Historic Milestone

[Buffett_Groupie]

Making history today

[Buffett_Groupie]

Looking forward to $1,000 for https://finance.yahoo.com/quote/FRFHF next.

[Xerxes]

Only historic if it closes above $1,000

[maplevalue]

Congrats to all, thanks to @Viking for showing us the way

[Santayana]

And on good volume...

[cwericb]

Now that we have hit this new milestone, I wish Prem would do a stock split and lower the per share of Fairfax and make it more attractive to smaller shareholders. There must be a ton of small investors in the market place with smaller portfolios. But for a small investor who would like to add say, $2,500 in FFH shares to his portfolio, what? he needs to buy two and a half shares?

 

With all the complaints about the market not recognizing the true value of Fairfax I think this is one of the reasons why. Lowering the share price to, say $50 or even $100, would not only focus a lot more attention on Fairfax but it would likely soon lead to an escalated share price.

 

Most of the Canadian banks have done this from time to time. What’s so special about Fairfax? Ego? Or am I missing something?

JMHO.

Edited June 7, 2023 by cwericb

[Xerxes]

 

Not going to happen. All that does is to create more business for brokers with trading volume going up. 
 

what goes into the pockets of brokers as commission doesn’t stay in the pocket of investors. 
 

Say no to drugs

say no to stock-split. 

 

keep it pure 

[longlake95]

He's being Buffett like. Trying to attract true-owner mentality types - like this crowd. Can't say I disagree. 

[Viking]

37 minutes ago, cwericb said:

Now that we have hit this new milestone, I wish Prem would do a stock split and lower the per share of Fairfax and make it more attractive to smaller shareholders. There must be a ton of small investors in the market place with smaller portfolios. But for a small investor who would like to add say, $2,500 in FFH shares to his portfolio, what? he needs to buy two and a half shares?

 

With all the complaints about the market not recognizing the true value of Fairfax I think this is one of the reasons why. Lowering the share price to, say $50 or even $100, would not only focus a lot more attention on Fairfax but it would likely soon lead to an escalated share price.

 

Most of the Canadian banks have done this from time to time. What’s so special about Fairfax? Ego? Or am I missing something?

JMHO.

 

I would also like to see a stock split. Perhaps 5 for 1. As you said, this would open Fairfax up to more smaller investors. This would also improve liquidity, especially in the US. I don't see a stock split as likely. 

[Viking]

44 minutes ago, longlake95 said:

He's being Buffett like. Trying to attract true-owner mentality types - like this crowd. Can't say I disagree. 

 

The problem is Fairfax does not run the business to attract a long-term shareholder base. The decisions/results/communication they delivered 2010-2020 are all the proof that is needed on that front. It was terrible (on balance). My guess is many long-term shareholders capitulated and sold in the bloodbath in 2020. Trust in management was lost and at an all time low. 

 

Fairfax is a blank canvas today. They are starting over and building a new relationship with shareholders. If they want long term shareholders they need to play their part. They need to re-establish trust. Communication needs to be stellar.

 

Look at Buffett today. He is running Berkshire like a trust. Capital preservation is paramount; not return. And you see it in Berkshires results... they are not close to what they were. (I am not saying this is how Fairfax should be run.)

 

Will I hold Fairfax long-term? I don't know is the honest answer. We are still too early into the turnaround. I love the set-up for the company right now. Management has delivered for the past 5 years. 

 

At the end of the day... I call it fit. To own a stock long term there has to be a match with how a shareholder is wired and how a company is run.

----------

At the AGM I asked Prem what lessons Fairfax had learned from the lost decade for shareholders (2010-2020). And had any processes changed within Fairfax to make sure the same TYPES of mistakes are not made again. I got a non-answer. Which of course WAS an answer. 

 

Another question at the AGM was if Fairfax carried too much debt (operated with too much leverage). Prem's answer was they could sell Odyssey and be debt free.

 

I found the answers to both questions to be lacking. But I remain open minded.  

