Fairfax 2024

[Gamma78]

10 hours ago, Viking said:

@gamma78 and @valueinvesting101 great comments. Thanks for chiming in. 
 

I do find it interesting how aggressive Fairfax has been since 2018 in buying back Fairfax’s stock. Yes, Fairfax got the stock at a crazy low price. But this also has the effect of shrinking the size of the company. I like this - as we have learned with Berkshire, ever-increasing size eventually becomes a constraint on returns. Keeping Fairfax small (relatively) should help Fairfax deliver above average returns moving forward.

 

Great points on India. Is the set-up today in India like the US back in the 1950’s? Buy a basket of ‘quality at a fair price’ and hang on for decades? Interesting idea.
 

I have been a little bit surprised how quiet Fairfax has been in India the past couple of years. Their playbook there has been monetizing assets, increasing their ownership of BIAL and building cash. Like a spring getting loaded?

@Viking i suspect quiet in India primarily because it is actually challenging to establish a position in large enterprises given restrictions in a variety of industries. It will be a long game, but as India continues to open up (has been opening up since 1990 incrementally) there will be a larger and larger opportunity set in a country where incomes will be increasing at the pace (and faster) of China in the 90's and Western Europe in the 60's/70's. I think the spring getting loaded might well be the correct analogy. And while the India story today seems tied to Modi, the reality is we are talking about a development that has been in the works for 25 years and that has another 30 to run, so compounding like.......bunnies?

[steph]

India is a nice diversification and I believe they have good connections there, which is important.  However, I prefer that the bulk of investments is in ‘hard currency’ countries such as the US, Canada and Europe.  The Indian Rupee has halved over the last 15 years.  It is often the case that growth is interesting but in the end the currency eats a lot of the performance.  I hope they will invest most of their capital like Buffett does: in legislations that are kind to investors and stable and in solid currencies.  Mostly just close to home. 

 

[Hektor]

3 hours ago, steph said:

However, I prefer that the bulk of investments is in ‘hard currency’ countries such as the US, Canada and Europe.  The Indian Rupee has halved over the last 15 years.  It is often the case that growth is interesting but in the end the currency eats a lot of the performance.  I hope they will invest most of their capital like Buffett does: in legislations that are kind to investors and stable and in solid currencies.

@stephThats a good one. This comes to mind quickly when comparing FFH with BRK

[SafetyinNumbers]

4 hours ago, steph said:

India is a nice diversification and I believe they have good connections there, which is important.  However, I prefer that the bulk of investments is in ‘hard currency’ countries such as the US, Canada and Europe.  The Indian Rupee has halved over the last 15 years.  It is often the case that growth is interesting but in the end the currency eats a lot of the performance.  I hope they will invest most of their capital like Buffett does: in legislations that are kind to investors and stable and in solid currencies.  Mostly just close to home. 

 

I think I might be the only one who thinks the rupee has the potential to become a more relevant currency. Besides being the largest population, largest democracy, being strategically important to the BRICS countries and the G7, English law and language, about to be the 3rd largest economy, growing the fastest, Indians also own a lot of gold.
 

I think gold is in the midst of revaluation vs reserve currencies (USD and its best friends in the DXY) much like it did in the 70s and 00s. The best part is that it’s a free option as Prem explained at the FIH AGM, the expected returns have to be higher to account for continued rupee devaluation but that might change and that would super charge returns in USD if it happens.

[SharperDingaan]

Just to stir the pot ...... 

 

For the next 2-5 years FFH is in a fluid opportunity window, after which the game is going to largely 'set' for a good decade plus. Today FFH has excess capital, the low multiple, established beach-heads, and relatively small size going for them; but once WEB passes, one has to think that it will be very different.

 

Most would expect the 'Buffet of the North' thing to drive up the multiple; if only because one USD BRK share goes for a lot more than one CAD FFH share. As the 'mantle' will also make it much harder to buy anything at a reasonable price, the beach-heads will also need to already be in place; and FFH will primarily have to extract value via growing their various equity investments, versus seeing them only as trading bits of paper. Nothing new for FFH; but it has its own risks.

