Fairfax 2024

[jbwent63]

On 2/26/2024 at 4:00 PM, glider3834 said:

https://www.sec.gov/Archives/edgar/data/915191/000094787124000176/xslF345X05/ownership.xml

 

https://www.sec.gov/Archives/edgar/data/915191/000110465924025508/tm246589d1_sc13d.htm

 

These reports start at the top of the ownership structure.....with Mr. Watsa personally.....so then you see the Watsa family holding companies, then finally Fairfax....and the amount of shares held by Fairfax (46,724,700) is unchanged from the prior quarter. This is what was also reported in the 13-F on February 14, 2024.

[Cigarbutt]

Some more thoughts about the evolving hard market. The following is about the US property-casualty market:

The recent hard market is similar in extent (area under the curve) to the 2000-4 hard market and FFH, once again, was able to grow much more than peers but, this time around, at least at this point, they don't have to absorb losses that materialized before (late 90s) and which are yet to be reported.

The best scenario would be for the hard market to continue and the ideal scenario would be that new momentum be given to more hardening as a result of pain from the asset side of the balance sheets at large with FFH potentially remaining more flexible during a relative downturn.

 

However, it seems like the hard market may be abating.

 

If that's the case, it will be interesting to see how FFH (at the holding company) use the dividend capacity at the subs.

Summary table form the last few years:

The dividend capacity at end of 2023 is (estimation/guess) likely between 3.6 to 4.5B.

So, dividend capacity has been growing at a higher rate than equity during rising premiums requiring more capital.

Interesting (forward-looking), no?

 

[newtovalue]

Anyone know when the annual report and letter comes out?

[gfp]

6 minutes ago, newtovalue said:

Anyone know when the annual report and letter comes out?

 

Last year it was published March 10th.  (a Friday after the close)

Edited March 1 by gfp

[newtovalue]

ty @gfp

 

[glider3834]

3 hours ago, gfp said:

 

Last year it was published March 10th.  (a Friday after the close)

Last year agm was 20 Apr - this year 11 Apr - i wonder if that affects timing of release?

[SafetyinNumbers]

2 minutes ago, glider3834 said:

Last year agm was 20 Apr - this year 11 Apr - i wonder if that affects timing of release?

Great point and the Leap Year added a day to prepare.

 

[gfp]

2 minutes ago, glider3834 said:

Last year agm was 20 Apr - this year 11 Apr - i wonder if that affects timing of release?

 

Who knows.  Some CEOs are just better at turning in their homework in a timely fashion.  The Boston Omaha boys send in their letter whenever they damn well feel like it.

[gfp]

Is this book still available anywhere?  I would like to gift one but I don’t want to give my only copy. Selfish, I know 

[TwoCitiesCapital]

https://www.zeebiz.com/markets/ipo/news-sebi-clears-fairfax-backed-digits-ipo-after-delay-letter-shows-278705

[petec]

On 2/29/2024 at 5:52 AM, Cigarbutt said:

The dividend capacity at end of 2023 is (estimation/guess) likely between 3.6 to 4.5B.

Why *such* a big uplift from 2022?

 

Thanks.

 

And yes this is very meaningful going forward. Buybacks in a soft(er) market...

[Dipesh Patel]

https://www.businesswire.com/news/home/20240304019257/en/Kennedy-Wilson’s-Real-Estate-Debt-Platform-Reaches-7-Billion-in-Originations

 

Kennedy Wilson’s Real Estate Debt Platform Reaches $7 Billion in Originations

Platform totals $11 billion in capital commitments with $4 billion of remaining capacity

March 04, 2024 06:00 AM Eastern Standard Time

BEVERLY HILLS, Calif.--(BUSINESS WIRE)--Global real estate investment company Kennedy Wilson (NYSE: KW) announces that its real estate debt investment platform more than doubled in size in the past year and has reached $7 billion in originations with a strong pipeline of new opportunities.

The milestone comes on the heels of Kennedy Wilson’s acquisition of a $4.1 billion loan portfolio from a regional bank in June 2023 and the subsequent integration of the bank’s lending team, which strengthened real estate debt capabilities and expanded Kennedy Wilson’s presence into key markets across the United States. Since the acquisition of the portfolio, the debt team has closed approximately $500 million of new loans with $1.3 billion currently expected to close by Q2 2024, focused primarily on multifamily and student housing construction lending opportunities with high-quality sponsors seeking loans in the range of $40-$200 million.

Kennedy Wilson’s debt platform, originally launched in 2020 and expanded in Europe in 2021, benefits from a unique, unlevered structure. The lending team provides a hands-on approach to each loan, rooted in Kennedy Wilson’s historic strengths in real estate asset management. In 2024, Kennedy Wilson plans to roll out a best-in-class debt servicing platform that will further expand its capabilities.

