Fairfax stock positions

[Buckeye]

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

 

Very well said Prem!  ;D

[petec]

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

 

Ha - I think we can do better than that!

 

Our investment in Blackberry came to life in the quarter. We bought it for the wrong reasons and the time taken to turn the business around has crushed our IRR. Lesson learned. However, we do at least have a significant gain in absolute terms which we do not want to give up.

 

Looking forward, Blackberry has two shots on goal. Either of QNX or IVY could become leading subscription products in connected cars, a market with a huge TAM. We do not know whether Blackberry will achieve this goal, or when, but the upside over the next 10 years could theoretically be transformational for Fairfax if it does. 

 

To balance these risks we have entered into a short position that protects us should Blackberry shares fall to price X.

 

One benefit of this short position may not be immediately obvious, other than to long term followers of Fairfax. Almost everything we short goes straight up!!! We work hard to ensure the success of our investments, and by shorting Blackberry we have all but guaranteed that it is going to the moon.

[ourkid8]

The only thing missing is a few rocket ship emojis at the end and it’s perfect :)

 

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

 

Ha - I think we can do better than that!

 

Our investment in Blackberry came to life in the quarter. We bought it for the wrong reasons and the time taken to turn the business around has crushed our IRR. Lesson learned. However, we do at least have a significant gain in absolute terms which we do not want to give up.

 

Looking forward, Blackberry has two shots on goal. Either of QNX or IVY could become leading subscription products in connected cars, a market with a huge TAM. We do not know whether Blackberry will achieve this goal, or when, but the upside over the next 10 years could theoretically be transformational for Fairfax if it does. 

 

To balance these risks we have entered into a short position that protects us should Blackberry shares fall to price X.

 

One benefit of this short position may not be immediately obvious, other than to long term followers of Fairfax. Almost everything we short goes straight up!!! We work hard to ensure the success of our investments, and by shorting Blackberry we have all but guaranteed that it is going to the moon.

[Xerxes]

Assuming the cost base of $10 USD in 2013 as an approximation for cost (not including convertible), it would take a 10% compounded year-over-year to bring it to $21 USD in the current year.

 

10% compounded would mean $21 USD by close 2021

15% compounded would mean $30 USD by close 2021

20% compounded would mean $42 USD by close 2021

[bearprowler6]

Assuming the cost base of $10 USD in 2013 as an approximation for cost (not including convertible), it would take a 10% compounded year-over-year to bring it to $21 USD in the current year.

 

10% compounded would mean $21 USD by close 2021

15% compounded would mean $30 USD by close 2021

20% compounded would mean $42 USD by close 2021

 

Well...Prem has blown through the $21 USD level and quickly approaching $30 USD.

 

Stay steady...dont get scared away....Prem sure isn't!

[StevieV]

It will be very interesting to see what Fairfax does or has done.

 

Given the trading action in BB and other names, who knows where BB's share price will go and how fast.  It could be $40 or $50 next week.  That would normally seem preposterous, but now, not so much.

 

So long as Prem and Fairfax have some rational plan and explanation, that is fine with me.  It is unlikely that they pick the top.  If it goes to $40, it would be hard to complain if they trimmed the position at $15, $18 or $20.

 

On the other hand, as the price goes higher, the argument for holding the full position grows weaker.

[StubbleJumper]

Yep.  FFH's market cap is about US$10 billion and its BB holding is currently worth about US$2.2 billion.  This is getting crazier by the day.

 

 

SJ

[Xerxes]

It will be very interesting to see what Fairfax does or has done.

 

Given the trading action in BB and other names, who knows where BB's share price will go and how fast.  It could be $40 or $50 next week.  That would normally seem preposterous, but now, not so much.

 

So long as Prem and Fairfax have some rational plan and explanation, that is fine with me.  It is unlikely that they pick the top.  If it goes to $40, it would be hard to complain if they trimmed the position at $15, $18 or $20.

 

On the other hand, as the price goes higher, the argument for holding the full position grows weaker.

 

In fact, John Chen will hit his compensation and can retire early without finishing the job.

[chrispy]

It will be very interesting to see what Fairfax does or has done.

 

Given the trading action in BB and other names, who knows where BB's share price will go and how fast.  It could be $40 or $50 next week.  That would normally seem preposterous, but now, not so much.

 

So long as Prem and Fairfax have some rational plan and explanation, that is fine with me.  It is unlikely that they pick the top.  If it goes to $40, it would be hard to complain if they trimmed the position at $15, $18 or $20.

