Fairfax 2024

[Junior R]

2 minutes ago, MMM20 said:

So he doesn’t have to deal with this sort of BS anymore. 

but its ok as long as they still do good they can just keep buying back share..imagine share could goes down to 15m in the next 2 years

[StubbleJumper]

15 minutes ago, MMM20 said:

What’s stopping Prem from being like, “this sh*t again?” and getting together with OMERS or the Kuwaits and taking FFH private at US$1100-1200/share?

 

 

The Watsa family's economic interest in FFH isn't actually all that high.  There's about 20 million publicly owned shares, so Prem would need to find US$20-25 billion or so if he wanted to take it private.  And to find that $20 billion, it would certainly result in a loss of family control as part of the deal because who would offer up $20b and accept the existing dual-share structure?

 

 

SJ

[Viking]

So let me get this straight… you are shorting a company that is earning a record amount of ‘good’ earnings? Thats not in dispute. And you know they will be aggressive with share buybacks. 
 

You also know the stock has had a monster run and there are likely lots of shares in ‘weak hands’ - shareholders who are easily panicked. 
 

When is the best time to release your ‘report’? A week before earnings. When Fairfax is in a blackout period - and can’t respond properly or can’t buy back stock.
 

What do you think is likely to happen next week? Think we might see some buybacks?

 

So what is the play? Short a week before earnings. Make a quick 12% on the downside. Before earnings come out, flip to a long position and make another 12% as the stock recovers. Make 24% return over a month or two. Add a little leverage. That is a pretty good trade. 
 

This looks an awful lot like what used to happen to Fairfax back in 2003-2005 when it still traded on the NYSE. Back then it happened a couple of times a year. I made a lot of money over the years playing the big swings in Fairfax’s stock price.

 

Is anyone else experiencing deja vu?

Edited February 8, 2024 by Viking

[Hektor]

1 hour ago, Thrifty3000 said:

Prem could expedite the earnings release to today, open up the books

I hope he doesn't

[Daphne]

I backed up the truck when it hit $89 back in the day. Been smiling ever since.

[Hektor]

44 minutes ago, juniorr said:

No need just let stock drop and buyback shares...They always mention Henry Singleton

+1

[Junior R]

11 minutes ago, Viking said:

So let me get this straight… you are shorting a company that is earning a record amount of ‘good’ earnings? Thats not in dispute. And you know they will be aggressive with share buybacks. 
 

You also know the stock has had a monster run and there are likely lots of shares in ‘weak hands’ - shareholders who are easily panicked. 
 

When is the best time to release your ‘report’? A week before earnings. When Fairfax is in a blackout period - and can’t respond properly or can’t buy back stock.
 

What do you think is likely to happen next week? Think we might see some buybacks?

 

So what is the play? Short a week before earnings. Make a quick 12% on the downside. Before earnings come out, flip to a long position and make another 12% as the stock recovers. Make 24% return over a month or two. Add a little leverage. That is a pretty good trade. 
 

This looks an awful lot like what used to happen to Fairfax back in 2003-2005 when it still traded on the NYSE. Back then it happened a couple of times a year. I made a lot of money over the years playing the big swings in Fairfax’s stock price.

 

Is anyone else experiencing deja vu?

 

Exactly ... I am pretty sure there could be some surprise next week ...like a buyback or soemthing...This isn't really deja vu as $FFH is now firing on all cylinders...Plus today Prem leaves $BB board they are learning from mistakes   

[ander]

14 minutes ago, Viking said:

So let me get this straight… you are shorting a company that is earning a record amount of ‘good’ earnings? Thats not in dispute. And you know they will be aggressive with share buybacks. 
 

You also know the stock has had a monster run and there are likely lots of shares in ‘weak hands’ - shareholders who are easily panicked. 
 

When is the best time to release your ‘report’? A week before earnings. When Fairfax is in a blackout period - and can’t respond properly or can’t buy back stock.
 

What do you think is likely to happen next week? Think we might see some buybacks?

 

So what is the play? Short a week before earnings. Make a quick 12% on the downside. Before earnings come out, flip to a long position and make another 12% as the stock recovers. Make 24% return over a month or two. Add a little leverage. That is a pretty good trade. 
 

This looks an awful lot like what used to happen to Fairfax back in 2003-2005 when it still traded on the NYSE. Back then it happened a couple of times a year. I made a lot of money over the years playing the big swings in Fairfax’s stock price.

