Fairfax 2020

[Parsad]

While I don't put any stock in it, as I do my own analysis, but for those that pay attention to insider filings...alot of directors buying stock regularly...not just Prem's massive $150M purchase a few months ago:

 

https://www.canadianinsider.com/company-insider-filings?ticker=FFH

 

If you believe they know more than you!  Hmmm!  Cheers!

 

As many people have years of experience following Fairfax, is this amount of insider purchases atypical?

 

Yes.  Also Prem has never bought remotely close to as much stock as he bought in June...the $150M investment.  I've just never seen him buy like 10% of  his net worth at one time and probably 80% of his net worth outside of Fairfax like that.  Unheard of!  Cheers!

[Parsad]

While I agree with others that low interest rates are an impediment to earnings - this isn't any different than in 2016-2018 when interest rates were also near zero and Fairfax traded much higher. The primary difference is just expectations - in 2016/2017 everyone expected rates to go higher and Fairfax to roll debt at higher rates (which mostly proved wrong after a very short period of rising rates).

 

So I don't think low interest rates is in itself an argument not to own them or value the company at book.

 

In 2017/2018, the outlook for Fairfax is as described below

1) Insurance was doing reasonably well - but not booming,

2) float growth was doing reasonably well, but not  accelerating

3) people thought interest rates were going sustainably higher, but ended up being wrong

4) equity performance expectations were a toss up.

 

With all of that, Fairfax traded at $400-600 USD over that time.

 

Now insurance IS booming, float growth IS accelerating, interest rates are still 0%, and equity performance is still a toss up - but could be better with valuations on many holdings being lower today than back in 2017.

 

I'm supposed to believe Fairfax deserves to trade 15-20% below the low-end of its range from 2016-2018 while being significantly better positioned?

 

Even if you're still in the camp of low interest rates hurting Fairfax after all of the above? $840 of float @ 2% in a 5% return to shareholders at today's prices without consideration for insurance profitability, float growth, or any positive returns to equity or associates. At $600 USD, you needed interest rates to cooperate. At $350 USD, who cares if they don't?

 

+1

 

+2!  Cheers!

[Parsad]

On thought that crossed my mind is that it could work out really bad for insurers if interest rates stay near zero while inflation picks up. The reason  for this is that higher inflation means that cost to settle insurance claims will pick up.

 

Since premiums are paid for future claims, it means that the underwriting ratio will develop unfavorably in this case, because there costs will outrun the premium increases for a couple of years possibly.

 

My guess is if this scenario plays out we will simply see the hard market last longer. Insurers have been seeing inflation happen already for years on the cost side (social inflation).

 

For non-life insurance companies the big question for 2021 is where does the current hard market go? Does it last all year and into 2022? What average rate increase do we see each quarter? Looks like Q4 2020 will see strong price increases with no end in sight.

 

Yes other pieces are important:

1.) where does covid reserving go from here?

2.)  how strong is the economic recovery?

3.) where do interest rates go?

4.) how bad is catastrophe season?

 

One other thing I would remind people regarding their concerns around low interest rates.  Prem and Hamblin-Watsa are one of the few insurance teams still around that saw, studied and completely understand how low interest rates affected Japanese insurers over the last 35 years.  They predicted the turmoil that Japanese insurers would face, and they also watched and studied how many insurers survived and thrived.  And they are also one of the few investment teams that expected low interest rates to eventually arrive on a global basis.  So if anyone has contemplated this scenario carefully, they are the ones.  It's also why they got some of the macro calls wrong, because with all of the government intervention since 2008 and again now, we keep prolonging the inevitable day of when consequences of these events actually arrive.  Cheers!

[no_free_lunch]

What did the Japanese companies do?  I am hopeful that they will offset low yield via focus on combined ratio, aka rational industry pricing.  From what I have read it's already starting to happen.

 

I just can't help thinking that while ffh is dirt cheap, so are other insurers.  Personally I am in elf, Brk and likely investing into mkl soon.

