Fairfax 2024

[Hoodlum]

Private Equity firm Birch Hill Equity is going to sell CCM and expects to sell it for a significant multiple of the $110M they paid for it in in 2017.   This is interesting as CCM own 40% of the hockey equipment market and Fairfax through Bauer at Peak Achievement also own 40% of the hockey equipment market.  This could provide an interesting valuation for the 43% of Peak Achievement that Fairfax has on their books for $129M ($226 Market value according to shareholder letter).  Peak investment is also a minority shareholder of Rawlings that was valued at $395M in 2018, but I cannot determine the percentage of their ownership in Rawlings.

 

https://www.theglobeandmail.com/business/article-hockey-gear-ccm-sale-private-equity/

 

Quote

On the eve of the NHL playoffs, private equity fund manager Birch Hill Equity Partners has placed CCM Hockey on the auction block. CCM, one of two dominant hockey-gear companies, is expected to fetch a price that is a significant multiple to the $110-million Birch Hill paid for the business seven years ago.

Toronto-based Birch Hill recently hired U.S. investment bank Robert W. Baird & Co. Inc. to run the potential sale, according to two sources involved in the process. The Globe and Mail is not naming the sources because they are not permitted to speak for the companies.

Birch Hill decided to shop Montreal-based CCM after receiving several unsolicited offers for the gear maker from private equity funds, the sources said. They said there is no guarantee the process will result in a sale. Spokespersons for Birch Hill, CCM and Baird declined to comment.

CCM’s potential buyers include sports equipment manufacturers and large private equity funds, according to the sources. One said Birch Hill expects to conclude the process, with or without a sale, by the summer, to avoid a prolonged period of uncertainty around ownership. According to a recent press release, CCM has 500 employees.

 

Edited April 15, 2024 by Hoodlum

[Cigarbutt]

7 hours ago, jfan said:

Thanks @Cigarbutt and @Tommm50 for your replies and insight. The idea of writing policies in a soft market with just adequate pricing (with the expectation of some adverse loss developments) when there are good opportunities to use those premiums to invest in their portfolio for more attractive returns was helpful. 

 

Spending the morning watching videos on insurance triangles, paid/case reserves/incurred but no reported, basic methodologies to estimate of IBNR to derive loss reserves (case reserves + IBNR), and how to interpret loss development trends was particularly stimulating. 

 

Looking back at the 2 tables that I posted. A few amateur observations were made:

 

1) looking down the columns for each calendar year:

 

a) It appears that ~ 70% of cumulative paid losses occur within 6 years (6-year cumulative payment divided by 6-year re-estimated reserves)

b) Unfortunately, they don't report the entire table in 2023 AR, in the 2022 AR, after 8-9 years, the proportion of cumulative payments is mid-to-high 70% of re-estimated reserves). This suggests to me a fairly long-lag of actual payout to claimants. I'd assume this is because of the longer-tail nature of their specialty insurance focus.

c) Eyeballing the re-estimated reserves down each calendar year, there is little variability year-to-year as time goes by, within ~ $500 M at most up or down (in the range of $100 - 300 M most the time). Coupling what was said earlier about the soft market, it seems that there is not much pricing power, or too much social/judicial/cost inflation to be able to adjust reserves in a favorable manner.

 

2)  Looking at the diagonals for cumulative payments (gross table, not net)

 

a) The sum of diagonal (latest) minus the sum of the diagonal (previous year) = the payment made for losses in the most current calendar year. Using the 2022 AR, they paid out $25.5 B and had a final year end reserve of $38.3 B (ie ~ 66% or for every $1 of reserves set aside, they paid ~ $0.66 that year). Using the 2023 AR (which of there are only 6 years), they paid out $28.1 B and had a final year end reserve of $41.2 B (ie ~ 68%). This seems to me that their baseline underwriting assumptions are that 2/3 of their reserves will be paid out ~ 6 - 9 years. 

 

     I have not compared to their prior years nor other insurance companies, but is this in the opinion of the experts here, conservative? 

 

     I would imagine that if their underwriting deteriorated and they were not re-estimating their reserves properly, then these ratios should deviate from their baseline over time. I think this might be more useful than just looking at the reported magnitude of adverse/favorable loss reserve developments which is more retrospective than prospective.

