Is it time to buy Fairfax?

[Viking]

There's nothing wrong with just keeping it very simple, and simply buying/selling across the ex-dividend date.

Buy a day before the ex-date, take the USD 10 dividend, sit in the thing for a short period until the price recovers, and exit.

Done and dusted by the end of January.

 

SD

I have done this in the past, in a significant way, by initiating or increasing the position, on three or four occasions. Part of the motivation was because FFH was felt to be an anchor holding that could be held for the long term and part of the motivation was because I thought it was possible to take advantage of the temporary mismatch. I now come to the conclusion that I was wrong with the short term predictive power (process) even if the outcome has always been positive. Maybe others can do this effectively but I come to the conclusion that FFH price had a tendency to go up and luck explains the result. Your post though brought back a nice souvenir when I was planning to do this in November 2012 and, in fact, materially increased my position a certain day which was related to technical selling or something. Then again, if I were a brighter trader, I would have kept the trading chunk for longer as the realized gain on the incremental investment was about 20% vs 100% if I had waited another 2 years or so. Interestingly, I found that this was discussed in 2012.

https://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-down-8-this-morning/60/

Edit:

Here's the link to the first page of the thread:

https://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-down-8-this-morning/

I see that Viking indicated that he was back in the saddle again and felt that things looked good for the next year or two. Nice call!

As Yogi Berra said (versus decision making): When you come to a fork in the road, take it!

 

Cigar, as an update, i did sell 1/2 of my position on Friday (I was way overweight). I was happy to lock in a quick 8% avg return in less than 2 weeks. Very lucky. If the stock continues higher in the coming weeks i will continue to lighten up (as i am still overweight). As i said at the outset, Fairfax for me is a trade. As i continue to get reaquainted with the company i may hold a small position (5%) as a longer term holding (especially if i see sgns the global economy is stabilizing as we enter 2020 which would ge good for their equity holdings).

[thrifty]

Today i prefer large cap; quality; out of favour. Fairfax’s style is generally not a good fit for me these days (deep value... declining industries... sometimes declining companies).

 

Do you mind elaborating on the points above? Is it the personal reasons or you believe market force (such as passive investing) would ultimately benefit those companies' stocks?

 

Isn't the best money in deep value from cyclicals, commodities or some sort of distress regardless of the industry or company declining or growing? You just cannot hold them long term...

[Saluki]

I didn't see this until today...Looks like Mason Hawkins and the Southeastern guys started a podcast.  Here's one that they did with Prem Watsa :)

 

https://podcasts.apple.com/us/podcast/prem-watsa-insights-on-investing-underwriting-importance/id1434613123?i=1000431247358

[thrifty]

Yeah they also interviewed CEO of Fedex recently. It is interesting to hear them saying how AMZN is taking the headlines and how they're spending big on replacing old fleets (projected to be done by 2020)

Anyone interested in Fedex at these prices?

[Spekulatius]

The podcast with Prem is way too much of a love fest for my taste. I haven’t listened to podcast with Smith from FDX yet but he feels a little bit delusional to me regarding AMZN in his CC.

[Viking]

Today i prefer large cap; quality; out of favour. Fairfax’s style is generally not a good fit for me these days (deep value... declining industries... sometimes declining companies).

 

Do you mind elaborating on the points above? Is it the personal reasons or you believe market force (such as passive investing) would ultimately benefit those companies' stocks?

 

Isn't the best money in deep value from cyclicals, commodities or some sort of distress regardless of the industry or company declining or growing? You just cannot hold them long term...

 

Thrifty, sorry for the delayed response... i will buy small amounts of all sorts of companies; this helps to keep learning. But when i look at what have been my best decisions the past 20 years there really are only a few and most have been quality large caps.

 

I remember buying Blackberry back when FFH was just getting started (i was probably piggybacking). After buying, by the third conference call i realized Blackberry management was not good. I sold my position at a loss (my position was large but my loss was not too bad... before the stock really started heading south). The problem with holding a poorly run company in trouble is there tend to be lots of negative surprises. Every month there is another surprise and the stock gets hit. This makes it very hard to stay the course.

 

A year or two later Apple was getting killed; Samsung was going to eat its lunch. I initiated a position and by the third conference call i was all in (i may have been 100% invested in Apple at that point). Every conference call the news was getting better (but the stock kept going down). Every month there were positive surprises. I find in these types of situations it is much easier to be patient as an investor.

 

A similar situation played out with US bank stocks a couple of years later. Over a 5-6 year period the big US banks morphed from shit to quality (JPM always was quality) but most investors missed it because they were too blinded by the past (and not able to let it go) to see what was really going on at the time. A real caterpillar to butterfly story (except WFC who tried to turn back into a caterpillar). When Trump got elected in 2016 they really took off but ‘the story’ had been getting better for years before then. They were quality. The news kept getting better. And it was easier to be patient.

 

My big miss earlier this year was not buying Google when it was trading under $1,100. (I did buy a little and then sold it for a small gain). I should have bought a bunch and held on. Big. Quality. Cheap

 

Same story with BAM. Bought a little and sold after a small gain. Should have bought a bunch and held on. Big. Quality. Cheap. Canadian (which is a small positive for me).

 

As you can probably tell, i also like to concentrate my portfolio at times. Big. Quality. Cheap. Allows me to do this. (Small, shitty company and big position would not work for me... i would be stressed amd likely lose most of my money :-).

 

Next time :-) the nice thing is over time you can really get up to speed on a large number of companies. And every couple of years (or less) they get cheap. Once you know a company it does not take a huge amount of time to get back up to speed (if it falls off your radar for a couple of years). So the number of companies in your universe keeps expanding...

 

Bottom line is i prefer to hold large cap and quality. (For my largest positions). Easier to be patient. Fits my psychological make up :-) the cool thing is there are lots of different models. (And i will buy small positions in lots of different things... but rarely do i scale these up.) The trick is to find a model that is a fit for you.

[Viking]

Things are lining up nicely for Fairfax as we look out to 2020.

1.) insurance: P&C insurance pricing is up and expected to continue to improve into 2020. The increases started about a year ago (growth in net premiums written) as we move into 2020 we should see the benefit start flowing through to net premiums earned. RBC is quite bullish on parts of P&C business and is forcasting improving earnings and for the market to bid the PE multiples for the sector higher. This would be a double benefit (higher earnigs and a higher multiple) which would spike stock prices.

2.) bonds: FFH is positioned very conservatively (short duration). If the global economy stabilizes (think soft landing) and starts to grow again then bond yields will likely trend a little higher. This will be good for FFH. Net interest income grew nicely in 2019 (compared to 2018).

3.) equity investments: two factors are key: economic growth and the US$. I think global economic growth could surprise to the upside in 1H 2020. And i think the US$ could finally start to weaken. This would be good for Europe  and Emerging Markets (think India). This would be good for FFH investment portfolio.

 

Short term

4.) Dividend: US $10 dividend coming in January (2% payout)

 

Valuation

5.) with stock trading roughly a little above book value safe to say stock is undervalued at US $453.

 

Wild card

6.) FFH must not be happy with stock price. At some point Fairfax will do something to take advantage of this. Of course, timing (and what they might do) is impossible to predict.

 

Now if global and US economic growth weakens, US stocks sell off, bond yields fall, the US$ strengthens and insurance pricing materially softens then FFH stock will not do well :-)

 

The stock price is roughly flat with where it was trading a year ago; company is in a much better position today. I like the risk/reward moving forward at US $453.

 

[Sombunall]

Agree... and you have potential for surprise monetizations and -- one can hope -- buybacks.

 

Downside seems low. In this market, that counts for a lot.