Fairfax 2024

[Xerxes]

1 hour ago, Luca said:

Id love them to allocate 1-2b into China large caps but I am aware that I am in a minority position with that

What would that accomplish?

 

Just because of some cheap Chinese technology stocks. A segment that is not even in his wheelhouse. 
 

Concentrating their geographical expertise is key. Only depth of knowledge (undistracted and compounded over decades) can allow them to go heavy in say India when and where it counts.
 

Anything else is a distraction.
Why even bother ?

 

Greece was interesting. If there was no economic depression in Greece, they would have never bothered. Whereas India was a secular growth story. 

 

 

[Luke]

29 minutes ago, Xerxes said:

What would that accomplish?

High returns on invested capital and easy allocation of larger chunks of cash. 

29 minutes ago, Xerxes said:

Just because of some cheap Chinese technology stocks. A segment that is not even in his wheelhouse. 

I think the investment team certainly has some Asia expertise and these companies have very high earnings yields and IMO a lot more upside than downside. 

29 minutes ago, Xerxes said:

Concentrating their geographical expertise is key. Only depth of knowledge (undistracted and compounded over decades) can allow them to go heavy in say India when and where it counts.

I'd prefer them buying chinese technology stocks than cheap mining stocks right now but that's me. I also don't think you need particular geographic expertise with the well-known large caps.

 

 

[Luke]

Would be an interesting question for the annual meeting, considering the huge valuation discrepancy if they see any value in China and/or are willing to allocate some cash there the coming years or if India/West still has enough ideas for them to invest 10b. 

[Xerxes]

I actually think them keeping almost all of their global investment concentrated in just two locations: India and Greece, is a sign of quality of investment managers. 
 

The bets ultimately maybe right or wrong, but one cannot say they didn’t do their homework. 

[petec]

On 4/6/2024 at 11:15 PM, This2ShallPass said:

but some here want to ignore good high quality companies because they screen well (implying price is not cheap),

 

If you're looking at me, you misunderstand. I am not suggesting they ignore these. But the list I responded to had nothing about value, so it does not in any way guarantee good returns (and 10% is a good return). Plus FFH are value investors - why hope they will become something they are not? If you're looking for that, look elsewhere, would be my advice.

[petec]

10 hours ago, This2ShallPass said:

Unless, they just did a token investment in 2009 and 80-90% of the $978M was invested 5 years ago. In this case, commentary while factually correct is misleading, they shouldn't say we're investing with them for 15 years.

 

Also, in that best case scenario, BDT would have only got Fairfax 15% cagr over the last 5 years. I cannot square with Prem's comments about fantastic long term returns - 15% is good not fantastic, 5 years is not long term and 70% total return is so-so. 

 

My guess is it is quite likely the money is invested for anywhere from 2-7 years depending on the investment, and is then returned. So the IRR could be *well* above the gross return, if that makes sense.

 

And on returns: how do you know what's a good return if you don't know the underlying risk? 15% is an *excellent* unlevered equity return, well ahead of any long term index return. It's much weaker if it is levered; it's brilliant if the investment is structured with downside protections. We just don't know enough to judge, do we?

[glider3834]

@SafetyinNumbers I am just looking at this Allied World acquisition of 0.5% in Jun-23

 

Looks like Fairfax paid $30.6M 

 

It appears (see below) the Non-controlling interests carrying value was $27.6M - so the difference was $3M - so my take is that is P/BV of ~ 1.1x (is that right or am I missing something?)

 

[This2ShallPass]

2 hours ago, petec said:

I am not suggesting they ignore these. But the list I responded to had nothing about value, so it does not in any way guarantee good returns (and 10% is a good return). Plus FFH are value investors - why hope they will become something they are not?

I was only commenting to the question on what are characteristics of a high quality company and hence didn't mention about price / value. Hopefully value investors and quality are not mutually exclusive. With ~$4B coming in next few years, I would be ok with them paying a fair price for better companies (even if it means 10% return vs. their 15% target).

