Fairfax 2024

[NormR]

I've parked the lineup for Fairfax Lollapalooza 2024 on a public webpage over here ...

 

https://www.stingyinvestor.com/FairfaxWeek2024.html

 

If I've missed anything, please let me know.

[MMM20]

On 1/24/2024 at 8:36 PM, MMM20 said:

 

 

 

 

I demand attribution for my super original and incredible chart, Mr. Tidefall Capital

 

And you left out the best part - the green arrow. It's looking roughly right so far!

 

Edited January 30 by MMM20

[hardcorevalue]

haha I did totally copy you. but still screwed up the tweet so I look stupid anyways! 

[MMM20]

2 hours ago, hardcorevalue said:

haha I did totally copy you. but still screwed up the tweet so I look stupid anyways! 

It’s just crazy that after this run it still trades at a discount. I figured your point was that FFH should trade at a premium to BRK and MKL by the time this hard market ends… which seems like a good bet.

 

Edited January 30 by MMM20
typo

[Viking]

54 minutes ago, MMM20 said:

It’s just crazy that after this run it still trades at a discount. I figured your point was that FFH should l trade at a premium to BRK and MKL by the time this hard market ends… which seems like a good bet.

 

What we are learning is Fairfax WAS building considerable value from 2010-2020. It was masked by all the one-time losses (primarily the equity hedges/short positions and later by poorly performing equity holdings). The one-time losses ended. Headwinds became tailwinds. Since 2018, Fairfax has been on a capital allocation hot streak. Weave it all together - Fairfax became a coiled spring that got released in October of 2022. The crazy thing is we are still learning what ‘normalized earnings’ looks like. Because fundamentals just keep getting better. And there are lots of catalysts lurking (Digit IPO, Anchorage IPO, equity revaluations - where CV is well under FV, what they are going to do with $4 billion/year in earnings etc).

Edited January 30 by Viking

[MMM20]

1 hour ago, Viking said:

What we are learning is Fairfax WAS building considerable value from 2010-2020. It was masked by all the one-time losses (primarily the equity hedges/short positions and later by poorly performing equity holdings). The one-time losses ended. Headwinds became tailwinds. Since 2018, Fairfax has been on a capital allocation hot streak. Weave it all together - Fairfax became a coiled spring that got released in October of 2022. The crazy thing is we are still learning what ‘normalized earnings’ looks like. Because fundamentals just keep getting better. And there are lots of catalysts lurking (Digit IPO, Anchorage IPO, equity revaluations - where CV is well under FV, what they are going to do with $4 billion/year in earnings etc).

Obviously I agree with your assessment. I can’t borrow your conviction but I can borrow your 250+ page book to help build my own and my family is grateful for that.

 

Now let’s see if the TSX 60 inclusion arbitrage crowd (and closet/ indexers themselves) drive it to fair value.

 

Edited January 30 by MMM20

[treasurehunt]

Chubb reported Q4 results today - P&C combined ratio of 85.5%, consolidated net premiums written up 13.4% YoY, P&C premiums up 12.5%. 

 

The press release had this bit: "In the quarter, continuing the trend we experienced all year, commercial P&C rates and price increases across the majority of our global portfolio were strong and exceeded loss costs, which were stable. Pricing in our P&C lines was up 12.4% in North America and 10.1% in our international retail business, while financial lines pricing globally continued to decrease led by public D&O."

 

Augurs well for Fairfax.

[Viking]

Multiple expansion - a deep dive

 

This post is broken into the following parts:

• Part 1 - Introduction: Drivers of a share price
• Part 2 - Multiple
• Part 3 - Turnarounds
• Part 4 - The turnaround is complete - the caterpillar has transformed into a butterfly
• Part 5 - Narrative change and multiple expansion
• Part 6 - Multiple expansion - What does the math look like?
• Appendix - Is growth in book value a good measure of quality?

—————

Part 1 - Introduction

 

Three things drive a share price:

1. Earnings
2. Multiple
3. Share count

In buying a stock, an investor is buying a stream of future earnings. The multiple is simply the price an investor is willing to pay for the stream of future earnings. These are called ‘fundamentals’.

 

Understanding the change in each of these items gives an investor great insight into the future path of a stock. It’s like being able to predict the future.