The prospective measure you're looking for may be an elusive goal. The diagonal measure you describe could reveal some info but IMO not more than the current accident year combined ratio and the ratio you compute could be influenced by recent growth in premiums written which, in itself, would increase the ratio as the payment curve is not bell-shaped with more payments early on and then a long tail to the right. Example:

The idea is to try, for each years and trend-wise, to identify a deviation from the expected trajectory. This is not easy and insurers may be slow to recognize developing issues. For example, look at the following which is a significant pattern that started to develop in the late 90s for medical malpractice claims:

Over time, it became clear that developing trends would become very costly. BTW, this cumulative payment curve is sort of representative for the average long-tail type of lines that FFH carries (duration and shape).

Up to 2013, FFH reported accident year reserve development and that was helpful but it's not a requirement and is no longer reported by them. It's possible to figure it out but it takes some effort.

 

 

[giulio]

7 hours ago, Hoodlum said:

It looks like the loan to IIFL is for 3 years @ 9.5% 

https://economictimes.indiatimes.com/industry/banking/finance/fairfax-arm-infuses-rs-500-crore-into-iifl-finance/articleshow/109323304.cms

Thanks for sharing. Interesting because Odyseey is providing the loan, not fih.

I guess fih will subscribe their portion of the rights issue.

[petec]

On 4/14/2024 at 11:00 PM, Viking said:

What do board members think… Do we collectively have a good handle on Fairfax today?

 

Personal view but I think the board has a good handle on the facts, but the psychology has swung about 70% of the way from focussing on the bad to focussing on the good.

 

We aren't talking much about the risks (big ones for me would be falling interest rates, which impact the terminal value of float and which I believe are correlated with lower combined ratios for a double hit to earnings, and a major cat loss).

 

We are talking lots about how good the investments are, forgetting (maybe?) that these are often the same investments we dissed 5 years ago, but they're more expensive now (Eurobank and Stelco come to mind here - I am not sure the earnings power of either business has improved much over the last few years, but the share prices sure have).

 

None of this is a criticism - there's some great work on the board. But the mood has swung, as it so often does, procyclically. We have got more exited as the stock has got closer to intrinsic value, not less. Weird how the human brain works.

 

You can argue that the risks have fallen because the certainty of outcomes has risen. I agree, to a degree. But 5 years ago FFH was a Faberge egg, with value inside value inside value. All it needed was patience. Now, it needs things to keep going right. I am fairly sure they will, and this remains my biggest position at 17%, but I am shifting into the "when do I reduce" mode rather than "how can I buy more". 

[thowed]

Thanks @petec, I am relatively new to Fairfax, and am excited for the future, but agree that it's good to have a balanced view on things (or just that we should always keep trying to 'kill' our favourite investments?).

 

On the other hand, I suppose my other question would be - what does one replace Fairfax with?  I struggle to find assets of such quality that are any cheaper?  But of course always interested in ideas to look at.

 

A tiny bit of scuttlebutt for Eurobank & Greece: I was talking to some Greeks recently, and things are certainly booming there, and of course they started from a low point in 2011.  However the smart view seemed to be that things were already starting to get out of hand, as they do, particularly with the property market, and so while things always last longer than one expects, there is the feeling that at some point things will turn from boom to bust.

Edited April 16, 2024 by thowed

[Viking]

On 4/15/2024 at 5:26 AM, MMM20 said:

What do we make of the argument that, like a bodybuilder on steroids who ends up popping a bicep tendon, such rapid growth might inherently introduce fragility into their operations? Is it too much too fast for a staid insurance biz? Is Fairfax more susceptible to a black swan event than they were five years ago?

@MMM20 My steroid comment was directed more at the growth that we are seeing in earnings, particularly operating income. Probably the wrong way to phrase it.

 

In terms of fragility, i don’t think Fairfax is more susceptible today to a black swan event than they were five years ago.

 

The hard market in insurance has likely given Fairfax (and all insurers) the opportunity to get their reserves more in order (from the soft market years pre-2019). Terms and conditions on policies have also likely improved on business written over the past 4 years.

 

The fixed income portfolio is locked and loaded with about $2 billion in interest income coming each year over the next 4 years.  That is a big, big shock absorber.

 

Within the equity portfolio, most of the holdings have moved up the quality ladder. At the same time, mark to market holdings are now less than 50% of the holdings - this will significantly reduce volatility moving forward. 

 

Bottom line, today Fairfax’s looks much better positioned today to deal with any future adversity / black swan event than they were 5 years ago. 

Edited April 16, 2024 by Viking

[Viking]

On 4/14/2024 at 7:01 PM, LC said:

Partly rhetorical - but is Fairfax as easy of a “buy” today, versus 6, 12, 24 months ago? 

