Fairfax stock positions

[Viking]

1 hour ago, Parsad said:

 

Hi Viking,

 

I agree.  That's why I said those picks are more in line with Wade/Lawrence and relatable to the way Tom Gaynor invests MKL's portfolio.  That's probably better for Fairfax and Fairfax shareholders long-term.

 

Unfortunately, it's hard to teach old dogs new tricks, and the bulk of the portfolio will be managed the "old" Fairfax way as long as the "old" dogs control the votes.  Not a bad thing, just more volatile.

 

Cheers!

@Parsad  I think ‘old Fairfax’ has also changed. Compare the RIM/Blackberry purchase to Seaspan/Atlas. RIM/Blackberry was a technology play (Fairfax clearly had no idea) and was badly run by founders (who, yes, were brilliant creators). Seaspan was a finance company (something any good insurer should be able to understand) run by a new all star team with a very good track record (headed up by Sokol). As things got worse at Blackberry, Fairfax doubled down and spent more. As things got better at Atlas, Fairfax spent more. There is no comparing the two other than they were both the largest investments for Fairfax of their day. 
 

The other billion $ investment Fairfax has made recently (in terms of exposure) was the TRS giving Fairfax exposure to 1.96 million Fairfax shares when they were trading wicked cheap. Did Fairfax understand… Fairfax? Yup. Low risk. Very high return potential. Creative. Opportunistic. Ballsy. Maybe old dogs can learn new tricks…
 

So i think ‘old Fairfax’ is also doing some important things differently. And i love it. 
—————

Now before everyone thinks i am a complete Fairfax fanboy (probably too late) there are things i do not like. Looking from the outside, i wish they would move on from problems quicker. The fact they still own Blackberry? (Sorry if i caused anyone to vomit). Farmers Edge just got a $75 million loan earlier this year (ignore that thing i said earlier about legacy holdings not suckling on Fairfax’s hind teat anymore). The Recipe take private is a watch-out for me (given its size) - but i think it is the minority shareholders who poured money into the company the past 10 years who are the actual losers - Fairfax is getting a decent collection of assets at a rock bottom price (so hopefully limited downside).
 

My view is Fairfax is now hitting on way more of their investment decisions than pre-2018. So i can cut them some slack on the misses. Or some of the legacy position they want to keep around. Resolute Forest Products was a massive win for shareholders in that regard.
 

 

Edited August 15, 2022 by Viking

[Xerxes]

3 hours ago, Viking said:

@Xerxes my thesis is Fairfax, starting about 5 years ago, has been making much better decisions with its portfolio of equity holdings. My view is that something actually changed at Fairfax around this time (2017-2018). There was a recognition of past failures (that stop digging thing) and a come to Jesus type of recognition that Fairfax/Hamblin Watsa was not a turnaround shop. Each turnaround usually involved a significant financial cost to Fairfax (sometimes running into the hundreds of millions) and required significant time from the small senior team at Fairfax/Hamblin Watsa. Fairfax simply did not have the resources or the expertise to do this on a large scale. But that was the hole Fairfax was standing in at the time. Change was needed. And, i think, changes were made in how Fairfax selected equity buys and how it managed the group of equities it owned/controlled. (A similar pivot on the insurance side might have happened in 2010 when Andy Bernard was promoted from running Odyssey Re to VP in charge of all of Fairfax’s insurance operations.)

 

So Since 2018 or so we have seen what i like to call the ‘new Fairfax’:

1.) new equity purchases are higher quality and better risk/reward. Quality of management team is weighted much higher than past years (perhaps now at the top of the lost of criteria). Avoiding high risk of failure type investments is another.

2.) legacy holdings were looked at with a fresh set of eyes. Fairfax correctly concluded that there were serious problems with lots of the legacy holdings and set to work fixing them. Some were merged with other organizations (replacing management with a better team). Some were restructured. 
3.) Legacy equity holdings were told the bank of Fairfax was closed. Over were the days were poorly run companies could keep going to Fairfax for a costly bail out. Or for funds to grow. Holdings were told to get their financial house in order (including debt levels) and get profitable (that was how they could fund their future growth). 
4.) significantly more funds were given to Wade Burton/Lawrence Chin and their team - because of their very good performance

5.) significantly more funds were given to private equity partners (BDT  Capital Partners, ShawKwei & Partners etc) - because of their very good performance
 

So we now have a Fairfax where a performance culture is becoming entrenched on the equity side of the business. Fairfax is feeding/rewarding the top performers. New capital is getting allocated to the best opportunities. Year after year. 
 

