Fairfax 2023

[gfp]

It's pretty great that the corner of Berkshire and Fairfax message board was named after two securities that are almost tied in performance this millennium, with the smaller up-and-comer, Fairfax, clocking in at 846% vs. Berkshire's 826%.  Going forward it is likely that Fairfax will continue to outperform Berkshire over long periods due primarily to the size difference.  Unfortunately my dividends are taxed so Berkshire is ahead for this taxable American.

 

Edited July 4, 2023 by gfp

[Munger_Disciple]

7 minutes ago, glider3834 said:

yes 

 

my table below - data taken from annual reports

 

 

That's outstanding @glider3834, great detective work!

[glider3834]

On 7/4/2023 at 10:14 AM, Munger_Disciple said:

I was re-reading Prem's 2022 annual letter & he shows a table of gross premiums written and float from 1985 to 2022. I noticed that the ratio of float/gross premiums written has shrunk from 2.4 in 2010 to 1.1 in 2022. It used to be roughly 1.6 in the decade prior to 2010.

 

Dos this mean that Fairfax is writing a lot more short tail insurance these days compared to the past? 

 

yes 

 

my figures below - from annual reports

 

edit note: accidentally deleted so re-posting

 

[glider3834]

3 minutes ago, Munger_Disciple said:

 

That's outstanding @glider3834, great detective work!

[sholland]

On 6/19/2023 at 11:27 AM, This2ShallPass said:

To the insurance experts on the board, can you pls suggest 2-3  companies that are close to Fairfax from hurricane exposure standpoint? 

 

I'm giddy about Fairfax prospects over the next few years as well. But it's ~30% of my pf and I want to be prudent, so planning to take small otm hedge to reduce my losses in a worst case event.

 

You might want to look at shorting Florida insurer UVE. I shorted it (unprofitably) in 2017, 2018, and 2019 on the belief that 1) the Florida Legislature passed laws that screwed up the market and 2) a repeat of the following hurricanes would bankrupt the company:

 

Repeat of 1926 Miami Hurricane

Repeat of 1928 Great Okeechobie Hurricane

Repeat of 1947 Fort Lauderdale Hurricane

Repeat of 1992 Hurricane Andrew

 

I can provide more information if this is something you are interested in as I believe the Florida insurance situation has not changed much since I last looked at in 2019. 

[Parsad]

11 hours ago, Luca said:

I just worry that at a 700b Marketcap, outperforming will get harder and harder for BRK. 

 

That's what I thought too!  Until Apple burst through 2T and kept compounding to 3T!

 

It will get tougher and slower for BRK to find investments.  But a lot of their core holdings, including their amazing insurance businesses, should keep the pot growing for another century.

 

Cheers!

[Parsad]

5 hours ago, newtovalue said:

Look at Eurobank GO!  Almost close to taking out the May 22 high.

 

Almost $100 per share CAD in EUROBANK exposure here (if it was MTM). Wonder what the long term play is here for Fairfax? 

 

 

 

The funny thing is that Eurobank may still be considerably undervalued!  Should trade at book or better over the next couple of years.  That being said, I wouldn't mind if they take a little off the table here.

 

Cheers!

[Parsad]

3 hours ago, LC said:

Here's a question: 

 

If you accept that the stock price is a rough estimation of intrinsic value (over a long time horizon), is it reasonable to accept stock price volatility as a rough estimation of intrinsic risk over a similarly long time horizon?

 

You could, but look at the volatility of META, AMZN, TSLA and even COST over the last 10+ years.  These stalwarts and outperformers today had periods of extreme volatility.  Was COST really as risky as the others?  Cheers!

[Parsad]

3 hours ago, Haryana said:

 

Parsad Sir, Happy Birthday!

 

(just a note that your chart likely included the dividends and that is a good thing, thanks)

 

 

Thank you Haryana...another year, another ring on the old trunk!  Cheers!

[Xerxes]

1 hour ago, Parsad said:

 

Thank you Haryana...another year, another ring on the old trunk!  Cheers!

happy birthday champ !!

all the best 

[Parsad]

1 hour ago, Xerxes said:

happy birthday champ !!

all the best 

 

Thanks Xerxes!

