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Is this patient investor flogging a dead horse with FFH? I Sell side discipline


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A dozen years ago bought into the FFH thesis of science of pricing insurance properly that generates float that can then be invested by astute people - the Warren Buffett of Canada philosophy. Have just kept accumulating shares. Looked to generally "buy the dips" , but add yearly, have bought as low as C$300's and as high as C$700's over about 12 years. Always waiting for the stock to outperform.

 

As a result of adding to the position for a dozen years, I have a large position (approx 7% of assets) in FFH with average purchase price of C$498 (today's price=$585). Overall, I haven't lost money, but have deployed a significant portion of assets for a long period of time that has compounded at a rate that is below my expectations (8-12%/year over long periods of time) even after taking in the annual dividend of USD10/share.

 

Does this patient value investor stay the course given the amount of time and resources deployed and hope against hope that Watsa does something to appreciate stock value?? Feeling particularly down after the always ethical, investor friendly, strong EQ personality of Watsa has taken a hit with recent news of court behaviour. This is superimposed by now getting tired of him always talking about 15% compound growth and not delivering.

 

Went through similar thought process with Chou Funds before finally making decision to part ways.

 

Am hurting/struggling with sell side discipline of stay the course (stock is undervalued, there will be an inciting event, Eurobank investment will appreciate, investment process will be improved, Indian investments will pay off, there will be significant stock buy back at these prices...) vs. is the nugget now better deployed elsewhere? Had big hopes for this position....

 

Would love to hear from some of the FFH bulls who have been passionate on this site. Thanks for your thoughts,

 

 

 

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Can’t help you but I certainly can sympathize.

 

I am in nearly the exact same situation as you are. Bought in about 2007 and have added since then. Got burned as a shareholder with Resolute/Fibrek. While some on this board insisted that Prem was doing right and Fairfax was living up to its motto of Fair & Friendly take overs. Yeah right! Wonder if they still feel that way. They were pretty adamant back then defending Prem.

 

I also have picked up some FAH & FIH a year or so ago. I still have a certain amount of confidence that the overall situation will improve because I think some of Prem’s investments will improve over time. I just hope I live that long. I would probably lighten up on FFH but capital gains tax is going to be painful and I am not in a position where I should incur any more taxable income this year.

 

My first purchase was at $228C and last was at $640C. Oh yes I still also have a fair amount of Chou Associates as well.

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded.  That being said, there are a handful of things that investors need to understand about Fairfax currently and going forward:

 

- It is no longer really just an insurance company...so any portfolio decisions made are going to have a significant impact...BB, Recipe, SSW, India, Africa, etc.

- It's insurance division is far superior to the insurance companies it owned in the past...this is more comparable to Berkshire now...well run, consistent, quality insurers.

- Prem has handed over significant responsibilities to others now...the team at Hamblin-Watsa is considerably different and will continue to change when Brian is gone...so results will be different over the next 20 years...equity decisions could be actually better, but I would expect bond/fixed income investments will be worse.

- Leadership is young outside of the old core guard...if they picked the team right, this could actually be a better investment than Fairfax itself was over the last decade, so you could be making a big mistake...Paul Rivett is as capable as Prem as a leader.

- As long as they get most of it right, the natural asset/equity leverage and long-term float will provide great returns to shareholders...so they don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.

- They are now the go to buyer in Canada for assets, alongside Brookfield, and their reputation gets them offers that many other investors wouldn't get.

- You don't need to put everything into Fairfax...if you have time to manage assets yourself, you can probably put part with them, part with someone else, and manage a portion yourself...as long as they are not overlapping strategies.

 

Cheers!

 

 

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded.  That being said, there are a handful of things that investors need to understand about Fairfax currently and going forward:

 

- It is no longer really just an insurance company...Its a portfolio of speculative and highly levered poo poo

- It's insurance division is hopefully superior to the insurance companies it owned in the past...this is more comparable to Berkshire now...stagnant, lagging, and rife with nepotism.

- Prem has given up now...the team at Hamblin-Watsa is considerably different and will continue to change when Brian is gone...so results cant possibly be worse over the next 20 years...equity decisions could be actually better, but I would expect bond/fixed income investments will be worse.

- Leadership is missing...if they picked a new team, this could actually be a better investment than Fairfax itself was over the last decade, so you could be making a big mistake...Paul Rivett is as capable as Prem as a leader.

