Fairfax stock positions

[Spekulatius]

11 minutes ago, ourkid8 said:

 

I am pro management looking to save costs by avoiding a NYSE listing.  If it stays depressed by 5-10%, that is a BONUS and allows management to repurchase stock at a better price which is better for long term shareholders.  

The direct savings by not listing on the  NYSE are immaterial. However, a lot of companies hate the disclose, the pesky SEC, having to file insider trades given FFH byzantine structure, Sarbanes-Oxley etc. I don't think they would enjoy the SEC poking around. Just may guess of course and FFH isn't the the first foreign company to abandon an NYSE listing for this reason. I don't think it's that big of deal, but it does make FFH less investable for some.

[ourkid8]

14 minutes ago, Gregmal said:

But then they need to actually repurchase stock. There's still excuses for that. Again, going back to the post above, below is Viking in 2019 talking about buybacks. Are they really just a constantly hanging carrot? You have things you can monetize, and frankly when you trade at 60c on the dollar everything should be fair game in terms of monetizing. And yet.... the story is always the same here.

 

Shares outstanding:

• 2019: 26,901
• 2020: 26,447
• Q2 2021: 25,986

As Viking mentioned, Fairfax clearly laid out a plan for their use of Cash and by end of the fiscal year the shares outstanding will be lower than it is as of Q2 2021. 

Edited October 8, 2021 by ourkid8

[Gregmal]

More on the buybacks, but first...if you're touting something as an investment, you can't then hop scotch around with "I traded it". If you're waiting for a rerate and premium to book, I dont think its unreasonable to assume a holding period until it reaches that. If its a good, well run company, it will withstand the market hiccups...yes, even covid. Pretty much EVERYTHING(good and bad companies) is currently trading higher than pre covid levels. And with FFH, again, we're hearing, "WE'RE RIGHT AND EVERYONE ELSE IS WRONG".

 

So...on buybacks, why is it a satisfactory excuse that because they do insurance they cant buyback stock? Plenty of insurance companies run buybacks. Berkshire has done a ton, just as one example. IF FFH is so cheap and buybacks are undeniably the right move, is it not further evidence of mismanagement, not being able to execute them now for well over a year? Doesnt it speak volumes about capital allocation when a company literally has their hands tied and barely any spare capital to opportunistically take advantage of a 60c dollar? If you have a 60c dollar, doing 2-3% of outstanding a year is a red flag. 

[ourkid8]

9 minutes ago, Gregmal said:

So...on buybacks, why is it a satisfactory excuse that because they do insurance they cant buyback stock? Plenty of insurance companies run buybacks. Berkshire has done a ton, just as one example. IF FFH is so cheap and buybacks are undeniably the right move, is it not further evidence of mismanagement, not being able to execute them now for well over a year? Doesnt it speak volumes about capital allocation when a company literally has their hands tied and barely any spare capital to opportunistically take advantage of a 60c dollar? If you have a 60c dollar, doing 2-3% of outstanding a year is a red flag. 

 

It's all about prioritization my friend. Fairfax use of free cash flow:

1. take advantage of hard market: support growth of insurance subs
2. reduce debt
3. buy back stock

@GregmalCan you name a few businesses who have clearly outlined a plan for prioritization of cash?  You will see the quality of companies on that list. 

Edited October 8, 2021 by ourkid8

[Spekulatius]

In my opinion FFH is trade not a LT hold. It's a volatile stock and currently more things go right then wrong for the business and in addition it's cheap. That makes it a good trade. We will see how it goes, but as soon as the economic outlook dims, I expect a lot of the business that FFH owns to shit the bed, so to speak. I hope they sell some to bolster FFH's balance sheet.

 

I am not uber bullish on the economy like many here. I would not be surprised if we get a slight 2015/16 style recession in 2022 - a result of the COVID-19 stimmy hangover. You don't want to hold FFH in that environment, I think.

Edited October 8, 2021 by Spekulatius

[Gregmal]

4 minutes ago, ourkid8 said:

 

It's all about prioritization my friend. Fairfax use of free cash flow:

1. take advantage of hard market: support growth of insurance subs
2. reduce debt
3. buy back stock

@GregmalCan you name a few businesses who have clearly outlined a clear plan for prioritization of cash?  You will see the quality of companies on that list. 

