Fairfax 2023

[SafetyinNumbers]

12 hours ago, SoonParted said:

Does anyone know, or know where I can find, any numbers on the sensitivity of FFH earnings to the CAD/USD exchange rate, or on the proportion of their earnings in CAD vs USD?  Do they hedge currency risk?

I doubt they explicitly currency hedge but there are a lot of natural hedges. This is the sensitivity analysis they provided in the 2022 AR. It must be a constantly moving target. 
 

Is currency exposure something that concerns you?

[Viking]

What is the best way to value Fairfax today?

 

Peter Lynch: “What possible assurance do you have that (a stock you own) will go up in price? And if you are buying, how much should you pay? What you’re asking here is what makes a company valuable, and why it will be more valuable tomorrow than it is today. There are many theories, but to me, it always comes down to earnings and assets. Especially earnings.” One Up On Wall Street

----------

Fairfax has been an exceptionally difficult company for investors to value for the past three years. And especially right now (given the sharp rise in the stock price). Even investors who have followed the company closely for many years are having a hard time. New investors don’t stand a chance.

 

Mr Market is saying Fairfax has a fair value today of $827/share (that is where it closed Sept 1, 2023). I think the stock is still wicked cheap. Others on this board feel the stock is only mildly cheap.

 

What is the fundamental problem?

 

There is no consensus of what level of earnings the collection of assets that Fairfax currently owns can deliver on a regular basis moving forward. Or what to expect for the next 3 to 5 years.

 

Most investors prefer to use book value as their primary tool to value Fairfax. It is an insurance company after all. And using book value is supposed to be the proper way to value an insurance company. Using book value also conveniently allows an investor to largely ignore earnings (coming up with an estimate). And given the lack of consensus around earnings for Fairfax… well isn’t that a good thing?

 

Well, easy and good are not the same thing.

 

What is the best way to value Fairfax today?

 

Just like any job, we need to pick the right tool. To do this we need to answer the following question.

 

Is Fairfax an insurance company or a turnaround play?

 

No, this is not a trick question. The answer, of course, is that Fairfax today is both. But we are talking here about how to value Fairfax as a company.

 

My view is that today Fairfax should be valued primarily through the lens of a turnaround play. Not as an insurance company.

 

Does it make that much of a difference?

 

It makes a huge difference.

 

Using book value (P/BV and ROE) to value insurance companies with relatively consistent financial results over a 5 or 10 year period makes a lot of sense. But using book value (P/BV and past ROE) as the primary measure to value a turnaround like Fairfax makes little sense especially when they are still in the middle of the earnings part of the turnaround.

 

The problem with book value (P/BV and ROE) is it is a ‘rear view mirror’ valuation measure - it does a great job of telling you what has happened. And for lots of insurance companies what ‘has happened’ is likely to continue to happen in the future. So using book value (P/BV and ROE) as a primary valuation tool makes sense.

 

But for a turnaround like Fairfax, where a massive amount of change is happening - which is leading to much higher earnings - focussing primarily on the past is going to mess investors up. It is going to cause them to way under estimate future earnings. This in turn is going to cause them to under value the company. And that is going to lead to poor investment decisions.

 

A lot of investors who follow Fairfax are probably wondering how they missed the big move in the stock over the past 31 months (since Jan 1, 2021). My guess is the key issue is too much ‘rear view mirror’ analysis and not enough ‘looking out the front windshield’ analysis. The difference between valuing a stodgy insurance company versus valuing a turnaround.

 

How should an investor value a turnaround?

 

Let’s look to Peter Lynch for some insight. Peter Lynch loved turnarounds. It was one of the 6 buckets he used to classify his stock investments. Classifying stocks properly at the beginning of the process is critical. Because the classification determined the proper method to use to analyze the stock.

 

To value a turnaround it is critical to:

• First, understand what went wrong.
• Second, confirm that whatever went wrong has indeed been fixed.
• Third, focus in on evaluating the assets and estimating the trajectory of future earnings.

What went wrong at Fairfax?

 

Fairfax has three economic engines: insurance, investments - fixed income and investments - equities/derivatives.