[Viking]

Of all of the many positive developments at Fairfax over the past 18 months, the spike in interest rates (and subsequent increase in interest income) is the most exciting for shareholders. That is because the interest and dividend bucket is now the biggest driver of earnings for Fairfax.

 

Fairfax has done a masterful job over the past 2 years of navigating the extreme volatility we have seen in interest rates. In Q4 2021, Fairfax did two things: they moved their average duration to 1.2 years and shifted their fixed income portfolio to high quality government securities. In 2022, as interest rates spiked higher, they began extending duration - in Q4, 2022 the average duration had been increased to 1.6 years. The positioning in late 2021 protected Fairfax’s balance sheet when interest rates spiked in 2022 (saving them billions in unrealized losses). It also allowed them to quickly take advantage of much higher interest rates. As a result, Fairfax earned record interest and dividend income in 2022. And 2023 is going to blow 2022 out of the water.  

 

What did we learn when Fairfax reported Q1 results?

 

The big news was they had pushed the average duration of their fixed income portfolio out to 2.5 years. This is a significant development. Because it means the record interest and dividend income will continue for 2023, 2024 and into 2025 - this earnings stream is now predictable and durable. Investors and analysts like this.

 

What did we learn in Q2?

 

We learned four very important things in Q2:

 

1.) Central banks are not done raising interest rates. This is because inflation (especially core readings) is still too high. And parts of the economy are starting to grow again (like housing) and employment remains tight. So, some central banks who had paused rate hikes in early 2023, like Canada and UK, have been forced to start hiking rates again. And despite the recent pause, Powell has telegraphed the Fed will be hiking the US rates at least one more time (and likely two) in the coming months.

 

In addition to the US, Fairfax has significant fixed income holdings in Canada, the UK and Europe. The average duration of their fixed income portfolio is still quite low at 2.5 years (especially when compared to peers, who are closer to 4 years). A higher for longer interest rate regime means Fairfax will be able to roll their maturing bonds into higher yielding securities - which should deliver even higher interest income.

 

2.) Interest rates are rising again. It looked like treasury yields peaked out March 8 in the US. At the end of March yields had plummeted. Fast forward three months to the end of June and treasury yields have spiked higher, with durations of 3 years and less setting new highs.

 

Fairfax is being given another opportunity to increase the average duration of their fixed income portfolio if they want to. Doing so would lock in meaningful interest income beyond 2025. This will be something to monitor when they report Q2 results. 

 

3.) Higher interest rates are causing parts of the financial market to crack, with the meltdown in US regional banks in April the most recent example. Some regional banks have been forced to sell loans at a heavy discount to raise liquidity. In partnership with Fairfax, Kennedy Wilson purchased $2.3 billion (face value) in loans from PacWest Bank. Fairfax will earn 10% on its $2 billion investment, which will generate about $200 million annually in interest income (mostly) and investment gains. I think we can assume Fairfax is likely earning an incremental 5% on this investment (if we assume they were earning 5% on their old investment) so this should result in about $100 million in incremental interest income per year beginning in July (+$25 million per quarter). 

 

4.) Dividend income is headed higher. Extending its close partnership with Kennedy Wilson, Fairfax also invested $200 million in preferred shares with a 6% dividend. This will deliver an incremental $12 million in dividend income to Fairfax each year. (As part of the deal, Fairfax also received warrants for 12.3 million shares of KW with a strike price of $16.21.)

 

Fairfax has most of its fixed income portfolio in government bonds. One of the big advantages of this positioning in the current environment is it allows Fairfax to be very opportunistic to quickly take advantage of temporary market dislocations, like we have just seen with the KW/PacWest transaction. Smart.

 

As central banks continue to increase interest rates it is possible the US could enter a recession later in 2023 or 2024. If this happens it is normal for credit spreads to dramatically widen. Fairfax has stated they are ready to shift a chunk of their fixed income portfolio from government into corporate bonds should yields on the latter pop higher. The cat is ready to pounce.     

 

Over the past 20 months we have been getting a master-class from Fairfax on the benefits of active management of a fixed income portfolio.

 

What does all this mean for Fairfax?

 

Record interest and dividend income is going even higher. The already good ‘fundamentals’ of Fairfax continue to get better.

 

What do the actual numbers look like?

 

Interest and Dividend Income:

• 2021 = $641 million ($27/share).
• 2022 = $962 million ($41/share) = 54% increase YOY.
• 2023E = $1.674 billion ($73/share) = 76% increase YOY.