But shareholders are yelling (and have been for years): SHOW ME THE MONEY. When will we see the improvements from ‘new Fairfax’ actually hit reported results? Covid, unfortunately, set things back about a year. But I think we are ‘there’ today. And have been ‘there’ for about at least a year now. 
—————

My view is Fairfax is largely done with the fixes so the significant hit to results year after year from this issue is largely done. There will always be some restructuring charges happening at a company the size of Fairfax - with the collection of businesses they own - but the number and amounts involved will be easily digested moving forward.
 

For new equity purchases it usually takes about 4-5 years for an equity holding to blossom (or not). Of course, this is highly variable. If i am right then moving forward we should see performance from Fairfax’s equity holding slowly improve. Some will be harvested. Others will continue to grow in value on Fairfax’s balance sheet. 
 

We could very well see all three legs of the Fairfax stool perform very well all at the same time: underwriting + interest & dividend income + investment portfolio. Trading today at $515/share, Fairfax is not priced for that outcome. 

—————

In the past too much new capital went to fix problems at legacy holdings (bail outs). $500 million (on average) for 8 or 9 years was also burned up due to the disastrous short macro bet. For many years Fairfax was burning up $700-$800 million each year. That is a big hole to dig out of. And the opportunity cost (loss of future compounding of that $700-$800 million) was what caused Fairfax results to grossly underperform for almost a decade. The good news is the opposite is happening now - and has been for a few years. This bodes very well for future returns. 

 

 

I think secretly Prem Watsa likes the fact that FFH is an orphan stock. It keeps it undervalued while letting him complete his canvas. If he was all gung-ho about closing the gap, he would be cleaving off the parts he didnt like faster while communicating a clear narrative to the shareholder base and would be .

 

His narrative has been in the past 5 years: "we made mistakes, we will re-earn your trust, stock is cheap" so pleading patience, while continuing empire building. I am ok with that, as the name is only one component of my portfolio and offers a very powerfull source of diversification of thoughts. He is my Anti-ARK and I like that, 

 

 

 

 

 

 

 

 

 

 

[Parsad]

1 hour ago, Xerxes said:

 

 

I think secretly Prem Watsa likes the fact that FFH is an orphan stock. It keeps it undervalued while letting him complete his canvas. If he was all gung-ho about closing the gap, he would be cleaving off the parts he didnt like faster while communicating a clear narrative to the shareholder base and would be .

 

His narrative has been in the past 5 years: "we made mistakes, we will re-earn your trust, stock is cheap" so pleading patience, while continuing empire building. I am ok with that, as the name is only one component of my portfolio and offers a very powerfull source of diversification of thoughts. He is my Anti-ARK and I like that, 

 

 

 

 

 

 

 

 

 

 

 

Yes, nice anecdote!  

 

Wait, do you own ARK?    

 

Cheers!

[Xerxes]

@Parsad

hahha 

I don’t own ETFs or mutual funds. Haven’t bought any mutual fund in the 5+ years. Never owned any ETF if I remember correctly. 

I own only common stocks. And some insignificant crypto through WealthSimple  

[Viking]

Will the Atlas take private deal result in Fairfax booking a $880 million pre-tax gain on its Atlas? If so, would this amount (less any tax impacts) flow though both earnings and BV after the deal closes?
 

At Dec 31 Fairfax carried its Atlas stake on its book at $922 million. In April they exercised 25 million warrants (so they now own 125 million shares). I think they still hold 6 million warrants. 

 

$14.45 x 125 million shares = $1.8 billion

$1,800 - $922 = $880 million

—————

Interesting that some on the board feel $14.45 is an opportunistic low ball offer. Perhaps Atlas is an example of one part of BV of Fairfax that is understated.

Edited August 20, 2022 by Viking

[glider3834]

1 hour ago, Viking said:

Will the Atlas take private deal result in Fairfax booking a $880 million pre-tax gain on its Atlas? If so, would this amount (less any tax impacts) flow though both earnings and BV after the deal closes?
 

At Dec 31 Fairfax carried its Atlas stake on its book at $922 million. In April they exercised 25 million warrants (so they now own 125 million shares). I think they still hold 6 million warrants. 