 

Fairfax’s insurance business has been a solid performer over the past decade. And their investments - fixed income economic engine has also performed well. The issue at Fairfax was the investments - equities/derivatives engine.

 

The good news for Fairfax was the solution to their poor performance was fully within their control. They just needed to stop doing some really dumb things (putting it politely) in one part of the company.

 

What was the fix?

 

To right the ship in the equities/derivatives engine, Fairfax did a few things:

1.) end the equity hedge/shorting strategy. The equity hedge positions were exited in late 2016. The final short position was sold in late 2020. Done.

2.) make better equity purchases. This started in 2018. Done.

3.) fix poorly performing equity purchases from 2014-2017. This started in 2018 and looks like it was completed in 2022. Done.

 

But Fairfax didn’t stop here. They did even more:

4.) since 2020, they have made at least one brilliant decision each year:

• Late 2020/early 2021: initiated the FFH total return swap position, giving exposure to 1.96 million Fairfax shares at $373 share (resulting in a $900 million pre-tax gain to date)
• Late 2021: buying 2 million Fairfax shares at $500/share (book value is currently $834/share and intrinsic value is likely well over $1,000).
• June 2022: sale of pet insurance business for $1.4 billion (resulting in a $992 million after-tax gain).

And the insurance gods have also been smiling on Fairfax:

5.) a hard market in P&C insurance started in Q4, 2019. And it looks like it will continue into 2024.

 

And if all that wasn’t enough, the macro gods also decided to smile on Fairfax, delivering to the company their biggest gift yet:

6.) after dropping interest rates to close to zero in late 2021 they pivoted and spiked rates to more than 5% in 2023. Fairfax navigated their $38 billion fixed income through the treacherous storm perfectly - and the gold ($billions) is literally raining down today.

 

So Fairfax not only stopped doing dumb things, they also started hitting the ball out of the park. At the same time both the insurance and macro gods started smiling on the company.

 

Each of these things on their own has causing earnings to grow significantly over their historical trend. Stacked one on top of the other - well earnings have exploded higher.

 

In short, the turnaround at Fairfax that began back around 2018 now looks complete. But importantly, the lift to earnings will likely take a few more years to fully play out.

 

What is happening to earnings at Fairfax

 

We are going to focus on operating income given this is considered the high value part of earnings for an insurance company. Operating income averaged $1 billion ($39/share) each year for 5 years from 2016-2020. From this base it has:

• Doubled to $1.8 billion in 2021.
• Tripled to  $3.1 billion in 2022.
• Is on pace to quadruple to $4.3 billion in 2023.
• Is estimated to be $4.7 billion, or $207/share, which would be a quintuple from $39/share (average from 2016-2020).

How would an investor focussed primarily on book value have seen any of this coming? The answer is easy… they would have completely missed it. They probably still are.

 

 

What are we learning about Fairfax’s collection of assets?

 

Beginning as far back as 2021, investors were getting glimpses that something good was happening at Fairfax. In 2022, is was obvious that ‘new Fairfax’ had arrived - but the good news was masked in the top line results by the bear market in financial markets and the large unrealized losses in fixed income and equities. But the change was obvious to those of us who followed the company closely. In 2023, the story continues to improve. And 2024 looks even better.

 

What we are learning is Fairfax was significantly under earning on its collection of assets for much of the past decade. But all the shackles that were holding earnings down have now been removed. Management is executing exceptionally well. For the first time in the company's history, the three economic engines are all delivering record results at the same time: insurance, investments - fixed income and investments - equities/derivatives.

 

Investors are just starting to get a look at what the true earnings power of Fairfax is on a go forward basis. And the total number is far higher than anyone dreamed possible.

 

So what is the valuation of Fairfax today?

 

Board members probably wonder why I have been so focussed on earnings in my analysis of Fairfax the past two years. Well, now you know why. I view Fairfax currently as a turnaround type of investment - and a heavy focus on earnings and assets is the only rational way to analyze the company today.

 

It’s not that I don’t pay attention to book value. I do. I just have never trusted how useful it is a tool to value Fairfax today or to help me better understand its earnings power as a company.

