Fairfax 2021

[Thrifty3000]

18 hours 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.

 

 

Yeah, but who in the year 2000 DIDN’T see Amazon worth a few trillion by 2021?!

 

Probably the same idiots that don’t know that in the year 2041 Amazon will be bought in bankruptcy court by HP-Neuralink!
 

$hit I may have said too much.

[ERICOPOLY]

1 minute ago, Thrifty3000 said:

Yeah, but who in the year 2000 DIDN’T see Amazon worth a few trillion by 2021?!

 

Probably the same idiots that don’t know that in the year 2041 Amazon will be bought in bankruptcy court by HP-Neuralink!
 

$hit I may have said too much.

 

 

By 2011 the lesson should have sunk in when he was saying FB was trash.  

[ERICOPOLY]

16 minutes ago, Parsad said:

 

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!

 

Azure was in the making when Ballmer was CEO.  Ray Ozzie announced it in 2008.  But I sat in a meeting back in 2001 or 2002 when our VPs talked all about this future and how it would make the "Internet" wave of the 1990s look like small potatoes and I just never believed it.

 

We mock what we don't understand. (Spies Like Us).

 

[Parsad]

25 minutes ago, ERICOPOLY said:

 

Azure was in the making when Ballmer was CEO.  Ray Ozzie announced it in 2008.  But I sat in a meeting back in 2001 or 2002 when our VPs talked all about this future and how it would make the "Internet" wave of the 1990s look like small potatoes and I just never believed it.

 

We mock what we don't understand. (Spies Like Us).

 

 

No one understood it then.  To imagine that a money manager could have the foresight to invest in MSFT because of the development of Azure is like imagining a money manager to be able to pick the winning numbers in the lottery.  Especially a value investing money manager who would sell the stock every time it got to a 35-40 times PE.  Even Buffett, who is best friends with Gates, didn't have that insight.

 

Also, it's not always we mock what we don't understand.  Competitive behavior and market forces can help or kill any business.  Look at Beta and VHS...the better idea went the way of the dodo because of the porn industry.  AMZN would have lost if Barnes and Noble simply added porn as one of their offerings!    Cheers!

[Viking]

6 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.

A couple of thoughts:

1.) Prem’s reputation: my guess is his reputation is at (or close) to an all time low in Canada right now. And rightly so. 
2.) I get that Fairfax is not a company you are interested in owning; we all have our own emotional makeup/intellect/education/filters as there is no one way or ‘correct way’ to invest. However, I applaud investors who bought last year when the shares were in the toilet. Hopefully they all make a bunch of money

3.) honesty / self reflection is a rare and very valuable trait. Reminds me of Mark Twain’s old line “It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So”

[Parsad]

1 minute ago, Viking said:

A couple of thoughts:

1.) Prem’s reputation: my guess is his reputation is at (or close) to an all time low in Canada right now. And rightly so. 
2.) I get that Fairfax is not a company you are interested in owning; we all have our own emotional makeup/intellect/education/filters as there is no one way or ‘correct way’ to invest. However, I applaud investors who bought last year when the shares were in the toilet. Hopefully they all make a bunch of money

3.) honesty / self reflection is a rare and very valuable trait. Reminds me of Mark Twain’s old line “It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So”

 

+1!  And yes, I did buy a ton when they were in the toilet...and not just FFH.  But I continue to buy more FFH even now, because it is relatively cheaper than most other stocks.  Cheers!

[ERICOPOLY]

30 minutes ago, Parsad said:

 

No one understood it then.  To imagine that a money manager could have the foresight to invest in MSFT because of the development of Azure is like imagining a money manager to be able to pick the winning numbers in the lottery.  Especially a value investing money manager who would sell the stock every time it got to a 35-40 times PE.  Even Buffett, who is best friends with Gates, didn't have that insight.

 

Also, it's not always we mock what we don't understand.  Competitive behavior and market forces can help or kill any business.  Look at Beta and VHS...the better idea went the way of the dodo because of the porn industry.  AMZN would have lost if Barnes and Noble simply added porn as one of their offerings!    Cheers!

 

 

I didn't understand the cloud thing in terms of how much money could be made and I missed the opportunity. 

 

Likewise, I don't understand if the P/E of 40x for MSFT is still cheap or not, because I still don't understand the size of the opportunity.

 

Prem apparently thinks he does or he wouldn't be scoffing at the P/E, but he doesn't, does he.

 

 

 

[Parsad]

1 minute ago, ERICOPOLY said:

 

 

I didn't understand the cloud thing in terms of how much money could be made and I missed the opportunity. 

 

Likewise, I don't understand if the P/E of 40x for MSFT is still cheap or not, because I still don't understand the size of the opportunity.

 

Prem apparently thinks he does or he wouldn't be scoffing at the P/E, but he doesn't, does he.

