Fairfax 2023

[StubbleJumper]

25 minutes ago, MMM20 said:

I don’t get it either, but we are talking about one day of cash flow for this.

 

The issue in my mind is not the few million bucks that it'll cost to buy out the minority holders.  The bigger question is how long will it take to find a chump to buy the entire company from FFH, and how many capital injections will Farmers require during those years that FFH is seeking a chump?  It is quite possible that the capital injections could be much larger than the take private amount...

 

 

SJ

[MMM20]

1 hour ago, StubbleJumper said:

 

The issue in my mind is not the few million bucks that it'll cost to buy out the minority holders.  The bigger question is how long will it take to find a chump to buy the entire company from FFH, and how many capital injections will Farmers require during those years that FFH is seeking a chump?  It is quite possible that the capital injections could be much larger than the take private amount...

 

 

SJ

 

Yeah it doesn't make sense to me either, but I always have these sorts of tensions with these "someone else's fund" sort of investments. I want them doing things that I wouldn't do myself, eg Fairfax with Digit, Berkshire with Apple, Exor with Ferrari/Stellantis, and all technology/biotech venture capital for that matter. I guess the question is just whether there is an ethical issue - if the critics have a valid point that they're taking advantage the public with overhyped expensive IPOs and/or minority shareholders with take privates at obviously depressed pricing. Why not just inject capital and take the public for the ride to redemption and burnish your reputation that way? Maybe because it's just too expensive to be a tiny public company nowadays?

 

There is no way I would even take a look at Farmers Edge personally... but that's part of why I own Fairfax. I just want to know I'm going to be treated fairly as a partner and that they aren't bailing out their friends. So if nothing else, maybe this sort of thing just puts a lid on multiple expansion?

 

Edited November 17, 2023 by MMM20

[Munger_Disciple]

More than anything else, I worry about the lack of focus and discipline on the part of management to keep doubling down on shitcos. It is almost like they keep falling for sunk cost fallacy without learning. 

Edited November 17, 2023 by Munger_Disciple

[bearprowler6]

Just when you thought that a buyout of Farmer's Edge represents a new low; this gets reported:

 

https://finance.yahoo.com/news/prem-watsa-bolsters-stake-blackberry-200329382.html

 

Nothing has changed----same old Fairfax.....

 

Seriously, Farmers Edge and more Blackberry??

[Viking]

8 hours ago, glider3834 said:

I think there may also be a contingency, tax planning objective here, in the event the turnaround is not successful

I agree. And I do not understand all the anger with the posts on Farmers Edge. Can anyone explain to me what Fairfax is doing and more importantly why they are doing it? What are the financial impacts? Clearly more information is needed to properly assess this announcement. My initial read is this is a nothing burger. But i remain open minded.
 

Yes, Farmers Edge was a terrible investment. It has been clear for at least a year that the end of this investment is near. Sayonara. 

[Crip1]

17 minutes ago, bearprowler6 said:

Just when you thought that a buyout of Farmer's Edge represents a new low; this gets reported:

 

https://finance.yahoo.com/news/prem-watsa-bolsters-stake-blackberry-200329382.html

 

Nothing has changed----same old Fairfax.....

 

Seriously, Farmers Edge and more Blackberry??

OK, let's tap the brakes a little here. Yes, BB was a terrible mistake...it happens. But I think "Nothing has changed----same old Fairfax..." is a dramatic overstatement. The headline does not look good but this latest addition is for less than a half million dollars. That's little more than a rounding error for a company earning billions. Peculiar purchase? Yes, but not nearly enough to remotely move the needle.

 

-Crip

[Viking]

16 minutes ago, bearprowler6 said:

Just when you thought that a buyout of Farmer's Edge represents a new low; this gets reported:

 

https://finance.yahoo.com/news/prem-watsa-bolsters-stake-blackberry-200329382.html

 

Nothing has changed----same old Fairfax.....

 

Seriously, Farmers Edge and more Blackberry??

@bearprowler6 your comment surprised me. The size of the purchase was very small. The ‘report’ calls it a sizeable addition? It added 0.003% to Fairfax’s position. It was a $450,000 purchase - tiny in size.
 