 

On the other hand, as the price goes higher, the argument for holding the full position grows weaker.

 

In fact, John Chen will hit his compensation and can retire early without finishing the job.

 

haha

[Viking]

Imagine if FFH does not sell any shares, Chen earns more than $200 million bonus and shares return to $7 per share in the coming months :-)

 

 

CEO John Chen could collect more than US$200-million in compensation if recent huge gains in its share price hold up.

- https://www.theglobeandmail.com/business/article-blackberry-share-craze-could-yield-windfall-for-ceo-john-chen/

 

Mr. Chen is in his eighth year in his turnaround attempts at BlackBerry, and has seen the company’s stock rapidly rise and fall for much of his tenure. But he’s seen nothing like the frenetic trading this month: The shares have quadrupled, including a gain of 80 per cent since Friday. Retail investors in the U.S. and Canada, many participating in a Reddit forum called WallStreetBets, have swept them up in a frenzy of social-media speculation.

 

Mr. Chen is poised to be a huge beneficiary. When Mr. Chen renewed his employment contract in March, 2018, he received five million performance-based shares that he’d only be able to sell if the stock hit certain thresholds. He earns each block of one million shares if BlackBerry’s share price hits targets in one-dollar increments from US$16 to US$20 (its shares trade in Toronto and New York).

 

... When BlackBerry awarded Chen the shares in 2018, they traded at US$10.63, and the targets seemed aggressive, but achievable. BlackBerry needed to return 50 per cent to 90 per cent over five years for the awards to kick in, and the stock needed to nearly triple for the big cash award.

 

It looked much, much harder in November of last year, when BlackBerry traded below US$5.

 

However, in Monday’s trading, BlackBerry shares blew through all five price targets for the first time since the company made the award. The stock rose from US$14.04 on Friday to touch US$20.83. On Wednesday, it hit US$28.77 in intraday trading, before closing at US$25.10.

 

Mr. Chen can’t bank the shares just yet: The terms of the stock award require BlackBerrry to average the minimum price points over 10 days of trading. BlackBerry only began topping the minimums Monday, so Mr. Chen hasn’t qualified for any of the payouts yet.

 

Also, BlackBerry structured the share grant to keep Mr. Chen at the helm for the full five years: The stock “vests,” or can be sold by Mr. Chen, in five annual increments from 2019 to 2023. So even if BlackBerry shares stay up for several weeks, he can’t realize all of the gains for several years.

 

At Wednesday’s closing price of US$25.10, the five million award shares are worth US$125.5 million. If the US$90-million payment is triggered at US$30, the whole package would be worth US$240-million.

 

 

[Parsad]

Imagine if FFH does not sell any shares, Chen earns more than $200 million bonus and shares return to $7 per share in the coming months :-)

 

 

CEO John Chen could collect more than US$200-million in compensation if recent huge gains in its share price hold up.

- https://www.theglobeandmail.com/business/article-blackberry-share-craze-could-yield-windfall-for-ceo-john-chen/

 

Mr. Chen is in his eighth year in his turnaround attempts at BlackBerry, and has seen the company’s stock rapidly rise and fall for much of his tenure. But he’s seen nothing like the frenetic trading this month: The shares have quadrupled, including a gain of 80 per cent since Friday. Retail investors in the U.S. and Canada, many participating in a Reddit forum called WallStreetBets, have swept them up in a frenzy of social-media speculation.

 

Mr. Chen is poised to be a huge beneficiary. When Mr. Chen renewed his employment contract in March, 2018, he received five million performance-based shares that he’d only be able to sell if the stock hit certain thresholds. He earns each block of one million shares if BlackBerry’s share price hits targets in one-dollar increments from US$16 to US$20 (its shares trade in Toronto and New York).

 

... When BlackBerry awarded Chen the shares in 2018, they traded at US$10.63, and the targets seemed aggressive, but achievable. BlackBerry needed to return 50 per cent to 90 per cent over five years for the awards to kick in, and the stock needed to nearly triple for the big cash award.

 

It looked much, much harder in November of last year, when BlackBerry traded below US$5.

 

However, in Monday’s trading, BlackBerry shares blew through all five price targets for the first time since the company made the award. The stock rose from US$14.04 on Friday to touch US$20.83. On Wednesday, it hit US$28.77 in intraday trading, before closing at US$25.10.

 

Mr. Chen can’t bank the shares just yet: The terms of the stock award require BlackBerrry to average the minimum price points over 10 days of trading. BlackBerry only began topping the minimums Monday, so Mr. Chen hasn’t qualified for any of the payouts yet.