 

 

 

 

Would you rather own a 40x P/E company with the probability of growing at 25% a year for 10 years being 30%, or would you rather own a 10x P/E company with the probability of growing at 10% a year for 10 years being 90%? 

 

Essentially, this is what it comes down to if you are Prem.  He wants certainty, a margin of safety and a high probability of success...not high returns with high risk.  And with the leverage they utilize, they don't want to see a 40-50% drop in their equity portfolio (for those that argue about just owning SPY), which reduces their ability to write insurance business. 

 

We all know that with leverage and float, they only need to hit 4% on their investment portfolio to surpass a 15% ROE if the insurance subs are writing good business.  Cheers!

[ERICOPOLY]

28 minutes ago, Parsad said:

 

Would you rather own a 40x P/E company with the probability of growing at 25% a year for 10 years being 30%, or would you rather own a 10x P/E company with the probability of growing at 10% a year for 10 years being 90%? 

 

Essentially, this is what it comes down to if you are Prem.  He wants certainty, a margin of safety and a high probability of success...not high returns with high risk.  And with the leverage they utilize, they don't want to see a 40-50% drop in their equity portfolio (for those that argue about just owning SPY), which reduces their ability to write insurance business. 

 

We all know that with leverage and float, they only need to hit 4% on their investment portfolio to surpass a 15% ROE if the insurance subs are writing good business.  Cheers!

 

 

To address the first paragraph:

I've seen these arguments made before but most of us don't know what these probabilities are.  We don't know 30% from 60%.  Honestly, I don't.

 

To address the third paragraph:

I agree.  I bought the shares recently.  Which is why I've been obsessed with his FAANG obsession -- it's a risk I don't like.

 

 

 

 

 

 

 

 

 

 

 

 

 

[Parsad]

9 minutes ago, ERICOPOLY said:

 

 

To address the first paragraph:

I've seen these arguments made before but most of us don't know what these probabilities are.  We don't know 30% from 60%.  Honestly, I don't.

 

 

 

 

Me neither.  I don't think Prem knows either.  But I'm often pretty comfortable with the ones I know are 90%...and I'm guessing Prem does too. 

 

You and I made two substantial bets at the same time...ORH Preferreds being bought back by ORH...that looked like a 90% winner to me, and I'm guessing you felt similarly.  The other was our bet on BAC...which we both did extremely well on (you just killing it)...but I would say at the time, that was a 30-40% probability of success.  Again, going back to an insurer...which bet would they make in a big way, and which would they maybe bet smaller on?

 

Using that example, I do agree with you, Prem could make a number of smaller bets on some growth stocks like they did with GOOG, instead of the large single bets like on a BB.  Maybe base hits is what investors want to see more of rather than the occasional homerun.  Food for thought for Hamblin Watsa!  Cheers!

[cwericb]

It boggles the mind how some continue to hold Prem Watsa in such high regard. But some might now think that his reputation of being the “Buffett of the north” is an insult to Buffett

 

Prem egotistically bought Blackberry - with shareholder’s money - primarily to make himself look good. At least he had the good judgement to put john Chen in charge. But surly by now he has run out of excuses for not selling BB. He told us regulations prohibited him from selling when the price exploded. I believe those prohibitions expired, so did he sell during the last run up or will he come up with a new excuse?

 

Moving on from Blackberry there is that little problem with Torstar.

 

Why did he give Paul Rivett a sweetheart, under the table deal, on Torstar which seems to have cheated shareholders? There are some serious questions that need to be answered here.  

 

But some think Prem’s motives are beyond reproach. Read on.   

 

Let’s not forget the disgraceful and embarrassing Fibrek - Resolute deal where Fairfax blatantly ripped off Fibrek shareholders and both Watsa and Rivett ended up being investigated for insider trading.

 

That investigation resulted in Fairfax being put on trial and Watsa was hauled into court where he attempted an embarrassing feeble attempt to explain his actions.

 

The judge found Fairfax “was in a blatant conflict of interest situation” and that Watsa’s testimony was “purposely forgetful” and “mindboggling”. “Watsa often appeared to be on the defensive and when pressed on crucial factual elements, the witness hastily took refuge behind ‘I do not remember’ or the like.”

 

“Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony”

 

And of course Fairfax reaction to the judgement against them was: “A spokesman for Fairfax disputed the judge’s conclusions, and said the company may appeal.” For the record, Fairfax did not appeal - which tells you all you need to know. An honest, innocent party would defend their reputation at all costs.

 

Remember how Watsa used to say “Fairfax” stands for “Fair and Friendly” acquisitions? Well in this incident Fairfax was found by the judge to be “complicit with Resolute in the abusive hostile take-over bid scheme to the detriment and prejudice of the dissenting shareholders,” Fair and friendly for sure.

 

https://www.bnnbloomberg.ca/watsa-s-mindboggling-reasoning-in-takeover-prompts-court-award-1.1323226

 

And by the way ....

