Historic Milestone

[SafetyinNumbers]

1 hour ago, nwoodman said:

Not trying to labour this but genuinely interested as to when a company that has a top 30 market cap gets included in a diversified national index comprising 60 companies.

 

I think it’s #26 at the end of February which is the measurement date. If it’s going in on March 15, they will announce it tomorrow after the close. It would be an easy call if AQN was under 20bps in the 60 but it’s 22bp. <20 bps is a historical rule of thumb for deletions. I’m not sure if FFH being ~6x bigger than influences their decision to move now. The other reason Bay Street doesn’t think it goes in is because Financials are bigger in the Composite than the 60. The committee is supposed to have the 60 represent the Composite so adding another Financial would make it worse. Some mitigating factors are that when combined with real estate the gap is tighter and FFH isn’t very correlated with XFN. 
 

It’s just a matter of time until a constituent gets too small or gets taken out and maybe we are better off it happens at a much higher multiple and book value but it could happen tomorrow night. 
 

[nwoodman]

Thanks @SafetyinNumbers.  It all appears like the dark arts to me, especially the committee’s discretion.  I understand that rebalancing is done quarterly, however could I trouble you to point me to where it specifically states that tomorrow is the decision making day?

 

Index inclusion is  hardly central to the FFH thesis but I find the discretionary aspect a bit of an eye opener as far as indexing more generally

 

https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-tsx-canadian-indices.pdf
 

S&P/TSX 60 Methodology

The S&P/TSX 60 is a subset of the S&P/TS Composite. It has 60 constituents and represents Canadian large cap securities with a view to reflecting the sector balance of the S&P/TSX Composite. In using trading data to determine any matter relating to the S&P/TS 60, including index composition and calculations, trading data on the TSX and U.S. exchanges is reviewed.

Additions to the S&P/TSX 60

1. To be eligible for inclusion in the S&P/TSX 60 index, securities must be constituents of the S&P/TSX Composite.
2. When adding securities to the S&P/TS 60 index, the Index Committee generally selects amongst the larger securities, in terms of float QMV, in the S&P/TS Composite. Size may, however, be overridden for purposes of sector balance as described in item 4 below.
3. When adding securities to the S&P/TS 60 index, the Index Committee generally selects securities with float turnover of at least 0.35. This is a guideline only and may be changed at the discretion of the Index Committee. In addition, this range may be overridden for purposes of sector balance described in item 4 below.
4. Security selection for the S&P/TSX 60 index is conducted with a view to achieving sector balance that is reflective of the GICS sector weights in the S&P/TSX Composite.
5. Minimum index turnover is preferable. Changes are made to the S&P/TSX 60 index on an as needed basis. The most common cause of deletion is merger or acquisition of a company. Other common reasons for deletion include bankruptcy, restructuring or other corporate actions. If a company substantially fails to meet one or more of the aforementioned guidelines for inclusion or if a company fails to meet the rules for continued inclusion in the S&P/TS Composite, it is removed. The timing of removals is at the discretion of the Index Committee.

 

 

[glider3834]

the most underweight areas in TSX60 (vs TSX composite) appear to be in real estate or materials from what I can see 

 

https://www.spglobal.com/spdji/en/indices/equity/sp-tsx-composite-index/#data

 

https://www.spglobal.com/spdji/en/indices/equity/sp-tsx-60-index/#data

Edited March 1 by glider3834

[SafetyinNumbers]

8 hours ago, nwoodman said:

Thanks @SafetyinNumbers.  It all appears like the dark arts to me, especially the committee’s discretion.  I understand that rebalancing is done quarterly, however could I trouble you to point me to where it specifically states that tomorrow is the decision making day?

 

 

 

 

Rebalancing occurs every quarter in March, June, September, December which makes Feb 29, the measurement date. The rebalance occurs on the third Friday of the month and they give two weeks notice via press release so that’s why I think we’re live tonight. I think the odds are under 25% though given the historical precedent of 20bps threshold in the 60 for kicking a constituent out.

 

 

[nwoodman]

25 minutes ago, SafetyinNumbers said:

Rebalancing occurs every quarter in March, June, September, December which makes Feb 29, the measurement date. The rebalance occurs on the third Friday of the month and they give two weeks notice via press release so that’s why I think we’re live tonight. I think the odds are under 25% though given the historical precedent of 20bps threshold in the 60 for kicking a constituent out.

 

Ta, if that’s the case,  then our AI overlord (unchecked) offers the following future dates if it doesn’t happen tonight:

 

“Based on the rebalancing schedule that occurs every quarter in March, June, September, and December on the third Friday of the month, with a two-week notice given via press release, here are the dates for 2024:

- **March Rebalance:**
  - Rebalance Date: March 15, 2024
  - Announcement Date: March 1, 2024

- **June Rebalance:**
  - Rebalance Date: June 21, 2024
  - Announcement Date: June 7, 2024

- **September Rebalance:**
  - Rebalance Date: September 20, 2024
  - Announcement Date: September 6, 2024

- **December Rebalance:**
  - Rebalance Date: December 20, 2024
  - Announcement Date: December 6, 2024

These dates align with the criteria of rebalancing on the third Friday of the specified months and providing a two-week notice before the actual rebalance occurs.”

