Fairfax 2024

[gfp]

2 minutes ago, Xerxes said:

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

Either way no impact on the float. 
 

so just optics. 

 

Huh.. That's a hot take.  As an example, if the market cap of the company halved but the freely traded float stayed the same would that also be just optics or at some point does the share count of the company matter to you?

[Xerxes]

16 minutes ago, gfp said:

 

Huh.. That's a hot take.  As an example, if the market cap of the company halved but the freely traded float stayed the same would that also be just optics or at some point does the share count of the company matter to you?

 

hmmm dwell on this I must ….

 

 

I guess I should be happy that as an owner, the EPS that would have passed through 275K shares in Prem’ vault is now spread like butter over a slightly fewer total remaining shares and the would-have-been cash dividends on the 275K shares is saved up on behalf of remaining shareholders. 

[StubbleJumper]

44 minutes ago, nwoodman said:

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.  

 

The valuation gap as defined by P/BV or pretty much any other widely used valuation measure has definitely narrowed over the past year, and as you suggested, it might be that certain insiders finally have a reasonable opportunity to trim their position.  I'm not sure that this is the case for Prem.  Back when he bought the US$150m of shares two years ago, I posed the question on this forum of where he sourced the cash to do so?  Did he have US$150m just sitting in his savings account, did he dig it out of the cushions of his chesterfield, or did he borrow the lion's share of that cash?  Based on this sale, my guess is that he probably borrowed the cash to buy those shares and the carry on that borrowing has caught up a little bit with the share price growth expectation (ie, if he borrowed that money, has the interest rate that he's paying grown to 7% or 7.5% ?).

 

15 minutes ago, nwoodman said:

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.”

 

 

Without a doubt, there are many FFH shareholders who would pay the higher capital gains rate if they liquidate their position next year.  But, I can tell you that I wouldn't let the tail wag the dog in this particular case.  The higher inclusion rate gives the appearance of an enormous tax hike, but keep it in context.  The highest marginal tax rate in Ontario is 53.5%.  With a 50% inclusion rate, you pay 26.75% tax on your capital gains, and now with the 67% inclusion you'd pay 35.7% tax on your capital gains.  So, the difference in tax paid on gains in the highest marginal bracket is like ~9%.  It's considerable, but if you believe that FFH is still a shade undervalued and that its underwriting growth still has legs, you would look forward 1, 2, or 3 years and conclude that share price will likely be strong enough to make it irrational to let the tax tail wag the dog.  

 

 

22 minutes ago, Xerxes said:

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

Either way no impact on the float. 
 

so just optics. 

 

The value of my personal shares is independent of the size of the float.  My portion of FFH's future cash flows is X/total shares outstanding.  So, when 250k shares are retired, my portion of FFH's future cash flows goes up.   That part is not optics.  The part that might make it mostly optics is the price paid.  Continuing shareholders are only better off after a repurchase if the shares were repurchased at a price that is less than intrinsic value.  When FFH conducted the SIB a couple of years ago and bought back a boat-load at US$500, it was quite obviously the case that those repurchases were undertaken at a price lower than IV.  But, a repurchase price of US$1,100 is probably much closer to IV and the benefit to continuing shareholders is much more limited.  As an example if IV is actually US$1300 or $1400, we continuing shareholders collectively benefit benefit by 275k*US$200 or 300...less than five bucks a share?).  It's not nothing, but it doesn't move the needle all that much.

 

 

SJ

[MMM20]

I understand the logic but I’m 1) really not a fan of management selling shares to the company and 2) still hugely overweight FFH - and so I’m taking this as a cue to sell a chunk of my own shares too over the next couple months. 

 

Edited May 13, 2024 by MMM20

[Xerxes]

5 minutes ago, MMM20 said:

I understand the logic but I’m 1) really not a fan of management selling shares to the company and 2) still hugely overweight FFH and so I’m taking this as a cue to sell a chunk of my own shares too over the next couple months.

 

weren’t you the person with $3,000 projection on the share price in a not to too distant future. 
 

Prem selling some shares for liquidity shouldn’t a reason for you to trim, unless you were in search of a reason 

[MMM20]

4 hours ago, Xerxes said:

weren’t you the person with $3,000 projection on the share price in a not to too distant future. 
 