Recently Blackberry shareholders began an attempt to dump Watsa from the BB board as “Watsa is plainly unfit to serve as a director of the Company”.

 

Blackberry shareholders went on to say:

 

“Watsa has a history, when presented with a conflict of interest, of working against the interests of minority shareholders and for the benefit of Fairfax. Even before the Fairfax Refinancing, in September 2019, the Quebec Superior Court rendered a judgment in which it found that Watsa and Fairfax, as insiders of Fibrek Inc., acted in a "blatant conflict of interest situation" for the benefit of Fairfax by enabling the acquisition of Fibrek at the "lowest possible price," to the detriment of Fibrek's minority shareholders who were bought out at an unfairly low price. The Quebec Superior Court, in awarding those minority shareholders $13.5 million plus interest, also found that Watsa abused his position of trust and confidence at Fibrek by failing to disclose Fairfax's true intentions to Fibrek's management, and that Watsa's testimony at trial was not credible—indeed, the Canadian judge found Watsa's explanations to be "mindboggling." The judge further described the situation as "odious" and "reprehensible." One who lacks credibility and engages in odious and reprehensible conduct to the detriment of minority shareholders is not fit to be a corporate director.”

 

https://www.newswire.ca/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-857512533.html
 

[ERICOPOLY]

2 hours ago, Parsad said:

 

Me neither.  I don't think Prem knows either.  But I'm often pretty comfortable with the ones I know are 90%...and I'm guessing Prem does too. 

 

You and I made two substantial bets at the same time...ORH Preferreds being bought back by ORH...that looked like a 90% winner to me, and I'm guessing you felt similarly.  The other was our bet on BAC...which we both did extremely well on (you just killing it)...but I would say at the time, that was a 30-40% probability of success.  Again, going back to an insurer...which bet would they make in a big way, and which would they maybe bet smaller on?

 

Using that example, I do agree with you, Prem could make a number of smaller bets on some growth stocks like they did with GOOG, instead of the large single bets like on a BB.  Maybe base hits is what investors want to see more of rather than the occasional homerun.  Food for thought for Hamblin Watsa!  Cheers!

 

I've said this before.  I'm a speculator.  That absolves me from criticism for doing it because it's how I identify myself.  I speculate. 

 

Warren and Charlie were always "too hard" pile on tech stocks (then along came IBM, AAPL, BYD).  What I find interesting is even when MSFT and AAPL were single digit PE ratio stocks Prem still wouldn't go near them.  He just has a tendency to short or harp on the ones that people are most excited about (high PEs) but that doesn't make him right, and it may not have anything to do with a bubble:  They may be expensive for good reason, and YOU may be the patsy.  It's all "too hard" to know, hence the name of the pile.

 

Prem appears to only have been involved in Blackberry because it made some sense from a price to tangible asset metric.  But that doesn't mean it will ever earn any money, and it hasn't.  Opportunity cost is real cost.  It may earn money yet.  Fine.  But opportunity cost is real cost.

 

Attending Berkshire's meetings for 40 years now, I don't know how he hasn't yet learned about the "too hard" pile and technology stocks.  Just grab popcorn and watch.  None of us know if Microsoft is expensive at 40x earnings.  Some probably think it isn't and they may very well know what they are talking about.  We will watch and see.

 

 

 

 

 

Edited July 29, 2021 by ERICOPOLY

[Spekulatius]

Speaking of the too hard pile, I think FFH for me is one stock that belongs there. I agree it is cheap, but I think there are comparable business that are easier to handicap.

For example ORI - a holding of mine has some equity exposure through a diversified portfolio of dividend stocks. no big swings and they keep a certain equity exposure at a fraction of book value with the goal of some capital appreciation and more importantly dividend income. No drama and it seems to be working quite nicely.

 

ORI trades at <1.1x Book value and in my opinion is and easier bet to make going forward than FFH at 0.85x, but each it’s own.

[Parsad]

3 hours ago, cwericb said:

It boggles the mind how some continue to hold Prem Watsa in such high regard. But some might now think that his reputation of being the “Buffett of the north” is an insult to Buffett

 

Prem egotistically bought Blackberry - with shareholder’s money - primarily to make himself look good. At least he had the good judgement to put john Chen in charge. But surly by now he has run out of excuses for not selling BB. He told us regulations prohibited him from selling when the price exploded. I believe those prohibitions expired, so did he sell during the last run up or will he come up with a new excuse?

 

Moving on from Blackberry there is that little problem with Torstar.

 

Why did he give Paul Rivett a sweetheart, under the table deal, on Torstar which seems to have cheated shareholders? There are some serious questions that need to be answered here.  

 

But some think Prem’s motives are beyond reproach. Read on.   

