Fairfax stock positions

[nwoodman]

Reuters article summarising the state of play in India.  I hadn’t realised Emirates NDB were also in the running for Yes Bank.  

 

Foreign lenders lured by rare stake sales in India banks, but tighter rules weigh

 

Summary:

1. Stake sales:
   - Yes Bank: 51% stake
   - IDBI Bank: 60.72% stake

2. Interested foreign entities:
   - SMBC (Japan), Emirates NBD, Fairfax Group (Canada)

3. Indian market attractiveness:
   - Economic growth forecast: 7.2%
   - Bank credit growth: ~14.4% (2x economic growth)
   - Gross bad loans: 2.8% of total assets

4. Foreign lenders' market share:
   - March 2000: 8.4%
   - March 2024: 3.4%

5. State-owned banks' dominance:
   - 52% of bank credit

6. Valuations:
   - Yes Bank: ~$10 billion, 1.58x 12-month forward P/B
   - IDBI Bank: $10.4 billion, 1.97x 12-month trailing P/B
   - Sector median P/B: 1.45x

7. Regulatory requirement:
   - Reduce shareholding to 26% over 15 years  refer

• Reserve Bank of India(Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023
• Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies

8. Timeline:
   - IDBI Bank financial bids expected by end of current fiscal year

Edited August 29 by nwoodman

[This2ShallPass]

On 8/28/2024 at 12:48 AM, adventurer said:

Ah ok, so due to the equity accounting method profits over the years increased the value of the investment even though the company`s market cap never reached that amount.

The company has a market cap of approx. $200 million. Does anyone know when FFH invested in Exco for the first time? Because over $218 million in profits seems like a lot. 

I bought Exco (following Chou) when it was ~$0.7. Then in a moment of dumbness sold it for a good % gain ~$5.5 (but $ wise less as I had a small position). Should have just let it ride, now we cannot buy Exco, brokers only allow closing.

 

Here's what Francis Chou had to say about Exco in his semi annual report. Might give you another perspective on value.

 

"In early July 2019, the company emerged from bankruptcy and the 1.75 lien term loans were converted to 28.38 equity shares for every US$1,000 in par value, after netting out certain adjustments. The equivalent price was US$9.51 per share of EXCO. Since it is a private company, I am not at liberty to divulge the latest financial statements, but what I can tell you is that my calculation of its PV-10 value was more than US$1.8 billion (roughly US$38 per share) based on the New York Mercantile Exchange (NYMEX) forward pricing as of December 31, 2023, and the net proved reserves were 2.9 trillion cubic feet equivalent. Its number of outstanding shares as of December 31, 2023 was 47,386,708. We estimate its EBITDA for the year ending 2024 will be between US$200 million and US$250 million. As a comparison, in 2018, the PV-10 value was US$750 million. As of June 30, 2024, the share of EXCO was valued at $21.05 by Kroll, an independent third-party valuator."

 

 

 

 

 

 

[Haryana]

Sleep Country Shareholders Approve Arrangement with Fairfax

https://www.newswire.ca/news-releases/sleep-country-shareholders-approve-arrangement-with-fairfax-834766463.html

[Junior R]

52 week high over $1700 CAD today lol

[value_hunter]

2 hours ago, Junior R said:

52 week high over $1700 CAD today lol

Is this a pattern? Every time when hit an all time high, it will quickly retreat.

[SafetyinNumbers]

1 hour ago, value_hunter said:

Is this a pattern? Every time when hit an all time high, it will quickly retreat.

I think retail shareholders sell based on price not value. Buying is mostly institutional which is purchased on percentage of volume so they don’t set price, the sellers do.

[Junior R]

19 hours ago, value_hunter said:

Is this a pattern? Every time when hit an all time high, it will quickly retreat.

maybe shorts lol all good as long as Fairfax keep growing book value and eps

[glider3834]

On 7/23/2024 at 4:29 PM, nwoodman said:

Some more colour on Regulation 379/2014, I think this is what gives Eurobank the edge here as the possibility of delisting is highly likely:
 

Regulation 379/2014 of the Cyprus Securities and Exchange Commission specifies certain minimum share dispersal criteria for companies listed on the main market of the Cyprus Stock Exchange:

- At least 25% of the shares proposed for listing must be held by the wider public (free float requirement)
- The shares must be held by at least 300 natural persons or legal entities 

So this regulation aims to ensure a minimum level of diverse public ownership for companies listed on the CSE main market.
 