[Viking]

What did the Japanese companies do?  I am hopeful that they will offset low yield via focus on combined ratio, aka rational industry pricing.  From what I have read it's already starting to happen.

 

I just can't help thinking that while ffh is dirt cheap, so are other insurers.  Personally I am in elf, Brk and likely investing into mkl soon.

 

Here is RBC’s current thinking on non-life insurance companies:

1.) We are confident that rate increases in excess of loss cost trends will persist throughout 2021.

2.) We are confident that companies will experience accident year margin improvement in 2021.

3.) We think it’s highly unlikely that 2021 loss events will exceed 2020s Catastrophe/Covid-19 totals

4.) In light of all of the above, ROEs should improve in 2021, which should drive multiple expansion.

 

Mechanics of a hard market support our conviction

 

More and more managements are calling the current pricing environment a “hard market” which means that capacity suppliers have the upper hand in price setting and capacity remains constrained. We would say the last hard market ran from roughly the end of 2000 through late 2006 with the strongest part running from 2002-2004. Historically hard markets play out in three stages:

 

Initial phase: Rate increases begin to emerge. Margins are pressured by losses. Multiples start to reflect pricing cues. Typically lasts about 1 year. We see this as having occurred from 3Q19 to 3Q20.

 

Middle phase: Companies begin achieving “rate on rate” pricing increases. Initial increases begin to earn into margins. Accident year margins improve. Visibility to ROE improvement and earnings growth improves. Multiples begin to expand to reflect both top- line and bottom line growth. Historically this phase can be as short as one year and as long as three years (2002-2004 for example).

 

Late phase: Pricing power begins to abate, but it’s still favorable. Earnings growth begins to peak. Multiples remain firm but at an elevated level and become vulnerable to the cycle fading. This normally lasts about one year.

 

We believe P&C insurers are near the end of the initial phase and moving into the middle phase. This is historically the best time to own the group.

 

[Spekulatius]

What did the Japanese companies do?  I am hopeful that they will offset low yield via focus on combined ratio, aka rational industry pricing.  From what I have read it's already starting to happen.

 

I just can't help thinking that while ffh is dirt cheap, so are other insurers.  Personally I am in elf, Brk and likely investing into mkl soon.

 

I don’t think there are a lot of Japanese financials that are thriving , they seem more like the zombies in Walking Dead that keep moving.

[Viking]

Fairfax has had a very eventful 2020. Below is a Top 15 list of events driving value for shareholders this year. What is missing?

 

Some events were driven by Fairfax (corporate/subs) and some were driven by management teams in the stock/equities held. I would characterize 2020 as a ‘holding pattern’ kind of year given all the disruption caused by covid and its impact on Fairfax, insurance subs and equity investments. Looking at both 2019 and 2020 there is lots going on under the hood at Fairfax. I continue to believe the Fairfax 'super tanker' is slowly turning to the benefit of shareholders.

__________________________

For additional perspective: Top 10 Events Driving Shareholder Value in 2019

- https://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax2019/msg391471/#msg391471

————————————

FFH stock price: Dec 31, 2019 US $469; Dec 28, 2020 = $336; -28%

BV: Dec 31, 2019 = US $486; Sept 30, 2020 = $442

Dividend = $10 (Jan 2020).

 

1.) Covid

- hit to BV of $54/share in Q1 - primarily due to unrealized losses in investment portfolio (lots of cyclical companies)

- resulted in losses at insurance subs, lead by Brit, of $535.6 million through Q3

 

2.) Insurance - hard market confirmed

- net premiums written up 12.7% in Q3, 2020

- expected to continue strong growth in 2021

 

3.) Sale of Riverstone UK

- sale providing much needed cash in 2 transactions

- 40% sold - closed March 31; proceeds of US$599.5

- remaining 60% - to CVC Strategic Opportunities Fund II (will close early 2021) for approximately US$750 million at closing + up to US$235.7 million post-closing under a contingent value instrument.