 

Of course, the perfect sep-up for an investor is to find a company that is:

1. Growing earnings
2. Experiencing multiple expansion
3. Reducing its share count

Finding a company where one of these things is happening is usually pretty good. Finding a company where two are happening at the same time - that usually leads to market-beating returns. Finding a company where all three things are happening at the same time - well, that is how the big money is made - or multi-baggers in Peter Lynch parlance.

 

Theory is great. But is it actually possible for an investor to find a stock that is poised to do all three at the same time? Aren’t markets supposed to be pretty efficient?

 

Well grasshopper, let’s pivot to the real world and look at an unloved, scrappy P/C insurance company called Fairfax Financial. Yes, it is still unloved... we will show you why in this post. 

 

A real life example: Fairfax Financial

 

Buybacks

 

Let’s start with share buybacks because they are the easiest.

 

Over the last 4.75 years Fairfax has spent $1.94 billion and reduced effective shares outstanding by 4.12 million or a total of 15.1% (3.2% per year). This is a material reduction in share count. The average cost was $470/share. With shares closing Friday at $1,030, the shares were purchases at an average cost well below their intrinsic value. This is an example of great capital allocation on the part of management at Fairfax. Share count has been materially coming down for the last 4.75 years at Fairfax.

 

We can check off box three from our list above.

 

 

Earnings

 

Let’s move now to earnings. Earnings at Fairfax have spiked over the past 3 years. And because of the significant reduction in shares, per share earnings are up even more.

 

When analyzing P/C insurance companies, analysts prefer to look at operating income. It removes the volatility tied to ‘icky’ investment gains. Ok, let’s play be their rules and only look at the ‘good stuff’ - operating income.

 

Operating income at Fairfax averaged $1 billion ($39/share) per year for the 5-year period from 2016-2020. Over the next 3 years (2021-2023) it was like a goat going straight up a mountain. For 2023 my estimate is operating earnings will come in around $4.4 billion ($190/share). This is a 387% increase per share. My forecast is for operating income to come in around $4.6 billion ($202/share) in 2024. This higher level is durable and growing. Bottom line, we are seeing a significant increase in earnings at Fairfax.

 

We can check off box 1 from our list above.

 

 

Multiple

 

What about multiple?

 

Share count and earnings are relatively easy to understand - they are largely based on numbers.

 

Multiple can be a more difficult nut to crack. Yes, it is based on numbers. But it is also steeped in psychology.

 

To better understand multiple we are going to do a deep dive. First we will zoom out and look at the big picture. And then we will zoom in and apply what we have learned to Fairfax.

 

Let’s get started.

 

Part 2 - Multiple

 

What is the multiple for a stock?

 

A multiple is a quick and easy way to value a company. It is best used to compare valuations of companies in the same industry.

 

A low multiple (when compared to peers) suggests a stock may be undervalued - a high multiple suggests the opposite.

 

What determines the multiple a stock trades at?

 

Two things primarily drive the multiple:

• Past results and events. The facts.

We all know the axiom: “The best predictor of future behaviour is past behaviour.” Well, it appears the same holds true for financial results.

• Narrative. This is ‘the story,’ or how the facts have been interpreted. A large part of narrative is driven by psychology.

Most companies are pretty predictable animals. They tend to have the same management team. Future earnings tend to follow in an arc consistent with their historical trend. A narrative - that is reasonably accurate - settles in over time for most companies. And it tends to remain largely the same, sometimes for decades.

 

As a result, most companies tend to trade at a pretty stable multiple over the years (within a stable band).

 

Let’s steer this discussion back to Fairfax. To do this we need to bring turnarounds into the picture.

 

Part 3 - Turnarounds

 

As part of his investment framework, Peter Lynch classified all stocks into six broad categories - one of which was turnarounds.

 

With turnarounds, past results/events usually have been pretty bad. This usually results in a narrative that is quite negative. Lower earnings and a poor narrative tends to compress the multiple - often to extremes. This set-up usually causes the share price to crater.

 

Why did Lynch like turnaround plays so much?

 

Lynch loved turnarounds because of their potential to become big winners - sometimes 5 and even 10 baggers. Another benefit is the returns are usually not correlated with the overall market.

 

Why are successful turnarounds so lucrative for investors?

 

When investing, your starting point matters. Buy low. The stocks of lots of turnaround plays have been left for dead by investors - often you can buy them at crazy low prices.