Regardless, Blackberry is also in the process of being sold. Fairfax understands the company better than most. It probably IS good value at $3.52/share. Will Fairfax play around with their position size pre-sale? Perhaps.

 

Like Farmers Edge, IMHO we need more information before we rush to judgement. 

—————

“On November 13, 2023, Prem Watsa (Trades, Portfolio), through Fairfax Financial Holdings, made a notable addition to its investment in BlackBerry Ltd (NYSE:BB). The transaction involved the acquisition of 129,000 shares at a price of $3.52 per share, increasing the total holdings to 46,853,700 shares. This move had a 0.03% impact on the portfolio, adjusting the position to 10.77% and marking a significant vote of confidence in the company's prospects.”

[Xerxes]

BB additional common stock purchase could be close to the end of Q3, meaning that the 13F didn’t capture the rest of it, which could be in Q4. In any case, I am speculating. That said it is peculiar. We don’t have all the facts. Same for Farmer’ Edge. 
 

 

That said the one recent piece of news that I do find interesting is this piece from The Globe that Viking posted. I realize that it says “in personal capacity”, but I just wonder if a coal side project is a best use of one’ bandwidth.
 

I am not sure why Pierre Lassonde find so mystifying. This is Glencore we are taking about with all of the commitment it is making above and beyond purchase price. Not some consortium of three amigoes wanting to get into coal business as a side gig. 

 

[bearprowler6]

4 minutes ago, Crip1 said:

OK, let's tap the brakes a little here. Yes, BB was a terrible mistake...it happens. But I think "Nothing has changed----same old Fairfax..." is a dramatic overstatement. The headline does not look good but this latest addition is for less than a half million dollars. That's little more than a rounding error for a company earning billions. Peculiar purchase? Yes, but not nearly enough to remotely move the needle.

 

-Crip

Crip,

 

Yes my comments were somewhat of an overstatement however I made them for a reason. 

 

Has Fairfax really changed? Yes they have locked in higher interest and dividends for the next 3-4 years. That is as much a function of the higher interest rate environment we are in as it is a statement on Fairfax's prowess. Bradstreet has always been great so really no change.

 

Better underwriting resulting in a very good combined ratio. Insurance underwriting has been very solid for several years now so in my view they are simply benefiting from the recent hard market without any real change on their part.

 

The concern has been and still is on the equity side of things. Some good signs for sure but then we wake up to the news of Farmers Edge buyout and an additional purchase of Blackberry shares. Its not the fact that both are small amounts---yes the additional Blackberry purchase was less than $500K. its the fact that these purchases are still being made at all that justifies my statement "nothing has changed----same old Fairfax". 

 

Let me ask you....as you manage your own portfolio....have you not attempted over time to eliminate any mistakes by selling them off and improving the overall quality of your portfolio by doing so? I know that's what I have strived to do. Everyone makes mistakes....some big some small. Admitting those mistakes and moving on from them after a sufficient time period is the key. Fairfax/Prem struggle to do this?

 

Several members of this board express their anger at the analysts who don't seem to understand the "new" Fairfax. Maybe those analysts see something those of us to have been around Fairfax for decades do not or at least are unwilling to admit?

 

BP6

 

[Haryana]

42 minutes ago, bearprowler6 said:

Just when you thought that a buyout of Farmer's Edge represents a new low; this gets reported:

 

https://finance.yahoo.com/news/prem-watsa-bolsters-stake-blackberry-200329382.html

 

Nothing has changed----same old Fairfax.....

 

Seriously, Farmers Edge and more Blackberry??

 

That same report (reads like generated by AI) also includes the following:

"

Prem Watsa (Trades, Portfolio), the founder and CEO of Fairfax Financial Holdings, is a renowned investor often compared to Warren Buffett (Trades, Portfolio). With a career that began in 1974, Watsa has built a reputation for a conservative investment approach, focusing on long-term value and the prudent management of insurance float. Fairfax Financial's strategy, inspired by Buffett's Berkshire Hathaway, has been pivotal in achieving sustained growth and shareholder value.