 

My current estimate is Fairfax will earn $160/share in 2023. I think that is a good baseline to use for earnings moving forward. If my analysis is right then that means Fairfax is trading at a PE of 5.2 x E2023 'normalized' earnings. Yes, that is nuts.

 

 

What does the future hold?

 

Peter Lynch: “Companies don’t stay in the same category forever. Over my years of watching stocks I’ve seen hundreds of them start out fitting one description and end up fitting another.” One up on Wall Street

 

Over the next couple of years we will all come to better understand Fairfax. And what its collection of assets are capable of delivering. What the true ‘normalized’ earnings power of the company is. At that point in time, the turnaround will long be over. And Fairfax will revert to being another predictable, boring old insurance company. And at that time, the valuation metrics (like book value, P/BV and ROE) generally used for valuing boring old insurance companies will again be appropriate to use for Fairfax.

 

If Fairfax is able to deliver strong earnings growth in the coming years the much improved results will slowly get baked into its historical numbers. That is when more traditional insurance investors will start to 'discover' how well managed Fairfax is. And how cheap the stock is. As this process plays out the P/BV multiple will likely expand significantly from 0.99 today to something more in line with peers, perhaps north of 1.3 (perhaps higher).

————-

Another reason Peter Lynch liked turnarounds:

 

Peter Lynch “The best thing about investing in successful turnarounds is that of all the categories of stocks, their ups and downs are least related to the general market.” One Up on Wall Street

 

Fairfax is up 143% since January 1, 2021. S&P500 is up 20%. Fairfax’s outperformance over the S&P500 over the past 31 months has been an amazing 123%. Yes, that Peter Lynch is one smart dude.

 

—————

Peter Lynch on Turnarounds

 

“These are stocks that are battered down or they are hated companies, or they have been forgotten about. They are depressed in price but you have determined some one thing or a few things that have the potential for reversing this company’s fortunes independent of the industry getting better, or the economy getting better.

 

“You always have to do a balance sheet check on any company. This includes turnarounds. Do they have enough cash to make it through the next 12 months or the next 24 months? Do they have a lot of debt that’s due right now? These are important questions to answer.

 

“Make sure you understand and believe in the plan to restore corporate profits. It is all internal. They are doing something, either a new product, new management, cutting costs, getting rid of something. Something inside the company that allows them to improve themselves.

 

“Lots of turnarounds never happen, but a few winners can make up for a lot of losers. What’s important is to wait for the actual evidence of the turnaround occurring, not just the symptoms. (With) the turnaround, you have plenty of time. So just don’t buy on the hope. Wait for the reality. Turnarounds are so big it is worth waiting to get some real evidence.”

 

 

Edited September 4, 2023 by Viking

[SoonParted]

Thanks, @SafetyinNumbers. I'm US-based...if FFH income were predominantly received in unhedged CAD, I'd expect the stock price changes in CAD to most closely reflect proper value for FFH.  So I might want to partly hedge--usually I'd do it by selling deep-in-the-money FXC calls.  But FFH income is not predominantly in unhedged CAD, it seems, so there is no need for that in this case.

[UK]

11 hours ago, Viking said:

What is the best way to value Fairfax today?

 

Peter Lynch: “What possible assurance do you have that (a stock you own) will go up in price? And if you are buying, how much should you pay? What you’re asking here is what makes a company valuable, and why it will be more valuable tomorrow than it is today. There are many theories, but to me, it always comes down to earnings and assets. Especially earnings.” One Up On Wall Street

----------

Fairfax has been an exceptionally difficult company for investors to value for the past three years. And especially right now (given the sharp rise in the stock price). Even investors who have followed the company closely for many years are having a hard time. New investors don’t stand a chance.

 

Mr Market is saying Fairfax has a fair value today of $827/share (that is where it closed Sept 1, 2023). I think the stock is still wicked cheap. Others on this board feel the stock is only mildly cheap.

 

What is the fundamental problem?

 

There is no consensus of what level of earnings the collection of assets that Fairfax currently owns can deliver on a regular basis moving forward. Or what to expect for the next 3 to 5 years.

 

Most investors prefer to use book value as their primary tool to value Fairfax. It is an insurance company after all. And using book value is supposed to be the proper way to value an insurance company. Using book value also conveniently allows an investor to largely ignore earnings (coming up with an estimate). And given the lack of consensus around earnings for Fairfax… well isn’t that a good thing?