 

For successful turnarounds, two things happen. But usually along two very different time-frames:

1. Short term (1 to 2 years): earnings turn.
2. Medium term (3 plus years): multiple expansion.

Of course, higher earnings tends to lead to a higher stock price. Facts are facts.

 

But multiple expansion? This usually takes years to happen.

 

Why?

 

The multiple is largely driven by the looking through the rear view mirror - a narrative that has been constructed from past events.

 

For successful turnarounds it often takes years for the narrative to get updated.

 

Why does it take so long?

 

There are a couple of reasons.

• Most turnarounds are under-followed. For the most part these are companies that have disappointed investors for years. Analysts? Investment professionals? Losing your clients money year after year by recommending a shitty stock is never a good career move. As a result, most turnarounds become hated companies.

Lack of coverage results in an information disadvantage. Of course, some turnarounds actually turn around. And guess what? Pretty much no one notices - because no one is following the company anymore. And if no one is following the company it is impossible for the old narrative to change - even after the fundamentals have turned.

• There is a second reason it takes a long time for narratives to change and it is very powerful. Holding on to an old (wrong) narrative requires no work. After all, people are busy.

Updating a narrative? Now that is hard. It requires a lot of work. And in the beginning almost everyone around you is going to think you are an idiot.

 

But over time (sometimes years in length), as it becomes obvious to more and more people that the turnaround has actually happened, the ‘story’ around a stock gets to an inflection point. And those clinging to the old narrative are the ones who start to sound like idiots. And do you want that ‘crazy uncle’ managing your money? (Darwin at work on Bay and Wall Street.)

 

Eventually, the narrative does get updated. And as that happens, we see multiple expansion.

 

So what does all this have to do with Fairfax?

 

Fairfax is a turnaround play. That has turned around. It actually started to turn around all the way back in late 2016 when it removed all the equity hedges (Trump getting elected was a great event for Fairfax shareholders). It picked up steam in 2018 and 2019 when the company got to work fixing its poor quality equity portfolio. We probably could say the turnaround was largely done at the end of 2020 when Fairfax covered its last short position.

 

For sure, the turnaround was done by the end of 2021 - that is when all the positive changes from the previous years started to show up in much higher (record) operating income.

 

Bottom line, the turnaround at Fairfax was completed years ago. Yes, I know… shocker!

 

Fairfax has transformed itself over the past 6 years into a high quality insurance company. And that matters a lot when it comes to multiple. This is what we are going to explore next.

 

Part 4 - The turnaround is complete - the caterpillar has transformed into a butterfly

 

How do we know Fairfax has transformed itself into a high quality insurance company?

 

To help us answer this questions we are going to look at something called return on equity (ROE).

 

Return on equity (ROE)

 

Return on equity is a measure of how profitable a company is. The bigger the number - the higher the quality.

 

We are also going to look at operating income ROE (which I will call OI-ROE). This is viewed by the P/C industry as being a higher quality measure of ROE.

 

Operating Income ROE at Fairfax

• For the 5-year period from 2016-2020, the OI-ROE averaged 9%.
• For the 3-year period from 2021-2023, the OI-ROE averaged 19%.
• My estimate for 2024 is 20%.

OI-ROE has doubled from 9% to 19%. That is a massive increase.

 

OI-ROE of 20% is top-tier performance among P/C insurers. Fairfax is tracking in 2024 to deliver its 4th year in this range. That is exceptional performance and a material increase from what it delivered in the past.

 

 

I can hear the naysayers yell out as they are reading this post… “Ya, but it’s not sustainable!”

 

To which I would answer: 3 years in a row at an average OI-ROE of 19.5% is in the books (well, should be when Fairfax reports Q4 results). A 4th year at 20% looks likely. Is 4 years in a row not the beginning of a trend? Maybe not 20%. But even something in the high teens range over the next 5 years would put Fairfax among the top tier of P/C insurers.

 

I could also bring up investment gains. This is something we have completely ignored but is a clear strength of Fairfax (when compared to peers). Pet insurance? Sold in 2022 for a $1 billion after-tax profit. The FFH-TRS position (providing exposure to 1.96 million Fairfax shares) is up $1.3 billion (pre-tax) over the past 37 months. I could go on. Volatile? Yes. But smoothed out over a few years, the average number is a significant contributor to Fairfax’s regular ROE calculation. Just something to keep in mind.

 

But to help us answer the question of whether or not the high OI-ROE is sustainable, let’s peel the onion back one more layer.

