Fairfax 2021

[Gregmal]

23 minutes ago, Viking said:

bearprowler6, i think most on this board would agree with your assessment that Fairfax shares have performed very poorly over the last 2 year and longer time frames. Over the past year, however, the stock is up 30% which is a solid return. And the question investors really want answered is where is the stock going to go from here (US$397)?

Come on man, this is so awful and literally setting the bar floor low. First, I would say the encapsulation of the above highlighted in a more practical way is the following..."only if you've engaged in very short term trading over the past 10 year period, but more specifically, the past 12-18 months, have you been able to make money on FFH"...the same of course can be said for pretty much any security that exists on the market. Second, 30% year over year from where things were last fall is pretty awful. Without specifics I would just say my overall portfolio is up multiples of that on a TTM basis; its a useless stat given the context of what happened in the world. It would be amusing but would anyone care to put together a list of all companies publicly available that have done greater than 30%? This is hardly an achievement. 

 

Overall, Ive backed off the commentary here because I was getting a bit redundant but its still the same thing. Whats you're catalyst? Pointing to things the market already knows and saying "eventually Mr. Market will realize it" or "next earnings" isnt a catalyst. People have been saying these things for years, or even more recently pounding the table hard all year and the stock hasn't gone anywhere. That means that those things arent your catalyst. Ive stated the catalysts before, and @Spekulatius began touching upon them again a few posts up. Until those things start to happen you're wasting your time here and at best should be angling to trade 10% fluctuations. 

[bearprowler6]

glider3834 and Viking....let me start this post by sincerely thanking you both for your contributions to this board and in particular for your work on trying to figure out Fairfax and where its stock price will go. Believe it or not, I read both of your very thoughtful and numerous high quality posts with great interest each and every time.

 

Now back to Fairfax. I will try to be more succinct in my comments so that my view on Fairfax and the reason behind it are more clear. I do not expect anyone to agree with my view on Fairfax nor care if anyone does or does not. I have my own reasons for posting on Fairfax (I have shared this privately with a few of you). 

 

In a nutshell here our my views. Fairfax has been operation for almost 40 years. Prem and his team have built a large international insurance conglomerate they should be proud of. I do not however believe that the current collection of assets (insurance and otherwise) combined with the company's capital structure, current executive management team and board composition will result in the company's share price (which is all I care about) increasing at a reasonable compound rate over the medium and/ or long term. In other words, although the potential is there I do not believe a sustainable long term solid compounding of its share price is possible given the Fairfax that sits in front of us today. 

 

Can an investor who follows the company realize a 30%+ rate of return if you buy in on one of the dips and hold for a 12-18 month period. Sure this can happen! I am not talking about this. I am addressing a consistent long term build in the company's share price. 

 

Despite the potential and for reasons that are inexplicable at least to me; Fairfax has not and in my view will not be a long term compounder of wealth at any exceptional rate of growth. Why is this? I honestly don't know however several years ago I gave up trying to figure of the "why" and simply came to see Fairfax for what I believe it is. Nothing I have seen since then has changed my view.

 

Do I believe that Mr Market exists and occasionally offers up a short term opportunity on Fairfax and a number of other stocks. For sure however I believe  Fairfax is well known and well followed and except for the short term trading opportunity offered up every so often (e.g., in March/April 2020 due to the outbreak of the pandemic) I believe that the market has its valuation about right (give or take $100 per share to the upside). 

 

Unless and until Prem changes his ways ; which is not something I would bet on, then I believe that Fairfax at current levels offers up reasonable prospects of a 8-10% gain over the next 6 months or so along with its Jan/22 dividend payment. Not a bad return from these levels! After this I believe the share price will continue bounce around current levels more or less for the foreseeable future. In other words, I do not however believe that Fairfax currently offers a chance at  a sustained 12-15% rate of return over the long or medium term from its current share price.

 

My many reasons for this view have been stated on here many times so no need to repeat all my thoughts on this subject again at this time. I believe however that the "market" is simply fed up with all of the issues that continually arise at Fairfax and as a result detract from the valuation that it is willing to place on the shares despite the many very well thought out BV and P/E calculations that members of this board and elsewhere continue to offer up that suggest a much higher share price is on the horizon.