 

Well, easy and good are not the same thing.

 

What is the best way to value Fairfax today?

 

Just like any job, we need to pick the right tool. To do this we need to answer the following question.

 

Is Fairfax an insurance company or a turnaround play?

 

No, this is not a trick question. The answer, of course, is that Fairfax today is both. But we are talking here about how to value Fairfax as a company.

 

My view is that today Fairfax should be valued primarily through the lens of a turnaround play. Not as an insurance company.

 

Does it make that much of a difference?

 

It makes a huge difference.

 

Using book value (P/BV and ROE) to value insurance companies with relatively consistent financial results over a 5 or 10 year period makes a lot of sense. But using book value (P/BV and past ROE) as the primary measure to value a turnaround like Fairfax makes little sense especially when they are still in the middle of the earnings part of the turnaround.

 

The problem with book value (P/BV and ROE) is it is a ‘rear view mirror’ valuation measure - it does a great job of telling you what has happened. And for lots of insurance companies what ‘has happened’ is likely to continue to happen in the future. So using book value (P/BV and ROE) as a primary valuation tool makes sense.

 

But for a turnaround like Fairfax, where a massive amount of change is happening - which is leading to much higher earnings - focussing primarily on the past is going to mess investors up. It is going to cause them to way under estimate future earnings. This in turn is going to cause them to under value the company. And that is going to lead to poor investment decisions.

 

A lot of investors who follow Fairfax are probably wondering how they missed the big move in the stock over the past 31 months (since Jan 1, 2021). My guess is the key issue is too much ‘rear view mirror’ analysis and not enough ‘looking out the front windshield’ analysis. The difference between valuing a stodgy insurance company versus valuing a turnaround.

 

How should an investor value a turnaround?

 

Let’s look to Peter Lynch for some insight. Peter Lynch loved turnarounds. It was one of the 6 buckets he used to classify his stock investments. Classifying stocks properly at the beginning of the process is critical. Because the classification determined the proper method to use to analyze the stock.

 

To value a turnaround it is critical to:

• First, understand what went wrong.
• Second, confirm that whatever went wrong has indeed been fixed.
• Third, focus in on evaluating the assets and estimating the trajectory of future earnings.

What went wrong at Fairfax?

 

Fairfax has three economic engines: insurance, investments - fixed income and investments - equities/derivatives.

 

Fairfax’s insurance business has been a solid performer over the past decade. And their investments - fixed income economic engine has also performed well. The issue at Fairfax was the investments - equities/derivatives engine.

 

The good news for Fairfax was the solution to their poor performance was fully within their control. They just needed to stop doing some really dumb things (putting it politely) in one part of the company.

 

What was the fix?

 

To right the ship in the equities/derivatives engine, Fairfax did a few things:

1.) end the equity hedge/shorting strategy. The equity hedge positions were exited in late 2016. The final short position was sold in late 2020. Done.

2.) make better equity purchases. This started in 2018. Done.

3.) fix poorly performing equity purchases from 2014-2017. This started in 2018 and looks like it was completed in 2022. Done.

 

But Fairfax didn’t stop here. They did even more:

4.) since 2020, they have made at least one brilliant decision each year:

• Late 2020/early 2021: initiated the FFH total return swap position, giving exposure to 1.96 million Fairfax shares at $373 share (resulting in a $900 million pre-tax gain to date)
• Late 2021: buying 2 million Fairfax shares at $500/share (book value is currently $834/share and intrinsic value is likely well over $1,000).
• June 2022: sale of pet insurance business for $1.4 billion (resulting in a $992 million after-tax gain).

And the insurance gods have also been smiling on Fairfax:

5.) a hard market in P&C insurance started in Q4, 2019. And it looks like it will continue into 2024.

 

And if all that wasn’t enough, the macro gods also decided to smile on Fairfax, delivering to the company their biggest gift yet:

6.) after dropping interest rates to close to zero in late 2021 they pivoted and spiked rates to more than 5% in 2023. Fairfax navigated their $38 billion fixed income through the treacherous storm perfectly - and the gold ($billions) is literally raining down today.