@LC This is a great question. 
 

Your answer will depend of your assessment of three things:

1.) what Fairfax has accomplished over the past year

2.) what the company is worth today

3.) how the company should be valued. 
 

Fairfax earned $189/share in 2023. My view is intrinsic value went up by more than that. The earnings visibility of Fairfax has improved markedly (with extending the duration of the fixed income portfolio). I think the quality of the company is better today than it was a year ago - we had another 12 months to grade management.
 

One of the reasons i go to the AGM i get the opportunity to talk to really smart investors. Most people i talked to said they felt Fairfax was probably worth about 1.5x book value. This is a higher multiple than last year. 
—————

“is Fairfax as easy of a “buy” today, versus 6, 12, 24 months ago?” That depends on whether or not you view Fairfax as a higher quality company today than what you thought a year ago (use whatever time-frame you want here). And whether it deserves a higher multiple than you thought a year ago. 
 

Fairfax trades today at a P/BV of about 1.1 (to my estimated March 31 BV) and a PE of 6.6 x (my estimated 2023 earnings of $160). Is it cheap? Yup.

Edited April 16, 2024 by Viking

[Viking]

16 hours ago, petec said:

 

Personal view but I think the board has a good handle on the facts, but the psychology has swung about 70% of the way from focussing on the bad to focussing on the good.

 

We aren't talking much about the risks (big ones for me would be falling interest rates, which impact the terminal value of float and which I believe are correlated with lower combined ratios for a double hit to earnings, and a major cat loss).

 

We are talking lots about how good the investments are, forgetting (maybe?) that these are often the same investments we dissed 5 years ago, but they're more expensive now (Eurobank and Stelco come to mind here - I am not sure the earnings power of either business has improved much over the last few years, but the share prices sure have).

 

None of this is a criticism - there's some great work on the board. But the mood has swung, as it so often does, procyclically. We have got more exited as the stock has got closer to intrinsic value, not less. Weird how the human brain works.

 

You can argue that the risks have fallen because the certainty of outcomes has risen. I agree, to a degree. But 5 years ago FFH was a Faberge egg, with value inside value inside value. All it needed was patience. Now, it needs things to keep going right. I am fairly sure they will, and this remains my biggest position at 17%, but I am shifting into the "when do I reduce" mode rather than "how can I buy more". 

@petec great comment. Lots of interesting ideas to discuss/debate. 

 

“Personal view but I think the board has a good handle on the facts, but the psychology has swung about 70% of the way from focussing on the bad to focussing on the good.”

 

I agree that the psychology of people on the board has shifted. My view is the shift has happened because execution, fundamentals and results have been steadily improving at Fairfax.

 

Most of the discussions on the board are focussed on what has been happening at Fairfax - the facts. Fairfax has been executing exceptionally well. The fundamentals keep getting better every year. Reported results have been excellent. As a result most of the posts in recent years have had a positive spin.  

 

Now i don’t expect this to continue forever. I do expect at some point the Disney movie called ‘Fairfax Financial’ will end - and Fairfax will become a regular boring company. And the posts on the board will reflect that reality and become a little more balanced. 

 

I am trying to find the bad. But it is really hard right now. Yes, that is a bizarre statement to make. Especially when it comes to Fairfax. But today, the important tailwinds greatly outnumber the important headwinds. Still.

 

Importantly, i am not going to make bad stuff up. So i can tick the ‘bad stuff’ box in my analysis of the company. When you make stuff up (both good and bad) it gets into your head. And likely warps your valuation of the company - and position size. Making stuff up is dangerous - i know this from personal experience. 

 

Following Fairfax right now is like watching Michael Jordan in his prime. Now back in the day, when watching Jordan play, i could have tried to find a bunch of things that he was doing poorly. Would that have been helpful?

 

I have two questions:

 

1.) If investors understand the facts so well today why does Fairfax trade at a P/BV of 1.1 x (ext. March 31 book value) and a PE of 6.7 x (est 2024 earnings)? 

 

For the past 3 years, Fairfax has been playing like Michael Jordan in his prime. But Fairfax’s stock is being valued today like they are a bench player. That makes no sense.

 

2.) If investors understand the facts so well why are so many people thinking/discussing selling down their position? 

 

Now i do understand that people only buy a stock for one reason - they think it’s going to go up in price. And yes, people sell a stock for a multitude of reasons:

• It is fully valued
• They find another stock they like more (offers better value)
• They are way overweight
• Tax reasons
• Need the cash
• Take profits - “That suckers gone up a lot”

But i think a lot of people are thinking about selling just because the stock has gone up a lot. Their mental process has less to do with facts and more to do with fear/greed/psychology. 