 

BRK is great, but it's primarily old businesses operating the old way; whereas in today's world, the operational technology is very different, far more productive, and highly trans-formative. Tech that FFH will have to be involved in, and will benefit mightily from, as it finances the turnover of capital stock in its long-term equity investments. Tech that is going to include crypto; whether it be for settlement, secure record storage, or tamper proof titling (India). A future so bright, I gotta wear shades (Timbuk3 song).

 

The India/BRIC thing is great, but it's a multi-decade thing, and largely a wash. As that great Indian investment that shot the lights out in local terms, looks very different when assessed in USD terms; and 'association' will periodically cost more than it adds. Not a bad thing, but a source of volatility and a cost of doing business.  

 

So what?  Have to think that for the next 2-5 years, maybe this is the time to buy 5 shares, for every 4  sold .... and if that accumulation can be paid for primarily via house money - so much the better 

 

May we all do well!

 

SD

 

 

Edited May 4, 2024 by SharperDingaan

[MMM20]

6 hours ago, steph said:

However, I prefer that the bulk of investments is in ‘hard currency’ countries such as the US, Canada and Europe.  The Indian Rupee has halved over the last 15 years.

Over long periods of time like that, the fx movements track inflation differentials. If the US actually ends up in a higher inflation regime and India an economic boom with moderate inflation, maybe the INR vs USD will look very different over the next 10-15 years. Maybe we end up both with the higher growth and a currency benefit - or at least not such a big headwind. Seems like a reasonable possibility at least, right? Anyway, can’t wait to see what Digit and BIAL look like in 2030-35…

 

Edited May 4, 2024 by MMM20

[treasurehunt]

1 hour ago, MMM20 said:

Over long periods of time like that, the fx movements track inflation differentials.

Is there good statistical evidence for this? For instance, 15 years ago one US dollar was worth about 95 Japanese yen. Today it is worth over 150. During that period, inflation in Japan was much lower than in the US. Obviously even over long periods, factors other than inflation can be very significant.

[TwoCitiesCapital]

On 5/4/2024 at 8:53 AM, SafetyinNumbers said:

I think I might be the only one who thinks the rupee has the potential to become a more relevant currency. Besides being the largest population, largest democracy, being strategically important to the BRICS countries and the G7, English law and language, about to be the 3rd largest economy, growing the fastest, Indians also own a lot of gold.
 

I think gold is in the midst of revaluation vs reserve currencies (USD and its best friends in the DXY) much like it did in the 70s and 00s. The best part is that it’s a free option as Prem explained at the FIH AGM, the expected returns have to be higher to account for continued rupee devaluation but that might change and that would super charge returns in USD if it happens.

 

This is interesting. What do you make of India, and the rest of the BRICS, seeking an alternative trade currency for use amongst themselves in trading commodities? It seems like they'd prefer some form of basket (or perhaps crypto currency) to settle trade without use of the USD. If even India is in discussions to sue something other than the rupee, does this change your view? 

 

22 hours ago, treasurehunt said:

Is there good statistical evidence for this? For instance, 15 years ago one US dollar was worth about 95 Japanese yen. Today it is worth over 150. During that period, inflation in Japan was much lower than in the US. Obviously even over long periods, factors other than inflation can be very significant.

 

Exactly. I think this theory is probably true if you're not discussing the world reserve currency pairs. We will break all economic theories with the USD because we have uneconomic participants in its use - global banks, insurance, pensions, world trade participants that are all required to hold some significant amount of debt/currency despite uneconomic pricing. 

 

Any fiat currency crisis, even centered on the USD, will impact other currencies relatively harder even with better demographics, better finances, and better inflation profiles. This will happen until the pain of the USD continuously trending higher is deemed unacceptable and a replacement found. 

[SafetyinNumbers]

4 hours ago, TwoCitiesCapital said:

 

This is interesting. What do you make of India, and the rest of the BRICS, seeking an alternative trade currency for use amongst themselves in trading commodities? It seems like they'd prefer some form of basket (or perhaps crypto currency) to settle trade without use of the USD. If even India is in discussions to sue something other than the rupee, does this change your view? 