 

 

 

 

 

 

 

 

 

 

 

 

[Viking]

25 minutes ago, Gregmal said:

Come on man, this is so awful and literally setting the bar floor low. First, I would say the encapsulation of the above highlighted in a more practical way is the following..."only if you've engaged in very short term trading over the past 10 year period, but more specifically, the past 12-18 months, have you been able to make money on FFH"...the same of course can be said for pretty much any security that exists on the market. Second, 30% year over year from where things were last fall is pretty awful. Without specifics I would just say my overall portfolio is up multiples of that on a TTM basis; its a useless stat given the context of what happened in the world. It would be amusing but would anyone care to put together a list of all companies publicly available that have done greater than 30%? This is hardly an achievement. 

 

Overall, Ive backed off the commentary here because I was getting a bit redundant but its still the same thing. Whats you're catalyst? Pointing to things the market already knows and saying "eventually Mr. Market will realize it" or "next earnings" isnt a catalyst. People have been saying these things for years, or even more recently pounding the table hard all year and the stock hasn't gone anywhere. That means that those things arent your catalyst. Ive stated the catalysts before, and @Spekulatius began touching upon them again a few posts up. Until those things start to happen you're wasting your time here and at best should be angling to trade 10% fluctuations. 

Greg, Cleveland Cliffs stock price was trading at $93 in May of 2011. Today it is trading at $19.66. What does the $93 share price from 2011 tell a Cleveland Cliffs investor today? Absolutely nothing of value. Is Fairfax not the same? Their share price from 10 years ago tells us nothing about whether the stock is a good buy today.

 

Cleveland Cliffs stock was trading over $18.50 in January. Today it is trading at $19.66. What does this tell an investor today? Fairfax was trading in the US$370 range in January and today it is trading in the $390 range. What does this price move tell an investor today? Very little. 
 

Are you suggesting that if someone purchased Fairfax in November of last year or January of this year or on Friday, like Spek, that it ‘doesn’t count’? Because it is ‘very short term trading’? I am sorry but that is bizarre. 
 

‘30% year over year from where things were last fall is pretty awful’ Terrible decision to buy Fairfax a year ago because it has only returned 30%? Hello? 
 

And yes, the catalyst question has been discussed pretty extensively previously so i won’t rehash it here. 

[Gregmal]

7 minutes ago, Viking said:

Greg, Cleveland Cliffs stock price was trading at $93 in May of 2011. Today it is trading at $19.66. What does the $93 share price from 2011 tell a Cleveland Cliffs investor today? Absolutely nothing of value. Is Fairfax not the same? Their share price from 10 years ago tells us nothing about whether the stock is a good buy today.

 

Cleveland Cliffs stock was trading over $18.50 in January. Today it is trading at $19.66. What does this tell an investor today? Fairfax was trading in the US$370 range in January and today it is trading in the $390 range. What does this price move tell an investor today? Very little. 
 

Are you suggesting that if someone purchased Fairfax in November of last year or January of this year or on Friday, like Spek, that it ‘doesn’t count’? Because it is ‘very short term trading’? I am sorry but that is bizarre. 
 

‘30% year over year from where things were last fall is pretty awful’ Terrible decision to buy Fairfax a year ago because it has only returned 30%? Hello? 
 

And yes, the catalyst question has been discussed pretty extensively previously so i won’t rehash it here. 

Again, come on man. The length you guys are going to rationalize this garbage is crazy.

 

CLF 

1 yr 193%

3 yr 58%

5 yr 252%

 

FFH

1 yr 33%

3 yr -4%

5 yr -28%

 

See the difference? Management change at CLF made the difference. Why not give it a try here? And yes, if you are content with 30% TTM given the opportunity set presented by covid, thats on you. IMO its pretty poor. You could've even just bought plain vanilla BAC or JPM and done more than double that. But whatever. I'll come back in a (insert timeline) and people will still be talking about "any day now, Mr Market will wake up"...

