Fairfax stock positions

[petec]

I'm not sure it's rational to differentiate between the common and the converts at this point. I'd view it as one equity position and expect them to sell the entire position at the right price.

But my guess is they won't get the chance, in which case the only way to benefit is by having BB issue shares into the rally (while warning everyone not to buy them like AMC!). 

[petec]

42 minutes ago, StubbleJumper said:

Keep your fingers crossed.

In hindsight, that's more or less been my entire investment thesis for FFH for several years 

[StubbleJumper]

5 minutes ago, petec said:

I'm not sure it's rational to differentiate between the common and the converts at this point. I'd view it as one equity position and expect them to sell the entire position at the right price.

But my guess is they won't get the chance, in which case the only way to benefit is by having BB issue shares into the rally (while warning everyone not to buy them like AMC!). 

 

I differentiate the common and debs only because I do not fully understand the mechanics of conversion and subsequent disposal. 

I know that FFH can issue a sell-order for the 47m common shares and they'd start flowing out the door within seconds of the sell-order, with a T+2 settlement.  With adequate volume, perhaps 47m shares could be dumped over 2 or 3 trading sessions, and that would be the end of it.

What I don't fully understand is the process of converting the debs and liquidating the resulting shares.  Would it be possible to short 55m shares and then leisurely convert the debs and close the short position a week or so later using the shares provided by BB?  Or would it be possible to exercise the conversion, obtain those 55m shares approximately immediately and sell them on the market?  Once the conversion option is triggered, how many days does it take to actually receive those shares from BB (is it immediate? is it two days?  a week?  a month?).  I have never read any prospectus or other filing from BB about those debs, so I confess to not really understanding the potential constraints (maybe they are convertible only under a full moon on Tuesdays when the temperature in Waterloo, ON exceeds 14 degrees celsius) and mechanics of conversion....

 

SJ

[Viking]

So a week ago BB was trading at US $8.60 and today it is trading at $17.60. Fairfax owns 100 million shares so their position in BB is up $900 million. Fairfax has about 26 million shares outstanding so the increase in BB = $35/share (pre-tax). BB closed at $8.43 on March 31. The BB position is mark-to-market not equity accounted so it impacts book value each quarter end.

Fairfax shares are trading at US $468 and have been flat for the past week. 

What is going on in BB has not been priced into FFH stock price. My view is there is a decent probability that Fairfax will sell some of its current position in BB given current prices; especially if this run up last another week or two. 

So buyers of FFH stock today are getting all the upside of a potential BB sale/monetization with zero downside risk (if FFH does nothing).

[A_Hamilton]

13 hours ago, matthew2129 said:

Are you sure FFH is subject to BB's blackout period? I thought blackout periods were just voluntarily imposed by a company on its directors and employees to avoid insider trading violations (as opposed to being imposed by security law)? If FFH had MNPI they would obviously need to cleanse themselves before trading but I'm not sure that FFH is technically subject to BB's blanket blackout period otherwise. 

Positive. Prem is on the board, so he is an insider, subject to blackout. Also, FFH owns ~20% of shares out via the converts. In the U.S. you are "deemed" an insider when you own over 10% of a company...so regardless of whether Prem is on the board or not FFH would be considered an insider. 

From my perspective, best we can do is hope that BB halts its own stock news pending and preleases results today/after market close/over the weekend and then FFH can trade in two days...

Edited June 3, 2021 by A_Hamilton
typo

[Xerxes]

Funny, how finally it has become plain and clear that the cost of a large illiquid position + >10% far outweigh the benefit of it.

What benefit did Prem had by being a director on BB' board or for that matter a major holder of RFP. Nothing.

With the warrior-trader-priests of WSB Forums creating waives on GameStop, AMC and Blackberry, overturning CAPM and everything else that was normal, ... this is truly a right-tail event for FFH to take advantage, .... TWICE at that. 

Edited June 3, 2021 by Xerxes

[Xerxes]

Excerpt from Q4 2020 conference call. Anyone remember the Rude Gentleman making the comment below. Well guess what, he is going to be there on Q2 2021 conference call I think. The guy was completely off, but he was right about Blackberry.

