Fairfax 2024

[Viking]

2 hours ago, Spooky said:

 

What I'm driving at is it is one thing for Fairfax to talk about buying wonderful / good companies and just letting them compound versus actually executing on that plan. I like the idea but right now when I look at Fairfax it looks more like a leveraged bond fund with a side of value investments rather than a Berkshire Hathaway in 1995. Which investments in Fairfax's portfolio today are wonderful companies (i.e. high return on assets and growing) that can just keep compounding at high rates of return for the next 20-30 years? When Berkshire buys back stock, you as a shareholder are getting a higher ownership percentage of the wonderful businesses they own. Certainly Fairfax has set themselves up well going forward, hopefully the investing environment co-operates and throws them some fat pitches. Let's see, I'll be watching with interest.

@Spooky I think you are missing the point of my post. I don’t say this to be a jerk /confrontational.

 

“Which investments in Fairfax's portfolio today are wonderful companies (i.e. high return on assets and growing) that can just keep compounding at high rates of return for the next 20-30 years?”

 

Here is a re-post of what i said earlier:

 

Investors waiting for Fairfax to buy ‘Coke’ or ‘American Express’ in 2024 will likely be sorely disappointed. For two reasons:

1.) Buffett’s brilliance wasn’t buying Coke or American Express. It was exploiting the set of circumstances that existed at the time, which served up Coke in 1988 and AMEX in 1990.

2.) Like Berkshire when it made its many brilliant moves, most investors probably won’t see it when Fairfax actually does it.

 

Moving forward, i expect Fairfax to use ALL the capital allocation levers at their disposal. You list one above - and i do expect them to do more of that. But i also expect Fairfax to do lots of other things. Some will likely be non-traditional. What they do will largely be driven by volatility and what opportunities get served up. 
 

But in terms of ‘buying quality at a reasonable price’, on the equity side, I think their investment in BIAL would be a good recent example. Buying Allied World in 2017 for $4.9 billion would be a good recent insurance example. 
 

Fairfax’s equity book as a whole has improved significantly in quality over the past 5 years. The best example is Eurobank. Is it a quality bank today? Yes. Is it cheap? Yes. Is it poised to deliver excellent returns over the next 5 years? Yes, i think so. Is Eurobank like Coca Cola or AMEX back in the late 1980’s? No, of course not. 

You appear to give the two examples i provided (effectively buying back 23% of shares outstanding at 30% of current intrinsic value and a saving/earning billions from active management of their fixed income portfolio) as not really counting. I humbly disagree. Of course, that’s what makes for a great debate.

When I say i think Fairfax resembles a much younger Berkshire Hathaway, it might help if i spell out what that might mean from a return perspective.
 

If my thesis is correct, below is what i think is possible. (Of course, my thesis could be completely wrong - and this would mean my return expectations below would also be completely wrong.)

 

Since inception Berkshire Hathaway has materially outperformed the S&P500 (dividends included). I think Berkshire’s outperformance might be 2x.
 

I think Fairfax is poised to materially outperform the market indices over the next 5 years (I would take an average of the S&P500 and the TSX60). I think Fairfax’s outperformance could come in at 2x better. Similar to Berkshire Hathaway’s long term average level of outperformance.
 

How will Fairfax do it? I think the set-up today for Fairfax looks a lot like a much younger Berkshire Hathaway. In my post above, i highlighted 14 factors that i thought were similar. 
 

For me this is more qualitative/philosophical type thinking than quantitative/precise type thinking. And this makes it very hard to discuss/debate - because everyone comes at it in a very different way.

Edited May 3 by Viking

[Jaygo]

I lean with Spooky here. Fairfax does not have the quality investments that BRK did at the time. Those with more knowledge could pair them like for like in a balance sheet standoff but a Greek bank will not ever compare to a successful global credit card issuer, Recipe corp is not see's or a dairy queen, Maybe Bauer could be a see's. Coke is a one in a lifetime brand who is sold in every country globally, nowhere in FFH lurks a similar comparison to KO. in 95 they had a few billion in Gillett and Cap cities at the time too. Fairfax does not have the quality global compounders and I know because these (AMEX, KO, ABC, Wells, GILLETTE) were known compounders back then too and they kept on compounding up to today so you can't just say "wait and see" what FFH does.