- https://www.globenewswire.com/news-release/2020/12/02/2138249/0/en/Fairfax-Announces-Sale-of-RiverStone-Europe-to-CVC.html

 

4.) Common Stock and Equity Index Short Positions

- Q3 net realized loss = $168 million

- First 9 months realized loss = $391 million

- Biggest negative for the year (under Fairfax control)

 

5.) Increase in total debt

- April 24: additional $650 million at 4.625%

 

6.) Fixing Mistakes

- APR sale to Atlas closed Feb 2020 - Atlas issued approximately 29.9 million ATCO shares to APR sellers as equity consideration, at a deemed value of $11.10 per share.

- Fairfax Africa / Helios - Helios will acquire a 45.9% voting and equity interest in Fairfax Africa in exchange for contributing its entitlement to cash flows from certain fee streams and being appointed sole investment advisor to Fairfax Africa. Fairfax recorded a non-cash net loss on investments of $164 million in consolidated statement of earnings.

 

7.) opportunistic Bond Purchases during pandemic

- from Q1 report: US corporate bonds - $2.9 billion; avg maturity of 4 years; int rate of 4.25%; avg maturity of 4 years; interest income of $123 million/yr

 

8.) Blackberry - new convertible debentures - September

- Fairfax redeemed $500 million 3.75%

- Fairfax subscribed $330 million 1.75%; $6 conversion (55 million shares)

 

9.) Digit (India) continues strong growth (30% versus flat for overall insurance market) and expects to reach break even by end of year

- https://m.dailyhunt.in/news/india/english/money+control+english-epaper-mconten/insurance+startup+digit+set+to+break+even+by+the+end+of+this+year-newsid-n231552142

 

10.) Buying out minority partners

- Brit - 9.4% - Aug for $220 million - now owned 100% by Fairfax

 

11.) Positioning Non Insurance Companies to Succeed

- Dexterra - reverse acquisition of Horizon North Logistics - closed in March https://www.newswire.ca/news-releases/horizon-north-and-dexterra-sign-definitive-agreement-to-create-leading-canadian-support-services-company-898386935.html

- Easton Baseball sold to Rawlings (Seidler Equity Partners) - Existing shareholders of Peak Achievement Athletics Inc., the parent of Easton, will continue to participate as minority owners in the combined organization. https://www.prnewswire.com/news-releases/rawlings-enters-into-definitive-agreement-to-acquire-easton-diamond-sports-301156058.html

 

12.) Monetizations

- Davos Brands - Sept 30 - for cash proceeds of $58.6 and recorded a net realized gain of $19.3

- Vault insurance - announced Nov - close Q1, 2021 - Allied World sells controlling position; retains 10% ownership https://www.insurancejournal.com/news/national/2020/11/18/591092.htm

 

13.) Seeding New Insurance Ventures

- Ki Insurance (Brit) - announced in May 2020; open for business Jan 1, 2021. Ki will aim to significantly reduce the amount of time taken for brokers to place their follow capacity. Ki’s algorithm, developed with support from University College London, will evaluate Lloyd’s policies and automatically quote for business through an always available digital platform, built by Google Cloud and accessed directly by brokers. Ki has raised US$500m of committed capital from two backers: Blackstone and Fairfax. https://www.britinsurance.com/news/ki-platform-goes-live-with-partner-brokers

 

14.) Insider Stock Purchases

- Prem: $149 million in June at $310/share. https://www.fairfax.ca/news/press-releases/press-release-details/2020/Prem-Watsa-Acquires-Additional-Shares-of-Fairfax/default.aspx

- Others at Fairfax: https://www.canadianinsider.com/company?ticker=ffh

 

15.) Stelco (Fairfax owns 13 million shares; cost CAN$20.27)

- Amazing year; stock price: jan 1 was CAN$10.91. In March the stock went to $3.24 per share. Dec 28 the stock closed at $22.11 per share. 

