Auction Buyback Announced

[ERICOPOLY]

1 hour ago, Cigarbutt said:

Contrary to others here, i thought that the valuation multiple used when the minority stake was then 'privatized' was lowish but acceptable

Wasn't it 1.3x tangible book?  I thought a good deal of their compounding was due to investing prowess which I felt shouldn't have a multiple because stocks trade at what they trade at.  If their portfolio is marked to market, that's all it's worth.  (the whole "magic hat" debate).

[Cigarbutt]

^The offer was in 09 2009. Based on Q2 2009, it was 1.16 BV (no recognized intangibles) and based on Q3 2009, 1.02 BV. Looking back at how ORH had sailed through 2008-9, this looked low but looking forward maybe not.

After, their seer luster lost some glitter.

Funny how capital flows. Then FFH issued 2.88M shares at 347 (1B) in order to buy 27.4% of ORH not held (total ORH common equity value 3.65B). FFH also eventually redeemed the ORH A and B preferred shares but that's another story.

[Parsad]

3 hours ago, Viking said:

Greg, when you say ‘tons of garbage’ what specific positions are you referring to? And what makes the position ‘garbage’ in your eyes? Where its performance is going to suck big time in 2022 and 2023?
 

Below are Fairfax’s top 5 ‘equity’ positions representing close to 40% of the equity bucket. What companies on the list are going to perform like garbage in 2022 and 2023? For sure at least 3 of the 5 positions must be complete dogs in your eyes…  Because its the big dogs that will make or break Fairfax’s equity performance (not the tiny positions). 
 

1.) Atlas (13%) is their largest position by far. Piece of shit? Sokol is an idiot. Terrible prospects. Sell it yesterday!

2.) Eurobank? Sell it now! Right when the business is fixed, and the Greek economy is coming out of a decade long depression and the bank is poised to do exceptionally well! Got it!

3.) Blackberry: well ok; you have a point here… but this is one position. And I will readily admit that I really have no idea about its future prospects... So my uninformed view on this company is pretty much useless for others  
4.) Fairfax TRS. Unwind that position NOW! Really? 

5.) Fairfax India. Punt it! Trading at .63xBV? Forget that the management team there is hitting the ball out of the park.

The 5 to 10 positions are only about 16% of the total equity portfolio (small):

6.) BDT Capital Partners: solid long term performing holding. Sell! 

7.) Quess: home run, long term holding, up +100% last 12 months. Woof!

8.) Stelco: sitting on $1billion in cash; star CEO. Punt that puppy!

9.) RFP: US new home construction starting secular bull market. Sell this lumber stock now! 
10.) Recipe: Sell! Right before Canada reopens and restaurant sales take off! 

 

Thank you Viking! 

 

But I'm sure Greg will respond with "If any decent CEO was running Fairfax, they would get rid of Blackberry!  What a POS!  C'mon guys...been a 7 year turnaround already!" 

 

And with that..."bring in the young guys who are hungrier!" 

 

Cheers! 

[mcliu]

Imagine if they had bought msft or aapl instead of bb though..

 

I don’t think rfp, stelco, bb, recipe are  businesses with a moat, which is what they should be buying at this size. 

[Gregmal]

9 hours ago, Viking said:

Greg, when you say ‘tons of garbage’ what specific positions are you referring to? And what makes the position ‘garbage’ in your eyes? Where its performance is going to suck big time in 2022 and 2023?
 

Below are Fairfax’s top 5 ‘equity’ positions representing close to 40% of the equity bucket. What companies on the list are going to perform like garbage in 2022 and 2023? For sure at least 3 of the 5 positions must be complete dogs in your eyes…  Because its the big dogs that will make or break Fairfax’s equity performance (not the tiny positions). 
 

1.) Atlas (13%) is their largest position by far. Piece of shit? Sokol is an idiot. Terrible prospects. Sell it yesterday!

2.) Eurobank? Sell it now! Right when the business is fixed, and the Greek economy is coming out of a decade long depression and the bank is poised to do exceptionally well! Got it!

3.) Blackberry: well ok; you have a point here… but this is one position. And I will readily admit that I really have no idea about its future prospects... So my uninformed view on this company is pretty much useless for others  
4.) Fairfax TRS. Unwind that position NOW! Really? 