 

So Fairfax not only stopped doing dumb things, they also started hitting the ball out of the park. At the same time both the insurance and macro gods started smiling on the company.

 

Each of these things on their own has causing earnings to grow significantly over their historical trend. Stacked one on top of the other - well earnings have exploded higher.

 

In short, the turnaround at Fairfax that began back around 2018 now looks complete. But importantly, the lift to earnings will likely take a few more years to fully play out.

 

What is happening to earnings at Fairfax

 

We are going to focus on operating income given this is considered the high value part of earnings for an insurance company. Operating income averaged $1 billion ($39/share) each year for 5 years from 2016-2020. From this base it has:

• Doubled to $1.8 billion in 2021.
• Tripled to  $3.1 billion in 2022.
• Is on pace to quadruple to $4.3 billion in 2023.
• Is estimated to be $4.7 billion, or $207/share, which would be a quintuple from $39/share (average from 2016-2020).

How would an investor focussed primarily on book value have seen any of this coming? The answer is easy… they would have completely missed it. They probably still are.

 

 

What are we learning about Fairfax’s collection of assets?

 

Beginning as far back as 2021, investors were getting glimpses that something good was happening at Fairfax. In 2022, is was obvious that ‘new Fairfax’ had arrived - but the good news was masked in the top line results by the bear market in financial markets and the large unrealized losses in fixed income and equities. But the change was obvious to those of us who followed the company closely. In 2023, the story continues to improve. And 2024 looks even better.

 

What we are learning is Fairfax was significantly under earning on its collection of assets for much of the past decade. But all the shackles that were holding earnings down have now been removed. Management is executing exceptionally well. For the first time in the company's history, the three economic engines are all delivering record results at the same time: insurance, investments - fixed income and investments - equities/derivatives.

 

Investors are just starting to get a look at what the true earnings power of Fairfax is on a go forward basis. And the total number is far higher than anyone dreamed possible.

 

So what is the valuation of Fairfax today?

 

Board members probably wonder why I have been so focussed on earnings in my analysis of Fairfax the past two years. Well, now you know why. I view Fairfax currently as a turnaround type of investment - and a heavy focus on earnings and assets is the only rational way to analyze the company today.

 

It’s not that I don’t pay attention to book value. I do. I just have never trusted how useful it is a tool to value Fairfax today or to help me better understand its earnings power as a company.

 

My current estimate is Fairfax will earn $160/share in 2023. I think that is a good baseline to use for earnings moving forward. If my analysis is right then that means Fairfax is trading at a PE of 5.2 x E2023 'normalized' earnings. Yes, that is nuts.

 

 

What does the future hold?

 

Peter Lynch: “Companies don’t stay in the same category forever. Over my years of watching stocks I’ve seen hundreds of them start out fitting one description and end up fitting another.” One up on Wall Street

 

Over the next couple of years we will all come to better understand Fairfax. And what its collection of assets are capable of delivering. What the true ‘normalized’ earnings power of the company is. At that point in time, the turnaround will long be over. And Fairfax will revert to being another predictable, boring old insurance company. And at that time, the valuation metrics (like book value, P/BV and ROE) generally used for valuing boring old insurance companies will again be appropriate to use for Fairfax.

 

If Fairfax is able to deliver strong earnings growth in the coming years the much improved results will slowly get baked into its historical numbers. That is when more traditional insurance investors will start to 'discover' how well managed Fairfax is. And how cheap the stock is. As this process plays out the P/BV multiple will likely expand significantly from 0.99 today to something more in line with peers, perhaps north of 1.3 (perhaps higher).

————-

Another reason Peter Lynch liked turnarounds:

 

Peter Lynch “The best thing about investing in successful turnarounds is that of all the categories of stocks, their ups and downs are least related to the general market.” One Up on Wall Street

 

Fairfax is up 143% since January 1, 2021. S&P500 is up 20%. Fairfax’s outperformance over the S&P500 over the past 31 months has been an amazing 123%. Yes, that Peter Lynch is one smart dude.