Yes outlining the allocation strategy is a clear plus because it holds them accountable. However if, as many are claiming, your stock is so raging cheap, then why isnt that list shifting? Why arent lower risk/reward opportunities being exited in favor of better risk/reward? I mean is reducing debt right now really a better use of capital? Either the business is cranking and making oodles of money and its(the debt) not an issue or.......

Edited October 8, 2021 by Gregmal

[ourkid8]

1 minute ago, Spekulatius said:

I am not uber bullish on the economy like many here. I would not be surprised if we get a slight 2015/16 style recession in 2022 - a result of the COVID-19 stimmy hangover. You don't want to hold FFH in that environment, I think.

I am actually more excited to hold FFH during a slowdown / recession in 2022.  The hard market is nearing the end and that would mean the insurance subs will be sending large dividends to the holdco which they will use repurchase a ton of stock.  If the stock sells-off, that would be a BONUS for long-term shareholders. 

[ourkid8]

1 minute ago, Gregmal said:

Yes outlining the allocation strategy is a clear plus because it holds them accountable. However if, as many are claiming, your stock is so raging cheap, then why isnt that list shifting? Why arent lower risk/reward opportunities being exited in favor of better risk/reward? I mean is reducing debt right now really a better use of capital? Either the business is cranking and making oodles of money and its not and issue or.......

On one hand you are saying an allocation strategy is a plus and on the other hand you are saying they should not stick based on the current circumstances.  You cannot have it both ways.  This is Prem's life's work and he is managing the business for the next 50 years, not based on the current market sentiment.  As a shareholder, I would obviously love a dutch offer where he takes out 10% of the stock however we do not have the cash nor would I want them to take on significant leverage to do so.  I am fine with management's current strategy which I fully support.   

[bearprowler6]

3 minutes ago, Gregmal said:

Yes outlining the allocation strategy is a clear plus because it holds them accountable. However if, as many are claiming, your stock is so raging cheap, then why isnt that list shifting? Why arent lower risk/reward opportunities being exited in favor of better risk/reward? I mean is reducing debt right now really a better use of capital? Either the business is cranking and making oodles of money and its(the debt) not an issue or.......

And lets not forget that Prem on numerous occasions indicated that the insurance subsidiaries were very well capitalized  and waiting for the hard market to show up. Then the hard market shows up and we find out the insurance subs are starving for capital requiring capital injections from parent company Fairfax. The only problem,  Fairfax didn't exactly have excess cash to invest into the insurance subs so it had to draw on its line of credit. Then in order to pay down the line of credit (likely due to pressure from the bankers although I don't know this for certain) Fairfax had to sell off its UK run off business to CVC and a portion of Brit to OMERS! 

[Gregmal]

1 minute ago, ourkid8 said:

On one hand you are saying an allocation strategy is a plus and on the other hand you are saying they should not stick based on the current circumstances.  You cannot have it both ways.  This is Prem's life's work and he is managing the business for the next 50 years, not based on the current market sentiment.  As a shareholder, I would obviously love a dutch offer where he takes out 10% of the stock however we do not have the cash nor would I want them to take on significant leverage to do so.  I am fine with management's current strategy which I fully support.   

Why can't it change depending upon the variables? Its good to have a set strategy communicated to people. However at various points in time the strategy can be right or wrong, no? It doesnt stay the same forever? So yea you can have it both ways. Buffet was more into acquisitions, until he wasnt. Again, the mental process and ability of the management team is whats called into question with FFH. What benefit is there currently, to addressing the debt vs buying back stock that trades at 70% of an understated book?

[Gregmal]

3 minutes ago, bearprowler6 said:

And lets not forget that Prem on numerous occasions indicated that the insurance subsidiaries were very well capitalized  and waiting for the hard market to show up. Then the hard market shows up and we find out the insurance subs are starving for capital requiring capital injections from parent company Fairfax. The only problem,  Fairfax didn't exactly have excess cash to invest into the insurance subs so it had to draw on its line of credit. Then in order to pay down the line of credit (likely due to pressure from the bankers although I don't know this for certain) Fairfax had to sell off its UK run off business to CVC and a portion of Brit to OMERS! 

