Fairfax 2024

[Hamburg Investor]

45 minutes ago, value_hunter said:

Some interesting questions: If FFH purposely overvalue their asset, will that lead a higher tax or earlier tax payment? If FFH has the motive to consistently inflate their asset value why when some chances came but they chose not to. The bottom line is whether Fairfax is trustful. I found the following comment from Seekingalpha is very interesting.

https://seekingalpha.com/news/4064629-fairfax-financial-drops-amid-muddy-waters-short-report#scroll_comments

Doc Hopey

Yesterday, 4:53 PM

Investing Group

Comments (571)

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@zenamaste1995 When FFH sold its Pet insurance business for $1.4 bn in late 2022, FFh had to book a gain of $1.2 bn. Fairfax bought the pet insurance business for $30 mn (or was it $50 mn? From memory) less than two deacades before the sale.

 

Essentially nobody, not even the people following Fairfax over years, were really aware, that Fairfax even owned that business.

 

And here’s the question: Don’t you think that creative accountants would have advertised such an asset way more than FFH did? Why haven‘t they? Were they oversleeping this $1.2 bn opportunity for letting Fairfax shine?

 

Or is it more like, Fairfax tries to grow intrinsic value (not book value), tries to avoid taxes and is advertising way less than others over its whole history?

ReplyLike(1)

 

  

What I tried to say - and I may be wrong, I am not an account, just an amateur investor - is, the following:

- the pet insurance business was bought by FFH at a low price (seen from the point of selling; let‘s say $50mn). It was sold 15 to 20 years later for $1.4bn - and the profit was $1.2bn. 
- So the book value of the pet insurance business in FFHs grew from $50mn to $200mn ($1.4bn less $1.2bn).

- Let’s assume $50mn was a fair price, when FFH bought it. Than for nearly two decades the busines value grew anormously to $1.4bn, but that wasn’t represented within the book value of FFH; the book vakue of the pet insurance business just grew by the amount of the reinvested money; but the business seems to not having needed lots of that and still grew stronger and stronger. In the beginning the difference between the paid price and the business value was low and over the years, that difference grew and grew.

- So the real value of the pet insurance business was understated in the books of FFH.

 

What could Prem do to make that hidden value visable? As I said, I am not an accountant, but I think he would e. g. have to sell a part of the business and mark the business to market. There may be other and more technics; but from my understanding, FFH would have to pay taxes (as they sell a part of the business) or/and they would loose the possibility to fully profit from the per business (if you sell e.g. 10 per cent, than you only own 90 per cent…). The point is: Making the value of a wholly owned business visible, you need to mark it to market; but there is no market, if you don‘t sell. But if you sell, you loose intrinsic value. 
 

Is my way of thinking correct or not?

[Hamburg Investor]

I read the report of MW. It doesn’t make me nervous being long with over 40 per cent of my portfolio being in FFH, as I think the MW report is very onesided and I don‘t see that FFHs books are cooked.
 

My understanding is, that FFH has and had a lot of assets that were understated in book value. Like the pet insurance business. If Prem wanted to show a high book value „whatever it takes“ he wouldn‘t have to do illegal or ugly things in 2018 or whenever. Instead he could just activate that hidden value. My understanding ist, that it would cost a bit (of intrisic value); but still not so much of it. Why do illegal things, if you could easily legal things and promote yourself way better?
 

Still I ask myself, if I know enough about how and why FFH values its businesses the way it does.

 

How does it e. g. help to buy a business and have it in your books at a high or low valuation? Let‘s say in an example you own 95 per cent of a business and you buy the last 5 per cent: my understanding is, that paying a high price you can revalue the 95 per cent you own at that price. 
 

So does having the business booked relatively high help to get a better rating and pay less interest ? 
 

It’s obvious, that one shouldn’t push such things to the limit; still my understanding is, that there is no definite number that’s right and valuing it one dollar higher is wrong etc. There‘s a legitimate rabge I guess.

 

Has anyone an idea, how and why Prem values some businesses relatively high (low seems more a function of time, see the example of the pet insurance business…?!)
 