[Cigarbutt]

17 hours ago, petec said:

Why *such* a big uplift from 2022?

...

And yes this is very meaningful going forward. Buybacks in a soft(er) market...

Many moving variables.

The most significant being

-higher adjusted operating profits/overall profits ahead of net premiums growth at relevant subs in 2023,

-reported (and expected for the full year) relatively low capital sent to relevant subs in 2023.

[petec]

9 hours ago, Cigarbutt said:

Many moving variables.

The most significant being

-higher adjusted operating profits/overall profits ahead of net premiums growth at relevant subs in 2023,

-reported (and expected for the full year) relatively low capital sent to relevant subs in 2023.

 

Thanks. 

[John Hjorth]

On 3/3/2024 at 2:38 AM, gfp said:

Is this book still available anywhere?  I would like to gift one but I don’t want to give my only copy. Selfish, I know 

 

I have spent a good deal of time time trying to find a way to lay my hands on a copy, for me first time this book was mentioned here on CoBF recently, but so far to no avail.

 

Your copy is very likely a keeper, @gfp .

[MMM20]

Circling back on the sizing thing, I thought this was a helpful framing: https://harveysawikin.substack.com/p/value-investing-lessons-from-major 

My sense is that this one's something between "Long-Term Champion" and "Medium-Term Performer" (more the former IMHO) and I'm planning accordingly.

 

In the mid-00’s, I established a managed account for my children at a brokerage. When I took personal control of the account in 2010, I sold several of the positions and with the proceeds bought Microsoft, making it approximately 20% of the portfolio. Since then, I have barely touched the account, and now Microsoft represents 75% of the value, having mightily outperformed the rest of the stocks. The overall return on the portfolio has been increasingly converging with the total return on Microsoft since 2011 and, if the latter keeps performing, this will be even more so.

 

Admittedly, not every stock is a Microsoft, and if I had let, say, Disney grow into a 75% position, I would have been upset, and my long-term return compromised when it halved a couple of years ago. I have given this dilemma a lot of thought and have concluded that the two approaches (sell positions at fair value vs. hold everything static forever) are irreconcilable. You can, however, draw lessons from each one to try to generate attractive returns without taking reckless single-stock risk. One way to do this is to separate your portfolio into three main categories.

 

Long-Term Champions are companies you believe to be long-term compounders. A stock like that should be held, trimmed sparingly, and only significantly reduced when it becomes highly overvalued, or changes in some fundamental way. Fundamental change is not something that cannot happen to a Cézanne but can and does to a company, e.g., because of macro events, technological disruption, or management changes.

 

Medium-Term Performers are companies you like but cannot visualize as a potential Cézanne. Here it becomes more important to manage its weighting in your portfolio. Cyclicals such as resource companies go in this bucket, since they are vulnerable to large commodity price fluctuations over time. These kinds of stocks can graduate to the top category if they have excellent managements and/or operate in the right sectors. Of course, medium-term performers can also be downgraded to the uninvestable category.

 

Arbitrages are stocks that you think are currently undervalued and where you see a catalyst for value-recognition – but have no conviction beyond that point. In these cases, you need to remember to sell when the stock reaches the range of fair value, and if it is not very liquid, to leave something on the table for the market. In the past I have made the mistake of holding onto less liquid stocks for the top tick and finding it hard to sell on the way back down.

 

A framework like the above cannot be applied mechanically because the markets are always presenting investors with new circumstances. Still, even if it does nothing other than make an investor hesitate before deciding to reduce a Cézanne or Matisse stock just because it “went up a lot”, then it is valuable.

 

Edited March 6 by MMM20

[Jaygo]

1 hour ago, MMM20 said:

Circling back on the sizing thing, I thought this was a helpful framing: https://harveysawikin.substack.com/p/value-investing-lessons-from-major 

My sense is that this one's something between "Long-Term Champion" and "Medium-Term Performer" (more the former IMHO) and I'm planning accordingly.

 

In the mid-00’s, I established a managed account for my children at a brokerage. When I took personal control of the account in 2010, I sold several of the positions and with the proceeds bought Microsoft, making it approximately 20% of the portfolio. Since then, I have barely touched the account, and now Microsoft represents 75% of the value, having mightily outperformed the rest of the stocks. The overall return on the portfolio has been increasingly converging with the total return on Microsoft since 2011 and, if the latter keeps performing, this will be even more so.

