Fairfax stock positions

[A_Hamilton]

Just look at the 13D.

 

https://www.sec.gov/Archives/edgar/data/915191/000110465920101936/a20-30061_1sc13da.htm

 

FFH owns $330 million of converts at $6 for 55 million shares. Then they own 46.583 million common.

[TwoCitiesCapital]

Where did the 47m shares of BB cone from?  I had it at over 60m based on the reported value of the BB stake in the 2019 AR.

 

I don't remember the exact numbers, but they trimmed the equity position a hair when the initiated the converts.

[TwoCitiesCapital]

I'm in two minds.

 

For several years here Blackberry has basically been an option on whether or not the company can build an automotive SAAS business with a big TAM.

 

It just might be doing that, and if it is then it is too early to sell.

 

Prem is somewhat damned if he does and damned if he doesn't.

- If he sells and Blackberry succeeds then he will forego billions in gains that would be absolutely transformative for FFH, and I guarantee that this board will look back in 5 years and call him names for not having a crystal ball despite being on the board.

- If he holds and Blackberry goes back to what it was, then he can't fund quite as much underwriting in a hard market, and I guarantee that this board will call him names for not locking in a billion dollar gain.

 

I genuinely don't know which I would pick. I will be fascinated to see what he does!

 

Agreed that shareholders would respond poorly if either turns out to be wrong. So he could take the middle path with options.

 

Selling long-dated OTM calls here probably captures quite a bit of cash premium given vol levels - doesn't protect 100% on the downside, but would free up cash and be opportunistically taking profits while still riding the shares higher. Maybe structure it at varying strikes between $25-35 over the course of the next. Calls @ $25 for Jan 2022 expiry currently trade for $8+. Wouldn't be hard for FFH to take 25-50% of cash off the table while still riding underlying shares significantly higher.

 

[Xerxes]

Folks,

 

John Chen is an employee of BB not a majority holder of BB. Prem is not there to please him.

 

Prem, a value investor, at the end of the day will trade out of a highly overvalued position .... partially if needs be. In 2008-09 when he sold the swaps, he sold them when they were valuable to someone else and he didnt ride till the end. Bank of Ireland, once he made his gain, he tagged and bagged. These are the instincts of a trader and a portfolio manager. In case of BB, he literally can borrow return from the future ... pull forward by the YOLO crowd.

 

It is a blessing but a tough hand for sure. At this point, I am ok with whatever decision he makes, as long as it is decisive. I just don't want have a repeat of the 2020 AGM, where he was explaining the mayhem in the market and how the credit spread of a blue chip like Walt Disney blowing out. In my head, I was asking so what did you do about it ...

 

 

[Thrifty3000]

As a board member Prem could also be urging BB to issue tons of shares and build a war chest (like Tesla has done with their WSB-fueled lottery winnings).

[petec]

Folks,

 

John Chen is an employee of BB not a majority holder of BB. Prem is not there to please him.

 

Prem, a value investor, at the end of the day will trade out of a highly overvalued position .... partially if needs be. In 2008-09 when he sold the swaps, he sold them when they were valuable to someone else and he didnt ride till the end. Bank of Ireland, once he made his gain, he tagged and bagged. These are the instincts of a trader and a portfolio manager. In case of BB, he literally can borrow return from the future ... pull forward by the YOLO crowd.

 

It is a blessing but a tough hand for sure. At this point, I am ok with whatever decision he makes, as long as it is decisive. I just don't want have a repeat of the 2020 AGM, where he was explaining the mayhem in the market and how the credit spread of a blue chip like Walt Disney blowing out. In my head, I was asking so what did you do about it ...

 

Neither BKIR nor the swaps had the long term potential Blackberry has. I emphasise potential. I am not necessarily a bull. But I can see why one might hold.

 

One could make the same argument for Digit. It's pretty obviously overvalued based on today's earnings. A lot is in the price for a future that might or might not happen. Should Prem sell? I doubt it.

 

Prem is a value investor. He is also a long term incubator of amazing businesses (e.g. ICICI Lombard). Digit has the hallmarks of one. I will forgive him if he thinks Blackberry is another.

 

None of this is to suggest he shouldn't do something clever with hedges if he can.

[Xerxes]

As a board member Prem could also be urging BB to issue tons of shares and build a war chest (like Tesla has done with their WSB-fueled lottery winnings).

 

Right on !!

 

[Xerxes]

Neither BKIR nor the swaps had the long term potential Blackberry has. I emphasise potential. I am not necessarily a bull. But I can see why one might hold.

 

One could make the same argument for Digit. It's pretty obviously overvalued based on today's earnings. A lot is in the price for a future that might or might not happen. Should Prem sell? I doubt it.

 

Prem is a value investor. He is also a long term incubator of amazing businesses (e.g. ICICI Lombard). Digit has the hallmarks of one. I will forgive him if he thinks Blackberry is another.

