Fairfax book value or share price will touch US $ 2000 before 2027 end.

[Haryana]

Express your opinion on the Poll. Thanks.

 

[Thrifty3000]

On 12/24/2023 at 5:41 PM, Haryana said:

 

@Thrifty3000 

 

What you think? 

 

 

I voted no, but mostly because $2,000 would require a slightly more optimistic outlook than I’m comfortable with. I’m assuming BV will be around $1,500 per share by the end of 2027, and I believe 1.2x BV ($1,800) is a reasonably conservative multiple for FFH.

 

Now, with that said, given how unpredictable Mr. Market is, and how well FFH has been managing capital in recent years, I do think there’s maybe a 50/50 chance the share price could at least touch the $2,000 per share mark by the end of 2027. So, I’m not a hard no. I just don’t want to set myself up for disappointment.

Edited December 26, 2023 by Thrifty3000

[Haryana]

@Thrifty3000 thank you for expressing what you think. 

Everyone, please feel free to explain your side of the bet. 

 

Projecting 2000 from the current 900 is a rate of 22% or 23% with dividends. 

You should be on the Yes team if you are estimating that rate over four years. 

 

Also, this is like an American style option where you can win anytime before the expiration. 

The Yes team will win as soon as either the book value or the share price touches US2000. 

 

[Ross812]

I voted no. 

 

From @Viking:  For Fairfax, today only 20% of their various income streams comes from underwriting profit and 80% comes from other sources (40% from interest and dividends, 20% from share of profit of associates and 20% from mark to market equities and investment gains). Underwriting profit is a much more important income stream for traditional P/C insurers. So even if the CR at Fairfax declines slightly in the coming years (this is not a given), given its small relative size, it will likely have a small impact on Fairfax’s total earnings - the total $ decline will likely easily be absorbed by another income stream. 

 

To get to $2000 I'll make the optimistic assumption that EPS are $200 in 2024-2027 and FFH rerates to 1.2x BV.

 

I assume that interest rates are headed back down a couple of percentage points which means over the next few years the ability to easily reinvest cash (both retained earnings and maturities) back into treasuries/bonds becomes less profitable. The 40% share of profit from interest and dividends comes from the float and I don't see the float increasing at 20%+ percent a year which means FFH has to rely on other sources - underwriting profit, profit from associates, 20% MTM investment gains. Declining interest payments is a big hole to fill and FFH hasn't done it in the past, even if you look at the profitability of the SOTP ex-hedges in the past. Remember there is a high probability (40-50%) underwriting disappoints in one of the next 4 years. Maybe that extends/renews a hard market and FFH ends up better for it over a full cycle, but that could be a significant whack to earnings in any one year. To get to $2000, a lot of things have to go right:

 

a) high interest rates continue -or- they knock investments out of the park (maybe 30% chance) 

b) no super cats in the next 4 years (50% chance)

c) market rerates FFH to 1.2x BV (I'd say 80% chance)

 

So that is a 12% chance FFH ends up at $2000. 

 

My estimation:

 

Starting BVPS - $890

2024 - $170 EPS

2025 - $175 EPS

2026 - $180 EPS

2027 - $170 EPS

Underwriting: super cat year knocks off $40 one year

Rerate to 1.2x BV

 

BVPS - $1545

Price - $1850

That's a CAGR of about 18% which is good enough for me, 15% of my NW is in FFH. 

 

 

 

 

 

[Viking]

25 minutes ago, Ross812 said:

I voted no. 

 

From @Viking:  For Fairfax, today only 20% of their various income streams comes from underwriting profit and 80% comes from other sources (40% from interest and dividends, 20% from share of profit of associates and 20% from mark to market equities and investment gains). Underwriting profit is a much more important income stream for traditional P/C insurers. So even if the CR at Fairfax declines slightly in the coming years (this is not a given), given its small relative size, it will likely have a small impact on Fairfax’s total earnings - the total $ decline will likely easily be absorbed by another income stream. 

 

To get to $2000 I'll make the optimistic assumption that EPS are $200 in 2024-2027 and FFH rerates to 1.2x BV.