Prem selling some shares for liquidity shouldn’t a reason for you to trim, unless you were in search of a reason 

Yes. This is still my biggest position by a lot. It has gotten up to about half my retirement accounts. I’m talking about taking it down to 30-40%, still my biggest by ~2x. Still think it’s easily worth $2-3K and I would not sell if this were close to a normal core position.
 

I wonder if others with big positions since 2020-21 are looking at this similarly. I don’t think it’s fair to completely dismiss the fact that he’s selling, even if it’s a relatively small sale and for a logical reason. Sure it’s for liquidity and tax planning - I get that - but would he be selling if the stock still traded at 0.7x p/b? I personally have a really hard time believing that. 
 

But since (I think?) you asked… yeah I guess I’m looking for capital to add a bunch to HIFS - which I’m convinced is a similar setup at this point, a top quality, well run, 30+ year compounder now trading around book and ~6-8x normalized earnings in large part due to an almost certainly temporary situation in interest rates (in HIFS case, ongoing yield curve inversion). An attractively skewed ~2x type of expected return over a couple years - like the current setup in FFH IMHO!
 

Edited May 13, 2024 by MMM20

[Xerxes]

BB went up 12% this morning. 

They must be thinking Prem is buying BB on his PA using funds that newly released 

[Xerxes]

26 minutes ago, MMM20 said:

Yes. This is still my biggest position by a lot. It has gotten up to about half my retirement accounts. I’m talking about taking it down to 30-40%, still my biggest by 2x. Still think it’s easily worth $2-3K and I would not sell if this were close to a normal core position.
 

I wonder if others with big positions since 2020-21 are looking at this similarly. I don’t think it’s fair to completely dismiss the fact that he’s selling, even if it’s a relatively small sale and for a logical reason. 
 

But since (I think?) you asked… yeah I guess I’m looking for capital to add a bunch to HIFS - which I’m convinced is a similar setup at this point, a top quality, well run, 30+ year compounder trading around book and ~6-8x normalized earnings in large part due to an almost certainly temporary situation in interest rates (in HIFS case, ongoing yield curve inversion). IMHO an attractively skewed ~2x type of expected return over a couple years - similar to FFH’s e(r) in my mind.
 

thank you 

[Junior R]

3 minutes ago, Xerxes said:

BB went up 12% this morning. 

They must be thinking Prem is buying BB on his PA using funds that newly released 

MEME STOCKS are back GME

[Luke]

23 minutes ago, juniorr said:

MEME STOCKS are back GME

 

You guys are totally wrong, Prem sold FFH and bought GME, that's why GME is up...1+1->2. Its a no-brainer. 

 

@MMM20 @juniorr @Xerxes

[Junior R]

24 minutes ago, Luca said:

 

You guys are totally wrong, Prem sold FFH and bought GME, that's why GME is up...1+1->2. Its a no-brainer. 

 

@MMM20 @juniorr @Xerxes

If $BB can run back above $10 USD will like to see FFH off load it lol

[Hektor]

29 minutes ago, Luca said:

You guys are totally wrong, Prem sold FFH and bought GME, that's why GME is up...1+1->2. Its a no-brainer. 

[gary17]

3 hours ago, MMM20 said:

I understand the logic but I’m 1) really not a fan of management selling shares to the company and 2) still hugely overweight FFH - and so I’m taking this as a cue to sell a chunk of my own shares too over the next couple months. 

 

 

there's a big tax change coming in Canada. what he is saying - estate planning - makes sense.

 

same reason Warren sold some apples.

[Hoodlum]

Someone didn’t like this share purchase. 
 

 

Edited May 13, 2024 by Hoodlum

[Crip1]

4 hours ago, MMM20 said:

 

I wonder if others with big positions since 2020-21 are looking at this similarly. I don’t think it’s fair to completely dismiss the fact that he’s selling, even if it’s a relatively small sale and for a logical reason. Sure it’s for liquidity and tax planning - I get that - but would he be selling if the stock still traded at 0.7x p/b? I personally have a really hard time believing that. 

 

Fairfax is about 33% of my "investable" holdings, closer to 25% of total holdings (the difference being that company-sponsored accounts are not self-directed), so if I qualify as "others with big positions", here goes.

