Fairfax 2023

[jfan]

With ffh changing significantly in terms of underwriting consistency and investment focus fixed, what will you do when it hits $1200 or 1.5-2x BV? Sell? Trim? Or hold for 10+ years? Is there a case to be made that ffh will be a compounder like brk?

[StubbleJumper]

Just now, jfan said:

With ffh changing significantly in terms of underwriting consistency and investment focus fixed, what will you do when it hits $1200 or 1.5-2x BV? Sell? Trim? Or hold for 10+ years? Is there a case to be made that ffh will be a compounder like brk?

Sell.

[TwoCitiesCapital]

1 minute ago, jfan said:

With ffh changing significantly in terms of underwriting consistency and investment focus fixed, what will you do when it hits $1200 or 1.5-2x BV? Sell? Trim? Or hold for 10+ years? Is there a case to be made that ffh will be a compounder like brk?

 

Entirely dependent WHEN it hits that. But if we're at $1,200 in the next 2 years, I imagine I'd be trimming substantially. 

 

My cost basis on my shares is between like $250-450 so I'd take an easy 3-5x over 3-5 years. And if I'm right about equity markers in general, there will be opportunities to deploy that capital into that will likely be more attractive at that point of massive outperformance. 

 

But I'm not holding my breathe for $1,200 in 2-3 years. I think $1,000 in 2-3 years is probably a more reasonable bar and even that isn't my base case for re-rating just because I expect markets will remain pessimistic on just about all risk assets for that first half. 

[Viking]

Sanjeev, can you please add the rocket emoji to the toolbar?   
 

Fairfax closed today at $640. $10 dividend is being deposited tomorrow (=$650)

 

Stock was trading at $450 in early October = 45% return in 3 months. Time to sell? Stock is trading at 1x BV. And about 6x 2023 earnings. That hardly looks expensive. It actually looks dirt cheap. What a bizarre set up.

[StubbleJumper]

17 minutes ago, Viking said:

That hardly looks expensive. It actually looks dirt cheap. What a bizarre set up.

 

Not dirt cheap.  Maybe BV will be more or less US$700 on Dec 31, 2023?  So, choose your likely multiple of book that the stock will trade at: 0.8x, 0.9x, 1x, 1.1x, 1.2x?  As you noted, currently it's trading roughly at 1x, and if it continues to do so, then we'd be looking at an end-year price of roughly US$700, which is 10% from where we currently sit.  If we get lucky and have some multiple expansion, maybe we'll see it trade at 1.1x, which would be ~20% from where we currently sit?  Those are good, healthy double-digit returns, AND they are not just plausible but rather probable.  But, dirt cheap?  Not quite.

 

The interesting thing that nobody really addressed was @gfp's post from last week noting that Bradstreet has been buying preferreds, particularly the F and H series.  Now, for the record, Bradstreet's forgotten more about investing than I'll ever know.  He surely can see the same things that we can see, and probably more because he's an insider.  Instead of doing the "obvious" and piling into the common shares, he's bought the floating preferreds.  Curious, that.

 

As you noted, it's a bizarre set up.  But, let's try not to get ahead of ourselves.

 

 

SJ

[modiva]

1 hour ago, StubbleJumper said:

 

Not dirt cheap.  Maybe BV will be more or less US$700 on Dec 31, 2023?  So, choose your likely multiple of book that the stock will trade at: 0.8x, 0.9x, 1x, 1.1x, 1.2x?  As you noted, currently it's trading roughly at 1x, and if it continues to do so, then we'd be looking at an end-year price of roughly US$700, which is 10% from where we currently sit.  If we get lucky and have some multiple expansion, maybe we'll see it trade at 1.1x, which would be ~20% from where we currently sit?  Those are good, healthy double-digit returns, AND they are not just plausible but rather probable.  But, dirt cheap?  Not quite.

 

The interesting thing that nobody really addressed was @gfp's post from last week noting that Bradstreet has been buying preferreds, particularly the F and H series.  Now, for the record, Bradstreet's forgotten more about investing than I'll ever know.  He surely can see the same things that we can see, and probably more because he's an insider.  Instead of doing the "obvious" and piling into the common shares, he's bought the floating preferreds.  Curious, that.

 

As you noted, it's a bizarre set up.  But, let's try not to get ahead of ourselves.

 

 

SJ

 

I can see how it doesn't look dirt cheap from BV perspective.  But from earnings perspective at 6x multiple, it looks dirt cheap considering the strength of the fundamentals.  Especially with S&P 500 at 20x currently, or at 15x during times of past recessions.  I don't know the historical BV to PE multiple for Fairfax, or for the insurance companies in general, it would be good to understand.  