 

What is the best predictor of long term results for a company?

 

The best predictor of long term results for a company is the management team and their capital allocation skills. This is especially true for P/C insurance companies because of something called float (which can be larger in size than shareholder’s equity).

 

The quality of the capital allocation decisions being made by management is likely the best leading indicator for future ROE for a P/C insurer.

 

 

Of course, it takes years for good capital allocation decisions to show up in higher earnings and higher ROE. Especially for a turnaround like Fairfax. But that is exactly what we have been seeing in each of the past three years.

 

But the story gets better. I wrote a very long post last week where I went into great detail on Fairfax’s capital allocation record over the past 6 years or so. The conclusion? Fairfax looks best-in-class in the P/C industry.

 

If you have one of the best capital allocation teams in the industry, and they have been hitting the ball like Ted Williams over the past 6 years, what do you think ROE will look like in the coming years? Above average for sure. And probably even better than that.

 

As a result, I think the facts and evidence points to Fairfax being a high quality insurance company.

 

How is Mr. Market valuing Fairfax? Finally, we get to our answer!

 

ROE and P/BV

 

Return on equity (ROE) and price to book value (P/BV) are the preferred metrics used by investors to value P/C insurance companies. Looked at together, they tell investors a story about the company.

 

Over time, a high and sustainable ROE inevitably results in a high P/BV multiple. The opposite is also true: a low ROE generates a low P/BV multiple.

 

Return on equity

 

Earlier we learned that OI-ROE at Fairfax is tracking to overage 20% from 2021-2024. That is top tier performance.

 

Let’s now compare that to P/BV.

 

Price to book value (P/BV)

 

This measure tells us what Mr. Market thinks about the future prospects of the company. Or put another way, is ROE sustainable?

 

Fairfax’s P/BV is about 1.11 (if we use estimated 2023 YE book value). Compared to peers, Fairfax’s P/BV is at the very bottom. A P/BV near 1 suggests the P/C insurer is both poorly run and has poor prospects.

 

Fairfax has a very high ROE (with solid prospects). The company is high quality.

 

Yet, its P/BV multiple is very low. This suggests Fairfax is very undervalued.

 

 

What about PE?

 

I know PE is not supposed to be used to value a P/C insurance company. But it is a useful measure for most companies so let’s see what it has to say.

 

If we use Yahoo Finance’s current earnings estimate for Fairfax for FY 2023, we can see Fairfax is currently trading at a PE of 6x. That is crazy low. Both when compared to peers and the market in general.

 

 

Summary

 

Fairfax is a high quality company delivering top-tier ROE. Trading at what looks to be crazy cheap valuation as measured by both P/BV and PE.

 

Is there anything that can explain this disconnect?

 

Yes. The narrative surrounding the company is in need of an update. The part driven by psychology.

 

Thanks for hanging in there. We’ve come full circle. Let’s finish connecting the dots.

 

Part 5 - Narrative change and multiple expansion

 

“Although expectations of the future are supposed to be the driving force in the capital markets, those expectations are almost totally dominated by memories of the past. Ideas, once accepted, die hard.” Peter Bernstein

 

Fairfax and narrative

 

Fairfax had one analyst attend their Q3 conference call. Tom MacKinnon/BMO, you get a gold star from the teacher. The lack of interest in Fairfax in the analyst community suggests to me that the old narrative is still firmly in place.

 

After all, it is Fairfax. That shitty little Canadian insurance company. Right?

 

Even Rodney Dangerfield would be surprised at the lack of respect Fairfax still gets today - even though it is a top 20 global P/C insurer and now one of the top 30 Canadian companies in terms of market cap.

 

Yes, but the stock is a dog! Woof! Right? Fairfax has probably been one of the best performing large cap stocks in Canada over the past three years (the best?). But, hey, don’t let the facts get in the way of a good narrative.

 

 

To be fair, the quality of the research on Fairfax has been getting better, especially over the last year. I recently read Jaeme Gloin/National Bank’s Q4-2023 earnings preview for Fairfax and i had to wipe the tears from my eyes when i was done - it was that good. And not because he upped his price target to $C2,000. It was because of the facts and logic he provided readers - the detailed build - which he used to arrive at his conclusions (final earnings estimate, multiple and price target). It was clear Jaeme has actually put in the work to understand the Fairfax as it exits today (that doesn’t mean he is ignoring the past).