5.) Fairfax India. Punt it! Trading at .63xBV? Forget that the management team there is hitting the ball out of the park.

The 5 to 10 positions are only about 16% of the total equity portfolio (small):

6.) BDT Capital Partners: solid long term performing holding. Sell! 

7.) Quess: home run, long term holding, up +100% last 12 months. Woof!

8.) Stelco: sitting on $1billion in cash; star CEO. Punt that puppy!

9.) RFP: US new home construction starting secular bull market. Sell this lumber stock now! 
10.) Recipe: Sell! Right before Canada reopens and restaurant sales take off! 

While I can appreciate your enthusiasm, its this exact mentality that creates cycles/in favor and out of favor opportunities. A lot of things have happened over the past 12-24 months. Some are temporary and some are not. However I can find a way to mentally do what you're falling victim to here with other stuff that is clearly crap too. I mean Gamestop? What a turnaround! And gaming is a massive future opportunity. They have paid off all debt and now have a massive net cash position and stand to benefit big time from future trends in the space! Like WTF...you see how silly that sounds even though that same enthusiasm would be just as true for yours in regards to Prems stock portfolio? Resolute is a piece of junk. The guy has owned it forever. I remember in 2013 hearing how Prem leadership and direction there was a bull case and the stock was at $16...The only exception I'd make here is Atlas but I dont want to get into arguing individual names one by one because that misses the point. Your garbage has caught a bid. Even if its something you like, your stock trades at 65 cents on the dollar, sell that shit now, and make that gap disappear. You've had 5-10 years and in some cases more to be right about your stocks, maybe they've worked. and maybe they haven't, but if you believe you are a semi reasonably capable allocator, then there is ZERO way around the fact that selling them to repurchase your own shares and sure up your liquidity position is FAR better risk/reward. 

 

And FWIW, TRS are not an equity position. He can sell those or add to them all he wants but he's only doing that because he cant afford to do a real buyback. If anything else the fact the TRS is so big now is more reason to get out of the other stuff. 

[Gregmal]

1 hour ago, mcliu said:

Imagine if they had bought msft or aapl instead of bb though..

 

I don’t think rfp, stelco, bb, recipe are  businesses with a moat, which is what they should be buying at this size. 

Exactly. But now the pendulum swings and people fall in love and think theyre great. Thats the siren song of Mr. Market. If you love FFH shares because they are cheap....how in the world do you favor owning poo poo like that over selling those names into a generous bid and then buying more FFH shares?

[StubbleJumper]

11 minutes ago, Gregmal said:

Exactly. But now the pendulum swings and people fall in love and think theyre great. Thats the siren song of Mr. Market. If you love FFH shares because they are cheap....how in the world do you favor owning poo poo like that over selling those names into a generous bid and then buying more FFH shares?

 

Agreed that a lot of that stuff is well described as "poo poo."  Disagree that it can realistically be sold to buy FFH shares.  

 

That "poo poo" constitutes part of the insurance subs' reserves.  If you sell it, you cannot dividend the cash to the FFH holdco to use for repurchases without reducing the subs' capital level and underwriting capacity.  As things currently stand, it looks like most of the subs' ROE from 2020 has been used to expand underwriting in 2021. It requires about $1 of capital to write $2 of premium. Net written premiums are up by ~20% in the first 9 months, so basically the subs needed 10% more capital in 2021 than in 2020 just for organic growth.  If our wet dream comes true and the hard market continues, most of the profits of the insurance subs from 2021 will need to be retained to once again grow premiums at a rapid clip in 2022.

 

FFH is in a strangely attractive situation.  It currently has too many profitable uses for capital.  Do you use it to profitably grow your book and reap that benefit for several years to come (premium is sticky)?  Or do you buy back your shares at a 30%+ discount to "fair value"?  Both are good opportunities for shareholders, but there is a trade-off between them.

 

 

SJ

[omagh]

19 hours ago, gfp said:

 

Berkshire has repurchased $38.2 Billion in the past 5 quarters. 

@gfp It doesn't change the narrative.  The $51B is the amount repurchased since they started in quantity which for context is more than they spent on AAPL shares. 