[KPO]

14 minutes ago, Gregmal said:

Again, come on man. The length you guys are going to rationalize this garbage is crazy.

 

CLF 

1 yr 193%

3 yr 58%

5 yr 252%

 

FFH

1 yr 33%

3 yr -4%

5 yr -28%

 

See the difference? Management change at CLF made the difference. Why not give it a try here? And yes, if you are content with 30% TTM given the opportunity set presented by covid, thats on you. IMO its pretty poor. You could've even just bought plain vanilla BAC or JPM and done more than double that. But whatever. I'll come back in a (insert timeline) and people will still be talking about "any day now, Mr Market will wake up"...

I don’t know that these things are mutually exclusive. Sometimes I buy stocks that are just plain cheap and I’m willing to invest in the time it takes for mean reversion (Fairfax & T now, KMI, WMB, RDSB & BRK in March of 2020) and sometimes I buy things with an obvious catalyst (MRK is my most recent example), and sometimes you just buy things with a nice tailwind (APTS last fall). The objective is to maximize returns on a risk adjusted basis, so spreading bets makes sense to me as 100% catalyst-based investing doesn’t always work out. 

[glider3834]

On 10/3/2021 at 1:22 AM, bearprowler6 said:

2) The eastern European and South American insurance operations along with those in the middle east and South Africa are too small to be meaningful. They are basically cast offs from AIG and we all know why AIG was selling!

Fairfax paid $240 mil cash for AIG Europe, South America and AIG Turkey. Fairfax then onsold AIG Turkey to GIG for $48 mil https://www.xprimm.com/TURKEY-GIG-aquired-AIG-Sigorta-for-USD-48-million-articol-2,143,11-9427.htm

 

So net purchase cost $192 mil

 

1. With AIG Europe,  looks like Fairfax (via their sub Colonnade) bought the renewal rights  & operating assets plus staff from AIG but not the liabilities, but offered to help AIG manage them (for an additional fee? not sure)

Through an ongoing partnership, the company is providing claims handling and run-off management services to AIG in the European countries where business operations were acquired.

 

Colonnade appears to have been underwriting profitably every year since 2017 & in 2020 had NPW $150mil & 

combined ratio 93%.

 

2. With AIG Latam, they bought the whole business with shareholder equity of $145 mil & GPW $580 mil in 2017. Looks like they have had issues (Chilean riots, Argentina inflation) which caused underwriting losses in 2018 (CR 119%) & 2019 (CR 117), but they appear to have focused on not growing top line just the bottom line - in 2020 they wrote $616 mil GPW ($219 NPW) with a CR 98% & had shareholder equity of $137mil.

 

So I guess they paid $192 mil & 4 years on receiving NPW $369 mil with both subs generating underwriting profit in 2020. 

 

We can look at the acquisitions in $ terms, but I think Fairfax look at these more strategically - it costs money & time to set up an insurance business in a foreign country from scratch, apply for insurance licences etc - they got all of this with these acquisitions.

 

In terms of Fairfax's growth internationally & their record, I think it is more useful to look at their performance across the entire international business - see below

 

 

 

 

 

 

 

[Gregmal]

14 minutes ago, KPO said:

I don’t know that these things are mutually exclusive. Sometimes I buy stocks that are just plain cheap and I’m willing to invest in the time it takes for mean reversion (Fairfax & T now, KMI, WMB, RDSB & BRK in March of 2020) and sometimes I buy things with an obvious catalyst (MRK is my most recent example), and sometimes you just buy things with a nice tailwind (APTS last fall). The objective is to maximize returns on a risk adjusted basis, so spreading bets makes sense to me as 100% catalyst-based investing doesn’t always work out. 