 

Edited February 11 by Hamburg Investor

[SharperDingaan]

Under IFRS accounting (Canadian standard since 2010), only inventory available for sale is M2M, and it is re-marked to market every quarter. The quarterly change charged to other comprehensive income, and closed to equity.

 

Only inventory not available for sale, or specific inventory assigned as a hedge against a specific liability is not M2M. If the hedging assets drop by 50% tomorrow it's no bother as there is no intent/need to sell until the liability actually comes due. Similarly, inventory not available for sale; covers all those long term investments bought at cents on the dollar, awaiting their future day in the sun. Of course, if it's actually not available for sale ... M2M valuation is meaningless.

 

MW essentially argues that all inventory is available for sale at the the right price, and therefore should be at M2M. Here are all these 'omissions', they should be charged against equity! lowering book value! Maybe if the intent was to liquidate FFH tomorrow, but for normal course business IFRS accounting says otherwise. 

 

 MWs financial strength rests on ongoing ability to demonstrate that they know their business. Mock and vilify their 'incompetent' attack amongst their peers, and you jam a plastic bag over their head. They have to come after you hard, and as quickly as possible, before the air runs out; squeezing the orange 

 

SD  

[John Hjorth]

2 hours ago, Luca said:

Yeah...but do you know what they mean? 100% loss of top 3 positions or -50% loss of top 3 positions, confusing, i have to play with risk navigator later

 

@Luca,

 

It's about your broker essentially does not like what you do. [Concentration in combination with the use of OPM.] Is it that difficult for you to understand? Who do you think get it their way, when it really matters, - you, or IB?

 

- Just autoadjust, and please don't post about it in the Fairfax section of CoBF.

[Hamburg Investor]

33 minutes ago, SharperDingaan said:

Under IFRS accounting (Canadian standard since 2010), only inventory available for sale is M2M, and it is re-marked to market every quarter. The quarterly change charged to other comprehensive income, and closed to equity.

 

Only inventory not available for sale, or specific inventory assigned as a hedge against a specific liability is not M2M. If the hedging assets drop by 50% tomorrow it's no bother as there is no intent/need to sell until the liability actually comes due. Similarly, inventory not available for sale; covers all those long term investments bought at cents on the dollar, awaiting their future day in the sun. Of course, if it's actually not available for sale ... M2M valuation is meaningless.

 

MW essentially argues that all inventory is available for sale at the the right price, and therefore should be at M2M. Here are all these 'omissions', they should be charged against equity! lowering book value! Maybe if the intent was to liquidate FFH tomorrow, but for normal course business IFRS accounting says otherwise. 

 

 MWs financial strength rests on ongoing ability to demonstrate that they know their business. Mock and vilify their 'incompetent' attack amongst their peers, and you jam a plastic bag over their head. They have to come after you hard, and as quickly as possible, before the air runs out; squeezing the orange 

 

SD  

Thank you.

 

But how does this work within the buying process of a whole business? First, the asset (stock) is available for sale (afs) at the stock market. Let’s take the GiG deal as an example. Because that‘s part of what MW is referring to. 
 

If I get MW right, than they are saying something like: FFH bought the biggest part (was it 90 per cent?) of GIG at a rather low price. And than they bought the last 10 per cent at a way too high price (that’s not what I am saying… was it at a 2.4 pb?). Than FFH revalues the 90 per cent of GIG it already owns at the higher price and consolidates GIG. So buying a rather small portion of GIG  defines the value of GIG in FFHs books later on. That‘s what they are actually saying, right? Is that wrong than or doesn‘t your post adress that question?
 

I don’t think, as I’ve written here, that Prem cooked the books.  I just want to understand, how a relatively high/low valuation within the books helps or hurts.

[nwoodman]

13 minutes ago, Hamburg Investor said:

I just want to understand, how a relatively high/low valuation within the books helps or hurts.

Love them or hate them, it matters to the ratings agencies.  The upgrades we saw in 2023 are at odds with the MW thesis as will be the upgrades some of us are expecting this year.