Edited January 26, 2023 by modiva

[Viking]

1 hour ago, StubbleJumper said:

 

Not dirt cheap.  Maybe BV will be more or less US$700 on Dec 31, 2023?  So, choose your likely multiple of book that the stock will trade at: 0.8x, 0.9x, 1x, 1.1x, 1.2x?  As you noted, currently it's trading roughly at 1x, and if it continues to do so, then we'd be looking at an end-year price of roughly US$700, which is 10% from where we currently sit.  If we get lucky and have some multiple expansion, maybe we'll see it trade at 1.1x, which would be ~20% from where we currently sit?  Those are good, healthy double-digit returns, AND they are not just plausible but rather probable.  But, dirt cheap?  Not quite.

 

The interesting thing that nobody really addressed was @gfp's post from last week noting that Bradstreet has been buying preferreds, particularly the F and H series.  Now, for the record, Bradstreet's forgotten more about investing than I'll ever know.  He surely can see the same things that we can see, and probably more because he's an insider.  Instead of doing the "obvious" and piling into the common shares, he's bought the floating preferreds.  Curious, that.

 

As you noted, it's a bizarre set up.  But, let's try not to get ahead of ourselves.

 

SJ

@StubbleJumper, i agree it is important to keep a level head. Point taken.

 

i think the challenge when trying to value Fairfax is the numbers from the past 3 years really don’t help us much when trying to determine what an appropriate price for the stock should be today. So we are kind of in uncharted territory. I will not be surprised if the stock continues to move higher. I also will not be surprised if the stock goes back to US$500. This will make it difficult for current shareholders who are not in the stock for the long term (or who are way overweight like me).

—————

My guess is BV Dec 31, 2022 will come in at about $635-$640/share. Pet insurance will deliver $40/share after tax all by itself. Another $30/share seems reasonable for underwriting profit, interest and div income, share of profit of associates and investment gains (market to market equities were up +$300 million in Q4). So looks to me like stock is currently trading at about 1xBV. 
 

My guess is Fairfax will earn about $105/share in 2023. That would put BV at $740 Dec 31, 2023. My $105 is already looking low. Why?

1.) Ambridge was sold for $400 million and will likely involved a sizable gain ($10/share after tax?).

2.) Equity markets are starting the year strong (

- example: 1.95 million Fairfax shares x $150/share gain over 2023 = $300 million pre-tax gain).

- example: earnings at Eurobank are really starting to move. The stock is popping (i realize it is not mark to market). Perhaps they are allowed to start a dividend in 2023.

3.) Bond yields have really come down a little further out on the curve (3 years and further out) so we likely will see decent gains on the bond portfolio in 2023. 
4.) Fairfax has been supporting/cultivating a large number of private holdings that it could chose to monetize: Exco, AGT, Bauer, etc. it has a large number of ‘hidden’ assets. My guess is we get a couple of more monetizations in 2023. 
5.) Digit IPO: this will be a big deal when it happens. We know Digit has the approvals. We just don’t know the timing. Lots of buzz about India right now…

6.) share buybacks: do they go big again? I think its pretty safe to assume share count is coming down minimum of 2% but it could easily be higher.

 

So based on what i know today, i think Fairfax should earn about $105/share in 2023. That is my conservative number. If a few of the things i note above happen, earnings will likely be higher. If we get the Digit IPO, earnings could easily be much higher (+$130/share).

—————

Earnings are very important. Equally important for an undervalued stock like Fairfax is what happens to the multiple. Why is 1x BV the appropriate number? That is comically low for a company like Fairfax - as it exists today. Fairfax should be able to deliver ROE of over 15% for at least the next few years. Does a 1.3 or even a 1.4 multiple not make sense? Over time Mr Market does get valuation right.
 

If BV is US$635 (at Dec 31) x multiple of 1.3 = $825/share. If Fairfax earns $105/share in 2023, it the stock was trading at $825 = forward PE of 8x. Hardly expensive. 

 

So to me, the stock today trading at $640 looks crazy cheap. When will Mr Market agree with me? No idea. But it does look to me like the Fairfax pendulum is slowly swinging from fear to neutral. If Fairfax can deliver the good in 2023 and 2024 (like they have the last couple of years) i think there is a good chance the pendulum swings to greed - and we see the multiple go to the higher end of the band. 