 

Let’s not forget the disgraceful and embarrassing Fibrek - Resolute deal where Fairfax blatantly ripped off Fibrek shareholders and both Watsa and Rivett ended up being investigated for insider trading.

 

That investigation resulted in Fairfax being put on trial and Watsa was hauled into court where he attempted an embarrassing feeble attempt to explain his actions.

 

The judge found Fairfax “was in a blatant conflict of interest situation” and that Watsa’s testimony was “purposely forgetful” and “mindboggling”. “Watsa often appeared to be on the defensive and when pressed on crucial factual elements, the witness hastily took refuge behind ‘I do not remember’ or the like.”

 

“Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony”

 

And of course Fairfax reaction to the judgement against them was: “A spokesman for Fairfax disputed the judge’s conclusions, and said the company may appeal.” For the record, Fairfax did not appeal - which tells you all you need to know. An honest, innocent party would defend their reputation at all costs.

 

Remember how Watsa used to say “Fairfax” stands for “Fair and Friendly” acquisitions? Well in this incident Fairfax was found by the judge to be “complicit with Resolute in the abusive hostile take-over bid scheme to the detriment and prejudice of the dissenting shareholders,” Fair and friendly for sure.

 

https://www.bnnbloomberg.ca/watsa-s-mindboggling-reasoning-in-takeover-prompts-court-award-1.1323226

 

And by the way ....

Recently Blackberry shareholders began an attempt to dump Watsa from the BB board as “Watsa is plainly unfit to serve as a director of the Company”.

 

Blackberry shareholders went on to say:

 

“Watsa has a history, when presented with a conflict of interest, of working against the interests of minority shareholders and for the benefit of Fairfax. Even before the Fairfax Refinancing, in September 2019, the Quebec Superior Court rendered a judgment in which it found that Watsa and Fairfax, as insiders of Fibrek Inc., acted in a "blatant conflict of interest situation" for the benefit of Fairfax by enabling the acquisition of Fibrek at the "lowest possible price," to the detriment of Fibrek's minority shareholders who were bought out at an unfairly low price. The Quebec Superior Court, in awarding those minority shareholders $13.5 million plus interest, also found that Watsa abused his position of trust and confidence at Fibrek by failing to disclose Fairfax's true intentions to Fibrek's management, and that Watsa's testimony at trial was not credible—indeed, the Canadian judge found Watsa's explanations to be "mindboggling." The judge further described the situation as "odious" and "reprehensible." One who lacks credibility and engages in odious and reprehensible conduct to the detriment of minority shareholders is not fit to be a corporate director.”

 

https://www.newswire.ca/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-857512533.html
 

 

All these transactions have to go through Ontario's securities exchange and the TSX legal department for approval before Fairfax can move ahead with the transaction. 

 

For example, even with us, when PDH does anything like loan capital to subsidiaries, transactions with parties that are not arms length, etc., our legal counsel needs to send a letter to the BCSC and TSX for approval.  

 

That means before Prem does any of the above transactions with related parties, it went through Paul Rivett (President), Peter Clarke (COO and compliance), the OSC and finally the TSX.  So to blame Prem solely for any lawsuits seems to be a bit of a stretch.  Yeah, he's the CEO, he was the star witness, so he gets the blame. 

 

I'm not saying they were in the right.  If the judge says they were wrong, then they were wrong.  But there are more voices and hands in these decisions than just one person. 

 

By the way, Buffett had his similar run-ins as well.  The SEC investigated Berkshire and Buffett when they acquired Wesco and they paid a $115K fine.  They also had a similar run-in when they acquired the Buffalo News and anti-trust charges were filed.  Buffett also got dragged into the middle of the Solomon's failure and GenRe's dealings with AIG on finite insurance where they paid a $95M fine...neither of these were Buffett's fault, but he was CEO when the problems happened.  Cheers!

[Parsad]

2 hours ago, Spekulatius said:

Speaking of the too hard pile, I think FFH for me is one stock that belongs there. I agree it is cheap, but I think there are comparable business that are easier to handicap.

For example ORI - a holding of mine has some equity exposure through a diversified portfolio of dividend stocks. no big swings and they keep a certain equity exposure at a fraction of book value with the goal of some capital appreciation and more importantly dividend income. No drama and it seems to be working quite nicely.

 

ORI trades at <1.1x Book value and in my opinion is and easier bet to make going forward than FFH at 0.85x, but each it’s own.

 

ORI is more of a general insurer and does a lot of title insurance...as far as I know, they do very little, if any, reinsurance.  Quite different than Fairfax...more comparable to First American or Fidelity National.  They will do well most of the time and then get killed when housing corrects. 

 

It is more stable than FFH and most other reinsurers.  It will get you a steady 8%-9% over time, but it will never do 14%-15% ROE simply because it isn't as leveraged...4-1 versus 6-1.  Cheers! 