Thats correct. There's different reasons for lots of things; investing is not static(yes tell that to the old school Watsa type value investors!) you have to be fluid and two situations that on paper look the same can in reality be very different. But over a 1/3/5 year period if you're not making money, you're wrong. Plain and simple. If your money comes from trading, thats not a good investment. Its a trading sardine. It literally been the same story with FFH since the day I joined this board. And all folks have to show for it is "if you bought the covid dip you got an outsized short term return" which even there, if you look into "outsized" is at best debatable and more likely probably wrong. The things I keep hearing about as the reasons for this rerating just arent gonna do it. You really dont think the market knows we're in an insurance hard market???? Or that FFH has Digit? Sure at times the market misses stuff, but this is just plain info thats out there. Its not hidden, there hasn't been an inflection. All that matters is that the same issues warrant a discount and in general, Mr. Market and its participants arent just going to roll over and say "hey, thanks for the reassurance Prem, here's 1.3x book!". Someone who's previously being a bad actor doesnt just all of a sudden get the benefit of the doubt because he said he'll change. Until those things are addressed, the poor multiple will persist, and none of the stuff people point to really matters all that much until then unless you're cool only getting 70c on every dollar going forward. 

 

Another way to look at this, is that Berkshire trades at a discount to its intrinsic value. So with that in mind, why do folks think FFH is worth anything close to that?

 

I agree catalyst based investing should be complimented with other stuff. But thats what the Berkshires, Costcos, Waste Managements, and Mastercards are for. Honestly, thats probably what an index is for LOL. The only reason I can think of even considering touching this is for the catalyst driven momentum/rerate trade. Otherwise there's just nothing special about it. Sketchy financial companies trading at discounts are a dime a dozen.  

Edited October 3, 2021 by Gregmal

[Gregmal]

So I'll throw this out there. If Prem and Co are really serious about doing right by shareholders, why not do a strategic review and put everything up for sale? That would 100% create the best return for shareholders. 

 

The answer to the question is almost certainly also the answer to the question of "why does this trade like junk?". 

[bearprowler6]

8 minutes ago, glider3834 said:

Fairfax paid $240 mil cash for AIG Europe, South America and AIG Turkey. Fairfax then onsold AIG Turkey to GIG for $48 mil https://www.xprimm.com/TURKEY-GIG-aquired-AIG-Sigorta-for-USD-48-million-articol-2,143,11-9427.htm

 

So net purchase cost $192 mil

 

1. With AIG Europe,  looks like Fairfax (via their sub Colonnade) bought the renewal rights  & operating assets plus staff from AIG but not the liabilities, but offered to help AIG manage them (for an additional fee? not sure)

Through an ongoing partnership, the company is providing claims handling and run-off management services to AIG in the European countries where business operations were acquired.

 

Colonnade appears to have been underwriting profitably every year since 2017 & in 2020 had NPW $150mil & 

combined ratio 93%.

 

2. With AIG Latam, they bought the whole business with shareholder equity of $145 mil & GPW $580 mil in 2017. Looks like they have had issues (Chilean riots, Argentina inflation) which caused underwriting losses in 2018 (CR 119%) & 2019 (CR 117), but they appear to have focused on not growing top line just the bottom line - in 2020 they wrote $616 mil GPW ($219 NPW) with a CR 98% & had shareholder equity of $137mil.

 

So I guess they paid $192 mil & 4 years on receiving NPW $369 mil with both subs generating underwriting profit in 2020. 

 

We can look at the acquisitions in $ terms, but I think Fairfax look at these more strategically - it costs money & time to set up an insurance business in a foreign country from scratch, apply for insurance licences etc - they got all of this with these acquisitions.

 

In terms of Fairfax's growth internationally & their record, I think it is more useful to look at their performance across the entire international business - see below

 

 

 

 

 

 

 

glider3834....once again....I don't disagree with your analysis. Sadly however this analysis DOES NOT tell the whole story! The market simply does not care or more likely takes other items into consideration that detract from the otherwise positive picture you have painted. In other words, your analysis is good but (and I mean no disrespect by saying this) it is simply not complete.

 

Furthermore, the  items missing from your analysis are more qualitative in nature which I know must be frustrating for someone who does such complete and thorough analysis numerical analysis. I believe that the market does not place any value on the premium growth in these markets because "it" believes that Fairfax should focus on other matters first. For example, share buybacks, buying out the minority interests in Allied World and Brit and buying out/cancelling the numerous classes of expensive preferred shares outstanding.