"

[StubbleJumper]

57 minutes ago, bearprowler6 said:

Just when you thought that a buyout of Farmer's Edge represents a new low; this gets reported:

 

https://finance.yahoo.com/news/prem-watsa-bolsters-stake-blackberry-200329382.html

 

Nothing has changed----same old Fairfax.....

 

Seriously, Farmers Edge and more Blackberry??

 

Maybe Prem is taking a page out of Kestembaum's book?  When Stelco wanted to buy back some shares, but the share price was a little higher than book, Kestembaum went out and bought a Canadian Football League team and talked about how poor Stelco's future was.  The share price went down, Stelco bought back a shit load, and voila!

 

So, maybe Prem saw FFH trading at roughly adjusted-BV, and wanted to buy shares cheaper than that?  Solution, just put out a few announcements about lending Blackberry money at an interest rate well below market, buy a few Blackberry shares and buyout the minority holders of Farmers' Edge and that'll push down FFH's share price.  It's ingenius!

 

 

SJ

[glider3834]

1 hour ago, Viking said:

I agree. And I do not understand all the anger with the posts on Farmers Edge. Can anyone explain to me what Fairfax is doing and more importantly why they are doing it? What are the financial impacts? Clearly more information is needed to properly assess this announcement. My initial read is this is a nothing burger. But i remain open minded.
 

Yes, Farmers Edge was a terrible investment. It has been clear for at least a year that the end of this investment is near. Sayonara. 

viking I am no tax expert but Farmers Edge had circa C$500M in non-capital tax losses at end of 2022 & that number would be higher now & if FFH can acquire all the shares (they currently have 61%) for around C$4M by my rough math, then if turnaround fails & they then choose to wind up this sub, then Fairfax the parent corp I think could use those tax losses applying whatever appropriate tax rate. Farmers Edge hasn't recognised any tax asset due to its ongoing cash burn.

 

 

I think as well as a private co. they would have lower running costs than a public co. Its end of tax year as well so given minority investors are likely sitting on tax losses there is probably intuitive sense to the timing.

They have a new CEO who is trying stuff but its not showing up in any revenue numbers , its possible Fairfax will want to give him more time but the recent financing of C$6.37M feels like it has almost been calculated to the dollar- thats my impression anyway.

 

 

 

Edited November 17, 2023 by glider3834

[UK]

Maybe a dumb question, but where could I see direct info on FFH adding BB? Isn't it supposed to be reported somewhere under insider transactions?

 

https://dataroma.com/m/ins/ins.php?t=y&&sym=BB&o=fd&d=d

 

Edited November 18, 2023 by UK

[UK]

9 hours ago, glider3834 said:

viking I am no tax expert but Farmers Edge had circa C$500M in non-capital tax losses at end of 2022 & that number would be higher now & if FFH can acquire all the shares (they currently have 61%) for around C$4M by my rough math, then if turnaround fails & they then choose to wind up this sub, then Fairfax the parent corp I think could use those tax losses applying whatever appropriate tax rate. Farmers Edge hasn't recognised any tax asset due to its ongoing cash burn.

 

 

I think as well as a private co. they would have lower running costs than a public co. Its end of tax year as well so given minority investors are likely sitting on tax losses there is probably intuitive sense to the timing.

They have a new CEO who is trying stuff but its not showing up in any revenue numbers , its possible Fairfax will want to give him more time but the recent financing of C$6.37M feels like it has almost been calculated to the dollar- thats my impression anyway.

 

This is interesting, thanks! But do I understand this correctly: is it some extra 4 M for them to spend for a 500 M or say 75 M, at a rate of 15 per cent, in possible tax benefits for FFH:)? If this is true, then this deal is more than a ten bagger just on this tax benefit basis:)))

[glider3834]

19 minutes ago, UK said:

 

This is interesting, thanks! But do I understand this correctly: is it some extra 4 M for them to spend for a 500 M or say 75 M, at a rate of 15 per cent, in possible tax benefits for FFH:)? If this is true, then this deal is more than a ten bagger just on this tax benefit basis:)))

yes but look its been a terrible investment for Fairfax so its really its just extracting something of value - turning a lemon into lemonade in a sense  - they will need to call time on the turnaround at some point if there is no traction there & I hope thats sooner rather than later

[UK]

2 hours ago, glider3834 said:

yes but look its been a terrible investment for Fairfax so its really its just extracting something of value - turning a lemon into lemonade in a sense  - they will need to call time on the turnaround at some point if there is no traction there & I hope thats sooner rather than later

 

Thanks, yes, maybe I should have said 'this decision' instead of 'this deal'. I understand lemon situation here, however, looking from today's perspective, how this does not make a lot of sense just because of taxes?