Fairfax’s share price is $753. The company is trading today for 10 x 2023E interest and dividend income. Compare that to any other insurer… that is NUTS. Especially given the durability of this earnings stream and the quality of the bond portfolio.

 

—————

Interest & dividend income = interest income + dividend income - investment expenses.

 

Interest income:

• Fairfax has a fixed income portfolio of about $40 billion. Interest income will come in around $1.59 billion in 2023 = yield of 3.98%. This is up from 2.25% in 2022 and 1.54% in 2021.

Dividend income:

• Fairfax currently earns about $135 to $140 million per year in dividends from its equity holdings.

Investment expenses:

• Fairfax incurred investment expenses of $52 million in 2022, up from $36 million in 2021. My estimate for 2023 is $52 million.

FYI, Fairfax did not break out interest, dividends and investment expenses when they reported Q1 earnings (they just reported the total number). So some guesswork as to the split will be needed moving forward.

 

 

Check out the unbelievable move in Treasury yields over the past 18 months from Jan 1, 2022 to June 30, 2023.

 

 

Edited July 5, 2023 by Viking

[UK]

16 minutes ago, Viking said:

Of all of the many positive developments at Fairfax over the past 18 months, the spike in interest rates (and subsequent increase in interest income) is the most exciting for shareholders. That is because the interest and dividend bucket is now the biggest driver of earnings for Fairfax.

 

Fairfax has done a masterful job over the past 2 years of navigating the extreme volatility we have seen in interest rates. In Q4 2021, Fairfax did two things: they moved their average duration to 1.2 years and shifted their fixed income portfolio to high quality government securities. In 2022, as interest rates spiked higher, they began extending duration - in Q4, 2002 the average duration had been increased to 1.6 years. The positioning in late 2021 protected Fairfax’s balance sheet when interest rates spiked in 2022 (saving them billions in unrealized losses). It also allowed them to take advantage of much higher interest rates. As a result, Fairfax earned record interest and dividend income in 2022. And 2023 is going to blow 2022 out of the water.  

 

What did we learn when Fairfax reported Q1 results?

 

The big news was they had pushed the average duration of their fixed income portfolio out to 2.5 years. This is a significant development. Because it means the record interest and dividend income will continue for 2023, 2024 and into 2025 - this earnings stream is now predictable and durable. Investors and analysts like this.

 

What did we learn in Q2?

 

We learned four very important things in Q2:

 

1.) Central banks are not done raising interest rates. This is because inflation (especially core readings) is still too high. And parts of the economy are starting to grow again (like housing) and employment remains tight. So, some central banks who had paused rate hikes in early 2023, like Canada and UK, have been forced to start hiking rates again. And despite the recent pause, Powell has telegraphed the Fed will be hiking the US rates at least one more time (and likely two) in the coming months.

 

In addition to the US, Fairfax has significant fixed income holdings in Canada, the UK and Europe. The average duration of their fixed income portfolio is still quite low at 2.5 years (especially when compared to peers, who are closer to 4 years). A higher for longer interest rate regime means Fairfax will be able to roll their maturing bonds into higher yielding securities - which should deliver even higher interest income.

 

2.) Interest rates are rising again. It looked like treasury yields peaked out March 8 in the US. At the end of March yields had plummeted. Fast forward three months to the end of June and treasury yields have spiked higher, with durations of 3 years and less setting new highs.

 

Fairfax is being given another opportunity to increase the average duration of their fixed income portfolio if they want to. Doing so would lock in meaningful interest income beyond 2025.

 

3.) Higher interest rates are causing parts of the financial market to crack, with the meltdown in US regional banks in April the most recent example. Some regional banks have been forced to sell loans at a heavy discount to raise liquidity. In partnership with Fairfax, Kennedy Wilson purchased $2.3 billion (face value) in loans from PacWest Bank. Fairfax will earn 10% on its $2 billion investment, which will generate about $200 million in interest income (mostly) and investment gains (expected 10% total return).

 

4.) Dividend income is headed higher. Extending its close partnership with Kennedy Wilson, Fairfax also invested $200 million in preferred shares with a 6% dividend. This will deliver an incremental $12 million in dividend income to Fairfax each year. (As part of the deal, Fairfax also received warrants for 12.3 million shares of KW with a strike price of $16.21.)