 

For those who care about the trees instead of the forest, here you go...

https://ycharts.com/companies/BRK.B/stock_buyback

https://www.barrons.com/articles/berkshire-hathaway-stock-price-earnings-51636202458

Berkshire continued to repurchase stock in October, buying back $1.8 billion of shares from Sept. 30 through Oct. 27, the date of the 10-Q report, Barron’s estimates. Buffett prefers buybacks to dividends; the company doesn’t pay a dividend.

Berkshire has repurchased about 1% of its outstanding shares during each quarter in 2021. Its current market value is around $648 billion. Berkshire has repurchased $20.2 billion of stock so far in 2021 and is on pace for about $27 billion for the full year, above the $24.7 billion repurchased in 2020.

[Viking]

51 minutes ago, Gregmal said:

While I can appreciate your enthusiasm, its this exact mentality that creates cycles/in favor and out of favor opportunities. A lot of things have happened over the past 12-24 months. Some are temporary and some are not. However I can find a way to mentally do what you're falling victim to here with other stuff that is clearly crap too. I mean Gamestop? What a turnaround! And gaming is a massive future opportunity. They have paid off all debt and now have a massive net cash position and stand to benefit big time from future trends in the space! Like WTF...you see how silly that sounds even though that same enthusiasm would be just as true for yours in regards to Prems stock portfolio? Resolute is a piece of junk. The guy has owned it forever. I remember in 2013 hearing how Prem leadership and direction there was a bull case and the stock was at $16...The only exception I'd make here is Atlas but I dont want to get into arguing individual names one by one because that misses the point. Your garbage has caught a bid. Even if its something you like, your stock trades at 65 cents on the dollar, sell that shit now, and make that gap disappear. You've had 5-10 years and in some cases more to be right about your stocks, maybe they've worked. and maybe they haven't, but if you believe you are a semi reasonably capable allocator, then there is ZERO way around the fact that selling them to repurchase your own shares and sure up your liquidity position is FAR better risk/reward. 

 

And FWIW, TRS are not an equity position. He can sell those or add to them all he wants but he's only doing that because he cant afford to do a real buyback. If anything else the fact the TRS is so big now is more reason to get out of the other stuff. 

@Gregmal In terms of actually answering my specific questions here is what i got out of your post:

1.) “The only exception I'd make here is Atlas”
2.) “Resolute is a piece of junk. The guy has owned it forever. I remember in 2013 hearing how Prem leadership and direction there was a bull case and the stock was at $16”

 

Now I totally get why you think Fairfax’s equity holdings are dog shit. Learned tons. Thanks!

——————-

This comment was especially insightful: “but I dont want to get into arguing individual names one by one because that misses the point”  Got it! Wink, wink…

——————

PS: and the Gamestop name drop was epic!

[Gregmal]

5 minutes ago, Viking said:

@Gregmal In terms of actually answering my specific questions here is what i got out of your post:

1.) “The only exception I'd make here is Atlas”
2.) “Resolute is a piece of junk. The guy has owned it forever. I remember in 2013 hearing how Prem leadership and direction there was a bull case and the stock was at $16”

 

Now I totally get why you think Fairfax’s equity holdings are dog shit. Learned tons. Thanks!

——————-

This comment was especially insightful: “but I dont want to get into arguing individual names one by one because that misses the point”  Got it! Wink, wink…

——————

PS: and the Gamestop name drop was epic!

I mean you are clearly convinced that the portfolio is now all of a sudden Ackman/Buffett quality so its a waste of time to argue. Its a common phenomenon, when stocks go up people think theyre great and when they go down they get less love. The key is not to fall for it and start believing that just because something has now gone up that its high quality or some great future business(or vice versa), especially when the demonstrated track record indicates quite the opposite. But you are free to continue doing so. A lot of you guys have spent years talking this til you're blue in the face and to no avail. Missing glorious opportunity basically everywhere else. Ive laid out several times what actions need to occur, and wouldn't you know it, they announce a real buyback coupled with an asset monetization and the market likes it...but what do I know?

 

My two main points are the Prem has stubbornly refused to monetize these. And that FFH would be better off monetizing and suring up the balance sheet and buying back stock. Get back to basics and keep it simple. Enough with the garbage, gimmicks, and complex stuff.