 

Is anyone else experiencing deja vu?

Doubt MW is playing it long after covering but who knows. But wouldn't be surprised if they're wary of index inclusion with the timing of this report -- cover before Fairfax added to index maybe.

[Castanza]

Added a good amount at 913-915.....would love to see this hit October prices; but with earnings soon, not sure we will get there. 

[KFS]

3 hours ago, MMM20 said:

This is where the tyranny of the book value people gets ridiculous. I can personally come up with twice his 18% number in fair value over carrying value and show that book value is at least 18% understated. He ignores the fact that cash flow has exploded 3-4x structurally higher over the past few years and that the stock is now trading at 6-8x those cash flows. All of the historical transactions can be explained by the fact that they were short on cash for a few years... but they're not anymore. The irony is he nailed the GE comparison... in the Danaher / Culp era. Decentralization, quality upgrades, massive turnaround, and now a well-run cash machine. 

 

 

Well said.  Even there is merit to certain "accounting gimmicks" in the MW report, the impact feels pretty silly and pointless in the overall picture.  Even if you discount the book by 30%, it is still trading cheaper than peers.

 

And then you have other items like the big pet insurance sale ($1.4 billion in 2022 ??) that seemingly came out of nowhere.  If anything, Fairfax might have been guilty of understating itself.  

 

Consider incentives/behaviors.  In 2020, Prem stepped in with his own money and purchased a whopping $150 million worth of shares during the fear and uncertainty of covid.  He knew the intrinsic value of the business.  FFH has made significant buybacks.  Since the recent runup in stock price, Prem hasn't sold any shares, the company hasn't issued shares, and they still hold the TRS position.  This would be very weird behavior for a company that is allegedly desperately trying to overstate its value via "gonzo-mode financial engineering."  

 

The cash flow is what matters to me.  With the amount of cash that will be gushing into FFH over the next few years, it would be pretty entertaining to watch the stock drop 30% only for the company to jump in with monster buybacks.  One can dream.  

 

 

 

 

 

[Ghost]

I am a bit disappointed that the stock didn't fall some more.  I already added to my positions, would love to add more at another 10% decline.  

 

One can dream. 

[MMM20]

"P/E of 6.3x (using 2024 consensus EPS) versus U.S. peers that trade at 14.7x on average. The integrity of underwriting margins or investment income is not in question. In our view, quibbling about the perceived variance between fair value and carrying value of balance sheet assets overlooks the significant expansion of earnings power that is clearly not getting the same degree of recognition in the public markets as peers."

 

 

 

Edited February 8, 2024 by MMM20

[thepupil]

well I'm just glad the board's (at time irrational) hatred of short sellers will be reinforced for decades to come. Guarantees my role as resident short seller apologist for a long time. 

 

this one seems pretty myeh...

[MMM20]

7 minutes ago, thepupil said:

well I'm just glad the board's (at time irrational) hatred of short sellers will be reinforced for decades to come. Guarantees my role as resident short seller apologist for a long time. 

 

Just not a fan of the smash and grab... and seems clear that this is probably one of those, no?

 

Need regulation around minimum holding periods for short sellers who choose to go public.

 

Edited February 8, 2024 by MMM20

[MMM20]

Here's the hard hitting analysis from everyone's favorite FFH analyst...

 

"Short-seller Muddy Waters released a report outlining a bear case on no-moat Fairfax. At a high level, we don’t disagree with its take, and we do think the stock is materially overvalued right now. In our opinion, Fairfax is a hit-and-miss investor, a relatively poor underwriter, and has an overly complicated structure. We would agree that the company’s book value growth target of 15% is unrealistic, and it has generally fallen well short of this level since the financial crisis. As to Muddy Waters' claims that Fairfax is mismarking investments, we don’t think it is necessary to believe that to think the stock is overvalued. We will maintain our CAD 970 fair value estimate."

 

Edited February 8, 2024 by MMM20

[thepupil]

6 minutes ago, MMM20 said:

 

Just not a fan of the smash and grab... and seems clear that this is probably one of those, no?

 

Need regulation around minimum holding periods for short sellers who choose to go public.

 

 

there are already regulations against using false or misleading information to manipulate the price of a stock. activist do the same thing on long side w/ calls in monetizing bumps. risk of selling / buying something because of what someone else said is borne by those acting on that information. 