 

None of this is to suggest he shouldn't do something clever with hedges if he can.

 

There is a difference between Digit and BB.

 

Digit is a FFH' brainchild in some ways. Just the fact they sold ICICI to grow Digit, shows how close Watsa is to those investments and how much he believes in it.

 

But Blackberry is not. It is an orphan. It is a coincidence that he got himself into BB for different reasons ... and now BB is morphing into something much better. Not because of anything FFH did from a strategic guidance point of view.

 

At the end of the day as a portfolio manager, he has a maximum allocation in his mind for a business that he may not be 100% comfortable with. Perhaps there is an in-between solution, where it keeps some upside.

 

 

[petec]

Neither BKIR nor the swaps had the long term potential Blackberry has. I emphasise potential. I am not necessarily a bull. But I can see why one might hold.

 

One could make the same argument for Digit. It's pretty obviously overvalued based on today's earnings. A lot is in the price for a future that might or might not happen. Should Prem sell? I doubt it.

 

Prem is a value investor. He is also a long term incubator of amazing businesses (e.g. ICICI Lombard). Digit has the hallmarks of one. I will forgive him if he thinks Blackberry is another.

 

None of this is to suggest he shouldn't do something clever with hedges if he can.

 

There is a difference between Digit and BB.

 

Digit is a FFH' brainchild in some ways. Just the fact they sold ICICI to grow Digit, shows how close Watsa is to those investments and how much he believes in it.

 

But Blackberry is not. It is an orphan. It is a coincidence that he got himself into BB for different reasons ... and now BB is morphing into something much better. Not because of anything FFH did from a strategic guidance point of view.

 

At the end of the day as a portfolio manager, he has a maximum allocation in his mind for a business that he may not be 100% comfortable with. Perhaps there is an in-between solution, where it keeps some upside.

 

Agree the reasons for getting in were varied and wrong. But Prem has had a significant hand in reshaping BB and is on the board. He knows it well. I guess the point I’m making is I hope he bases his decision on a sensible long term forward looking valuation framework rather than “woo, it’s finally up, I must sell” which is kind of how the mood on this board feels right now.

 

In other words, there may be very good reasons to sell, but the fact that it’s gone up isn’t (on it’s own) one of them.

 

[Viking]

Time value of money has to matter. Certainty over potential has to matter. Realizing a massive gain when cash has wonderful alternative uses has to matter.

 

Bottom line, if Fairfax had an opportunity to sell BB at current prices and they do not i will view it as an error.

 

We are still in the middle of a pandemic. Cash is extremely valuable right now. Especially for Fairfax.

 

It is not unrealistic that we see the virus mutate and the economic recovery is stalled. Stocks sell off. Fairfax taps debt lines further to get through. And are forced to sell some of their best assets because they are in need of cash. This is not a difficult decision (if there is a way to exit).

[StubbleJumper]

Time value of money has to matter. Certainty over potential has to matter.

 

 

This is a very important element.  The best valuation discussions that I've seen have basically posited that *maybe* in five years BB will have enough earnings to justify last week's price.  Discount that back to today...

 

Either there's a whole pile of earnings coming down the pipe that I cannot see, or this beast is a screaming sell at today's price.

 

 

SJ

[petec]

Time value of money has to matter. Certainty over potential has to matter.

 

 

This is a very important element.  The best valuation discussions that I've seen have basically posited that *maybe* in five years BB will have enough earnings to justify last week's price.  Discount that back to today...

 

Either there's a whole pile of earnings coming down the pipe that I cannot see, or this beast is a screaming sell at today's price.

 

 

SJ

 

I agree with this, but I’m also aware Prem knows more than me.

[ourkid8]

This is exactly why I have not sold a single share of BB yet in my personal portfolio. 

 

I agree with this, but I’m also aware Prem knows more than me.

[bluedevil]

And John Chen knows more about BB than Prem and he recently agreed to give fairfax a boatload of warrants at $6 per share for a lower interest rate.

 

[petec]

And John Chen knows more about BB than Prem and he recently agreed to give fairfax a boatload of warrants at $6 per share for a lower interest rate.

 

He may not have had much choice, if he didn’t want to repay the whole loan.

 

But the balance of the evidence is on your side of the argument, given the insider sales last week.

[Santayana]

A *much* lower interest rate.

[Xerxes]

And John Chen knows more about BB than Prem and he recently agreed to give fairfax a boatload of warrants at $6 per share for a lower interest rate.

 

 

No choice, since he used up his dry powder to buy Cyient.

 

Another way to think of it is the following:  broadly speaking with FFH' portfolio doing better now than say 6-9 months ago, has enough 'pressure' been lifted off the dreaded D/E ratios, such that if Watsa chooses to either trim/keep/sell BB it will be entirely based on the merit of the investment and the right-sizing of the portfolio ... and not because he is a situation where he needs to trim/keep/sell. 