 

I assume that interest rates are headed back down a couple of percentage points which means over the next few years the ability to easily reinvest cash (both retained earnings and maturities) back into treasuries/bonds becomes less profitable. The 40% share of profit from interest and dividends comes from the float and I don't see the float increasing at 20%+ percent a year which means FFH has to rely on other sources - underwriting profit, profit from associates, 20% MTM investment gains. Declining interest payments is a big hole to fill and FFH hasn't done it in the past, even if you look at the profitability of the SOTP ex-hedges in the past. Remember there is a high probability (40-50%) underwriting disappoints in one of the next 4 years. Maybe that extends/renews a hard market and FFH ends up better for it over a full cycle, but that could be a significant whack to earnings in any one year. To get to $2000, a lot of things have to go right:

 

a) high interest rates continue -or- they knock investments out of the park (maybe 30% chance) 

b) no super cats in the next 4 years (50% chance)

c) market rerates FFH to 1.2x BV (I'd say 80% chance)

 

So that is a 12% chance FFH ends up at $2000. 

 

My estimation:

 

Starting BVPS - $890

2024 - $170 EPS

2025 - $175 EPS

2026 - $180 EPS

2027 - $170 EPS

Underwriting: super cat year knocks off $40 one year

Rerate to 1.2x BV

 

BVPS - $1545

Price - $1850

That's a CAGR of about 18% which is good enough for me, 15% of my NW is in FFH. 

 

@Ross812 from my perspective the big unknown with Fairfax is asset sales/monetizations/revaluations. Will be get one big one - +$500 million - over the next 4 years? Two big ones? Or do we get a number of smaller ones - $250 million to $500 million - like the 2 we saw in 2023 (Ambridge and GIG).

- Digit IPO and getting to 74% ownership

- Anchorage IPO - BIAL

- Stelco - does it get taken out?

- AGT Food Ingredients - delivered +$100 million in EBITDA in 2022 (if i remember correctly). Time to spin out?

- Foran Mining - will we need more copper in about 2 years?

I could go on. Fairfax has lots of levers to pull to surface significant value.

 

Bottom line, one or two big moves here (or a number of smaller moves) would really move the needle in terms of BV growth, which would likely pop the stock price. What i like about Fairfax today is most investors expect zero in their earnings estimates / valuation models for big gains. I don’t build them into my models (until they are announced) - hence why i think my estimates will likely prove to be conservative.

[vinod1]

Guys answering yes, please tell me what you are inhaling!

 

This is a large, very large part of my portfolio and dont need you guys angering the market gods!!!  

 

 

[Crip1]

55 minutes ago, vinod1 said:

Guys answering yes, please tell me what you are inhaling!

 

This is a large, very large part of my portfolio and dont need you guys angering the market gods!!!  

 

 

You sound like my trying to not anger Fantasy Football Gods.

 

Regarding this question, however, I also voted "No" for two non-analytical reasons. First, something or some things are going to surprise us in the coming months/years. it's better the assume "Good" and get "Great" or assume "OK" and get "Good" than the inverse. I literally just finished handing in the revenue budget for my company and, as usual, said "We're expecting X but we're budgeting for .9 times X in terms of volume and margins". It's not right to low-ball, but it's better to assume conservatively. Bad surprises are hard to manage, good surprises are much easier to manage.

 

The second reason goes back to something Buffett said years ago and still rings true. In insurance, surprises are more often bad than they are good. Everything normalized is pointing higher, and FFH is my largest position by far, but if something happens unexpected and material, it's likely not going to be good.

 

-Crip

[cwericb]

I voted 'NO', only because I have concerns about future climate change and how that will impact the industry - and I too, am a little afraid to anger the investment gods.  Of course 'No' is the safe answer because I hope I am wrong and that the industry and Fairfax will find ways to cope with climate change and potential future disasters that may occur.

 

However, since FFH is now about 55% of my stock portfolio, I am still reluctant to lighten up and am confident that Fairfax will continue to produce satisfactory results. Even if it misses that $2000 mark by a bit I wouldn't be too disappointed

 

I am just a small investor compared to many here, but I  first looked at Fairfax back in 2006.  I followed it closely on the predecessors to this board (Thanks Sanjeev!) and made my first venture into the markets with a substantial (to me) purchase of Fairfax in 2007 at about $220/share. AND, at the time kicking myself that I didn't buy earlier when it was about half that price. Seems to me one of the posters I followed closely back in the early days was Crip (above and thanks) and a surprisingly high number of others that are still around here today. I have yet to sell a share and have added throughout the years and only stopped because it is uncomfortably overweight in my portfolio.