The 25% free float requirement prevents a small group of insiders from holding all or most of a publicly listed company's shares.

And the 300 person minimum helps ensure the shares are reasonably widely held rather than just technically meeting the 25% threshold among a very small number of public shareholders.

 

These provisions promote shareholder diversity and broader public participation in the ownership of listed companies on the Cyprus Stock Exchange main market. 
 

Key thresholds: 

Based on Cypriot corporate law, the following shareholder approval percentages are required for various corporate actions:

 

Ordinary Resolution (over 50% approval required):

- Appointment and removal of company directors 

- Alteration of the company's share capital (increase, consolidation, division, sub-division, cancellation, conversion of paid-up shares into stock)

- Appointment and removal of auditors

Special Resolution (at least 75% approval required): 

- Amendment of the memorandum of association

- Amendment of the articles of association 

- Change of company name

Reduction of share capital

- Variation of shareholders' rights (unless a higher threshold is specified in the articles of association)

Extraordinary General Meeting (EGM):

Shareholders holding at least 10% of the paid-up capital with voting rights can requisition the directors to convene an EGM. This right cannot be waived or varied by the articles of association.

So delisting is likely and Eurobank has the right to fire the existing board and put their own directors in.  I can’t find any further minority protections.  I guess they can argue oppression but that is difficult with takeover clearance given and other sophisticated investors already accepting lower bids.  @hoodlum as you say,  the market is giving developments the

 

 

 

Hellenic share price now up to 3.84 euros which is closer to TBV - not sure what Eurobank is going to do from here with remaining minority shareholders - Eurobank stake in Hellenic has more than doubled from their cost base - mkt value ~0.89B euro (~US$1B)

Edited September 25 by glider3834

[glider3834]

not sure if any salient commentary in here on Seaspan - it has a paywall

 

https://www.tradewindsnews.com/containers/inside-seaspan-understanding-major-newbuilding-investments-and-what-comes-next/2-1-1708114

[nwoodman]

3 hours ago, glider3834 said:

not sure if any salient commentary in here on Seaspan - it has a paywall

 

https://www.tradewindsnews.com/containers/inside-seaspan-understanding-major-newbuilding-investments-and-what-comes-next/2-1-1708114

 Cheers, PDF attached.  Summary as follows:

 

1. Massive Newbuilding Programme: Seaspan has placed orders for 70 container ship newbuildings, delivered at a rate of one per week, to be completed by early 2025. This significant expansion is driven by demand, and the company is on track to finalize 32 additional newbuildings in 2024. Out of these, 23 vessels will remain under Seaspan's ownership.

 

2. Fleet Size and Capacity: By the end of 2024, Seaspan’s fleet will comprise close to 200 vessels with a combined capacity nearing 2 million TEU (twenty-foot equivalent units), making Seaspan one of the largest independent tonnage providers in the industry.

 

3. Diversification into Car/Truck Carriers: In addition to its container ships, Seaspan has diversified into the car/truck carrier market, ordering six newbuildings for Hyundai Glovis, set for delivery in 2026.

 

4.Fuel Flexibility and Retrofits: Seaspan is investing heavily in fuel innovations, particularly LNG and methanol. It is currently retrofitting five of its existing vessels, converting them to methanol dual-fuel, at a cost of $20 million to $25 million per retrofit, compared to the price of a newbuild at around $150 million to $160 million. This retrofit project, involving ships chartered to Hapag-Lloyd, is part of a broader fuel strategy, with Seaspan expecting to have between 50 and 60 LNG dual-fuelled vessels in its fleet.

 

5.New Investments in Dual-Fuel Technology: Seaspan is also pursuing ammonia dual-fuelled container ships, with approval for a 3,000 TEU feeder ship that can scale either way. These initiatives demonstrate the company’s commitment to greener shipping options while balancing financial sustainability.

 

6. Financial Discipline: COO Torsten Pedersen emphasized that Seaspan does not sign newbuilding contracts without charter agreements already in place, ensuring the company does not take unnecessary financial risks. This approach helps the company mitigate tail-end risk while staying agile in a fast-changing market.

 

 

What is a Feeder Ship?

 

A feeder ship is a smaller vessel used to transport containers between smaller ports (often referred to as "feeder ports") and larger ports (known as "hub ports") that serve as main shipping destinations for large, ocean-going vessels. Feeder ships typically have a smaller capacity, usually ranging between 300 TEU to 3,000 TEU, compared to the much larger container ships that can carry tens of thousands of TEUs.