Edited January 26, 2023 by Viking

[StubbleJumper]

35 minutes ago, Viking said:

My guess is Fairfax will earn about $105/share in 2023. That would put BV at $740 Dec 31, 2023. My $105 is already looking low.

 

That is entirely possible.  The fundamentals are very good for FFH.  I have no trouble with that argument, as all it would take is a light cat year and/or a couple of transactions triggering major gains (like Digit).

 

37 minutes ago, Viking said:

Does a 1.3 or even a 1.4 multiple not make sense?

 

When was the last time FFH traded at 1.3 or 1.4x?  It's been a while.  We might ultimately get there, but it probably won't persist.  That's a BRK-type valuation for assets that are not nearly as good as BRK's.  I have no trouble imagining a 1.2x valuation, but it might take a few years to even get there.

 

We will get good returns from FFH over the next few years, of that I am quite certain.  There should be no trouble making the 15% ROE in 2023, and then if we are lucky, it might happen again in 2024 and then if we are super lucky, maybe again in 2025.  But, the hard market must eventually turn, as it always does.  In the mean time, growing book by 15+% and growing valuation from 1x to 1.1x or 1.2x will give a solid return...but if for some reason it does hit 1.4 (never say never) it's time to sell every last share.

 

And, I would remind you once again, that Bradstreet elected to buy the preferreds a few weeks ago....

 

 

SJ

 

[StubbleJumper]

52 minutes ago, modiva said:

 

I can see how it doesn't look dirt cheap from BV perspective.  But from earnings perspective at 6x multiple, it looks dirt cheap considering the strength of the fundamentals.  Especially with S&P 500 at 20x currently, or at 15x during times of past recessions.  I don't know the historical BV to PE multiple for Fairfax, or for the insurance companies in general, it would be good to understand.  

 

 

You don't value insurance companies on a PE basis because the insurance cycle gives you a great deal of income variability.  We are probably close to the top of that cycle, with peak underwriting income.  FFH has an interesting advantage at the moment that it was running a short duration bond portfolio, which results in a bit of a lollapalooza effect at the moment.  But, after a few years of solid underwriting profitability, new money floods into the sector and your peak income suddenly disappears.  It's the same reason why a cyclical commodity stock is not considered a buy when it hits 6x EPS or 8x EPS at the top of the cycle. 

 

Valuing it with book works better.

 

 

SJ

[Xerxes]

2 hours ago, StubbleJumper said:

  Now, for the record, XXXX's forgotten more about investing than I'll ever know. SJ

 

I love this line/expression.

I got to try to use this more often. Which would probably apply to a lot of things.

 

[Xerxes]

Folks, I hate to break it to you, but Fairfax's performance in 2023 probably has a lot to do with how S&P500 performs in 2023.

 

A 15-20% (Grantham style) drop on S&P500 by year-end, would probably have Fairfax rally to a healthy premuim to BV.

A major bounce back at the indices level, would probably be a flat/modest gain for Fairfax.

 

So what is your bet on S&P500 for 2023 ....

 

 

 

Edited January 26, 2023 by Xerxes

[Viking]

2 hours ago, Xerxes said:

Folks, I hate to break it to you, but Fairfax's performance in 2023 probably has a lot to do with how S&P500 performs in 2023.

 

A 15-20% (Grantham style) drop on S&P500 by year-end, would probably have Fairfax rally to a healthy premuim to BV.

A major bounce back at the indices level, would probably be a flat/modest gain for Fairfax.

 

So what is your bet on S&P500 for 2023 ....

@Xerxes i am not following your logic… 

[glider3834]

17 hours ago, StubbleJumper said:

When was the last time FFH traded at 1.3 or 1.4x?  It's been a while.  We might ultimately get there, but it probably won't persist.  That's a BRK-type valuation for assets that are not nearly as good as BRK's.  I have no trouble imagining a 1.2x valuation, but it might take a few years to even get there.

I did this chart benchmarking FFH against peers using seekingalpha data but please do your own due diligence - it was done 1 Dec-22 so bit outdated but it shows how P/B multiples have expanded likely due to interest rates - FFH's peer group median P/B was 1.8x. FFH's P/B was 0.9x at the time but probably closer to 1.0x now.

 

BRK's p/b looks to be around 1.5x. I think the challenge for BRK in terms of forward ROE is just BRK's sheer size. A 1% increase in BVPS for Fairfax is 155M & for Berkshire its around 4.6B. Berkshire size means fewer investment options to pick from that can move the needle which impacts ROE potential.

