Fairfax 2024

[Hektor]

5 hours ago, Gregmal said:

Again, the guy had an objective and it probably was already achieved. A 5 year old could quickly glance at what he was saying and see his objective if they had any previous familiarity with how he operates. Its magician level hand waiving. Look at this hand! he says, when what you want to be doing is paying attention to his other hand.

 

He has a formula for this sort of smash and grab stuff, the "thesis" is just arbitrary and tangentially necessary to justify him doing it. Continuing to talk about it and analyze it just validates what is clearly nonsense. The P/B metric was necessary when operations were mediocre from 2010-2020....When you've stabilized operations and will be producing steady earnings of the magnitude that they will, you need to change the way you value the company. 

Understood. Overtime, what credibility will MW have? Once they go after high profile companies and are exposed as nothing burgers, why would stocks crash on their report?

[MMM20]

10 minutes ago, Hektor said:

Understood. Overtime, what credibility will MW have? Once they go after high profile companies and are exposed as nothing burgers, why would stocks crash on their report?

 

Once you have the platform to pull off a few of these and make tens of millions, who cares? You ride off into the sunset or just hang out on your Texas ranch with your tigers and shoot at cans or whatever. You see the incentive to manipulate markets without repercussion. We should eventually see a crackdown on this sort of behavior.

 

Edited February 12, 2024 by MMM20

[Hektor]

4 minutes ago, MMM20 said:

Once you have the platform pull off a few of these and make tens of millions, who cares? You ride off into the sunset or maybe in this case just hang out on your Texas ranch and hang out with your tigers and shoot at cans or whatever. You see the incentive to manipulate markets without repercussion and that's that's why we should eventually see a crackdown on this particular sort of behavior. But yeah, not holding my breath.

[dartmonkey]

Understood. Overtime, what credibility will MW have? Once they go after high profile companies and are exposed as nothing burgers, why would stocks crash on their report?

 

I have lost most of my sympathy for Muddy Waters, whom I previously considered fairly courageous in revealing genuinely fraudulent companies. But yes, it is sad that they have squandered their reputation by firing this blank. In addition to harming lots of shareholders who will have taken fright and who will now regret selling their shares at a 10% discount, they have also squandered their future credibility for taking on the kinds of truly fraudulent firms the have targeted in the past, like Sino-Forest (a Chinese-Canadian pseudo-miner that turned out to be a complete fraud), JOYY, GSX Techedu, French retailer Casino, Luckin Coffee, etc. etc. Most of them genuine turds.

[Gregmal]

Like most other sleaze balls, a lot of short sellers figured out it was easier and more profitable to just capitalize on fear and propaganda inspired panic, rather than actually letting their investment research play out. I mean its the epitome of a scheme to sit there and pitch some fundamental investment case, and then transact the same day on what is purely a non fundamental development. The Citron guy used to hammer this sort of thing all the time and I heard he got in trouble for it...."stock ABC has these fundamentals drivers" he'd shout in a loudmouthed research report. Then 3 days later he'd declare victory and it was always a good chuckle cuz we all know nothing happened other than the stock moving; largely because of him causing it to. 

[Xerxes]

I could only imagine how many people Prem pulled in to work over the weekend just for that note that came this morning. 

[Parsad]

17 minutes ago, Xerxes said:

I could only imagine how many people Prem pulled in to work over the weekend just for that note that came this morning. 

 

Prem doesn't do that.  I'm not sure they were that pissed off with the shorts this time as they were back in 2003.  They know the situation is different.  They are in far better shape fundamentally and have enough cash flow to power the ship for years. 

 

Back in 2003, catastrophe losses and the size of the reinsurance recoverable portfolio left them vulnerable, especially when listed on the NYSE and there were massive FTD's.  Totally different situation this time.  The shorts were in it for a quick gain to reduce their short losses...unlike in 2003 where they wanted to run Fairfax into bankruptcy. 