 

Read what Gregmal is writing. He has it right about Fairfax. 

 

 

[KPO]

32 minutes ago, Gregmal said:

Thats correct. There's different reasons for lots of things; investing is not static(yes tell that to the old school Watsa type value investors!) you have to be fluid and two situations that on paper look the same can in reality be very different. But over a 1/3/5 year period if you're not making money, you're wrong. Plain and simple. If your money comes from trading, thats not a good investment. Its a trading sardine. It literally been the same story with FFH since the day I joined this board. And all folks have to show for it is "if you bought the covid dip you got an outsized short term return" which even there, if you look into "outsized" is at best debatable and more likely probably wrong. The things I keep hearing about as the reasons for this rerating just arent gonna do it. You really dont think the market knows we're in an insurance hard market???? Or that FFH has Digit? Sure at times the market misses stuff, but this is just plain info thats out there. Its not hidden, there hasn't been an inflection. All that matters is that the same issues warrant a discount and in general, Mr. Market and its participants arent just going to roll over and say "hey, thanks for the reassurance Prem, here's 1.3x book!". Someone who's previously being a bad actor doesnt just all of a sudden get the benefit of the doubt because he said he'll change. Until those things are addressed, the poor multiple will persist, and none of the stuff people point to really matters all that much until then unless you're cool only getting 70c on every dollar going forward. 

 

Another way to look at this, is that Berkshire trades at a discount to its intrinsic value. So with that in mind, why do folks think FFH is worth anything close to that?

 

I agree catalyst based investing should be complimented with other stuff. But thats what the Berkshires, Costcos, Waste Managements, and Mastercards are for. Honestly, thats probably what an index is for LOL. The only reason I can think of even considering touching this is for the catalyst driven momentum/rerate trade. Otherwise there's just nothing special about it. Sketchy financial companies trading at discounts are a dime a dozen.  

I think we’re generally aligned here in terms of this being a trade vs a buy and hold forever investment, but I’m not quite looking at Prem through the bad actor / Biglari scumbag lens. If I thought his MO was to screw shareholders I wouldn’t be here. BTW, I agree 100% on your strategic review point, but the IPOs are a form of that, so they’re moving in the right direction in that regard. 

[Gregmal]

For the record, I dont at all think Prem is out the "screw" shareholders. Its just very clear to me that he has very different priorities at this point in his life and maximizing shareholder value certainly isnt high up on the list. He knows the company isnt going away(IE facing any sort of existential threat) so at this point its really just about status, ego, kingdom building, nepotism, etc. It would almost even be easier as a catalyst if he was purely a greed mongering money whore trying to screw shareholders with tender offers, take unders, and purposely poor disclosure. Shits good from Prem at this stage in the game, what in the world compels him to change anything? Snarky analysts and grumpy small fry shareholders? I dont think so. 

[Viking]

3 hours ago, bearprowler6 said:

Can an investor who follows the company realize a 30%+ rate of return if you buy in on one of the dips and hold for a 12-18 month period. Sure this can happen! I am not talking about this. I am addressing a consistent long term build in the company's share price. 

bearprowler6, thanks for the clarity. I think i have said many times before that Fairfax is a trade for me and not a long term hold. So you and i are going to come at this in a very different way   Thanks for taking the time for sharing your thoughts.

[glider3834]

11 hours ago, StubbleJumper said:

With respect to discount to BV that the Fairfax entities trade at (ie, FFH, FF India and FF Africa), I would note that this is not entirely unusual for family controlled companies.  One only needs to look at the Jackman family entities, namely E-L Financial, Economic Investment Trust and United Corp.  All of them have chronically traded at a discount to book, despite solid but unspectacular management by the Jackmans:  

 

Sure but is it family control that is the primary driver of that BV discount? I don't think thats the main driver - there are other family/majority controlled insurance/investment businesses that trade at a premium to book. 

 

The difference with Fairfax is that these other businesses have a better financial/operating performance over the last few years than Fairfax. Fairfax is working on that & I think results in 2021 show they are on right path.