 

—————

Peter Lynch on Turnarounds

 

“These are stocks that are battered down or they are hated companies, or they have been forgotten about. They are depressed in price but you have determined some one thing or a few things that have the potential for reversing this company’s fortunes independent of the industry getting better, or the economy getting better.

 

“You always have to do a balance sheet check on any company. This includes turnarounds. Do they have enough cash to make it through the next 12 months or the next 24 months? Do they have a lot of debt that’s due right now? These are important questions to answer.

 

“Make sure you understand and believe in the plan to restore corporate profits. It is all internal. They are doing something, either a new product, new management, cutting costs, getting rid of something. Something inside the company that allows them to improve themselves.

 

“Lots of turnarounds never happen, but a few winners can make up for a lot of losers. What’s important is to wait for the actual evidence of the turnaround occurring, not just the symptoms. (With) the turnaround, you have plenty of time. So just don’t buy on the hope. Wait for the reality. Turnarounds are so big it is worth waiting to get some real evidence.”

 

 

 

Thanks Viking! Every time you post something like this I have to debate myself how much of FFH to own is enought:)))

[buylowersellhigh]

Do most American investors on the board own FFH.TO or FRFHF?  

 

Any guidance on whether a taxable account or tax deferred is better?  ADR fees, etc. 

 

TIA,

BLSH

[SafetyinNumbers]

2 hours ago, buylowersellhigh said:

Do most American investors on the board own FFH.TO or FRFHF?  

 

Any guidance on whether a taxable account or tax deferred is better?  ADR fees, etc. 

 

TIA,

BLSH

It’s the same security whether held in Canada or the US so there are no ADR fees and no economic difference. I know for Canadians, we can get margin on the CAD ticker but not the pink sheet.

[TwoCitiesCapital]

2 hours ago, buylowersellhigh said:

Do most American investors on the board own FFH.TO or FRFHF?  

 

Any guidance on whether a taxable account or tax deferred is better?  ADR fees, etc. 

 

TIA,

BLSH

 

I own both because some of my accounts don't allow me to trade in foreign currencies/exchanges. 

 

Can confirm it's not an ADR but rather a foreign stock that trades pink sheets (is why the ticker ends in F instead of Y). No difference in tax withholding or fees - just liquidity. 

[Munger_Disciple]

2 hours ago, buylowersellhigh said:

Do most American investors on the board own FFH.TO or FRFHF?  

 

Any guidance on whether a taxable account or tax deferred is better?  ADR fees, etc. 

 

TIA,

BLSH

 

It is a Canadian company whether you own FFH.TO or FRFHF over the counter. It is the same security. There is more liquidity on TSX. 

But for tax reasons (all other things being equal, and they never are), it is better to hold it in a US tax deferred account because Canadian company qualified dividends are not subject to Canadian tax withholding in a US tax deferred account but are subject to Canadian withholding tax if the security is held by US resident in a taxable account. 

Edited September 5, 2023 by Munger_Disciple

[buylowersellhigh]

Thanks everyone for the information.  Much appreciated.

[newtovalue]

Not apples to apples - but Intact just bought a UK insurance company at 1x annual premiums (with a 96 percent combined ratio)

 

If we apply that multiple to FFH - we get a market cap of $27 billion usd or approximately $1600 cad a share.

 

Fairfax is cheap no matter how you cut it 

 

 

[SafetyinNumbers]

6 hours ago, newtovalue said:

Not apples to apples - but Intact just bought a UK insurance company at 1x annual premiums (with a 96 percent combined ratio)

 

If we apply that multiple to FFH - we get a market cap of $27 billion usd or approximately $1600 cad a share.

 

Fairfax is cheap no matter how you cut it 

 

 

And they partially financed it with stock issued around 2.5x book. Trisura also recently issued equity at similar multiples. Smart moves by the management teams. It’s the easiest way to grow book value!

[Thrifty3000]

On 9/7/2023 at 8:39 AM, newtovalue said:

Not apples to apples - but Intact just bought a UK insurance company at 1x annual premiums (with a 96 percent combined ratio)

 

If we apply that multiple to FFH - we get a market cap of $27 billion usd or approximately $1600 cad a share.

