Fairfax 2021

[ERICOPOLY]

Tech company making yesterday's buggywhip gets into distress.  Has no hot product to replace it.  Buy that company?

[matthew2129]

6 minutes ago, Xerxes said:

 

On a different note, is it possible that i am the only who is excited to hear what they did with BB and if not why not. I always believed that little bit about not being able to transact for 6 months back in January was more of a good excuse, on a name that they did not want to monetize to begin with. Just my read and perception.  

 

Don't they have had to file within 5 BDs if they sold anything? Meaning we're still stuck with this P.O.S

[matthew2129]

4 minutes ago, ERICOPOLY said:

Tech company making yesterday's buggywhip gets into distress.  Has no hot product to replace it.  Buy that company?

They bought at a great p/b ratio! 

 

/s

[Gregmal]

14 minutes ago, ERICOPOLY said:

In the 2011 Annual Report Prem wrote the following:

 

"We have a mini-tech bubble in progress similar to the one we witnessed in 1999/2000, as shown in the table below:"

 

Among those companies cited as his evidence: 

Facebook at $75 billion.

Zillow at $500 million. 

LinkedIn at $7 billion.

 

His research apparently amounted to just looking at P/E ratios.  That appears to be it.  

 

And he bought BlackBerry why?

Ding, ding, ding. 

 

Everyone keeps looking at whats going right, and theres a good amount of that. But thats not your relevant yo-yo activating input here. What will ultimately cause FFH to rerate? Personally, I think theres enough evidence on the table to say that its not:

1) insurance making boatloads of money

2) equity portfolio doing well

3) "value" investments returning to glory

4) rate changes

 

Its still Prem. And nothing to me further demonstrates that nothing has changed there than the handling of Blackberry. Still cant admit he's wrong. Still cant/won't monetize an easy gift from the market. Still wants to do it his way. And thats all you need to continue to see a massive cloud over this. 

[ERICOPOLY]

And today, I look up BB stock, and for P/E ratio it says N/A.

 

But that's okay... Prem makes an exception for stocks that HE believes will grow future earnings.  It's okay if he thinks so himself.  That's fine, that's still value investing.

 

 

So Prem today has this large BB equity holding making no profit at all, and meanwhile he claims that Microsoft is so richly valued at 40x.  

 

Well, put that 40x in context.  Prem studied Japan and their low interest rate environment following their real estate collapse.  Their stock market regularly had a PE of like 24 or something for years on end.

 

How does MSFT's 40x stack up against 24x?  Well, look at the rate of earnings growth of MSFT versus that of Japan.

 

[ERICOPOLY]

I watched Full Metal Jacket too many times back in high school.  Animal Mother:  "You talk the talk.  Do you walk the walk?"

[Xerxes]

40 minutes ago, ERICOPOLY said:

Wasn't future innovation the entire thesis?

 

 

I had a look at few article from 2013, (i.e. in 2 years it will be decade), the language and the tone was always about saving the "beleaguered Canadian entity". 

 

CPPIB has the right view, I think. A strategic investor was needed more so than financial one.

 

It's a tough sell. Speaking at a conference Monday, André Bourbonnais, senior vice-president of the Canada Pension Plan Investment Board's private-equity unit, said his pension fund would as a matter of course examine any possible bid. But he said he that for any deal to succeed, it needed to include a "strategic" player, such as another technology firm, to help turn BlackBerry around. "My view is it needs the right kind of investor," he said.

Fairfax hands BlackBerry $4.7-billion lifeline - The Globe and Mail

 

All these are water under the bridge now.

 

The question is at the moment, what incremental value does holding 10% of BB has (as oppose to use those resources to buyback your own share - a company you know well for instance). Could there be a bid/play from a large FANG name and is that what FFH holding it for. These things take time, but if there are discussion that the public is unaware of, that could be a reason why FFH didn't dispose of it during the Reddit Madness.

 

 

 

 

[DooDiligence]

If he would've sold BB into the WSB mania,

I would've held on but...

 

...where's that confounded bridge?

[ERICOPOLY]

I just can't read year after year of annual letters bloviating about tech stocks with high PEs while he treats BB as his darling.

 

 

[rkbabang]

6 minutes ago, ERICOPOLY said:

I just can't read year after year of annual letters bloviating about tech stocks with high PEs while he treats BB as his darling.