 

$14.45 x 125 million shares = $1.8 billion

$1,800 - $922 = $880 million

—————

Interesting that some on the board feel $14.45 is an opportunistic low ball offer. Perhaps Atlas is an example of one part of BV of Fairfax that is understated.

viking I think they increased the CV when they exercised the warrants, so at Jun-22 the CV (excl Riverstone)  is $1336

 

If deal goes ahead, Fairfax exchanges their Atlas shares at the merger price for BidCo shares. 

 

 

 

[Viking]

1 hour ago, glider3834 said:

viking I think they increased the CV when they exercised the warrants, so at Jun-22 the CV (excl Riverstone)  is $1336

 

If deal goes ahead, Fairfax exchanges their Atlas shares at the merger price for BidCo shares. 

 

 

 

@glider3834 thanks for providing the clarity! So assuming deal goes though at $14.45 we could see a further markup by Fairfax of the Atlas position by about $460 million?

[glider3834]

M&A in Oil & Gas space (might be useful to compare to Exco resources)

https://worldoil.com/news/2022/8/10/devon-energy-to-spend-1-8-billion-to-buy-validus-energy-expand-in-eagle-ford/

Edited August 22, 2022 by glider3834

[nwoodman]

1 hour ago, glider3834 said:

M&A in Oil & Gas space (might be useful to compare to Exco resources)

https://worldoil.com/news/2022/8/10/devon-energy-to-spend-1-8-billion-to-buy-validus-energy-expand-in-eagle-ford/

Cheers,  there was a thread on fintwit regarding Exco, that was mildly intriguing Does anyone here have a copy of their results,?  I think I know the answer if @glider3834hasn’t been able to track them down
 

 

[This2ShallPass]

8 hours ago, nwoodman said:

Cheers,  there was a thread on fintwit regarding Exco, that was mildly intriguing Does anyone here have a copy of their results,?  I think I know the answer if @glider3834hasn’t been able to track them down
 

 

@nwoodman the last reliable update on Exco I saw was from Chou's annual report (http://choufunds.com/pdf/2021 AR English.pdf). He had some good things to say and his current PV-10 estimate is $1.2B!

 

I'm also looking at Exco again. Bought originally around $1 (my lowest buy was $0.6 which was close to the 5-year low) after reading Chou's update a while back, but sold ~$5 as there were no public updates / financials and I had no good way of knowing the value. Looks like that was a mistake..

[Viking]

Is Fairfax undervalued today trading at US$505? My vote is yes. And probably by a lot. Ok, smarty pants… Why is it undervalued?

 

1.) i think the primary reason is very poor past performance. This has been discussed quite a bit already so i am going to move on.

2.) another important reason is its misunderstood (and/or under-appreciated) business model. Fairfax has a business model that is unique in the insurance industry. If investors do not understand what you are doing, and you have underperformed for the better part of a decade, then your shares are going to trade at a discount. Welcome to Fairfax 2022.

—————

Rather than discuss what Fairfax has in common with other insurers, i am going to discuss what makes it different than most. Do I have the buckets below about right? My goal is to capture the full range / types of investments Fairfax makes. Yes, some positions could be included in more than one bucket. Successfully investing in each bucket requires a very different skill set. Just one example: it has taken Fairfax years to build out its investment team in India; that investment in time and people has been completed and Fairfax shareholders are now reaping the reward. The amount of $ invested in each bucket is also significant. It is pretty interesting what Fairfax has built out over the years. What is also VERY INTERESTING - after hitting a rough patch from 2016/2017 - Fairfax's hit rate (success rate) with new investments has improved quite a bit over the past 5 years...

----------

Not included below is the usual buy/sell large cap US/Can stocks (too many buys and sell to try and list everything). With the list below I am trying to highlight what Fairfax is doing in addition to this traditional strategy.

----------

1.) Fairfax is a venture capital investor: funding given to startups or other young businesses that show potential for long-term growth

• ICICI Lombard (1994) - sold for @ $1.2 billion 2017/18
• Quess - formerly IKYA  (2013) - via Thomas Cook - still owns - home run
• Digit (2016) - IPO likely coming late 2022 or 2023
• Davos Brands, Rouge Media, Blue Ant Media (2016)
• Farmers Edge (2017) - looks like a big miss
• Boat Rocker (2018)
• Ki (2020)

2.) venture debt investor: using warrants as sweetener.

