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Fairfax 2021


bearprowler6

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18 hours ago, bearprowler6 said:

Nice try however simply eliminating the FairVentures initiative does not prove your earlier statement that Fairfax will only buy distressed investments. Your exact quote was: "You will never see these guys buy anything but distressed investments".

 

I offer as proof for my position a link to the Dataroma portfolio summary as at March 31/21:

 

https://www.dataroma.com/m/holdings.php?m=FFH

 

A significant number of their holdings on that date and most of their new purchases or portfolio adds during the quarter ending March 31st could in no way be classified as "distressed investments". Value investments perhaps but not distressed investments and given their size they were most likely initiated by Burton and/or Chin.

 

In addition, if the FairVentures initiative took Fairfax down a path they no longer wish to follow then the team at Fairfax would be well advised to exit the positions that occurred from that initiative in order to free up capital for investments that Burton/Chin prefer. Failure to do so will result in a less than optimum use of capital as defined by the investment team now in place.

 

Hamblin Watsa gives a certain amount of capital to its analysts and portfolio managers.  Do you see any high-growth stocks with a high P/E bought in large amounts?  No.  Of the high-growth stocks with high P/E's in the portfolio, almost all would have been bought through the small portfolios that analysts manage.  The exception being Google which they put roughly $20M into during the 1st Q 2020...they bought it for about a 15 P/E. 

 

Now, over time if some of these analysts become portfolio managers, and are given much more capital like the top six guys, then you may see a change in investment strategy.  But the core guys...Roger Lace, Prem, Brian, Wade, Lawrence, Chandran, etc, aren't built that way...they are hard-core distressed value managers.  They just won't pay a 30+ P/E for something.  It runs completely contrary to their psyche! 

 

When I say that they are distressed value investors, it doesn't mean they won't look at other things.  But if they have a choice between putting $1B into Atlas Corp at a 7 P/E or $1B into Amazon or Google at a 35 P/E...they will chose the 7 P/E investment every time.  They understand growth, but they value margin of safety more.  Cheers!

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18 hours ago, petec said:

Interesting about Fairfax Ventures. Makes me wonder whether Rivett was pushed, and his departure is part of and key in Fairfax’s investment revival. 
 

 

No, it wasn't anything like that.  I believe Paul just wanted a change of pace and to slow things down.  He had been working 16 hour days for Fairfax for like 15+ years.  I'm a night owl and don't sleep till 1am or so in Vancouver, so I tend to send out emails late at night.  On numerous occasions, I've sent out such late emails to Paul and I've gotten responses right away...meaning he was responding to emails at like 4am in Toronto!

 

Paul was literally overseeing everything the last few years after becoming President.  So he had a ton on his plate.  I think he probably realized that the Torstar opportunity wasn't going to come around all the time, and he had to make a hard decision for himself and his family.  Cheers!

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PS: I am not sure how to weave Fairfax India into this post. The group managing Fairfax India are doing an outstanding job. IIFL was separated into 4 companies. Management teams were inserted into BIAL and CSB Bank (once they got control). Privi and Fairchem restructuring has been fantastic for shareholders. Sanmar and Seven Islands IPO's look promising. Anchorage looks promising. $100 million Dutch auction. Lots to like. Eventually Mr. Market will figure it out

 

You can thank Chandran and his team for this, as well as Prem's commitment and belief in India's long-term potential.  They really have some great investments in India...I've seen them first-hand...and they will add a lot more over the next decade.  Cheers!

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21 hours ago, glider3834 said:

they are also not going to blow up the company

 

 

I dont know what constitutes a blow up....but in my book, spending nearly an entire decade, which also happened to be one of the greatest bull markets in history, long crapcos that lose tons of money, and short the very best performers....IDK man, thats pretty unforgivable and what sets guys like Watsa and Einhorn apart from the guys who just overconcentrated and got one wrong. 

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Greg, i think your point explains why the stock is trading at a price to BV of about 0.85. Lots of investors agree with you (and they are not interested in buying the stock).

 

What will change things? Performance. Earn lots of money. Buy back a bunch of stock. The stock price will eventually respond. As we learned with the US big bank stocks... it sometimes takes a long time to get out of the penalty box. 

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1 hour ago, Viking said:

Greg, i think your point explains why the stock is trading at a price to BV of about 0.85. Lots of investors agree with you (and they are not interested in buying the stock).

 

What will change things? Performance. Earn lots of money. Buy back a bunch of stock. The stock price will eventually respond. As we learned with the US big bank stocks... it sometimes takes a long time to get out of the penalty box. 