- As long as they do a complete 180, the natural asset/equity leverage and long-term float will provide great returns to shareholders...so they don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.

- They are now the go to buyer in Canada for assets, alongside Brookfield, and their reputation gets them offers that many other investors wouldn't get.

- You don't need to put anything into Fairfax...if you have time to manage assets yourself, you can probably likely just throw darts at a board and do better.

 

Cheers!

 

Fixed!

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded. 

 

This...

 

They don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.

 

...and this.

 

I love the fact that even on this board, which is named after FFH, literally everything the company does is questioned and there's no trust any more. That is necessary, but not sufficient, for FFH to be a good value investment starting from here. What may make it sufficient is that FFH doesn't need to shoot for the moon, and it owns a LOT of cheap stocks. I've never been more tempted to replicate the FFH portfolio PA. I take that as a good sign, although it may not be!

 

FD: I have held FFH continuously since 2008. I've had an OK time of it because I've generally bought well, and in some ways it did what I wanted (I partly held it for the hedges, because I don't hedge but wanted downside protection), but in other ways it obviously did not (BVPS growth has been dire).

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One added thought. FFH have made some shocking mistakes. But it's also fair to say their style is out of style. This is a value board yet the mantra of most has become "buy quality growth". Of course we are all experienced investors impervious to bias, cough cough, so that has nothing to do with the fact that quality growth has performed like a banshee for the last decade. But quality growth ain't cheap no more, and one day the pendulum will reverse.

 

That said, I do worry that in buying value, FFH have also bought cyclical at the top of the cycle. Stelco, Seaspan, Eurobank, etc. I think the value here outweighs the risks (I own Seaspan and am considering Stelco) but it is a risk.

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"I partly held it for the hedges, because I don't hedge but wanted downside protection"

 

Ditto. But how much of that protection remains?

 

Deep down I still have faith that Fairfax will continue to grow and I like the fact that they are reasonable diversified. But the problem I see is that Prem and Fairfax have lost much of the respect they once had and that reflects directly on share price.

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Ditto. But how much of that protection remains?

 

None. Hence the use of the past tense.

 

I totally agree that Prem et al have lost respect. From my POV that's a good thing, because I no longer have to pay for that intangible. In reality I suspect they have got better as investors, for two reasons:

1) I believe they are learning, although this is painful to watch and impossible to prove.

2) I think their scale/contacts etc. allow them to do deals they likely couldn't do before, such as the SSW warrants which were a gift.

 

 

 

 

problem I see is that Prem and Fairfax have lost much of the respect they once had and that reflects directly on share price.

 

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It's usually at such depths, when investors start to reconsider their investment in Fairfax, when it is ultimately gets rewarded.  That being said, there are a handful of things that investors need to understand about Fairfax currently and going forward:

 

- It is no longer really just an insurance company...Its a portfolio of speculative and highly levered poo poo

- It's insurance division is hopefully superior to the insurance companies it owned in the past...this is more comparable to Berkshire now...stagnant, lagging, and rife with nepotism.

- Prem has given up now...the team at Hamblin-Watsa is considerably different and will continue to change when Brian is gone...so results cant possibly be worse over the next 20 years...equity decisions could be actually better, but I would expect bond/fixed income investments will be worse.

- Leadership is missing...if they picked a new team, this could actually be a better investment than Fairfax itself was over the last decade, so you could be making a big mistake...Paul Rivett is as capable as Prem as a leader.

- As long as they do a complete 180, the natural asset/equity leverage and long-term float will provide great returns to shareholders...so they don't have to shoot for the moon, just get 4% on the whole portfolio and write 100% CR.

- They are now the go to buyer in Canada for assets, alongside Brookfield, and their reputation gets them offers that many other investors wouldn't get.

- You don't need to put anything into Fairfax...if you have time to manage assets yourself, you can probably likely just throw darts at a board and do better.

 

Cheers!

 

Fixed!

 

Lol

 

I tend to agree with Parsad to the extent the price point is attractive and they don't need to knock the lights out on investments to do well from here.

 

But where I consistently have a hard time is that I don't see how Fairfax does a consistent 4% going in the near-to-midterm.

 

Sure, they may get a nice one-off investment that boosts results in a year - but historically much of that has been given back the next year (see Blackberry and Eurobank) or is obviously not repeated annually.