 

 

I said at the time on this board and still maintain that his buying BB was simply because it was a local company ran by people he liked and hired a lot from a college he liked and had nothing to do whatsoever with any fiduciary duty to make a wise investment with his company's capital.  There is simply no cogent reason for FFH to have ever purchased BB.  This was the reason I sold all of my FFH and have not owned it for years until now.  I think it is undervalued today, but I still will have a hard time holding it for the long term.  When Buffett makes an investment mistake or invests in something for the wrong reasons he is quick to admit it, take ownership of it, and explain what he learned from his mistake.  Not double down and let it go on for a decade without ever admitting he was wrong and invested for entirely the wrong reasons.

 

[DooDiligence]

I'd rather risk holding BRK & maybe overpaying for a basket of ADSK + ROP + SFTBY + TYL than paying to see if a leopard might change it's spots.

[ERICOPOLY]

So... which single short position cost them $500 million last year?

 

Was it Tesla?

[Gregmal]

As Ive said to a lot of folks, one of the more amazing things to me is that Prem Watsa still has the reputation he does. Media in Canada is obviously much different than in the US, although as we ve seen with Gates and Bezos...they too can be crafted. But generally speaking, if FFH was based in Virginia, or Alabama, or California..rather than Canada...man, IDK...it definitely doesnt have half the ardent defenders/loyalists it currently does, probably trades at .6x book, and is regarded as basically the company that cant do anything right. 

 

In regards to the outlook now, a recurring theme was "well if you bought March 2020(or insert big decline) then"....

Except thats bullshit. I am all for a big trade. But as an investment, when all you have to hang your hat on is "well if you bought the bottom after everyone got TOO pessimistic"...thats not a good investment at all. A good INVESTMENT, shouldn't be reliant on getting the timing right because the business should be good enough to consistently create enough value to reward you.

 

Folks need to start being honest with themselves here in regards to all the above.

[ERICOPOLY]

Prem makes this comment in the 2012 Annual Letter:

 

"I have attended the Berkshire Hathaway shareholders’ meeting since there were only 200 shareholders in attendance about 30 years ago. I still find I learn something each year from Warren and Charlie."

 

Really?  It sure doesn't look like it.

 

Edited July 28, 2021 by ERICOPOLY

[ERICOPOLY]

Everything, and I mean everything that has gone wrong since 2011 is because of NOT doing what Warren and Charlie say.

 

[TwoCitiesCapital]

4 hours ago, rkbabang said:

I said at the time on this board and still maintain that his buying BB was simply because it was a local company ran by people he liked and hired a lot from a college he liked and had nothing to do whatsoever with any fiduciary duty to make a wise investment with his company's capital.  There is simply no cogent reason for FFH to have ever purchased BB.  This was the reason I sold all of my FFH and have not owned it for years until now.  I think it is undervalued today, but I still will have a hard time holding it for the long term.  When Buffett makes an investment mistake or invests in something for the wrong reasons he is quick to admit it, take ownership of it, and explain what he learned from his mistake.  Not double down and let it go on for a decade without ever admitting he was wrong and invested for entirely the wrong reasons.

 

 

I mean, I get your point and don't disagree that Buffett may be better at it, but this is pretty close to what he did with holding Coke back in its heyday at a 40x PE. He got to collect the dividends, but the price was flat-to-down for the 15-years that followed and he held it. 

 

I think BB was a mistake. Admitted as much myself and sold my position after BB10 was a flop. But I think the convertibles were brilliant and the recent roll of them even more so. IF we make money on this trade after all of this time, it will only be because of those convertible bonds. 

 

Now, were those convertible bonds better than the alternatives? I don't know. I have no clue what Prem would have done with the money otherwise. 

 

[Gregmal]

1 minute ago, TwoCitiesCapital said:

 

Now, were those convertible bonds better than the alternatives? I don't know. I have no clue what Prem would have done with the money otherwise. 

 

If it made money, count your blessing and be glad he didnt put it elsewhere!

[TwoCitiesCapital]

30 minutes ago, Gregmal said:

If it made money, count your blessing and be glad he didnt put it elsewhere!

 

LOL!I mean don't get me wrong. There's been plenty of dogs over the years. There's also been plenty of home-runs. We spend way more time focusing on the dogs here which is the only reason I brought up the converts as being brilliant. 

 

I view Prem similarly to Bill Ackman - each one is swinging for home runs instead of base hits. Ackman had a multi-year stretch (2012 - 2016 ish) where multiple large and public bets failed to work out (JC Penney, Herbalife, and Valeant). But in late 2016 he hit his stride, basically called the bottom on Chipotle and has been hitting home runs since. 

