Fairfax stock positions

[glider3834]

31 minutes ago, dartmonkey said:

Fairfax India acquires additional 7% stake in Bengaluru airport -

 

This 7% stake, for $175m, was at exactly the same valuation as the 3% stake they bought from in June: https://www.globenewswire.com/en/news-release/2023/06/21/2692532/0/en/Fairfax-India-Completes-Acquisition-of-an-Additional-3-Interest-in-Bangalore-International-Airport-Limited.html. It is because they actually agreed to this before June, but the second step was conditional on the airport hitting some additional benchmarks. From the June PR:

 

As previously announced, Fairfax India, through its wholly-owned subsidiary, has also agreed to acquire an additional 7% equity interest in BIAL from SFS for additional consideration of $175 million, subject to the satisfaction of certain performance conditions by BIAL and other closing conditions, which are expected to be tested subsequent to October 31, 2023.

 

There's still the question of dilution - in the annual report, they said they had a 54% stake, but that that they really only owned 49%, after dilution. I don't know what that dilution represents - employee stock options? convertible preferred shares? something else? - but if it is still present, that would mean they now own 64% minus 5% from the effects of the dilution, so 59%. Maybe we'll find out when the dust settles after the IPO eventually goes ahead.

 

 

Underlying ownership Fairfax has 59% and OMERS 5% - it gets consolidated in FIH books with 64% BIAL controlling stake as Asset and 5% non-controlling interest in Equity.

[dartmonkey]

Underlying ownership Fairfax has 59% and OMERS 5% - it gets consolidated in FIH books with 64% BIAL controlling stake as Asset and 5% non-controlling interest in Equity.

 

ok, got it that makes perfect sense, thanks. So FIH really does only own 59%, not 64% (up this year from 49%, not 54%.)

[giulio]

https://www.theglobeandmail.com/business/article-westbridge-renewable-closes-deal-to-sell-first-of-five-solar-power/

[giulio]

FFH investment team has been playing merger arbs pretty well this year: X, ATVI, DICE, ARCE, PRVB, FSTX, VIVO. 

CPRI was a recent buy.

Small positions but I am impressed.

 

G

[Xerxes]

 

The AI machine continues to send useless updates on an irrelevant equity portfolio

[benchmark]

14 hours ago, giulio said:

FFH investment team has been playing merger arbs pretty well this year: X, ATVI, DICE, ARCE, PRVB, FSTX, VIVO. 

CPRI was a recent buy.

Small positions but I am impressed.

 

G

when do you expect that CPRI deal to close? 

[This2ShallPass]

On 12/18/2023 at 10:30 PM, benchmark said:

when do you expect that CPRI deal to close? 

I started looking into this after seeing @giulio post, definitely a good merger arb oppty. 

 

In Tapestry's earnings call they say transaction expected to close in calendar '24, nothing specific. I only do these arbs with long puts, so timeframe is imp to get decent return.

 

[giulio]

I havo no position, no idea how it unfolds. My post was to highlight the FFH team hot hand.

Best of luck to those playing the merg arb! 

[benchmark]

18 hours ago, This2ShallPass said:

In Tapestry's earnings call they say transaction expected to close in calendar '24, nothing specific. I only do these arbs with long puts, so timeframe is imp to get decent return.

Did you mean to something like buying Jan 25 45 puts, for example? 

[bargainman]

Sorry if this is a dumb question, but has FFH's stock portfolio over/underperformed indices over time?

[Viking]

5 hours ago, bargainman said:

Sorry if this is a dumb question, but has FFH's stock portfolio over/underperformed indices over time?

@bargainman I have looked at Fairfax in lots of different ways over the years but i have never attempted that type of analysis - there are so many important moving/unknown parts i am not sure it can be done in a quality way. One of the challenges is we have incomplete information - Fairfax has lots of equity investments that are of significant size that we know nothing about. Fairfax is also very active - positions change. Part of the analysis would need to include dividends. And what do you include? Do you include the TRS-FFH? How do you value a company like AGT Food Ingredients? Or Bauer Hockey? Or the significant private equity holdings? 
 

The other question: what benchmark should be used? S&P500, which is dominated by 7 or 8 companies?
 

At the end of the day, from my perspective, what really matters is total return on the total investment portfolio. And how does Fairfax’s performance compare to peers?
 

That we can take a stab at. My math says Fairfax is tracking to earn 8.1% in 2023. And my estimate is for Fairfax to earn around 7.2% in 2024 and 2025. My estimates for 2024 and 2025 assume zero from large asset sales / revaluations - which i think will be wrong. My guess is Fairfax will continue to monetize/revalue some assets in the coming years so 7.2% will likely be more like 7.5% or higher.

