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

[Junior R]

the real issue that caused no growth from 2012 to 2019 was the negative bets they had placed on the market. When those bets paid of with great financial crisis FFH got over confident....they have learned from there past mistakes so the future should be better where this can annually compounded 15% to 20% a year...The one risk that still around is the swaps. They need to close that

Edited June 9, 2024 by juniorr

[SafetyinNumbers]

15 hours ago, juniorr said:

the real issue that caused no growth from 2012 to 2019 was the negative bets they had placed on the market. When those bets paid of with great financial crisis FFH got over confident....they have learned from there past mistakes so the future should be better where this can annually compounded 15% to 20% a year...The one risk that still around is the swaps. They need to close that

How much risk is there really in the swaps? 

[Junior R]

9 minutes ago, SafetyinNumbers said:

How much risk is there really in the swaps? 

If stock drops due to market pull back it could cause fairfax to make payments to the entity that issued the swaps quarterly or what ever the term is... which will impact earnings

[SafetyinNumbers]

2 hours ago, juniorr said:

If stock drops due to market pull back it could cause fairfax to make payments to the entity that issued the swaps quarterly or what ever the term is... which will impact earnings

Sounds transient. How big a dip below BV do you think is sustainable?

[Junior R]

59 minutes ago, SafetyinNumbers said:

Sounds transient. How big a dip below BV do you think is sustainable?

They should be able to sustain a drop unless stock price goes down 20% ...that would impact earnings ..It would better for them to close the swaps and just eliminate any risk to earnings...Swaps work really good when stock prices follows the direction but if it goes other way could start causing some serious impact

[Phoenix01]

If the stock price goes up, they make money.  If the price goes down they buy back more shares.

 

Not seeing the down side as long as the business continues to deliver lots of cashflow.

[Viking]

The FFH-TRS is an investment for Fairfax. From my perspective there are two important considerations:

1.) What is a share of Fairfax worth? 

2.) What are the risks of a big drawdown in Fairfax's shares? (With the probability of it actually happening.)

 

On the first point, to state the obvious, Fairfax KNOWS what Fairfax is worth - or at least they know much better than the rest of us. If they still own the FFH-TRS position it likely tells you something about how they view valuation.

 

On the second point, Fairfax is generating record (or close to) earnings. And they look very well positioned for the next 3 or 4 years (I don't look out longer than that). If Fairfax's stock sells off, Fairfax will likely be in a position to buy back a ton of shares at low prices. That is what they did in 2020 and 2021 when they had no money. Well today, the cash is rolling in.

 

Volatility has been great for Fairfax's earnings (looking at the past 5 years). Active management exploits volatility (that is when Mr Market is behaving like an idiot - acting very irrational). Fairfax investors worry about volatility... it is kind of ass backwards. If history is any guide, Fairfax investors should be praying for volatility. I say this tongue in cheek (a little).

Edited June 10, 2024 by Viking

[Hektor]

2 hours ago, Viking said:

Fairfax investors worry about volatility... it is kind of ass backwards.

[Crip1]

10 hours ago, Phoenix01 said:

If the stock price goes up, they make money.  If the price goes down they buy back more shares.

 

Not seeing the down side as long as the business continues to deliver lots of cashflow.

I would THINK that the investment committee modeled this out and continues to update the model to gauge how various changes in share price impact the swaps. And, of course, that model would need to be multi-dimensional to account for what would happen with a super-cat that would double-hit the company by driving the share price much lower at a time when cash would not be as readily available to buy the depressed shares. My expectation/hope would be that when looking at all the possible outcomes, we're looking at "heads I win, tails I don't lose much".  

 

-Crip

[Viking]

2 hours ago, Haryana said:

Did you vote No by mistake because you see a lot of potential but still cannot even about double in 4 years?

 

@Haryana, here is how I was thinking back in December.

 

The question asked was pretty straight forward: "Will Fairfax book value or share price touch US $ 2000 before 2027 end."

 

I voted "no."

 

The book value part was the easiest. Fairfax would need to compound book value by about 22.5% (21% plus 1.5% to account for the dividend). That was higher than my base case back then. 

 

 

What about the stock price?

 

This was a little harder. But not much. The share price would need to compound by about 23% per year (21.5% plus 1.5% to account for the dividend). That was higher than my base case back then. 

 

I do expect multiple expansion to happen (that is why it was harder). 

 

 

Where do we sit today regarding the share price?