[Gregmal]

4 hours ago, cwericb said:

It boggles the mind how some continue to hold Prem Watsa in such high regard. But some might now think that his reputation of being the “Buffett of the north” is an insult to Buffett

 

Prem egotistically bought Blackberry - with shareholder’s money - primarily to make himself look good. At least he had the good judgement to put john Chen in charge. But surly by now he has run out of excuses for not selling BB. He told us regulations prohibited him from selling when the price exploded. I believe those prohibitions expired, so did he sell during the last run up or will he come up with a new excuse?

 

Moving on from Blackberry there is that little problem with Torstar.

 

Why did he give Paul Rivett a sweetheart, under the table deal, on Torstar which seems to have cheated shareholders? There are some serious questions that need to be answered here.  

 

But some think Prem’s motives are beyond reproach. Read on.   

 

Let’s not forget the disgraceful and embarrassing Fibrek - Resolute deal where Fairfax blatantly ripped off Fibrek shareholders and both Watsa and Rivett ended up being investigated for insider trading.

 

That investigation resulted in Fairfax being put on trial and Watsa was hauled into court where he attempted an embarrassing feeble attempt to explain his actions.

 

The judge found Fairfax “was in a blatant conflict of interest situation” and that Watsa’s testimony was “purposely forgetful” and “mindboggling”. “Watsa often appeared to be on the defensive and when pressed on crucial factual elements, the witness hastily took refuge behind ‘I do not remember’ or the like.”

 

“Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony”

 

And of course Fairfax reaction to the judgement against them was: “A spokesman for Fairfax disputed the judge’s conclusions, and said the company may appeal.” For the record, Fairfax did not appeal - which tells you all you need to know. An honest, innocent party would defend their reputation at all costs.

 

Remember how Watsa used to say “Fairfax” stands for “Fair and Friendly” acquisitions? Well in this incident Fairfax was found by the judge to be “complicit with Resolute in the abusive hostile take-over bid scheme to the detriment and prejudice of the dissenting shareholders,” Fair and friendly for sure.

 

https://www.bnnbloomberg.ca/watsa-s-mindboggling-reasoning-in-takeover-prompts-court-award-1.1323226

 

And by the way ....

Recently Blackberry shareholders began an attempt to dump Watsa from the BB board as “Watsa is plainly unfit to serve as a director of the Company”.

 

Blackberry shareholders went on to say:

 

“Watsa has a history, when presented with a conflict of interest, of working against the interests of minority shareholders and for the benefit of Fairfax. Even before the Fairfax Refinancing, in September 2019, the Quebec Superior Court rendered a judgment in which it found that Watsa and Fairfax, as insiders of Fibrek Inc., acted in a "blatant conflict of interest situation" for the benefit of Fairfax by enabling the acquisition of Fibrek at the "lowest possible price," to the detriment of Fibrek's minority shareholders who were bought out at an unfairly low price. The Quebec Superior Court, in awarding those minority shareholders $13.5 million plus interest, also found that Watsa abused his position of trust and confidence at Fibrek by failing to disclose Fairfax's true intentions to Fibrek's management, and that Watsa's testimony at trial was not credible—indeed, the Canadian judge found Watsa's explanations to be "mindboggling." The judge further described the situation as "odious" and "reprehensible." One who lacks credibility and engages in odious and reprehensible conduct to the detriment of minority shareholders is not fit to be a corporate director.”

 

https://www.newswire.ca/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-857512533.html
 

 

Exactly. Things are not and have not been done in the interest of shareholders. @Vikingkeeps saying something to the extent of how one needs to be open minded, change when the facts change, not look at the past, etc. I would challenge one to find someone here who demonstrates the above better than I do. I dont own too much "long term". Ive regularly criticized stuff and then when the facts changed, pivoted. I had years worth of back and forth with @John Hjorth and many of the Berkshire fans, criticizing Buffett for basically wasting shareholder's time with regard to capital allocation. And then....when the one variable that needed to change, did...I put more money behind BRK than I have any single investment in my life and proceeded to nail a 20%+ move inside of 4 months against half that on the S&P when the said security I went long hadn't outperformed the S&P or done 20% in an entire year in ages....Theres plenty of other examples. I shit all over AIV and then the corporate action occurred and within 12 hours went from disparaging them to long the stub and banked another 20%+ in a few months. Even a shitco like BRG, when its cheap and theres a variable change, I bought. I said earlier, I'm waiting for the same signal from FFH. The problem is the variable that needs to change, doesnt. We can talk about the situation changing or the facts changing, but bottom line, its the same folks year in and year out who are long FFH and pumping the tires and regularly talking about how this time is different and that just hasn't been the case. For all the "bought when shit hit the fan" talk, its telling that, as @Parsaddid, you could have bought the ultimate scumbag shitco BH...and done better than buying FFH. If "its cheap" is the reason to buy here, why this? There's a million things "cheap" with hair. Theres a good number that are "cheap" without FFH type hair. I mean just as an example, you have ALCO which trades at minimum 70% of NAV and you have a 5% yield, growing, essential business bolstered by FL land which is increasing rapidly in value...without any kingdom builder or friend/colleague enricher at the helm....I could name plenty more. Why the infatuation with FFH? Because its Canadian, and I also suppose because folks have made money with it before so theres a psychological bias as well. Otherwise, theres no reason.