 

In terms of comparison, ELF is a investment company with a Canadian life insurance subsidiary. Fairfax is mostly a global, property casualty insurer & reinsurer with large interests in non-insurance companies.

 

So two different businesses operating in different product segments & different geographically- not really an apples to apples comparison IMO

 

Few other observations from looking at Morningstar is that ELF offers a low income yield with limited revenue growth.

ELF pays a 0.8% div yield & Fairfax pays a 2.58% div yield

ELF 3 year annualised revenue growth is 3% but trades at 1.58x sales (vs 1.75 x 5 yr avg) . Fairfax's 3 year annualised revenue growth is 12.3% & trades at 0.46x sales (versus 0.79 x 5 year avg)

 

I don't mean to imply ELF is a bad investment - have not done a deep dive so no comment on this front - I just don't think its a peer that FFH should be benchmarked against.

 

 

 

Edited October 4, 2021 by glider3834

[StubbleJumper]

Quote

Sure but is it family control that is the primary driver of that BV discount? I don't think thats the main driver - there are other family/majority controlled insurance/investment businesses that trade at a premium to book. 

 

I would argue that family control is a common enabler of an entrenched management team.  In most companies, mediocre performance tends to attract activist shareholders who push management changes.  But, when the poor management is coming from the controlling family, there's no real way for market participants to discipline the management team.  While the Desmarais entities didn't trade below book for prolonged periods, the long-term mediocrity resulted in a 5-year period where the share price was basically 1x book.  But, when there are no consequences to mediocrity....

 

30 minutes ago, glider3834 said:

The difference with Fairfax is that these other businesses have a better financial/operating performance over the last few years than Fairfax. Fairfax is working on that & I think results in 2021 show they are on right path.

 

I'd say that Fairfax is on the right path, but it might take a few years to convince the market of that.  If people are suspicious of whacko decisions by Prem, then 2021 might not be reassuring.  He has promised to stop the short-selling and he hasn't taken any large, new macro bets like the CPI options.  But, on the other hand, how does the market view Prem's decision to not sell BB or RFP when the opportunity presented itself.  It could take a number of years of good performance to convince market participants that the wacko decisions are a thing of the past.

 

35 minutes ago, glider3834 said:

In terms of comparison, ELF is a investment company with a Canadian life insurance subsidiary. Fairfax is mostly a global, property casualty insurer & reinsurer with large interests in non-insurance companies.

 

So two different businesses operating in different product segments & different geographically- not really an apples to apples comparison IMO

 

ELF and FFH are definitely different beasts, but don't forget that ELF was a diversified P&C and life outfit until it divested the P&C subsidiary to focus on the life business.

 

42 minutes ago, glider3834 said:

I don't mean to imply ELF is a bad investment - have not done a deep dive so no comment on this front - I just don't think its a peer that FFH should be benchmarked against.

 

No, it's not so much about benchmarking one against the other as noting that mediocre performance and entrenched management can result in long-term low valuation.  Doesn't mean things can't be turned around, but it's not unusual for the market to assign low valuations to those situations.  At least the Demarais family seems to have gotten some traction over the past year after making considerable structural changes and investment in new business lines.  FFH has made the investment in new business lines, but is the management better?  I guess we'll see how that evolves.

 

 

SJ

[glider3834]

1 hour ago, StubbleJumper said:

I'd say that Fairfax is on the right path, but it might take a few years to convince the market of that.  If people are suspicious of whacko decisions by Prem, then 2021 might not be reassuring.  He has promised to stop the short-selling and he hasn't taken any large, new macro bets like the CPI options.  But, on the other hand, how does the market view Prem's decision to not sell BB or RFP when the opportunity presented itself.  It could take a number of years of good performance to convince market participants that the wacko decisions are a thing of the past.

Yes agree 2021 is a start but needs to be more.

 

You are right - it is all about results in the end.

 

 

 

Edited October 4, 2021 by glider3834

[glider3834]

6 hours ago, bearprowler6 said:

glider3834 and Viking....let me start this post by sincerely thanking you both for your contributions to this board and in particular for your work on trying to figure out Fairfax and where its stock price will go. Believe it or not, I read both of your very thoughtful and numerous high quality posts with great interest each and every time.