- Most importantly the company is positioned very well looking ahead to 2021 and what looks like a bull market for steel pricing; investment phase in the business is ending and Stelco is focussed on maximizing free cash flow generation and rewarding shareholders.

 

Personnel Changes

- Feb: Paul Rivett (President of Fairfax) retires

- Nov: Scott Carmilani (former CEO of Allied) resigns to run Vault

- Q2 former CEO of APR left (under Atlas umbrella). June Brian Rich appointed as new President and COO.

[Cardboard]

16.) A shitty stock price? Barely dragging itself out from March bottom?

 

Cardboard

[Gregmal]

If you can buy a dollar for 60 cents in perpetuity....is it really a dollar you're buying?

[Parsad]

16.) A shitty stock price? Barely dragging itself out from March bottom?

 

Cardboard

 

If you can buy a dollar for 60 cents in perpetuity....is it really a dollar you're buying?

 

Two wonderful contrary indicators that Fairfax's stock price will do well in 2021 and 2022!  Mark my words.  Cheers!

[Viking]

16.) A shitty stock price? Barely dragging itself out from March bottom?

 

Cardboard

 

If you can buy a dollar for 60 cents in perpetuity....is it really a dollar you're buying?

 

Two wonderful contrary indicators that Fairfax's stock price will do well in 2021 and 2022!  Mark my words.  Cheers!

 

Fairfax’s future earnings power is higher today than it was 12 months ago. Yet its shares are trading down 28% from a year ago. Fairfax has numerous tailwinds as we enter 2021.

 

1.) insurance businesses are in a hard market. Currently we are seeing solid net premiums written and top line growth. This should soon start feeding into stronger earnings.

2.) shares trading at US$336 are undervaluing equity investments. Q4 has seen a significant increase in value of equity investments. This should result in strong earnings in Q4. As the economic recovery takes hold Fairfax’s equity investments have lots more upside.

 

With shares trading at US$336 the risk/reward looks pretty compelling to me :-)

 

- when will Mr Market start buying shares? Not sure. But my guess is we should start to see improving earnings and growth in BV when Q4 results come out and that should help.

- has Fairfax been a terrible buy and hold investment for the past 10 years? Absolutely. Over the years Fairfax has made a few posters a crazy amount of money (Fairfax was the reason i was able to quit my day job more than a decade ago :-)

[bearprowler6]

16.) A shitty stock price? Barely dragging itself out from March bottom?

 

Cardboard

 

If you can buy a dollar for 60 cents in perpetuity....is it really a dollar you're buying?

 

Two wonderful contrary indicators that Fairfax's stock price will do well in 2021 and 2022!  Mark my words.  Cheers!

 

Fairfax’s future earnings power is higher today than it was 12 months ago. Yet its shares are trading down 28% from a year ago. Fairfax has numerous tailwinds as we enter 2021.

 

1.) insurance businesses are in a hard market. Currently we are seeing solid net premiums written and top line growth. This should soon start feeding into stronger earnings.

2.) shares trading at US$336 are undervaluing equity investments. Q4 has seen a significant increase in value of equity investments. This should result in strong earnings in Q4. As the economic recovery takes hold Fairfax’s equity investments have lots more upside.

 

With shares trading at US$336 the risk/reward looks pretty compelling to me :-)

 

- when will Mr Market start buying shares? Not sure. But my guess is we should start to see improving earnings and growth in BV when Q4 results come out and that should help.

- has Fairfax been a terrible buy and hold investment for the past 10 years? Absolutely. Over the years Fairfax has made a few posters a crazy amount of money (Fairfax was the reason i was able to quit my day job more than a decade ago :-)

 

Viking....thanks for preparing the excellent summary of the business activity during the last year or so at Fairfax.

 

Point 5 of your summary notes the debt issue of $650 million at 4.625% which took place in April 2020.

 

I think you should also include the remaining amount outstanding on the line of credit which at the end of the third quarter was $700 million under this point as the company will also need to generate free cash flow to repay this amount.

 

 

[Cardboard]

Managed to pull it off... LMAO

 

Even ELF cannot do as poorly and it is highly illiquid.