• pre-2016 i think there were lots of these deals; too many to list.
• EXCO Resources (I think)
• APR (2016)
• Chorus Aviation (2016)
• Mosaic Capital (2017)
• Altius minerals (2017)
• AGT Food and Ingredients (2017)
• Westaim (2017)
• Seaspan (2018) - massive $500 million
• Leon’s (2020)

3.) Incubator/accelerator investor: fostering early-stage companies through the different developmental phases (including funding to accelerate growth) until the companies have sufficient financial, human, and physical resources to function on their own.

• First Capital - Singapore (2002) - sold for $1.7 billion 2016
• Riverstone UK - run-off (GFIC 2010) - sold for @ $1.5 billion 2020/21
• Hartville Group (2013) & Pet Health (2014) - sold for $1.4 billion 2022
• Others?

4.) distressed/bankruptcy investor: don't have the cash flow to service their debts and are fighting the clock

• Bank of Ireland (2011) - sold for +$1.4 billion 2014-17
• Eurobank (2014)
• Golf Town (2016) - merged with Sporting Life
• Performance Sports (2017) - Bauer/Easton/Cascade
• Carillion Canada/Dexterra (2018) - merged with Horizon North 2020
• Toys “R” Us (2018) - sold retail operations 2021

5.) Real estate investor

• Kennedy Wilson (2010) - ongoing, growing and  very successful partnership
• Grivalia - Greece (2011) - very successful; merged with Eurobank in 2019

6.) asset manager

• Fairfax India (2015) - ownership has increase from 28% to 42%
• Fairfax Africa (2017) - merged with Helios 2020 - spectacular failure

7.) private equity investor (via external fund managers) - funds allocated here continue to meaningfully grow

• BDT Capital
• ShawKwei
• Lots more

8.) turnaround investor: not fighting the clock. Many of Fairfax’s investments became ‘turnaround’ situations after Fairfax made their initial investment especially 2015-2017 vintage.

• Sandridge Energy (2008/09) - bankrupt 2016?
• Abitibi/Resolute (2008) - sold 2022
• The Brick - merged with Leon’s 2012 - sold Leon’s 2021
• Blackberry (2011) - still owns full position
• Torstar - sold
• Reitmans (2013) - sold 2019
• EXCO Resources - bankruptcy - take private 2019 (Fairfax owns +40%)
• Fairfax Africa (2015) - merged with Helios 2020
• APR (2016) - sold to Seaspan/Atlas 2019
• Chorus Aviation (2016) - current status ?
• AGT Food Ingredients (2017) - take private 2019
• Mosaic Capital (2017) - take private 2021 (not managed by Fairfax)
• Farmers Edge (2017) - to be determined

9.) Resource investor

• International Coal Group (2006-09) - coal play - sold for big gains
• Sandridge Energy (2008/09) - bankrupt 2016?
• Abitibi/SFK Pulp/Resolute (2006-09) - paper, pulp & later lumber - sold 2022
• Tembec (2015) - lumber - sold 2017
• EXCO Resources - natural gas - bankruptcy/take private 2019
• Altius Resources (2017) - resource royalty play
• Ensign Energy Services (2018) - oil and gas services
• Stelco (2018) - steel play
• Foran Mining (2021) - copper play

10.) international investor (2014 was a big year)

• Bank of Ireland (2011)
• Grivalia (2011)
• Mytileneos (2013)
• Thomas Cook (2014)
• CIB Bank (2014)
• Eurobank (2014)
• IIFL 
• John Keells

Edited August 22, 2022 by Viking

[wondering]

Thanks @Viking.  Great analysis as always.  Not to be nit-picky, but I think one investment bucket which was overlooked was regular S&P500 TSX liquid stock investments like J&J, Bank of America, Wells Fargo (sold a while ago) etc.  I guess they have done a lot of investing in this bucket because they have felt the margin of error wasn't there

 

[Viking]

56 minutes ago, wondering said:

Thanks @Viking.  Great analysis as always.  Not to be nit-picky, but I think one investment bucket which was overlooked was regular S&P500 TSX liquid stock investments like J&J, Bank of America, Wells Fargo (sold a while ago) etc.  I guess they have done a lot of investing in this bucket because they have felt the margin of error wasn't there

@wondering i added an edit to my original post… yes, i did not include a bucket for ‘large cap stock purchases/sales”’ as that is a pretty standard type of investment (and there are lots of transactions and its is often hard to get accurate buy/sell information).   

