Fairfax 2023

[Luke]

0 fees, FFH bought over Gettex Munich

[sleepydragon]

43 minutes ago, Wilmesbm said:

Are your guys' brokers charging any type of fee to buy FRFHF? I've never had a fee for other OTC's that I've bought, but was charged $50 to buy Fairfax. 

IBKR charged me $1 commission. Bought at 701 today

[nwoodman]

8 hours ago, TwoCitiesCapital said:

 

Isn't IDBI for Fairfax India? It's not competing for the same capital as Fairfax Financial's uses.

Yes, but honest question this surely dwarfs anything FIH could do by themselves, so where would the funding come from? Then importantly for FIH shareholders on what terms?  All a bit previous at this stage I know.

[MMM20]

1 hour ago, Santayana said:

Schwab charges me $6.95.

@Wilmesbm 

I believe Fidelity is still $0 cost on FRFHF 

 

Edited May 17, 2023 by MMM20

[gfp]

2 hours ago, MMM20 said:

@Wilmesbm 

I believe Fidelity is still $0 cost on FRFHF 

 

Yes that has been my experience with Fidelity as well.  I'm sure Ken Griffin gets his cut but we don't see "commissions."  I also don't always get a fill on marketable orders. 

[MMM20]

10 hours ago, gfp said:

Yes that has been my experience with Fidelity as well.  I'm sure Ken Griffin gets his cut but we don't see "commissions."  I also don't always get a fill on marketable orders. 

Thanks for the good reminder to trade as little as possible. Whenever I’m about to buy or sell, I like to picture Ken’s $100mm (guessing) Miami mansion and think twice.
 

I see FRFHF as a solid core holding going forward and suck at timing so need a damn good reason to do anything but let it sit there.

[hasilp89]

On 5/11/2023 at 5:46 PM, Parsad said:

Book is now at $803 USD.

dumb question.

Balance Sheet common equity is $18.6B which is where the $803/ share number comes from. 

Why don't folks

1 .subtract goodwill / intangibles 

2. Add back Non Controlling Interests - Don't these reflect the carrying value of investments FFH has made that are not otherwise consolidated - if so their value belongs to equity holders right?

 

 

[valuesource]

3 hours ago, MMM20 said:

Thanks for the good reminder to trade as little as possible. Whenever I’m about to buy or sell, I like to picture Ken’s $100mm (guessing) Miami mansion and think twice.
 

I see FRFHF as a solid core holding going forward and suck at timing so need a damn good reason to do anything but let it sit there.

IBKR offers the Pro & Lite versions, where you don't need to pay any commissions on IBKR Lite.  I find, selling order flow, is common at discount brokers even though you don't see any commission.  They are making their money somewhere regardless of whether you see it.  My understanding is selling order flow on TMX is not allowed.  Therefore I'd expect the prevalence of commissions on TMX orders.  On IBKR Pro, it should be $0.80 to Buy 100 shares of FFH on TMX.  100 shares on US OTC would be free.

 

To get more micro, a discount broker might distinguish between adding or removing liquidity.  For example, if you Bid for 100 FRFHF you may receive a rate of Zero commission if the order is executed, whereas if you lift an offer, you may be charged a fee.  I would assume the fee for removing liquidity would be nominal since we are really talking about extremely low percentage fees here.

[jbwent63]

On 5/17/2023 at 11:22 AM, hasilp89 said:

dumb question.

Balance Sheet common equity is $18.6B which is where the $803/ share number comes from. 

Why don't folks

1 .subtract goodwill / intangibles 

2. Add back Non Controlling Interests - Don't these reflect the carrying value of investments FFH has made that are not otherwise consolidated - if so their value belongs to equity holders right?

 

 

As to your first question, the calculation is book value, unadjusted. If you want tangible book value you would subtract those items. One could argue that the intangibles, recorded at historical cost, are significantly undervalued on that basis. NCI is an accounting valuation (on historical basis) of the portion of consolidated entities that Fairfax doesn't own. It should not be included in the equity calculation for the purposes of calculating the book value of common shares outstanding as it is the equity of the other shareholders. Hope that helps!

[hasilp89]

thank you @jbwent63 makes sense on the intangibles i had found a good thread on twitter breaking it down b/w insurance and non insurance businesses

I had it backwards on NCI - thank you for clarifying.

 

 

[MMM20]

I just want to add that FFH is now trading at something like 5x what seems to be its sustainable (albeit year to year volatile) underlying free cash flowing power, or like a 20% yield. That ~5x is what matters economically and is, what, roughly a third of peers like BRK and MKL? Book value as an accounting concept seems to obfuscate that reality for many who look at the stock. 
 