 

Feeder ships are an essential part of the global shipping network, as they help consolidate cargo from smaller ports, moving it to larger ports where the goods can be transferred to bigger vessels for international or long-haul shipping. Similarly, they are used to distribute containers from large hub ports to smaller, regional destinations.

This feeder system allows for cost efficiencies by concentrating large amounts of cargo at central hubs while still ensuring access to smaller ports that cannot accommodate larger vessels.

Inside Seaspan Understanding major newbuilding investments and what comes next TradeWinds.pdf

Edited September 25 by nwoodman

[villainx]

Wonder if Seaspan or other Atlas biz would have been part of Berkshire if things went differently.

[Viking]

Estimate of change in value of Fairfax’s equity portfolio in Q3 - 2024

 

Fairfax’s equity portfolio (that I track) increased in value in Q3, 2024 by about $800 million (pre-tax) or 4.0%, which is a solid result. It had a total value of about $20.7 billion at September 30, 2024. After being a headwind in 1H 2024 (on US$ strength), currency flipped to being a tailwind in Q3 (on US$ weakness).

 

 

Notes:

• I include the FFH-TRS position in the mark to market bucket and at its notional value. I also include warrants and debentures that Fairfax holds in the mark to market bucket.

My tracker portfolio is not an exact match to Fairfax’s actual holdings. It is useful only as a tool to understand the rough change in Fairfax’s equity portfolio (and not the precise change).

 

My equities tracker does not include the change in value of Digit, Fairfax's P/C insurance company in India that is now publicly traded. The total value of Digit increased about $400 million in Q3. This amount needs to be adjusted to reflect Fairfax's ownership stake.

 

Split of total holdings by accounting treatment

 

About 47% of Fairfax’s equity holdings are mark to market - and will fluctuate each quarter with changes in equity markets. The other 53% are Associates and Consolidated holdings. The Sleep Country and Peak Achievement (Bauer) acquisitions (which are expected to close in Q4) will significantly increase the consolidated bucket of holdings.

 

Over the past couple of years, the share of the mark to market holdings has been shrinking. This means Fairfax's quarterly reported results will be less impacted by volatility in equity markets.

 

 

Split of total gains by accounting treatment

 

• The total change is an increase of about $800 million = $36/share (pre-tax)
• The mark to market change is an increase of about $315 million = $14/share. This does not include the gain on the sale of Stelco when it closes (expected in Q4). The change in this bucket of holdings will show up in ‘net gains (losses) on investments’ (along with changes in the value of the fixed income portfolio) when Fairfax reports each quarter.

 

 

What were the big movers in the equity portfolio Q1-YTD?

• Stelco is up $288 million. Fairfax is expected to book an estimated pre-tax gain of $390 million on the sale of its 13 million shares in Stelco. The sale is expected to close in Q4 2024.
• The FFH-TRS is up $241 million and is now Fairfax’s second largest holding at $2.5 billion.
• Eurobank is up $161 million. Currency has been a tailwind in Q3 (strong Euro).
• Quess continues its big move higher, and is up another $104 million. Market value of $473 million now exceeds carrying value of $434 million.
• Thomas Cook India, down $144 million, gave back some of its recent gains. Market value of $726 million significantly exceeds carrying value of $218 million.

 

Excess of fair value over carrying value (not captured in book value)

 

For Associate and Consolidated holdings, the excess of fair value to carrying value is about $2.0 billion pre-tax ($89/share). The 'excess' of FV to CV has been materially increasing in recent years. This is a good example of how book value at Fairfax is understated.

 

Excess of FV over CV:

• Associates:           $1.3 billion = $59/share
• Consolidated:       $661 million = $30/share

Equity Tracker Spreadsheet explained

 

We have separated holdings by accounting treatment: 

• Mark to market
• Associates – equity accounted 
• Consolidated
• Other Holdings – total return swaps and warrants and debentures

The value of each holding is calculated by multiplying the share price by the number of shares. All holdings are tracked in US$, so non-US holdings have their values adjusted for currency.

 

This spreadsheet contains errors. It is updated as new and better information becomes available.

 

 

 

 

Fairfax Oct 1 2024.xlsx

Edited October 2 by Viking

[dartmonkey]

Thanks Viking, very helpful to see these changes, even if the consolidated holdings are harder to guess at.

 

Some additional excess to fair value in the associates, with FIH, hopefully, too. 