 

"Unidentified Analyst

I believe that it is time that you step down from having primary investments, responsibilities. I know that Jamie manages some capital, Wade manages some capital. We all know that those are very small portions of the capital base. And I think you are always quoting your long-term track record, but I can -- I know when the man is out of tune with the markets and I also think that it was a huge mistake if you did not take the BlackBerry gift that was given to you by the market. And I also don't think that you're doing deep analysis on your holdings.

I suspect that you probably don't do a lot of diving into the financials, the statements. You probably don't understand the microeconomics of the businesses you're buying. You probably are not talking to customers, suppliers, competitors, former employees. The investment business is a very competitive business. It's not like it used to be. I am not saying that, you should go out and buy technology stocks, but a sense when the man is not competitive in the field and is not working hard. And I think it's time that you step down from primary investing and I'm sure many of your associates agree with you but because they're Canadian, and tend to be nicer than Americans they don't say anything. And the banks don't ask you any difficult questions, because there's so few good companies in Canada, and they get financing fees from you. So they ask cowardly questions. Thank you.

Prem Watsa

Good points. You're entitled to your opinion, and we will let time decide that, okay? So thank you very much for your comment."

Edited June 3, 2021 by Xerxes

[A_Hamilton]

14 minutes ago, Xerxes said:

Excerpt from Q4 2020 conference call. Anyone remember the Rude Gentleman making the comment below. Well guess what, he is going to be there on Q2 2021 conference call I think. The guy was completely off, but he was right about Blackberry.

 

"Unidentified Analyst

I believe that it is time that you step down from having primary investments, responsibilities. I know that Jamie manages some capital, Wade manages some capital. We all know that those are very small portions of the capital base. And I think you are always quoting your long-term track record, but I can -- I know when the man is out of tune with the markets and I also think that it was a huge mistake if you did not take the BlackBerry gift that was given to you by the market. And I also don't think that you're doing deep analysis on your holdings.

I suspect that you probably don't do a lot of diving into the financials, the statements. You probably don't understand the microeconomics of the businesses you're buying. You probably are not talking to customers, suppliers, competitors, former employees. The investment business is a very competitive business. It's not like it used to be. I am not saying that, you should go out and buy technology stocks, but a sense when the man is not competitive in the field and is not working hard. And I think it's time that you step down from primary investing and I'm sure many of your associates agree with you but because they're Canadian, and tend to be nicer than Americans they don't say anything. And the banks don't ask you any difficult questions, because there's so few good companies in Canada, and they get financing fees from you. So they ask cowardly questions. Thank you.

Prem Watsa

Good points. You're entitled to your opinion, and we will let time decide that, okay? So thank you very much for your comment."

Xeres, they literally could not sell their position in Blackberry when it spiked last time because all of the proceeds would have had to have been remitted to Blackberry. Short swing profits rule.

[Dazel]

no one pays attention to me and I that is understandable and likely prudent lol....but if I could see what was happening in the market short term...anyone could have...BB was being set up.they should have been aware.

 

see my previous text here before it happened at $10...

 

.split up strategic direction...earnings pre announcement would have to be issued to take advantage of the market would have squeezed this to $30 and they would have been able  to issue shares when they popped...take advantage...at the market raise as Tesla has done.

chen did not do it...he is asleep... it would have had to be quick...but if I saw it coming....Are they not paid to do this? Millions and millions? 

Sold BB at great profit and hope Fairfax could synthetically do so  as I discussed...

Back to buying SNC as Prem should be.

 

 

 

[Dazel]

 Very possible that they get a second chance at the BB run..wake up Mr. Chen.

[Gregmal]

Xerxes is on the money. You dont often get a second chance at something like what happened late January/early February. Prem has made some absolutely boneheaded investments...and it is also glaringly egregious to me that its becoming apparent that they dont even have an opportunistic exit strategy. His response to the above question says it all.....just oozes arrogance and condescension when really, the analyst/speaker is right. There is no way to spin BB as anything but a failure of an investment and getting this miracle gift from the market and sitting there pretending its the right move to do nothing exhibits that making money/maximizing value is not the primary objective anymore. FFH has a lot of very good things going for it right now, but its also important to learn from mistakes and not let some positive developments all of a sudden become deodorant for a decade long stench. 