 

Fairfax has most of its fixed income portfolio in government bonds. One of the big advantages of this positioning in the current environment is it allows Fairfax to be very opportunistic to quickly take advantage of temporary market dislocations, like we have just seen with the KW/PacWest transaction. Smart.

 

As central banks continue to increase interest rates it is possible the US could enter a recession later in 2023 or 2024. If this happens it is normal for credit spreads to dramatically widen. Fairfax has stated they are ready to shift a chunk of their fixed income portfolio from government into corporate bonds should yields on the latter pop higher. The cat is ready to pounce.     

 

Over the past 20 months we have been getting a master-class from Fairfax on the benefits of active management of a fixed income portfolio.

 

What does all this mean for Fairfax?

 

Record interest and dividend income is going even higher. The already good ‘fundamentals’ of Fairfax continue to get better.

 

What do the actual numbers look like?

 

Interest and Dividend Income:

• 2021 = $641 million ($27/share).
• 2022 = $962 million ($41/share) = 54% increase YOY.
• 2023E = $1.674 billion ($73/share) = 76% increase YOY.

Fairfax’s share price is $753. The company is trading today for 10 x 2023E interest and dividend income. Compare that to any other insurer… that is NUTS. Especially given the durability of this earnings stream and the quality of the bond portfolio.

 

—————

Interest & dividend income = interest income + dividend income - investment expenses.

 

Interest income:

• Fairfax has a fixed income portfolio of about $40 billion. Interest income will come in around $1.59 billion in 2023 = yield of 3.98%. This is up from 2.25% in 2022 and 1.54% in 2021.

Dividend income:

• Fairfax currently earns about $135 to $140 million per year in dividends from its equity holdings.

 

Investment expenses:

• Fairfax incurred investment expenses of $52 million in 2022, up from $36 million in 2021. My estimate for 2023 is $52 million.

FYI, Fairfax did not break out interest, dividends and investment expenses when they reported Q1 earnings (they just reported the total number).

 

 

Check out the unbelievable move in Treasury yields over the past 18 months from Jan 1, 2022 to June 30, 2023.

 

 

 

Viking, thank you for sharing you analysis and thinking on FFH! Given you extensive knowledge and conviction on possible opportunity with FFH still present, may I ask you, what are your thoughts on position sizing with FFH? Given that FFH is still an insurance and somewhat levered company, what would be max position size in FFH you could still sleep well with? 

 

[Viking]

2 hours ago, UK said:

 

Viking, thank you for sharing you analysis and thinking on FFH! Given you extensive knowledge and conviction on possible opportunity with FFH still present, may I ask you, what are your thoughts on position sizing with FFH? Given that FFH is still an insurance and somewhat levered company, what would be max position size in FFH you could still sleep well with? 

@UK i will give you a portfolio update as of today. But please note, i am ok with concentrated positions. This strategy has worked well for me for +20 years but it is not for everyone. Please note, I might decide to change my position tomorrow and i will not provide an update. I have no desire to provide daily, weekly or monthly portfolio updates. Because it messes with my head too much (i start to feel responsible for everyone else). People need to do their own research. And come to their own conclusions. And not get overly influenced by what some anonymous blogger is posting. 
 

Having got that out of the way, Fairfax has been may largest position since late 2020. ‘The story’ at the company continues to improve every quarter. As a result, despite the incredible run-up, i think the stock is still dirt cheap. So i continue to hold a concentrated position. I consider 30% to be a minimum position for me today (given what i know today). Currently i am at a 45% weighting. And I move around quite a bit (around the edges). 
 

I am also 35% cash today. The remainder is split pretty evenly between 3 other buckets: oil, banks and Canadian high yielding dividend stocks. I move around i these holdings quite a bit.
—————

If you look at most successful investors most of their outperformance was the result of only a couple of holdings that performed spectacularly well over 5 or 10 years. 
 

My view is these turbocharged opportunities only come along every couple of years (something you understand very well that is dirt cheap with catalysts). So when you find one you have to be patient and ride it for as long as possible. Because the next one might be years away.
 

My fear right now with Fairfax isn’t holding too much… it is holding too little. My fear is lightening up (locking in big gains) and then having the stock take off higher on me.
 