 

Edited November 18, 2023 by UK

[Hamburg Investor]

18 hours ago, bearprowler6 said:

Crip,

 

Yes my comments were somewhat of an overstatement however I made them for a reason. 

 

Has Fairfax really changed? Yes they have locked in higher interest and dividends for the next 3-4 years. That is as much a function of the higher interest rate environment we are in as it is a statement on Fairfax's prowess. Bradstreet has always been great so really no change.

 

Better underwriting resulting in a very good combined ratio. Insurance underwriting has been very solid for several years now so in my view they are simply benefiting from the recent hard market without any real change on their part.

 

The concern has been and still is on the equity side of things. Some good signs for sure but then we wake up to the news of Farmers Edge buyout and an additional purchase of Blackberry shares. Its not the fact that both are small amounts---yes the additional Blackberry purchase was less than $500K. its the fact that these purchases are still being made at all that justifies my statement "nothing has changed----same old Fairfax". 

 

Let me ask you....as you manage your own portfolio....have you not attempted over time to eliminate any mistakes by selling them off and improving the overall quality of your portfolio by doing so? I know that's what I have strived to do. Everyone makes mistakes....some big some small. Admitting those mistakes and moving on from them after a sufficient time period is the key. Fairfax/Prem struggle to do this?

 

Several members of this board express their anger at the analysts who don't seem to understand the "new" Fairfax. Maybe those analysts see something those of us to have been around Fairfax for decades do not or at least are unwilling to admit?

 

BP6

 

„Has Fairfax really Changed“ - I Think Yes.
 

But let’s notdig deeper into this topic. I think even if not: What a lot of people don’t get is just what Float + equity investing does for compounding: Fairfax has compounded Book Value at a CAGR of 19 per cent over 38 years - even after the recent lost years. Berkshire, Fairfax, Markel  all have Compounded really high over decades. High enough, that this can‘t be luck.  
 

Berkshire Hathaway itself was a really really bad investment, being a textile business. Warren is an airoholic. IBM, Solomon all were bad decisions. Nonethess most people look at Buffett being an oracle. 
 

Yes, Prem hasn‘t been brilliant 100 per cent of his decisions. We should discuss this points, of course. Still there have been a lot of brilliant decisions. He bought the pet insurance business somwhere in the 2000s at around 40mn and sold it for 1.3bn dollar 15 or 20 years later. That‘s a factor of 30. (I might be wrobg with the exact numbers, but I am sure about the direction). Just luck? The TRS - just luck? The handling of the bond portfio in recent years - just luck? Digit - just luck? Bagalore - just luck? 
 

All I want to say is: In my eyes you don‘t get the overall picture by ONLY focussing on the bad decisions. 

 

And the second point is: It‘s not random, that Berkshire, Markel and Fairfax have compounded so strong over 35 to over 50 years. And it‘s not random, that all three haven‘t left the S&P500 in the dust in the years with no interest rate. I am pretty sure you won‘t find another decade, where all three have compounded their book value that bad in comparison to the S&P500 chart. Maybe Berkshire 1999. Fairfax stock chart eas more up and down, but I refer to the book value growth.

[TwoCitiesCapital]

18 hours ago, StubbleJumper said:

 

Maybe Prem is taking a page out of Kestembaum's book?  When Stelco wanted to buy back some shares, but the share price was a little higher than book, Kestembaum went out and bought a Canadian Football League team and talked about how poor Stelco's future was.  The share price went down, Stelco bought back a shit load, and voila!