 

A consistent 4% is going to be hard to achieve with their stock-bond mix and a portfolio of cyclicals with interest rates at 1.6%.

 

I still think the price needs to go lower, or rates higher, for Fairfax to make sense at this time.

 

Either that, or a market crash where I can have some certainty that cash can be out to work at greater than a 4% expected return.

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Going forward I think Fairfax's insurance & reinsurance businesses will find it harder to generate profits in a low interest rate environment. Their float is not earning much which makes good underwriting even more important and harder to achieve (because of competition). Berkshire has an advantage over Fairfax in this regard. For example GEICO is a low cost growth machine in a commodity auto insurance business and they don't rely as much on earnings generated by float because GEICO float is short-tailed anyway. GEICO cost advantage stems from direct distribution channel. Berkshire is building their primary commercial insurance biz along similar lines and have reduced reinsurance exposure significantly in recent times due to insufficient premiums. Finally, Berkshire is no longer primarily an insurance company with a much stronger balance sheet and very low leverage compared to Fairfax.

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"I partly held it for the hedges, because I don't hedge but wanted downside protection"

 

Ditto. But how much of that protection remains?

 

Deep down I still have faith that Fairfax will continue to grow and I like the fact that they are reasonable diversified. But the problem I see is that Prem and Fairfax have lost much of the respect they once had and that reflects directly on share price.

 

Lost more respect than when the stock dropped from $590 to $68 between 1999 and 2003?  Now that was a sign the company had lost respect!

 

This is value investing being out of fashion.  Unless Ben Graham was wrong, eventually value will become fashionable as people pay attention to fundamentals.  But when 1/2 of all capital is moving into index stocks, it's kind of hard to love value stocks.

 

As for the silly comment by Gregmal about "nepotism"...how is it different than Howard Buffett sitting on Berkshire's board?  Or the Desmarais family, Thompson family or Weston family?

 

At least both Ben and Christine have finance backgrounds...what the heck is a photographer/farmer doing on Berkshire's board? And I know the Watsa kids quite well...they have learned carefully from their mother and father on what is ethical, what Fairfax means, how to treat shareholders, etc.  I'm much more comfortable with the two of them on there than Howard Buffett on Berkshire's board...as nice a guy as Howard is!  Cheers!

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Going forward I think Fairfax's insurance & reinsurance businesses will find it harder to generate profits in a low interest rate environment. Their float is not earning much which makes good underwriting even more important and harder to achieve (because of competition). Berkshire has an advantage over Fairfax in this regard. For example GEICO is a low cost growth machine in a commodity auto insurance business and they don't rely as much on earnings generated by float because GEICO float is short-tailed anyway. GEICO cost advantage stems from direct distribution channel. Berkshire is building their primary commercial insurance biz along similar lines and have reduced reinsurance exposure significantly in recent times due to insufficient premiums. Finally, Berkshire is no longer primarily an insurance company with a much stronger balance sheet and very low leverage compared to Fairfax.

 

You have so much cash sloshing around that it is hard to find undervalued investments or write insurance business that is priced correctly.  Look at the hurricanes the market has seen for the last 5 years, yet pricing pressure isn't even close to what we saw after Hugo 15-16 years ago. 

 

Fairfax doesn't have to do well every year, or year to year.  All Fairfax has to do is wait for when liquidity is at a premium again.  Do we really think that such low interest rates will persist on a global basis?  Asset prices as a whole are all hitting highs or close to highs...inflation is non-existent at this point in time.  Both elections in the U.S. and Canada...not one person, including Republican/Conservatives are talking about balanced budgets or reducing debt relative to GDP!  I've never seen that!

 

The day of reckoning for all of this easy money will come.  Only a handful of countries are below 90% debt to GDP...and it ain't any of the large economies!  You wait for the fat pitch!  Cheers!

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Sanjeev its not just value investing that's the issue though...it's the investing!

 

Maybe I'm gifted, IDK. But it really doesn't take long to size up a public company and determine if it's worth considering an investment. Even average investors should be able to look at something and kind of figure out what it's universe of outcomes will be, with a certain degree of accuracy. Which is why its just baffling when I look at some of the decisions these guys have made over the years. Like how many examples of broken tech companies(let alone gadget companies) do you need to see(cough Palm) to know that Blackberry was a lousy investment? Is there anything really that jumps out and screams "I need to own me some Resolute Forst Products?". I get they may be cigar butts, or turn arounds or whatever; the textbook "value investor" stocks...But these are just downright shitty businesses, with high risk and rather static reward(especially if you start looking at the entry points these guys had).