 

In the mark to market bucket, I'm curious, you have smaller holdings going down from $65m (Ensign) to Johnson & Johnson ($13m), and then 'Remaining Smaller Holdings' worth $2145m (unchanged from June 30). It's hard to believe there are enough tiny holdings to get up to the equivalent of 200+ stakes worth $10m or smaller, or is it? Where do you get this figure?

 

 

[Viking]

3 hours ago, dartmonkey said:

In the mark to market bucket, I'm curious, you have smaller holdings going down from $65m (Ensign) to Johnson & Johnson ($13m), and then 'Remaining Smaller Holdings' worth $2145m (unchanged from June 30). It's hard to believe there are enough tiny holdings to get up to the equivalent of 200+ stakes worth $10m or smaller, or is it?

 

Where do you get this figure?

 

@dartmonkey, when putting together my summary of Fairfax's equity holdings:

1.) I start with the summary Fairfax provides in their annual report each year. This provides a great deal of information (all the different buckets and sub-buckets).

2.) Then layer in holdings that we know about but that Fairfax did not have in the annual report (these amounts will be subtracted from the sub totals so they do not get counted twice).

3.) Then incorporate new news each quarter: 13F, Fairfax announcements etc.

 

When each annual report comes out I start at the beginning again. 

----------

As you rightfully note, there are holdings worth billions in value that we know little about (what the holdings are and how they are doing over the year).

---------

As a result, my estimate (tracking spreadsheet) is usually light when it comes to estimating actual reported gains and losses from investments.

 

Edited October 2 by Viking

[Viking]

A question for board members. When Fairfax takes Peak Achievement private (expected in Q4) will they mark up their 43% stake to reflect the purchase price? If so, this should drive a meaningful realized investment gain in Q4. 

 

Fairfax's carrying value for its 43% position in Peak Achievement is $129 million. At June 30, it had a fair value of $226 million.

 

The sale price for 100% of Peak has not been disclosed. Some reports suggested Peak was being shopped for $800 million. A post on Twitter suggests the final sale price (likely including debt) values the company at $1 billion.

-----------

Fairfax is 'sitting' on about $2 billion in unrealized investment gains today. This figure has been growing rapidly over the past 4 years. As Fairfax harvests this value in the coming years it will be incremental to analysts EPS earnings forecasts.

 

How Fairfax harvest this value will vary. Sometimes it will be an outright sale like Stelco. Other times it will be change in their ownership stake, like Peak Achievement (if I am understanding things correctly).

Edited October 3 by Viking

[glider3834]

50 minutes ago, Viking said:

When Fairfax takes Peak Achievement private (expected in Q4) will they mark up their 43% stake to reflect the purchase price?

viking yes I would expect so - a gain on consolidation - similar to Gulf Insurance transaction in the sense we are moving from equity associate to controlled sub, but we will need to wait for official confirmation from Fairfax to determine the amount of any potential consolidation gain here with Peak deal.

 

 

 

Edited October 2 by glider3834

[TwoCitiesCapital]

2 hours ago, glider3834 said:

viking yes I would expect so - a gain on consolidation - similar to Gulf Insurance transaction in the sense we are moving from equity associate to controlled sub, but we will need to wait for official confirmation from Fairfax to determine the amount of any potential consolidation gain here with Peak deal.

 

 

 

 

 This is what I'd expect as well. 

 

A mark up to the value of their offer, the consolidation of gains/losses through the income statement going forward, and a static carrying value on the balance sheet. 

 

[Haryana]

https://www.newswire.ca/news-releases/sleep-country-completes-arrangement-with-fairfax-858949462.html 

 

"... pleased to announce the successful completion of the previously announced plan ..."

 

[Viking]

Fairfax's total return swap investment (giving it exposure to 1.96m $FFH.TO shares) is up $841m 2024YTD. And up $1.9b (before carrying costs) in 3.75 years. Outstanding capital allocation. Opportunistic. Creative. Concentrated position - a needle mover.

 

How does one calculate the internal rate of return that Fairfax has generated from this investment? Any suggestions?

 

The total return of $1.9 billion in 3.75 years is amazing. But when you compare the return to what it has cost Fairfax to put this position on and keep it on... the internal rate of return from this investment has to be astronomical. 

 

Fairfax's shares are trading at about $1,350/share. If they return 15% over then next 12 months (likely a mildly conservative assumption) that would result in a $200 increase in the share price. That would translate into a $400 million increase (pre-tax) in the value of the FFH-TRS position. A 20% return would result in a gain in the FFH-TRS of $540 million. These are big numbers (larger than the notional value when the position was put on originally). Compounding and time is working its magic.