Edited August 22, 2022 by Viking

[glider3834]

14 hours ago, nwoodman said:

Cheers,  there was a thread on fintwit regarding Exco, that was mildly intriguing Does anyone here have a copy of their results,?  I think I know the answer if @glider3834hasn’t been able to track them down
 

 

nwoodman I don't have current financials but we expect most of their hedges roll off in 2022 & they can lock in future production at higher price levels based on 12-month avg strip prices (futures) for crude oil & natural gas which have had a decent move up (see below). 

 

So pricing is looking constructive for 2023 revenues, if they can get their production volume up as well that could give them more revenue upside.

 

 

 

https://assets.engieimpact.com/ENGIE-Impact-Market-Watch-8-16-2022.pdf?mtime=20220816144946&focal=none&utm_source=Programs+Marketing+1&utm_medium=email&utm_campaign=7013c000001ofvDAAQ

Edited August 23, 2022 by glider3834

[Thrifty3000]

@Viking I agree with your reasons for it being undervalued. A couple other factors...

 

1) I've also always assumed there would be a permanent, deserved, discount because of the dual share class structure giving control to the Watsa gene pool. I'm not sure how to quantify it, and I'm sure there will be times when Mr. Market overlooks the risk, but it's a relevant factor nonetheless. Probably not a bad idea to knock 10% to 20% off of a DCF or sum of the parts valuation to factor it in. (Some children of billionaires do a perfectly fine job selecting good operators to run the family business. Other children of billionaires go bat$hit crazy.)

 

2) This is actually more of a question. Will there be a liquidity/visibility discount for not being listed on the NYSE anymore? I'm curious if that takes it off the radar of a lot of algorithmic traders and ETFs. Furthermore, I know firsthand Vanguard won't even let US clients purchase Fairfax. That has to sting a bit. It seems we're left with the handful of value investors that do their own independent research and thinking to support the value of Fairfax; many of whom were burned holding Fairfax over the last decade.

 

^ that's why I think we may need a couple years of solid book value growth before Fairfax starts showing up on stock screens and garnering attention from more big money managers. In the meantime I hope the price stays crazy discounted while FFH buys back hand over fist.

Edited August 23, 2022 by Thrifty3000

[Viking]

4 hours ago, Thrifty3000 said:

@Viking I agree with your reasons for it being undervalued. A couple other factors...

 

1) I've also always assumed there would be a permanent, deserved, discount because of the dual share class structure giving control to the Watsa gene pool. I'm not sure how to quantify it, and I'm sure there will be times when Mr. Market overlooks the risk, but it's a relevant factor nonetheless. Probably not a bad idea to knock 10% to 20% off of a DCF or sum of the parts valuation to factor it in. (Some children of billionaires do a perfectly fine job selecting good operators to run the family business. Other children of billionaires go bat$hit crazy.)

 

2) This is actually more of a question. Will there be a liquidity/visibility discount for not being listed on the NYSE anymore? I'm curious if that takes it off the radar of a lot of algorithmic traders and ETFs. Furthermore, I know firsthand Vanguard won't even let US clients purchase Fairfax. That has to sting a bit. It seems we're left with the handful of value investors that do their own independent research and thinking to support the value of Fairfax; many of whom were burned holding Fairfax over the last decade.

 

^ that's why I think we may need a couple years of solid book value growth before Fairfax starts showing up on stock screens and garnering attention from more big money managers. In the meantime I hope the price stays crazy discounted while FFH buys back hand over fist.

@Thrifty3000 here are some thoughts:

1.) dual share class structure: has always existed. Didn’t seem to matter to investors in the past. Yes, Prem is getting older… but some would argue Fairfax stock might go higher if he was no longer involved. I am not worried the kids will mess it up (at least for a few years).
2.) NYSE listing: Fairfax delisted from NYSE in 2009. This didn’t seem to matter for many years… Would NYSE listing help? Yes. Demand for shares would be higher. 
 

What will help Fairfax shares? Delivering great results. What to do with earnings? With the hard market rolling over:

1.) continue to buy out minority shareholders

2.) buy back stock

[glider3834]

5 hours ago, Thrifty3000 said:

Vanguard won't even let US clients purchase Fairfax.

thrifty bit confused - Vanguard group owns around 2% of Fairfax

 

 

 

[Thrifty3000]

50 minutes ago, glider3834 said:

thrifty bit confused - Vanguard group owns around 2% of Fairfax

 

 

 

Vanguard allows US clients with personal accounts to continue owning it, they just won't allow you to buy more going forward. It's a recent policy that wasn't in place when I bought the bulk of my shares in 2020. I'm sure Vanguard still holds FFH in its international ETFs. And, it may still execute over the counter trades for professional clients.