Exactly, more of the same... meanwhile people are saying things have changed. The market and most people do not find FFH management trustworthy and find that there is great risk of big screwups, even ones we are told shouldn't be worried about, and thats the major reason this trades at 60c on the dollar. And THAT, barring a management overhaul, or a huge tender, hasn't changed and won't go away anytime soon. 

[Gregmal]

Anyway, time for the weekend. Good playing ping pong with the bull/bear stuff. Cheers.

[ourkid8]

19 minutes ago, bearprowler6 said:

And lets not forget that Prem on numerous occasions indicated that the insurance subsidiaries were very well capitalized  and waiting for the hard market to show up. Then the hard market shows up and we find out the insurance subs are starving for capital requiring capital injections from parent company Fairfax. The only problem,  Fairfax didn't exactly have excess cash to invest into the insurance subs so it had to draw on its line of credit. Then in order to pay down the line of credit (likely due to pressure from the bankers although I don't know this for certain) Fairfax had to sell off its UK run off business to CVC and a portion of Brit to OMERS! 

 

This definitely caught me by surprise and we should ask Prem what happened at the AGM - very annoying!

Edited October 8, 2021 by ourkid8

[TwoCitiesCapital]

22 minutes ago, ourkid8 said:

 

This definitely caught me by surprise and we should ask Prem what happened at the AGM - very annoying!

 

I think what happened was many of the equity holdings were down 30-50% and in tandem with the market hardening so they no longer had the over-capitalization they once thought. 

 

Agreed it was annoying. Also don't think it's a major issue - they found creative sources of funding, grew the premium base and float profitably, repaid that funding, and still "repurchased" a hunk of shares at the same time.

 

In the end, it's not a significantly different outcome than we'd have expected from the beginning - just a different path. 

 

I don't think Prem is perfect. I don't think Prem is terrible. His history is littered with home runs and mistakes. The history is also littered with discounts and premiums. 

Why when one happens we try to find the reason that it will be perpetual going forward is beyond me. 

 

The stock is cheap. Prem is currently hitting home runs. The path forward is easy to continue that trend at this time. Buy the stock hand over fist until those things change. 

 

 

[Viking]

2 hours ago, Gregmal said:

To be specific, you keep mentioning how you bought into FFH mid last year. But thats not really an honest statement. You've been touting FFH for years and listed it as a top pick going into 2020. Yes, you panicked and sold all your stocks during covid, and then bought it back, but I mean come on. Acting like its a new position and the thesis has played out and the IRR has been great isnt really reality. 

Greg, yes, Fairfax was my largest position back in early 2020. I also held a chunk of Fairfax India. And due to the pandemic i went 100% cash back in Feb/March 2020. And that was one of the best investment decisions i have ever made. (The day i sold a bunch of my shares I was skiing with my son and i had to cut it short and go into the lodge with my  iPad to do some selling before markets closed (1 PM on the West Coast); we still talk about the conversation we had on the drive home later that day when i explained to him what i had done and why.)

 

I think my many posts on the pandemic back in Feb/March was spot on (in terms of what was coming for equity markets) and hopefully a few board members found them helpful.

 

Now you are probably wondering why i sold Fairfax back then. Well Fairfax has two businesses: insurance and investments. You want to own Fairfax when both are businesses are performing well and prospects are looking up (which i believed they were as we started 2020). Guess what a pandemic does for insurance? Back then we had no idea (if pandemic was covered by insurance). Not good. And potentially catastrophic. Guess what a pandemic does to investments (especially equities like Fairfax holds)? How do stocks do in a recession? Or a severe recession? They get slaughtered. The pandemic was new news. It was a terrible event for a company like Fairfax. So i exited 100% of my position. When the facts change i change my mind. What exactly is the problem you have with this?