 

2 hours ago, petec said:

My guess is it is quite likely the money is invested for anywhere from 2-7 years depending on the investment, and is then returned. So the IRR could be *well* above the gross return, if that makes sense.

 

And on returns: how do you know what's a good return if you don't know the underlying risk? 15% is an *excellent* unlevered equity return, well ahead of any long term index return. It's much weaker if it is levered; it's brilliant if the investment is structured with downside protections. We just don't know enough to judge, do we?

"Since 2009, we have invested $978 million, have received $979 million in distributions and still have investments with a year-end market value of $683 million." - Sure IRR could be higher. But, practically I don't see how given these numbers..

 

Maybe we're splitting hairs here, the word fantastic is what I was referring to and 15% in 5 years is not that (for me). I just assumed they're a investment company and the terms were nothing fancy. If they were able to get downside protections, then 15% is fantastic. Do you think it's realistic for Fairfax to have got special terms from BDT and Shawkwei?

 

Edited April 8, 2024 by This2ShallPass
Edited earlier comment since the returns are already posted

[Thrifty3000]

From Jamie Dimon's annual letter...

 

"we are prepared for a very broad range of interest rates, from 2% to 8% or even more"

 

Notice he didn't say from 0% to 8% or even more.

 

I believe recency bias accounts for much of Fairfax's discount to intrinsic value. Lot's of people heavily weight a return to zirp scenario in their longer term Fairfax model. Dimon lays out why he thinks 0% is off the table and why a higher rate environment is the more likely scenario.

 

If Dimon is on the right track about rates then it seems baseline EPS estimates for FFH will be shifting closer to $200 as more investors/analysts' take zirp off the table and increase their expected portfolio yield by a couple hundred basis points.

[Hoodlum]

14 minutes ago, Thrifty3000 said:

From Jamie Dimon's annual letter...

 

"we are prepared for a very broad range of interest rates, from 2% to 8% or even more"

 

Notice he didn't say from 0% to 8% or even more.

 

I believe recency bias accounts for much of Fairfax's discount to intrinsic value. Lot's of people heavily weight a return to zirp scenario in their longer term Fairfax model. Dimon lays out why he thinks 0% is off the table and why a higher rate environment is the more likely scenario.

 

If Dimon is on the right track about rates then it seems baseline EPS estimates for FFH will be shifting closer to $200 as more investors/analysts' take zirp off the table and increase their expected portfolio yield by a couple hundred basis points.

 

I am also in alignment with Jamie's comments here as it related to inflation and interest rates.   It will take time for the market to completely grasp this and what it will mean for investments.   Long term we will see the Fed revisit the 2% inflation target but that will take more than 5 years and by then it won't be a surprise.   I could see them go back to an inflation target range.

Edited April 8, 2024 by Hoodlum

[Hektor]

https://www.thehindu.com/news/national/karnataka/air-india-and-bial-sign-agreement-to-make-bengaluru-premier-aviation-hub-of-south-india/article68042257.ece

 

Air India and BIAL sign agreement to make Bengaluru premier aviation hub of south India. 
 

This includes strengthening the group’s presence at Kempegowda International Airport (KIA) through an enhanced network and establishing a dedicated domestic lounge for premium and frequent travellers of Tata Group airlines Air India and Vistara.

[SharperDingaan]

There are many different methodologies by which to value a company; no 'one way' is right. Most often one would use a weighted average, adjusting weights to each methodology according to whatever one expects the business climate to be over the next year. Most weighted averages would point to north of 1,600/share.

 

Some (MW); will focus on only the lowest number, but if the arguments just aren't credible .... it's no different to the whining kid in the back of the mini-van. If the squeaky wheel gets the grease, simply buy in their shares at adjusted book value and cancel. Thank you for making it possible in a single transaction! and an adjusted book value towards 1,600.