Edited May 18, 2023 by MMM20

[Luke]

Just now, MMM20 said:

I just want to add that FFH is now trading at something like 4-5x what seems to be sustainable earnings power. That valuation is, what, roughly a third of peers like BRK and MKL? Book value as accounting concept seems to obfuscate that reality for many people who look at the stock. 

Yeah...i added heavily after latest earnings...

[Parsad]

Should break all-time high tomorrow!  Will we break $1,000 CDN per share this month?

 

Cheers!

[Jaygo]

I don’t think we should compare to brk as they are wholly different. Brk is the gold standard and should trade at a higher multiple based on quality and durability alone. I would roll 100% brk if I had to, I would not with any other company.
 

What should this trade at.  Is. 10% yield better.  What would be a good comp in North America?

[MMM20]

42 minutes ago, Jaygo said:

I don’t think we should compare to brk as they are wholly different. Brk is the gold standard and should trade at a higher multiple based on quality and durability alone. I would roll 100% brk if I had to, I would not with any other company.
 

What should this trade at.  Is. 10% yield better.  What would be a good comp in North America?

Ive argued here that the lower multiple is justifiable from a permanent owner perspective only insofar as there is a wider range of outcomes, ie real scenario of close to 0 return for a decade in a worst case scenario. But the flip side is that with FFH’s higher float-based leverage, more idiosyncratic investment portfolio, and short duration fixed income starting point, the upside scenarios are much higher than a BRK or a MKL from this point. It is up to how you consider and weight the various scenarios but I think FFH’s intrinsic value to a permanent owner is now roughly the same as those peers, and that’s an opportunity for the permanent owner oriented value investor. More specifically, I put IV at $1500-2000/share, or a ~7-10% FCF yield — with many good reinvestment opportunities, not the least of which is buying back their own stock, such that the median total return on a per share basis would pencil out to a fair low teens ish from that price. I am wrong all the time and could end up looking dumb, but also very happy to own a bunch of this indefinitely alongside things like BRK, tobacco, plain vanilla indexes in my retired parents accounts. Not investment advice.
 

Edited May 19, 2023 by MMM20

[SafetyinNumbers]

42 minutes ago, Jaygo said:

I don’t think we should compare to brk as they are wholly different. Brk is the gold standard and should trade at a higher multiple based on quality and durability alone. I would roll 100% brk if I had to, I would not with any other company.
 

What should this trade at.  Is. 10% yield better.  What would be a good comp in North America?

E-L Financial is another one, I would consider putting 100% of my net worth in, especially at less than half of intrinsic value where it is now.

 

With respect to FFH fair value, Buffett has said that book value plus float is a fair estimate of intrinsic value. For Fairfax that’s about a triple from here.

[Viking]

I don’t think you can compare Berkshire with pretty much any company out there today. It is a unique company. And it is also being managed in a strange sort of way - primarily wealth preservation. It is not the same company it was 20 or more years ago. The CEO is in his 90’s. I view Berkshire as a bond-like substitute. It will probably provide a return similar to the S&P500 over time. 
 

Fairfax is a completely different set up. The company was until very recently a hated stock. As a result it got wicked cheap. It is still crazy cheap. My guess is it will earn $150/share in 2023. With shares trading at $729, that is a PE under 5. Lets use $120/share as a normalized run rare for earnings the next few years… that puts the PE at… 6x. Really? That only makes sense if Fairfax has a shitty insurance business, poorly managed investments and sub-par management team. And that, of course, is completely wrong.

The size of the insurance business has increased in size 4x in last 9 years, from $6 billion in 2014 to $24 billion in 2023E. Digit has been a home run. Fairfax are also good underwriters. Fairfax has done a stellar job managing their insurance businesses over the past 9 years.

 

Fairfax’s fixed income portfolio is best in class right now. They just completed a historic pivot (in how they managed the duration). Duration is getting pushed out. And 80% of it is in government securities (very high credit quality). 
 

The TRS on FFH shares was a brilliant purchase and one that will earn Fairfax well over $1 billion. Eurobank is firing on all cylinders… it just released its Q1 report and is projecting to earn Euro 0.22/share in 2023 after earning 0.18/share in 2022. Fairfax is exceptionally well positioned in India. They also look very well positioned in energy/commodities. Fairfax’s equity portfolio has never looked better.

 

The management team at Fairfax has been hitting the ball out of the park for years. They are a best in class group. . 
 

For the current positioning of the insurance business and investments, given the quality of the management team, and given the quality of earnings that are coming, Fairfax remains historically undervalued.
 

The ‘narrative’ surrounding the company is simply wrong. It is slowly changing - as Fairfax continues to deliver outstanding results. 