 

My guess is Fairfax is earning best-in-class total returns on its total investment portfolio when compared to other P/C insurance companies (most of whom are likely earnings in the 4 to 5% total return range). And I expect the large outperformance by Fairfax to persist in the current environment (where active management matters once again).

—————

Another approach would be to look at Fairfax’s largest equity investments. The big three are Eurobank, Poseidon and FFH-TRS. These three holdings represent about 33% of Fairfax’s equity holdings. 
 

If you look at Fairfax’s top 12 holdings, that would get you to about 60% of their equity holdings. That might be a pretty good proxy for how the total equity portfolio was performing. 

Edited December 28, 2023 by Viking

[StubbleJumper]

10 hours ago, bargainman said:

Sorry if this is a dumb question, but has FFH's stock portfolio over/underperformed indices over time?

 

 

In the past, Prem routinely included a small table in his annual letter, depicting FFH's return on common stocks, the return on the S&P500, FFH's return on bonds and the Merrill Lynch Corporate Bond Index (an example of that table can be found on page 17 of Prem's 2015 letter).  For me, the general insight over the years from that table is that FFH's true strength was fixed income investing, which is a good thing for an insurance company that must keep two-thirds or three-quarters of its investments in fixed income products.

 

In a more general sense, it's worth reading and re-reading Prem's annual letter several times.  He includes several tables that are key to understanding the prevailing economic conditions of the insurance industry and how FFH has generated wealth (or not!) within those economics conditions.  When Prem includes a table or a section on a particular subject, it's usually there for a very good reason.  I am not too sure why the table on investment returns disappeared over time.  Perhaps it was that FFH had a period of unfavourable comparisons to the index, or as @Viking perhaps it's because such a large chunk of FFH's investments are private placements or otherwise unusual investments.  Or perhaps with M2M accounting, Prem figures that shareholders don't really need that little table anymore because we can more or less figure it out ourselves?

 

Not sure.

 

 

SJ

[Jaygo]

A question is why do these companies not just index. 
 

if the business of insurance is good why have a side business of investing. There are some funds that do 20% a year. Why not leave it to those guys or the index and focus on your business of insurance?

 

we all have dogs but when I look at ffh it’s seems like some real mutts. Blackberry, recipe corp with the crappiest restaurants, shipping companies, 

 

I’m not a billionaire nor so successful people know me on the streets, so instead of criticizing I’m just really curious about it. 
 

I actually think brk is the same and really hope Greg starts to unwind the investments  portfolio so it makes up a much smaller part of the business. Using the proceeds to shrink the equity at these very reasonable prices compared to the greater market. 

 

 

[Xerxes]

That matrix table that shows gain/loss, unrealized/realized, fixed-income/stocks was never very clear in terms what goes in the equity portion.

 

A lot of good stuff didn’t make it to the table. ICICI Lombard when it was realized (and that was no even fully owned). That piece of business they sold in Asia pre-Covid. 
 

To me a business is a business. Whether there is a liquid secondary market for its shares or not is an irrelevant criteria to have for inclusion to that infamous table. 

[MMM20]

1 hour ago, Jaygo said:

A question is why do these companies not just index. 

 

This is a better question for the MKL board

 

FFH goes for it with some big positions, even if they're not everyone's cup of tea. I believe roughly a half dozen investments (across everything) add up to roughly half the NAV. The same is roughly true for BRK. I don't think it's anywhere close to that for MKL nowadays, but please correct me if I'm wrong.

 

Also, I ask myself a similar question about short selling. Why bother with a few insignificant short positions if they're just another thing to track and never move the needle? I think the answer is it makes you better as a long investor to be able to adopt the mindset and framework of a short seller.

 

The same is probably true of Fairfax with their big positions, even something like the GFC big short, the Digit investment, or maybe even the mid 2010s insurance acquisitions. Would they have pulled these things off if they simply indexed? Maybe not!

 

So you take the good with the bad and focus on where it all nets out. And the result has been pretty damn good over a pretty damn long time period.

 

Edited December 28, 2023 by MMM20

[StubbleJumper]

1 hour ago, Jaygo said:

A question is why do these companies not just index. 
 

if the business of insurance is good why have a side business of investing. There are some funds that do 20% a year. Why not leave it to those guys or the index and focus on your business of insurance?

 

we all have dogs but when I look at ffh it’s seems like some real mutts. Blackberry, recipe corp with the crappiest restaurants, shipping companies, 

 

I’m not a billionaire nor so successful people know me on the streets, so instead of criticizing I’m just really curious about it. 
 