 

I was tempted to sell but didn't for a couple of reasons:

• I really don't have any ideas that I know as well and feel as comfortable with.
• Buffet once quoted Mae West "Too much of a good thing can be wonderful". In the past my brain has short circuited when positions have increased...I was anchored to the past stock price and would sell a large portion of my position figuring it would be available 20-30% lower and I could buy back then. It's worked at times, but hasn't at others. Bottom line is that if a holding is not grossly overvalued, the risk-reward of that strategy doesn't make sense.

 

-Crip

[dartmonkey]

3 hours ago, juniorr said:

If $BB can run back above $10 USD will like to see FFH off load it lol

Why wait? Here's hoping RoaringKitty was just waiting for Prem to get off the Blackberry board to give Fairfax one last chance to unload this, and maybe reap some tax losses to book against the Pet Insurance business.

 

 

 

[hardcorevalue]

I’d really love to hear if anybody has a better idea than Fairfax at this price. 1x book value and 7x earnings in a market that is 27x, that’s hard to beat. The other aspect that I like is their portfolio is positioned for adverse case scenarios due to their high quality bonds. Yield spreads are the tightest in history so if there was some market dislocation, black swan, they could redeploy into higher yielding securities. Anyways, I’m all ears but so many pitches are 20x earnings for some great compounder or 7x earnings for some economically sensitive stock. 

I too see the chart and want to sell but the numbers on FFH are just so attractive. It feels like this could be a berkshire type situation where the hard part was just holding on. 

Edited May 13, 2024 by hardcorevalue

[Luke]

14 minutes ago, hardcorevalue said:

I’d really love to hear if anybody has a better idea than Fairfax at this price. 1x book value and 7x earnings in a market that is 27x, that’s hard to beat. The other aspect that I like is their portfolio is positioned for adverse case scenarios due to their high quality bonds. Yield spreads are the tightest in history so if there was some market dislocation, black swan, they could redeploy into higher yielding securities. Anyways, I’m all ears but so many pitches are 20x earnings or 7x earnings with an assumed economic dependence. 

I too see the chart and want to sell but the numbers on FFH are just so attractive. It feels like this could be a berkshire type situation where the hard part was just holding on. 

Exactly, next to China (in which I am very overweight), I can only find tempting value in coal/oil stocks. FFH is a huge part of my portfolio too and I am absolutely not selling anything as long as the idea universe is that small and very expensive. 

[ander]

Fairfax 6-K

 

"“As previously announced in 2020, I purchased in the market an additional 482,600 subordinate voting shares of Fairfax at a price of US$308 per share, or approximately US$150 million in total. At the time, I believed, and I said publicly, that the trading price for Fairfax shares was ridiculously cheap and very significantly below intrinsic value, and I was acquiring these shares as an investment. Even though I believe our shares continue to trade well below intrinsic value, I decided to sell a portion of the shares I acquired in 2020, representing only a small portion of my total holdings of Fairfax, for estate planning reasons. As a controlling shareholder, my salary has been fixed at C$600,000, and I have never had a cash bonus nor received any shares as compensation for decades. I continue to control the 1,548,000 outstanding multiple voting shares and 519,828 subordinate voting shares of Fairfax, representing greater than 90% of my net worth, and I am not contemplating further sales. As I have said many times, Fairfax is not for sale, and I am confident that our future is very bright. As always, the best is yet to come,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax."

 

[Hektor]

8 minutes ago, ander said:

Fairfax 6-K

 

"“As previously announced in 2020, I purchased in the market an additional 482,600 subordinate voting shares of Fairfax at a price of US$308 per share, or approximately US$150 million in total. At the time, I believed, and I said publicly, that the trading price for Fairfax shares was ridiculously cheap and very significantly below intrinsic value, and I was acquiring these shares as an investment. Even though I believe our shares continue to trade well below intrinsic value, I decided to sell a portion of the shares I acquired in 2020, representing only a small portion of my total holdings of Fairfax, for estate planning reasons. As a controlling shareholder, my salary has been fixed at C$600,000, and I have never had a cash bonus nor received any shares as compensation for decades. I continue to control the 1,548,000 outstanding multiple voting shares and 519,828 subordinate voting shares of Fairfax, representing greater than 90% of my net worth, and I am not contemplating further sales. As I have said many times, Fairfax is not for sale, and I am confident that our future is very bright. As always, the best is yet to come,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax."