—————-

Now i do have a long list of risks for Fairfax that i am monitoring/managing. I have discussed many of these risks over the past 3 years. My biggest risk owning Fairfax today is my concentrated position. But that risk has much more to do with me than it does with Fairfax. This post is long enough already. Let’s leave the discussion of risks to another day.

Edited April 16, 2024 by Viking

[jfan]

https://www.cbc.ca/news/politics/federal-budget-2024-main-1.7175052

 

This might have an impact on Fairfax....

[Daphne]

They put a special tax on insurance cos and banks in last years budget

[Mick92]

Just pay your "fair" share, that's all the government wants.  

[Junior R]

how does the capital gains inclusion rate change Fairfax Investments 

[SafetyinNumbers]

7 minutes ago, juniorr said:

how does the capital gains inclusion rate change Fairfax Investments 

 

My guess is it should increase the deferred tax liability all else being equal by the increase in the inclusion rate. Anyone have a better idea?

 

If my estimate is right it would increase the deferred tax liability by ~$412m or ~$18/share. 

[Maverick47]

From an economic standpoint, as long as Fairfax continues to prefer to hold equity investments for the long term and allow the gains to compound on the balance sheet unrealized, there should be no dramatic reduction in reported after tax income.  But if as you’ve noted, the deferred tax liability would increase by $18 per share, the book value ought to drop by an equal amount.

 

However, in my opinion, that is a somewhat misleading effect.  A deferred tax liability is an interest free loan from the government which has to be paid back only when gains are realized.  And a deferred tax asset is an interest free loan to the government that only is  paid back to the company as future income is generated and able to be shielded from taxes because of the prepaid tax asset.

 

Neither of these are present valued on the balance sheet.  An asset that earns no interest is not worth as much in my opinion as a similar amount invested in 5% government bonds.  Similarly, a no interest loan that might not have to be paid off until years in the future is not as large a liability as a similar amount borrowed by means of a 6% interest 10 year bond issue.

 

Fairfax has about a $1 billion net deferred tax liability (interest free loan from the taxing authority) on the balance sheet at year end 2023.  That is a sign of a savvy insurance company in my opinion, and if the liability grows to $1.4 billion after a tax change, it just makes the comparison with peer insurance companies that often record net deferred tax assets on their balance sheets that much more favorable.

[Daphne]

From the perspective of share price, there may be a rush to take capital gains before the new rate kicks in on June 25.

[Xerxes]

Medical question:

 

Anyone understood what medical test Prem Watsa was talking about in the AGM ? that he makes available for everyone in the company. Related to the heart.

 

I recall few years before Covid, I think his CFO passed away. I wonder if that was the reason why this initive was started.

[Xerxes]

21 hours ago, petec said:

But 5 years ago FFH was a Faberge egg, with value inside value inside value. 

 

Plan within plans within plans.

This is right out of Frank Herbert's Dune.

 

[valueseek]

16 minutes ago, Xerxes said:

Medical question:

 

Anyone understood what medical test Prem Watsa was talking about in the AGM ? that he makes available for everyone in the company. Related to the heart.

 

I recall few years before Covid, I think his CFO passed away. I wonder if that was the reason why this initive was started.

Calcium score for over 45 i think

[petec]

11 hours ago, Viking said:

1.) If investors understand the facts so well today why does Fairfax trade at a P/BV of 1.1 x (ext. March 31 book value) and a PE of 6.7 x (est 2024 earnings)?

 

Unlike you, I don't see that as super cheap. It is certainly good value, and allows for solid compounding from here, but insurance companies don't generally sustain multiples *much* higher than this. I mean, it's not like they trade at 2x or 3x book long term. 1.4-1.5x, maybe.

 

11 hours ago, Viking said:

2.) If investors understand the facts so well why are so many people thinking/discussing selling down their position? 

 

For me it's just because FFH has gone from a deep, deep value to a compounder-type value. As the share price has closed on IV, so my position size has doubled, despite the rest of the portfolio doing well. So it is now less good value and a much bigger position. That warrants action so long as there I have other good ideas. But I emphasise that I am not selling much. I am topping the position on share price spikes but I retain most of what I owned at the low in 2020, because I DO see strong performance from here.  I am a *very* long term holder of this stock (16 years so far and hoping for I'm only a quarter of the way through).

