73 Reds Posted May 12 Posted May 12 12 minutes ago, tnathan said: I really don't get the UA pick ... its such a head scratcher Its a longish turnaround story. They could probably use better management. Maybe Berkshire/Brooks can acquire them?
gfp Posted May 12 Posted May 12 16 minutes ago, 73 Reds said: Its a longish turnaround story. They could probably use better management. Maybe Berkshire/Brooks can acquire them? If it gets taken private I would assume it will be the founder with Byron's Trott's firm BDT/MSD and Fairfax. I assume it is BDT that got Fairfax interested in the company but someone else here may have chatted with the team and know the story
yesman182 Posted May 12 Posted May 12 1 hour ago, tnathan said: I really don't get the UA pick ... its such a head scratcher a head scratcher in what way? Fairfax has experience with sportswear from the manufacturing side as well as retail. When I look around kids seems to be involved in more sport activities at a more competitive level at a lounger age. I tend to believe the UA got to large and tried to sell everything to everyone. I think the focused strategy has promise. So I think it could work out as an investment, but will take years.
Eldad Posted May 12 Posted May 12 Yeah UA is more like BB and Toys R Us in my mind and less like Eurobank and other cyclical deep value that seems to have a much higher probability of actually working. But it is very small and probably extremely asymmetric if it works. I just have to try to ignore the stuff like that they seem to like to do.
tnathan Posted May 12 Posted May 12 58 minutes ago, Eldad said: Yeah UA is more like BB and Toys R Us in my mind and less like Eurobank and other cyclical deep value that seems to have a much higher probability of actually working. But it is very small and probably extremely asymmetric if it works. I just have to try to ignore the stuff like that they seem to like to do. 1 hour ago, yesman182 said: a head scratcher in what way? Fairfax has experience with sportswear from the manufacturing side as well as retail. When I look around kids seems to be involved in more sport activities at a more competitive level at a lounger age. I tend to believe the UA got to large and tried to sell everything to everyone. I think the focused strategy has promise. So I think it could work out as an investment, but will take years. The brand is super impaired (no longer cool and hasn't been cool in a long time) and I don't think its asymetric at all on the upside. Would much rather have taken a stake into something like LULU if you're going to play in apparel. Definitely reeks of BB type thinking. there are so many great businesses on sale right now not sure why you'd want to target this one.
Duke In Shadows Posted May 12 Posted May 12 (edited) 51 minutes ago, tnathan said: The brand is super impaired (no longer cool and hasn't been cool in a long time) and I don't think its asymetric at all on the upside. Would much rather have taken a stake into something like LULU if you're going to play in apparel. Definitely reeks of BB type thinking. there are so many great businesses on sale right now not sure why you'd want to target this one. LULU would be much much worse option, for reasons outside of the cool factor but on the cool factor as a member of the Gen Z community I can tell you UA is starting to make a comeback (really has gone down since 2015 period) so seeing a comeback in popularity. LULU on the hand stopped being cool in the 2023-2024 period, it also has way more direct competitors, alo, even on. so while you could argue the whole sector is not a great place to allocate capital (which I would agree with) LULU is a bad example. they very clearly have high conviction and are taking a more activist role, wade Burton has more of an informational advantage than any of us, so just allow them to allocate capital its not sizeable anyways. the brand doesn't need to get back to 2005 level of coolness, much like constellation doesn't need to get back to crazy 2024 trading multiples in order to be a good investment. Edited May 12 by Duke In Shadows
tnathan Posted May 12 Posted May 12 I guess this is conclusion I'm coming to re: Fairfax. Would love some pushback on this. (1) Fairfax is a great business and underpriced relative to intrinsic value. The float provides an amazing floor return over a 5-10 year period and I have a lot of confidence it will compound 15%+ over that time period. (2) I think on a risk-adjusted basis Fairfax / Prem are mediocre investors. They consistently attempt turnarounds and IMO would be better off trying to buy true compounders at good prices, or even just the market as a whole to juice returns. As Buffet says - "There Is No Award for Degree of Difficulty" -> has anyone done a lookback at Fairfax equity returns over a long time period (since the 90s)?
Malmqky Posted May 12 Posted May 12 8 minutes ago, tnathan said: I guess this is conclusion I'm coming to re: Fairfax. Would love some pushback on this. (1) Fairfax is a great business and underpriced relative to intrinsic value. The float provides an amazing floor return over a 5-10 year period and I have a lot of confidence it will compound 15%+ over that time period. (2) I think on a risk-adjusted basis Fairfax / Prem are mediocre investors. They consistently attempt turnarounds and IMO would be better off trying to buy true compounders at good prices, or even just the market as a whole to juice returns. As Buffet says - "There Is No Award for Degree of Difficulty" -> has anyone done a lookback at Fairfax equity returns over a long time period (since the 90s)? They’re probabilistic investors. They aren’t trying to buy compounders necessarily, or at least haven’t until more recently. They’re going to be buying a basket of mispriced assets, with the expectation some work and some don’t.