 

I’m not a macro expert by any means. I’m hardly a macrotourist and perhaps more of macrovoyeur  but I think the plan is to use gold as the balancing currency since all the central banks seem to agree it has value. What price gold has to be to be able to support that function is an open question.
 

The west is focused on cryptos while the east is buying all the gold it can. GLD is losing ounces and gold trades at a premium in Shanghai vs London. A higher gold price means a weaker USD even if the DXY is increasing.

 

China seems to be stockpiling all kinds of commodities which makes a lot of sense. As a big net consumer of most commodities, low and less volatile prices are beneficial to planning. An overvalued USD means undervalued commodities which might lead to shortages as there is no price signal to incentivize production. China is incentivized to take prices to a level where natural resource companies will make build decisions to increase capacity. This seems like a much better use of reserves than holding US treasuries if one thinks USD is overvalued. 

 

[nwoodman]

I thought Buffett’s comments on the weekend in regards to India were interesting.  Not necessarily a validation of the Indian thesis for Fairfax but worth reposting

 

During the shareholder meeting, there was a question related to India and Berkshire's perspective on investing there. Here are the relevant quotes from Warren Buffett's response:

 

"Well, that's a very good question. And obviously India, you know, I'm sure there are loads of opportunities in a place like India. And the question is, do we have any advantage in either insights into those businesses or contexts, it will make possible some transaction that might what the parties in India would particularly want us to participate."

 

Buffett acknowledged the potential opportunities in India but questioned whether Berkshire has a distinct advantage in terms of insights or context to pursue those investments effectively. He continued:

 

"I would say that that's something that a more energetic management at Berkshire could pursue, because we do have the reputation. Now, Berkshire is known, not like it's known in the United States, but it's known around the world. And, you know, our japanese experience has been fascinating in that respect. So there may be an unexplored or unattended to opportunity in that area. I'm not the one to do it, but that may be something that in the future, it might be opportunities."

 

Buffett suggested that future Berkshire management could potentially explore opportunities in India more actively, leveraging Berkshire's global reputation. He drew a parallel to their successful experience investing in Japan. However, he stated that he himself is not the one to pursue it.

 

"There are opportunities. The question is, does Berkshire have some kind of advantage in actually pursuing those opportunities against, particularly against people that are using other people's money, that where they get paid based on asset met, on assets managed or something of this sort."

 

Buffett reiterated that while opportunities exist, Berkshire would need to have a clear competitive advantage compared to other investors, especially those who are more focused on simply gathering assets under management rather than long-term business fundamentals.

 

All very Buffett-like but reiterated to me the Indian connections that Fairfax have developed over the last 10-20 years are valuable indeed.

 

 

 

Edited May 8, 2024 by nwoodman

[MMM20]

On 5/4/2024 at 1:54 PM, treasurehunt said:

Is there good statistical evidence for this?

 

I'm confused by the question b/c, at least as far as I understand it, it's just arithmetic - obviously absent some regime change or long-term distortion in supply/demand factors. And Japan is typically the exception that proves all sorts of rules so I'm not sure I'd look there for evidence of anything other than the power of a cohesive society (and the psychological impact of a stock market derating from like 100x to 5x p/e over a few decades).

 

 

Edited May 7, 2024 by MMM20

[glider3834]

Fairfax buybacks  ~ 130K shares during March &  ~151K shares during April 

 

 

 

 

 

 

 

Edited May 8, 2024 by glider3834

[nwoodman]

1 hour ago, glider3834 said:

Fairfax buybacks  ~ 130K shares during March &  ~151K shares during April 

 

 

 

 

 

 

 

Yep, hard to believe they squared away ~0.65% outstanding in April.  They REALLY liked it <$CAD1500

 

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

 

 

Shares outstanding as of March 31, 2024

Buyback percentage = 151,625 ÷ 22,974,000 = 0.66%

Edited May 9, 2024 by nwoodman

[Hoodlum]

11 minutes ago, nwoodman said:

Yep, hard to believe they squared away ~0.75% outstanding in April.  They REALLY liked it <$CAD1500

 

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

 

 

At that rate the buybacks would add $20US/qtr to the book value per share. 

