Fairfax 2024

[Haryana]

On 9/20/2024 at 1:21 PM, dartmonkey said:

Algonquin has continued its gradual slide (along with most of the oil and gas sector), and now has a market cap of $5.65b, less than half its value when it was included in the TSX 60 in June 2020 and now less than 0.19% of the index.

 

For comparison, FFH is now $38b, but as the inclusion rules note (point iv), sector weighting trumps size. Sector weights are to mimic the sector weights of the TSX Composite, currently with 226 constituents. Sector weights for TSX Composite and TSX 60 are currently as follows:

...

 

May I object to your interpretation "sector weighting trumps size"?

 

Here again is text of document you linked from their website but without your bolded emphasis.

 

"

...

2. When adding securities to the S&P/TSX 60 index, the Index Committee generally selects amongst the larger securities, in terms of float QMV, in the S&P/TSX Composite. Size may, however, be overridden for purposes of sector balance as described in item 4 below.
...

4. Security selection for the S&P/TSX 60 index is conducted with a view to achieving sector balance that is reflective of the GICS sector weights in the S&P/TSX Composite.

...

"

 

This shows the norm "the Index Committee generally selects amongst the larger securities".

 

And this is the exception: "Size may, however, be overridden..."

 

(emphasis mine)

Edited September 22, 2024 by Haryana
cosmetic

[dartmonkey]

23 hours ago, Haryana said:

May I object to your interpretation "sector weighting trumps size"?

 

Here again is text of document you linked from their website but without your bolded emphasis.

 

"

...

2. When adding securities to the S&P/TSX 60 index, the Index Committee generally selects amongst the larger securities, in terms of float QMV, in the S&P/TSX Composite. Size may, however, be overridden for purposes of sector balance as described in item 4 below.
...

4. Security selection for the S&P/TSX 60 index is conducted with a view to achieving sector balance that is reflective of the GICS sector weights in the S&P/TSX Composite.

...

Of course you are free to object to my interpretation, but notice that the only mention of a criterion being overridden is in favour of sector balancing. In point 2, they say that selecting larger securities may be overridden by sector weight, but in point 4 they do NOT say that sector weights may be overridden for the purposes of selecting the larger securities.

 

In other words, the 2 criteria may be contradictory, and in that case, one of them can be overridden, the one about size...

[Haryana]

On 9/21/2024 at 12:47 PM, Haryana said:

 

This shows the norm "the Index Committee generally selects amongst the larger securities".

 

And this is the exception: "Size may, however, be overridden..."

 

(emphasis mine)

 

This is very much in line with what they would do to hold power while posing as transparent.

The key word here that attains such feat is "may".

 

So they have a public face showing that they have a policy which indicates transparency.

But then they use the word "may" which gives them all the power as they would please.

 

Similar to when you hear = "your call may be recorded".
Now they are free to do either of the following -
1. Record all the calls.
2. Record a few calls at random.
3. Target some calls for recording.
4. Not record any call.

 

[MMM20]

https://www.kaizenreserve.com/capital-allocation/how-ex-berkshire-hathaway-executive-david-sokol-is-building-atlas-corporation-into-a-capital-allocation-compounding-machine

 

What are the chances David Sokol ends up as Fairfax CEO when Prem is done? I wonder if Fairfax has a better version of Greg Abel right there in the wings. Anyone have any real insight on that? He’s only 6 years younger, but maybe they both work til 75 (80?).

 

Edited September 24, 2024 by MMM20

[Xerxes]

36 minutes ago, MMM20 said:

What are the chances David Sokol ends up as Fairfax CEO when Prem is done? I wonder if Fairfax has a better version of Greg Abel right there in the wings. Anyone have any real insight on that? He’s only 6 years younger, but maybe they both work til 75 (80?).
 

I think Sanjeev floated that some years ago around the time Atlas’ privatization was taking place. 
 