 

 

 

 

 

 

 

 

 

Edited January 26, 2023 by glider3834

[StevieV]

6 hours ago, Viking said:

@Xerxes i am not following your logic… 

 

I'm not either.  Fairfax is going to trade opposite the market?  I wouldn't think so.

 

Like last year, Fairfax may be able to break free from trading with the market, but I don't see why it would trade opposite.

[nwoodman]

5 hours ago, Viking said:

@Xerxes i am not following your logic… 

@Xerxes correct me if I'm wrong but to paraphrase, short covering rallies can steal the bid from value stocks. Voting machine vs longer term weighing machine.  

 

Also to pipe in on the above discussion, I assume Fairfax is a 10-11% compounder over the longer term that also spits out 2% (based on its recent lows) and should be valued at a minimum  1.1 to 1.2 x's and that includes a margin of safety.  If their Indian bets pay off then 1.4-1.5 is fair.  Personally, I love the exposure to India but I also have my largest holding (by a smaller margin than 6 months ago) in Berkshire that cast's a wary eye on that mix of demographic opportunity and potential corruption to the core.

[Intelligent_Investor]

Fairfax likely undervalued, but I agree with some above posters not dirt cheap. It was dirt cheap in 2020 when I loaded up in the $270s and was trading at 0.6x book.

[MMM20]

On 1/24/2023 at 9:48 PM, jfan said:

With ffh changing significantly in terms of underwriting consistency and investment focus fixed, what will you do when it hits $1200 or 1.5-2x BV? Sell? Trim? Or hold for 10+ years? Is there a case to be made that ffh will be a compounder like brk?

 

I am a terrible trader but it seems more likely to me that Fairfax hits $1200 for the first time at ~1-1.2x BV in ~3-5 years and so the decision to hold is made easier by the market's fixation on valuing it as a multiple of book, which imho systematically undervalues the underlying cash flowing power of the business (and frankly management's willingness and ability to "do a teledyne") on a forward looking basis. I think it just depends how things look if/when we get there, right? But the dream of 15% compounding is certainly alive if they can continue to underwrite at 95% combined ratio which, as I think many others here understand intuitively, is functionally equivalent to borrowing about half the value of their ~$50B investment portfolio at a negative 5% interest rate - which is even more valuable now that rates are back to "normal"-ish! This is the power of float and a relatively large and truly well managed insurance operation. I personally think that largely for this reason it's actually cheaper now than it was in 2020, or at least not dissimilar given the range of outcomes from their current position of massive strength. But, again, I might still be the biggest bull here, and I am wrong all the time.

 

Wish I could go to the meeting for the first time but i'll have a newborn! Next year i hope! Love Toronto!

 

Edited January 26, 2023 by MMM20

[MMM20]

14 hours ago, StubbleJumper said:

 

 

You don't value insurance companies on a PE basis because the insurance cycle gives you a great deal of income variability.  We are probably close to the top of that cycle, with peak underwriting income.  FFH has an interesting advantage at the moment that it was running a short duration bond portfolio, which results in a bit of a lollapalooza effect at the moment.  But, after a few years of solid underwriting profitability, new money floods into the sector and your peak income suddenly disappears.  It's the same reason why a cyclical commodity stock is not considered a buy when it hits 6x EPS or 8x EPS at the top of the cycle. 

 

Valuing it with book works better.

 

 

SJ

 

I've written in the past about how this logic doesn't really apply to insurance the same way it does to commodity businesses. The reason a shale operator with a $50/barrel breakeven cost isn't worth 20x earnings when oil is at $100/barrel is that the sustainable clearing price for oil is closer to $60. High cost production capacity gets added when prices are high, which inevitably pushes prices back to equilibrium where the $50 operator barely makes a profit. This is not the case in insurance, correct? We shouldn't see insurance prices down huge just b/c capacity is added, right? Maybe just see flattish or slightly down prices from here in a bad scenario, and a good disciplined operator like Fairfax should still do well, so $100 EPS (and not $30 so ~20-22x normalized p/e or even $50 or ~12-13x normalized p/e) really should be a sustainable “base” looking forward. Can the insurance expert OGs here please set me straight if I'm misunderstanding? Have there been times in the past where pricing just gets absolutely crushed after a hard market?

 

Edited January 26, 2023 by MMM20

[StevieV]

Is Fairfax cheap today?  I think it still is, but it's up 37% in the last 3-months, so not nearly as cheap as it was.  I don't think anything too surprising company-specific has happened in the last 3 months - just the market waking up.