 

The interesting thing is in the 90's BRK was still buying smallish furniture and jewelry companies that probably never moved the needle. Maybe Fairfax is still there working around the edges with smaller stuff like the sporting life and Recipe instead of Munger like compounders. Now If they spring up and buy a Hershey, Starbucks, or a Visa maybe that could change the tune. (not investment advice lol)

 

FFH is kind of where I am today. I get way more energy and excitement from buying what ifs that could make me rich than Buffett was buying sure things that would make him rich slowly. 

 

Why dont I buy KO today? its too boring. WIll KO be here in 50 years? yep! Will the quirky steel tank company or the ladies fashion retailer be here? maybe, maybe not, but oh man if they are i'm going to be so damn rich!

 

GO LEAFS GO

 

 

[nwoodman]

19 minutes ago, Viking said:

For me this is more qualitative/philosophical type thinking than quantitative/precise type thinking. And this makes it very hard to discuss/debate - because everyone comes at it in a very different way.

Pattern recognition springs to mind

[SafetyinNumbers]

3 hours ago, Jaygo said:

 

 

Why dont I buy KO today? its too boring. WIll KO be here in 50 years? yep! Will the quirky steel tank company or the ladies fashion retailer be here? maybe, maybe not, but oh man if they are i'm going to be so damn rich!

 

 

Does valuation enter into your process or just if it will still be here in 50 years?

[Spooky]

11 hours ago, Viking said:

@Spooky I think you are missing the point of my post. I don’t say this to be a jerk /confrontational.

 

“Which investments in Fairfax's portfolio today are wonderful companies (i.e. high return on assets and growing) that can just keep compounding at high rates of return for the next 20-30 years?”

 

Here is a re-post of what i said earlier:

 

Investors waiting for Fairfax to buy ‘Coke’ or ‘American Express’ in 2024 will likely be sorely disappointed. For two reasons:

1.) Buffett’s brilliance wasn’t buying Coke or American Express. It was exploiting the set of circumstances that existed at the time, which served up Coke in 1988 and AMEX in 1990.

2.) Like Berkshire when it made its many brilliant moves, most investors probably won’t see it when Fairfax actually does it.

 

Moving forward, i expect Fairfax to use ALL the capital allocation levers at their disposal. You list one above - and i do expect them to do more of that. But i also expect Fairfax to do lots of other things. Some will likely be non-traditional. What they do will largely be driven by volatility and what opportunities get served up. 
 

But in terms of ‘buying quality at a reasonable price’, on the equity side, I think their investment in BIAL would be a good recent example. Buying Allied World in 2017 for $4.9 billion would be a good recent insurance example. 
 

Fairfax’s equity book as a whole has improved significantly in quality over the past 5 years. The best example is Eurobank. Is it a quality bank today? Yes. Is it cheap? Yes. Is it poised to deliver excellent returns over the next 5 years? Yes, i think so. Is Eurobank like Coca Cola or AMEX back in the late 1980’s? No, of course not. 

You appear to give the two examples i provided (effectively buying back 23% of shares outstanding at 30% of current intrinsic value and a saving/earning billions from active management of their fixed income portfolio) as not really counting. I humbly disagree. Of course, that’s what makes for a great debate.

When I say i think Fairfax resembles a much younger Berkshire Hathaway, it might help if i spell out what that might mean from a return perspective.
 

If my thesis is correct, below is what i think is possible. (Of course, my thesis could be completely wrong - and this would mean my return expectations below would also be completely wrong.)

 

Since inception Berkshire Hathaway has materially outperformed the S&P500 (dividends included). I think Berkshire’s outperformance might be 2x.
 

I think Fairfax is poised to materially outperform the market indices over the next 5 years (I would take an average of the S&P500 and the TSX60). I think Fairfax’s outperformance could come in at 2x better. Similar to Berkshire Hathaway’s long term average level of outperformance.
 