 

there is nothing wrong with short (or long) reports if they use true information. if people want to sell or buy the stock as a result of their assessment of the information, that is the market functioning. 

 

everyone's accountable under the current system. 

 

if you bring to light interesting enough info that causes longs to sell, you get rewarded

 

 if you lie, you (should) get prosecuted/punished.

 

if your schtick has no impact or even further heartens bulls / the company is well capitalized, you get run over. 

 

seems pretty fair / well functioning to me. 

 

 

 

 

 

 

 

[LC]

Agree with pupil on the overall market structure.

 

Do not agree with Brett Horn who couldn't hit a tee ball, rather insisting that the ball is actually 2 ft lower.

[KFS]

Another video interview of Carson Block discussing the MW short..... 

 

Fairfax Financial: The Oracle of Nothing - Zer0esTV: Video channel for short sellers

[Mick92]

44 minutes ago, MMM20 said:

Here's the hard hitting analysis from everyone's favorite FFH analyst...

 

"Short-seller Muddy Waters released a report outlining a bear case on no-moat Fairfax. At a high level, we don’t disagree with its take, and we do think the stock is materially overvalued right now. In our opinion, Fairfax is a hit-and-miss investor, a relatively poor underwriter, and has an overly complicated structure. We would agree that the company’s book value growth target of 15% is unrealistic, and it has generally fallen well short of this level since the financial crisis. As to Muddy Waters' claims that Fairfax is mismarking investments, we don’t think it is necessary to believe that to think the stock is overvalued. We will maintain our CAD 970 fair value estimate."

 

 

I'm going to get a t-shirt printed with "No-moat Fairfax" on it.

[SharperDingaan]

Folks, the reality is that FFH is going to go a good bit lower before this is all over. Simply do a swing trade, buy your stock back later at the lower price, and take your cash difference off the table. MW drives the share price down; FFH does a share buyback at below book, and books both a gain on cancellation, and a higher EPS. 

 

SD

[Parsad]

Hmmm, I wonder who the TRS counterparty is?  I wonder if Muddy Waters does work for them?  Cheers!

[KFS]

31 minutes ago, KFS said:

Another video interview of Carson Block discussing the MW short..... 

 

Fairfax Financial: The Oracle of Nothing - Zer0esTV: Video channel for short sellers

 

Block compares Go Digit to Lemonade to illustrate his assumption that Digit's market value has obviously plummeted "into the toilet" over the last few years.  Lol.  

 

 

[treasurehunt]

5 hours ago, TwoCitiesCapital said:

Cash would flow out of Fairfax to the counterparty. But this dip so far only takes us back to where we were in January, so nothing to be concerned with on Q1 at this point as it's just reversing cash that would have been due to Fairfax. 

 

Plus, we've got blowout earnings coming in a week that may take us right back up. 

 

TRS is only concerning when the economy actually tips IMO. Then you'll likely have falling asset values AND falling liquidity as it drains cash from Fairfax's coffers.

 

This is why I am not a fan of Fairfax holding on to the TRS over the long term. Sooner or later a situation might arise where the company has to come up with a lot of cash at a very inconvenient time. Why take this risk? Fairfax will do just fine without it.

 

I'm also very curious to see Viking's take on the Muddy Waters report, but based on my read it seems to be much ado about nothing much.

[MMM20]

1 hour ago, thepupil said:

everyone's accountable under the current system. 

 

Pretty naive about who's getting paid by whom and the twisted incentives involved.

[thepupil]

9 minutes ago, MMM20 said:

 

Pretty naive about who's getting paid by whom and the twisted incentives involved.

 

how so?

 

who's getting paid by whom? 

from my understanding activist short sellers have several models. they either take LP's in an SPV or fund structure and use that capital to put on positions. they can do the research themselves, or can collaborate with other hedge funds/freelancers who wish to stay off the radar from a regulatory/LP/company/general reputation standpoint. so from my understanding activist short sellers are paid fees by other HF (either success or cash based) and get paid on their performance from trading their ideas. 

 

the prime brokers get paid through trading flow, through the arranging of securities lending which results from demand from HF's and from fully paid stock from retail / LO's. 

 

longs get paid by being right, have heard several longs with very successful stock purcahses whcih resulted from dislocations from an ultimately inaccurate activist short report

 

the twisted incentives

to do work, share information and make money in the markets thereon for the benefit of LP's or personal capital. 

 

what would you correct / add? 

Edited February 8, 2024 by thepupil