[Gregmal]

I mean ever outside of the quality issues with the portfolio, its constructed in a terribly suboptimal way. You even look at Buffett who has WAYYYY more constraints tied to his, IE owning big portions of banks and regulated companies....and the guy finds ways to be nimble. Then you have Prem, who has tied his hands sooooo badly that he cant even take advantage of his mid cap companies going up multiples of their value because some kids on the internet like to trade options; on MULTIPLE OCCASIONS! The guy refuses to learn and do things any other way than his. 

[Santayana]

12 hours ago, ERICOPOLY said:

Keep in mind that I had not choice to sell.  To be honest, I was happy with the quick buck.  But not everyone felt that way.  Cardboard was pissed.

It seemed like that transaction was so well telegraphed that anyone who thought they weren't getting enough could have just bought the calls to get a bigger payday.  As I recall the premium on the calls was very low given the combination of ORH's own prospects and the likelihood of the buyout.

[Xerxes]

@Viking @Gregmal

 

The reason you guys keep talking past each other, is simply due to one being down in the weeds and the details and the other being at 50,000 feet. You probably both right from your point of view.

[Viking]

4 minutes ago, Gregmal said:

I mean you are clearly convinced that the portfolio is now all of a sudden Ackman/Buffett quality so its a waste of time to argue.

@Gregmal yes, i have a thesis on Fairfax. But i try and stay inquisitive and open minded. i post in detail because i want other posters to point out the flaws in my analysis. With facts. The more detail the better. Why am i wrong? I post to learn (both in writing a detailed post and then reading and debating thoughtful responses).

 

i have never said that i think Fairfax’s portfolio of equity holdings is the same quality as Ackman/Buffett.
 

With my question to you I was simply trying to learn what specific holdings you disliked and why? Your answer taught me lots about where you are coming from. Thank you. Now did your answers change my thesis on Fairfax… tempting, but no  

[Gregmal]

People can agree or disagree with the following statement but it’s certainly relevant. Prem Watsa has spent the most glorious decade in investing history destroying his reputation as an astute allocator and steward of shareholder capital. He s viewed now as a kingdom builder. The status quo won’t improve anything and even if he changes via subtle operational modifications, what does that matter? What? Over the course of the next 10 years people will slowly start seeing that he s not doing dumb things anymore? No, the quickest way to show you’ve changed is to do the opposite of what you’ve been doing. Let the kingdom builder show he’s unbundling his kingdom. Sell assets and buyback stock because it’s the best use of capital. I highlight the equity portfolio because my preference would be to sell the lowest quality shit first. But this is so cheap that any kind of asset sales and subsequent buybacks will do. 

[mcliu]

RFP is in a highly cyclical commodity business.

Stelco is in the same type of business, but they are slightly better positioned by having a cost-advantage. However, it's unclear how long that'll last.

BB's technology faces numerous competitors and obsolescence risk.

 

In the long-run, with large capital base, FFH needs to invest in the equivalent of BNSF & See's Candy to leverage their float instead of trying to hit occasional home runs.

 

That said, shares are cheap & investments are doing well, so you can still make money in the short-run, but might not be a great long-term holding.

Edited November 19, 2021 by mcliu

[Gregmal]

Getting a drunk to put the bottle down is the biggest challenge. From there, people are still going to be skeptical until trust is earned back and long term sobriety displayed. And if you are serious about staying away from the bottle, and care about convincing others you are too, not hanging out in the same bars/clubs will earn trust faster than continuing to do that kind of shit. 

[matthew2129]

12 hours ago, Viking said:

Greg, when you say ‘tons of garbage’ what specific positions are you referring to? And what makes the position ‘garbage’ in your eyes? Where its performance is going to suck big time in 2022 and 2023?
 

Below are Fairfax’s top 5 ‘equity’ positions representing close to 40% of the equity bucket. What companies on the list are going to perform like garbage in 2022 and 2023? For sure at least 3 of the 5 positions must be complete dogs in your eyes…  Because its the big dogs that will make or break Fairfax’s equity performance (not the tiny positions). 
 

1.) Atlas (13%) is their largest position by far. Piece of shit? Sokol is an idiot. Terrible prospects. Sell it yesterday!

2.) Eurobank? Sell it now! Right when the business is fixed, and the Greek economy is coming out of a decade long depression and the bank is poised to do exceptionally well! Got it!