[rohitc99]

5 hours ago, Hoodlum said:

The report from National Bank yesterday detailed that the 3 largest investments that would show a gain in market value if marked to market, would offset most of the negative book value that MW found.  
 

As long as there is no material variance in overall book value then there is no need to constantly mark to market each individual investments until there is a material change in ownership. The regulatory bodies have agreed with this approach and that is why there have been  no issues with how individual investments are reported by Fairfax or any other insurance business that has similar businesses that are not marked to market. 
 

Unfortunately, many investors don’t understand how the insurance company investment reporting works and MW took advantage of this to try and make a quick profit, although it looks like MW had poor timing and just broke even based on MW shorting on 1/16 and getting out on Thursday. 

Fairfax invested in thomas cook in dec 2021 and recently liquidated it and more at a profit. and it gets better with quess. they sold 5% stake at 900 levels in sept 2021 and bought it back at 385 in march 23. more or less sold at the absolute peak and bought the stake back at 1/3 price 18 months later

 

even someone is writing a short report and calling out quess, they would atleast analyze the space in india. Teamlease is a comparable and sells at higher valuations and so do some other companies in this space

 

quess is not fully valued and acutally got beaten down due to the losses in the products division. if they can turn that around, the stock will do well in the next 2-3 yrs

[LC]

23 minutes ago, Hamburg Investor said:

FFH bought the biggest part (was it 90 per cent?) of GIG at a rather low price. And than they bought the last 10 per cent at a way too high price (that’s not what I am saying… was it at a 2.4 pb?). Than FFH revalues the 90 per cent of GIG it already owns at the higher price and consolidates GIG

 

Replace GIG with Fairfax stock and you just described many investors on this board. People with cost basis at 50% of today's price

[Hamburg Investor]

3 minutes ago, LC said:

 

Replace GIG with Fairfax stock and you just described many investors on this board. People with cost basis at 50% of today's price

Same here regarding the cost basis. But I can‘t take FFH private and consolidate it like FFH has done with GIG. Unfortunately…  

[SafetyinNumbers]

5 hours ago, Hamburg Investor said:

Thank you.

 

But how does this work within the buying process of a whole business? First, the asset (stock) is available for sale (afs) at the stock market. Let’s take the GiG deal as an example. Because that‘s part of what MW is referring to. 
 

If I get MW right, than they are saying something like: FFH bought the biggest part (was it 90 per cent?) of GIG at a rather low price. And than they bought the last 10 per cent at a way too high price (that’s not what I am saying… was it at a 2.4 pb?). Than FFH revalues the 90 per cent of GIG it already owns at the higher price and consolidates GIG. So buying a rather small portion of GIG  defines the value of GIG in FFHs books later on. That‘s what they are actually saying, right? Is that wrong than or doesn‘t your post adress that question?
 

I don’t think, as I’ve written here, that Prem cooked the books.  I just want to understand, how a relatively high/low valuation within the books helps or hurts.

FFH bought its initial position in GIG in 2010. Given it was a ~40%+ stake, they used equity accounting. Every year, their share of earnings less dividends increased the carrying value. When they closed the deal to buy the additional ~47% from Kipco, they revalued at the higher price.
 

Over that time, the company went from ~$420m in premiums to ~$3b. That might be worth 2.4x BV. But the multiple they actually paid should be adjusted lower because they deferred payments by way of annual instalments. Money is more expensive now so the discount rate is probably 9%.

 

Is that helpful?

[glider3834]

Looks like Chou Associates Mgmt retained Kroll LLC to provide an independent valuation of their Exco shares at 31 Dec-22 & mean price was US$21.08 per share.

 

This is above Fairfax's carrying value of Exco of US$12.59 per share at 31 Dec-22.

 

https://www.osc.ca/en/securities-law/orders-rulings-decisions/chou-associates-management-inc-and-chou-associates-fund-0

 

 

See below comment on OTC market pricing of Exco shares 

 

 

 

Edited February 11 by glider3834

[Viking]

Fairfax - Super Bowl Sunday Edition

 

Well it’s Super Bowl Sunday - the perfect time for a football themed post. People love watching sports so much because it is fun and entertaining. The competition is real. You cheer for your team. The outcome is uncertain. There is  intrigue. There is the camaraderie - you watch with family and friends.  And it feels exhilarating when your team wins the big game. We love watching sports so much because it so closely mirrors what happens in real life.