 

Also, BlackBerry structured the share grant to keep Mr. Chen at the helm for the full five years: The stock “vests,” or can be sold by Mr. Chen, in five annual increments from 2019 to 2023. So even if BlackBerry shares stay up for several weeks, he can’t realize all of the gains for several years.

 

At Wednesday’s closing price of US$25.10, the five million award shares are worth US$125.5 million. If the US$90-million payment is triggered at US$30, the whole package would be worth US$240-million.

 

I'm fine with that...as long as BB and Fairfax were able to capitalize on it too!  Cheers!

[Viking]

With January in the rear-view mirror here is an update of Fairfax's equity holdings. The spreadsheet is attached below. Please let me know if you find any big errors :-).

 

As a reminder, in Q4 their holdings were up about US$1.45 billion (see spreadsheet 2).

One month into 2021 their holdings are up about $1.060 billion.

So Q4 + January the equity holdings are up about $2.5 billion.

 

Obviously in January Blackberry ($US 14.42) was the driver, up almost $800 million. What does this mean? We should find out in the next couple of weeks, latest when they report earnings.

 

I made a few updated to the spreadsheet:

- added John Keells and Nations Trust Bank (two Sri Lanka holdings)

- Fairfax Africa has been updated to Helios; I am not sure if I have this holding captured properly.

------------

As a reminder, the purpose of the spreadsheet is to help us understand in broad terms what is going on with the equity holdings in Fairfax's portfolio. Some holdings are mark-to-market; most are not. Fairfax also has debentures (Blackberry) and warrants (Atlas). It is also nice to see position sizes.

Fairfax_Equity_Holdings_Feb_1_2021.xlsx

[Dazel]

https://www.businessinsider.com/appharvest-from-seed-to-1-billion-in-3-years-2021-1

 

https://www.marketwatch.com/story/greehouse-company-appharvests-spac-debuts-11612200621

 

 

Hurry up Fairfax!!!!!!!!! Farmers edge.

 

Who knew that I could invest in a agritech through Fairfax?!

[Dazel]

 

 

Thanks Viking.

 

Also Remember Fairfax had $10b in corporate bonds at September 30.

[Viking]

It will be interesting to see what Atlas has to say about container rates when they report (impact on results and their outlook for 2021). Most of their business is long term contract.

 

'It's a perfect storm': A shipping container crisis has upended the global food trade

Food is piling up in all the wrong places, thanks to carriers hauling empty shipping containers

 

- https://financialpost.com/commodities/agriculture/the-global-food-trade-has-been-upended-by-a-container-crisis

 

...The core issue is that China, which has recovered faster from COVID-19, has revved up its export economy and is paying huge premiums for containers, making it far more profitable to send them back empty than to refill them.

 

... “It’s been like that since December,” said Kranig of IM-EX Global. “You’re going to get not only a shortage of food but a shortage of everything. I would not be surprised to hear some beneficial cargo owners’ freight rates for 2021-2022 shipping season double from previous years.”

[Viking]

Fairfax owns debt/warrants in a couple of companies. One is Altius Minerals. The warrants are now trading in the money which is a positive development and something to watch.

 

Principal $78 million (preferred shares i think)

Coupon 5%

Maturity Dec 2024

Warrant Strike Price $15 (6.67 million shares)

Current Stock Price $15.25

Potential ownership 13.4%

 

Newfoundland’s Altius Minerals launches $100-million renewable power IPO to help pivot from coal

- https://www.theglobeandmail.com/business/article-newfoundlands-altius-minerals-launches-100-million-renewable-power-ipo/

 

A rush of money into clean energy companies, coupled with intense investor demand for Canadian initial public offerings, has convinced Newfoundland’s Altius Minerals Corp. ALS-T +1.67%increase

to spin out its renewable power division through a $100-million IPO.

 

—————————-

- https://altiusminerals.com/

Altius Corporate Information: Altius's strategy is to create per share growth through a diversified portfolio of royalty assets that relate to long life, high margin operations. This strategy further provides shareholders with exposures that are well aligned with sustainability-related global growth trends including the electricity generation transition from fossil fuel to renewables, transportation electrification, reduced emissions from steelmaking and increasing agricultural yield requirements. These each hold the potential to cause increased demand for many of Altius's commodity exposures including copper, renewable based electricity, several key battery metals (lithium, nickel and cobalt), clean iron ore, and potash.

 

Altius is a member of both the S&P/TSX Small Cap and S&P/TSX Global Mining Indices and is focused on growing its royalty business through prospect generation and the creation and acquisition of royalties.