 

So it's not just "value investing is out of favor"...one really needs to question the judgment being used. I criticize some of the BRK investment performance, but at least they almost exclusively buy high quality companies/businesses...Prem is buying garbage.

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Sanjeev its not just value investing that's the issue though...it's the investing!

 

Maybe I'm gifted, IDK. But it really doesn't take long to size up a public company and determine if it's worth considering an investment. Even average investors should be able to look at something and kind of figure out what it's universe of outcomes will be, with a certain degree of accuracy. Which is why its just baffling when I look at some of the decisions these guys have made over the years. Like how many examples of broken tech companies(let alone gadget companies) do you need to see(cough Palm) to know that Blackberry was a lousy investment? Is there anything really that jumps out and screams "I need to own me some Resolute Forst Products?". I get they may be cigar butts, or turn arounds or whatever; the textbook "value investor" stocks...But these are just downright shitty businesses, with high risk and rather static reward(especially if you start looking at the entry points these guys had).

 

So it's not just "value investing is out of favor"...one really needs to question the judgment being used. I criticize some of the BRK investment performance, but at least they almost exclusively buy high quality companies/businesses...Prem is buying garbage.

 

Besides just the fact that they keep investing in crap business, they don’t seem to dump the losing bets either or they can’t. The Stelco investment really got me to second guess. I think they are like 0:3 with their commodity investments. Why don’t they just put some money in Enbridge or something like this. It huge and liquid too and Canadian. They could just cash in the dividend checks  yielding ~6.5% and wouldn’t really need to think. This would work even if the shares don’t go anywhere.

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Ben Graham must be turning over in his grave. Do not blame value investing or indexing.

 

What happened over the past decade is that earnings for companies that fall in the value spectrum have not grown as much as they have historically done. Why that is so is a separate topic of discussion. Where as for the growth stocks they are pretty much in line with history. See attached table from philosophical economics blog. Pay attention to the earnings growth rate of value.

 

This earnings slowdown for value stocks is what is causing the under-performance. Market is paying attention to fundamentals. That is in line with what Ben Graham has been teaching. Stocks. Long Run. Weighting Machine.

 

Fairfax portfolio and Fairfax itself performed poorly because the earnings of their portfolio companies and itself were below par. Are we really blaming indexing for Fairfax's portfolios poor returns? Should Blackberry be worth $100 because Fairfax first paid what $45 a share several years back?

 

Vinod

 

Factors.thumb.png.fa3d796ccea5810874b19f4767bbb515.png

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investmd - Ask yourself if you are someone new who has just found Fairfax and started researching the company and you do not have any emotional baggage of knowing Prem and participating in its fantastic record during the great recession, would you make an investment in Fairfax now?

 

If you think afresh it might give you a better perspective.

 

I sold in late 2011 or 2012 I think and it was really tough to let go. I pretty much learned value investing as the Fairfax saga was going on and learned a lot reading Fairfax annual reports and benefited a lot from its Great Recession performance. So I was sad to sell and it was also a very large position. But when BAC was around $10 and Fairfax was $420 it was much easier.

 

Vinod

 

 

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Ben Graham must be turning over in his grave. Do not blame value investing or indexing.

 

What happened over the past decade is that earnings for companies that fall in the value spectrum have not grown as much as they have historically done. Why that is so is a separate topic of discussion. Where as for the growth stocks they are pretty much in line with history. See attached table from philosophical economics blog. Pay attention to the earnings growth rate of value.

 

This earnings slowdown for value stocks is what is causing the under-performance. Market is paying attention to fundamentals. That is in line with what Ben Graham has been teaching. Stocks. Long Run. Weighting Machine.

 

Fairfax portfolio and Fairfax itself performed poorly because the earnings of their portfolio companies and itself were below par. Are we really blaming indexing for Fairfax's portfolios poor returns? Should Blackberry be worth $100 because Fairfax first paid what $45 a share several years back?

 

Vinod

 

Great observations.  8)

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Good points vinod1.