How will Fairfax do it? I think the set-up today for Fairfax looks a lot like a much younger Berkshire Hathaway. In my post above, i highlighted 14 factors that i thought were similar. 
 

For me this is more qualitative/philosophical type thinking than quantitative/precise type thinking. And this makes it very hard to discuss/debate - because everyone comes at it in a very different way.

 

Thanks for the response Viking. I agree that Fairfax buying back a significant amount of its shares below intrinsic value is excellent capital allocation. I also like that they are fishing where the fish are in Greece and India etc. There are many different ways to nirvana. Berkshire exploiting the opportunities available to it certainly contributed to their success but it was more a factor of their philosophy and changing their investment approach as they got larger - moving away from Ben Graham style value investing to buying wonderful companies at reasonable prices and recognizing the inherent advantages in just letting their investments compound over long periods of time. Also, some of Buffett's best investments were just sitting in plain sight available to anyone like when he bought Apple. Does Fairfax need to make this switch too? I'm not sure. I would like to see them shift more of their portfolio out of bonds to equities - focusing on cheap, safe, high-quality stocks combined with the consistent use of leverage through float. Hopefully the investment landscape co-operates.

Edited May 3 by Spooky

[Jaygo]

8 hours ago, SafetyinNumbers said:

Does valuation enter into your process or just if it will still be here in 50 years?

Of course it does but KO is not at a crazy valuation. Also KO is just an example. KO has not done that great for BRK but he has gotten his investment back multiple times just in dividends and likely will another 100x over the next 50 years. 

 

I actually look at company longevity as a really good barometer for valuation. If there was no stock market and we were buying companies to hold would you buy one that is fickle or would you buy one that is going to be passed to your grandchildren. The one that was a proven long term winner would possibly demand a higher valuation. 

 

I remember my uncle telling me if my parents had bought me $1000  worth of Proctor and gamble instead of diapers on my birthday in 1984 I would be getting $3000 a year from it today ( this was 10 years ago). PG has done pretty well but time has been the biggest contributor. I guess that is just burned into my psyche

 

I know it seem unsophisticated but I think it is a big factor in performance. Otherwise we need to trade in and out to get performance. 

[dartmonkey]

On 5/1/2024 at 6:20 PM, SafetyinNumbers said:

Another way to frame it is because of the profitable float leverage, the equity returns don’t have to be high to earn a 15% ROE but they could be and I’m betting they will be without having to pay for it. 

Maybe you get both equity AND fixed income exposure with Fairfax? I posted this to the Berkshire board, confusedly thinkiing I was talking to Fairfax shareholders. I'm copying it below because, while the comparison between Fairfax and Berkshire is only of moderate interest to most Berkshire shareholders, it is of great interest to Fairfax shareholders! 

 

======

Posted to Berkshire board today:

 

"Both Fairfax and Berkshire are constrained by regulators and by common sense in what they can do with their float, equity obviously being preferable if you have enough surplus capital to do it. Undoubtedly, Fairfax is considerably more constrained, but it isn't just a question of surplus capital,, it's also a question of how much float they have, in relation to their equity. And Fairfax has way, way more. Quoting my post here 2 days ago:

 

With Fairfax, you have float of $33b* with $22b of equity (2023 year end numbers), whereas for Berkshire, you have float of $169b with equity of $561b. So $1 of equity is increased to $2.50* of investable assets with Fairfax, whereas with Berkshire, $1 of equity is increased to  $1.23 of investable assets. Fairfax is twice as leveraged by investment float. So if you think the key to success of Berkshire was the float leverage, Fairfax is a much better setup.

 

Thinking about this further, the above way of framing the float actually understates the difference. Perhaps a better way of looking at it is that,, for each dollar of equity invested, Berkshire invests another $0.23 of float. For each dollar of equity invested by Fairfax, you get another $1.62* of float invested. It is unsurprising that Berkshire can invest a lot more of its 23c of float in equities, compared to Fairfax. Berkshire has $568b in book value plus $169b in float, and invests $383b in equity securities and equity method investments. Fairfax has $21.615b in book value plus $35.1b* in float, and invests $15.5b in equities (mark to market, equity accounted and consolidated).