 

Admittedly, not every stock is a Microsoft, and if I had let, say, Disney grow into a 75% position, I would have been upset, and my long-term return compromised when it halved a couple of years ago. I have given this dilemma a lot of thought and have concluded that the two approaches (sell positions at fair value vs. hold everything static forever) are irreconcilable. You can, however, draw lessons from each one to try to generate attractive returns without taking reckless single-stock risk. One way to do this is to separate your portfolio into three main categories.

 

Long-Term Champions are companies you believe to be long-term compounders. A stock like that should be held, trimmed sparingly, and only significantly reduced when it becomes highly overvalued, or changes in some fundamental way. Fundamental change is not something that cannot happen to a Cézanne but can and does to a company, e.g., because of macro events, technological disruption, or management changes.

 

Medium-Term Performers are companies you like but cannot visualize as a potential Cézanne. Here it becomes more important to manage its weighting in your portfolio. Cyclicals such as resource companies go in this bucket, since they are vulnerable to large commodity price fluctuations over time. These kinds of stocks can graduate to the top category if they have excellent managements and/or operate in the right sectors. Of course, medium-term performers can also be downgraded to the uninvestable category.

 

Arbitrages are stocks that you think are currently undervalued and where you see a catalyst for value-recognition – but have no conviction beyond that point. In these cases, you need to remember to sell when the stock reaches the range of fair value, and if it is not very liquid, to leave something on the table for the market. In the past I have made the mistake of holding onto less liquid stocks for the top tick and finding it hard to sell on the way back down.

 

A framework like the above cannot be applied mechanically because the markets are always presenting investors with new circumstances. Still, even if it does nothing other than make an investor hesitate before deciding to reduce a Cézanne or Matisse stock just because it “went up a lot”, then it is valuable.

 

I really like this framework.

 

I do the same type of thing by putting my long termers in taxable accounts so i'm less likely to sell to early. My riskiest stuff goes in the rrsp as I might as well take the gov down with me. The RRSP also holds dividend paying US equities. My TFSA is full of the middle ground made up mostly of Canadian equities and reits.

 

If I see a company where i want to hold for a long time and but am still sorting out the valuation its a taxable account thing. If i get a loss over a few years I can bank the loss and buy back lower for the long term.

 

It doesn't always work as i sold SSD, GGG and builders first Source seemingly too early. Maybe i need a new account where i forget the password.

[vinod1]

7 hours ago, Jaygo said:

I really like this framework.

 

I do the same type of thing by putting my long termers in taxable accounts so i'm less likely to sell to early. My riskiest stuff goes in the rrsp as I might as well take the gov down with me. The RRSP also holds dividend paying US equities. My TFSA is full of the middle ground made up mostly of Canadian equities and reits.

 

If I see a company where i want to hold for a long time and but am still sorting out the valuation its a taxable account thing. If i get a loss over a few years I can bank the loss and buy back lower for the long term.

 

It doesn't always work as i sold SSD, GGG and builders first Source seemingly too early. Maybe i need a new account where i forget the password.

 

Just use one brokerage account for long term holds. One for more active holdings. You would hardly ever need to login into that account, mostly to reinvest the dividends. But not seeing them, you end up not even thinking about them much and even if you login into that account, it is easier to avoid tinkering. 

 

Maybe that is the way I am, but that helped for me.

[MarioP]

On 3/2/2024 at 8:38 PM, gfp said:

Is this book still available anywhere?  I would like to gift one but I don’t want to give my only copy. Selfish, I know 

You should talk about it to Fairfax employees at the AM. Perhaps they can have a reedition. Just tell them that they have at least three takers

[Thrifty3000]

Step 1) Read this:
 

"We had by far the best year in our history. A record underwriting profit of $1.5bn and net earnings of $4.4bn. BVPS increased 25% to US$940. In the last 3 years, our BVPS has doubled. Our operating income of $3.9bn may continue at these levels for the next 4 years.” - Prem

Step 2) Study the last column, paying particular attention to the bottom right corner of this page in the annual report:

Step 3) Combine knowledge gleaned from steps 1 & 2 and imagine how the chart will look four years from now.

 

Step 4) Enjoy watching the share price climb to $2,000+ USD.

[SafetyinNumbers]

11 minutes ago, Thrifty3000 said:

Step 1) Read this:
 

"We had by far the best year in our history. A record underwriting profit of $1.5bn and net earnings of $4.4bn. BVPS increased 25% to US$940. In the last 3 years, our BVPS has doubled. Our operating income of $3.9bn may continue at these levels for the next 4 years.” - Prem

Step 2) Study the last column, paying particular attention to the bottom right corner of this page in the annual report:

Step 3) Combine knowledge gleaned from steps 1 & 2 and imagine how the chart will look four years from now.