 

http://www.stockwatch.com/News/Item?bid=Z-C:FFH-3010875&symbol=FFH&region=C

 

Cardboard

[widenthemoat]

Managed to pull it off... LMAO

 

Even ELF cannot do as poorly and it is highly illiquid.

 

http://www.stockwatch.com/News/Item?bid=Z-C:FFH-3010875&symbol=FFH&region=C

 

Cardboard

 

Isn't this a good thing? Share price down significantly and business is performing well? Are you confusing share price with business performance? Seems like an opportunity more than anything if you're a real investor and not a trader.

 

Note: No position and don't know the business in detail, just making an observation.

[Gregmal]

Managed to pull it off... LMAO

 

Even ELF cannot do as poorly and it is highly illiquid.

 

http://www.stockwatch.com/News/Item?bid=Z-C:FFH-3010875&symbol=FFH&region=C

 

Cardboard

 

Isn't this a good thing? Share price down significantly and business is performing well? Are you confusing share price with business performance? Seems like an opportunity more than anything if you're a real investor and not a trader.

 

Note: No position and don't know the business in detail, just making an observation.

 

Not directed at you personally, but this is the type of Buffett/value investor rhetoric that leads otherwise rational investors into the abyss. The market is and has been on fire for a decade. If your investment is working, you are making money. The only * would perhaps be some kind of smaller cap, special situation type of investment. Fairfax is not "under the radar" and its certainly not buried under a rock somewhere that most investors dont know of....Its like looking at WFC and being like "oh price is what you pay and value is what you get", when realistically I just look at JPM or BAC and go "makes sense"...

[Viking]

Managed to pull it off... LMAO

 

Even ELF cannot do as poorly and it is highly illiquid.

 

http://www.stockwatch.com/News/Item?bid=Z-C:FFH-3010875&symbol=FFH&region=C

 

Cardboard

 

Isn't this a good thing? Share price down significantly and business is performing well? Are you confusing share price with business performance? Seems like an opportunity more than anything if you're a real investor and not a trader.

 

Note: No position and don't know the business in detail, just making an observation.

 

Not directed at you personally, but this is the type of Buffett/value investor rhetoric that leads otherwise rational investors into the abyss. The market is and has been on fire for a decade. If your investment is working, you are making money. The only * would perhaps be some kind of smaller cap, special situation type of investment. Fairfax is not "under the radar" and its certainly not buried under a rock somewhere that most investors dont know of....Its like looking at WFC and being like "oh price is what you pay and value is what you get", when realistically I just look at JPM or BAC and go "makes sense"...

 

I understand the concept of a ‘value trap’ (stock looks cheap and stays cheap for a decade or more). I don’t see Fairfax as a ‘value trap’ today. I see a number of near term (2021) catalysts that will increase earnings and BV growth in 2021. These rarely happen at the same time. With a historically low share price.

1.) likely $10 dividend (paid in one instalment) in January

2.) Q4 results will be strong, and could be very strong (solid underwriting combined with large gains on investment portfolio) - my guess is $10 to $20/share

3.)  insurance hard market is happening

4.) global recovery will lift valuation of investment portfolio further (Q4 is a start)

5.) US$ weakness will result in currency gains on substantial international holdings

6.) global recovery will support continued monetization of equity holdings

7.) management is highly motivated to buy back stock

8.) sentiment in stock is at all time low

 

As Fairfax executes 2021 should see improving earnings and solid BV growth. As this happens i expect the stock will increase in price. This should also help improve sentiment in the stock.

 

Of course, as with any investment, there are risks. My bullishness with Fairfax is built on 3 key pillars. If my assessment of these three pillars changes then i will likely change my view of Fairfax as an investment :-)

1.) we are in early innings of hard market in insurance

2.) vaccines will enable global economic activity to normalize in 2H 2021 - so i am expecting a strong economic rebound in 2H 2021

3.) Fairfax corporate does not do anything stupid and management of large Fairfax investments (like Atlas) do not do anything stupid

 

[no_free_lunch]

I remember that time where the Nasdaq didn't go any where for over 10 years and the most important thing was to determine how close peak oil was. Or you could have just invested in emerging markets in the same period.  I would be very careful about extrapolating the past decade out.