 

My biggest concern at this point is the Capital Gains Tax should I ever decide to sell. Ouch - but a nice problem to have I guess.

[vinod1]

50 minutes ago, Haryana said:

Wondering if you might be exhibiting some Wall of Worry phase type symptoms. 

Are you feeling some fears/worries that you are avoiding either side of the bet? 

(as all can see and for those who are yet to notice, this poll is nonanonymous) 

 

Even the No team members are estimating a price point of 1800/1850. 

The movements based on history are expected to be volatile/lumpy.

Touching 2000 intraday is only a ~10% volatility from 1800/1850. 

 

 

I am completely kidding of course. 

 

I go a long way back with Fairfax. First purchase at $106 in 2006. Very small purchase as I did not know much. Second stock I bought after Berkshire. Added and reduced several times all the way until 2011 when I exited the investment completely at $418 when it is pretty obvious that returns are going to be poor. 

 

Got back in at scale at various price points between $450 to $485 in the last couple of years.

 

To me it meets the minimum return requirements with a high degree of certainty with possibility of higher returns. I intent to hold it for a long time as conditions have changed and it has become just as obvious now that returns are going to be very satisfactory as it was in 2011 that returns would be unsatisfactory. No need to nail down a specific price. I am not selling even if it reaches some arbitrary price point as long as my return expectations meet my minimum requirements and/or other opportunities show up.

 

The moment we make an investment part of our rationality goes out. When we comment on it, more rationality goes out. When we start putting price estimates with dates, we all tend to start exhibiting various forms of bias. That is the only reason I did not vote and do not comment too much on this topic. 

 

 

 

 

 

[Hamburg Investor]

I voted yes, assuming I had to bet 1 dollar and getting an extra dollar being right or loosing the dollar being wrong (3rd option: not betting at all = dollar gone). 
 

Base case would be a cagr a little bit above 15 per cent, so bv/share around 1500 dollar (dividends subtracted). Could be 20 per cent (around 1700 dollar).
 

Would a pb ratio of 1.33 be thinkable for Fairfax Financial with a cagr of 15% in the rearview mirror over a timeframe of 7 years than (not knowing the outlook than, which will be more important, but still) as an intraday touch at the end of 2027? Maybe.

 

What about Mr. Market felling in love at one point in the upcoming 4 years with the insurance sector once again? It seems a long time ago, but before 2007 (that is before interest rates dropped) pb ratios above 1.5 where nothing special for a lot of insurance stocks (e. g. here’s a graph with BRK, MKL and Fairfax: https://tidefall.substack.com/p/2022-fairfax-letter-highlights). I am not predicting that, but within the framing of this bet it gives some extra per cent for a yes. Maybe this happens in 2025, in 2030 or 2070 - who knows. Still it gives a little bit of an extra opportunity.
 

If the cagr of book is above 15 per cent (odds are good in my view) than an intraday pb ratio of 1.2 or so seems more likely. 

 

Adding up all those a “touch” for me seems to have better opportunities than a “no touch”.

Would I bet on a price tag of 2000 dollar or above on December 31st 2027? Probably not.

 

Am I predicting a touch of 2000 dollar until end of 2027? No. I just answered the question and to me a touch just feels more likely than a “no touch”. IMHO the odds are above 50 per cent.

 

 

P.S: Buybacks should give an extra push to the bvps. 

[SafetyinNumbers]

14 minutes ago, Haryana said:

@Hamburg Investor thank you for your opinion and participation. 

 

The poll closes in a few hours, enter now to play in this tug of war. 

 

Thanks for putting up the poll. Interesting results!

 

I wonder where the group would place the odds of touching US$2000 by the end of 2027 and how that would relate to the result of the poll.

[Haryana]

 

Thanks to all the participants for equally dividing themselves on each team unless it was some magical golden triangulation of coincidence.

 

The stage is set for an epic showdown between the Yes team and the No team with multiple heavyweights (just brain weight) on each side.

