the team at Hamblin Watsa has been making over the past 6 years, it looks to me like the second problem has also been addressed. At the AGM I would like to ask Wade Burton a question - what is the investing framework Hamblin Watsa uses today when investing in equities? Have there been any tweaks to the framework over the past 6 years or so? 

 

Hi Viking,

 

Yeah, I think that would be a great question.  It would provide more color on the investment strategy at Fairfax going forward.  

 

Cheers!