Now did i post that i had moved to 100% cash? Yes. Did i tout Fairfax after i exited my position? No. WTF? So how was i being ‘dishonest’? Please lets try and not hit below the belt with our comments…

And, yes, i was largely out of Fairfax until Oct/Nov of last year. Despite the fact others had started to point out how cheap the stock had gotten.
 

So guess when i bought most of my shares in Fairfax last fall? It was immediately after Pfizer announced the news of the vaccine. 90% efficacy. New news again! 
 

So back to my lesson on when to own Fairfax. How was the insurance side of the business doing? Well by Nov we had clarity that the pandemic would not be covered by most policies in the US. So the insurance hit from covid was largely know and moderate. At the same time we also got confirmation that insurance was indeed in a hard market. So insurance was flashing green. How about investments? Well the vaccine news was a game changer for stronger economic growth. And that is good for equities, especially the kind of equities that Fairfax owns. So the investment bucket was also flashing green. So with both insurance and investments poised to do well i decided it was time to buy Fairfax again. And given the stock was trading at its cheapest valuation ever i backed up the truck. Yahoo!

 

Can we please get back to debating Fairfax? 

Edited October 8, 2021 by Viking

[glider3834]

2 hours ago, Spekulatius said:

In my opinion FFH is trade not a LT hold. It's a volatile stock and currently more things go right then wrong for the business and in addition it's cheap. That makes it a good trade. We will see how it goes, but as soon as the economic outlook dims, I expect a lot of the business that FFH owns to shit the bed, so to speak. I hope they sell some to bolster FFH's balance sheet.

 

I am not uber bullish on the economy like many here. I would not be surprised if we get a slight 2015/16 style recession in 2022 - a result of the COVID-19 stimmy hangover. You don't want to hold FFH in that environment, I think.

spek Its definitely a risk I think about - to what extent will withdrawing stimulus/higher taxes weigh on economy - we have had this sugar hit post covid (eg high commodity pricing) which has driven stock prices of commodity producers up a lot but we all know its unsustainable - we have to be mindful. On the other hand, we are just about to come out of lockdown in Sydney, people are going to start going to restaurants, travelling etc the economy here & globally has been hurt by delta but we are going to reach the end of that eventually . So thinking about all of this I see positives & negatives but yes if we relapse into recession this would hurt Fairfax. But I guess I come back to this question - in buying FFH now am I being compensated for these risks with the company, industry & economy.

 

Its then a 'bird in the hand' argument. Fairfax is at a historically very low 2/3 of BV, do I sell now & pay tax (in my case its held under a year & would be in the 30% area), in the hope I can buy it back next year at an even lower price plus I have to be compensated for tax paid etc? It just doesn't make sense to me.

 

A lot of financials are trading much closer to fair value than Fairfax & I am not interested in them. As well as P/B I also look at the total enterprise value/revenue ratio which ignores debt in comparing insurers. When I checked tikr this week Fairfax is in the mid 0.7 area & the avg was 1.1 but then you have specialty insurers on much higher levels- but then also you have to compare on other metrics like product focus, geographic focus - an insurer that operates exclusively in US - how comparable is this to Fairfax that has this significant international business with higher growth rates & insurtech investments in Digit, Ki

 

Yes you can trade FFH - I am not a technical trader but I could see there was probably a double bottom reached last week & then you can see a series of higher highs & higher lows earlier in the week - basically enough momentum for technical traders to jump in to earn a couple of percentage points. 

Edited October 8, 2021 by glider3834

[Gregmal]

Briefly, no I m not short this, nor am I long this. I track these type of situations so that in the event it inflects I can make a lot of money in short order. Most recent example was BRG. Total shit management team but trades at 50c on the dollar. Only catalyst is a sale. Rumor leaked of strategic alternatives, stock took a day to process and you could buy at $11 and sell a couple days later at $13...easy. Same thing to an extent with Berkshire. I questioned the logic of Buffett and his allocation strategy for years and probably annoyed some of the loyalists but said all along when the buybacks got serious the stock would rerate. Saw the buyback in 2020 Q4/2021 Q1, made it a 40% position at 230, and a couple quarters later its flirting with $300.