[Viking]

16.) A shitty stock price? Barely dragging itself out from March bottom?

 

Cardboard

 

If you can buy a dollar for 60 cents in perpetuity....is it really a dollar you're buying?

 

Two wonderful contrary indicators that Fairfax's stock price will do well in 2021 and 2022!  Mark my words.  Cheers!

 

Fairfax’s future earnings power is higher today than it was 12 months ago. Yet its shares are trading down 28% from a year ago. Fairfax has numerous tailwinds as we enter 2021.

 

1.) insurance businesses are in a hard market. Currently we are seeing solid net premiums written and top line growth. This should soon start feeding into stronger earnings.

2.) shares trading at US$336 are undervaluing equity investments. Q4 has seen a significant increase in value of equity investments. This should result in strong earnings in Q4. As the economic recovery takes hold Fairfax’s equity investments have lots more upside.

 

With shares trading at US$336 the risk/reward looks pretty compelling to me :-)

 

- when will Mr Market start buying shares? Not sure. But my guess is we should start to see improving earnings and growth in BV when Q4 results come out and that should help.

- has Fairfax been a terrible buy and hold investment for the past 10 years? Absolutely. Over the years Fairfax has made a few posters a crazy amount of money (Fairfax was the reason i was able to quit my day job more than a decade ago :-)

 

Viking....thanks for preparing the excellent summary of the business activity during the last year or so at Fairfax.

 

Point 5 of your summary notes the debt issue of $650 million at 4.625% which took place in April 2020.

 

I think you should also include the remaining amount outstanding on the line of credit which at the end of the third quarter was $700 million under this point as the company will also need to generate free cash flow to repay this amount.

 

Bearprowler6, that was a big miss on my part so thank you for comment.

 

The amount of debt Fairfax was forced to take on during 2020 is a big red flag. During 2020 they were simply unable to generate much in the way of cash which of course is a concern.

 

I am hopeful that starting in Q4 we see operating earnings start to improve (underwriting + interest and dividend income). In the 2H 2021 in a recovery scenario, we should see improvement in earnings from associates. In Q1 they will be getting $750 million from the Riverstone UK sale. And in a recovery scenario my guess is we will see more asset sales (where Fairfax is able to get an acceptable price). So i think 2021 will be better than 2020 for cash generation - and it could be much better.

[Xerxes]

Hope, you all fine folks are having a well deserved Christmas Holidays after this crazy year.

I know I have been.

 

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

Great summary Viking.

 

The bulls here are really playing the reversion back to the mean trade here, while bears are stung by FFH past historical bias.

And I am the only fool here who actually has a 2030 holding target. That said my share count size has increased 100% since March.

 

In a nutshell, i don't think it is rocket science, it comes to Arithmetic and math. A book value crushed due to mark-to-market accounting (that can be reversed) and write-off (that cannot be reversed) just means a higher torque on the ROE (i.e. double-digit) if you get the same pre-Covid earning power from the whole franchise, post covid. So, coming off a low base. That is all. If your earning power actually increases post-Covid even better.

 

Now, once Book value has gone up, naturally, the ROE will drop off dramatically, given the higher base, and it will be depend on by how much earning power increases going forward. If the vaccination does what it will need to do, the economy will rip, inflation will pick up, cyclical will power on (albeit could be a temporary boost) at the back end of next year.

 

Sometimes in late 2021, it may even be ok to make the comment that Covid-19 created the make-up-demand for cyclical just like it created a pull-in-demand for technology. With book value up in dollar terms in mid-2021, will the Covid-19-induced make-up-demand for cyclical help with a FFH re-rating. Did it really take a once in a hundred years pandemic to make Prem Watsa right !