 

So, maybe Prem saw FFH trading at roughly adjusted-BV, and wanted to buy shares cheaper than that?  Solution, just put out a few announcements about lending Blackberry money at an interest rate well below market, buy a few Blackberry shares and buyout the minority holders of Farmers' Edge and that'll push down FFH's share price.  It's ingenius!

 

 

SJ

 

[newtovalue]

i think @glider3834 has it right - tax losses make tons of sense

[Crip1]

23 hours ago, bearprowler6 said:

Crip,

 

Yes my comments were somewhat of an overstatement however I made them for a reason. 

 

Has Fairfax really changed? Yes they have locked in higher interest and dividends for the next 3-4 years. That is as much a function of the higher interest rate environment we are in as it is a statement on Fairfax's prowess. Bradstreet has always been great so really no change.

 

Better underwriting resulting in a very good combined ratio. Insurance underwriting has been very solid for several years now so in my view they are simply benefiting from the recent hard market without any real change on their part.

 

The concern has been and still is on the equity side of things. Some good signs for sure but then we wake up to the news of Farmers Edge buyout and an additional purchase of Blackberry shares. Its not the fact that both are small amounts---yes the additional Blackberry purchase was less than $500K. its the fact that these purchases are still being made at all that justifies my statement "nothing has changed----same old Fairfax". 

 

Let me ask you....as you manage your own portfolio....have you not attempted over time to eliminate any mistakes by selling them off and improving the overall quality of your portfolio by doing so? I know that's what I have strived to do. Everyone makes mistakes....some big some small. Admitting those mistakes and moving on from them after a sufficient time period is the key. Fairfax/Prem struggle to do this?

 

Several members of this board express their anger at the analysts who don't seem to understand the "new" Fairfax. Maybe those analysts see something those of us to have been around Fairfax for decades do not or at least are unwilling to admit?

 

BP6

 

I think that they have meaningfully changed but understand your point, if for no other reason than to play devil’s advocate. We agree on Underwriting results and Bradstreet so no need to go over that. On Equities: 
•    FFH made a really big financial commitment to BB and then doubled-down when it started to look problematic. Not only was this a bad move, they mortgaged the farm on BB which resulted in a major hit to equity…they underestimated the margin of safety, dramatically. This last investment, even if it goes to zero, will have minimal, bordering on minuscule, impact on the Balance Sheet. It’s akin to me playing Black Jack on a $1K table losing 6 figures compared to me playing on a $10 table and losing $1K…still losing, but a loss that is far more easily absorbed. Not the same old, same old. 
•    The most recent commitment to Farmer’s Edge is a little more concerning if for no other reason that we’re talking a bigger financial investment. As with BB, the initial investment turned out to be quite bad for the company. This most recent one does fit into a “new FFH” modality in that it potential (maybe even probable) losses are quite small compared to overall capital such that if it goes to zero, it will not have dramatic impact on the company. If it plays out even reasonably well the benefit can be significant. It is a “Hail Mary” but if it falls incomplete it’s not a catastrophe and if it’s complete, it can be a touchdown. And, worth noting that the downside is further mitigated if the tax-loss recognition discussed above comes to fruition.
•    My own experience of cutting losses is mixed with examples of hanging on to losers that worked, and examples where it didn’t. Also have examples of cutting losers that worked, and some that didn’t. Bottom line is that I do live in a glass house so will hold off on throwing stones. 
•    Finally, I’ve refrained from complaining about the market affording higher multiples to the company…if the company performs, higher multiples will come in time.
In short, I do share your concern about a lack of objectivity here with an unwillingness to admit mistakes. But the size of these new “investments” gives me comfort that, even if we have a permanent loss of capital, that loss will not cause substantial harm.

-Crip
 

[glider3834]

3 hours ago, newtovalue said:

i think @glider3834 has it right - tax losses make tons of sense

This is what i found 

 

Under subsection 88(1.1) of the Income Tax Act, non-capital losses of a subsidiary corporation may be carried forward and deducted in computing the parent corporation's taxable income, but only in a taxation year of the parent that following the winding-up of the subsidiary.