 

But there is also, IMHO, still one piece of simply terrible stuff out there. ‘Crazy uncle’ bad. This one is so steeped in the past it reads like it was actually written 10 years ago. (Maybe it was…. I better check the date.) Anyone who follows Fairfax closely knows the report that I am referencing. Now when you can go unnamed - and yet people know who you are? Well, that’s pretty impressive. But is it really?

 

The good news is the old narrative around Fairfax will eventually be laid to rest. And that’s because you can only ignore the facts and the fundamentals for so long.

 

Multiple expansion

 

My view is 2024 could well be the year when we get to an inflection point in the narrative for Fairfax. In fact it looks like it might have started as we begin 2024. In January the P/BV multiple has expanded from 1.0 to 1.1.

 

As the narrative gets updated, Fairfax will shift from being valued as a poorly run company delivering poor results to being valued as a well run company delivering very good results. In turn, this should result in multiple expansion. Yes, Fairfax will need to do its part - and continue to deliver solid results.

 

 

So with Fairfax today, it looks like we have a situation where:

 

1.) earnings are growing

2.) multiple is expanding

3.) share count is falling

 

And all three happening at the same time? That is when the big money is made.

 

Part 6 - Multiple expansion - What does the math look like?

 

The example below is not intended to be a forecast. Rather it is intended to demonstrate to investors the power of multiple expansion (when it happens). Readers can overlay their own assumptions as they see fit.

 

To keep our analysis simple we are going to use Dec 31, 2023 as our starting point. Let’s be conservative and assume Fairfax only earns $150 in 2023 (instead of the forecast of $170). Let’s also assume Fairfax continues to pay a $15 dividend. Let’s be conservative and assume Fairfax grows earnings at 6% per year.

 

Now for the fun part. Let’s assume the P/BV multiple expands from 1x at Dec 31, 2023 (where it was) to 1.3x at Dec 31, 2026. A multiple of 1.3x would get Fairfax to the lower band when compared to peers - I think it is a conservative number.

 

Given the inputs above, what is the return for investors over 3 years?

 

The total increase is 100%. A double over 3 years.

 

Of the total increase, about 50% is driven by earnings. And 50% is driven by multiple expansion.

 

Yes, multiple expansion is rocket fuel to a stock.

 

 

—————

Appendix - Is growth in book value a good measure of quality?

 

I wasn’t able to find a good place to insert this into my post above. But I think it is important so I am including it here.

 

The growth in book value over time is another way to assess the quality of a P/C insurance company. In some ways, it might be the best way. Because it includes all the ‘messy’ stuff that might not be included in ROE (like unrealized losses in bonds).

 

How does Fairfax stack up when compared to peers like Markel, WR Berkley and Chubb?

 

Over the past 5 years Fairfax’s has grown book value at a CAGR of 16.6%. None of the other 3 companies come close to that performance. It should be noted, Fairfax, WR Berkley and Chubb all pay a modest dividend. Markel does not.

 

Yes, change in book value is just another important measure that points to Fairfax being a very high quality P/C insurance company.

 

Edited February 4 by Viking

[Maverick47]

3 hours ago, Viking said:

So with Fairfax today, it looks like we have a situation where:

 

1.) earnings are growing

2.) multiple is expanding

3.) share count is falling

 

And all three happening at the same time? That is when the big money is made.

@Viking, When I read your posts about Fairfax, I can’t help but hear the voice of my van pool driver from 30 years ago.  He was sharing with his passengers the story of his summer job driving a delivery truck with a more experienced driver who would yell instructions to him from the loading dock as he was tasked with backing up to it.  The instructions he recalled hearing were always the same:

 

”Keep comin’, Keep comin’, Keep comin’!!!’”

 

CRASH!

 

Hokayyy!!!!”