 

So one way of looking at it that Fairfax has 15.5/21.615 = 72% of its book in equities and Berkshire has 383/568 = 67%. Yes, Fairfax has a way bigger bond portfolio, in proportion to its float, but this is just because its float is so much bigger. Fairfax actually has MORE of its book invested in equities than Berkshire, with the rest of its enormous float in fixed income because of regulatory requirements. So I am making the case that Fairfax is even more exposed to equities than Berkshire, and also gets the additional leveraged value of the much bigger fixed income portfolio. And as an investor paying 1.1x equity for Fairfax rather than 1.4x for Berkshire, this difference is further magnified.

 

Does this make sense? Thoughts? What would Bloomstram think of this argument?

 

 

*My number in the Wednesday quote was wrong, for some reason I said Fairfax had $33b in float, meaning $1.50 in float for every $1 in equity; the actual number is $35.1b in float, or $1.62 in float for every $1 in equity."

[valueinvesting101]

@dartmonkey In above calculations, for Berkshire, only its equity portfolio has been included but it also has lot of 100% owned subsidiaries which should be included for its equity portfolio. BNSF + BHE could easily add $200 to its equity portfolio. MSR could be another $150 billion equity position.
 

Berkshire equity exposure is still higher than its book value as equity assets are financed with huge deferred taxes liabilities which is guaranteed to be 0% compared to float. Book value also understates economic/market value of its 100% subsidiaries. Book value of NFM or Sees would be much lower than price needed to acquire similar asset today. It is similar to Pet insurance business sold by Fairfax. 

[Gamma78]

I think its singular that Prem actually called out the lesson he says he learned from Munger in the AGM, meaning that finding compounders you don't touch for a very long time is important. 

 

The reality is that as Fairfax grows their capability to turn over their equity portfolio and consistently find new winners will decrease very very very rapidly due to sheer size. And that will mean that finding companies that retain earnings and compound at high rates for long periods of time with no further intervention will be a necessity for sustained growth. That is the genius of the BRK model, beyond the leverage. "never interrupt compounding unnecessarily" was Charlie's rule. 

 

I would certainly accept the point that compounders are somewhat seen retrospectively - with survivorship bias. And in this regard BRK's compounders are obvious today and were less so 20-25-30 years ago. Even Buffett himself says that ultimately his returns are largely dependent on only a handful of investment decisions held for a long time. And holds up Sees Candies as a company that - beyond its current worth in the books - has spun literally bilions in cash used elsewhere. 

 

Some traits though - capital light, significant reinvestment opportunity with high returns on capital -  should be visible immediately. 

 

Where do we see businesses like that in the Fairfax portfolio? Eurobank is a brilliant decision over last 5 years, and banking can be a good business when well run. Poseidon? Does that have high ROC across a cycle for good? CIB? 

 

Doesn't sound the same. 

 

I am intrigued by the expanding investments in India. That sounds a bit more like what in retrospect 30 years from now looks like "long term compounders".  BIAL and India airports in general are a generational opportunity. Prem has clearly said that banking / financial services in India should grow at rates well above GDP growth. That sounds to me like signalling that Fairfax India and indian investments have an outsized role to play. 

 

I know that on a retrospective basis things won't look like KO, AAPL, MCO, AXP. But the question is, what do we think the equivalent will be? To me it looks like Prem believes India is a big contributor to continuous compounding. 

 

 

 

 

[valueinvesting101]

Difference between Berkshire and Fairfax investment style seems to be that Fairfax is more willing to bet on turnaround or new business even at times following old business model such Digit or EuroBank or may be IDBI. 

Berkshire has gone after KO, AXP, WFC, Geico, Sees which were started decades or centuries before Berkshire established position into them. Buffett often mentions stories about KO about something that happened 1920/1940, having that history gives him more evidence of how company/brand/business model navigated threat of competition over that time period. 