 

We love investing for many of the same reasons.

 

“Don't worry about the horse being blind, just load the wagon.” John Madden

(I have no idea what the quote means… and i love it.)

—————

Fairfax is in the final stages of completing one of the great comebacks in Canadian business history. Fairfax’s recent history resembles Super Bowl LI on Feb 5, 2017, when the New England Patriots played the Atlanta Falcons.

 

What?

 

Yes, it is true in so many ways. Let me explain how.

 

The set-up

 

Both are storied franchises. The Patriots have won 6 Super Bowls, the most in football.

 

Long-term investing performance for P/C insurance companies is measured by the growth in the share price and book value. From 1985 to 2022, Fairfax compounded book value at 17.8% per year and its share price by 16.1% per year. That performance puts the company in very elite company.

—————

The first 41 minutes of the Super Bowl LI

 

For the first 41 minutes of Super Bowl LI, the New England Patriots played very poorly. The quarterback was missing open receivers. The receivers were dropping passes. The defence was not playing to potential. And the special teams unit was not contributing as needed. Bottom line, the team was underperforming.

 

As a result, the Patriots found themselves down 28-3 with 4 minutes left to play in the third quarter. Prior to this game, the largest comeback in Super Bowl history had been from 10 points down. So at this point in the game pretty much everybody thought it was over. Oddsmakers gave Atlanta at 99.8 chance to win.

 

Things were looking so bad, even loyal Patriots fans had given up on their team. And the haters (of which there were many)… they were apoplectic in their glee.

 

From 2010-2017, Fairfax had also been playing a pretty poor game - and like the Patriots, the poor performance was mostly due to self-inflicted mistakes. Equity hedges (2010-2016). Shorts (last one exited in 2020). Poor equity purchases (mostly 2014-2017). When Covid hit in 2020, the underperformance (measured through earnings) got worse. The stock hit a 11-year low of US$250 in May of 2020.

 

In May of 2020, Fairfax shareholders felt how New England Patriots fans felt mid-way through the third quarter of the Super Bowl. Many Fairfax shareholders bailed on their team and sold their shares.

 

Everyone was writing them off.

—————

The importance of leadership and culture

 

You learn more about teams when they go through adversity than you do when times are good. This is the same for businesses.

 

What did both the Patriots and Fairfax have going for them?

 

Strong leadership

 

The Patriots had Robert Kraft, Bill Belichick, Tom Brady and a roster stacked with high character players.

 

Fairfax had Prem Watsa supported by a strong teams at its head office, Hamblin Watsa, insurance subs and at the equity holdings.

 

Strong culture

 

Patriot Way: “The way that Bill coaches his team to be putting the team first, not selfish, doing what’s best for the team, putting the team’s goals in front of your own personal goals. That was Tom Brady. He was able to do that for 20 years.” Rob Ninkovich

 

Fairfax: I think the description above probably describes Prem Watsa and the culture he has been able to establish at Fairfax. Similarly, Andy Barnard has also been able to establish a very good culture in the insurance operations. (Discussing the importance of culture at Fairfax would make a great topic for a future post).

 

When extreme adversity hits, and your see how people respond, that is when you learn what the true character of the organization is (sports team or business).

 

The best sports teams find a way to turn the tables and thrive when adversity hits. It is the same with the best businesses.

——————

Back to the game.

 

Silver lining

 

For both teams - Patriots and Fairfax - there was a silver lining.

 

Yes, they were behind by a lot on the scoreboard. But they understood the primary problem was their own performance. And their performance was within their control. The silver lining was they knew the problems were fixable.

 

So when Atlanta went up 28-3 with four minutes left in the third quarter, the Patriots never panicked.

 

When Covid hit in 2020 and the various businesses became stressed and the stock of the company cratered, Fairfax also did not panic - at corporate, insurance subsidiaries or the equity holdings.