 

BTW one area where you and I slightly differ, as we have discussed before, is on how much execution has improved. It definitely HAS improved, and there was a big focus on this after years of investment underperformance. But the things that have really moved the needle are outside management's control: higher interest rates (drives earnings on float and Eurobank's NIM), lower combined ratio (which is clearly and I think mostly driven by higher interest rates because rates have impacted BV at most other insurers and because capital is no longer flooding into the industry in sidecars etc.), and higher commodity prices (which helps a lot of the investment book). All of these things were valuable options 4 years ago; today they are realities and are increasingly (but not fully) priced in. But improved execution hasn't affected these things. In fact, the *really* good execution was *before* these changes happened, when FFH kept the bond portfolio short, kept their underwriting discipline in the soft market, invested in undervalued commodity stocks (much to the chagrin of many here), and waited while Eurobank slowly dealt with their NPLs. Their patience *then* is what is driving today's earnings, more than their execution *now*, it's just that they didn't get credit *then*, but now they do because the market can see the benefits. I see much greater continuity in management's decision-making than you do, and I think this affects how we think about the stock today: you see great execution as something that is likely to continue, whereas I saw FFH *partly* as a bundle of undervalued macro options 4 years ago, and those options are less undervalued now.

 

That said, I also see FFH *partly* as an excellent management team which I want to compound with forever. And I do recognise that in certain key areas execution has transformed, most notably eschewing broad hedging and finding ways out of losing investments rather than holding them forever (although even here, few things have actually been monetised - the bigger thing has simply been positions getting smaller as the portfolio grows).

 

Sorry - longer post than I intended.

 

 

Edited April 17, 2024 by petec

[jfan]

On 4/15/2024 at 9:09 PM, Cigarbutt said:

The prospective measure you're looking for may be an elusive goal. The diagonal measure you describe could reveal some info but IMO not more than the current accident year combined ratio and the ratio you compute could be influenced by recent growth in premiums written which, in itself, would increase the ratio as the payment curve is not bell-shaped with more payments early on and then a long tail to the right. Example:

The idea is to try, for each years and trend-wise, to identify a deviation from the expected trajectory. This is not easy and insurers may be slow to recognize developing issues. For example, look at the following which is a significant pattern that started to develop in the late 90s for medical malpractice claims:

Over time, it became clear that developing trends would become very costly. BTW, this cumulative payment curve is sort of representative for the average long-tail type of lines that FFH carries (duration and shape).

Up to 2013, FFH reported accident year reserve development and that was helpful but it's not a requirement and is no longer reported by them. It's possible to figure it out but it takes some effort.

 

 

Thanks @Cigarbutt. Your post was very helpful. I came across a blog (only glanced at it) discussing converting calendar year to accident year which I've linked below:

Calculating an insurer’s accident year and calendar year reserves | kitchensinkinvestor (wordpress.com)

At my stage (can only trust but not yet verify), I can only take Prem's words that they are underwriting conservative and consistently with the goal to survive. From a top down view, the following "soft" items suggest this is taking place:

1) Not letting go of employees when there is a soft market

2) Not acquiring turnaround insurance operations

3) allowing insurance subs to operate in a decentralized manner to flatten barriers to information flow

4) facilitating fun competitions to innovate between organizations, to share best practices

5) tenure of insurance presidents in the organization

6) cautiousness in entering new territories ie cybersecurity (small exposure, recognizing Cat-like behaviours)

7) the obvious data trends for combined ratio/loss ratio, net premium written:surplus ratios, reserve triangle patterns

 

Last but not least,  the kindness of the CoBF board to scrutinize Fairfax

 

 

[UK]

Is it fair to conclude that their duration of insurance liabilities decreased quite substantially in last six years, from this info bellow?

 

 

Edited April 17, 2024 by UK

[vinod1]

6 hours ago, petec said:

 

Unlike you, I don't see that as super cheap. It is certainly good value, and allows for solid compounding from here, but insurance companies don't generally sustain multiples *much* higher than this. I mean, it's not like they trade at 2x or 3x book long term. 1.4-1.5x, maybe.

 

 

For me it's just because FFH has gone from a deep, deep value to a compounder-type value. As the share price has closed on IV, so my position size has doubled, despite the rest of the portfolio doing well. So it is now less good value and a much bigger position. That warrants action so long as there I have other good ideas. But I emphasise that I am not selling much. I am topping the position on share price spikes but I retain most of what I owned at the low in 2020, because I DO see strong performance from here.  I am a *very* long term holder of this stock (16 years so far and hoping for I'm only a quarter of the way through).