 

 

 

 

 

 

[Crip1]

On 1/24/2024 at 4:47 PM, Thrifty3000 said:

So, for this simple look through earnings spreadsheet the most important fields I track are:

 

• Ticker
• # of Shares I Own
• Per Share Cost Basis
• Normalized Earnings Estimate Per Share
• Normalized Dividend Per Share
• Total Cost Basis (Cost Basis Per Share X # of Shares Owned)
• Total Normalized Earnings (Normalized EPS X # of Shares Owned
• Total Normalized Dividend
• Current Share Price
• Current Value of Investment (Current Share Price X # Shares Owned)
• Normalized Earnings Yield
• Normalized Dividend Yield
• Price to Normalized Earnings Multiple
• 10 Yr Estimated Growth Rate
• Year 10 Normalized Earnings Forecast (Based on current normalized earnings and my estimated growth rate)
• % of Portfolio Allocation
• Unrealized Gains
• % Unrealized Gains

Normalized earnings is the field I focus most on getting right. I don't have a one size fits all approach for this one, though. I'm mostly focused on understanding what free cash flow will look like through a full economic cycle. I also try to understand and adjust for key risks - like super cats. For some investments I have to adjust for things like big, temporary, expenses - like major litigation costs/settlements that will take a few years to burn through (think post-GFC Bank of America). With some investments that have highly reputable managements I've learned that management forecasts are plenty reliable. So, if I'm really comfortable with a manager, I'll start with their forecast, try to poke holes in it, and adjust accordingly if I come up with anything.

 

As far as making adjustments, I review my estimates annually at a minimum. However, anytime I learn about a material change, or think of a material risk, whether from company updates, CoBF, or otherwise, I immediately update my estimate. I probably make a handful of small adjustments to the model every quarter. I rarely have to make major adjustments at this point. I may make 1 or 2 major adjustments to the model each year. Usually, I get to just bump up the earnings estimate for the next year, which is fun.

 

Since I started maintaining this spreadsheet in 2019 I've been able to increase my total normalized look through earnings by six figures every year just by replacing lower yielding investments with higher yielding ones whenever clear opportunities arise.

 

 

 

 

 

 

 

 

@Thrifty3000

 

Thanks again for the time/effort to respond on this. It is something that I thought I should do but now really realize that I NEEDED to do this to better frame investment decisions. One other question...do you have any ETFs or mutual funds and, if so, how do you incorporate those into the analysis? About 70% of financial net worth is invested in individual stocks, but some money is in ETFs (for access to industries where I want to be but would prefer others with more knowledge pick out winners/losers) or Mutual Funds (401k accounts my wife and I pay into that do not offer self-directed stocks as investment options). 

 

-Crip

Edited February 4 by Crip1

[Thrifty3000]

On 2/4/2024 at 9:54 AM, Crip1 said:

@Thrifty3000

 

Thanks again for the time/effort to respond on this. It is something that I thought I should do but now really realize that I NEEDED to do this to better frame investment decisions. One other question...do you have any ETFs or mutual funds and, if so, how do you incorporate those into the analysis? About 70% of financial net worth is invested in individual stocks, but some money is in ETFs (for access to industries where I want to be but would prefer others with more knowledge pick out winners/losers) or Mutual Funds (401k accounts my wife and I pay into that do not offer self-directed stocks as investment options). 

 

-Crip

 

Pre-COVID I had about a third of my portfolio in an all-world (ex US) ETF.

 

The only other ETF I’ve ever owned has been S&P 500.

 

Currently, I don’t own a meaningful amount of ETFs or mutual funds. Right now I prefer individual equities and cash over broad indexes.

 

I basically look at the S&P 500 index as risk free over the long term. I assume it will compound at 6 or 7%. So, since I consider it risk free I usually won’t invest in an individual company unless I’m confident the investment will outperform the S&P 500 by at LEAST double. In other words if I don’t think I can earn at least 14% on an individual company I’d prefer to own an index. (However, if cash is yielding 5% I’ll take the cash.)

 

These days if I sell stock I’m parking proceeds in cash, which is about 10% of my portfolio.

 

 

[glider3834]

podcast with European investment team at Fairfax

 

 

[Maverick47]

1 hour ago, glider3834 said:

podcast with European investment team at Fairfax

 

 

Thanks, @glider3834!  This was an extremely valuable conversation for me to learn from.  It clarified for me the value of corporate culture, family ownership/long-term control, and I appreciated learning some more about how the duration decision on fixed income gets made (at the Investment Committee level, with heavy involvement by Prem and Brian Bradstreet).  The value of the decentralized nature of the business, avoiding the sclerotic nature of large corporate bloat, was also good to learn some more about.  Much appreciated!

[nwoodman]

3 hours ago, glider3834 said:

podcast with European investment team at Fairfax

 

 

Great stuff.  Reiterated “no shorts” and a move to quality.  Music to one’s ears.