 

For Fairfax, the comeback started later in 2020. At the time, little did the team at Fairfax know that they were about to embark on one of the most improbable comebacks in Canadian business history.

 

What happened to turn the tide?

 

No one thing.

 

1.) The comeback started for the Patriots with a pass from Tom Brady to running back James White who scored their first touchdown of the game with 2 minutes left in the third quarter. However, the Patriots missed the extra point. Patriots were now down 28-9.

 

For Fairfax, the hard market in insurance really got going in 2020 and Andy Barnard and the insurance subs went on the offensive. It has continued to today. Net written premiums are estimated to have increased about 80% from $13.3 billion in 2019 to estimated $23.7 billion in 2023. In turn, this is delivering record underwriting profit. Touchdown for Fairfax. It is not surprising that the insurance team was the unit to lead the comeback for Fairfax.

 

2.) At the 9 minute mark of the 4th quarter Steven Goskowski kicks a field goal to make it a 2-score game. The Patriots trail 28-12.

 

During the market panic caused by Covid, the fixed income team at Fairfax, lead by Brian Bradstreet, went on the offensive and purchased $3.9 billion in corporate bonds with a yield of 4.1% and a term of 4 years. Field goal Fairfax. The fixed income team at Hamblin Watsa has been a historical strength for Fairfax.

 

3.) With 8 minutes left in the 4th quarter, the Patriots defence gets to the Falcons quarterback and forces a turnover. Donta Hightower wasn’t blocked and was able to get to Matt Ryan to get a strip-sack.

 

In late 2020/early 2021, the team at Hablin Watsa made their own big time play. They purchased total return swaps giving them exposure to 1.96 million Fairfax shares at a cost of US$372/share. This has delivered a return of well over $1 billion since then. This was very unexpected, creative and opportunistic - classic Fairfax football.

 

4.) The Patriots offence gets rolling again and this time Danny Amendola scores a touchdown. Brady immediately signals to go for 2 points. Direct snap to James White and he’s in for the 2-point conversion. The score is now 28-20. The Patriots are within striking distance but they need a stop on defence to get the ball back.

 

Brian Bradstreet and the fixed income team made a gutsy call in late 2021 that resulted in another touchdown for Fairfax by taking the fixed income portfolio to 1.2 years average duration. The $3.9 billion in corporate bonds purchased in 2020 were now sold at a 1% yield which locked in a big realized gain. This move protected the balance sheet. Unlike most other P/C insurers, Fairfax avoided booking billions in unrealized losses when interest rates spiked in 2022 and 2023.

 

5.) The Patriots defence steps up again and Matt Ryan is sacked for loss of 12, taking Falcons out of field goal range.

 

Fairfax’s investment in Digit insurance in India is flourishing. Started from scratch in 2017, at a cost of $154 million, fair value increased by $1.5 billion in 2021. It is possible we see an IPO in 2024. India is expected to be top performing economy and Fairfax is positioned to benefit in the coming years.

 

6.) Patriots get the ball back, down by 8, with 3 minutes to go. Julian Edelman makes one of the greatest catches in Super Bowl history at midfield with 2 minutes left to keep the drive alive. The Falcons defender knocked the pass in the air and Edelman came down with it. “Thats incredible” and “amazing concentration to make a play on that.”

 

In late 2021, in an opportunistic move, Fairfax made their own ‘circus catch’. They repurchased 2 million shares of Fairfax at $500/share. This was well below book value of $872 at Sept 30, 2023 and has delivered incredible value to shareholders.

 

7.) With 0.53 seconds left James White scores his second touchdown of the game. Danny Amendola is in for 2 point conversion. The game is tied 28-28.

 

Fairfax scores its next touchdown to tie the game in 2022 when it sells its pet insurance business for $1.4 billion - which delivered in an after-tax gain of 1 billion. Most observers did not know they owned this business. Fairfax also made the two point conversion when they sold Resolute Forest Products at the top of the lumber cycle for $626 million (plus $183 million CVC).