 

I would have thought a lot of the bears who have been disappointed with perceived poor stock picking in the past would be pacified somewhat when an investment like Digit is in the stable. It's growing pretty fast. It seems like the stake in Digit could overtake the current market cap of FFH at some point.

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On 7/17/2021 at 5:19 AM, TwoCitiesCapital said:

And while WhatsApp didn't impair Facebook's value, it's still hard for me to see how and why it was worth $19 billion back then. I don't think it's worth $19 billion today. There is limited, if any, synergies with Facebook business and no real path for monetization that supports anything close to $19 billion valuation even YEARS after the acquisition. 

I honestly felt the same way as Prem when I saw the number on this one, but I can see now that for FB it was a strategic move to protect their own business (WA had 450 mil users at the time & higher level of user engagement than FB) - so it was strategically important and they saw potential I am sure  to grow the functionality & monetise over time. But was it worth $19 bil? Maybe you could make the case based on $s per user but I suspect MZ really just wanted to seal the deal - it was probably worth more to FB than anyone else.

 

I think you will see a lot more on monetisation front with Whatsapp for Business over next few years  - saw this recently  https://www.socialmediatoday.com/news/facebook-announces-the-next-stage-of-its-ecommerce-push-including-shops-on/602239/

 

 

 

 

 

 

 

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From the WRB release:

 

  • Average rate increases excluding workers' compensation were approximately 9.7%.

The Company commented:

Rate increases continued to outpace loss costs, further solidifying our current rate adequacy. As more products achieved or exceeded our target rate levels, our attention turned to exposure growth and business expansion. We expect this growth and rate achievement will contribute to additional underwriting profits as they are fully earned.

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Candyman, thanks for the reminder regarding WRB. It will be interesting to hear what they say on the call at 2pm. Net premiums written were up 27.2% (RBC was expecting 9.5%) with a CR under 90%. Very impressive.

——————————

Second quarter highlights included:

  • Net premiums written increased 27.2%.
  • The reported combined ratio was 89.7%. The current accident year combined ratio before catastrophe losses of 2.2 loss ratio points was 87.5%.
  • Return on equity of 15.0%.
  • Record quarterly underwriting income of $202.2 million.
  • Average rate increases excluding workers' compensation were approximately 9.7%.
  • Net investment income increased 96.9% to $168.2 million.
  • Total capital returned to shareholders was $112 million, consisting of $89 million of special dividends and $23 million of regular dividends.

The Company commented:

The Company reported outstanding results in the second quarter of 2021 with net premium growth in excess of 27%, a combined ratio of 89.7%, and an annualized return on equity of 15%.

Rate increases continued to outpace loss costs, further solidifying our current rate adequacy. As more products achieved or exceeded our target rate levels, our attention turned to exposure growth and business expansion. We expect this growth and rate achievement will contribute to additional underwriting profits as they are fully earned.

Edited by Viking
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1 hour ago, Viking said:

Candyman, thanks for the reminder regarding WRB. It will be interesting to hear what they say on the call at 2pm. Net premiums written were up 27.2% (RBC was expecting 9.5%) with a CR under 90%. Very impressive.

——————————

Second quarter highlights included:

  • Net premiums written increased 27.2%.
  • The reported combined ratio was 89.7%. The current accident year combined ratio before catastrophe losses of 2.2 loss ratio points was 87.5%.
  • Return on equity of 15.0%.
  • Record quarterly underwriting income of $202.2 million.
  • Average rate increases excluding workers' compensation were approximately 9.7%.
  • Net investment income increased 96.9% to $168.2 million.
  • Total capital returned to shareholders was $112 million, consisting of $89 million of special dividends and $23 million of regular dividends.

The Company commented:

The Company reported outstanding results in the second quarter of 2021 with net premium growth in excess of 27%, a combined ratio of 89.7%, and an annualized return on equity of 15%.

Rate increases continued to outpace loss costs, further solidifying our current rate adequacy. As more products achieved or exceeded our target rate levels, our attention turned to exposure growth and business expansion. We expect this growth and rate achievement will contribute to additional underwriting profits as they are fully earned.

I haven't had a chance to take a look but looks like a very solid result - also I saw this article which shows an overlap between WRB & Fairfax's businesses -  looks like both WRB & Fairfax rank as 4th & 5th largest players the US E&S market based on Q1 2021 DWP ,  as WRB wrote 630 mil & Fairfax wrote 625 mil in E&S DWP according to SPG global report https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/insurers-log-big-q1-premium-growth-in-increasingly-important-us-e-s-market-65140072

 

Here are some comments

 

Broker Ryan Specialty, which placed 70.6% of its total premiums in the E&S market in 2020, said in an IPO filing that the "emergence of complex, unique or otherwise hard-to-place risks," as well as the need for specialist solutions, has driven meaningful growth within what it described as the "increasingly important" U.S. E&S market.