 

 

[cwericb]

Yes, but only the 'No" team hopes the other side wins.

 

[KFS]

3 hours ago, Haryana said:

FRFHF touches US $ 1000

Last updated: Jan 24, 2024, 11:35 AM ET

Source: QuoteMedia

Open

993.81

Day High/Low

1,000.00/987.00

 

 

 

 

Half way there!

.... Take my hand and we'll make it I swear!

 

 

 

[Buffett_Groupie]

5 hours ago, Haryana said:

FRFHF touches US $ 1000

Last updated: Jan 24, 2024, 11:35 AM ET

Source: QuoteMedia

Open

993.81

Day High/Low

1,000.00/987.00

 

 

 

Enjoy 

 

[Luke]

7 hours ago, Haryana said:

BRK vs FFH over 20 years:

 

Great stuff...

[Luke]

The total amount invested in India is also quite significant to the market cap, Watsa was bullish...likely a lot of great things to come in the future too...

[Saluki]

5 hours ago, Luca said:

The total amount invested in India is also quite significant to the market cap, Watsa was bullish...likely a lot of great things to come in the future too...

 

Yes, I'm glad I double dipped. FRFHF is my 4th biggest position and I have a mid size position in Fairfax India. 

[Junior R]

FFH seems to have better prospective the BRK in the next  5 years

[cwericb]

Yup, well aware of that chart as a long term investor in Fairfax (since 2007) who has yet to sell a share. But what has bugged me over the years was all the bitching and complaining on here about "Fairfax's lost decade" and the poor decisions FFH had made (hedges). So I am just wondering where that "lost decade" is on this chart?

 

Furthermore, one might suggest that this "lost decade" (if such a thing existed) was actually time well spent framing the company into what it is today.

 

Also, what some here may not realize, is that over the years there were several times when markets tanked, yet Fairfax share price stayed constant or actually increased balancing off shareholder's losses in the rest of their portfolios and helping shareholders sleep at night.

 

Just my humble two cents worth.

 

 

 

[StubbleJumper]

31 minutes ago, cwericb said:

So I am just wondering where that "lost decade" is on this chart?

 

In fairness, if the stock price is all you are looking at, it's not hard at all to find a "lost decade."  The stock price in January 2010 was US$392 and then it dropped below that level during the covid market displacement and stayed below that level for most of the first wave of covid (heck even in Sept 2022 it was only US$457).  The dividends were a mitigating factor that provided a modest, positive return over that time but it's not hard at all to cherry-pick a start-date and end-date that give you an unsatisfactory market return over a decade.

 

The question of whether there was a lost decade from an operational or capital allocation perspective is entirely a different question.  I would say that there have been occasional poor investment and risk management decisions by FFH over the entire course of its existence, rather than there being only one decade with poor decisions.  You just hope that the shrewd decisions outweigh the poor in terms of frequency and magnitude!

 

 

SJ

[cwericb]

With all due respect SJ, I think you are cherry picking dates. Let's compare apples to apples. If you want to take the January 2010 share price of $392, then we should take the January 2020 share price of $585.

 

So if one bought FFH in January 2010, his holdings would have increased by $193/share -  or by 50% ten years later. But add in the $100 from accumulated dividends and we get a total return of $293/share for a total return of 75%.  But, if my figures are correct, during the same period the TSX Composite Index rose by only 45%.

 

So during "the lost decade", Fairfax actually exceeded the performance of the TSX.

 

But Fairfax wasn't exactly sleeping during the decade. They were building a company that from January 2021 to January 2024 produced a phenomenal share price increase of 300% in just 3 years. So I certainly wouldn't consider the decade as 'lost'.

 

Two quotes come to mind:

      "Patience is a virtue" - William Langland

     "Results will be lumpy" - Prem Watsa

 

[StubbleJumper]

30 minutes ago, cwericb said:

With all due respect SJ, I think you are cherry picking dates. Let's compare apples to apples. If you want to take the January 2010 share price of $392, then we should take the January 2020 share price of $585.

 

So if one bought FFH in January 2010, his holdings would have increased by $193/share -  or by 50% ten years later. But add in the $100 from accumulated dividends and we get a total return of $293/share for a total return of 75%.  But, if my figures are correct, during the same period the TSX Composite Index rose by only 45%.