 

The game goes to overtime

 

The Patriots won the coin toss and elected to receive the ball. If they score a touchdown the game is over and they win the Lombardi trophy.

 

7.) In overtime, the Patriots move up the field. Sideline route. What a throw to Amendola. Pass is caught. Then a run. Fake it to Hogan… toss it to White… looking for blocks… getting blocks… he is inside the 20. Out of bounds at the 15. The Patriots have a very balanced attack.

 

Pass interference in the end zone by Atlanta’s defence puts the ball at the one yard line. First and goal for the Patriots.

 

Toss to White. He’sssssss ……. in! Touchdown Patriots!

 

In Q1 of 2023, the fixed income team at Fairfax extended the average duration of fixed income portfolio to 2.5 years. In October, they put the ball over the goal line and score the winning touchdown when they extend the average duration to 3.1 years (details to come when Fairfax reports Q4 earnings). This play locks in record interest income of $2 billion for years into the future. The comeback is complete!

 

Patriots complete the historic comeback and win the Superbowl! 34-28. Their 5th championship.

 

When they report Q4 earnings, Fairfax is poised to report record operating earnings and record book value. Fairfax shares closed Friday at US$940, which is an increase of 276% from the low of $250 in May 2020.

 

Fairfax is in the process of completing one of the most improbable comebacks in Canadian business history.

 

New England fans - and Fairfax shareholders - are going crazy.

 

What a game by Bill Belichick, Tom Brady and the New England Patriots.

 

What a performance the past three years by Prem Watsa and the entire team at Fairfax - head office, Hamblin Watsa/Fairbridge, the insurance subs and the management teams at the various equity holdings.

 

Led by Prem, the team at Fairfax have been beasts.

 

Summary

 

Like the New England Patriots comeback in Super Bowl XI, Fairfax’s improbable comeback the past three years serves as the ultimate reminder that the fight is never over, as long as there is a chance to win. We are reminded, as in life, anything is possible if you never give up. And that is one of the things that makes watching sports so great. Just like investing.

 

After the game, a jubilant Fairfax shareholder was heard to say: “Nothing will ever top this. Ever.” (I’m not so sure… I think Fairfax has much more in store for shareholders in the coming years.)

—————

What turned it around for Fairfax?

 

Leadership was the key. At the low point in 2020, Prem shone. There are numerous stories from people who work at Fairfax about Prem and how he handled the adversity:

1. He told staff two things:
   • He had their backs: there would be no layoffs as a result of Covid.
   • He knew what they were capable of: ‘do your job’. And get on your front foot - this was a time to be aggressive.
2. He delivered a similar message to equity investments. At the AGM last year, Stelco CEO Alan Kestenbaum told a story of the incredible support he got from Prem during Covid and the confidence that gave him to continue to drive the business forward.

Prem also lead by example in another important way: he backed up the truck and bought $150 million in stock.

 

Prem’s actions during the Covid lows were likely his greatest moments as CEO of Fairfax.

—————

Given the success they are having, I wonder if Fairfax is going to have a booth to sell merchandise at the AGM this year? What should be in it? Below is one suggestion. Maybe a Prem hoodie too? I survived the short attack of 2023? Would love to hear what ideas others have…

 

Edited February 11 by Viking

[MMM20]

@Viking so in this analogy is Carson Block sitting at home with a big bet on Atlanta screaming at his TV the whole fourth quarter? Or some prominent Pats hater on TV screaming “DEFLATEGATE!* SPYGATE!*” as they march to victory? Or a ref who throws a flag on the last drive only to get overruled on replay review? Or maybe just a drunk who passed out in his truck in the stadium parking lot before the Super Bowl even started?

*both wildly overhyped nothingburgers

 

Edited February 11 by MMM20

[LC]

1 hour ago, Viking said:

Net written premiums are estimated to have increased about 80% from $23.3 billion in 2019 to estimated $23.7 billion in 2023

BTW just a minor correction - net premiums from 13B to 23B

[Viking]

22 minutes ago, LC said:

BTW just a minor correction - net premiums from 13B to 23B

 

 

@LC , thanks for letting me know. It is corrected.