[petec]

57 minutes ago, Xerxes said:

Funny, how finally it has become plain and clear that the cost of a large illiquid position + >10% far outweigh the benefit of it.

What benefit did Prem had by being a director on BB' board or for that matter a major holder of RFP. Nothing.

With the warrior-trader-priests of WSB Forums creating waives on GameStop, AMC and Blackberry, overturning CAPM and everything else that was normal, ... this is truly a right-tail event for FFH to take advantage, .... TWICE at that. 

Leaving aside the fact that the size and liquidity of the position had nothing to do with Prem's inability to sell it last time, are you seriously suggesting that he should size positions on the off chance that they might get gripped by a short term mania and he might want to exit fast? If so, I am not sure you understand how he thinks, and I suspect you shouldn't own Fairfax stock!

For my part, I hope he goes large in great opportunities and makes a lot of money. 

 

[petec]

3 minutes ago, Gregmal said:

Xerxes is on the money. You dont often get a second chance at something like what happened late January/early February. Prem has made some absolutely boneheaded investments...and it is also glaringly egregious to me that its becoming apparent that they dont even have an opportunistic exit strategy. His response to the above question says it all.....just oozes arrogance and condescension when really, the analyst/speaker is right. There is no way to spin BB as anything but a failure of an investment and getting this miracle gift from the market and sitting there pretending its the right move to do nothing exhibits that making money/maximizing value is not the primary objective anymore. FFH has a lot of very good things going for it right now, but its also important to learn from mistakes and not let some positive developments all of a sudden become deodorant for a decade long stench. 

I agree with you regarding boneheaded decisions and lack of exit strategies. But at no point did Prem say that doing nothing was the right move. Later, at the AGM and on the 1q call, he explicitly said that they looked at whether they could sell and they could not. In hindsight it is astonishing to think that what looked like a reasonable deal at the time (repricing the converts to $6) tied their hands when they could have made a windfall profit. But that is what happened. 

Prem can be justly criticised on many fronts. There's no need to criticise him for things he didn't say. 

[petec]

40 minutes ago, Dazel said:

 Very possible that they get a second chance at the BB run..wake up Mr. Chen.

Dazel, how realistic is it to split up BB? I'm not an expert on it but my understanding was that all the different revenue streams are built on the same tech, namely QNX and the ability to securely manage endpoints. If so, I don't see how it can be split. 

[Xerxes]

Thanks Greg

33 minutes ago, petec said:

Leaving aside the fact that the size and liquidity of the position had nothing to do with Prem's inability to sell it last time, are you seriously suggesting that he should size positions on the off chance that they might get gripped by a short term mania and he might want to exit fast? If so, I am not sure you understand how he thinks, and I suspect you shouldn't own Fairfax stock!

For my part, I hope he goes large in great opportunities and makes a lot of money. 

Nothing to do, but just fits a pattern.

For a company that prides itself as nimble investor with low overhead and that they can take advantage of opportunities, their inability to monetize their list of unwanted holdings speaks volume. I understand the technicality surrounding the January, (we ll give them a pass) but if they are not doing anything now, this is truly fits a pattern. On Resolute, I might add there was also a price spike in 2018, they just didnt do anything about it.

You are not going to hear me complain about Atlas or Stelco, even as their share price spikes, because I believe they believe in them. All good for me. But for the two properties (BB and RFP) that they have gone on record in saying that they thought it was a mistake/bad-investment, for god's sake monetize it or find it away to capture that gain. If not now, then when ,,,,,

Even he himself has said on record that they have made mistakes on in terms of position sizing in their FAH Africa.

[Xerxes]

I will just add, i am not looking at position sizing in isolation. I am personally very much in favor of concentrated portfolio, that is why i am in FFH and i think i made it clear over the past year or so. It is the overall story when it comes to the names they had classified as "bad investment",

Again ... if not selling now those bad apples then when. If 45% illiquid position is a reason why they cannot liquidate partially at least Resolute now, well guess what, that reason will always be there. It was there in 2018 when the price spiked. But you wont always have a once-in-a-hundred-years event that brings up the tide on these bad apples.

If they want to ramp up their investment in Atlas, all good for me.

Resolute and BB are relics of the past.

FFH 2.0 doesn't need them, but they are more than welcome to keep a small liquid exposure on them going forward.