 

I assume they stopped allowing OTC trades after they went to a zero commission model. I noticed my other brokerage, which has a mostly zero commission model, does actually charge several dollars per OTC trade.

Edited August 23, 2022 by Thrifty3000

[glider3834]

4 minutes ago, Thrifty3000 said:

Vanguard allows US clients with personal accounts to continue owning it, they just won't allow you to buy more going forward.

ok - are you talking about the FRFHF - OTC US listed shares? I would assume a US investor with a Vanguard personal account could still buy Canadian stocks including TSX listed ie FFH.TO , or am I wrong?

[Thrifty3000]

18 hours ago, glider3834 said:

ok - are you talking about the FRFHF - OTC US listed shares? I would assume a US investor with a Vanguard personal account could still buy Canadian stocks including TSX listed ie FFH.TO , or am I wrong?

 

Yes, FRFHF. I don't appear to have the ability to trade FFH.TO in my account.

[glider3834]

6 hours ago, Thrifty3000 said:

 

Yes, FRFHF. I don't appear to have the ability to trade FFH.TO in my account.

ok - not sure about Vanguard but IB does

[petec]

On 8/22/2022 at 10:02 PM, Viking said:

Is Fairfax undervalued today trading at US$505? My vote is yes. And probably by a lot. Ok, smarty pants… Why is it undervalued?

 

1.) i think the primary reason is very poor past performance. This has been discussed quite a bit already so i am going to move on.

2.) another important reason is its misunderstood (and/or under-appreciated) business model. Fairfax has a business model that is unique in the insurance industry. If investors do not understand what you are doing, and you have underperformed for the better part of a decade, then your shares are going to trade at a discount. Welcome to Fairfax 2022.

—————

Rather than discuss what Fairfax has in common with other insurers, i am going to discuss what makes it different than most. Do I have the buckets below about right? My goal is to capture the full range / types of investments Fairfax makes. Yes, some positions could be included in more than one bucket. Successfully investing in each bucket requires a very different skill set. Just one example: it has taken Fairfax years to build out its investment team in India; that investment in time and people has been completed and Fairfax shareholders are now reaping the reward. The amount of $ invested in each bucket is also significant. It is pretty interesting what Fairfax has built out over the years. What is also VERY INTERESTING - after hitting a rough patch from 2016/2017 - Fairfax's hit rate (success rate) with new investments has improved quite a bit over the past 5 years...

----------

Not included below is the usual buy/sell large cap US/Can stocks (too many buys and sell to try and list everything). With the list below I am trying to highlight what Fairfax is doing in addition to this traditional strategy.

----------

1.) Fairfax is a venture capital investor: funding given to startups or other young businesses that show potential for long-term growth

• ICICI Lombard (1994) - sold for @ $1.2 billion 2017/18
• Quess - formerly IKYA  (2013) - via Thomas Cook - still owns - home run
• Digit (2016) - IPO likely coming late 2022 or 2023
• Davos Brands, Rouge Media, Blue Ant Media (2016)
• Farmers Edge (2017) - looks like a big miss
• Boat Rocker (2018)
• Ki (2020)

2.) venture debt investor: using warrants as sweetener.

• pre-2016 i think there were lots of these deals; too many to list.
• EXCO Resources (I think)
• APR (2016)
• Chorus Aviation (2016)
• Mosaic Capital (2017)
• Altius minerals (2017)
• AGT Food and Ingredients (2017)
• Westaim (2017)
• Seaspan (2018) - massive $500 million
• Leon’s (2020)

3.) Incubator/accelerator investor: fostering early-stage companies through the different developmental phases (including funding to accelerate growth) until the companies have sufficient financial, human, and physical resources to function on their own.

• First Capital - Singapore (2002) - sold for $1.7 billion 2016
• Riverstone UK - run-off (GFIC 2010) - sold for @ $1.5 billion 2020/21
• Hartville Group (2013) & Pet Health (2014) - sold for $1.4 billion 2022
• Others?