 

The results are a little less clear with Prem, but it seems to me that a year or two ago, we began moving more towards home runs (Digit, Stelco, insurance subs, Atlas, BB converts re-strike) and away from strike outs (short-TRS 'hedges', Blackberry, Resolute, etc.). Maybe I'm wrong, but I anticipate we'll be back to 1.2 - 1.3x book value within 2 years and that the book value will be relatively elevated from what it is today. I'm here for that expected ~50%+ swing on top of the the ~40% i've already captured. 

 

[Gregmal]

17 minutes ago, TwoCitiesCapital said:

 

LOL!I mean don't get me wrong. There's been plenty of dogs over the years. There's also been plenty of home-runs. We spend way more time focusing on the dogs here which is the only reason I brought up the converts as being brilliant. 

 

I view Prem similarly to Bill Ackman - each one is swinging for home runs instead of base hits. Ackman had a multi-year stretch (2012 - 2016 ish) where multiple large and public bets failed to work out (JC Penney, Herbalife, and Valeant). But in late 2016 he hit his stride, basically called the bottom on Chipotle and has been hitting home runs since. 

 

The results are a little less clear with Prem, but it seems to me that a year or two ago, we began moving more towards home runs (Digit, Stelco, insurance subs, Atlas, BB converts re-strike) and away from strike outs (short-TRS 'hedges', Blackberry, Resolute, etc.). Maybe I'm wrong, but I anticipate we'll be back to 1.2 - 1.3x book value within 2 years and that the book value will be relatively elevated from what it is today. I'm here for that expected ~50%+ swing on top of the the ~40% i've already captured. 

 

Eh, Ackman, with the exception of JCP, almost exclusively buys good if not great businesses. Target was a great business just bad timing. Valiant was brilliant(the fraud part was tertiary and really it was the political unravelling of the Pharma business model that did it in) and HLF in a similar note was shorting a shit business. Watsa DOES NOT generally buy great, or even good businesses. 

 

And as I said somewhere else, any idiot who's put a few bucks to work in the markets the past decade has had some home runs. Its been the greatest bull market ever. Saying that is dismissing the issue, and additionally, when you make a home run bet(I say bet because IMO Prem does not invest) hedging it off so that any upside is washed away by offsetting short positions is moot. Better off just doing nothing and buying back stock...as Buffett has started doing. My read between the lines is that when someone is doing something exotic but essentially neutral..IE long this shit short that shit, etc....they dont have a clue whats going on and are just doing something to do something...

 

I stalk this shit because like I did with BRK a few years ago, you wait for the turn because there is a trade setup here if a few dominos fall....but the problem here is that FFH is not shareholder friendly, and they have a decade long track record of being shitty speculators. As others have pointed out too, theres also the whole vanity project theme, which if you look deep, is very troubling. They buy/deal quite often in businesses that have cultural significance in Canada and/or non financial incentives with friends and old colleagues. I aint giving this guy my money so he can save a failing Canadian icon and then flip a future home run to a friend for mid 8 figures.....

Edited July 28, 2021 by Gregmal

[Parsad]

5 hours ago, Gregmal said:

As Ive said to a lot of folks, one of the more amazing things to me is that Prem Watsa still has the reputation he does. Media in Canada is obviously much different than in the US, although as we ve seen with Gates and Bezos...they too can be crafted. But generally speaking, if FFH was based in Virginia, or Alabama, or California..rather than Canada...man, IDK...it definitely doesnt have half the ardent defenders/loyalists it currently does, probably trades at .6x book, and is regarded as basically the company that cant do anything right. 

 

In regards to the outlook now, a recurring theme was "well if you bought March 2020(or insert big decline) then"....

Except thats bullshit. I am all for a big trade. But as an investment, when all you have to hang your hat on is "well if you bought the bottom after everyone got TOO pessimistic"...thats not a good investment at all. A good INVESTMENT, shouldn't be reliant on getting the timing right because the business should be good enough to consistently create enough value to reward you.

 

Folks need to start being honest with themselves here in regards to all the above.

 

It wasn't their investments like BB that lowered returns.  It was their shorts and bets against the market that limited their investment gains.  What about Atlas Corp...what about KW...and STLC.  The cost of BB is now well below the market price.  If it gets taken out by someone at $20+, it will be a pretty good investment...and it's likely it will get taken out as they continue to secure more contracts and deals.  Africa didn't turn out well so far, but it's based on the same playbook that built Fairfax Asia and Fairfax India.  The only insurer in recent history that has grown like First Capital (Fairfax Asia) is National Indemnity...that's pretty damn good company!  Cheers!