[StubbleJumper]

31 minutes ago, MMM20 said:

 

I've written in the past about how this logic doesn't really apply to insurance the same way it does to commodity businesses. The reason a shale operator with a $50/barrel breakeven cost isn't worth 20x earnings when oil is at $100/barrel is that the sustainable clearing price for oil is closer to $60. High cost production capacity gets added when prices are high, which inevitably pushes prices back to equilibrium where the $50 operator barely makes a profit. This is not the case in insurance, correct? We shouldn't see insurance prices down huge just b/c capacity is added, right? Maybe just see flattish or slightly down prices from here in a bad scenario, and a good disciplined operator like Fairfax should still do well, so $100 EPS (and not $30 so ~20-22x normalized p/e or even $50 or ~12-13x normalized p/e) really should be a sustainable “base” looking forward. Can the insurance expert OGs here please set me straight if I'm misunderstanding? Have there been times in the past where pricing just gets absolutely crushed after a hard market?

 

 

Well, I hope you are right.  In the past, what has happened is that profitability has attracted a flood of new capital and that has created pricing pressure.  FFH is reasonably disciplined and just lets business go if it cannot be underwritten profitably, but that drives both a volume and a pricing impact on the P/L.  We can hope that most of the premium growth will be sticky, but it really varies from sub to sub.  Working from memory, both Odyssey and Zenith are examples where net written has dropped in the past due to unfavourable pricing.

 

Your question about the amplitude of earnings across the cycle is a good one.  In 2023 we expect to see a strange thing, which is highly profitable underwriting, solid returns on fixed income and probably a positive return from equities.  With that, maybe EPS will be $100?  Take one or two of those away, and maybe you are looking at $40 at the bottom of the cycle?  If you want to use PE as a valuation tool then, you need to normalize your EPS for a cycle rather than accepting that the EPS at the top of the cycle will be your average!  A ROE of 15% has been the exception over the past few decades, not the rule.

 

It's much easier to use a multiple of book.

 

 

SJ

[MMM20]

@StubbleJumper 

 

I guess what I'm getting at is, which specific piece of the earnings algorithm now is overearning? Are you saying a ~98-99%+ combined ratio not 95% is an appropriate number on the insurance side for the next decade? ~2% yield on the fixed income portfolio instead of what looks conservatively to be ~4%+ going forward? Total public+private equity returns of ~5% instead of ~8%? Should we assume the share count increases with some big misguided acquisition funded with stock instead of shrinking with buybacks? 

 

I get that insurance prices and interest rates have been up recently, but I'm still trying to understand specifically how that translates to FFH overearning, b/c it looks like the investment portfolio alone is now set up to earn $2.5B+ in normalized pretax income per year, using something like ~4% for the ~$35B+ cash+fixed income side and ~8% for the ~$15B+ private+public equities. So then assuming decent sustainable profitability in insurance at their current size (and after subtracting interest/dividends on the debt+prefs) gets us to $3B or maybe even $4B in normalized pretax earnings, even if insurance pricing and float growth is flattish over the next few years.

 

What is that actually worth to a shareholder with an imho fair low teens cost of equity for FFH? Maybe I'm off base but as a generalist looking at all kinds of stuff all over the place I think it's something like a ~10x multiple of pretax earnings - which translates to a ~$30-40B fair market cap right now, today. Yes, that is roughly a "market multiple" (a bit less still) and a big premium to current BV and to most other insurance companies.

 

Appreciate the conversation and just trying to understand where this logic/math is wrong.

 

Thanks.

 

Edited January 26, 2023 by MMM20

[Thrifty3000]

1 hour ago, MMM20 said:

 

I've written in the past about how this logic doesn't really apply to insurance the same way it does to commodity businesses. The reason a shale operator with a $50/barrel breakeven cost isn't worth 20x earnings when oil is at $100/barrel is that the sustainable clearing price for oil is closer to $60. High cost production capacity gets added when prices are high, which inevitably pushes prices back to equilibrium where the $50 operator barely makes a profit. This is not the case in insurance, correct? We shouldn't see insurance prices down huge just b/c capacity is added, right? Maybe just see flattish or slightly down prices from here in a bad scenario, and a good disciplined operator like Fairfax should still do well, so $100 EPS (and not $30 so ~20-22x normalized p/e or even $50 or ~12-13x normalized p/e) really should be a sustainable “base” looking forward. Can the insurance expert OGs here please set me straight if I'm misunderstanding? Have there been times in the past where pricing just gets absolutely crushed after a hard market?