4.) distressed/bankruptcy investor: don't have the cash flow to service their debts and are fighting the clock

• Bank of Ireland (2011) - sold for +$1.4 billion 2014-17
• Eurobank (2014)
• Golf Town (2016) - merged with Sporting Life
• Performance Sports (2017) - Bauer/Easton/Cascade
• Carillion Canada/Dexterra (2018) - merged with Horizon North 2020
• Toys “R” Us (2018) - sold retail operations 2021

5.) Real estate investor

• Kennedy Wilson (2010) - ongoing, growing and  very successful partnership
• Grivalia - Greece (2011) - very successful; merged with Eurobank in 2019

6.) asset manager

• Fairfax India (2015) - ownership has increase from 28% to 42%
• Fairfax Africa (2017) - merged with Helios 2020 - spectacular failure

7.) private equity investor (via external fund managers) - funds allocated here continue to meaningfully grow

• BDT Capital
• ShawKwei
• Lots more

8.) turnaround investor: not fighting the clock. Many of Fairfax’s investments became ‘turnaround’ situations after Fairfax made their initial investment especially 2015-2017 vintage.

• Sandridge Energy (2008/09) - bankrupt 2016?
• Abitibi/Resolute (2008) - sold 2022
• The Brick - merged with Leon’s 2012 - sold Leon’s 2021
• Blackberry (2011) - still owns full position
• Torstar - sold
• Reitmans (2013) - sold 2019
• EXCO Resources - bankruptcy - take private 2019 (Fairfax owns +40%)
• Fairfax Africa (2015) - merged with Helios 2020
• APR (2016) - sold to Seaspan/Atlas 2019
• Chorus Aviation (2016) - current status ?
• AGT Food Ingredients (2017) - take private 2019
• Mosaic Capital (2017) - take private 2021 (not managed by Fairfax)
• Farmers Edge (2017) - to be determined

9.) Resource investor

• International Coal Group (2006-09) - coal play - sold for big gains
• Sandridge Energy (2008/09) - bankrupt 2016?
• Abitibi/SFK Pulp/Resolute (2006-09) - paper, pulp & later lumber - sold 2022
• Tembec (2015) - lumber - sold 2017
• EXCO Resources - natural gas - bankruptcy/take private 2019
• Altius Resources (2017) - resource royalty play
• Ensign Energy Services (2018) - oil and gas services
• Stelco (2018) - steel play
• Foran Mining (2021) - copper play

10.) international investor (2014 was a big year)

• Bank of Ireland (2011)
• Grivalia (2011)
• Mytileneos (2013)
• Thomas Cook (2014)
• CIB Bank (2014)
• Eurobank (2014)
• IIFL 
• John Keells

This is an interesting mental exercise but I’m not sure Fairfax think about their investing in these buckets. In fact, I think you could simplify the whole thing dramatically. In my view they aim for two things when they invest: value and great people. 
 

They do not aim for certainty of outcome, unlike some. They’re perfectly happy to lose money on some, and make spectacular gains on others. (And it shows!)

[Viking]

On 8/24/2022 at 8:01 PM, petec said:

This is an interesting mental exercise but I’m not sure Fairfax think about their investing in these buckets. In fact, I think you could simplify the whole thing dramatically. In my view they aim for two things when they invest: value and great people. 
 

They do not aim for certainty of outcome, unlike some. They’re perfectly happy to lose money on some, and make spectacular gains on others. (And it shows!)

 

My read is Fairfax continues to evolve over time with how it is managing its investment portfolio. Prior to 2018 they had a 4 year stretch where they were making lots of mistakes with their equity purchases (buying value traps/bad companies - some run by poor management teams). For the past 5 years (2018-2022) Fairfax's success rate on new equity purchases has improved dramatically - generally they have been buying value run by good to great management teams.

 

Examples from 2014-2017? CIB Bank, Eurobank, EXCO Resources, APR Energy, Fairfax Africa, Farmers Edge, AGT Food Ingredients, Mosaic Capital, Astarta Holdings. 

 

My guess is Fairfax has had to take write downs of around $1 billion on its investments in these companies the past couple of years. Fairfax's initial investment in Eurobank of $444 million evaporated in months. CIB is a great bank (and Egypt has a currency problem), EXCO went bankrupt in 2019 and Fairfax took a $300 million loss over 2 years (2018 & 2019). Both APR Energy and Fairfax Africa each had to have had at least $200 million write downs. Farmers Edge? Fairfax just announced a $107 million write down. AGT? As its financial situation deteriorated it was taken private by Fairfax in 2019 (not sure how it is doing but given there has been very little news on the company the past year I am not optomistic).