 

Fairfax is cheap no matter how you cut it 

 

 

Interesting you point that out, as I actually made a mental note recently that I’ve been seeing a pattern of deals valued around 1x premiums. I believe FFH has had some in this neighborhood recently. But, I’ve been meaning to follow up to confirm that it’s not just my imagination. I have a hunch you’re probably right on the valuation front. It actually makes perfect sense to have a valuation around 1x premiums if you assume the insurance income, investment income and growth will provide a reasonable long term return.

[SafetyinNumbers]

5 hours ago, Thrifty3000 said:

Interesting you point that out, as I actually made a mental note recently that I’ve been seeing a pattern of deals valued around 1x premiums. I believe FFH has had some in this neighborhood recently. But, I’ve been meaning to follow up to confirm that it’s not just my imagination. I have a hunch you’re probably right on the valuation front. It actually makes perfect sense to have a valuation around 1x premiums if you assume the insurance income, investment income and growth will provide a reasonable long term return.

It would be interesting to know how much float there was too. Berkshire bought Alleghany float for free and Brookfield has been buying up cheap float too. 

[newtovalue]

15 hours ago, Thrifty3000 said:

Interesting you point that out, as I actually made a mental note recently that I’ve been seeing a pattern of deals valued around 1x premiums. I believe FFH has had some in this neighborhood recently. But, I’ve been meaning to follow up to confirm that it’s not just my imagination. I have a hunch you’re probably right on the valuation front. It actually makes perfect sense to have a valuation around 1x premiums if you assume the insurance income, investment income and growth will provide a reasonable long term return.

Yes agreed!  I may go back and try to see where past insurance deals got done (relative to float). 
 

this is another useful metric to either prove or disprove the thesis that FFH is cheap!

 

 

[SafetyinNumbers]

Fairfax buybacks in August 

[Viking]

23 minutes ago, SafetyinNumbers said:

Fairfax buybacks in August 

@SafetyinNumbers thanks for posting. It is nice to see the backbacks happening again. I am hopeful Fairfax can keep taking out a minimum of 2% of effective shares outstanding each year - keeping the trend in recent years going. The buybacks also signal the company continues to see their shares as being undervalued. Obviously shares aren’t as cheap as prior years but the company’s earnings and prospects have improved greatly in recent years.

[SafetyinNumbers]

1 hour ago, Viking said:

@SafetyinNumbers thanks for posting. It is nice to see the backbacks happening again. I am hopeful Fairfax can keep taking out a minimum of 2% of effective shares outstanding each year - keeping the trend in recent years going. The buybacks also signal the company continues to see their shares as being undervalued. Obviously shares aren’t as cheap as prior years but the company’s earnings and prospects have improved greatly in recent years.

They are definitely not priced as low but arguably cheaper based on the outlook. Durability is arguably up a lot too which reduces risk and allows for a higher multiple. 

I’m not saying I can win these arguments.

[UK]

https://www.theinsurer.com/reinsurancemonth/odysseyres-overy-further-corrections-are-needed-at-1-1/

[returnonmycapital]

On 1/20/2023 at 10:21 AM, gfp said:

I had missed these filings showing Brian Bradstreet gobbling up Fairfax preferred shares in December -

https://www.canadianinsider.com/company-insider-filings?ticker=FFH

I like the same variable rate preferreds (series D/F/H/J) that Mr. Bradstreet has been buying. Fairfax has announced their dividends for the 4th quarter and they show current yields of around 11% (annualized) across the different variable-rate series. The series D is redeemable at par at the end of 2024 (F in March 2025, with H/J following in Sep and Dec, respectively). Based on the current declared dividends, the variable rate prefs are quite expensive for Fairfax (between 7.32% and 8.31% at par) and yield as much as double their fixed-rate equivalents. Of course, interest rates could always decline between now and the end of 2024 but they would have to go done a good deal to bring them back into line with the fixed-rate series. They're not easy to trade but given their cost to Fairfax, my thinking is Mr. Bradstreet sees a probability of redemption and, if so, the annualized return on today's prices range from 28% to 42%.