[steph]

I have been on and off a shareholder of FFH for more than 15v years now.  They have made big mistakes.  They have done things they said they would not do.  I am always afraid that when they see a cigar butt they just can’t resist and buy it.  

Interest rates are low and are a big drag on potential earnings.  So many reasons to not touch this one. 

But in these last 15 years I think it is the best opportunity we have had to buy FFH.  An investment is always about probabilities, it is not perfect science.  FFH is today in my humble opinion a very good risk/return investment.  Worst case it will be average.  But chances of very strong returns are high.  

Core business (insurance) is much better than it has ever been.  Insurance market is also strong.  On the bond side they have always been if not the best, one of the bests.  The problem are macro calls, shorts and deep value long positions.  Shorts are out.  Their deep value positions were just recently at all time lows.  We are witnessing strong rebounds.  But what matters most are their Indian positions and Atlas.  Atlas is very well managed, is in a very strong market for the next years and should do well.  But the sherry on the cake is Digit.  Sequoia just invested at a valuation of 3,6 billion.  They don’t do this for a quick double.  This thing could be valued at crazy prices.  Compared to the market cap of FFH this is huge.  

The crazy thing is that you get it for free.  My conclusion is that there are many free options with FFH.  This stock (management) is completely out of favor and gets no credit at all for the good things they have done (Digit).  

For me one of the best risk/returns out there. 

[nwoodman]

7 hours ago, cwericb said:

It boggles the mind how some continue to hold Prem Watsa in such high regard. But some might now think that his reputation of being the “Buffett of the north” is an insult to Buffett

 

Prem egotistically bought Blackberry - with shareholder’s money - primarily to make himself look good. At least he had the good judgement to put john Chen in charge. But surly by now he has run out of excuses for not selling BB. He told us regulations prohibited him from selling when the price exploded. I believe those prohibitions expired, so did he sell during the last run up or will he come up with a new excuse?

 

Moving on from Blackberry there is that little problem with Torstar.

 

Why did he give Paul Rivett a sweetheart, under the table deal, on Torstar which seems to have cheated shareholders? There are some serious questions that need to be answered here.  

 

But some think Prem’s motives are beyond reproach. Read on.   

 

Let’s not forget the disgraceful and embarrassing Fibrek - Resolute deal where Fairfax blatantly ripped off Fibrek shareholders and both Watsa and Rivett ended up being investigated for insider trading.

 

That investigation resulted in Fairfax being put on trial and Watsa was hauled into court where he attempted an embarrassing feeble attempt to explain his actions.

 

The judge found Fairfax “was in a blatant conflict of interest situation” and that Watsa’s testimony was “purposely forgetful” and “mindboggling”. “Watsa often appeared to be on the defensive and when pressed on crucial factual elements, the witness hastily took refuge behind ‘I do not remember’ or the like.”

 

“Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony”

 

And of course Fairfax reaction to the judgement against them was: “A spokesman for Fairfax disputed the judge’s conclusions, and said the company may appeal.” For the record, Fairfax did not appeal - which tells you all you need to know. An honest, innocent party would defend their reputation at all costs.

 

Remember how Watsa used to say “Fairfax” stands for “Fair and Friendly” acquisitions? Well in this incident Fairfax was found by the judge to be “complicit with Resolute in the abusive hostile take-over bid scheme to the detriment and prejudice of the dissenting shareholders,” Fair and friendly for sure.

 

https://www.bnnbloomberg.ca/watsa-s-mindboggling-reasoning-in-takeover-prompts-court-award-1.1323226

 

And by the way ....

Recently Blackberry shareholders began an attempt to dump Watsa from the BB board as “Watsa is plainly unfit to serve as a director of the Company”.

 

Blackberry shareholders went on to say:

 

“Watsa has a history, when presented with a conflict of interest, of working against the interests of minority shareholders and for the benefit of Fairfax. Even before the Fairfax Refinancing, in September 2019, the Quebec Superior Court rendered a judgment in which it found that Watsa and Fairfax, as insiders of Fibrek Inc., acted in a "blatant conflict of interest situation" for the benefit of Fairfax by enabling the acquisition of Fibrek at the "lowest possible price," to the detriment of Fibrek's minority shareholders who were bought out at an unfairly low price. The Quebec Superior Court, in awarding those minority shareholders $13.5 million plus interest, also found that Watsa abused his position of trust and confidence at Fibrek by failing to disclose Fairfax's true intentions to Fibrek's management, and that Watsa's testimony at trial was not credible—indeed, the Canadian judge found Watsa's explanations to be "mindboggling." The judge further described the situation as "odious" and "reprehensible." One who lacks credibility and engages in odious and reprehensible conduct to the detriment of minority shareholders is not fit to be a corporate director.”