 

Step 4) Enjoy watching the share price climb to $2,000+ USD.

Prem also highlighted the cushioning effect of IFRS17 on earnings. Lower volatility in earnings should make the shares more attractive to quants which helps the multiple. IFC trades north of 2.5x BV with similar ROE expectations. Maybe it will take the S&P/TSX 60 add to get us through all of the value investors that are ready to sell at between 1.2-1.5x BV but that’s where I think we’re going. 

 

[ander]

6 hours ago, Thrifty3000 said:

Step 1) Read this:
 

"We had by far the best year in our history. A record underwriting profit of $1.5bn and net earnings of $4.4bn. BVPS increased 25% to US$940. In the last 3 years, our BVPS has doubled. Our operating income of $3.9bn may continue at these levels for the next 4 years.” - Prem

Step 2) Study the last column, paying particular attention to the bottom right corner of this page in the annual report:

Step 3) Combine knowledge gleaned from steps 1 & 2 and imagine how the chart will look four years from now.

 

Step 4) Enjoy watching the share price climb to $2,000+ USD.

And further out, I'm guessing closer to $4,000+ USD in 7 years. Likely should be $1500 plus today and compound 17% per year gets you there.

[Viking]

Now that Fairfax's annual report is out I am able to update a few things. I thought I would start with the equity holdings. The AVLN position (from the Riverstone UK sale) was completely exited by year end 2023. As a result, the significant noise from this holding has been eliminated. We now have a clear view of exactly what Fairfax's position is in its various equity holdings. 

 

I wonder how much Fairfax spend exiting the AVLN position in 2023? My guess is it was a significant use of cash. 

----------

What was the change in value of Fairfax’s equity portfolio to March 8, 2024?

 

March 8, 2024

 

Fairfax’s equity portfolio (that I track) had a total value of about $19 billion at March 8, 2024. This is an increase of about $611 million (pre-tax) or 3.3%.

 

 

I include the FFH-TRS position in the mark to market bucket and at its notional value. 

 

My tracker portfolio is not an exact match to Fairfax’s actual holdings. My summary has been updated to include information from Fairfax’s 2023 annual report. My tracker portfolio is useful only as a tool to understand the rough change in Fairfax’s equity portfolio (and not the precise change).

 

Split of total holdings by accounting treatment

 

About 47% of Fairfax’s equity holdings are mark to market - and will fluctuate each quarter with changes in equity markets. The other 53% are Associate and Consolidated holdings.

 

Over the past couple of years, the share of the mark to market portfolio has been shrinking. This means Fairfax's quarterly results will be less impacted by volatility in equity markets.

 

 

Split of total gains by accounting treatment

• The total change is an increase of $611 million = $26.55/share
• The mark to market change is an increase of $281 million = $12.21/share. The change in this bucket of holdings will show up in ‘net gains (losses) on investments’ (along with changes in the value of the fixed income portfolio) when Fairfax reports results each quarter.

 

What were the big movers in the equity portfolio Q1-YTD?

• Eurobank is up $395 million and it is now Fairfax’s largest equity holding at $2.6 billion. 
• The FFH-TRS is up $328 million. This position is now Fairfax’s second largest holding. 
• Thomas Cook India is up 96 million. TCIC continues its strong performance. 
• Commercial International Bank is down $120 million. Egypt devaluated its currency 40% on March 7. Well run bank. Country is an economic mess.

 

Excess of fair value over carrying value (not captured in book value)

 

For Associate and Consolidated holdings, the excess of fair value to carrying value is about $1,335 million or $58/share (pre-tax). Book value at Fairfax is understated by about this amount.

• Associates:        $900 million = $39/share
• Consolidated:    $435 million = $19/share

Equity Tracker Spreadsheet explained

 

Holdings have been separated by accounting treatment: mark to market, associates – equity accounted, consolidated, other Holdings – total return swaps.

 

We come up with the value of each holding by multiplying the share price by the number of shares. Are holdings are tracked in US$, so non-US holdings have their values adjusted for currency. 

 

This spreadsheet contains errors. It is updates as new and better information becomes available.

 

 

 

 

 

Fairfax Mar 8 2024.xlsx

Edited March 9 by Viking

[[email protected]]

On 3/2/2024 at 7:38 PM, gfp said:

Is this book still available anywhere?  I would like to gift one but I don’t want to give my only copy. Selfish, I know 

yeah if you email them they will send a copy. Its an awesome read.

[gfp]

11 minutes ago, [email protected] said:

yeah if you email them they will send a copy. Its an awesome read.

Awesome thanks - they obviously hired a talented designer and put a bunch of work into producing it.  I figure somewhere there is a big stack of them.