 Thanks @ander

[Luke]

15 minutes ago, ander said:

Fairfax 6-K

 

"“As previously announced in 2020, I purchased in the market an additional 482,600 subordinate voting shares of Fairfax at a price of US$308 per share, or approximately US$150 million in total. At the time, I believed, and I said publicly, that the trading price for Fairfax shares was ridiculously cheap and very significantly below intrinsic value, and I was acquiring these shares as an investment. Even though I believe our shares continue to trade well below intrinsic value, I decided to sell a portion of the shares I acquired in 2020, representing only a small portion of my total holdings of Fairfax, for estate planning reasons. As a controlling shareholder, my salary has been fixed at C$600,000, and I have never had a cash bonus nor received any shares as compensation for decades. I continue to control the 1,548,000 outstanding multiple voting shares and 519,828 subordinate voting shares of Fairfax, representing greater than 90% of my net worth, and I am not contemplating further sales. As I have said many times, Fairfax is not for sale, and I am confident that our future is very bright. As always, the best is yet to come,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax."

 

Not great, not terrible. He doesn't see the shares as materially undervalued as in 2020, understandable. Still, cashing out now after this run...has a certain smell of less upside downside

Edited May 13, 2024 by Luca

[Parsad]

3 hours ago, Hoodlum said:

Someone didn’t like this share purchase. 
 

 

 

What a twat!  Complete moron as well. 

 

The new capital gains tax on personal corporations and individuals above $250K in capital gains is what led Prem to sell.  He's also always stated that 90% of his net worth would be in Fairfax. 

 

When he bought that $150M tranche, I'm pretty sure that was almost all of the liquidity he personally had or the majority of it.  This just restores the net worth balance of him having 90% in Fairfax and 10% outside of Fairfax, while saving millions in capital gains tax that he would have to pay after June.

 

Cheers!

[dartmonkey]

1 hour ago, Luca said:

Exactly, next to China (in which I am very overweight), I can only find tempting value in coal/oil stocks. FFH is a huge part of my portfolio too and I am absolutely not selling anything as long as the idea universe is that small and very expensive. 

I have the same problem, 50% in Fairfax after the big share price increase in the last few years, but nowhere too tempting to go if I sell my stake down to a more reasonable size. And 10% in coal/gas/oil which seem like the best alternative for the moment - Yancoal, Suncor, CNQ, Petrobras... 

[Luke]

6 minutes ago, dartmonkey said:

I have the same problem, 50% in Fairfax after the big share price increase in the last few years, but nowhere too tempting to go if I sell my stake down to a more reasonable size. And 10% in coal/gas/oil which seem like the best alternative for the moment - Yancoal, Suncor, CNQ, Petrobras... 

Yes, same situation. I still see a ton of potential upside in Fairfax and love the defensiveness of it in the current macro and pricey market...its also not a stock where I would feel uncomfortable being overweight considering the quality of management etc...I like where I am, still a continuos buyer in China and maybe we get nicer prices in met coal coming months as q1-q2 seems to be weak regularly...i think I can settle with the thought that prem really was just overweight and wants to have some eggs at the side lines which is fair. 

[dartmonkey]

 think I can settle with the thought that prem really was just overweight and wants to have some eggs at the side lines which is fair. 

 

 

Yes, according to his statement, he bought "482,600 subordinate voting shares of Fairfax at a price of US$308 per share, or approximately US$150 million in total."

 

Now he has sold 275,000 of these shares to the company (so they can be retired), at $US1,106.48. He continues to control 1,548,000 outstanding multiple voting shares and 519,828 subordinate voting shares of Fairfax, for a total of 2,067,828 shares, meaning that he had 2,342,828 shares before the sale, and has sold 11.7% of these. If the new stake is worth 90% of his net worth, that would mean that he previously had 101.9% of his net worth in Fairfax; if his current stake is higher than 90%, then his previous stake was even higher than 101.9%. That probably means he took out a loan to make the purchase back in 2020, when short term interest rates were still less than 1%.

 

So there's overweight and then there's really spectacularly overweight. We think we are overweight at 50%, but he was at over 100%. Taking that down to 90% can not reasonably be taken as evidence that he think the shares are fully valued, it's just elementary prudence. If he had reduced from a smaller percentage, like going from 10% to 9%, that would have been a different story. And the increased capital gains tax in July, while not mentioned, just adds another reason why it makes sense to pay off the loan now, even if he still think Fairfax's prospects are great.