 

Our Assets: Altius holds royalty interests in 14 producing assets throughout the Americas. In Canada these assets include a 4% NSR royalty on Hudbay's 777 copper-zinc mine in Manitoba, 6 potash mines and 5 coal mines located in western Canada, and a royalty on the Voisey's Bay nickel-copper-cobalt mine in Labrador. In Brazil, we have a 3.7% "stream" interest on Lundin Mining's Chapada Mine. We also have a royalty on the Gunnison copper ISL mine in the USA, expected to produce first cathode by the end of 2020. The Company also receives regular dividend income from is equity ownership in Labrador Iron Ore Royalty Company, which is treated as iron ore royalty revenue, being a pass-through vehicle.

—————————

Fairfax transaction with Altius in 2017: https://www.pressreader.com/canada/stockwatch-daily/20170227/281487866124089

[Parsad]

Food for thought, Ben Watsa's Marval Capital was up 25% in 2020.  He owned iRobot at an average cost of $46 and sold during the whole AMC/GME Reddit bubble at $167.  If Ben sold his iRobot position, hopefully Prem was able to monetize the Blackberry position in some manner when it was crazy too.  This is one FFH quarterly report and conference I am looking forward to in a while...should be very interesting!  Cheers!

[Viking]

A bunch of Fairfax’s holdings in India are on fire to start 2021.

 

IIFL Finance is up 80% in the last 8 days. The three IIFL triplets are held both directly by Fairfax and also in Fairfax India (larger position is held in Fairfax India). Fairfax also holds a very big stake in Quess.

 

                          Dec 31 2020.    Sept 30.    Dec 31 2021    Feb 9

IIFL Finance            $139.50.      $79.55.        $113.75.      $244.75. (All prices are INR)

IIFL Wealth.            $1,128.        $962            $1,022.        $1,211.  (All prices are INR)

Quess.                      $483.          $413.          $546.            $707.    (All prices are INR)

 

Increase in value of Fairfax direct holdings from Dec 31-Feb 9 (US$):

IIFL Finance.  +$51 million

IIFL Wealth    +$11

Quess          +$107

Fairfax India +$146

 

Bottom line, Fairfax has quite a large number of tailwinds right now. It is significant seeing the large direct Indian holdings now even much higher in price than Dec 31, 2020 prices. 

 

A little bizarre how the stars appear to be aligning for Fairfax right now...

[Parsad]

A bunch of Fairfax’s holdings in India are on fire to start 2021.

 

IIFL Finance is up 80% in the last 8 days. The three IIFL triplets are held both directly by Fairfax and also in Fairfax India (larger position is held in Fairfax India). Fairfax also holds a very big stake in Quess.

 

                          Dec 31 2020.    Sept 30.    Dec 31 2021    Feb 9

IIFL Finance            $139.50.      $79.55.        $113.75.      $244.75. (All prices are INR)

IIFL Wealth.            $1,128.        $962            $1,022.        $1,211.  (All prices are INR)

Quess.                      $483.          $413.          $546.            $707.    (All prices are INR)

 

Increase in value of Fairfax direct holdings from Dec 31-Feb 9 (US$):

IIFL Finance.  +$51 million

IIFL Wealth    +$11

Quess          +$107

Fairfax India +$146

 

Bottom line, Fairfax has quite a large number of tailwinds right now. It is significant seeing the large direct Indian holdings now even much higher in price than Dec 31, 2020 prices. 

 

A little bizarre how the stars appear to be aligning for Fairfax right now...

 

Never bizarre.  How many times have we made money when Fairfax was undervalued?  Or Northbridge...or Odyssey Re...this is the gift that keeps on giving.  As long as you understand the business and can value it properly.  Prem bought $150M of stock in the depth of the market with his personal money.  Not hard to figure out the stock might be cheap and eventually would be priced properly by Mr. Market!  Cheers!

[petec]

The undervaluation isn't bizarre. But the number of things that seem to be aligning at one time is impressive. And the fact that Prem is being bailed out by a tech bubble he railed against (I refer to the valuations of Digit, Blackberry, and Farmer's Edge) is downright amusing.

[Parsad]

The undervaluation isn't bizarre. But the number of things that seem to be aligning at one time is impressive. And the fact that Prem is being bailed out by a tech bubble he railed against (I refer to the valuations of Digit, Blackberry, and Farmer's Edge) is downright amusing.

