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anyone (else) buying more FFH here??


Kiltacular
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Great minds must think alike. I did re-establish a position in FFH a few minutes ago (8%).

 

Insurers are trading at low multiples to book as everyone is expecting underwriting in 2010 to be challenging and interest & div income to be flat at best = poor operating earnings (compared to PY). Most analysts do not look at investment gains, although it appears to me the easy money has been made.

 

FFH at current price is cheap (about 0.9xBV) but not crazy cheap. As well, given all the activity in Q4 (ORH closing etc) it really is quite difficult to peg BV.

 

FFH was trading as low as US$210 last year. Since that time it added $105 in shareholders equity (incl my estimate for Q4). That gives me a price of US$315, which is not much below $336 (where it was trading today). Just another way of looking at valuation and margin of safety.

 

Should it continue to fall in price then I will be happy to continue to add. It will be interesting to see what changes they have made to the portfolio when they report Q4 results. Should markets continue to go sideways I expect FFH to do OK. Should markets continue higher and risk spreads continue to narrow then FFH will do quite well. Should markets sell off and risk spreads widen FFH will not do so well (BV will decline) but I am sitting in so much cash this will not be so bad.

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I've been looking to find a re-entry point however I'm cognisant that "marked to market" accounting works both ways. If the market was to pull back some, book value may fall due to being marked to market and your discount to book may not look so attractive upon reflection.

 

It's a reasonable price long term, but I'm selfishly hoping for better pricing!

 

<IV

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Ive been mulling it over but i dont want to get into the position where im stretching myself.

 

The only thing i can think about this recent downturn in price is some lines of thinking about the possibility of a heated economy with interest rates rising, bonds declining ->Insurance market heavily weighted in bonds - rising or lowering tides.

 

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I won't buy more unless I can average down. I bough some at 365 CAD before the dividend announcement so now my minimum purchase price is 365$-10$=350$. I will reevaluate my target on feb 19th!

 

It's good because I have got my eye on 3 companies (including FFH) to buy right now and they are all getting close to my target. For me that's very exciting because my pipeline is usually empty most of the time.

 

BeerBaron

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It's good because I have got my eye on 3 companies (including FFH) to buy right now and they are all getting close to my target. For me that's very exciting because my pipeline is usually empty most of the time.

 

BeerBaron

 

Care to share the other 2?

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It's good because I have got my eye on 3 companies (including FFH) to buy right now and they are all getting close to my target. For me that's very exciting because my pipeline is usually empty most of the time.

 

BeerBaron

 

Care to share the other 2?

 

Yes, as soon as I have bough what I need. It's 2 small caps.

 

BeerBaron

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I respect his choice.  There is a huge amount of capital available amongst board members here.  

 

I generally dont disclose anything until I have bought all I want, not that my ideas are particularly original.  

 

I'll second that - in fact I've noticed price jumps from time to time in small caps after being mentioned here - might be coincidence, might not.  It's his homework, he doesn't have to let us copy it!

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I respect his choice.  There is a huge amount of capital available amongst board members here.  

 

I generally dont disclose anything until I have bought all I want, not that my ideas are particularly original.  

 

I'll second that - in fact I've noticed price jumps from time to time in small caps after being mentioned here - might be coincidence, might not.  It's his homework, he doesn't have to let us copy it!

 

 

Plus, when a co is buying back shares,  it doesn't pay to tout it if you intend to hold it long term.

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I have added here but only marginaly. On another note has anyone noticed that with the elimination of the US listing the volatilility has appeared to decline. The liquidity has dropped by over 50% yet the volatility has declined as well ,all of the liquidity added to the mkts is supposed to reduce volatilty yet at least in FFH''s example it has in fact had just the opposite effect. I am starting to form an opinion that the black box traders option market makers short sellers etc are having the exact opposite impacts on prices that proponents of said strategies claim.

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I have added here but only marginaly. On another note has anyone noticed that with the elimination of the US listing the volatilility has appeared to decline. The liquidity has dropped by over 50% yet the volatility has declined as well ,all of the liquidity added to the mkts is supposed to reduce volatilty yet at least in FFH''s example it has in fact had just the opposite effect. I am starting to form an opinion that the black box traders option market makers short sellers etc are having the exact opposite impacts on prices that proponents of said strategies claim.

 

 

Good observation.  I think this is often the case, especially in recent years and on exchanges where short sellers and program traders are active and always trying to beat the gun.  Are there objective studies on this effect?

 

Regarding higher or lower multiples of price:  I think there are a number of studies showing that greater liquidity generally is associated with higher prices.  The most amazing example of this has been IDT where the less liquid class of shares has generally traded at a significant discount to the other class -- even though  the less liquid class has superior voting rights!