 

If we assume a 10% return for the last 5 months of 2024, the share price will still need to compound at about 20.5% from 2025-2027 (19.0% plus 1.5% to account for the dividend). That is still higher than my base case.

 

 

What is my base case?

 

From where we are today, I think Fairfax can deliver a CAGR of 15% over the next 4 years (including the dividend). If the stars align (a couple of large asset sales, continued multiple expansion, no big negative surprises etc) we could see a double in the share price over the next 4 years (including all dividend payments). BUT I DON'T FOCUS ON LOOKING OUT THAT FAR. My focus is on the next year or two - because that is what I can see with the most clarity.

 

Looking a couple of years out, it really comes down to management - and i really like what the management team at Fairfax has been doing since 2018. So i am pretty optimistic about Fairfax’s prospects looking out 4 or 5 years into the future.

Edited August 7, 2024 by Viking

[StubbleJumper]

25 minutes ago, Viking said:

BUT I DON'T FOCUS ON LOOKING OUT THAT FAR

 

 

As time goes on, you sound more and more like me...

 

 

SJ

[Viking]

54 minutes ago, StubbleJumper said:

As time goes on, you sound more and more like me...

 

SJ

“Good artists copy; great artists steal.” Picasso/Steve Jobs  

[Parsad]

On 6/7/2024 at 9:06 AM, TwoCitiesCapital said:

 

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 

 

 

 

I think shareholders don't understand the extent of what could have occurred during that 2009/2010 period and the decade after.  They keep hammering the point that Prem made poor investments and the equity hedges were destructive to shareholder value during that period.

 

But anyone who clearly remembers it, should also remember that we were on the verge of a catastrophe that might have turned out worse than the Great Depression...if you can imagine that!

 

Fairfax was positioned for Japan post 1989...not a lost decade but a lost generation!  Everything understood within economics suggested that monetary and fiscal policy would not have any significant effect and basically the world would have to work through the problem over time...decades possibly!

 

Lo' and behold, quantitative easing combined with loose monetary policy and massive injections of capital, unclogged the illiquidity gumming up the works.  Keynes was wrong and Milton Friedman was proven somewhat correct.

 

Now, what if Keynes was right and it didn't work?  Even Bernanke and Geithner were still doubtful it would work when they suggested it, but there wasn't really any other choice available.  Then that lost decade for FFH would have been a period of capital preservation while virtually every other company in the world, including Berkshire, would have taken a massive hit to equity.

 

So you live and learn!  History told Prem that this was a shitstorm of epic proportions.  Yet, some brave decisions by global officials avoided what would have been unimaginable economic devastation.  Now suddenly you look like a fool, yet all you were doing was trying to protect your investors.

 

Cheers!

 

 

[UK]

6 hours ago, Haryana said:

but still cannot even about double in 4 years

 

I am not against big ambitions, but just to highlight, 2x in 4 years is a 19 CAGR...would not use the words such as "cannot even" to describe such returns myself:)

[steph]

I would vote ‘Yes’ even though I realise it would be an amazing outcome.  I totally agree with what is written here about book value around 1500 by the end of 2027.  What surprises me is this ‘anchoring’ about valuation.  I have been in this business now for over 30 years and the biggest or one of the biggest opportunities is when a certain valuation starts to seem like totally normal, but people forget that there have been periods with very different valuations.  My believe is that if and that’s a big ‘if’, FFH continues executing as they have been doing lately AND investing in quality assets, they will get a rerating.  For a company doing between 10 and 15% CAGR with quality assets and quality management I would think that the market could easily pay 1,5 times book.  Even though insurance companies are historically not expensive today, you can find many with way higher P/B ratios.  There will most certainly be a time when FFH will be priced at 1,5 to 2 times book and only then will people start to find that a very reasonable valuation.  By then, 1 or 1,2 times book will be seen as extremely cheap and the opportunity of a lifetime. 

[cwericb]

Putting things in perspective, here is a 20 year chart of Fairfax share price verses the Toronto Stock Exchange for the past 20 years. Factor in FFH yearly dividends and the company has done pretty well for long term  shareholders over the years  compared to the Canadian market in general.

 

[Hektor]

12 hours ago, Parsad said:

Keynes was wrong and Milton Friedman was proven somewhat correct.

@Parsad Could you explain this? My understanding is that Keynes was a proponent of government stepping in and spending aggressively when everyone else pulls back. And this is what seems to me to have happened with QE.