 

https://www.newswire.ca/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-857512533.html
 

Thanks for this and all the other posters Greg, Speke, Eric etc.  that challenge and provide a contrarian/anti-group think perspective .  Equal thanks to Sanj, Viking, Daphnee etc.   At the end of the day we will draw our own conclusions but Sanjeev you must be proud to have cultivated this culture.  Still superior to ML/AI as far as I am concerned . Looking forward to the earnings release

[petec]

17 hours ago, Parsad said:

No one was buying MSFT when Ballmer was running it. 

 

Value investors like Prem should have been all over it. Ballmer's MSFT had an image problem, but it was an incredible company. The market thought Google Docs would kill Office, iThings would kill Windows, and the cloud would kill servers. The problem is, MSFT sells to enterprises, where Office and Windows were deeply embedded (I lived in Office at the time, and still do, and so did my colleagues, yet the company I worked for in 2010 spent more on milk for the office fridge than on Office subscriptions). And MSFT was spending 3x more on R&D than Apple and Google combined, and 90% of it was in the cloud. So it wasn't *that* hard to look past the sweaty man at the top and say: this is an incredible company and there is a good chance the market is wrong. The damned thing got as cheap as 6.5x fwd EV/FCF if I recall correctly. I can understand why growth investors avoided it, but I cannot for the life of me understand why value investors did. Temporarily challenged or misunderstood earnings power should be a value investor's bread and butter. Instead we got Resolute.

 

I could stomach the criticism of current tech valuations better if Prem had a record of loading up when great tech companies are cheap. He doesn't - although I think he tried with BB. The only reason I can think that he bought it when he did is if he totally underestimated the impact of the iPhone. I don't buy the argument that he did it out of misplaced loyalty to Canadian business - I think when one reads the letters etc. one has to remember they're not just aimed at shareholders and there is some PR going on.

 

Anyway my underlying point is one I have made before. I have no issue with the kinds of investments Prem buys. In fact, I don't think he is easy to categorise - sometimes value, sometimes growth, sometimes startup - and I also think hindsight bias drives a lot of the criticism of his "value" style. in my view the real problem was simply that Prem was wrong too often, which suggests that many of the investments were badly underwritten.

 

(Example: I remember Prem justifying Quess on 30x earnings by pointing out how fast the PE comes down when a company is growing at 30% - but he couldn't buy Microsoft, a far higher quality company, when it got to 12x. Unsurprisingly Quess didn't stay at 30x for long.)

 

What makes me more positive is that I think the ship is turning. I think more due diligence is being done and Prem is listening more. I cannot prove this but when I look at where the bulk of the money is now, I like it. And I seem to be able to buy what will almost certainly be $600+ of fully adjusted year-end 2021 BVPS for $410. Suits me.

 

BTW: I have held FFH since 2008 and been wrong. Once I thought I would never sell. Now, I view selling at some point as a fundamental test of my discipline as an investor. I owe that to many of the naysayers on the board. Thanks, Cassandras!

 

EDIT: I didn't read the whole thread before writing this and I realise I have repeated some things. Sorry!

Edited July 29, 2021 by petec

[petec]

16 hours ago, Parsad said:

No one understood it then.  To imagine that a money manager could have the foresight to invest in MSFT because of the development of Azure is like imagining a money manager to be able to pick the winning numbers in the lottery.

 

You didn't have to. I remember running scenarios where they just cut some R&D and put the business into runoff and the share was still OK value. No good outcome was priced in, yet plenty were possible. 

[Gregmal]

7 hours ago, steph said:

I have been on and off a shareholder of FFH for more than 15v years now.  They have made big mistakes.  They have done things they said they would not do.  I am always afraid that when they see a cigar butt they just can’t resist and buy it.  

Interest rates are low and are a big drag on potential earnings.  So many reasons to not touch this one. 

But in these last 15 years I think it is the best opportunity we have had to buy FFH.  An investment is always about probabilities, it is not perfect science.  FFH is today in my humble opinion a very good risk/return investment.  Worst case it will be average.  But chances of very strong returns are high.  

Core business (insurance) is much better than it has ever been.  Insurance market is also strong.  On the bond side they have always been if not the best, one of the bests.  The problem are macro calls, shorts and deep value long positions.  Shorts are out.  Their deep value positions were just recently at all time lows.  We are witnessing strong rebounds.  But what matters most are their Indian positions and Atlas.  Atlas is very well managed, is in a very strong market for the next years and should do well.  But the sherry on the cake is Digit.  Sequoia just invested at a valuation of 3,6 billion.  They don’t do this for a quick double.  This thing could be valued at crazy prices.  Compared to the market cap of FFH this is huge.  