Edited June 7, 2023 by Viking

[maxthetrade]

2 minutes ago, Viking said:

At the AGM I asked Prem what lessons Fairfax had learned from the lost decade for shareholders (2010-2020). And had any processes changed within Fairfax to make sure the same TYPES of mistakes are not made again. I got a non-answer. Which of course WAS an answer.

 

I remember that one, was very disapointed by the answer too!

[longlake95]

Viking - you're right that investors don't have the same relationship with Prem/FFH, due to some of the blighted history. This will take time to heal/prove. I'm just not sure that a split, why improving liquidity, changes much in how the stock tracks intrinsic value over time. It may add more volatility - as the renters busily buy and sell FFH - with every new twitter post. 

 

BTW, agreed on the Prem's answer on debt...i'd like to see lower leverage. FFH can/will do fine if they take a page out Omaha.

[Crip1]

34 minutes ago, Viking said:

 

The problem is Fairfax does not run the business to attract a long-term shareholder base. The decisions/results/communication they delivered 2010-2020 are all the proof that is needed on that front. It was terrible (on balance). My guess is many long-term shareholders capitulated and sold in the bloodbath in 2020. Trust in management was lost and at an all time low. 

 

Fairfax is a blank canvas today. They are starting over and building a new relationship with shareholders. If they want long term shareholders they need to play their part. They need to re-establish trust. Communication needs to be stellar.

 

Look at Buffett today. He is running Berkshire like a trust. Capital preservation is paramount; not return. And you see it in Berkshires results... they are not close to what they were. (I am not saying this is how Fairfax should be run.)

 

Will I hold Fairfax long-term? I don't know is the honest answer. We are still too early into the turnaround. I love the set-up for the company right now. Management has delivered for the past 5 years. 

----------

At the AGM I asked Prem what lessons Fairfax had learned from the lost decade for shareholders (2010-2020). And had any processes changed within Fairfax to make sure the same TYPES of mistakes are not made again. I got a non-answer. Which of course WAS an answer. 

 

Another question at the AGM was if Fairfax carried too much debt (operated with too much leverage). Prem's answer was they could sell Odyssey and be debt free.

 

I found the answers to both questions to be lacking. But I remain open minded.  

Dude, you are speaking my language.

 

Considering FFH is my largest holding, by far, I clearly like the company and the story. But, there is one aspect of Fairfax that is highly problematic, IMHO, and that’s Prem’s reluctance to candidly admit errors. Buffett has always been extraordinarily good at this and I think it’s healthy for any individual, especially one in a leadership position.

 

It is almost impossible to change unless there is valid reason, and the valid reason needs to be admitting errors or, at minimum, admitting that things could have been done better. Prem is reluctant to do this. He was looked at very favorably during the financial crisis based on how well he navigated Fairfax through that. The ensuing 8-10 years were substantially less successful. Will we see a repeat now? I don’t think so, but I am not as sure with Prem because of the lack of candidly admitting errors.

 

-Crip

[maxthetrade]

32 minutes ago, longlake95 said:

I'm just not sure that a split, why improving liquidity, changes much in how the stock tracks intrinsic value over time.

 

With improved liquidity options should get available. Imagine what a homerun the last two years would have been with some calls thrown in! Could have been a replay of 2008 when many here bought calls. 

[cwericb]

1 hour ago, longlake95 said:

He's being Buffett like. Trying to attract true-owner mentality types - like this crowd. Can't say I disagree. 

But Berkshire does have A and B shares.

[dartmonkey]

33 minutes ago, Crip1 said:

Dude, you are speaking my language.

 

Considering FFH is my largest holding, by far, I clearly like the company and the story. But, there is one aspect of Fairfax that is highly problematic, IMHO, and that’s Prem’s reluctance to candidly admit errors. Buffett has always been extraordinarily good at this and I think it’s healthy for any individual, especially one in a leadership position.

 

It is almost impossible to change unless there is valid reason, and the valid reason needs to be admitting errors or, at minimum, admitting that things could have been done better. Prem is reluctant to do this. He was looked at very favorably during the financial crisis based on how well he navigated Fairfax through that. The ensuing 8-10 years were substantially less successful. Will we see a repeat now? I don’t think so, but I am not as sure with Prem because of the lack of candidly admitting errors.