Edited May 19, 2023 by Viking

[dartmonkey]

On 5/16/2023 at 9:12 AM, nwoodman said:

Recent interview with Prem.  Connection was a little sketchy, so it is somewhat fragmented.  Greece is going gangbusters, economy grew by 5+%.  Elections next month.  Eurobank divs likely to start next year.  Touches on some minor acquisitions they have made.  Also calls out the investments made by the major tech companies who have set up regional cloud infrastructure in Greece.  
 

 

 

Owners of Eurobank and Grivalia, and fans of Greece in general, will be happy about the results of today’s elections there: https://www.wsj.com/articles/greece-holds-elections-amid-economic-recovery-and-political-scandal-f633ba7f

[glider3834]

5 hours ago, dartmonkey said:

Owners of Eurobank and Grivalia, and fans of Greece in general, will be happy about the results of today’s elections there: https://www.wsj.com/articles/greece-holds-elections-amid-economic-recovery-and-political-scandal-f633ba7f

yes increases likelihood with a second round vote PM & ND will have an outright majority (courtesy of the bonus seats) to govern for another 4 year term and won't be forced to partner with a coalition partner that may not be on the same page. So I think that will be a positive from rating agencies viewpoint and for all investors in Greece . I am pleased for the Greek people too - they have an excellent PM who has done a lot for the country.

 

 

 

 

 

 

Edited May 22, 2023 by glider3834

[nwoodman]

Faarck, Mr Market is loving those election results 

 

[Luke]

On 5/13/2023 at 12:24 AM, Parsad said:

 

You mean 1992 Hurricane Andrew?  That would be a $100B+ loss in today's dollars.  So FFH would take a $800m-$1B loss and BRK would take a $5-8B loss.  A portion of FFH's loss may be offset by some reinsurance, but it would still be no less than $500M.  BRK would take a $5-8B loss.

 

Fairfax generally can survive an 8.0 earthquake in California and a F5 hurricane hitting Florida...both in the same year.  That would be $500-700B in losses in todays dollars most likely.  So a $5-7B loss for FFH...remembering a chunk of that would be offset by reinsurance.  BRK would take a $25-50B hit.

 

A $5B loss for Fairfax would wipe out 25% of its equity.  A $50B hit to BRK would wipe out only 10% of its equity.

 

One other note, insurance is the only business in the world where the economics of the industry are extremely good after the worst possible thing happens.  No other industry works like that!  So while FFH and BRK would get hit, they would be huge beneficiaries for several years afterwards on premium pricing. 

 

It's why risk management is absolutely crucial when it comes to insurance.  You manage risk so that your lumps aren't so painful, because once you get through that pain, it's nirvana on the other side!

 

Cheers!

Any opinions how extreme weather events will impact fairfax in the future considering climate change (depending on believes if there is an impact by humans or if there is a climate change at all)? What will be the effect on premiums and is fairfax considering an increase? Less competition because of anxiety about more and more natural disasters-->impact on long term trend in that specific insurance area?

 

Edited May 22, 2023 by Luca

[TwoCitiesCapital]

27 minutes ago, Luca said:

Any opinions how extreme weather events will impact fairfax in the future considering climate change (depending on believes if there is an impact by humans or if there is a climate change at all)? What will be the effect on premiums and is fairfax considering an increase? Less competition because of anxiety about more and more natural disasters-->impact on long term trend in that specific insurance area?

 

 

I grew up on the Gulf coast and have plenty of connections down there. Premiums for storm and flood insurance have absolutely exploded in the last 5 years. 

 

Some are paying higher premiums for insurance than their current mortgage. The insurance companies absolutely seem to be responding to this threat - my real concern is how anyone other than the ultra wealthy will be able to live anywhere along the coast line given how expensive the combination of housing and premiums have become. 

Edited May 22, 2023 by TwoCitiesCapital

[mjm]

42 minutes ago, TwoCitiesCapital said:

 

I grew up on the Gulf coast and have plenty of connections down there. Premiums for storm and flood insurance have absolutely exploded in the last 5 years. 

 

Some are paying higher premiums for insurance than their current mortgage. The insurance companies absolutely seem to be responding to this threat - my real concern is how anyone other than the ultra wealthy will be able to live anywhere along the coast line given how expensive the combination of housing and premiums have become. 

not even counting the extreme mispricing of NFIP insurance

[Luke]

Thanks a lot for sharing @TwoCitiesCapital @mjm

[MMM20]

Sounds horrible to think of it as a major growth area over time but it’s seems like that’s the reality. Just need to match rate to risk and avoid the blowups, right? Rich people aren’t gonna just stop living in south Florida anytime soon. One reason FFH will never be an ESG darling and so I think the share count to continue to shrink with buybacks at 20%+ ROIC.
 

Edited May 22, 2023 by MMM20