 

 

 

 

 

 

 

 

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The stock prices of P&C insurers have been weak for the past 4 months or so. My guess is the weakness is due primarily to concerns the hard market in pricing is over. 
 

Well, results and commentary from WRB suggest Mr Market is wrong. Q2 was very strong. And WRB feels strong results should continue. The hard market is not dead. And future results will benefit years into the future as written premiums become earned. This suggests Q3 is shaping up to also be another strong quarter in terms of top and bottom line. From the Q2 Q&A:
 

Mark Dwelle (RBC): …second question … in terms of competition across the industry, are you still seeing primarily rational competitive behavior, or are you seeing any signs around the edges of aggressive competition, or price limited competition like you would typically see, perhaps at peaks of a pricing cycle?

 

Rob Berkley

There is nothing that leads us to believe -- let's put workers comp aside for the moment - that the opportunities in virtually every other product line are not very meaningful today, and will be very meaningful tomorrow. We continue to see the opportunity to push rates further and quite frankly, we're seeing the standard market continue to push business out creating opportunity for the specialty market. So we remain very encouraged by and large, as it relates to the opportunities. And no, we do not think that this marketplace has peaked in any way, shape, or form - quite to the contrary.

Edited by Viking
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Looks like the IPO market is running hot in India despite the many challenges.  Hopefully augers well for Chemplast Sanmar and Anchorage

 

Zomato Soars 80% in Debut of India’s New Tech Generation

 

Zomato’s first-day performance will serve as a barometer for India’s budding tech scene of unprofitable unicorns, which has produced a coterie of up-and-coming giants from Ant Group Co.-backed Paytm to Walmart Inc.’s Flipkart Online Services Pvt. Also backed by Jack Ma’s Ant, Zomato’s debut comes amid investor concern that India’s markets are a bubble waiting to burst and valuations have outstripped fundamentals.

 

Optimism about India is tempered by one of the worst coronavirus outbreaks in the world, which threatens to erode decades of economic gains. Investors also have to contend with political risks, with Narendra Modi’s government clamping down on foreign retailers, social media giants and streaming companies.

 

For many others, the potential outweighs the downsides. With almost half its 1.3 billion people accessing the internet via smartphones, a bet on Zomato represents optimism that India’s tech upstarts could go the way of the U.S. or China, particularly as India’s internet infrastructure remains nascent and consumers are just getting used to buying online.

 

“This is how it is supposed to work. Nine out of 10 will fail,” Goyal, who is barred from commenting in the run-up to the listing, said in an earlier interview. “But the one that thrives will be a spectacular success.”

 

Edited by nwoodman
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On 7/22/2021 at 10:22 PM, Viking said:

The stock prices of P&C insurers have been weak for the past 4 months or so. My guess is the weakness is due primarily to concerns the hard market in pricing is over. 
 

Well, results and commentary from WRB suggest Mr Market is wrong. Q2 was very strong. And WRB feels strong results should continue. The hard market is not dead. And future results will benefit years into the future as written premiums become earned. This suggests Q3 is shaping up to also be another strong quarter in terms of top and bottom line. From the Q2 Q&A:
 

Mark Dwelle (RBC): …second question … in terms of competition across the industry, are you still seeing primarily rational competitive behavior, or are you seeing any signs around the edges of aggressive competition, or price limited competition like you would typically see, perhaps at peaks of a pricing cycle?

 

Rob Berkley

There is nothing that leads us to believe -- let's put workers comp aside for the moment - that the opportunities in virtually every other product line are not very meaningful today, and will be very meaningful tomorrow. We continue to see the opportunity to push rates further and quite frankly, we're seeing the standard market continue to push business out creating opportunity for the specialty market. So we remain very encouraged by and large, as it relates to the opportunities. And no, we do not think that this marketplace has peaked in any way, shape, or form - quite to the contrary.

Given some recent property loss events due to flooding and fires, the hard market may continue a while longer.  Insurance companies in this low interest rate period have increasingly used sub-100 CRs as the mechanism to provide returns.  It means that the best underwriters will do best over longer periods of time and those that have access to equities (many stick to bonds and other yield products) will similarly do better over time.

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On 7/12/2021 at 12:00 PM, Xerxes said:

...