 

-Crip

How about this:

 

2019: In the past, to protect our equity exposures in uncertain times, we shorted indices (mainly the S&P500 and Russell 2000) and a few common stocks. After much thought and discussion, it became clear to me that shorting is dangerous, very short term in nature and anathema to long term value investing. As I mentioned to you in last year’s annual report, shorting has cost us, cumulatively, net of our gains on common stock, approximately $2 billion! This will not be repeated! In the future, we may use options with a potential finite loss to hedge our equity exposure, but we will never again indulge anew in shorting with uncapped exposure. Your Chairman continues to learn–slowly!!

 

2020:  I said in our 2019 annual report that we would not short stock market indices (like the S&P500) or common stocks of individual companies ever again, and our last remaining short position was closed out in 2020 (not soon enough, as it cost us $529 million in 2020).

[longlake95]

10 minutes ago, cwericb said:

But Berkshire does have A and B shares.

yes, without dissecting this 10 ways to Sunday , WEB would have likely preferred not to have the B's, but was forced to jump onboard having 2 share classes - when some people were trying to flog a security/fund/LP etc, made up of just BRK sliced into smaller pieces. Then he split the B's to accommodate the small BNSF shareholders.  I'd maintain $1000 is a small "price" to pay for entry into a diversified well run....we expect going forward, business. That's just one iPhone that lots of people carry around.

 

but i'm probably wrong. 

[Viking]

1 hour ago, dartmonkey said:

How about this:

 

2019: In the past, to protect our equity exposures in uncertain times, we shorted indices (mainly the S&P500 and Russell 2000) and a few common stocks. After much thought and discussion, it became clear to me that shorting is dangerous, very short term in nature and anathema to long term value investing. As I mentioned to you in last year’s annual report, shorting has cost us, cumulatively, net of our gains on common stock, approximately $2 billion! This will not be repeated! In the future, we may use options with a potential finite loss to hedge our equity exposure, but we will never again indulge anew in shorting with uncapped exposure. Your Chairman continues to learn–slowly!!

 

2020:  I said in our 2019 annual report that we would not short stock market indices (like the S&P500) or common stocks of individual companies ever again, and our last remaining short position was closed out in 2020 (not soon enough, as it cost us $529 million in 2020).

 

So in the 2019AR Prem said “After much thought and discussion, it became clear to me that shorting is dangerous, very short term in nature and anathema to long term value investing.”

 

And what did we learn in the 2020AR? When Prem said what he said above they STILL HAD a massive short position on. And they kept it in place for another year. That cost Fairfax shareholders another $529 million. 
 

That stream of communication was not one of Prem’s finer moments. When questioned about the miscommunication i am pretty sure he said… well in 2019 i said i would not put on a NEW position. The loss was not a new position… so my previous communication was accurate. Technically correct, but…
 

This was an example of terrible communication by a CEO. 
 

Fairfax is no longer a small family owned Canadian business. They are now a Goliath… a top 20 global insurer. Simply an amazing story. Put simply, Fairfax has entered the big leagues. Prem is now going to be held to a new standard in terms of communication. And rightly so. So many Canadian companies have failed to make this transition (Saputo being the best immediate example i can think of). If Prem wants to be viewed as a best-in-class global company he needs to improve on the communication (especially to shareholders). Or not. And suffer the consequences. His choice. 
—————

Just to be clear, i am not a Prem hater. I am a hard marker (ask my kids). Call a spade a spade. 
 

Prem has many strengths. He has been able to attract and retain outstanding people. People at Fairfax appear to really like him and enjoy working for the company. He/Fairfax has built a huge collection of amazing relationships in the business/political world. He is strategic. And focussed on the long term. I have no doubt that he is a first-class human being. He has Fairfax poised to do exceptionally well over the next few years. And like all of us, yes, he also has flaws. Am i happy he is CEO of Fairfax? Of course. 