 

Question remains on the bond portfolio, as we are in the first innings of a long term bear market in bonds. The first innings itself might take 5 years after a few false start (ie 2018 interest rate rise). That view kind of ties in with Prem' view since 2016 that interest rate will be marching upward over the long term (the pandemic delayed that). That is all fine and well, but what in the meantime. Perhaps, if he could throw $500 million into the Bitcoin frenzy to offset money supply expansion in the short term (3-5 years) ...

 

The last cult-stock that i know that was cratering before a big bounce was Tesla in 2018 ... now now, you wont get 10-fold here with FFH but at least reversion to the mean should be you low hanging fruit.

 

 

[SharperDingaan]

We have parked the bulk of our cash in FFH for the New Year/Jan 2021.

Simply because over the next 4-5 weeks both the annual dividend pays out, and Q4 2020 reports.

At current pricing, it is pretty hard to see how one does NOT walk away with less than a 7-10% gain on the round trip ;)

 

The bitcoin quip is actually a very smart thing to do.

Currently crypto is an investable (CME options and futures) asset class of just BTC, but per recent CME announcements, comes Feb-2021 Ethereum (smart contract token) derivatives will be traded on the CME as well. An enterprising lad, anticipating asset class rebalancing, could BOTH diversify their firm AND make a great deal of money for it.

 

..... now if they could do this by the end of January, that would be very useful!

 

SD

 

 

[TwoCitiesCapital]

Hope, you all fine folks are having a well deserved Christmas Holidays after this crazy year.

I know I have been.

 

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

Great summary Viking.

 

The bulls here are really playing the reversion back to the mean trade here, while bears are stung by FFH past historical bias.

And I am the only fool here who actually has a 2030 holding target. That said my share count size has increased 100% since March.

 

In a nutshell, i don't think it is rocket science, it comes to Arithmetic and math. A book value crushed due to mark-to-market accounting (that can be reversed) and write-off (that cannot be reversed) just means a higher torque on the ROE (i.e. double-digit) if you get the same pre-Covid earning power from the whole franchise, post covid. So, coming off a low base. That is all. If your earning power actually increases post-Covid even better.

 

Now, once Book value has gone up, naturally, the ROE will drop off dramatically, given the higher base, and it will be depend on by how much earning power increases going forward. If the vaccination does what it will need to do, the economy will rip, inflation will pick up, cyclical will power on (albeit could be a temporary boost) at the back end of next year.

 

Sometimes in late 2021, it may even be ok to make the comment that Covid-19 created the make-up-demand for cyclical just like it created a pull-in-demand for technology. With book value up in dollar terms in mid-2021, will the Covid-19-induced make-up-demand for cyclical help with a FFH re-rating. Did it really take a once in a hundred years pandemic to make Prem Watsa right !

 

Question remains on the bond portfolio, as we are in the first innings of a long term bear market in bonds. The first innings itself might take 5 years after a few false start (ie 2018 interest rate rise). That view kind of ties in with Prem' view since 2016 that interest rate will be marching upward over the long term (the pandemic delayed that). That is all fine and well, but what in the meantime. Perhaps, if he could throw $500 million into the Bitcoin frenzy to offset money supply expansion in the short term (3-5 years) ...

 

The last cult-stock that i know that was cratering before a big bounce was Tesla in 2018 ... now now, you wont get 10-fold here with FFH but at least reversion to the mean should be you low hanging fruit.

 

+1

 

It is just a matter of arithmetic. The bar is MUCH lower today for Fairfax to do well by shareholders. I've done the math in several prior posts - Fairfax simply needs a very small single-digit % return on investments and very low profitability on insurance going forward for shareholders to do very well from here - even with the obvious headwind of interest rates.

 

I'm not a "long-term Fairfax bull". I've owned it on and off over the past 9 years, but spent nearly 2 years out of the name in recent years when it was clear to me interest rates weren't going to rise and that it was going to be a very difficult hurdle for Fairfax to get much beyond $500-600/share USD. I no longer have those qualms at $350 with more favorable starting valuations on a large % of the book value.