 

With the shares trading at $1,350, it will be interesting to see if Fairfax continues to be aggressive on the share buyback front. 

 

My guess is holding the FFH-TRS and share buybacks might be linked strategically from a Fairfax perspective. But I am not sure. If Fairfax is confident they will be able to deliver an average ROE of 15% per year over the next 3 or 4 years, perhaps they continue to hold the FFH-TRS position, regardless of what they decide to do with buybacks.

 

This single investment is so instructive about Fairfax on so many different levels. Why it is so different from not only traditional P&C insurance companies, but also how different it is from Markel and Berkshire Hathaway. Unconstrained capital allocation (Fairfax's business model) can be a wonderful compounding machine when executed by the right management team. The FFH-TRS is one of many examples of where the senior team at Fairfax has been executing exceptionally well over the past 6 years or so. 

 

Mr. Market is starting to wake up to the fact that Fairfax has once again become a compounding machine - with its glide path for the next 4 years largely set.  

 

“We think this will be a great investment for Fairfax, perhaps our best yet!” Prem Watsa 2020AR

 

Edited 22 hours ago by Viking

[Crip1]

37 minutes ago, Viking said:

Fairfax's total return swap investment (giving it exposure to 1.96m $FFH.TO shares) is up $841m 2024YTD. And up $1.9b (before carrying costs) in 3.75 years. Outstanding capital allocation. Opportunistic. Creative. Concentrated position - a needle mover.

 

How does one calculate the internal rate of return that Fairfax has generated from this investment? Any suggestions?

 

The total return of $1.9 billion in 3.75 years is amazing. But when you compare the return to what it has cost Fairfax to put this position on and keep it on... the internal rate of return from this investment has to be astronomical. 

 

Fairfax's shares are trading at about $1,350/share. If they return 15% over then next 12 months (likely a mildly conservative assumption) that would result in a $200 increase in the share price. That would translate into a $400 million increase (pre-tax) in the value of the FFH-TRS position. A 20% return would result in a gain in the FFH-TRS of $540 million. These are big numbers (larger than the notional value when the position was put on originally). Compounding and time is working its magic.

 

With the shares trading at $1,350, it will be interesting to see if Fairfax continues to be aggressive on the share buyback front. 

 

My guess is holding the FFH-TRS and share buybacks might be linked strategically from a Fairfax perspective. But I am not sure. If Fairfax is confident they will be able to deliver an average ROE of 15% per year over the next 3 or 4 years, perhaps they continue to hold the FFH-TRS position, regardless of what they decide to do with buybacks.

 

This single investment is so instructive about Fairfax on so many different levels. Why it is so different from not only traditional P&C insurance companies, but also how different it is from Markel and Berkshire Hathaway. Unconstrained capital allocation (Fairfax's business model) can be a wonderful compounding machine when executed by the right management team. The FFH-TRS is one of many examples of where the senior team at Fairfax has been executing exceptionally well over the past 6 years or so. 

 

Mr. Market is starting to wake up to the fact that Fairfax has once again become a compounding machine - with its glide path for the next 4 years largely set.  

 

“We think this will be a great investment for Fairfax, perhaps our best yet!” Prem Watsa 2020AR

 

The one aspect of Prem that I’ve not cared for is the “cheerleader” aspect of the Annual Letters to Shareholders, always felt it was in stark contrast to Buffett’s candor. The use of exclamation points only added to that. 

But, at the same time, one must give credit where it’s due, and this investment has to be one of the best, if not THE best, they’ve ever done from an ROI perspective. It’s important to admit when one is wrong, and I’d have suggested that they take the money and run on this investment a long time ago…I was dead wrong.

-Crip
 

[73 Reds]

54 minutes ago, Crip1 said:

The one aspect of Prem that I’ve not cared for is the “cheerleader” aspect of the Annual Letters to Shareholders, always felt it was in stark contrast to Buffett’s candor. The use of exclamation points only added to that. 

But, at the same time, one must give credit where it’s due, and this investment has to be one of the best, if not THE best, they’ve ever done from an ROI perspective. It’s important to admit when one is wrong, and I’d have suggested that they take the money and run on this investment a long time ago…I was dead wrong.

-Crip
 

Seems like the time to cash out of the TRS is when the stock gets too expensive to repurchase.  Otherwise, they can continue to support the TRS through share repurchases.