[Viking]

1 hour ago, MMM20 said:

@Viking so in this analogy is Carson Block sitting at home with a big bet on Atlanta screaming at his TV the whole fourth quarter? Or some prominent Pats hater on TV screaming “DEFLATEGATE!* SPYGATE!*” as they march to victory? Or a ref who throws a flag on the last drive only to get overruled on replay review? Or maybe just a drunk who passed out in his truck in the stadium parking lot before the Super Bowl even started?

*both wildly overhyped nothingburgers

One of the things i liked about doing this comparison is the Belichik/Brady Patriots were likely the most hated team in Football at the time. Fairfax was pretty hated back in 2020 - although this has been changing quickly over the past couple of years. 
 

Both organizations also have very strong cultures - along with leadership, thats what gets you through severe adversity. Given its importance, I really need to spend a little more time writing about culture. The problem is it is a very difficult topic to write about. It’s not math.
 

If anyone has been short Fairfax shares the past three years - well, they have had their head handed to them. The can of Whoop Ass is for them if they decide to come to the AGM.

Edited February 11 by Viking

[Maverick47]

@Viking Love the football analogy, especially since I missed this game and didn’t know the details of the comeback!  To extend the analogy a bit, it strikes me that besides the offensive comeback, part of the reason for the victory might be attributed to the Patriots’ defense that held the Falcons scoreless after they had scored 28 points (could have been Falcons’ offensive ineptitude as well I suppose).

 

Insurance analog?  Fairfax defensively protects their balance sheet from massive unrealized losses when they kept their bond durations short in advance of interest rate increases.  At worst they were in perhaps an aggregate $1 billion shortfall on the market value of their bonds relative to cost?

 

By contrast, a number of competitors with similar sized bond portfolios but longer durations (Travelers, Chubb, Liberty Mutual, Hartford come to mind) had bond portfolios with market values $5 billion or more below their cost at the same time.  
 

So Fairfax’s strong defense in the second half of the latest 4 years of the insurance Super Bowl allows their insurance premium growth and interest rate income offense to shine, while competitors poor balance sheet management takes the wind out of their offensive sails.

[Viking]

2 minutes ago, Maverick47 said:

@Viking Love the football analogy, especially since I missed this game and didn’t know the details of the comeback!  To extend the analogy a bit, it strikes me that besides the offensive comeback, part of the reason for the victory might be attributed to the Patriots’ defense that held the Falcons scoreless after they had scored 28 points (could have been Falcons’ offensive ineptitude as well I suppose).

 

Insurance analog?  Fairfax defensively protects their balance sheet from massive unrealized losses when they kept their bond durations short in advance of interest rate increases.  At worst they were in perhaps an aggregate $1 billion shortfall on the market value of their bonds relative to cost?

 

By contrast, a number of competitors with similar sized bond portfolios but longer durations (Travelers, Chubb, Liberty Mutual, Hartford come to mind) had bond portfolios with market values $5 billion or more below their cost at the same time.  
 

So Fairfax’s strong defense in the second half of the latest 4 years of the insurance Super Bowl allows their insurance premium growth and interest rate income offense to shine, while competitors poor balance sheet management takes the wind out of their offensive sails.

@Maverick47 Great add. I actually almost didn’t finish this post… i got distracted on Thursday/Friday. But i had the framework scripted out so i decided to punch it out yesterday - a little rushed. But i think it works  

[gfp]

It's funny because my hometown team was not involved in that game but Nola has such a deep rivalry and hatred for the Atlanta Falcons that it is not uncommon to see murals of the 3rd quarter score, flags memorializing the score, etc, all over town.  There was even someone that rented billboards memorializing the choke/comeback.

[nwoodman]

6 hours ago, glider3834 said:

Looks like Chou Associates Mgmt retained Kroll LLC to provide an independent valuation of their Exco shares at 31 Dec-22 & mean price was US$21.08 per share.

 

This is above Fairfax's carrying value of Exco of US$12.59 per share at 31 Dec-22.