PS: And btw, a concentrated portfolio for FFH may or may not mean a large % holding of the underlying equity. One can have a very concentrated portfolio but have very large liquid investment (i.e. Berkshire and Apple; Pershing Square and its 10-stock portfolio). To say that FFH needs to have large illiquid position because it wants concentration is not correct, IMHO.

Edited June 3, 2021 by Xerxes

[Viking]

Fairfax was not allowed by SEC to sell BB last time around. And Prem said they were motivated. So this tells me they were/are open to exiting BB position.

Fairfax needs the profit / cash. They need to de-lever their balance sheet. They need to buy back all the equity holdings from Riverstone. (Interesting the sale of Riverstone has not been finalized yet... which includes another sale of Brit to OMERS). 

Exiting BB at +/- US$15 would also be a big reputational win for Fairfax. It would allow FFH to book a decent profit off their cost base. Their biggest current dog would transform into decent investment. 

This sale would also be another significant step in the transition of their investment portfolio. They have slowly been dealing with their mistakes the past 3 years and a BB sale would be another significant step on that journey. 

My guess is given enough time with the current price spike Fairfax will pull the trigger. I am higher conviction this time on this prediction than the last time  

Edited June 3, 2021 by Viking

[Gregmal]

Ultimately the problem with this whole situation, the missing variable that once fixed will allow shares to rerate significantly, is Prem. 

People use the "fat pitch" analogy a lot with investments. The issue with Prem, is that everyone is lining up and T-ing off on slow pitch softballs getting lobbed down the middle. They're hammering them with massive aluminum bats. Meanwhile, by choice, Prem is on the sidelines refusing to participate, because he's waiting for the guy who throws 100 mph and goes up there not with a bat but a broomstick handle. Except when he gets up there and swings, its not like his average is .400....its like .150. Stop trying to be special or cute and just get back to basics please. At that point FFH will become investable for me. Until then, its just so much less headache owning BAM(who seemingly never has any issue monetizing whatever type of invests they've made) or BRK which is just stubbornly patient but ultimately gets to where it needs to go. 

[TwoCitiesCapital]

3 hours ago, Viking said:

So a week ago BB was trading at US $8.60 and today it is trading at $17.60. Fairfax owns 100 million shares so their position in BB is up $900 million. Fairfax has about 26 million shares outstanding so the increase in BB = $35/share (pre-tax). BB closed at $8.43 on March 31. The BB position is mark-to-market not equity accounted so it impacts book value each quarter end.

Fairfax shares are trading at US $468 and have been flat for the past week. 

What is going on in BB has not been priced into FFH stock price. My view is there is a decent probability that Fairfax will sell some of its current position in BB given current prices; especially if this run up last another week or two. 

So buyers of FFH stock today are getting all the upside of a potential BB sale/monetization with zero downside risk (if FFH does nothing).

This happened last time too. Fairfax was excluded from the entire run-up in BB, but fell sympathetically with it when it collapsed. Was a decent time to be adding shares on the offchance that they were able to monetize. I see a similar set-up now. 

[petec]

37 minutes ago, Xerxes said:

I will just add, i am not looking at position sizing in isolation. I am personally very much in favor of concentrated portfolio, that is why i am in FFH and i think i made it clear over the past year or so. It is the overall story when it comes to the names they had classified as "bad investment",

Again ... if not selling now those bad apples then when. If 45% illiquid position is a reason why they cannot liquidate partially at least Resolute now, well guess what, that reason will always be there. It was there in 2018 when the price spiked. But you wont always have a once-in-a-hundred-years event that brings up the tide on these bad apples.

If they want to ramp up their investment in Atlas, all good for me.

Resolute and BB are relics of the past.

FFH 2.0 doesn't need them, but they are more than welcome to keep a small liquid exposure on them going forward.

PS: And btw, a concentrated portfolio for FFH may or may not mean a large % holding of the underlying equity. One can have a very concentrated portfolio but have very large liquid investment (i.e. Berkshire and Apple; Pershing Square and its 10-stock portfolio). To say that FFH needs to have large illiquid position because it wants concentration is not correct, IMHO.