My biggest mistake investing is selling my big winners too early. Selling because they went up a lot. And then they kept going higher… My mistake was selling using price as my guide. So i am trying to be more patient in situations where the fundamentals continue to improve - like the situation with Fairfax today.

—————

My average return over the past 20 years is 19% per year. Over that 20 year span i have had two down years (of -4% each year). So my strategy works for me. I also spend LOTS of time on investing… because i really enjoy it.
 

People need to figure out their own strategy. Something that fits their knowledge, emotional make-up, situation, interest, time etc.  There are no short cuts. 

Edited July 5, 2023 by Viking

[Luke]

8 hours ago, Parsad said:

 

That's what I thought too!  Until Apple burst through 2T and kept compounding to 3T!

 

It will get tougher and slower for BRK to find investments.  But a lot of their core holdings, including their amazing insurance businesses, should keep the pot growing for another century.

 

Cheers!

Yeah true, lots of juice left to be squeezed!

[UK]

3 hours ago, Viking said:

@UK i will give you a portfolio update as of today. But please note, i am ok with concentrated positions. This strategy has worked well for me for +20 years but it is not for everyone. Please note, I might decide to change my position tomorrow and i will not provide an update. I have no desire to provide daily, weekly or monthly portfolio updates. Because it messes with my head too much (i start to feel responsible for everyone else). People need to do their own research. And come to their own conclusions. And not get overly influenced by what some anonymous blogger is posting. 
 

Having got that out of the way, Fairfax has been may largest position since late 2020. ‘The story’ at the company continues to improve every quarter. As a result, despite the incredible run-up, i think the stock is still dirt cheap. So i continue to hold a concentrated position. I consider 30% to be a minimum position for me today (given what i know today). Currently i am at a 45% weighting. And I move around quite a bit (around the edges). 
 

I am also 35% cash today. The remainder is split pretty evenly between 3 other buckets: oil, banks and Canadian high yielding dividend stocks. I move around i these holdings quite a bit.
—————

If you look at most successful investors most of their outperformance was the result of only a couple of holdings that performed spectacularly well over 5 or 10 years. 
 

My view is these turbocharged opportunities only come along every couple of years (something you understand very well that is dirt cheap with catalysts). So when you find one you have to be patient and ride it for as long as possible. Because the next one might be years away.
 

My fear right now with Fairfax isn’t holding too much… it is holding too little. My fear is lightening up (locking in big gains) and then having the stock take off higher on me.
 

My biggest mistake investing is selling my big winners too early. Selling because they went up a lot. And then they kept going higher… My mistake was selling using price as my guide. So i am trying to be more patient in situations where the fundamentals continue to improve - like the situation with Fairfax today.

—————

My average return over the past 20 years is 19% per year. Over that 20 year span i have had two down years (of -4% each year). So my strategy works for me. I also spend LOTS of time on investing… because i really enjoy it.
 

People need to figure out their own strategy. Something that fits their knowledge, emotional make-up, situation, interest, time etc.  There are no short cuts. 

 

Thanks very much for your answer!

 

[dartmonkey]

18 hours ago, Parsad said:

 

The funny thing is that Eurobank may still be considerably undervalued!  Should trade at book or better over the next couple of years.  That being said, I wouldn't mind if they take a little off the table here.

 

Cheers!

 

Agreed. Remembering the successful Bank of Ireland investment, they purchased 8.7% in 2011 for 0.10 eurs, and sold most of it in 2014 and 2015 for between 0.33 and 0.36 euros, and cut it further from 2.9% to 1.5% in 2016, and the rest in 2017, for a total profit of over $1b US. (In the 2002 AR, Watsa called Richie Boucher from the Bank of Ireland Fairfax's 'first billion dollar man', with George Chryssikos's of Grivalia and Eurobank having his name added to this illustrious list. Interestingly, Boucher was on Eurobank's board from 2017 to 2020, so maybe it's contagious.)

 

Anyways, the Bank of Ireland has not done much since 2017, going from about 8 euros to 9, and paying out 0.67 euros since then. Hopefully, Eurobank will not suffer the same fate, but if Fairfax lightens its investment a bit, there would be a good precedent.