[dartmonkey]

4 hours ago, Viking said:

My guess is holding the FFH-TRS and share buybacks might be linked strategically from a Fairfax perspective. But I am not sure. If Fairfax is confident they will be able to deliver an average ROE of 15% per year over the next 3 or 4 years, perhaps they continue to hold the FFH-TRS position, regardless of what they decide to do with buybacks.

 

My guess is that it's exactly the same, as far as the return goes, as if Fairfax had just repurchased the equivalent number of shares.

 

Obviously there are other differences. Liquidity, for one thing, and availability of FRFHF shares that are being traded, and, perhaps, tax consequences. For instance, I wonder whether Fairfax has not discovered an innovative way of avoiding the recent repurchase tax of 2%, although that was not the reason to set up the trade, as the TRS's were purchased before the tax came into effect (Jan 1st, 2024.) 

 

Think about it this way: they put on the TRS trade with exposure to 1.964m shares when shares were trading at $344 (all number $US). If they had had the liquidity then, they might also have just bought that many shares for 1.964m*$344 = $677m. With shares now at $1350 (ignoring today's $50 plunge), they have gains of 1.964*(1350-344) = $1.976b.

 

Now that they have lots of liquidity, they could use that cash to buy back shares - if they wanted to buy back 1.964m shares, it would cost them a lot more now, in fact that would be 1.964*1350= $2.652b. To do that, they could use their $1.976b in TRS gains, plus another $677m. It is no coincidence that that $677m happens to be exactly how much it would have cost them to buy back the same number of shares back at the end of 2020 when they put on the TRS trade. 

 

In other words, at the end of 2020, Fairfax locked in the price of almost 2m shares, at $344. Using the gains from the TRS's, they could now buy back those same 2m shares by paying the cash they have received from the swaps, plus another $344 per share. So economically, they have the effect of a 2m buyback, but with there will be all sorts of differences, tax on the gains from the TRS's maybe being the worst. If I am correct, they may never close the TRS deal - why would they want to pay all that tax on the capital gain? And then pay another 2% tax on further repurchases? It might make more sense just to hold them indefinitely.

 

Edited 18 hours ago by dartmonkey

[MMM20]

 

4 hours ago, Viking said:

How does one calculate the internal rate of return that Fairfax has generated from this investment? Any suggestions?

Why not treat it like a full outlay (ie buyback) at t0 and just incorporate some borrowing cost? 

[gfp]

27 minutes ago, dartmonkey said:

If I am correct, they may never close the TRS deal - why would they want to pay all that tax on the capital gain?

 

My hunch is that the gains on the TRS on Fairfax's own shares are not taxable but I have asked Jenn Allen for clarification and hope she gets back to me.  If profits are taxed, they would be taxed as the profit or loss flowed back and forth each quarter or each year and not realized at the end like a regular stock investment that defers tax until sold.

 

I'll post here if I get more clarification.  I don't know what tax law applies to these derivatives at Fairfax and I don't know how this type of trade would be taxed in the United States.  But in the United States, an issuer's trading in its own common stock does not produce a taxable gain or loss.  Does that extend to TRS on own shares?  I dunno.  But maybe.

 

(and obviously Fairfax is a Canadian corporation with several US subsidiaries and the US / IRS treatment might be nothing like the Canadian)

Edited 17 hours ago by gfp

[TwoCitiesCapital]

44 minutes ago, dartmonkey said:

My guess is that it's exactly the same, as far as the return goes, as if Fairfax had just repurchased the equivalent number of shares.

 

It isn't though. To buy the shares required a cash outlay of hundreds of millions of dollars. The TRS probably required outlays of 10-15% as initial margin meaning the trade was nearly 7-10x levered versus buying the shares outright. 

 

It's not exactly that though because there was a financing rate paid the whole time which would reduce the amount gained and then there were a handful of quarters with slightly negative performance requiring small additional cash outlays for that 3 month period that would have been return in the following quarter, but still impact the ROI calculation. 

 

29 minutes ago, MMM20 said:

 

Why not treat it like a full outlay (ie buyback) at t0 and just incorporate some borrowing cost? 

 

Because they didn't have a full outlay upfront. They saved hundreds of millions which stayed invested in other parts of the company generating returns too. 

 

It's like buying a house with 100% cash or buying it with a 30-year mortgage. The return profiles and ROIC are different even if the $ gain on the home price is equivalent.