 

2003 was a very coordinated fraud on a massive scale...you had analysts, journalists and huge hedge funds coordinating their attack over a fairly long period of time.  This time it was a minor smash and grab...petty theft!  

 

Cheers!

[This2ShallPass]

15 hours ago, SafetyinNumbers said:

If an 11% CAGR is your worst return “by miles” since 2011, you should just keep doing what you’re doing.

 

If you look at the US OTC FRFHF, return from 2011 start to now is only 180% (including divi but not reinvested). That's ~8% CAGR.

Edited February 13, 2024 by This2ShallPass
Corrected mistake of CAGR

[SafetyinNumbers]

3 hours ago, This2ShallPass said:

If you look at the US OTC FRFHF, return from 2011 start to now is only 180% (including divi but not reinvested). That's ~8% CAGR.

I live in CAD so that’s what I posted. It’s weakened a lot since then apparently. Including dividends it’s 9.21% in USD according to this website at least.

 

 

[Tommm50]

I notice a significant difference in the percentage change in the stock price on the OTC U.S. stock and Fairfax on the Canadian exchange. I'd guess it's the forex rate difference between U.S. and Canadian dollars but the seems like a lot. Any comments?

[glider3834]

58 minutes ago, Tommm50 said:

I notice a significant difference in the percentage change in the stock price on the OTC U.S. stock and Fairfax on the Canadian exchange. I'd guess it's the forex rate difference between U.S. and Canadian dollars but the seems like a lot. Any comments?

I would suspect CAD weakening close to 1% against USD

[This2ShallPass]

16 hours ago, SafetyinNumbers said:

I live in CAD so that’s what I posted. It’s weakened a lot since then apparently. Including dividends it’s 9.21% in USD according to this website at least.

I was also surprised at the big difference in performance, CAD is down >25% from start of 2011 (-1.8%/yr).

 

Anyone know what caused this big weakening? In 2011 CAD was par to USD.

[glider3834]

the repurchase of minority interests in Allied World in 2022 (highlighted in yellow) reduced book value, but I can't find this in MW report

 

[glider3834]

It looks like Fairfax's take private, acquisition offer of CAD $20.73 (US$15.30) for Recipe was within the fair market value range provided by independent valuators Greenhills (see below) who were appointed to give a fairness opinion on the transaction to Recipe's Sellers/Minority Shareholders ie not Fairfax. 

 

The offer price also appears to be close to the mid-point of the discounted cash flow (DCF) analysis valuation for the Recipe's shares and this is what Fairfax use for their market price for Recipe for FY2022.

 

 

 

 

Edited February 14, 2024 by glider3834

[SafetyinNumbers]

9 hours ago, This2ShallPass said:

I was also surprised at the big difference in performance, CAD is down >25% from start of 2011 (-1.8%/yr).

 

Anyone know what caused this big weakening? In 2011 CAD was par to USD.

A combination of the USD wrecking ball that outperforms all currencies for technical reasons over the long term and oil prices being down, especially in real terms from $110 in 2011.

[TwoCitiesCapital]

3 hours ago, SafetyinNumbers said:

A combination of the USD wrecking ball that outperforms all currencies for technical reasons over the long term and oil prices being down, especially in real terms from $110 in 2011.

 

This. 

 

All currencies have sucked relative to the USD over the last 10-15 years.

 

I've been surprised by the staggering amount in some countries that aren't really "hyper inflationary" and the currency drag is the predominant reason my EM value plays at 3-5x earnings didn't trounce the S&P. 

 

The below aren't peak to trough - they're just rough approximations of the exchange rates that existed in 2011 compared to where they're at today. 

 

Mexican Peso is down like ~40%. 

Brazilian Real is down ~70%. 

Korean Won is down ~20%. 

 

Euro is down ~25%. 

Australian dollar is down ~40%.

Yen is down ~50%.  

 

 

[Hoodlum]

18 minutes ago, TwoCitiesCapital said:

 

This. 