[maxthetrade]

13 hours ago, Viking said:

@UK i will give you a portfolio update as of today. But please note, i am ok with concentrated positions. This strategy has worked well for me for +20 years but it is not for everyone. Please note, I might decide to change my position tomorrow and i will not provide an update. I have no desire to provide daily, weekly or monthly portfolio updates. Because it messes with my head too much (i start to feel responsible for everyone else). People need to do their own research. And come to their own conclusions. And not get overly influenced by what some anonymous blogger is posting. 
 

Having got that out of the way, Fairfax has been may largest position since late 2020. ‘The story’ at the company continues to improve every quarter. As a result, despite the incredible run-up, i think the stock is still dirt cheap. So i continue to hold a concentrated position. I consider 30% to be a minimum position for me today (given what i know today). Currently i am at a 45% weighting. And I move around quite a bit (around the edges). 
 

I am also 35% cash today. The remainder is split pretty evenly between 3 other buckets: oil, banks and Canadian high yielding dividend stocks. I move around i these holdings quite a bit.
—————

If you look at most successful investors most of their outperformance was the result of only a couple of holdings that performed spectacularly well over 5 or 10 years. 
 

My view is these turbocharged opportunities only come along every couple of years (something you understand very well that is dirt cheap with catalysts). So when you find one you have to be patient and ride it for as long as possible. Because the next one might be years away.
 

My fear right now with Fairfax isn’t holding too much… it is holding too little. My fear is lightening up (locking in big gains) and then having the stock take off higher on me.
 

My biggest mistake investing is selling my big winners too early. Selling because they went up a lot. And then they kept going higher… My mistake was selling using price as my guide. So i am trying to be more patient in situations where the fundamentals continue to improve - like the situation with Fairfax today.

—————

My average return over the past 20 years is 19% per year. Over that 20 year span i have had two down years (of -4% each year). So my strategy works for me. I also spend LOTS of time on investing… because i really enjoy it.
 

People need to figure out their own strategy. Something that fits their knowledge, emotional make-up, situation, interest, time etc.  There are no short cuts. 

 

Awesome post Viking! Like you I'm more concerned that I don't own enough FFH.

[Munger_Disciple]

23 hours ago, gfp said:

It's pretty great that the corner of Berkshire and Fairfax message board was named after two securities that are almost tied in performance this millennium, with the smaller up-and-comer, Fairfax, clocking in at 846% vs. Berkshire's 826%.  Going forward it is likely that Fairfax will continue to outperform Berkshire over long periods due primarily to the size difference.  Unfortunately my dividends are taxed so Berkshire is ahead for this taxable American.

 

 

In the case of Fairfax, the CAGR seems to a very strong function of the start date of one's investment even in the very long term. If you zoom out a bit further, the chart looks like this in CAD (it hit a local peak of $540 CAD in 1998). If one invested in Fairfax on 1/1/1999 and kept it until 6/30/2023 for example, the CAGR after 24.5 years is only 4.54%. On the other hand, if you invested in FFH on 1/1/2003 and kept it till 6/30/23, CAGR jumps to 13.4% over the 20.5 year period. 

 

Edited July 5, 2023 by Munger_Disciple

[maxthetrade]

16 minutes ago, Munger_Disciple said:

If one invested in Fairfax on 1/1/1999 and kept it until 6/30/2023 for example, the CAGR after 24.5 years is only 4.54%. On the other hand, if you invested in FFH on 1/1/2003 and kept it till 6/30/23, CAGR jumps to 13.4% over the 20.5 year period. 

 

Yes, the price you pay is important! I still own some shares that I bought in 2003 in a tax free account. I can't sell them without loosing the tax free status so I'll hold them as long as I see an reasonable future return compared to other after tax opportunities.

[Munger_Disciple]

37 minutes ago, maxthetrade said:

 

Yes, the price you pay is important! I still own some shares that I bought in 2003 in a tax free account. I can't sell them without loosing the tax free status so I'll hold them as long as I see an reasonable future return compared to other after tax opportunities.

 

Of course the price you pay counts. The surprising thing is that even after 25 years, the returns were really poor after the purchase in 1999. I guess FFH was way overvalued in 1998-1999 time frame. 