Yeah, fair enough. I took (perhaps too much) exception with the implication in your earlier post that the kids of reddit run ups we have seen in BB has any real meaning when it comes to investment decisions. But these points are broader and fairer. 
 

The one point I would make in reply is that you’re assuming you know which investments Fairfax like and which they don’t. Rightly or wrongly, they may well see value in the “relics”. I find it interesting that they didn’t sell a single share (to my knowledge) of RFP in 2018. Perhaps they couldn’t sell the whole thing, but they could easily have chipped away at it. I think they held for a reason.

My guess is their playbook puts a lot of emphasis on averaging down and then exiting via a strategic move. It just hasn’t worked well with these names. 

[petec]

8 minutes ago, Gregmal said:

Ultimately the problem with this whole situation, the missing variable that once fixed will allow shares to rerate significantly, is Prem. 

People use the "fat pitch" analogy a lot with investments. The issue with Prem, is that everyone is lining up and T-ing off on slow pitch softballs getting lobbed down the middle. They're hammering them with massive aluminum bats. Meanwhile, by choice, Prem is on the sidelines refusing to participate, because he's waiting for the guy who throws 100 mph and goes up there not with a bat but a broomstick handle. Except when he gets up there and swings, its not like his average is .400....its like .150. Stop trying to be special or cute and just get back to basics please. At that point FFH will become investable for me. Until then, its just so much less headache owning BAM(who seemingly never has any issue monetizing whatever type of invests they've made) or BRK which is just stubbornly patient but ultimately gets to where it needs to go. 

My solution is to own all three!

[Parsad]

2 hours ago, A_Hamilton said:

Xeres, they literally could not sell their position in Blackberry when it spiked last time because all of the proceeds would have had to have been remitted to Blackberry. Short swing profits rule.

Also, that analyst's comments were some of the dumbest things I've ever heard.  Do they actually know how in depth Fairfax goes before making a large investment...I've talked to the analysts who work there, I've seen the reports, articles, statements on their desks...I've talked in depth about investments with Brian, Roger, Chandran, Prem...I know how their team tears apart an idea that anyone brings forth for investment...Wade, Lawrence come from the Cundill environment, which should speak for itself.  Just because their investment ideas don't necessarily fit in the framework of what shareholders, analysts or other managers frame their ideas in, doesn't mean the work isn't there.  Cheers! 

[Parsad]

2 hours ago, Gregmal said:

Xerxes is on the money. You dont often get a second chance at something like what happened late January/early February. Prem has made some absolutely boneheaded investments...and it is also glaringly egregious to me that its becoming apparent that they dont even have an opportunistic exit strategy. His response to the above question says it all.....just oozes arrogance and condescension when really, the analyst/speaker is right. There is no way to spin BB as anything but a failure of an investment and getting this miracle gift from the market and sitting there pretending its the right move to do nothing exhibits that making money/maximizing value is not the primary objective anymore. FFH has a lot of very good things going for it right now, but its also important to learn from mistakes and not let some positive developments all of a sudden become deodorant for a decade long stench. 

Fairfax is one of the most opportunistic companies out there. 

They couldn't capitalize on BB last time, because the convertible debt agreement restricted any sale of BB for six months.  They said they looked at all different ways to capitalize on it...Wade and Roger sold their shares so you know half the investment team thought it was over fair value...it wasn't like Brian and Prem were sitting on their asses eating potato chips and watching hockey.  

If they haven't capitalized on it some way this time, then I will agree with you.  But the opportunity to sell or monetize last time simply wasn't there.  Cheers! 

[Parsad]

Incidentally, Fairfax doesn't have to monetize their BB position.  I think it would be equally beneficial if BB did something similar to AMC and did a at the market equity raise as well.  BB raising $1-2B at these prices would be as good as FFH selling or monetizing their BB investment.  Cheers!

[Xerxes]

Parsad,

I am a Prem W. fan and own it specifically to have a different point of view than my own.

But while it is true that they couldn't capitalize in Jan, BB should have capitalize on it. It wasn't too fast for the mediocre management of Viacom, that capitalize on Archeaos bidding up their share price, by pulling an equity issuance into the rally right before the plunge.

Ok maybe it was too fast back in January, but if AMC could be ready for this second round and issue stock, so should BB (assuming FFH is luck-ed out again).