 

All currencies have sucked relative to the USD over the last 10-15 years.

 

I've been surprised by the staggering amount in some countries that aren't really "hyper inflationary" and the currency drag is the predominant reason my EM value plays at 3-5x earnings didn't trounce the S&P. 

 

The below aren't peak to trough - they're just rough approximations of the exchange rates that existed in 2011 compared to where they're at today. 

 

Mexican Peso is down like ~40%. 

Brazilian Real is down ~70%. 

Korean Won is down ~20%. 

 

Euro is down ~25%. 

Australian dollar is down ~40%.

Yen is down ~50%.  

 

 

I do wonder how much longer this will continue with the US debt rising at a faster pace than most other countries. 

[sleepydragon]

Geez, i am up 8% in about one week time since I bought after MW report. This is so much better than M$A arbitrage..

I hope MW can do this more ,  8% annualized will be… 400%?! Lol

 

[SafetyinNumbers]

43 minutes ago, Hoodlum said:

I do wonder how much longer this will continue with the US debt rising at a faster pace than most other countries. 

I think we know why FFH owns gold stocks. It reminds me of back in the early 2000s when gold multibagged in a short period of time. This time, however, the gold stocks are much cheaper.

 

If anyone is interested in gold stocks, please allow a brief plug that I’m on the board of Sailfish Royalty (FISH.V) which owns a royalty on Mako Mining’s (MKO.V) project in Nicaragua and owns a royalty on a gold development project in Nevada called Spring Valley that is controlled by Waterton (a PE firm). The Spring Valley project represents the majority of the NAV for FISH.
 

Both MKO and FISH are controlled by Wexford Capital which initially controlled and brought Diamondback Energy (FANG) public in 2012. This week FANG announced a deal to create a $50b company. FANG has CAGRed at 22% since inception. MKO is Wexford’s gold vehicle hoping to create a lot of value during the pending gold bull market through intelligent acquisitions and superior capital allocation. The stock has not done as well as multiples have contracted in the space and trades at just over half the price where Wexford bought stock on the last equity issue in 2020 at C$4.00.
 

Most investors have a heuristic against investing in mining and gold in particular but as MKO is now strongly FCF positive they have capital to invest in an industry where the cost of capital is astronomical. That bodes well for strong returns going forward as a business owner even if the market doesn’t appreciate it right away. 
 

I think for any given gold stock, a 1% position max, is appropriate. Mining is risky after all. Clearly, I’m breaking that rule with my own positions.

Edited February 14, 2024 by SafetyinNumbers

[Hoodlum]

16 minutes ago, SafetyinNumbers said:

I think we know why FFH owns gold stocks. It reminds me of back in the early 2000s when gold multibagged in a short period of time. This time, however, the gold stocks are much cheaper.

 

If anyone is interested in gold stocks, please allow a brief plug that I’m on the board of Sailfish Royalty (FISH.V) which owns a royalty on Mako Mining’s (MKO.V) project in Nicaragua and owns a royalty on a gold development project in Nevada called Spring Valley that is controlled by Waterton (a PE firm). The Spring Valley project represents the majority of the NAV for FISH.
 

Both MKO and FISH are controlled by Wexford Capital which initially controlled and brought Diamondback Energy (FANG) public in 2012. This week FANG announced a deal to create a $50b company. FANG has CAGRed at 22% since inception. MKO is Wexford’s gold vehicle hoping to create a lot of value during the pending gold bull market through intelligent acquisitions and superior capital allocation. The stock has not done as well as multiples have contracted in the space and trades at just over half the price where Wexford bought stock on the last equity issue in 2020 at C$4.00.
 

Most investors have a heuristic against investing in mining and gold in particular but as MKO is now strongly FCF positive they have capital to invest in an industry where the cost of capital is astronomical. That bodes well for strong returns going forward as a business owner even if the market doesn’t appreciate it right away. 
 

I think for any given gold stock, a 1% position max, is appropriate. Mining is risky after all. Clearly, I’m breaking that rule with my own positions.