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The effect of liquidity on price was the impetus for changing our allocation between FFH and BRK late last year.  FFH's move to TSX meant less liquidity and potentially lower price; BRK's split and almost certain addition to the S&P500 meant the opposite -- plus we get the forced buying by all the funds that now must own BRK.  Therefore, we shifted our allocation  from 80% FFH, compared to BRK to a very large overweight of BRK, relative to FFH.  Both are still great cos, and with

the recent trend, FFH becomes an increasingly compelling bargain for such a great co with great owner operator leadership, the main thing we look for in long term holds.  :)

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I am not a money manager, so I don't have some of the issues as others.

 

IMO - Fairfax is the better buy (as compared to BRK) in here.  Bigger upside IMO.

 

I like BRK B's under $70 though.  Burlington or no Burlington, BRK is going to be a cash cow for years.  It is just tough to move the needle with BRK, too tough for many people to value.

 

I love BRk when it gets hit by outside events - economy crashes, foundation is selling, Warren gets sick, etc...

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It's good because I have got my eye on 3 companies (including FFH) to buy right now and they are all getting close to my target. For me that's very exciting because my pipeline is usually empty most of the time.

 

BeerBaron

 

Care to share the other 2?

 

Yes, as soon as I have bough what I need. It's 2 small caps.

BeerBaron

 

DCG, I'm done stacking up on one of the twos. I was buying  EasyHome, it's a canadian stock that leases to home consumers.

 

Here my thesis:

 

Great cash flow machine

 

Their collection losses have increased from about 2.3% of sales to 4.5% of sales in the third quarter + restructuring charges. Which pushed the stock price down a lot. However, the current management did a complete turnaround of the business in 2001 (and it was suffering from the same problems) and they clearly know how to repeat the same process. In the last conference call they claim to be able to reach 3-3.5% in Q4 and I believe they can. (Rent-ACenter and AAron seem to be able to maintain about 3% in todays conditions).

 

It was a 10%-15% grower, good balance sheet. Still has room for 25% more stores in Canada. Can buy under BV.

 

They intend to deploy their new capital into easyFinancials, which is a high return on investment business. They were really prudent with easyFinancials, it took them 3 years to fine tune their recipe.

 

I estimate 1.5M to 2M profit in Q4.

Nice share buyback as a bonus.

#1 Consumer lease business in Canada by far.

 

Hopefully I will be able to share my second idea soon with this board as well.

 

BeerBaron

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I made my last purchases recently between $339 and $350, although I fully expect to see downward price movement on the heels of mark to market fixed income and equity losses. If there is one thing I learned from the recession, if you think you can make 15%+ over time, don't worry yourself about whether you can make 30% in the future.

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"I made my last purchases recently between $339 and $350, although I fully expect to see downward price movement on the heels of mark to market fixed income and equity losses. If there is one thing I learned from the recession, if you think you can make 15%+ over time, don't worry yourself about whether you can make 30% in the future."

 

I would speculate that Fairfax has made big fixed income gains in the the JAN...FEb start to the year. I would speculate they entered the long bond again through US traesuries as their thinking is similiar to that of Hosington....But I agree the wiggles are meaningless.

 

Dazel.

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I have been mostly selling to right size my position.  I have probably been selling to some of you.  I had to get rid of the shares I converted this year.  

 

I also figure that Fairfax will do its annual swan dive shortly.  If it doesn't I still hold a huge number of options and shares (40% of my total holdings).

 

Probably the forward driver on the stock from here on is going to be the interest and dividend income.  If they have maintained and increased this line on the income statement then things should bode very, very well.  

 

The great thing about FFH is that you can take their 15% y/y and increase it to 25 or 30% by buying at strategic points when the stock comes off.

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"I made my last purchases recently between $339 and $350, although I fully expect to see downward price movement on the heels of mark to market fixed income and equity losses. If there is one thing I learned from the recession, if you think you can make 15%+ over time, don't worry yourself about whether you can make 30% in the future."

 

I would speculate that Fairfax has made big fixed income gains in the the JAN...FEb start to the year. I would speculate they entered the long bond again through US traesuries as their thinking is similiar to that of Hosington....But I agree the wiggles are meaningless.

 

Dazel.

 

Ah, sorry for the confusion. I meant future losses as interest rates rise and/or state and local governments begin to selectively default.

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BNI is a done deal, just looks that way from the stock price action. When you say FFH is a better buy than BRK, what time frame are you looking at? Please note that BRK's businesses are very depressed at the moment as are the stock holdings just like FFH.

 

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