 

Subsection 88(1) of the Income Tax Act applies where a “taxable Canadian corporation” has been wound-up into a parent taxable Canadian corporation that owns at least 90% of the shares of each class, immediately before the winding-up

 

https://taxpage.com/articles-and-tips/winding-up-a-corporation-per-subsections-881-882-842-of-income-tax-act/

[SafetyinNumbers]

Glider hopefully is right that the tax losses on FDGE can be used by Fairfax and there could also the potential for lottery ticket returns based on making a further investment which probably be more difficult to do as a public stock. That’s a trade I might make too so I’m not put off by it. 
 

I think Fairfax is an expected value investor and I don’t think that will change as long as Prem is in charge. Most investors want them to use the same heuristics they do to make investments and so most investors will be constantly frustrated. Not averaging down is one of those heuristics. Investors prefer FFH get a steady 12% on their equity portfolio vs a lumpy 15% even though FFH itself is a lumpy 15% investment. Arguably the floor returns are higher for FFH now than in the past decade because of the change in the interest rate environment and the high float to book value ratio.

[UK]

23 hours ago, UK said:

Maybe a dumb question, but where could I see direct info on FFH adding BB? Isn't it supposed to be reported somewhere under insider transactions?

 

https://dataroma.com/m/ins/ins.php?t=y&&sym=BB&o=fd&d=d

 

 

So folks are bashing/discussing FFH for buying  more BB, yet nobody cares if it is actually true:)? Or am I missing something?

[dartmonkey]

So folks are bashing/discussing FFH for buying  more BB, yet nobody cares if it is actually true:)?

 

 

So it seems. There's been no announcement of a purchase, and dataroma indicates the same ownership as before (46,724,700 shares.) Blackberry's Nov 13 filing states that Watsa has shared voting power on 46,853,700 shares, 46,724,700 of these through Fairfax. Here is the nonsense that Yahoo Finance attributes to GuruFocus:

 

"On November 13, 2023, Prem Watsa (Trades, Portfolio), through Fairfax Financial Holdings, made a notable addition to its investment in BlackBerry Ltd (NYSE:BB). The transaction involved the acquisition of 129,000 shares at a price of $3.52 per share, increasing the total holdings to 46,853,700 shares. This move had a 0.03% impact on the portfolio, adjusting the position to 10.77% and marking a significant vote of confidence in the company's prospects."

 

So I would speculate that there has been no additional purchase, but perhaps Watsa owns a few shares outside of Fairfax and that has caused GuruFocus to be confused. That $0.5m "significant vote of confidence" looks like it never happened. 

 

Back to complaining about the $4m privatization of Farmer's Edge...

[Malmqky]

29 minutes ago, dartmonkey said:

So folks are bashing/discussing FFH for buying  more BB, yet nobody cares if it is actually true:)?

 

 

So it seems. There's been no announcement of a purchase, and dataroma indicates the same ownership as before (46,724,700 shares.) Blackberry's Nov 13 filing states that Watsa has shared voting power on 46,853,700 shares, 46,724,700 of these through Fairfax. Here is the nonsense that Yahoo Finance attributes to GuruFocus:

 

"On November 13, 2023, Prem Watsa (Trades, Portfolio), through Fairfax Financial Holdings, made a notable addition to its investment in BlackBerry Ltd (NYSE:BB). The transaction involved the acquisition of 129,000 shares at a price of $3.52 per share, increasing the total holdings to 46,853,700 shares. This move had a 0.03% impact on the portfolio, adjusting the position to 10.77% and marking a significant vote of confidence in the company's prospects."

 

So I would speculate that there has been no additional purchase, but perhaps Watsa owns a few shares outside of Fairfax and that has caused GuruFocus to be confused. That $0.5m "significant vote of confidence" looks like it never happened. 

 

Back to complaining about the $4m privatization of Farmer's Edge...

Yeah I was initially pissed to read FFH was buying more BB. Decided to figure out exactly how much was purchased because hey…$0.5m isn’t an exact amount. However, I couldn’t t find anything either.

 

Turns out GuruFocus isn’t 100% accurate, who would have thought?

 

Sidenote, Not sure why ppl care about a $4m purchase that could very well be tax related.