 

But people say that every time.  He was bailed out by his friends.  He was bailed out by being right on the housing crisis and buying collateralized bonds.  He was right because he is being bailed out by a tech bubble.  As I said, in June he threw $150M of personal money into his own stock and explained why...that it was cheap.  I told you guys why it was cheap even before Prem said he bought stock.  A couple of other long-time FFH owners also said the same.

 

There was an enormous amount of capital sitting on the sidelines over the last 3 years.  Combine that with massive amounts of stimulus flowing into hands that don't need the cash, but they invest it in the markets, you have capital that was originally flowing into growth stocks now moving into value stocks.  The Reddit and millennial bulls drew cash from sideline investors as well...so that had to find a place.  This is the normal transition of capital flowing from expensive stocks into cheaper stocks...with the more expensive bubble stocks eventually crashing up to 90% of their value down the road.  It's not a bailout...it's patience!  Cheers!

[petec]

The undervaluation isn't bizarre. But the number of things that seem to be aligning at one time is impressive. And the fact that Prem is being bailed out by a tech bubble he railed against (I refer to the valuations of Digit, Blackberry, and Farmer's Edge) is downright amusing.

 

But people say that every time.  He was bailed out by his friends.  He was bailed out by being right on the housing crisis and buying collateralized bonds.  He was right because he is being bailed out by a tech bubble.  As I said, in June he threw $150M of personal money into his own stock and explained why...that it was cheap.  I told you guys why it was cheap even before Prem said he bought stock.  A couple of other long-time FFH owners also said the same.

 

There was an enormous amount of capital sitting on the sidelines over the last 3 years.  Combine that with massive amounts of stimulus flowing into hands that don't need the cash, but they invest it in the markets, you have capital that was originally flowing into growth stocks now moving into value stocks.  The Reddit and millennial bulls drew cash from sideline investors as well...so that had to find a place.  This is the normal transition of capital flowing from expensive stocks into cheaper stocks...with the more expensive bubble stocks eventually crashing up to 90% of their value down the road.  It's not a bailout...it's patience!  Cheers!

 

I have owned this for 13 years now and added materially in 2020. You do not need to persuade me that it was cheap!

 

I did not, however, think they might have a chance to monetise Blackberry at $20, or that Digit would be marked up quite so fast, or that Farmer's Edge might generate a $1-2bn profit within 6 months - and I certainly did not think that all three would happen at once.

 

I have never felt that he got bailed out before, personally. But I do not believe he invested in Farmer's Edge or Blackberry because he saw an epic bubble coming in unprofitable stocks. He thought they were great businesses and, frankly, there is precious little evidence so far that he was right.

 

Even if BB and FDGE turn out to be super-profitable over the next decade, getting the chance to monetise them now at silly prices is transformative to Prem's IRR. That is pure luck. And being able to do it when he desperately needs capital is beyond luck.

 

So no, sorry, he's been bailed out on this one. And I am not complaining at all.

[drzola]

I breath, live, work and happen to have a lot of : Skin in the Game " hint see ( VergeAg )' in the heart of Farmer's Edge's customer base and also, AGT NA BASE and AGT is in my opinion the better asset by far.

Bottom line here is; if FFH and company should quickly unload FDGE and maintain AG Tas the AG vehicle by  continioung to hold and continually keep FEEDing it's ovrseas potential with precious capitol here fyi.

[SharperDingaan]

We have been in/out of FFH ever since SAC Capital took a run at it. We've done very well by FFH, and along the way, have borrowed a few pages from the masters investment book; one of which is what buy/hold really means.

 

FFH is always going to be garbage collecting, and turning it into compost. The volatility and timing uncertainty of the process, hedged against the much larger insurance business. Very effective long term, but in the short-term (<1yr) largely a function of ever changing stars alignment. At times, everything aligns, and it's hail the hero! At other times, it's fire the bum!! 

 

Like most everything else, FFH isn't a buy and forget investment, One has to be willing to trade around future prospects, and the overall manic/depressive gyration of the market. Not an easy sell in the OPM world.

 

Simply enjoy the ride, and let it be.

 

SD

 

 

 

[bluedevil]

I am hoping in the future, there will be less "volatility".

 

Prem has laid out a roadmap for that once we get beyond the current balance sheet issues (and perhaps we have already done so).

 

No more insurance acquisitions - let the current empire grow organically, rather than having to deal with bad acquisitions or having to stretch the balance sheet to do them (e.g. Allied).  No more hedges/shorting, and the boom/busts that come with it.  Hopefully, from experience, be more wary of value traps.  Buy back shares with excess cash flow.  And we all live happily ever after :)