 

I think with so much treasury and cash in the $40 billion portfolio, he doesn't really need to the 'liquidity' that selling BB will provide to him, other than freeing up capital for another equity investment of the same risk profile, in which case, he would be moving money from something he knows relatively really well to a new name that he probably knows less well ... and in market that is broadly speaking very expensive by some measure and yet fairly valued by other measure (interest rate).

 

EDIT: lastly, if he doesn't do anything about it, when he has the chance, man o man, that is going to be a huge endorsement of BB's potential.

It is one thing to talk about its potential when BB is down, it is entirely another thing to have an opportunity to lock-in big short term profit and forgo it ... to me that is going to be a huge bullish signal on BB.

 

The intellectual exercise is fascinating, and I am going to need to some popcorn for the Q4 results.

[Parsad]

Time value of money has to matter. Certainty over potential has to matter. Realizing a massive gain when cash has wonderful alternative uses has to matter.

 

Bottom line, if Fairfax had an opportunity to sell BB at current prices and they do not i will view it as an error.

 

We are still in the middle of a pandemic. Cash is extremely valuable right now. Especially for Fairfax.

 

It is not unrealistic that we see the virus mutate and the economic recovery is stalled. Stocks sell off. Fairfax taps debt lines further to get through. And are forced to sell some of their best assets because they are in need of cash. This is not a difficult decision (if there is a way to exit).

 

Not necessarily.  They could issue shares and build up a war chest as others have mentioned.  They could use the inflated price and acquire other operating businesses that have cash or generate a ton of free cash.  They could buy put options on BB.  As long as they use this inflated price and monetize in some manner that is beneficial to Fairfax and BB, it's a win.  But they have to work quickly!  Cheers!

[Viking]

And John Chen knows more about BB than Prem and he recently agreed to give fairfax a boatload of warrants at $6 per share for a lower interest rate.

 

 

No choice, since he used up his dry powder to buy Cyient.

 

Another way to think of it is the following:  broadly speaking with FFH' portfolio doing better now than say 6-9 months ago, has enough 'pressure' been lifted off the dreaded D/E ratios, such that if Watsa chooses to either trim/keep/sell BB it will be entirely based on the merit of the investment and the right-sizing of the portfolio ... and not because he is a situation where he needs to trim/keep/sell. 

 

I think with so much treasury and cash in the $40 billion portfolio, he doesn't really need to the 'liquidity' that selling BB will provide to him, other than freeing up capital for another equity investment of the same risk profile, in which case, he would be moving money from something he knows relatively really well to a new name that he probably knows less well ... and in market that is broadly speaking very expensive by some measure and yet fairly valued by other measure (interest rate).

 

EDIT: lastly, if he doesn't do anything about it, when he has the chance, man o man, that is going to be a huge endorsement of BB's potential.

It is one thing to talk about its potential when BB is down, it is entirely another thing to have an opportunity to lock-in big short term profit and forgo it ... to me that is going to be a huge bullish signal on BB.

 

The intellectual exercise is fascinating, and I am going to need to some popcorn for the Q4 results.

 

If Fairfax does nothing and Blackberry price returns to earth ($6/share) this will not motivate me to buy Blackberry. It will motivate me to sell Fairfax (all other things being equal).

 

We all have pretty good handle on Blackberry and its potential and its warts.

 

What we have right now is Fairfax is being given a wonderful opportunity. The question is are they going to take it or not. Yes, we should know more when Fairfax reports Q4 results (or sooner if they actually do something :-)

[Valuehalla]

Folks, what is going on? Yesterday BB was up 30 % and today LUMN is up 30 %... ? And no reason for both ?

[Thrifty3000]

Folks, what is going on? Yesterday BB was up 30 % and today LUMN is up 30 %... ? And no reason for both ?

 

This is what’s going on. I wish I was joking...

 

https://www.reddit.com/r/wallstreetbets/

[Valuehalla]

Folks, what is going on? Yesterday BB was up 30 % and today LUMN is up 30 %... ? And no reason for both ?

 

This is what’s going on. I wish I was joking...

 

https://www.reddit.com/r/wallstreetbets/

 

So they taked up LUMN as well ? Can not find that..

[clutch]

Could you imagine what Prem will say regarding BB as a meme stock in the annual letter? LOL

[Jurgis]

So Prem should short BB since it's a momo meme stock.

 

Will he have ballz?

 

Popcorn at eleven.

 

;D

[StubbleJumper]

Could you imagine what Prem will say regarding BB as a meme stock in the annual letter? LOL

 

Hopefully, in the annual letter Prem will write,

 

"FFH owned BB for 10 years and was able to exit its position with a considerable profit.  Given the time that FFH held the shares, the gains were not outstanding, but it is nonetheless a profitable exit.  In the future, we endeavour to focus more intently on risk management, particularly as it relates to our management team's circle of competence and to better consider the importance of position-sizing when we select our investments.  BB will not go down as an epic success for FFH, but it has been a valuable learning experience."

 

 

SJ