 

My own reservations regarding Fairfax are as follows:

 

1. Leverage: FFH has roughy $3 in insurance liabilities for $1 of common equity and another $0.50 mostly in debt. With so much insurance liability leverage, I think they are forced to keep most of the float in fixed income or cash. Obviously when it works, leverage produces great results but the reverse is true also. One major CAT loss, a huge portion of common equity will be wiped out. I really don't like the way annual letter shows underwriting results with and w/o CAT losses as if CAT losses were not supposed to happen and are highly unusual. It is as if management wants shareholders/readers to ignore these insurance losses when they are normal part of being in the insurance business.

 

2. Invested Assets: Just the fixed income portion of assets is larger than common equity. And it is highly unlikely that FI portfolio will produce great results going forward. And common stock selection has been awful during the last 10+ years. As others pointed out, they like to go for the crappy stuff all the while completely avoiding quality long term investments.

 

3. Macro Calls: A big negative in my book. One can easily see them making a 2020 US election macro bet for example if past is any indication.

 

4. Sub-optimal capital allocation: The dividend policy doesn't make any sense especially because they immediately issued more stock many times in the past right after declaring dividends. If they need more capital why not retain earnings? Why force shareholders to pay tax on dividends and immediately dilute them with new stock issuance?

 

5. Board governance: Too much Watsa family involvement without a clear benefit to the company or shareholders.

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Good points vinod1.

 

My own reservations regarding Fairfax are as follows:

 

1. Leverage: FFH has roughy $3 in insurance liabilities for $1 of common equity and another $0.50 mostly in debt. With so much insurance liability leverage, I think they are forced to keep most of the float in fixed income or cash. Obviously when it works, leverage produces great results but the reverse is true also. One major CAT loss, a huge portion of common equity will be wiped out. I really don't like the way annual letter shows underwriting results with and w/o CAT losses as if CAT losses were not supposed to happen and are highly unusual. It is as if management wants shareholders/readers to ignore these insurance losses when they are normal part of being in the insurance business.

 

2. Invested Assets: Just the fixed income portion of assets is larger than common equity. And it is highly unlikely that FI portfolio will produce great results going forward. And common stock selection has been awful during the last 10+ years. As others pointed out, they like to go for the crappy stuff all the while completely avoiding quality long term investments.

 

3. Macro Calls: A big negative in my book. One can easily see them making a 2020 US election macro bet for example if past is any indication.

 

4. Sub-optimal capital allocation: The dividend policy doesn't make any sense especially because they immediately issued more stock many times in the past right after declaring dividends. If they need more capital why not retain earnings? Why force shareholders to pay tax on dividends and immediately dilute them with new stock issuance?

 

5. Board governance: Too much Watsa family involvement without a clear benefit to the company or shareholders.

 

Obviously the dividend policy is in place to keep control and pay the Watsa family

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In this low interest rate environment, their 3:1 insurance leverage, would it make sense for them to consider alternative investments with fixed income qualities (eg infrastructure plays and other real assets)?

 

It would be amusing to see them use Brookfield's private funds to achieve better returns. But will it be too much for their egos?

 

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Good points vinod1.

 

My own reservations regarding Fairfax are as follows:

 

1. Leverage: FFH has roughy $3 in insurance liabilities for $1 of common equity and another $0.50 mostly in debt. With so much insurance liability leverage, I think they are forced to keep most of the float in fixed income or cash. Obviously when it works, leverage produces great results but the reverse is true also. One major CAT loss, a huge portion of common equity will be wiped out. I really don't like the way annual letter shows underwriting results with and w/o CAT losses as if CAT losses were not supposed to happen and are highly unusual. It is as if management wants shareholders/readers to ignore these insurance losses when they are normal part of being in the insurance business.

 

2. Invested Assets: Just the fixed income portion of assets is larger than common equity. And it is highly unlikely that FI portfolio will produce great results going forward. And common stock selection has been awful during the last 10+ years. As others pointed out, they like to go for the crappy stuff all the while completely avoiding quality long term investments.

 

3. Macro Calls: A big negative in my book. One can easily see them making a 2020 US election macro bet for example if past is any indication.

 

4. Sub-optimal capital allocation: The dividend policy doesn't make any sense especially because they immediately issued more stock many times in the past right after declaring dividends. If they need more capital why not retain earnings? Why force shareholders to pay tax on dividends and immediately dilute them with new stock issuance?