[SafetyinNumbers]

Lauren Templeton just dropped a new podcast featuring Ben Watsa 

 

https://podcasts.apple.com/ca/podcast/investing-the-templeton-way/id1604395168?i=1000627607421

 

It’s a terrific listen for long term Fairfax and Fairfax India shareholders. He makes a very good case why India is a tremendous investment opportunity and provides comfort that Fairfax will have controlling shareholders that keeps the culture that his father has fostered.

Edited September 12, 2023 by SafetyinNumbers

[glider3834]

10 hours ago, SafetyinNumbers said:

Lauren Templeton just dropped a new podcast featuring Ben Watsa 

 

https://podcasts.apple.com/ca/podcast/investing-the-templeton-way/id1604395168?i=1000627607421

 

It’s a terrific listen for long term Fairfax and Fairfax India shareholders. He makes a very good case why India is a tremendous investment opportunity and provides comfort that Fairfax will have controlling shareholders that keeps the culture that his father has fostered.

agree - great interview & thanks for posting 

[Grenville]

Thank you for sharing the interview. Nice to get to know Ben Watsa better along with his background. Appreciate his perspective.

 

I did think he was a good salesman when he talked up family control but part of me thinks that should be earned(either through purchased ownership or at the time of founding) versus given. Shareholders should have the ability to choose because there are a lot of counter examples to family control not always being in the best interest of short or long term shareholders. Also who knows how great Ben will be when Prem retires or who will take Ben’s place when he retires. Cementing control prevents any future check both short or long term. 
 

It was cool though to hear the anecdotes about Sir John and Tony 

 

[SafetyinNumbers]

4 hours ago, Grenville said:

Thank you for sharing the interview. Nice to get to know Ben Watsa better along with his background. Appreciate his perspective.

 

I did think he was a good salesman when he talked up family control but part of me thinks that should be earned(either through purchased ownership or at the time of founding) versus given. Shareholders should have the ability to choose because there are a lot of counter examples to family control not always being in the best interest of short or long term shareholders. Also who knows how great Ben will be when Prem retires or who will take Ben’s place when he retires. Cementing control prevents any future check both short or long term. 
 

It was cool though to hear the anecdotes about Sir John and Tony 

 

I think his task as future Chairman will be to maintain Fairfax’s culture and having grown up in it, he’s probably best suited to do so. Hopefully Prem still has a long tenure and it’s not a role, Ben, will have to takeover any time soon giving him that much more experience when he does.

[Xerxes]

23 hours ago, SafetyinNumbers said:

Lauren Templeton just dropped a new podcast featuring Ben Watsa 

 

https://podcasts.apple.com/ca/podcast/investing-the-templeton-way/id1604395168?i=1000627607421

 

It’s a terrific listen for long term Fairfax and Fairfax India shareholders. He makes a very good case why India is a tremendous investment opportunity and provides comfort that Fairfax will have controlling shareholders that keeps the culture that his father has fostered.

thanks the post. 
good to hear from him. Kind of funny that his kids own the very same stock that the grand dad would be shorting 

[Thrifty3000]

13 hours ago, Grenville said:

Thank you for sharing the interview. Nice to get to know Ben Watsa better along with his background. Appreciate his perspective.

 

I did think he was a good salesman when he talked up family control but part of me thinks that should be earned(either through purchased ownership or at the time of founding) versus given. Shareholders should have the ability to choose because there are a lot of counter examples to family control not always being in the best interest of short or long term shareholders. Also who knows how great Ben will be when Prem retires or who will take Ben’s place when he retires. Cementing control prevents any future check both short or long term. 
 

It was cool though to hear the anecdotes about Sir John and Tony 

 

I'm pretty sure I heard Ben say the company would always be professionally managed. If memory serves, I believe Warren Buffett once wrote that one of the most effective, if not the most effective, form of corporate governance stems from a controlling owner (like a family) hiring/overseeing a professional manager. It makes sense to me. The controlling owner has plenty of incentive to have the most effective manager possible, and therefore can hold the manager accountable for performance. It's much better than the alternative situations:

 

- where the controlling shareholder runs the company personally and doesn't answer to anyone.

- or where a group of disinterested board members care more about board compensation and notoriety (elephant bumping) than they care about holding the CEO accountable (see the majority of S&P 500 boards for examples).

Edited September 13, 2023 by Thrifty3000