 

Asking to understand. Thanks,

[Parsad]

Friedman suggested that inflation could be controlled by the use of monetary and fiscal policy and the amount of cash flowing in the system.  He indicated that if the flood gates had been opened in 1929, the Great Depression would not have lasted as long, because lack of liquidity was the main cause of exacerbating the Depression. 

 

Bernanke and Geithner's experiment with quantitative easing proved that Friedman was correct.  I've never really been a Friedman fan, but so far it's proven correct both on quantitative easing and tightening.  I never imagined the soft landings we've witnessed.  That's why many investors like Prem, Seth Klarman, etc got it wrong and were in such a defensive position.  Cheers!  

[Xerxes]

3 hours ago, Hektor said:

@Parsad Could you explain this? My understanding is that Keynes was a proponent of government stepping in and spending aggressively when everyone else pulls back. And this is what seems to me to have happened with QE.

 

Asking to understand. Thanks,

My view:

 

Keynesian is all about government spending, but that is not what happened in 2008-10.  
 

The QE and the money firehose simply inflated asset prices. And the value went to the asset owners at large. And not spread into Main Street. 
 

In 2020-21, in contrast the dollars went into to the pockets of Main Street that spend it. And actually unleashed inflation for a change (and not just asset inflation) 

[gfp]

2 minutes ago, Parsad said:

Friedman suggested that inflation could be controlled by the use of monetary and fiscal policy and the amount of cash flowing in the system.  He indicated that if the flood gates had been opened in 1929, the Great Depression would not have lasted as long, because lack of liquidity was the main cause of exacerbating the Depression. 

 

Bernanke and Geithner's experiment with quantitative easing proved that Friedman was correct.  I've never really been a Friedman fan, but so far it's proven correct both on quantitative easing and tightening.  I never imagined the soft landings we've witnessed.  That's why many investors like Prem, Seth Klarman, etc got it wrong and were in such a defensive position.  Cheers!  

We'll just have to agree to disagree on the effectiveness of QE / QT.  I couldn't disagree more!

[Parsad]

1 minute ago, gfp said:

We'll just have to agree to disagree on the effectiveness of QE / QT.  I couldn't disagree more!

 

Proof is in the pudding as they say...it worked!    Cheers!

[gfp]

Just now, Parsad said:

 

Proof is in the pudding as they say...it worked!    Cheers!

 

Ha!  Well, something happened - assigning causation accurately isn't quite that simple.  How do excess bank reserves impact the real economy when bank lending is not even close to being constrained by the level of bank reserves?  Neutered money only useful as tokens between the largest mega banks.  And QE removes highly useful, interest paying,  pristine collateral that can be transformed into virtually anything and/or leveraged!

[Hektor]

16 minutes ago, Parsad said:

Friedman suggested that inflation could be controlled by the use of monetary and fiscal policy and the amount of cash flowing in the system.  He indicated that if the flood gates had been opened in 1929, the Great Depression would not have lasted as long, because lack of liquidity was the main cause of exacerbating the Depression. 

 

Bernanke and Geithner's experiment with quantitative easing proved that Friedman was correct.  I've never really been a Friedman fan, but so far it's proven correct both on quantitative easing and tightening.  I never imagined the soft landings we've witnessed.  That's why many investors like Prem, Seth Klarman, etc got it wrong and were in such a defensive position.  Cheers!  

Thanks @Parsad. 

[Hektor]

15 minutes ago, Xerxes said:

My view:

 

Keynesian is all about government spending, but that is not what happened in 2008-10.  
 

The QE and the money firehose simply inflated asset prices. And the value went to the asset owners at large. And not spread into Main Street. 
 

In 2020-21, in contrast the dollars went into to the pockets of Main Street that spend it. And actually unleashed inflation for a change (and not just asset inflation) 

Thanks @Xerxes

[Intelligent_Investor]

On 8/7/2024 at 2:26 PM, Xerxes said:

My view:

 

Keynesian is all about government spending, but that is not what happened in 2008-10.  
 

The QE and the money firehose simply inflated asset prices. And the value went to the asset owners at large. And not spread into Main Street. 
 

In 2020-21, in contrast the dollars went into to the pockets of Main Street that spend it. And actually unleashed inflation for a change (and not just asset inflation) 

Agreed on that. Fiscal policy generates more "real" inflation than monetary policy at least for main street.