 

Now back to Fairfax. I will try to be more succinct in my comments so that my view on Fairfax and the reason behind it are more clear. I do not expect anyone to agree with my view on Fairfax nor care if anyone does or does not. I have my own reasons for posting on Fairfax (I have shared this privately with a few of you). 

 

In a nutshell here our my views. Fairfax has been operation for almost 40 years. Prem and his team have built a large international insurance conglomerate they should be proud of. I do not however believe that the current collection of assets (insurance and otherwise) combined with the company's capital structure, current executive management team and board composition will result in the company's share price (which is all I care about) increasing at a reasonable compound rate over the medium and/ or long term. In other words, although the potential is there I do not believe a sustainable long term solid compounding of its share price is possible given the Fairfax that sits in front of us today. 

 

Can an investor who follows the company realize a 30%+ rate of return if you buy in on one of the dips and hold for a 12-18 month period. Sure this can happen! I am not talking about this. I am addressing a consistent long term build in the company's share price. 

 

Despite the potential and for reasons that are inexplicable at least to me; Fairfax has not and in my view will not be a long term compounder of wealth at any exceptional rate of growth. Why is this? I honestly don't know however several years ago I gave up trying to figure of the "why" and simply came to see Fairfax for what I believe it is. Nothing I have seen since then has changed my view.

 

Do I believe that Mr Market exists and occasionally offers up a short term opportunity on Fairfax and a number of other stocks. For sure however I believe  Fairfax is well known and well followed and except for the short term trading opportunity offered up every so often (e.g., in March/April 2020 due to the outbreak of the pandemic) I believe that the market has its valuation about right (give or take $100 per share to the upside). 

 

Unless and until Prem changes his ways ; which is not something I would bet on, then I believe that Fairfax at current levels offers up reasonable prospects of a 8-10% gain over the next 6 months or so along with its Jan/22 dividend payment. Not a bad return from these levels! After this I believe the share price will continue bounce around current levels more or less for the foreseeable future. In other words, I do not however believe that Fairfax currently offers a chance at  a sustained 12-15% rate of return over the long or medium term from its current share price.

 

My many reasons for this view have been stated on here many times so no need to repeat all my thoughts on this subject again at this time. I believe however that the "market" is simply fed up with all of the issues that continually arise at Fairfax and as a result detract from the valuation that it is willing to place on the shares despite the many very well thought out BV and P/E calculations that members of this board and elsewhere continue to offer up that suggest a much higher share price is on the horizon.

 

 

 

 

 

 

 

 

 

 

 

 

thanks bearprowler - so I guess you are saying its share price is undervalued but probably not as much as I do - thats cool we all have a different viewpoint.

 

 

[IceCreamMan]

Does anybody know when was the last time Fairfax's price-to-adjusted-book-value was this low?

[glider3834]

3 hours ago, Viking said:

bearprowler6, thanks for the clarity. I think i have said many times before that Fairfax is a trade for me and not a long term hold. So you and i are going to come at this in a very different way   Thanks for taking the time for sharing your thoughts.

I am a bit more long term focused, at least 1-2 yrs, then I will see how FFH positions themselves to decide longer term what I will do. I just like the reward/risk set up now.

 

 

Edited October 4, 2021 by glider3834

[Viking]

1 hour ago, glider3834 said:

I am a bit more long term focused, at least 1-2 yrs, then I will see how FFH positions themselves to decide longer term what I will do. I just like the reward/risk set up now.

 

 

 

Glider, I established my core position in Fairfax last November. As I have done my deep dive on the company and we have seen Q4, Q1 and Q2 results my view is 'the story' for Fairfax has gotten much better.  So I have continued to hold a core position (which I have flexed down and back up a couple of times since March as the share price has jumped around). So this could very well become a position I hold for a couple of years. That is a 'trade' type time horizon for me. When I make a big purchase I normally do so understanding it may take 1-2 years for Mr. Market to figure things out and push the share price higher. 

