Fairfax 2024

[dartmonkey]

9 minutes ago, SafetyinNumbers said:

We’ll find out Sept 6 after the close if FFH is going into the 60. I think the odds are 50-50. I think the street is less than 25%... 

 

What does everyone else think?

I'd go with the street. Algonquin must be below 20 basis points now, but the Financial sector is already too big, because of all our bank concentration. I guess it depends which criterion is more important, since you can't do both. So my guess is they'll punt.  

[gfp]

Change the name to "Fairfax Mattresses and More!" and they get in sure thing

[Hektor]

31 minutes ago, gfp said:

Change the name to "Fairfax Mattresses and More!" and they get in sure thing

[SafetyinNumbers]

1 hour ago, dartmonkey said:

I'd go with the street. Algonquin must be below 20 basis points now, but the Financial sector is already too big, because of all our bank concentration. I guess it depends which criterion is more important, since you can't do both. So my guess is they'll punt.  

It’s the reason most of the street doesn’t think FFH goes in too. I showed a couple of them that financials were more overweight in March 2022 when IFC went in (at a slightly lower weighting in the index than FFH is now) they shrug their shoulders. Seems like an important precedent to me.

Edited August 30, 2024 by SafetyinNumbers

[UK]

7 hours ago, gfp said:

Change the name to "Fairfax Mattresses and More!" and they get in sure thing

 

This is really good idea. Also "Fairfax and Sleep Well" or maybe "Fairfax and (just go to) Sleep" could be nice:)

 

PS. Or better yet: "Fairfax and Relax":)

 

Edited August 31, 2024 by UK

[wondering]

Article about speculation of Fairfax being included in S&P/TSX 60

 

https://www.theglobeandmail.com/business/article-this-goose-could-fly-south-straight-out-of-canadas-main-stock-index/

 

• because of lower trading volumes/float several companies could be delisted from the S&P/TSX 60
• names mentioned in delisting Canada Goose, Ballard Power Systems, Africa Oil Corp, Westshore Terminals, Algonquin Power according to Jean-Michel Gauthier, analyst at Bank of Montreal
• names mentioned as possible inclusion into the index include Bird Construction and Fairfax
• article discussed the fact that the index is already heavily weighted towards financials and natural resource companies

"S&P has a degree of discretion in decisions around which stocks go in its indexes. The key criteria it uses is known as “float” – the value of shares that aren’t held by insiders and that therefore trade frequently and are easily available to the public. The index provider does not release its proprietary float calculations.

To stay in the composite, a company’s float must not drop below 0.025 per cent, or 2.5 hundredths of a percentage point, of the total value of the index"

 

 

[SafetyinNumbers]

1 hour ago, wondering said:

Article about speculation of Fairfax being included in S&P/TSX 60

 

https://www.theglobeandmail.com/business/article-this-goose-could-fly-south-straight-out-of-canadas-main-stock-index/

 

• because of lower trading volumes/float several companies could be delisted from the S&P/TSX 60
• names mentioned in delisting Canada Goose, Ballard Power Systems, Africa Oil Corp, Westshore Terminals, Algonquin Power according to Jean-Michel Gauthier, analyst at Bank of Montreal
• names mentioned as possible inclusion into the index include Bird Construction and Fairfax
• article discussed the fact that the index is already heavily weighted towards financials and natural resource companies

"S&P has a degree of discretion in decisions around which stocks go in its indexes. The key criteria it uses is known as “float” – the value of shares that aren’t held by insiders and that therefore trade frequently and are easily available to the public. The index provider does not release its proprietary float calculations.

To stay in the composite, a company’s float must not drop below 0.025 per cent, or 2.5 hundredths of a percentage point, of the total value of the index"

 

 

There is nothing quite like price insensitive buying to help with price discovery. It would be interesting to know how much liquidity will be provided by retail shareholders when FFH goes in. Entry does seem inevitable but not necessarily September although I think the odds are better than 50-50.

 

Two notes : think Gauthier is from Scotia not BMO and the article suggests GOOS is getting kicked out because it trades more in NY but it’s actually because its float cap is under 2.5bps. There is no such rule for the 60 but 20bps has been the rule of thumb. AQN closed at 19bp on Friday but they increased the float a reasonable amount since the last measurement period so it might bounce back above 20bp. But it’s still just a rule of thumb.

[gfp]

I thought this article on Verisk's recent modeling was interesting.  I don't think it has a paywall.  Not sure where to post it so seems like Fairfax is as good as any.  

 

https://www.theinsurer.com/reinsurancemonth/industry-should-now-expect-average-annual-cat-losses-of-151bn-verisk/

[UK]

14 hours ago, gfp said:

I thought this article on Verisk's recent modeling was interesting.  I don't think it has a paywall.  Not sure where to post it so seems like Fairfax is as good as any.  

 

https://www.theinsurer.com/reinsurancemonth/industry-should-now-expect-average-annual-cat-losses-of-151bn-verisk/

 

So does this suggest, that insurance is quite a growth industry with a continuously expanding TAM:)?

[gfp]

15 minutes ago, UK said:

 

So does this suggest, that insurance is quite a growth industry with a continuously expanding TAM:)?

You could kind of see Ajit and Warren let out a little gleeful grin when Ajit pointed out that inflation isn’t necessarily bad for the insurance business. 

[UK]

35 minutes ago, gfp said:

You could kind of see Ajit and Warren let out a little gleeful grin when Ajit pointed out that inflation isn’t necessarily bad for the insurance business. 