 

@Viking Its nothing to get sensitive about or call below the belt. I "bought last year and the thesis is working" isnt really the same as I bought on the same thesis I have now almost 2 years ago at a higher price than it trades today. In the later case, its really again just falling victim to what folks have suffered through for 10 years now. Harping on cheapness and the quant crap and missing the key that unlocks it all. Nothing more, nothing less. 

[glider3834]

Has anyone tried out Onlia to buy insurance? Onlia is digital insurer JV between Fairfax & Achmea

https://www.onlia.ca/about

 

Edited October 8, 2021 by glider3834

[Spekulatius]

1 hour ago, glider3834 said:

spek Its definitely a risk I think about - to what extent will withdrawing stimulus/higher taxes weigh on economy - we have had this sugar hit post covid (eg high commodity pricing) which has driven stock prices of commodity producers up a lot but we all know its unsustainable - we have to be mindful. On the other hand, we are just about to come out of lockdown in Sydney, people are going to start going to restaurants, travelling etc the economy here & globally has been hurt by delta but we are going to reach the end of that eventually . So thinking about all of this I see positives & negatives but yes if we relapse into recession this would hurt Fairfax. But I guess I come back to this question - in buying FFH now am I being compensated for these risks with the company, industry & economy.

 

Its then a 'bird in the hand' argument. Fairfax is at a historically very low 2/3 of BV, do I sell now & pay tax (in my case its held under a year & would be in the 30% area), in the hope I can buy it back next year at an even lower price plus I have to be compensated for tax paid etc? It just doesn't make sense to me.

 

A lot of financials are trading much closer to fair value than Fairfax & I am not interested in them. As well as P/B I also look at the total enterprise value/revenue ratio which ignores debt in comparing insurers. When I checked tikr this week Fairfax is in the mid 0.7 area & the avg was 1.1 but then you have specialty insurers on much higher levels- but then also you have to compare on other metrics like product focus, geographic focus - an insurer that operates exclusively in US - how comparable is this to Fairfax that has this significant international business with higher growth rates & insurtech investments in Digit, Ki

 

Yes you can trade FFH - I am not a technical trader but I could see there was probably a double bottom reached last week & then you can see a series of higher highs & higher lows earlier in the week - basically enough momentum for technical traders to jump in to earn a couple of percentage points. 

Let‘s just say, I have little confidence in my own predictions, but I keep them in mind as far as my portfolio is concerned, as well as dealing with individual positions. I believe that FFH is quite sensitive to the overall health of the economy, so it is important to keep this in mind.

Edited October 8, 2021 by Spekulatius

[Parsad]

15 hours ago, Gregmal said:

I guess at the end fo the day people get the returns that they deserve. Facetiously, but also summarizing all the shit Ive heard about FFH recently...

 

On NYSE or a real listing(after all, as Viking mentioned, they are a huge insurance company; start acting like it!)..

they dont need one, its a waste of money

 

On increased disclosure:

Its fine, I hope they disclose less going forward

 

On buybacks:

They cant because theyre an insurance company, besides they have total return swaps

 

On shitty performance and long term track record:

Its fine, the more it goes down the more I like and the more I buy

 

On the horrendous investments:

Theyre fine now, just look at what they've done lately!

 

On Prem's lack of interest in maximizing shareholder value:

How dare you question his motives/integrity

 

On selling losers:

Hopefully he will but he's waiting for the right time. 

 

On trading at a discount to book/NAV:

Its ok eventually the market will get it! Its impossible not to revert to a premium at some point

 

On being a dog post covid:

It did 30% TTM!

 

On terrible track record:

Its fine, I sold it before it went down, bought it back, sold it at a profit, bought it back again

 

On shorting:

He said he's done so we must take his word. If you ignore the shorting he's done OK

 

On repeatedly picking lousy businesses:

He's not a stock picker, he is a businessman!

 

 

I mean you cant even make this shit up. At least if one wants a cult stock buy BAM or TSLA or something that rewards its shareholders. I mean seriously, just buy Berkshire for God sakes and stop wasting time on this junk.