I actually think brk is the same and really hope Greg starts to unwind the investments  portfolio so it makes up a much smaller part of the business. Using the proceeds to shrink the equity at these very reasonable prices compared to the greater market. 

 

 

 

The short answer is that Prem Watsa is an investor who had a side-business of insurance, not an insurance guy who had a side-business of investing.  The motivation for Prem ever buying an insurance company was likely for the simple reason of having access to large gobs of other people's money to invest (ie, large gobs of float).

 

 

SJ

[SafetyinNumbers]

In the most inefficient market I have ever seen, I think an unconstrained investor like FFH has the potential to generate strong absolute returns over a long period of time. It’s what gets me really excited about the right tail.
 

If you want a holdco that owns the index (VOO) and has money invested with the GARP investment style (UNC.TO EVT.TO), you should consider E-L Financial. It trades at a ~50% discount NAV despite its holdings being closer to what most investors prefer i.e. passive or quality.

[bargainman]

The reason I ask is because many years ago I decided I would invest with Buffett and his acolytes in value investing. I purchased Berkshire, Fairfax, Markel, Leucadia(now, Jeffries), fairholme, wintergreen even.  

 

Other than Berkshire, they have all significantly underperformed.

[Santayana]

When did you first purchase Fairfax, and have you added to the position over time?

[Viking]

1 hour ago, bargainman said:

The reason I ask is because many years ago I decided I would invest with Buffett and his acolytes in value investing. I purchased Berkshire, Fairfax, Markel, Leucadia(now, Jeffries), fairholme, wintergreen even.  

 

Other than Berkshire, they have all significantly underperformed.

@bargainman my strategy has been to invest in Fairfax only when i am in agreement/aligned with the general positioning of their investment portfolio. As i have stated before, I like what they have been doing since about 2018 (in aggregate).

Edited December 28, 2023 by Viking

[Thrifty3000]

7 hours ago, Santayana said:

When did you first purchase Fairfax, and have you added to the position over time?

In roughly 2010 I did 2 internet searches that led to my initial investment in FFH. 

 

First, I googled the phrase “Warren Buffet of [insert country name]” for a number of countries like Canada, England, Australia, etc. That was probably the first time I learned about Prem Watsa - the “Warren Buffett of Canada.”

 

Second, I searched for “value investor message boards” which, of course, led me to COBF. 

 

Additionally, I remember reading one of the Berkshire annual meeting transcripts - around the time of the GFC - where Buffett had mentioned a Canadian insurer that almost perfectly timed the housing market crash with credit default swaps. I quickly learned it was FFH.

 

Somewhere around 2010, after learning Prem and Fairfax were approaching legendary investor status I bought a few thousand dollars worth of shares. Maybe $50k.

 

After following them for a decade, in 2020 I figured FFH was nearly certain to earn $28 to $35 per share. I really liked what I knew about Prem and the company, so when the shares hit $250 during the Covid crisis I bought 10 times more shares.
 

After 2020 I monitored the discussions on this board very closely, and thanks to @Viking and others I realized I was vastly underestimating FFH’s true earning power, so I continued doubling down until I had over a third of my net worth invested (at somewhere around $400 per share).

 

So far so good. I haven’t sold yet, since I still consider the shares undervalued, and since I’m still plenty happy with the management and culture.

[This2ShallPass]

On 12/27/2023 at 4:25 PM, benchmark said:

Did you mean to something like buying Jan 25 45 puts, for example? 

I prefer short on duration and strike closer to my buy. The premium for Jan 25 45 puts will be high and also downside will be greater than the upside which is only $7. So I pass. But I'm a noob in merge arb and it's not an active part of my strategy..

[bargainman]

Looking at my records I purchased FFH shares 2007-2013.

 

So basically during the time where they looked like geniuses for making a billion dollars by purchasing credit default swaps...  but then promptly lost that billion dollars by purchasing puts on the equity markets that had already dropped by fifty percent.  At the time when Buffett was making deals left and right.

 

Or at least that's how I remember it.

[Daphne]

First bought FFH in the mid 90s paying about $50 then bailed at $400 during the run up to $600 on feelings the company was about  to take a hit from being overextended on some problem purchases in US. It did crash and almost burn. We started buying back at $80.00 and our cost basis is now about $165.00. I have way too much of my net worth tied up in FFh but do sleep well at night. Thank you Prem!

[Xerxes]

Prem Watsa who !?

 

Never heard of Prem Watsa until I ran into bunch of Globe & Mail articles from 2014 and 2015. Invested an insignificant amount around the time Trump became president in 2016 but only went heavy in 2020-21. 
 

I even saved the articles from back in the day. Doesn’t say much but was enough to get me intrigued. And then I found this board, a year or before Covid and joined up later.