Junior R Posted May 12 Posted May 12 1 hour ago, tnathan said: I guess this is conclusion I'm coming to re: Fairfax. Would love some pushback on this. (1) Fairfax is a great business and underpriced relative to intrinsic value. The float provides an amazing floor return over a 5-10 year period and I have a lot of confidence it will compound 15%+ over that time period. (2) I think on a risk-adjusted basis Fairfax / Prem are mediocre investors. They consistently attempt turnarounds and IMO would be better off trying to buy true compounders at good prices, or even just the market as a whole to juice returns. As Buffet says - "There Is No Award for Degree of Difficulty" -> has anyone done a lookback at Fairfax equity returns over a long time period (since the 90s)? they have good home runs ...stelco, seaspan, eurobank, icic, digit, eurobank, ect...UA is still close to purchase price
Eldad Posted May 12 Posted May 12 5 minutes ago, Junior R said: they have good home runs ...stelco, seaspan, eurobank, icic, digit, eurobank, ect...UA is still close to purchase price No doubt they have hit home runs. Those are all in classic value investing cyclical industries. And those suit their investing personality of wanting to sell above IV. I’m all about them sticking with those.
Junior R Posted May 12 Posted May 12 2 minutes ago, Eldad said: No doubt they have hit home runs. Those are all in classic value investing cyclical industries. And those suit their investing personality of wanting to sell above IV. I’m all about them sticking with those. the don't put a high weight on stocks like BB as technology is really hard to figure out value ...eventually you could see someone buying UA if it doesn't turn around
tnathan Posted May 12 Posted May 12 14 minutes ago, Junior R said: they have good home runs ...stelco, seaspan, eurobank, icic, digit, eurobank, ect...UA is still close to purchase price Eurobank has probably been their best investment ever and it was a 15% CAGR. Very good, but nothing out of this world. Obviously I'm a nobody but he claims to follow Buffet and I'm not sure he actually invests that way
Junior R Posted May 12 Posted May 12 2 minutes ago, tnathan said: Eurobank has probably been their best investment ever and it was a 15% CAGR. Very good, but nothing out of this world. Obviously I'm a nobody but he claims to follow Buffet and I'm not sure he actually invests that way Stelco C$20.50 Nov. 19, 2018 C$70 November 1, 2024 CAGR 22.74%
Eldad Posted May 12 Posted May 12 Let them cook! my 2nd time around as a Fairfax holder I’m going to be more open minded and just let them do their thing.
tnathan Posted May 12 Posted May 12 24 minutes ago, Eldad said: Let them cook! my 2nd time around as a Fairfax holder I’m going to be more open minded and just let them do their thing. Don't disagree! I'm not selling but I think it's fair to point out flaws -- lot of people are getting a bit too sure of themselves and not looking at areas that could go wrong / that have under performed in the past but are not performing a bit better.
Viking Posted May 12 Posted May 12 (edited) 2 hours ago, tnathan said: I guess this is conclusion I'm coming to re: Fairfax. Would love some pushback on this. (1) Fairfax is a great business and underpriced relative to intrinsic value. The float provides an amazing floor return over a 5-10 year period and I have a lot of confidence it will compound 15%+ over that time period. (2) I think on a risk-adjusted basis Fairfax / Prem are mediocre investors. They consistently attempt turnarounds and IMO would be better off trying to buy true compounders at good prices, or even just the market as a whole to juice returns. As Buffet says - "There Is No Award for Degree of Difficulty" -> has anyone done a lookback at Fairfax equity returns over a long time period (since the 90s)? @tnathan, when you say that Fairfax / Prem are mediocre investors, what timeframe are you using? Personally, i use a 5 year time frame. I think that length of time provides a solid body of work. Longer than that just isn’t relevant to the company as it exists today. When I look at Fairfax’s execution over the past 5 years their capital allocation / investment decisions have been outstanding. Easily best class when it comes to P/C insurance companies. So please educate me Edited May 12 by Viking
tnathan Posted May 12 Posted May 12 3 minutes ago, Viking said: @tnathan, when you say that Fairfax / Prem are mediocre investors, what timeframe are you using? Personally, i use a 5 year time frame. I think that length of time provides a solid body of work. When I look at Fairfax’s execution over the past 5 years their capital allocation / investment decisions have been outstanding. Easily best class when it comes to P/C insurance companies. So please educate me That's why I asked the question of what the equity returns have been compounded since the 90s! Sure the returns have been great over the past 5 years, but what I'm trying to get at is: is the past 5 years the anomaly or the norm? The evidence seems to point to the latter but if I'm wrong someone tell me why!