[Parsad]

24 minutes ago, TwoCitiesCapital said:

 

LOL!I mean don't get me wrong. There's been plenty of dogs over the years. There's also been plenty of home-runs. We spend way more time focusing on the dogs here which is the only reason I brought up the converts as being brilliant. 

 

I view Prem similarly to Bill Ackman - each one is swinging for home runs instead of base hits. Ackman had a multi-year stretch (2012 - 2016 ish) where multiple large and public bets failed to work out (JC Penney, Herbalife, and Valeant). But in late 2016 he hit his stride, basically called the bottom on Chipotle and has been hitting home runs since. 

 

The results are a little less clear with Prem, but it seems to me that a year or two ago, we began moving more towards home runs (Digit, Stelco, insurance subs, Atlas, BB converts re-strike) and away from strike outs (short-TRS 'hedges', Blackberry, Resolute, etc.). Maybe I'm wrong, but I anticipate we'll be back to 1.2 - 1.3x book value within 2 years and that the book value will be relatively elevated from what it is today. I'm here for that expected ~50%+ swing on top of the the ~40% i've already captured. 

 

 

+1!  Cheers!

[Gregmal]

3 minutes ago, Parsad said:

 

It wasn't their investments like BB that lowered returns.  It was their shorts and bets against the market that limited their investment gains.  What about Atlas Corp...what about KW...and STLC.  The cost of BB is now well below the market price.  If it gets taken out by someone at $20+, it will be a pretty good investment...and it's likely it will get taken out as they continue to secure more contracts and deals.  Africa didn't turn out well so far, but it's based on the same playbook that built Fairfax Asia and Fairfax India.  The only insurer in recent history that has grown like First Capital (Fairfax Asia) is National Indemnity...that's pretty damn good company!  Cheers!

 

You coulda just had $20 per share on BB via a good ole fashioned brokerage transaction! 

 

 

Now its like all that wildness never happened and instead of saying "yea we took advantage of the market"(like a shrewd operator does)...we need to hope for all these fundamental developments(which if nothing else, take TIME)

[matthew2129]

3 minutes ago, Parsad said:

 

It wasn't their investments like BB that lowered returns.  It was their shorts and bets against the market that limited their investment gains.  What about Atlas Corp...what about KW...and STLC.  The cost of BB is now well below the market price.  If it gets taken out by someone at $20+, it will be a pretty good investment...and it's likely it will get taken out as they continue to secure more contracts and deals.  Africa didn't turn out well so far, but it's based on the same playbook that built Fairfax Asia and Fairfax India.  The only insurer in recent history that has grown like First Capital (Fairfax Asia) is National Indemnity...that's pretty damn good company!  Cheers!

I don't think ATCO, KW and STLC in the aggregate have even outperformed SPY in the period that FFH has held them. I'd prefer FFH's 13F portfolio consist exclusively of VT and leave their "value investing" to private markets in undeveloped countries

[Parsad]

7 hours ago, ERICOPOLY said:

And today, I look up BB stock, and for P/E ratio it says N/A.

 

But that's okay... Prem makes an exception for stocks that HE believes will grow future earnings.  It's okay if he thinks so himself.  That's fine, that's still value investing.

 

 

So Prem today has this large BB equity holding making no profit at all, and meanwhile he claims that Microsoft is so richly valued at 40x.  

 

Well, put that 40x in context.  Prem studied Japan and their low interest rate environment following their real estate collapse.  Their stock market regularly had a PE of like 24 or something for years on end.

 

How does MSFT's 40x stack up against 24x?  Well, look at the rate of earnings growth of MSFT versus that of Japan.

 

 

No one was buying MSFT when Ballmer was running it.  MSFT went sideways from 2001 to 2014...it's only now with the changes Satya Nadella has implemented and restored growth that everyone wants to own it again.  Cheers!

[Parsad]

22 minutes ago, Gregmal said:

 

You coulda just had $20 per share on BB via a good ole fashioned brokerage transaction! 

 

 

Now its like all that wildness never happened and instead of saying "yea we took advantage of the market"(like a shrewd operator does)...we need to hope for all these fundamental developments(which if nothing else, take TIME)

 

I agree with you that I wish they had monetized their BB holding somehow.  But I'll defer to Prem to see if there was anything legally holding them back.  If not, it was a lost opportunity!

 

That being said, if they see BB being worth far more than $20 a couple of years down the road, I'm ok with that.  Although it would be nice to hear them say that.

 

Cheers!