Edited October 4, 2021 by Viking

[nwoodman]

Excellent comments, especially the criticisms.  My simple take is that this is an opportunity that is 10 years in the making.  I am sure it wouldn't be lost on Prem that the opportunity that he got on Seaspan/Atlas was 10 years in the making too.  Fixing the  the insurance subs has probably taken just as long.  

 

I went back and grabbed the Y/E book values and overlaid them against daily prices.  They don't capture the peaks or troughs but the average is around 1.1x's including today's massive discount  and excluding my estimate of Q3 BV.  The graph says to me that the market was more optimistic than the business warranted during the teens but is way too pessimistic now.  The joys of a market.  Given the share issuance during the period of optimism, I think Prem knew it too. If the thesis is correct then shares should be bought back in spades over the next few years.  

 

I would say in Baseball terms Prem and Team have a batting average that is not great but OK.  Despite this they deserve a place in the big league and are finding some form again. There just may be a few home runs left in them yet and after a couple of good seasons the fans will be back.

 

 

Edited October 4, 2021 by nwoodman

[glider3834]

1 hour ago, Viking said:

As I have done my deep dive on the company and we have seen Q4, Q1 and Q2 results my view is 'the story' for Fairfax has gotten much better.  So I have continued to hold a core position

Yep agree -  its now a case of watching how that story plays out 

 

 

 

 

 

 

 

 

[Parsad]

18 hours ago, Spekulatius said:

I don’t think it is likely that FFH’s discount to NAV will close, the complexity and the fact that it is an controlled entity will make sure of that, even if performance improves (which is the bet that we are making). I can see this going to 1x book perhaps, but quite frankly, I don’t see this going to 1.3x book for a long time.

 

This is more of a reversal to the mean stock than a LTBH compounder for sure.

 

History shows that stocks will close their discount to intrinsic value, or even premiums to intrinsic value...it's as powerful as gravity.  Cheers!

[Parsad]

10 hours ago, bearprowler6 said:

I believe however that the "market" is simply fed up with all of the issues that continually arise at Fairfax and as a result detract from the valuation that it is willing to place on the shares despite the many very well thought out BV and P/E calculations that members of this board and elsewhere continue to offer up that suggest a much higher share price is on the horizon.

 

 

 

 

This is a fallacy.  The market never gets "tired" of something.  There can be periods of stagnation, but over time, markets always reflect intrinsic value.

 

There are always questions of a permanent "discount" at Berkshire Hathaway, yet the value keeps going up because the company generates cash.  

 

As long as Fairfax does the same over time, Mr. Market will not give a damn about Prem's behavior or Fairfax's complexity.  Markel and Berkshire are as complex...no one talks about analysts not being able to understand them.  Cheers!

[Parsad]

8 hours ago, Gregmal said:

So I'll throw this out there. If Prem and Co are really serious about doing right by shareholders, why not do a strategic review and put everything up for sale? That would 100% create the best return for shareholders. 

 

The answer to the question is almost certainly also the answer to the question of "why does this trade like junk?". 

 

This is silly Greg!  Should all closed end funds close then too by selling all of their assets?  What about Berkshire, which perpetually trades at a discount because of Buffett's age...should we put him out to pasture and sell all of Berkshire's assets?  C'mon!  Cheers!

[Spekulatius]

I think it's the troika of 1) mixed execution & track record  2) family control 3) complexity that is keeping the valuation low.

Improve any of the three or even 2  or 3 out of the 3 and the valuation will improve, everything else being equal. I think the FFH Morningstar report card gives a good view of the market perception of FFH.

 

There are well managed family controlled conglomerates that trade at a discount to NAV. Exor and even Berkshire come to my mind as well, as some Malone entities come to my mind. ELF also has an issue with lack of liquidity on top of the above.

 

 

Someone pointed out that FFH did trade at 1.2x book a few years ago in 2018. I checked it out and FFH definitely trades at below pre-COVID-19 multiples. For me, it's a rerating trade. If we get to 1.0x book and book keeps rising at a decent rate, one could see a 40% return from here, plus some dividends.