 

[dartmonkey]

11 hours ago, glider3834 said:

• the most underweight areas in TSX60 (vs TSX composite) appear to be in real estate or materials from what I can see

 

Looking at the respective compositions of the S&P/TSX Composite (currently 225 Canadian companies)  and the S&P/TSX 60 (the large cap subset of 60 big companies), it is clear that the sector balancing of the subset is pretty good, usually within one percentage point of the Composite, except for financials, which are already over-represented in the subset (34.5%,, instead of 31.1%), this being easily the largest discrepancy. 

 

Also, minimum turnover is preferred, and companies are not generally excluded unless they are acquired, go bankrupt, are restructured, etc., size not being one of the issues. It may well be that the 20 bps minimum has been a historical minimum, but if you delete a smalll non-financial, and include a big financial, you make the composition imbalance much worse. So my bet would be that Fairfax will not be added unless another financial is acquired or goes bankrupt, even if there are a number of much smaller non-financials in there. It might be a long wait.

[Santayana]

I wonder to what degree liquidity plays factor in the index inclusion process.   Would a higher average daily volume make them more likely to be included?    Has Prem ever directly addressed the question of whether they'd ever do a split?

[cwericb]

Just my personal opinion, and I have said this before, but I think a 10 or 20 to one stock split would open up Fairfax to a whole lot of smaller investors and I also believe it would have an immediate positive impact on share price.  However it is probably not in the cards, perhaps due to misplaced ego?

 

Share price for Canadian banks split every so often and mostly run in the $75 - $150 range, so why shouldn't Fairfax? I have not seen any negative effect on the banks.

 

Most small investors eventually become larger investors, but when one single share runs in the $1,500 range  one would expect that a lot of people just give Fairfax a pass. With a share price in that range it makes it difficult for the little guy to adjust his holdings up and down because you have to do it in $1500 increments. A split would also make it easier for an investor to divide their Fairfax holdings between their different accounts - TFSA, RRSP, RESP, etc.

 

I bought my first Fairfax shares at around $200, but if the shares were in the $1,500 range at that time I am not so sure I would be a shareholder today. 

 

A lot of people on this board hold Berkshire shares, there probably would be a lot fewer shareholders here if there were no ".B" shares. Doesn't the same principle apply?

 

 

 

[hardcorevalue]

I just don’t see a material long term benefit to a stock split. Prem is all about building long term shareholders and if somebody gets excited by a share costing less nominally then they are probably in it for the wrong reasons. 

[Hoodlum]

I will agree with cwericb on this.  My son is in university and had a little bit of spare funds available from his interest free student loan that he wanted to start investing in stocks.  He spread it around with just 200-300 in each of 10 different investments.

 

Initially, he decided not to invest in Fairfax as he didn’t want so much tied up in one company.  After about a year he did buy his first share after he saw the growth from my investment but by then it was around $1k cdn per share

 

While I would agree a lower price would attract more investors that don’t understand Fairfax, it would bring in some younger investors earlier who would gain a better understanding over time. Over the long run this would provide a deeper pool of longterm Fairfax investors. 
 

Fairfax will only get more challenging over time for younger investors to start investing in.  Fairfax could become a $5000cdn/share in 5 years just based on current growth a a 1.5x book value.  At some point they will need to review this .

Edited March 3 by Hoodlum

[MMM20]

I hope they never split the stock. If you can’t do the absolute bare minimum to understand that the share price alone is arbitrary and meaningless (and you can buy partial shares at seemingly every broker these days) then buy an index and focus on other things. Not splitting the stock is one way to attract the investors they deserve, at least on the margin. 

 

Edited March 3 by MMM20

[Jaygo]

No split for me. I just wish they would get down to 1 million shares so I could do some easy math lol. My math skills are even worse than our friend gfp 
 

Its certainly is not holding back csu or autozone or the brk. A shares so who cares about per share price. The b shares will likely be over 1000 in ten years, are we going to split again there? 

[Hoodlum]

I was just discussing this further with my son.  He actually purchased 1/2 a share once his broker started offering fractional ownership.  He believes that it doesn’t make much of a difference, now that fractional ownership is available. Surprisingly, he mentioned he likes the idea of owning a fraction of a high priced stock rather than seeing the stock being split. So maybe there is some psychological benefit to not splitting. LOL

[MMM20]

41 minutes ago, Hoodlum said:

I was just discussing this further with my son.  He actually purchased 1/2 a share once his broker started offering fractional ownership.  He believes that it doesn’t make much of a difference, now that fractional ownership is available. Surprisingly, he mentioned he likes the idea of owning a fraction of a high priced stock rather than seeing the stock being split. So maybe there is some psychological benefit to not splitting. LOL

smart kid

[Hoodlum]

Trading over $1500 cdn for the first time.  Next stop is $2000cdn/$1500US, maybe both of these Cdn/US milestones will occur on the same day. 

Edited March 14 by Hoodlum