 

Our own view is that the US, India, and Euro-bank are obvious concentrations. One business growing into 3 new ones over time, that ultimately get spun off into majority holdings under a holding company paying a very high dividend. 

 

Good luck to all.

 

SD 

 

 

 

[MMM20]

1 hour ago, SharperDingaan said:

that ultimately get spun off into majority holdings under a holding company paying a very high dividend

 

?

[Xerxes]

44 minutes ago, MMM20 said:

 

?

same here ?

 

comeone @SharperDingaan

more context pls on that last paragraph 

 

i got the “good luck to all” bit, but the paragraph just before lost me 

[SharperDingaan]

2 hours ago, Xerxes said:

same here ?

 

comeone @SharperDingaan

more context pls on that last paragraph 

 

i got the “good luck to all” bit, but the paragraph just before lost me 

 

Over time each becomes its own very strong stand-alone regional business. Each does a small IPO (10-15% of the entire business) to establish a public market, a current share value, raise its own capital, and create the ability to issue its own stock options etc. The other 85% of the shares remain held by FFH, with dividends flowing up to FFH as already occurs.

 

Puts an easy daily minimum sum of the parts value on FFH, and is standard operating procedure in most corporate finance shops. Nothing magical.    

 

SD

Edited April 9, 2024 by SharperDingaan

[Xerxes]

Eurobank and Fairfax India are already public. 
 

why create another holding company layer on top of each one ?

[value_hunter]

Seems Fairfax bought back $200m CAD shares in Mar.

https://ceo.ca/api/sedi/?symbol=ffh&amount=&transaction=&insider=

[Hoodlum]

Our friend Brett has raised his target from $970 to 1180 cdn.  I don’t know how he can reconcile the stock being overvalued at $970, yet increase the target by $210.  He will need to do it again before long. 
 

https://www.morningstar.com/company-reports/1216921-fairfax-increasing-our-fair-value-estimate?listing=0P00006821

[SafetyinNumbers]

10 minutes ago, Hoodlum said:

Our friend Brett has raised his target from $970 to 1180 cdn.  I don’t know how he can reconcile the stock being overvalued at $970, yet increase the target by $210.  He will need to do it again before long. 
 

https://www.morningstar.com/company-reports/1216921-fairfax-increasing-our-fair-value-estimate?listing=0P00006821

Can you see how much he changed his earnings estimates?

[Hoodlum]

31 minutes ago, SafetyinNumbers said:

Can you see how much he changed his earnings estimates?

I cannot as I don't have access.

[SafetyinNumbers]

16 minutes ago, Hoodlum said:

I cannot as I don't have access.

He says his target is 1x 2023 YE BV but C$1180 is US$862 and 2023 YE BV was ~US$940.

 

How does this stuff get published?

 

[SafetyinNumbers]

54 minutes ago, Haryana said:

 

By the scam and brainwashing of CFA designation.

 

I’m proud of my CFA but it doesn’t make someone care about the quality of their work.

I care about what I share on Social Media and I’m not getting paid by anyone.

[Maverick47]

I got a look at a prior report of Brett’s and noticed that he projects Earnings per diluted share…so presumably he converts actual book value per share at year end 2023 to a book value per diluted share instead. I think diluted shares are about 8% higher than actual shares.  That may well explain the disconnect between his report and the reality that I care about personally.

[Santayana]

He's forecasting $106 for 2024 and $92 for 2025.

[SafetyinNumbers]

47 minutes ago, Maverick47 said:

I got a look at a prior report of Brett’s and noticed that he projects Earnings per diluted share…so presumably he converts actual book value per share at year end 2023 to a book value per diluted share instead. I think diluted shares are about 8% higher than actual shares.  That may well explain the disconnect between his report and the reality that I care about personally.

That doesn’t make sense. They shares held for employees haven’t vested yet. He probably doesn’t understand the accounting. Also it’s weird because the computer sets the target price so he’s working backwards.