[backtothebeach]

6 hours ago, Hoodlum said:

At that rate the buybacks would add $20US/qtr to the book value per share. 

Without doing the math, but I don’t think that’s true. Buybacks above book value actually slightly lower book value.

[treasurehunt]

On 5/7/2024 at 10:32 AM, MMM20 said:

 

I'm confused by the question b/c, at least as far as I understand it, it's just arithmetic - obviously absent some regime change or long-term distortion in supply/demand factors. And Japan is typically the exception that proves all sorts of rules so I'm not sure I'd look there for evidence of anything other than the power of a cohesive society (and the psychological impact of a stock market derating from like 100x to 5x p/e over a few decades).

 

 

I don't see how it's just arithmetic, since there is no free flow of goods and labor across national boundaries and the prices of goods and services at market exchange rates vary widely across countries. Can you explain your thinking?

 

Also, how about Canada for another counterexample, albeit not as dramatic as Japan? In the 15 years from May 8, 2009 to May 8, 2024 the Loonie has depreciated from 0.87 USD to 0.73 USD. But inflation in Canada was slightly less than in the US (39% vs 46% according to ChatGPT).

[Hoodlum]

1 hour ago, backtothebeach said:

Without doing the math, but I don’t think that’s true. Buybacks above book value actually slightly lower book value.

You are correct.  

[MMM20]

5 hours ago, treasurehunt said:

I don't see how it's just arithmetic

 

Let's say Country X's currency trades 1 for 1 with Country Y's. If Country X's inflation over the next 20 years is ~5-6%, then in the end that 1 unit = 3. If Country Y's inflation is 0, then 20 years later that 1 unit still = 1. So all else equal, the fair exchange rate would change from 1:1 to 3:1 over that time period.

 

I guess I would expect evidence to be mixed b/c in the real world, nothing is held constant. But maybe it's more useful as a starting point than ignoring the issue or a finger in the wind or w/e.

 

Edited May 9, 2024 by MMM20

[gfp]

Here's some news:

https://www.fairfax.ca/press-releases/fairfax-announces-purchase-of-275000-subordinate-voting-shares-for-cancellation-from-chairman-and-ceo-prem-watsa/?utm_source=press-release&utm_medium=email&utm_term=Mon+May+13+2024&utm_campaign=Fairfax+Announces+Purchase+of+275+000+Subordinate+Voting+Shares+for+Cancellation+from+Chairman+and+CEO+Prem+Watsa

Edited May 13, 2024 by gfp

[nwoodman]

5 minutes ago, gfp said:

Here's some news:

https://news.fairfax.ca/emails/webview/238951/121216754890311147

Go Prem. A well deserved payday and an efficient way to retire a chunk of shares.  Given the ramp in insider sales (not just Prem) I would argue that we were approaching IV except the TRS position suggests otherwise.  

[giulio]

almost a 4x in 5 years...I hope he's buying a Gulfstream or a big yacht 

620K+ shares repurchased ytd, that's the important one to me! 

[Junior R]

seems like the buybacks are just getting started...DIGI IPO should push this above $1600

[gary17]

makes sense before the new capital gain inclusion rate taking effect later in June

[nwoodman]

9 minutes ago, gary17 said:

makes sense before the new capital gain inclusion rate taking effect later in June

That’s quite the hike

 

“In a bid to make rich individuals and corporations pay more taxes, the federal Liberals said they will increase the capital gains inclusion rate(opens in a new tab) — the share of capital gains that is taxed — from 50 per cent to 67 per cent. The change will apply to those with more than $250,000 in capital gains in a year as of June 25. All corporations and trusts will also have to pay taxes on a bigger portion of their gains.”

 

https://www.ctvnews.ca/canada/what-is-changing-about-canada-s-capital-gains-tax-and-how-does-it-impact-me-1.6860457#:~:text=Canadians must report taxable capital,capital gains in a year.

[Xerxes]

275K shares … either locked up in Prem’ vault or bought & cancelled by the company. 
 

Either way no impact on the float. 
 

so just optics.