[treasurehunt]

58 minutes ago, Munger_Disciple said:

 

In the case of Fairfax, the CAGR seems to a very strong function of the start date of one's investment even in the very long term. If you zoom out a bit further, the chart looks like this in CAD (it hit a local peak of $540 CAD in 1998). If one invested in Fairfax on 1/1/1999 and kept it until 6/30/2023 for example, the CAGR after 24.5 years is only 4.54%. On the other hand, if you invested in FFH on 1/1/2003 and kept it till 6/30/23, CAGR jumps to 13.4% over the 20.5 year period. 

 

 

Yes, the stock price has historically been very volatile. Perhaps it is better to look at changes in book value per share (plus dividends) to get a better idea of how the business has been doing over time.

 

[Viking]

1 hour ago, Munger_Disciple said:

 

In the case of Fairfax, the CAGR seems to a very strong function of the start date of one's investment even in the very long term. If you zoom out a bit further, the chart looks like this in CAD (it hit a local peak of $540 CAD in 1998). If one invested in Fairfax on 1/1/1999 and kept it until 6/30/2023 for example, the CAGR after 24.5 years is only 4.54%. On the other hand, if you invested in FFH on 1/1/2003 and kept it till 6/30/23, CAGR jumps to 13.4% over the 20.5 year period. 

 

 

@Munger_Disciple I do not spend a great deal of time looking far into the past. It is interesting/fun to do. What I really care about is the future. My guess is Fairfax should easily outperform Berkshire moving forward. And by a lot. There are a couple of reasons for this:

1.) Fairfax is way underpriced - probably 30% or more. Berkshire no where near as cheap. So Fairfax's starting point is much better.

2.) Fairfax earnings are spiking for all the reasons we have discussed on this board. This will drive the stock price higher.

3.) Active management is working right now. And Fairfax has been on a hot streak. The management team at Fairfax has been executing exceptionally well in recent years. 

 

That is not to suggest that there isn't a place for Berkshire in an investors portfolio. It is a well run, rock solid company. With a pretty good guy in charge.

[Munger_Disciple]

58 minutes ago, Viking said:

 

@Munger_Disciple I do not spend a great deal of time looking far into the past. It is interesting/fun to do. What I really care about is the future. My guess is Fairfax should easily outperform Berkshire moving forward. And by a lot. There are a couple of reasons for this:

1.) Fairfax is way underpriced - probably 30% or more. Berkshire no where near as cheap. So Fairfax's starting point is much better.

2.) Fairfax earnings are spiking for all the reasons we have discussed on this board. This will drive the stock price higher.

3.) Active management is working right now. And Fairfax has been on a hot streak. The management team at Fairfax has been executing exceptionally well in recent years. 

 

That is not to suggest that there isn't a place for Berkshire in an investors portfolio. It is a well run, rock solid company. With a pretty good guy in charge.

 

 I agree with you that FFH will likely do better than BRK (mainly because it is cheaper) from this starting point over the next 5 years with the following caveats: (1) FFH insurance underwriting results produce a decent combined ratio (I would take 98% but I know you think it will be 95%), and they don't get their head handed to them in the case of a catastrophic event (2) the Fed doesn't cut rates too much which it would in the case of a rough recession.  

Edited July 6, 2023 by Munger_Disciple

[TwoCitiesCapital]

13 minutes ago, Munger_Disciple said:

 

 I agree with you that FFH will likely do better than BRK from this starting point over the next 5 years with the following caveats: (1) FFH insurance underwriting results produce a decent combined ratio (I would take 98% but I know you think it will be 95%), and they don't get their head handed to them in the case of a catastrophic event (2) the Fed doesn't cut rates too much which it would in the case of a rough recession.  

 

I'm actually thinking the recessionary scenario is better for Fairfax than status quo now that they're locking in duration. 

 

Having $1B+ per year in stable interest income and/or billions on capital gains from Treasuries in a rate cur scenario gives them plenty to work with in the case of credit dislocation. This will be especially true if they start pairing down the TRS position prior to any recession taking away a potential liquidity drain from a dropping share price. 

 

Credit spreads haven't budged yet, but the pace of bankruptcies in the US is currently at levels that have previously seen 8-10% HY spreads (currently at ~5). If the Fed keeps hiking, I'd expect the pain will become more acute and we could see absolute mayhem in corporate spreads - IG and HY. That environment would give Fairfax the potential to reinvest gains/income at significantly higher rates than the 4-6% currently available to them