Edited June 7, 2023 by Viking

[Haryana]

43 minutes ago, Viking said:

 

So in the 2019AR Prem said “After much thought and discussion, it became clear to me that shorting is dangerous, very short term in nature and anathema to long term value investing.”

 

And what did we learn in the 2020AR? When Prem said what he said above they STILL HAD a massive short position on. And they kept it in place for another year. That cost Fairfax shareholders another $529 million. 
 

That stream of communication was not one of Prem’s finer moments. When questioned about the miscommunication i am pretty sure he said… well in 2019 i said i would not put on a NEW position. The loss was not a new position… so my previous communication was accurate. Technically correct, but…
 

This was an example of terrible communication by a CEO. 
 

 

Just like beauty is in the eye of the beholder, communication could be in the ear of the listener.

From my point of sound, that is what I expected him to say in full humble disclosure which I find impressive and inspirational.

 

I speculate what happened is that they had closed most of the positions but the loss on one position might be so big that they would think of recovering that next year.

However, they displayed great discipline by finally closing that as well next year even at a massive loss.

I understand his explanation about the position being from the previously existing ones, instead of a new one.

 

Maybe his communication is bit too nerdy for people. He was an engineer first, after all.

Unlike, Buffett who was into businesses and stocks from the very beginning.

Even Bill Gates had a hard time communicating when accused of anti-competition practices and he was world #1, instead of world #10.

 

Personally, I find the communication of Buffett to be terrible. He makes too many loops and detours of thoughts with volatile word speed, I cannot make out anything.

 

[Haryana]

 

Buffett was also exposed to public office and politics at an early age while he campaigned for his politician father.

His father was also into investment business in addition to being a senator. He has perhaps got that in his blood.

Both the investment business and politics are fields that are fundamentally based on selling and communication.

So, that is where Buffett is coming from. He knows the value, methods and temperament for appeasing the public.

 

Prem Watsa may talk just as good as Bill Gates or some other tech CEOs and insurance is becoming more and more a technology business.

However, you get the benefit of a diversified and decentralized structure with Fairfax that makes them immune to risks of owning an individual stock in place of a market index.

[Thrifty3000]

To Prem’s credit he did repeatedly lay out their thesis for their caution and short positions (see every Hoisington quarterly letter ever written for a technical explanation of Prem’s thesis).

 

He also qualifies EVERY decision with a statement along the lines of “this bet may or may not work, but we expect it to work.” He knows every capital allocation decision is nothing more than a bet where he expects the odds to be in his favor. That’s capital allocation for you.

 

Any investor had every right to disagree with Prem. However, I don’t recall much public dispute with Prem’s logic given the extreme debt to gdp ratios globally, and the deflationary experiences of post-great-depression USA and post-early-90s-Japan.

 

Prem just happened to pick a fight with maybe the most extreme financial experiment in the history of human civilization - a global central bank ZIRP bandwagon! (See every Grant’s Interest Rate Observer during that period.)

 

Prem has a billion dollar brain and a multi-decade track record. His net worth will be higher a decade from now than it is today. He’s wired for that. A snowball, if you will. He ain’t dumb.

Edited June 8, 2023 by Thrifty3000

[Parsad]

4 hours ago, Thrifty3000 said:

To Prem’s credit he did repeatedly lay out their thesis for their caution and short positions (see every Hoisington quarterly letter ever written for a technical explanation of Prem’s thesis).

 

He also qualifies EVERY decision with a statement along the lines of “this bet may or may not work, but we expect it to work.” He knows every capital allocation decision is nothing more than a bet where he expects the odds to be in his favor. That’s capital allocation for you.

 

Any investor had every right to disagree with Prem. However, I don’t recall much public dispute with Prem’s logic given the extreme debt to gdp ratios globally, and the deflationary experiences of post-great-depression USA and post-early-90s-Japan.

 

Prem just happened to pick a fight with maybe the most extreme financial experiment in the history of human civilization - a global central bank ZIRP bandwagon! (See every Grant’s Interest Rate Observer during that period.)

 

Prem has a billion dollar brain and a multi-decade track record. His net worth will be higher a decade from now than it is today. He’s wired for that. A snowball, if you will. He ain’t dumb.