 

BTW one area where you and I slightly differ, as we have discussed before, is on how much execution has improved. It definitely HAS improved, and there was a big focus on this after years of investment underperformance. But the things that have really moved the needle are outside management's control: higher interest rates (drives earnings on float and Eurobank's NIM), lower combined ratio (which is clearly and I think mostly driven by higher interest rates because rates have impacted BV at most other insurers and because capital is no longer flooding into the industry in sidecars etc.), and higher commodity prices (which helps a lot of the investment book). All of these things were valuable options 4 years ago; today they are realities and are increasingly (but not fully) priced in. But improved execution hasn't affected these things. In fact, the *really* good execution was *before* these changes happened, when FFH kept the bond portfolio short, kept their underwriting discipline in the soft market, invested in undervalued commodity stocks (much to the chagrin of many here), and waited while Eurobank slowly dealt with their NPLs. Their patience *then* is what is driving today's earnings, more than their execution *now*, it's just that they didn't get credit *then*, but now they do because the market can see the benefits. I see much greater continuity in management's decision-making than you do, and I think this affects how we think about the stock today: you see great execution as something that is likely to continue, whereas I saw FFH *partly* as a bundle of undervalued macro options 4 years ago, and those options are less undervalued now.

 

That said, I also see FFH *partly* as an excellent management team which I want to compound with forever. And I do recognise that in certain key areas execution has transformed, most notably eschewing broad hedging and finding ways out of losing investments rather than holding them forever (although even here, few things have actually been monetised - the bigger thing has simply been positions getting smaller as the portfolio grows).

 

Sorry - longer post than I intended.

 

 

 

Terrific post. 

 

Jerome Powell should get nearly as much credit as anyone else for Fairfax improved performance. 

 

Board members are very thoughtful and intelligent and I am not suggesting they fall for these things but there a terrific book that shines light on some of these things.

 

https://www.amazon.com/The-Halo-Effect-Phil-Rosenzweig-audiobook/dp/B002C0CG2Q/?_encoding=UTF8&pd_rd_w=7FDQE&content-id=amzn1.sym.cf86ec3a-68a6-43e9-8115-04171136930a&pf_rd_p=cf86ec3a-68a6-43e9-8115-04171136930a&pf_rd_r=144-1873670-4288829&pd_rd_wg=jNneC&pd_rd_r=f125960c-d014-425f-a302-19a2dd4c96f4&ref_=aufs_ap_sc_dsk

 

Vinod

[MMM20]

1 hour ago, vinod1 said:

Jerome Powell should get nearly as much credit as anyone else for Fairfax improved performance. 

 

The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.

 

1) Fairfax management has executed and upgraded the quality of the business - yet the stock still trades around 1.1x book and 7x p/e and even after a monster run still seems like an absolute and relative bargain.

 

2) Interest rates normalizing off all-time lows was a huge tailwind and made them look even better - if that hadn't happened (yet), it might still trade at $500.

 

Edited April 17, 2024 by MMM20

[giulio]

FFH did not need higher interest rates to work out well as an investment in 2020-2021.

If you held everything the same, the stock was easily worth 2x.

When I was building my position the market cap was around $10B and I thought that in 5 years time FFH's shares of Atlas + Digit + FIH could easily be worth $5B. I was able to get ALL the rest for $5B.

IT WAS A NO BRAINER.

The subsequent outperformance was surely due to not just one factor but multiple ones working in the same direction:

• no more shorts,/hedges
• fih investments surfacing value
• equities portfolio recovering from covid
• better uw results
• hard market
• buybacks
• higher interest on fixed income portfolio

and I am sure I am missing others.

 

4-5% rates are not an anomaly. 0-1% was! My assumption in 2021 was rates would go back to 2019 levels, 2% at best. Still, FFH was so undervalued.

 

To say that FFH worked out as an investment ONLY because JPow hiked rates is UNFAIR to the great work done by Watsa and the team.

 

G

 

 

[Xerxes]

9 hours ago, petec said:

 

All of these things were valuable options 4 years ago; today they are realities and are increasingly (but not fully) priced in.

Pete,

 

Going on same theme of embedded call option getting good value in recent years for FFH, do you see a similar “step-change” in Berkshire history in the 90s and 2000s, where it was the optionally that got fully valued more than anything else. 
 

Is Berkshire being ready for the disaster that GFC was, counts in your opinion as the same as FFH being ready for a major re-rating ?