3.) Blackberry: well ok; you have a point here… but this is one position. And I will readily admit that I really have no idea about its future prospects... So my uninformed view on this company is pretty much useless for others  
4.) Fairfax TRS. Unwind that position NOW! Really? 

5.) Fairfax India. Punt it! Trading at .63xBV? Forget that the management team there is hitting the ball out of the park.

The 5 to 10 positions are only about 16% of the total equity portfolio (small):

6.) BDT Capital Partners: solid long term performing holding. Sell! 

7.) Quess: home run, long term holding, up +100% last 12 months. Woof!

8.) Stelco: sitting on $1billion in cash; star CEO. Punt that puppy!

9.) RFP: US new home construction starting secular bull market. Sell this lumber stock now! 
10.) Recipe: Sell! Right before Canada reopens and restaurant sales take off! 

Most of these stocks individually are fine, maybe even above average, but a portfolio composed almost exclusively of cyclical, small cap, foreign, illiquid stocks is pretty shitty portfolio construction for regulated insurance entity that needs to worry about its mark-to-market shareholder capital. I don't think FFH could even exit a single one of these positions without tanking the stock. Would it be so much to have just one liquid large cap US-based company in your top holdings? 

[Viking]

1 hour ago, Gregmal said:

Getting a drunk to put the bottle down is the biggest challenge. From there, people are still going to be skeptical until trust is earned back and long term sobriety displayed. And if you are serious about staying away from the bottle, and care about convincing others you are too, not hanging out in the same bars/clubs will earn trust faster than continuing to do that kind of shit. 

+1

 

(you and i have got to stop agreeing all the time… board members are going to think we are actually the same person posting under two different names)

[Gregmal]

27 minutes ago, Viking said:

+1

 

(you and i have got to stop agreeing all the time… board members are going to think we are actually the same person posting under two different names)

At the least, I think we complete the whole array of coverage. Perhaps a little too optimistic on the micro and a little too pessimistic on the macro but a complete picture I think nonetheless. As long as everyone makes money who cares!

[ERICOPOLY]

2 hours ago, matthew2129 said:

Most of these stocks individually are fine, maybe even above average, but a portfolio composed almost exclusively of cyclical, small cap, foreign, illiquid stocks is pretty shitty portfolio construction for regulated insurance entity that needs to worry about its mark-to-market shareholder capital. I don't think FFH could even exit a single one of these positions without tanking the stock. Would it be so much to have just one liquid large cap US-based company in your top holdings? 

 

They tried that approach and wrote about their holdings in WFC, KFT, JNJ about 12 or 13 years ago.  They didn't hold them very long.

 

Did they ever say why they reverted back? 

Edited November 19, 2021 by ERICOPOLY

[Parsad]

22 minutes ago, ERICOPOLY said:

 

They tried that approach and wrote about their holdings in WFC, KFT, JNJ about 12 or 13 years ago.  They didn't hold them very long.

 

Did they ever say why they reverted back? 

 

It's hard to drink Dom Perignon at full price, when you are doing just fine with Two Buck Chuck at 50% off!  

 

In other words, hard-core distressed value investors don't like paying 18-20 times earnings for anything...even JNJ!  Cheers!

[maxthetrade]

56 minutes ago, Parsad said:

It's hard to drink Dom Perignon at full price, when you are doing just fine with Two Buck Chuck at 50% off! 

 

Well the real trick is to buy quality cheap  https://www.markus-saletz.at/shop/chateau-leoville-poyferre-2006/

 

One of my fears is that Prem misses the opportunity to sell the crap at at good prices. 

[Gregmal]

Rule number 1 when buying crap is to never forget that it is crap. A close second is to have a well defined exit strategy and stick to it. When it comes to stuff like Resolute or BB I think he’s forgotten both those things. Or is willfully bypassing them and in that case you just scratch your head and hope for the best.  

[maxthetrade]

1 hour ago, ERICOPOLY said:

They tried that approach and wrote about their holdings in WFC, KFT, JNJ about 12 or 13 years ago.  They didn't hold them very long.

 

Yeah because they royally screwed up on their shorts! I'd love to see them sell the cyclical crap at good prices, delever and buy some decent buisnesses like DLTR, BRK etc.