 

100% correct!  In the depths of the GFC, nobody questioned Prem and many also thought that it could be a 2nd Great Depression.  Fairfax not only invested in CDS but made sure that their counterparties could pay out and wouldn't fail.  At that time, that was pretty hard to do when Bear Sterns went down, then Lehman and there was a very good possibility that Goldman and some major banks could fail as well.  Cheers!

[giulio]

We should try to see the shorts in the context of WHEN they were made. Judging ONLY the outcome is somehow unfair to me. 

To be clear: they should not short!  

Can you blame them for shorting Tesla? I guess so, just remember that Tesla was almost bankrupt and (later on) its valuation did not make any sense considering the auto industry dynamics. How many predicted $1 trillion mkt cap? how could you have predicted something like 2020 and the subsequent investors' (mis)behavior?

 

Agree with @Thrifty3000 on deflation swaps. My guess is Watsa saw them as protection for FFH capital, rather than a lottery ticket (an example of the latter = Ackman shorting the HKD).

 

As Howard Marks puts it: "Only the things that happened happened. But that definiteness doesn’t mean the process that creates outcomes is clear-cut and dependable. Many things could have happened in each case in the past, and the fact that only one did happen understates the potential for variability that existed... the history that took place is only one version of what it could have been".

 

Also, expecting management to apologize at every annual meeting/shareholders letter...isn't this a bit too much? They made a mistake, recognized it, apologized, said they are not going to do it again, learned their lessons and moved on...shareholders should too! They don't have a better process to explain because they won't short again! I like this simplicity 

 

Ps. @Viking I really struggle to understand this "Capital preservation is paramount; not return. And you see it in Berkshires results... they are not close to what they were". Downside protection has always been paramount at BRK but to say they are not interested in return would be paradoxical! Returns are a product of your opportunity set...I am glad they have been "inactive" in the recent past, but you can rest assured Buffett will swing BIG if the opportunity knocks!

 

[Viking]

19 hours ago, giulio said:

Ps. @Viking I really struggle to understand this "Capital preservation is paramount; not return. And you see it in Berkshires results... they are not close to what they were". Downside protection has always been paramount at BRK but to say they are not interested in return would be paradoxical! Returns are a product of your opportunity set...I am glad they have been "inactive" in the recent past, but you can rest assured Buffett will swing BIG if the opportunity knocks!

 

 

@giulio  Sorry if my wording is not clear. My view is Buffett today has capital preservation as his single most important objective. It hit me like a bag of bricks when I watched him a couple of years ago when he had the online only annual meeting Q&A. He said that many long term shareholders had a majority of their wealth (and their families wealth) in Berkshire and he felt a massive responsibility to ensure that this wealth would be protected so it could be passed to future generations.

 

Now don't get me wrong... Yes, Buffett also wants to make a decent return for shareholders. Now it is possible that Buffett has had the exact same mindset over the decades since he started. And Berkshires size is primarily what is causing returns to fall dramatically (from those earned in the past).    

[Haryana]

On 6/7/2023 at 12:30 PM, Viking said:

 

At the AGM I asked Prem what lessons Fairfax had learned from the lost decade for shareholders (2010-2020). And had any processes changed within Fairfax to make sure the same TYPES of mistakes are not made again. I got a non-answer. Which of course WAS an answer. 

 

Buffett has disclosed multiple times that he is without any defined processes or checklists for his investment decisions. Prem might be the same to some extent. When a person is working directly from the private confines of their brain and you ask them if any of those processes had changed, that might sound insulting to the person because you are actually talking about their brain. In other words, it could be asking if someone had their head fixed after losing big on the previous bets.

 

In terms of real changes at the corporate office after lackluster stock performance, there actually was delegation of some investment power to other executives.

 

With regards to your question going unanswered, that is nothing to be taken personally because this appears to happen with every other question. Some people insist and stick to their question and rephrase it or emphasize what their question was. Certainly, I would also dislike if that happens to my question. In comparison, Buffett also does that and in this year meeting Charlie at one point had pointed out how Buffett had likely evaded a question.