[glider3834]

Cheers! @Maverick47 @nwoodman

 

 

[SafetyinNumbers]

14 hours ago, glider3834 said:

podcast with European investment team at Fairfax

 

 

Thanks for sharing Glider! Was a good listen.
 

Overall, the commentary on culture was very interesting and encouraging. I think the most disappointing parts to me were that they think markets are efficient and they manage money the same way they did at Schroders. I think FFH best chance for significant absolute returns is not acting like everyone else and taking advantage where others have constraints that FFH doesn’t. 

[glider3834]

in the interview Jamie L mentions a book he gave to Prem W on Teledyne - A Distant Force - ~$521 at Amazon - too expensive for me but I would like to read it 

https://www.amazon.com.au/Distant-Force-Teledyne-Corporation-Created/dp/097913630X

 

Edited February 6 by glider3834

[gfp]

18 minutes ago, glider3834 said:

in the interview Jamie L mentions a book he gave to Prem W on Teledyne - A Distant Force - ~$521 at Amazon - too expensive for me but I would like to read it 

https://www.amazon.com.au/Distant-Force-Teledyne-Corporation-Created/dp/097913630X

 

 

Oh wow, I had no idea that book had gone all "margin of safety" - maybe I should list my copy.  It used to be quite easy to buy.  I'm sure a bunch of libraries still have it.

[Maverick47]

https://archive.org/details/distantforcememo0000robe
 

 

[Munger_Disciple]

27 minutes ago, gfp said:

 

Oh wow, I had no idea that book had gone all "margin of safety" - maybe I should list my copy.  It used to be quite easy to buy.  I'm sure a bunch of libraries still have it.

 

And it is not a particularly good book either. 

[glider3834]

this looks like an interesting article if you are a subscriber https://www.insuranceinsider.com/article/2csob28o7eht496cy1tz4/london-market-section/brits-thompson-resetting-for-a-lead-position

[glider3834]

8 hours ago, SafetyinNumbers said:

Thanks for sharing Glider! Was a good listen.
 

Overall, the commentary on culture was very interesting and encouraging. I think the most disappointing parts to me were that they think markets are efficient and they manage money the same way they did at Schroders. I think FFH best chance for significant absolute returns is not acting like everyone else and taking advantage where others have constraints that FFH doesn’t. 

I think where it was similar was more on quant side but learnings with Fairfax have been more on qualitative side -   importance of quality of management and corporate culture 

 

I had a re-listen to Ian Kelly point on mean reversion skepticism - I think what he is saying is that as they look under the hood at the cheapest subset of value stocks in Europe they are seeing more companies that have genuine problems ie they haven't just underperformed (relative to growth ) purely due to slower growth (ie cyclical factors) but other underlying drivers of business performance have changed - so they wouldn't expect the margins to mean revert as economy gets better ie the underlying value has degraded (my word) in a sense - thats my 2 cents worth take anyway...

 

Edited February 7 by glider3834

[glider3834]

6 hours ago, SafetyinNumbers said:

Thanks for sharing Glider! Was a good listen.
 

Overall, the commentary on culture was very interesting and encouraging. I think the most disappointing parts to me were that they think markets are efficient and they manage money the same way they did at Schroders. I think FFH best chance for significant absolute returns is not acting like everyone else and taking advantage where others have constraints that FFH doesn’t. 

[Maverick47]

3 hours ago, Munger_Disciple said:

 

And it is not a particularly good book either. 

Chapter 2 of William Thorndike's "The Outsiders" is probably all you need to read to find out about Henry Singleton and Teledyne.  Given the Fairfax stock buyback at $500 and the Total Return Swap homerun, it's clear that Prem has gleaned the correct lessons from Henry Singleton's example at Teledyne. 

[SafetyinNumbers]

19 minutes ago, Maverick47 said:

Chapter 2 of William Thorndike's "The Outsiders" is probably all you need to read to find out about Henry Singleton and Teledyne.  Given the Fairfax stock buyback at $500 and the Total Return Swap homerun, it's clear that Prem has gleaned the correct lessons from Henry Singleton's example at Teledyne. 

 

I think all of the equity issuances that were well north of book value  probably created a lot more value. The most important might have been for Allied World at 1.3x BV in the midst of the zero interest rate era. It really put a damper on ROE and an overhang on the stock which they took advantage of with the moves you noted.

 

Prem's painting quite a masterpiece, it will make for a good book some day!