 

 

 

 

 

Haha!  With all of Prem's faults, he's somehow managed to put together a $15B company from scratch and lead about 50K people, but you go ahead and tell him what a failure he's been or how he can do much better.  Cheers!

[Gregmal]

Well that’s kind of the problem. He s built it, and got nothing left to prove. And fwiw I had the “audacity” to criticize Buffett too, both about the refusal to buyback stock for several years and for being a pussy in April of 2020. For those keeping track at home…

 

Gregmal 2

WEB 0

 

Im right about Prem here too. If they announced they were liquidating the entire equity portfolio, buying back stock up to 90% book value, and refocusing on India and insurance only the stock would probably do 50% over the next 2-3 quarters regardless of what the broader market does. 

[Parsad]

2 hours ago, bearprowler6 said:

And lets not forget that Prem on numerous occasions indicated that the insurance subsidiaries were very well capitalized  and waiting for the hard market to show up. Then the hard market shows up and we find out the insurance subs are starving for capital requiring capital injections from parent company Fairfax. The only problem,  Fairfax didn't exactly have excess cash to invest into the insurance subs so it had to draw on its line of credit. Then in order to pay down the line of credit (likely due to pressure from the bankers although I don't know this for certain) Fairfax had to sell off its UK run off business to CVC and a portion of Brit to OMERS! 

 

Yes, because you saw the pandemic coming, correct?  Suddenly, some of their insurers had to book losses from the pandemic and their equity portfolios took a hit...something probably unaccounted for like 9/11 was for insurers.  

 

Fairfax had $1.7B in cash at September 30, 2019, which dropped to about $1.1B at December 31, 2019 because they paid $600M in insurance debt.  That's why they had to reborrow and issue more debt in 2020 to inject capital into the subs after $400M in Covid losses and $1B in equity losses.  As well as keep over $2B in cash because liquidity was drying up across the world.

 

The UK runoff business sale was announced well before the pandemic...nothing to do with bankers or statutory capital.  Get your facts straight!  Cheers!

[Parsad]

2 hours ago, TwoCitiesCapital said:

 

I think what happened was many of the equity holdings were down 30-50% and in tandem with the market hardening so they no longer had the over-capitalization they once thought. 

 

Agreed it was annoying. Also don't think it's a major issue - they found creative sources of funding, grew the premium base and float profitably, repaid that funding, and still "repurchased" a hunk of shares at the same time.

 

In the end, it's not a significantly different outcome than we'd have expected from the beginning - just a different path. 

 

I don't think Prem is perfect. I don't think Prem is terrible. His history is littered with home runs and mistakes. The history is also littered with discounts and premiums. 

Why when one happens we try to find the reason that it will be perpetual going forward is beyond me. 

 

The stock is cheap. Prem is currently hitting home runs. The path forward is easy to continue that trend at this time. Buy the stock hand over fist until those things change. 

 

 

 

+1!  Cheers!

[Parsad]

14 minutes ago, Gregmal said:

Well that’s kind of the problem. He s built it, and got nothing left to prove. And fwiw I had the “audacity” to criticize Buffett too, both about the refusal to buyback stock for several years and for being a pussy in April of 2020. For those keeping track at home…

 

Gregmal 2

WEB 0

 

Im right about Prem here too. If they announced they were liquidating the entire equity portfolio, buying back stock up to 90% book value, and refocusing on India and insurance only the stock would probably do 50% over the next 2-3 quarters regardless of what the broader market does. 

 

The stock will do over 50% regardless...just reversion to book will do that!  So you're not really adding anything!

 

15% compounded on $595 USD book over two years gives $786 USD...was trading at $393 USD on Monday.  I say 100% return or better by October 2023 at the latest...barring a massive catastrophe or market crash.    

 

Cheers!

[modiva]

1 minute ago, Parsad said:

15% compounded on $595 USD book over two years gives $786 USD...was trading at $393 USD on Monday.  I say 100% return or better by October 2023 at the latest...barring a massive catastrophe or market crash.    

+1.  If they do more, such as aggressive buybacks, 50% returns will be in few quarters or even months, and 100% returns will be there by early 2023.