 

5. Board governance: Too much Watsa family involvement without a clear benefit to the company or shareholders.

 

Out of those five items, only really the macro calls affected performance.  Their equity positions overall have done reasonably well since 2008, excluding the puts and derivatives.  That's what really killed about $2B in gains.  As for the Watsa family involvement, Ben has only been involved for the last 3 years, while Christine has been involved for one year...are you going to tell me that was the reason Fairfax underperformed for the last decade?

 

Ben Graham must be turning over in his grave. Do not blame value investing or indexing.

 

What happened over the past decade is that earnings for companies that fall in the value spectrum have not grown as much as they have historically done. Why that is so is a separate topic of discussion. Where as for the growth stocks they are pretty much in line with history. See attached table from philosophical economics blog. Pay attention to the earnings growth rate of value.

 

This earnings slowdown for value stocks is what is causing the under-performance. Market is paying attention to fundamentals. That is in line with what Ben Graham has been teaching. Stocks. Long Run. Weighting Machine.

 

Fairfax portfolio and Fairfax itself performed poorly because the earnings of their portfolio companies and itself were below par. Are we really blaming indexing for Fairfax's portfolios poor returns? Should Blackberry be worth $100 because Fairfax first paid what $45 a share several years back?

 

Vinod

 

 

 

Fairfax is not buying the market...be it value or growth.  So that's not an excuse, nor the reason why it underperformed.  We all know clearly from the letters that the macro calls since after 2009 offset about $2B in gains.  And that extremely conservative position left them holding a ton of cash and a ton of bonds, when equities were priced at 50 year lows.  So if shareholders want to blame anything, I would say they should be blaming the macro calls on what might happen.

 

- Going back to shareholders holding the stock or considering buying...if you think that Fairfax has learned their lesson on macro calls, Fairfax will probably do well in the future. 

- If you think that Fairfax will continue to try and make these macro bets, then yes, it is possible Fairfax will be out of step. 

 

I personally am betting on the former, but at the same time, I manage a considerable amount of my own portfolio and only a portion is in Fairfax.  Cheers!

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Out of those five items, only really the macro calls affected performance.  Their equity positions overall have done reasonably well since 2008, excluding the puts and derivatives.  That's what really killed about $2B in gains.  As for the Watsa family involvement, Ben has only been involved for the last 3 years, while Christine has been involved for one year...are you going to tell me that was the reason Fairfax underperformed for the last decade?

 

 

Parsad,

 

I never told you or anyone for that matter that the items I listed in my previous post were the reasons for Fairfax underperformance during the last decade. I can only assume that you are mixing up my comments with someone else's.

 

Added: I also don't understand how you can claim their equities have done well by excluding puts and derivatives. That is like saying a long/short hedge fund did well on the long side if you ignore their short positions. Doesn't make much sense to me.

 

-MD

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Out of those five items, only really the macro calls affected performance.  Their equity positions overall have done reasonably well since 2008, excluding the puts and derivatives.  That's what really killed about $2B in gains.  As for the Watsa family involvement, Ben has only been involved for the last 3 years, while Christine has been involved for one year...are you going to tell me that was the reason Fairfax underperformed for the last decade?

 

 

Parsad,

 

I never told you or anyone for that matter that the items I listed in my previous post were the reasons for Fairfax underperformance during the last decade. I can only assume that you are mixing up my comments with someone else's.

 

Added: I also don't understand how you can claim their equities have done well by excluding puts and derivatives. That is like saying a long/short hedge fund did well on the long side if you ignore their short positions. Doesn't make much sense to me.

 

-MD

 

I'm not saying their overall portfolio did well.  I'm saying that they made macro bets on the market and economy, including those puts and derivatives, which hurt their equity picks.  Prem has said as much in the annual letters.  And for all intents and purposes, those macro bets were a mistake.  But if you are using 3.5-1 asset to equity leverage, plus debt, plus float, then you may be hamstrung by having to make macro bets to ensure you don't suffer catastrophic losses that reduce statutory surplus when you are writing insurance business.

 

My point was, that if they have learned from those mistakes, their portfolio should do better over time.  If they haven't learned from those mistakes, their portfolio could continue to suffer from macro bets.  Investors should decide what they are comfortable with before buying Fairfax.  Cheers!

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