The crazy thing is that you get it for free.  My conclusion is that there are many free options with FFH.  This stock (management) is completely out of favor and gets no credit at all for the good things they have done (Digit).  

For me one of the best risk/returns out there. 

 

This is fair and I genuinely do hope everyone makes money here. There's just a lotta stuff here from folks that more or less sounds like "I know she steals from me, and lies to me, and Ive gotten over the fact that she fucked my friends and regularly throws shit at me....but I still love her"...

 

I think BB has a ton of different angles to it. Im closer to that at least because I was long into the buyout announcement. And frankly, it was one of the most bizarre things I've witnessed. The bid seemed like it was disingenuous and really just meant to prompt another buyer to come forward. He talked it up and then made a shitty offer like 5% above market. Then it turns out he couldn't even get financing(and I'm not sure he ever really knew he could get it, or even wanted it)...then the "take private" offer devolves into some stupid partial but remain public deal.....it was just really disgraceful and seemed like something got bungled and what transpired wasn't exactly according to the plan. IIRC that was at $10. In like 2013....

[Viking]

Resolute Forest Products released stellar Q2 results (as expected). The special dividend of C$1.00/share was paid July 7. Fairfax was paid C$24.8 million (not including the Riverstone UK holdings). 
 

The management team at Resolute has done an outstanding job over the past few years. Repositioned the company. Paid down debt. Bought back significant amount of stock at depressed prices. Paid significant special dividend.

 

Moving forward i expect more good news from Fairfax owned companies. As the economy improves in 2H the earnings of many companies will also improve and this will benefit Fairfax in many different ways:

- growing dividends (regular and one time).

- growing earnings flowing though to reported Fairfax earnings

- higher stock prices (for those companies that are publicly traded)

- opportunity for Fairfax to monetize more holdings
 

A headwind will become a tailwind. Resolute is the example today (C$24.8 million gain coming in Q3). Stelco is earning crazy cash right now. Recipe is poised to deliver much improved results as the Canadian economy reopens. Dexterra is poised to do very well in 2H. There are lots more examples.

—————————-
From the RFP release: “The company repurchased 343,894 shares in the quarter, at an average price of $11.21, and it declared a special cash dividend of $1 per share of common stock, or $79 million in aggregate, which was paid on July 7 to holders of record at the close of business on June 28.”

 

https://finance.yahoo.com/news/resolute-reports-preliminary-second-quarter-110000254.html

[ERICOPOLY]

1 hour ago, petec said:

 

Example: I remember Prem justifying Quess on 30x earnings by pointing out how fast the PE comes down when a company is growing at 30% - but he couldn't buy Microsoft, a far higher quality company, when it got to 12x. Unsurprisingly Quess didn't stay at 30x for long.)

 

Nor could he buy MSFT at 40x.  And one can equally point out how fast the PE comes down when a company is growing at 30%. 

 

It's not like it's growing earnings at 5% with a 40x PE.

 

Context.

Edited July 29, 2021 by ERICOPOLY

[ERICOPOLY]

Sanjeev and I both agreed we don't know if the probability is 30% or 60%.

 

However (and I haven't gone to see Warren and Charlie 40 times), it is plain as day that Warren has increased his odds by keeping it simple -- investing in boring industries and boring companies, with long histories, and high quality franchises, with capable managers, all of which put together increase his odds of knowing when it's really and truly 90%.

 

That's his wisdom that he repeats and repeats ad nauseum.

 

I think Warren realized a long time ago that margin of safety is ephemeral because it is subject to bias.  And he has these mechanisms to help him improve his success at calculating the odds, and no matter how many times he repeats himself people still don't listen.

Edited July 29, 2021 by ERICOPOLY

[Xerxes]

Folks,

Not to repeat myself from a month ago or so:

On comments on why he didnt buy AAPL/MSFT but bought this. etc. why Quess as high p/e. etc.

 

Prem (i believe) is first and foremost a businessman and then an investor. Therefore, his investing style is always with an eye to build something from the ground-up and help nurture an entity as a financier (if outside his domain of expertise). He is not there to take a swing at Microsoft or Comcast as a game-changing bet. This is not about value vs. growth but rather owning businesses vs. owning stocks mindset.

 

His equity portfolio has two major components: i call them Beta and Alpha baskets. The Beta basket is managed by his underlings, that broadly matches the S&P500. The Alpha basket is his own bet, with an eye to not own as a stock but as a business or a platform. That is the basket that ought outperform with a caveat of having lumpy returns.

 

I believe you all are commenting as investors first, looking at valuation metrics solely, and less as someone interested to have a piece of this business-building machine for better or worse.