Incidentally, further growth potential (or lack thereof) in the insurance side of the business will impact intrinsic value and not current book value. So BV can be continued to be used as the proxy for the floor for here and now.

 

My comment here is to point out that if you reduce expectations for growth potential, then you also should be discounting book value due to the goodwill baked into book value.

Edited by ERICOPOLY
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On 7/25/2021 at 5:38 PM, omagh said:

Given some recent property loss events due to flooding and fires, the hard market may continue a while longer.  Insurance companies in this low interest rate period have increasingly used sub-100 CRs as the mechanism to provide returns.  It means that the best underwriters will do best over longer periods of time and those that have access to equities (many stick to bonds and other yield products) will similarly do better over time.

I was suprised how long the market stayed soft when cats kept rolling in in greater severity and frequency. I'm specifically talking about the 2008-2019 time frame . Threads were full of comments on how some expected the 
*insert cat name here* to drive a hard market across the board but it only really came in certain segments. This recent hard market effected almost all lines of business -except work comp. My point is i'm not sure the increased cat activity is sufficient to keep rates increases coming.

 

I know thats counter intuitive but the way i see it, managements everywhere see the market prices on good business at the best they've been in a decade and everyone wants to grow. When everyone wants to grow that's a good sign that rate increases are going to come down and insurers have to start defending their book. 
 

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From the Chubb release: ""We are capitalizing on a strong commercial P&C pricing environment in most all important regions of the world. Overall rates increased in our North America and international commercial P&C businesses by 13.5% and 16%, respectively, and were well in excess of loss costs. From everything we see today, I am confident these market conditions will continue."

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1 hour ago, Candyman1 said:

From the Chubb release: ""We are capitalizing on a strong commercial P&C pricing environment in most all important regions of the world. Overall rates increased in our North America and international commercial P&C businesses by 13.5% and 16%, respectively, and were well in excess of loss costs. From everything we see today, I am confident these market conditions will continue."


Every earnings report i have read / conference call i have listened to so far has said pretty much the same thing: the hard market is ongoing and likely to continue into 2022. Rate increases, while slowing, continue to be well in excess of loss cost trends. Focus is shifting to exposure growth. Very encouraging.
 

Given the time it takes for written premiums to become earned it bodes well for underwriting results at P&C insurers. It should be a tailwind for the next couple of years.

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On 7/17/2021 at 12:23 PM, Parsad said:

When I say that they are distressed value investors, it doesn't mean they won't look at other things.  But if they have a choice between putting $1B into Atlas Corp at a 7 P/E or $1B into Amazon or Google at a 35 P/E...they will chose the 7 P/E investment every time.  They understand growth, but they value margin of safety more.  Cheers!

 

There is nothing wrong with passing on them if they don't understand them, but sometimes some really classic comments can be found when they comment on what they don't understand.

 

Here is Prem commenting on Amazon in the 2000 Annual Letter:

"Yes, Amazon.com has a market value of US$23 billion versus shareholders’ equity of US$266 million at December 31, 1999"

 

And no, he's not pounding the table to buy it!  He's actually thinking that it was priced crazy high!  LOL.

 

 

Edited by ERICOPOLY
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5 minutes ago, ERICOPOLY said:

 

There is nothing wrong with passing on them if they don't understand them, but sometimes some really classic comments can be found when they comment on what they don't understand.

 

Here is Prem commenting on Amazon in the 2000 Annual Letter:

"Yes, Amazon.com has a market value of US$23 billion versus shareholders’ equity of US$266 million at December 31, 1999"

 

And no, he's not pounding the table to buy it!  He's actually thinking that it was priced crazy high!  LOL.

 

 

 

It's a little weird that he's even commenting on the book value of an internet company. It's like talking about the weight of smoke or the height of a snake.

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9 hours ago, IceCreamMan said:

 

It's a little weird that he's even commenting on the book value of an internet company. It's like talking about the weight of smoke or the height of a snake.

 

this is where classic value investors trying to buy 50c on the dollar don't get - is the future earnings potential...   so buying at market cap 23B in 1999 for what would become a trillion dollar company is the value proposition that's not reflected in the accounting, but in the future prospect.

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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?

Edited by ERICOPOLY
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In my humble opinion, FFH investors and prospective investors need to differentiate between how FFH invest and what Prem W. write in his letters. I got no issue with how he invest for this equity position (yes there are bad apples) but have an issue with his Annual Shaming Parade of FANGs etc. 

 

It is entirely possible that the latter is doing him more harm than good from a PR and optics point of view.

 

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

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.  

 

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