I wish Fairfax would take a look at existing proven compounder in India and elsewhere when they are available at cheaper valuation due to short-term factors while maintaining longer term moats. Similar to salad oil of AXP or mid 2010s competitive threats to Apple. HDFC Bank and Kotak Mahindra Bank come to my mind as proven compounder in India in financial space with proven history of long term compounding but currently available at decadal low valuation instead of or in addition to pursuing turnaround/control play such as IDBI. Even for turnarounds, IDFC First/IDFC were turnaround story in India with decent margin of safety in last 2-3 years. I always felt it was very much in the circle of competence of Fairfax and similar to lot of other investments they have made.  
 

Edited May 3 by valueinvesting101

[Viking]

2 hours ago, gamma78 said:

I think its singular that Prem actually called out the lesson he says he learned from Munger in the AGM, meaning that finding compounders you don't touch for a very long time is important. 

 

The reality is that as Fairfax grows their capability to turn over their equity portfolio and consistently find new winners will decrease very very very rapidly due to sheer size. And that will mean that finding companies that retain earnings and compound at high rates for long periods of time with no further intervention will be a necessity for sustained growth. That is the genius of the BRK model, beyond the leverage. "never interrupt compounding unnecessarily" was Charlie's rule. 

 

I would certainly accept the point that compounders are somewhat seen retrospectively - with survivorship bias. And in this regard BRK's compounders are obvious today and were less so 20-25-30 years ago. Even Buffett himself says that ultimately his returns are largely dependent on only a handful of investment decisions held for a long time. And holds up Sees Candies as a company that - beyond its current worth in the books - has spun literally bilions in cash used elsewhere. 

 

Some traits though - capital light, significant reinvestment opportunity with high returns on capital -  should be visible immediately. 

 

Where do we see businesses like that in the Fairfax portfolio? Eurobank is a brilliant decision over last 5 years, and banking can be a good business when well run. Poseidon? Does that have high ROC across a cycle for good? CIB? 

 

Doesn't sound the same. 

 

I am intrigued by the expanding investments in India. That sounds a bit more like what in retrospect 30 years from now looks like "long term compounders".  BIAL and India airports in general are a generational opportunity. Prem has clearly said that banking / financial services in India should grow at rates well above GDP growth. That sounds to me like signalling that Fairfax India and indian investments have an outsized role to play. 

 

I know that on a retrospective basis things won't look like KO, AAPL, MCO, AXP. But the question is, what do we think the equivalent will be? To me it looks like Prem believes India is a big contributor to continuous compounding. 

@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?

Edited May 3 by Viking

[Junior R]

@gamma78 "I think its singular that Prem actually called out the lesson he says he learned from Munger in the AGM, meaning that finding compounders you don't touch for a very long time is important. " ...This is what makes you want to hold FFH for a long period of time

 

@valueinvesting101 I did by HDFC on the recent dips

 

I think from todays call we can state that Prem is doing the right thing and letting the younger generation handle the calls. The question that always comes up is who runs Fairfax after Prem Retires..but this is getting these folks ready

[Gamma78]

@juniorr "this is what makes you want to hold FFH for a long period of time"

 

yes absolutely, I am in this since 2020 and for the very long haul, and I see a huge opportunity here. My observation (which is not a critique) is that BRK moved over time from cigar-butt investing (similar to turn around) to choosing compounders and letting 'em rip in large part because over time size dictates that methodology. Finding increasingly large and numerous turnarounds won't work. Letting high ROIC investments work for you instead is magic, because stock returns over a long period will be a proxy of ROIC - when held long enough even multiple paid actually makes little difference. 

 

We can and should be interested in FFH being more "levered" via float than BRK - but the rapidly increasing float size means the team needs to find more equity investments. Better have a few large high ROIC companies than a bunch of Poseidons in my opinion. Otherwise we will rapidly find that 15% is unsustainable.  

 

I agree with @Viking that capital allocation has been great at Fairfax in the last years. But that, while not fully recognised by the market - is actually still rear-view mirror (as in it means nothing towards the next marginal investment). I am talking about what has to come next mathematically for their track record in allocation to hold true to recent performance. 

 

India is the third or fourth largest position. I think it might be the one to grow.

[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 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 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 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 by MMM20

[glider3834]

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

 

 

 

 

 

 

 

Edited May 8 by glider3834