[Cardboard]

Bought some more on this rebound this afternoon. Seems like this $429-430 bottom is holding up.

 

I suspect there is some correlation with SPY rebound and I am thinking that tax loss selling is abating being last day in Canada.

 

I also largely subscribe to TwoCitiesCapital rational.

 

What got me worried is that Prem is a religious Christian man and such words of intolerance stick to my mind or how can a man believing in that stuff be capable to manage a multiple billion $ company?

 

"Because you believe those stories or beliefs stand on a higher moral ground...that the majority of people don't want to stand on with you, because they think your beliefs are archaic and misogynistic."

 

Cardboard

[bizaro86]

We have parked the bulk of our cash in FFH for the New Year/Jan 2021.

Simply because over the next 4-5 weeks both the annual dividend pays out, and Q4 2020 reports.

At current pricing, it is pretty hard to see how one does NOT walk away with less than a 7-10% gain on the round trip ;)

 

The bitcoin quip is actually a very smart thing to do.

Currently crypto is an investable (CME options and futures) asset class of just BTC, but per recent CME announcements, comes Feb-2021 Ethereum (smart contract token) derivatives will be traded on the CME as well. An enterprising lad, anticipating asset class rebalancing, could BOTH diversify their firm AND make a great deal of money for it.

 

..... now if they could do this by the end of January, that would be very useful!

 

SD

 

 

I really like this trade idea, and considered it extensively. I think the most likely case is that it returns 10% in the next 30-40 days.

 

I don't have it on, largely because of the potential for their undisclosed short position to be Tesla. Tesla is up 50% this quarter. If they have hundreds of millions of losses on a short in their Q4 report I think there could be meaningful downside for FFH.

[SharperDingaan]

Just to throw some numbers out.  Close at 427.75, USD 10 div, 0.78 FX Rate.

As the CAD equivalent div is CAD 12.82, a 10% return only requires a gain of CAD 29.88 (6.4%).

Sell on Q4 2020 mystery - and 6.4% really shouldn't be a problem.

 

SD

 

 

[Parsad]

Bought some more on this rebound this afternoon. Seems like this $429-430 bottom is holding up.

 

I suspect there is some correlation with SPY rebound and I am thinking that tax loss selling is abating being last day in Canada.

 

I also largely subscribe to TwoCitiesCapital rational.

 

What got me worried is that Prem is a religious Christian man and such words of intolerance stick to my mind or how can a man believing in that stuff be capable to manage a multiple billion $ company?

 

"Because you believe those stories or beliefs stand on a higher moral ground...that the majority of people don't want to stand on with you, because they think your beliefs are archaic and misogynistic."

 

Cardboard

 

If you are going to use the quote Cardboard, use the whole thing so people understand the context:

 

I don't think LC, nor I have any problem with your belief in God.  What we have disbelief in is why that belief in God is based on stories written by men who didn't even know what a virus was, let alone had the ability to communicate broad distances like we do today, but somehow spoke directly to the creator of the universe!

 

The second part we have a problem with is that you take those stories written hundreds, if not thousands of years ago, to heart and revolve not only your beliefs around them, but want to extend them upon other people.  Why?  Because you believe those stories or beliefs stand on a higher moral ground...that the majority of people don't want to stand on with you, because they think your beliefs are archaic and misogynistic.  Cheers!

 

Prem isn't running around making an asshole of himself telling liberals what retards they are, how they are turning Canada into a shit-hole or espousing other rhetoric.  His faith is for him...not the rest of the world.

 

Second, I've warned you so many times about bringing politics to boards outside of the Politics board.  I've tried to be as fair as possible, even when I got more complaints about you than any other poster in the history of COBF...and most of those complaints came only in the last two years...but I can't justify giving you so many opportunities when you keep moving the topic off subject and onto political issues in non-political threads.  Good bye!  Cheers!