 

 

Total P&C sector annual premiums written continue marching higher.

 

 

Combined ratio fluctuates cyclically (largely due to cycles of capital availability and risk appetite).

 

 

[StubbleJumper]

28 minutes ago, MMM20 said:

I guess what I'm getting at is, which specific piece of the earnings algorithm now is overearning? Are you saying a ~98-99%+ combined ratio not 95% is an appropriate number on the insurance side for the next decade? ~2% yield on the fixed income portfolio instead of what looks conservatively to be ~4%+ going forward? Total public+private equity returns of ~5% instead of ~8%? Should we assume the share count increases with some big misguided acquisition instead of shrinking with buybacks? 

 

The over-earning part comes in due to having both strong underwriting income AND solid investment returns.  Think of it this way:  If somebody adds $1 of capital to an insurance company right now, what's the return on that?  Well, with a $1 investment you can write $2 of premium.  If they are decent underwriters, that will provide 10 cents of underwriting income, and then you get to invest the original dollar plus your incremental float,  which probably amounts to about $2 altogether (ie, $1 of new capital, plus maybe $1 of float averaged over the year).  Slap those $2 into any old short term treasury bill/bond at 4+% and you'll have 8 cents of investment income.  So, your annual return on investing an incremental dollar into the industry is what, about 18-ish percent? As it always does, that will attract new capital!  Some smart guys will say, let's throw some money into the industry, and even if we have to discount prices and can only write a 99 CR, that's still a plenty good return.  But if too much capital gets thrown into the industry, it won't be a CR of 99, but maybe it'll be 102 (suddenly you've gone from benefit of float back to having a cost of float).  This article is a good read as a blast from the past: https://money.cnn.com/magazines/fortune/fortune_archive/2002/06/10/324523/

 

On equities, I am reasonably optimistic about FFH's prospects, but then again that's subject to much uncertainty.  A down market or a sideways market is probably a pretty good place for FFH to play.  The private equity returns have been lumpy and will continue to be lumpy.  The market will discount that element of earnings (but it is definitely of great value to long-term shareholders).

 

Don't get me wrong here.  I am optimistic about the next few years for FFH.  But, I would encourage you to look at their historical ROE for the past 10 or 20 years.  It goes up, and it goes down.  We think that 2023 will be one of the "up years" and should exceed 15%, but that is unlikely to endure.

 

 

SJ

[MMM20]

@StubbleJumper 

 

Makes sense, thanks for your thoughts. I hear you and incorporating all that I still think the stock is way undervalued at this point. If we use a 100% combined ratio, ~3% cash+fixed income yield, and ~6% public+private equity cagr - yes, i agree that no one year over the next decade will look anything like that! - that's still ~$2B in pretax income. I think you could pay $25B for that today b/c with something like ~20% of normalized net income paid out as a dividend, the ~80% retained and reinvested at any reasonable incremental return (and they have a lot of good options) = a fair low teens long term total return for shareholders from that valuation. Even that would be a ~$1000 stock and again that's assuming 0 profitability in insurance underwriting and imho too-conservative e(r)s for the investment portfolio. I heavily discount the early-mid 2010s performance for a bunch of reasons that @Viking and others have laid out so well, and I hope prem is still going strong in 5-10 years... but anyway.

 

Edited January 26, 2023 by MMM20

[Viking]

Well i lightened up on my Fairfax position today. Why?

1.) i was way, way overweight. Especially given the recent run-up. My strategy with Fairfax is to have a core position i hold as long as the story remains intact (the Fairfax story is actually getting better). I trade around that core holding - buy more when the stock sells of (like last Sept/Oct) and lighten up when the stock pops (like now). This strategy has worked exceptionally well since Fairfax hit its pandemic lows in Oct 2020.

2.) tax reasons. My wife and i do not have day jobs. Selling Fairfax in our taxable accounts realizes some pretty big capital gains (we were up 35% on those positions) that we will pay minimal tax on (given it will be our only income for the year). In Canada capital gains receive very favourable tax treatment. 
 

Fairfax remains a little over 30% of my total portfolio - so i am still way overweight. Oil is about 30% (mostly SU). Cash is up to 35%. Misc is 5% (US financials and Fairfax India). I recently sold my big tech and dividend stocks for 6-8% gains (over 6 weeks). My total portfolio is up about 8% to start the year so i am happy to lock in gains and raise some cash (that will earn +3%) while i wait for the next fat pitch.

Edited January 26, 2023 by Viking