 

That could explain why Fairfax started buying Franco Nevada during Q4.

[Viking]

Q4 Earnings Review

 

Below are a few of the things i will be watching for when Fairfax reports tomorrow. Anything missing from my list?

 

1.) What is the size of the bond gains?

Interest rates came down aggressively in Nov/Dec. With Fairfax extending duration in October (perfectly timed) this could be a very big number. 

 

One offset might be the shorter dated bonds they likely sold and any losses they booked. When they increased the average duration to 2.5 years in Q1 there were some realized losses on the shorter dated bonds they sold. 

 

2.) What is the size of IFRS 17 impact?

Interest rates changes also impacts this bucket. This could also be a big number - but in the opposite direction to bond gains.

 

One offset should be new business growth.

 

3.) What is the average duration of the fixed income portfolio?

 

This is a big deal as it telegraphs the durability of the interest income stream of earnings. Which is an important input to future ROE estimates.

 

4.) What is interest and dividend income for Q4?

Is it still increasing quarter over quarter? If so, how much? 

 

Do we get any update on the Kennedy Wilson debt platform (size and average yield)?

 

The Stelco special dividend will be in the Q4 number. It will be important to see if Eurobank initiates a dividend when they report year end results - when this happens it will likely be a material development for future dividend income at Fairfax.

 

5a.) What is premium growth in Q4?

5b.) What is the Q4 and YE combined ratio?

 

Is the hard market continuing? 

Any commentary on reinsurance?

Do we see reserve releases? If so, level?

 

6.) What is share of profit of associates?

 

7a.) What are investment gains from equities?

7b.) For equities, what is the excess of market value to carrying value?

 

What is status of RiverStone Barbados AVLN’s? We may have to wait for AR for this answer.

 

8.) How does the closing/consolidation of Gulf Insurance Group impact financials?

Do we see an investment gain booked of around $290 million?

What is the impact on: total investments? The IFRS 17 bucket?

What is expected impact in 2024 on interest income and net premiums written?  

 

9.) What is the size of adverse development for runoff?

 

This business is lumped together with Eurolife’s life insurance business so we likely will need to wait for the AR for specifics.

 

10.) What is year-end share count?

 

Do we get any commentary on the pace of buybacks moving forward?

 

11.) What is year-end book value per share?

 

The answers from the first 10 questions will then give us the answer to this question.

Edited February 14, 2024 by Viking

[newtovalue]

thanks @Viking - very informative as always!

 

would also be interested to see what they did with the TRS. would not be sad if they unwound that and used the capital to actually buy back stock

 

 

 

[Hektor]

Thanks @Viking  I assume you have included any update and/or future plans for TRS under #10.

[dartmonkey]

15 minutes ago, Viking said:

11.) What is year-end book value per share?

 

The answers from the first 10 questions will then give us the answer to this question.

 

12. Why do they keep shamelessly manipulating book value with aggressive marks like the ones Muddy Waters has brought up? Ok, maybe we won't get that, but if they prefer, what are some marks where BV might reasonably be marked significantly HIGHER? And to what extent do the feel that BV useful for investors, anyway?

 

13. What's happening in some of the big holdings, like Eurobank, Digit, Atlas, Recipe, etc.?

 

14. What is the game plan with the TRSs, and how do they think about putting the choice between holding money in reserve against the TRSs vs using money to repurchase shares?

[SafetyinNumbers]

7 minutes ago, newtovalue said:

thanks @Viking - very informative as always!

 

would also be interested to see what they did with the TRS. would not be sad if they unwound that and used the capital to actually buy back stock

 

 

 

 

I don’t think it’s a benefit to reduce TRS in benefit of buybacks as shrinking the market cap hurts eligibility into the S&P/TSX 60 and reduces financial flexibility. I hope they in fact put more TRS on during the quarter. There was a decent sized cross back in November that looked like it could be TRS related but as usual, I’m just speculating.