 

Sorry, my bad. Inflation resistant growth industry with ever growing TAM:))

[dartmonkey]

8 hours ago, gfp said:

Ajit pointed out that inflation isn’t necessarily bad for the insurance business. 

How does this work? I would not have expected that inflation would be necessarily bad for most insurance, since rates are readjusted every year, but maybe long-tailed insurance (asbestos for instance) might be hurt by unexpectedly high inflation. Did Jain explain his thinking?

[gfp]

43 minutes ago, dartmonkey said:

How does this work? I would not have expected that inflation would be necessarily bad for most insurance, since rates are readjusted every year, but maybe long-tailed insurance (asbestos for instance) might be hurt by unexpectedly high inflation. Did Jain explain his thinking?

 

That's right - it's not great for long tail and retroactive business.  And Berkshire certainly has some of that business. But most insurance is repriced each year and auto policies are generally repriced twice a year.  As the linked article does a good job of illustrating - the value of everything needing to be insured continues to march upward.  Inflation is only part of that.  Fairfax should do well with their global insurers just from the development of those economies and the current low penetration of insurance coverage in many of those places.

 

This chart is average annual losses, not size of market - but this illustrates the growth, and it is over a relatively short time.  Even better for an AJG or BRO.

[Cigarbutt]

^Just to add, increasing expected costs are based on past historical experience and of course the future could vary (outliers, changing trends).

From the report above and other references, the underlying drivers of previous trends have been:

-cost inflation

-climate volatility (...)

-and (often underrecognized?) the growing concentration of 'inflated' asset values in at-risk areas (urban and wildland-urban interface)

[gfp]

With everything going on with US Steel, Cliffs and the rest of the steel and iron ore stocks - you really have to appreciate how well played the Stelco situation was for Kestenbaum and Fairfax.  This one is looking pretty smart.

 

[UK]

I just hope FFH will have opportunity to participate in the next Kestenbaum's venture:)

 

Edited September 8, 2024 by UK

[dartmonkey]

11 hours ago, gfp said:

you really have to appreciate how well played the Stelco situation was for Kestenbaum and Fairfax.  This one is looking pretty smart.

 

 

 

Just to flesh this out, Stelco accepted a buyout bid from Cleveland-Cliffs in July, at $70 a share (a 87% premium to the previous price of Stelco shares, $37.36). Payment is to be $60 in cash, $10 in CLF shares. Those CLF shares have lost almost 30% of their value in the 2 months since then, so when the deal closes, Stelco may get shares that are worth about $7, if CLF shares are still around $11.50 when the deal closes (expected in Q4). Competitor US Steel, not involved in the deal, is down 21% in the interim; I might add that SLX, a steel ETF, is down too, about 11%.

 

I love it when Fairfax opportunistically accepts a nosebleed offer, like the pet insurance bid by JAB Holdings a couple of years ago or this Stelco bid. When I heard they were shopping Bauer/Maverik/Peak, which seems to have been a modestly successful investment (about 10% CAGR I think), I wondered why they don't just hold onto it, hoping someone develops an irresistible craving for a hockey/lacrosse equipment company. What's the hurry?

 

Anyways, this Stelco sale is just one more happy ending in what seems like a charmed period for Fairfax. Presuming it works out, of course; the breakup fee is only 3% of the value of the transaction.

[Viking]

My next long-form post on Fairfax will be a 4 year anniversary post -  lessons learned. To set the table, here is a post I just put up on Twitter.

 

There is a narrative that to be successful, an investor HAS TO own big tech. Because over time, big tech outperforms everything else. Maybe not. Our mystery stock has trounced big tech over the last 4 years. Who is it? I’ll give you a hint... $FFH.TO $FRFHF $GOOG $MSFT $AAPL $META $AMZN

 

Edited September 6, 2024 by Viking

[SafetyinNumbers]

4 hours ago, dartmonkey said:

 

 

When I heard they were shopping Bauer/Maverik/Peak, which seems to have been a modestly successful investment (about 10% CAGR I think), I wondered why they don't just hold onto it, hoping someone develops an irresistible craving for a hockey/lacrosse equipment company. What's the hurry?

 

I think probably just like Stelco, their partners including management were ready to sell and so they are moving on instead of buying them out. 

[gfp]

Saw this article on Brit and thought some mind find it interesting here -

https://www.reinsurancene.ws/brit-posts-80-5-undiscounted-cor-in-h124-pre-tax-profit-climbs-to-362-4m/

[SafetyinNumbers]

S&P/TSX 60 decided not to kick out AQN so no change to the index. A reprieve for those still adding including the company. 

[dartmonkey]

1 hour ago, SafetyinNumbers said:

S&P/TSX 60 decided not to kick out AQN so no change to the index. A reprieve for those still adding including the company. 

There's always a silver lining! 

 

But did the S&P make an announcement? No changes to the index at all? I can't see anything on the TSX website.

[SafetyinNumbers]

52 minutes ago, dartmonkey said:

There's always a silver lining! 

 

But did the S&P make an announcement? No changes to the index at all? I can't see anything on the TSX website.

[dartmonkey]

yes, but that is not the S&P TSX 60 (60 large caps), it’s the S&P TSX Composite, with 226 constituents 

[SafetyinNumbers]

35 minutes ago, dartmonkey said:

yes, but that is not the S&P TSX 60 (60 large caps), it’s the S&P TSX Composite, with 226 constituents 

I’m sure you looked at a sample of press releases when they made changes to S&P/TSX 60 after a quarterly index review and noticed they announce the S&P/TSX Composite changes in the same press release.

 

I don’t think I have ever seen them announce that they weren’t going to make any changes. If you have an example, please share.