 

So during "the lost decade", Fairfax actually exceeded the performance of the TSX.

 

But Fairfax wasn't exactly sleeping during the decade. They were building a company that from January 2021 to January 2024 produced a phenomenal share price increase of 300% in just 3 years. So I certainly wouldn't consider the decade as 'lost'.

 

Two quotes come to mind:

      "Patience is a virtue" - William Langland

     "Results will be lumpy" - Prem Watsa

 

 

Of course I was cherry picking dates, and I blatantly announced the fact that I did so!  But, the fact is that that there is nothing magical about a 10-year hold.  I cherry-picked an 12-year hold that had a disappointing return.  Frankly the mythical person who actually bought at the beginning of that period and sold at the end, would clearly belly-ache about a "lost decade."  And the points that I cherry-picked were not the only points of 10-ish years with disappointing market returns.  That is an indisputable fact that the chart makes abundantly clear!  As I said, it's not all that hard to find a couple of points with disappointing returns over 10 years.

 

But, more importantly, the market return and the growth in IV are not always in sync.  The opportunity available in 2021/22 when you could buy FFH at 0.7x or 0.8x BV show that disconnect.  At that point, the market was saying that FFH was worth more dead than alive!  The market was saying that management was destroying value, and not just destroying a little bit of it, but a great deal of it.  So, there was a considerable disconnect between market results and IV.

 

Nonetheless, if market results are your only point of focus, you can certainly easily find a decade of disappointment.

 

 

SJ

Edited June 7, 2024 by StubbleJumper

[cwericb]

10 hours ago, StubbleJumper said:

Nonetheless, if market results are your only point of focus, you can certainly easily find a decade of disappointment.

SJ

 

"Disappointment" or impatience?

 

Some time ago Prem Watsa clearly warned all of us that future results would be "lumpy" while building the company to where it is today. And that is exactly what happened. So I am not sure it is fair to criticize them for not concentrating on the price of their shares while doing that. The proof, as the old saying goes "is in the pudding" and the 'pudding' is the 300% share price increase we have seen in the past 3 years.

 

Also it would seem a little disingenuous to look at Fairfax's performance during that 10 year period in isolation. Put things into perspective. During that same 10 year period, Fairfax actually outperformed the Canadian stock market.

 

I guess in short, as one of those who stuck with Fairfax during those ten years, I have not been disappointed. Frustrated at times for sure, but in the end, not dissappointed.

 

 

[TwoCitiesCapital]

1 hour ago, cwericb said:

 

"Disappointment" or impatience?

 

Some time ago Prem Watsa clearly warned all of us that future results would be "lumpy" while building the company to where it is today. And that is exactly what happened. So I am not sure it is fair to criticize them for not concentrating on the price of their shares while doing that. The proof, as the old saying goes "is in the pudding" and the 'pudding' is the 300% share price increase we have seen in the past 3 years.

 

Also it would seem a little disingenuous to look at Fairfax's performance during that 10 year period in isolation. Put things into perspective. During that same 10 year period, Fairfax actually outperformed the Canadian stock market.

 

I guess in short, as one of those who stuck with Fairfax during those ten years, I have not been disappointed. Frustrated at times for sure, but in the end, not dissappointed.

 

 

 

I don't think anyone interprets "lumpy" as going nowhere for 10-years. It's more of "there won't be consistency to annual returns" - not "you'll have negative real returns over the course of a decade"

I owned Fairfax back in 2010. I held for 8-years and sold out at some point in 2018 after admitting I had been wrong about the return prospects of the company. I sold because my returns were nominally positive, but very disappointing, relative to other options over that period. It was also hard to see how Fairfax would make enough to justify $500+ share with interest rates at zero, the equity portfolio being dominated by Blackberry, and insurance not doing anything special. 

 

Had I held in 2018, I would have ultimately ended up fine - but would have had suffered another 3-4 years of very disappointing returns before some strokes of luck AND the long-term efforts of the Fairfax team building value that was largely hidden in 2018 paid off. It could have very easily ended up differently and we might still be struggling for $500-600/sh 

 

 

Edited June 7, 2024 by TwoCitiesCapital