 

https://www.osc.ca/en/securities-law/orders-rulings-decisions/chou-associates-management-inc-and-chou-associates-fund-0

 

 

See below comment on OTC market pricing of Exco shares 

 

 

 

Thanks @glider3834, very helpful.  The Excor black box has always been a bit of enigma with price discovery being flakey via OTC.  It’s obviously very dependent on  the oil price in terms of short term earnings and reserves longer term.  I have never really understood the cloak and dagger around obtaining financials.

[dealraker]

In essence I put my semantic stop sign in place decades ago and morphed into a trust for Prem and Co.  It has felt good for me the entire time.  Stock prices though don't much affect me except for their making me feel like a living fossil as to being in the moment.

 

I don't think I've ever, in my 50 years of adult investing, seen anything as intense as the praise given to Greenberg at AIG and Welch at GE while everything was questioned and condemned relating to Buffett and Berkshire in the years 1999-2002.   

 

In other words any panic or fear we have towards Fairfax might better be steered towards something else- the things that always develop towards the end of long booms particularly in the admired businesses.  

 

 

 

 

 

Edited February 11 by dealraker

[Valuehalla]

43 minutes ago, dealraker said:

In essence I put my semantic stop sign in place decades ago and morphed into a trust for Prem and Co.  It has felt good for me the entire time.  Stock prices though don't much affect me except for their making me feel like a living fossil as to being in the moment.

 

I don't think I've ever, in my 50 years of adult investing, seen anything as intense as the praise given to Greenberg at AIG and Welch at AIG while everything was questioned and condemned relating to Buffett and Berkshire in the years 1999-2002.   

 

In other words any panic or fear we have towards Fairfax might better be steered towards something else- the things that always develop towards the end of long booms particularly in the admired businesses.  

 

 

 

 

 

Epic comment ! 

[Hektor]

26 minutes ago, Valuehalla said:

Epic comment ! 

+1

[dealraker]

5 minutes ago, Hektor said:

+1

Of course I meant GE for Welch.

Edited February 11 by dealraker

[Hamburg Investor]

 

12 hours ago, dealraker said:

In essence I put my semantic stop sign in place decades ago and morphed into a trust for Prem and Co.  It has felt good for me the entire time.  Stock prices though don't much affect me except for their making me feel like a living fossil as to being in the moment.

 

I don't think I've ever, in my 50 years of adult investing, seen anything as intense as the praise given to Greenberg at AIG and Welch at GE while everything was questioned and condemned relating to Buffett and Berkshire in the years 1999-2002.   

 

In other words any panic or fear we have towards Fairfax might better be steered towards something else- the things that always develop towards the end of long booms particularly in the admired businesses.  

 

 

 

 

 

 

On 2/11/2024 at 7:26 AM, SafetyinNumbers said:

FFH bought its initial position in GIG in 2010. Given it was a ~40%+ stake, they used equity accounting. Every year, their share of earnings less dividends increased the carrying value. When they closed the deal to buy the additional ~47% from Kipco, they revalued at the higher price.
 

Over that time, the company went from ~$420m in premiums to ~$3b. That might be worth 2.4x BV. But the multiple they actually paid should be adjusted lower because they deferred payments by way of annual instalments. Money is more expensive now so the discount rate is probably 9%.

 

Is that helpful?

@SafetyinNumbers Yes, thanks a lot, I really appreciate you're taking the time . You guys here are so much longer in the investing world and from time to time I need a little bit of assurance... We have way less people in Germany being interested in investing than you guys on the other side of the atlantic have. So I don't really have a lot of opportunities to get in touch with other people, discuss ideas etc. So I read a lot and feel Buffett, Prem & Co talking to me through the books and annual reports; so I really appreciate gett8ng into contact here (and - way less - at Seeking Alpha). And sorry for my english...


@dealraker nice comment; from the investments with over 10 per cent of my portfolio, Fairfax has been my worst performer since 2011 by miles for a long time; still it always felt being on the right train. In fact it helped me to learn, that Munger and Co are right, when saying you make money by sitting around and waiting instead of trading.