Viking Posted May 12 Posted May 12 (edited) 6 minutes ago, tnathan said: That's why I asked the question of what the equity returns have been compounded since the 90s! Sure the returns have been great over the past 5 years, but what I'm trying to get at is: is the past 5 years the anomaly or the norm? The evidence seems to point to the latter but if I'm wrong someone tell me why! Ok. Let’s use a 40 year time horizon (I don’t). Their stock price compounded at better than 19% per year (US$, dividends included). And for the first 25 years of this time period they had some pretty crappy insurance businesses. Their stellar results were driven primarily by their investment decisions - which you characterize as ‘mediocre.’ Please square that circle… PS: Fairfax is a contradiction. What people think about the company. And what the company actually did. There is, IMHO, a massive disconnect. Edited May 12 by Viking 1
roundball100 Posted May 12 Posted May 12 3 minutes ago, Viking said: Ok. Let’s use a 40 year time horizon (I don’t). Their stock price compounded at better than 19% per year (US$, dividends included). And for the first 25 years of this time period they had some pretty crappy insurance businesses. Their stellar results were driven primarily by their investment decisions - which you characterize as ‘mediocre.’ Please square that circle… PS: Fairfax is a contradiction. What people think about the company. And what the company actually did. There is, IMHO, a massive disconnect. And as you have suggested: massive disconnect = (investing) opportunity
Viking Posted May 12 Posted May 12 1 minute ago, roundball100 said: And as you have suggested: massive disconnect = (investing) opportunity @roundball100, I agree. Part of me loves the fact that Fairfax is so misunderstood. It really is the Rodney Dangerfield of P/C insurance companies (and, yes, I also love Rodney Dangerfield).
Parsad Posted May 12 Posted May 12 31 minutes ago, tnathan said: Eurobank has probably been their best investment ever and it was a 15% CAGR. Very good, but nothing out of this world. Obviously I'm a nobody but he claims to follow Buffet and I'm not sure he actually invests that way You are focusing on the wrong thing. They don't need 15% CAGR on their equity investments. The three things you should focus on are: Underwriting profit and combined ratios: Investment Leverage: Are they hitting average return? Doesn't matter what investments they invest in or how good/bad they are...are they hitting around 7-8% annualized on average on the total portfolio? If they are writing under 100% and making a profit, have modestly higher leverage than their peers, and are hitting that 7-8% total return on the investment portfolio...you don't need to worry about whether they are good/bad/mediocre investment managers. ITMS...It's The Model Stupid! Cheers!
roundball100 Posted May 12 Posted May 12 9 minutes ago, Viking said: @roundball100, I agree. Part of me loves the fact that Fairfax is so misunderstood. It really is the Rodney Dangerfield of P/C insurance companies (and, yes, I also love Rodney Dangerfield). The one I remember about him (if I have it right): "I wouldn't join any club willing to take me on as a member ..."
tnathan Posted May 12 Posted May 12 9 minutes ago, Parsad said: You are focusing on the wrong thing. They don't need 15% CAGR on their equity investments. The three things you should focus on are: Underwriting profit and combined ratios: Investment Leverage: Are they hitting average return? Doesn't matter what investments they invest in or how good/bad they are...are they hitting around 7-8% annualized on average on the total portfolio? If they are writing under 100% and making a profit, have modestly higher leverage than their peers, and are hitting that 7-8% total return on the investment portfolio...you don't need to worry about whether they are good/bad/mediocre investment managers. ITMS...It's The Model Stupid! Cheers! Thanks this is what I was looking for. Appreciate it! As I stated above, (1) I agree the model clearly still works even if equity returns aren't that good, as long as the insurance is humming and fixed income rates are decent. (2) However, this chart makes my point. Two things can be true at the same time. the underlying business can be fantastic and the investing can be subpar, especially vs. the risk taken. I would argue 7.7% given the positions they are taking is subpar. How could that not be true?
roundball100 Posted May 12 Posted May 12 1 minute ago, tnathan said: Thanks this is what I was looking for. Appreciate it! As I stated above, (1) I agree the model clearly still works even if equity returns aren't that good, as long as the insurance is humming and fixed income rates are decent. (2) However, this chart makes my point. Two things can be true at the same time. the underlying business can be fantastic and the investing can be subpar, especially vs. the risk taken. I would argue 7.7% given the positions they are taking is subpar. How could that not be true? Does the 3:1 leverage give us 3 times that? 1
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