 

This is not to say Fairfax did not make some good to very good investments from 2015-2017:

2014: Praktiker

2015: Fairfax India IPO, Boat Rocker

2016: Golf Town (bankruptcy), Davos Brands, Blue Ant Media

2017: Altius, Performance Sports (Bauer)/Peak (bankruptcy)

 

How does the above compare to the 5 years from 2018 to 2022?

 

Clunkers? I come up with one in the past 5 years: 2020 - John Keells. And the issue was not the company but the country - Sri Lanka.

 

Winners?

2018: Atlas ($500 million), Carillion (bankruptcy), Toys “R” Us (bankruptcy), Stelco (post bankruptcy), Ensign Energy

2019: Atlas ($500 million more)

2020: Fairfax total return swap (1.4 million shares + 500 million added Q1 2021); 

2021: Fairfax share buyback (2 million shares @ US$500/share), Foran Mining (small bet on copper)
2022: Grivalia Hospitality, BAC, OXY, CSX, BABA ($210 million), Recipe take private ($370 million)

 

Most importantly, most of the ‘problem children’ owned by Fairfax have been dealt with - and the financial hit taken by Fairfax. After years of solid management, Eurobank looks well positioned (let's hope Europe doesn't have an economic crisis driven by high energy prices), EXCO is now a rising phoenix (thanks to spiking nat gas). in 2019 APR Energy was offloaded to Atlas for 22 million shares in ATCO. In 2020 Fairfax Africa was folded into Helios. Farmers Edge was just written down this past quarter. AGT?   

 

Bottom line: Past problems in its portfolio of investments have largely been fixed and recent purchases look solid. Fairfax shareholders should see solid growth in its large portfolio of equity investments in the coming years which bodes well for future investment gains. 
—————

Recipe is perhaps a good example of ‘new Fairfax’: Fairfax wants to take Recipe private today because they think it is crazy cheap. EXCO/APR/AGT are all examples of ‘old Fairfax’: Fairfax took them private because they were in severe financial distress. 
 

Today Fairfax is spending money because they see opportunity not because they have to bail out a failing/struggling business. That has big ramifications for Fairfax shareholders over a few years. Fairfax is able to spend new money on growth opportunities (not fixing problems). The more holdings that compound in value each year the more value Fairfax is building… 

Edited August 31, 2022 by Viking

[Viking]

I have put together a list of Fairfax's investments since 2010 (the Excel file is attached below). It is by year with insurance and non-insurance transactions captured separately. It is a pretty eclectic list (stuff I found interesting). It is also a work in progress. And not definitive. And it likely has errors.

 

Bottom line, I wanted to better understand the decisions Fairfax was making with their investment portfolio over the years.

 

As I said in my previous post, I think the collective decisions from 2018-2022 are much better than those made from 2014-2017. And that should lead to improved results from investments (both realized/unrealized gains) in future years (than past years). 

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The 2014-2017 period also saw sizable losses from both equity hedges and CPI derivatives. The equity hedges were largely removed at YE 2016 with the last position sold in 2020. Sorry to pick that scab...

 

 

Fairfax Equity Holdings Aug 15 2022.xlsx

Edited August 31, 2022 by Viking

[glider3834]

On 8/23/2022 at 10:13 AM, glider3834 said:

nwoodman I don't have current financials but we expect most of their hedges roll off in 2022 & they can lock in future production at higher price levels based on 12-month avg strip prices (futures) for crude oil & natural gas which have had a decent move up (see below). 

 

So pricing is looking constructive for 2023 revenues, if they can get their production volume up as well that could give them more revenue upside.

 

 

 

https://assets.engieimpact.com/ENGIE-Impact-Market-Watch-8-16-2022.pdf?mtime=20220816144946&focal=none&utm_source=Programs+Marketing+1&utm_medium=email&utm_campaign=7013c000001ofvDAAQ

 

Chou Associates Fund have increased the valuation of their Exco shares by 100% over 6mths to 30 Jun-22 

 

Using their 30 Jun-22 valuation of approx USD 23.16 per share (note CAD figures below) x 51.34 mil shares outstanding for Exco gets you to USD$1.19B valuation - implies Fairfax 43.3% stake  worth approx USD 515 mil 

 

 

 

 

 

 

Edited August 31, 2022 by glider3834