Perhaps there is a merit to that idea 

[Junior R]

46 minutes ago, MMM20 said:

https://www.kaizenreserve.com/capital-allocation/how-ex-berkshire-hathaway-executive-david-sokol-is-building-atlas-corporation-into-a-capital-allocation-compounding-machine

 

What are the chances David Sokol ends up as Fairfax CEO when Prem is done? I wonder if Fairfax has a better version of Greg Abel right there in the wings. Anyone have any real insight on that? He’s only 6 years younger, but maybe they both work til 75 (80?).

 

I would rather have David Sokol as Fairfax ceo over Ben

[SafetyinNumbers]

3 minutes ago, Junior R said:

I would rather have David Sokol as Fairfax ceo over Ben

Ben’s going to be Chairman, not CEO is my understanding. Presumably Peter Clarke is the next CEO.

[nwoodman]

1 minute ago, SafetyinNumbers said:

Ben’s going to be Chairman, not CEO is my understanding. Presumably Peter Clarke is the next CEO.

I would much prefer Clarke to Sokol. I might be a bit naive, but Clarke’s style imbues trust, Sokol not so much.

[Thrifty3000]

1 hour ago, Xerxes said:

I think Sanjeev floated that some years ago around the time Atlas’ privatization was taking place. 
 

Perhaps there is a merit to that idea 

Ahem…

 

 

[Thrifty3000]

1 hour ago, Junior R said:

I would rather have David Sokol as Fairfax ceo over Ben

Just wait until the world recognizes how much better Prem has done with succession planning than Buffett.

[Xerxes]

46 minutes ago, Thrifty3000 said:

Ahem…

 

 

opps 

[MMM20]

10 hours ago, Thrifty3000 said:

Ahem…

 

 

 

Thanks, I figured it wasn't the first time this was brought up. I'm wondering if Sokol as CEO is one plausible way the stock ends up rerating ~2-3x this decade. Maybe he's got a chip on his shoulder and learned some hard lessons from the way things ended at BRK. Fairfax looks like the ideal platform for him to build on and outdo BRK over the next decade or two. But yeah, he's 68 and I wonder if he'd be up for it. Maybe it's not worth speculating about, but I wonder if anyone has a strong opinion on this and/or a different one than a few years ago. 

 

Edited September 24, 2024 by MMM20

[Thrifty3000]

I think Sokol would be way more valuable/effective as a board member (holding operating managers accountable for high performance). As an operator he might be too much of a culture shock.

 

However, I also think Sokol is probably too expensive of a board member. He would probably demand millions in board compensation, which would cause all kinds of headaches with future board comp and retention.

Edited September 24, 2024 by Thrifty3000

[UK]

3 hours ago, Thrifty3000 said:

I think Sokol would be way more valuable/effective as a board member (holding operating managers accountable for high performance). As an operator he might be too much of a culture shock.

 

Definitelly could be hard for him to let sit everybody idle during soft insurance market:))

[John Hjorth]

3 hours ago, Thrifty3000 said:

... However, I also think Sokol is probably too expensive of a board member. He would probably demand millions in board compensation, which would cause all kinds of headaches with future board comp and retention.

 

It is not the way things works anywhere. If proposed for a board position, you have to accept or reject the outlined pricinciples and practices for board membership compensation, which just would then just trigger a 'No, thank you.' And certainly Mr. Sokol already knows that.

[Parsad]

19 hours ago, nwoodman said:

I would much prefer Clarke to Sokol. I might be a bit naive, but Clarke’s style imbues trust, Sokol not so much.

 

If something happened today, Peter Clarke would become CEO.  David as talented as he is, would probably be precluded by his age, as would Andy Barnard. 

 

Not likely to be Ben, but never say never.  He's likely to be Chair one day, or perhaps Christine will be Chair...one of the Watsa children will be.

 

Long term, it could also be Wade, Lawrence or one of the insurance leaders.  The pool is very deep, so that is the one thing I'm not concerned about at Fairfax.

 

Cheers!

 

 

[Parsad]

17 hours ago, Thrifty3000 said:

Just wait until the world recognizes how much better Prem has done with succession planning than Buffett.

 

+1!  By far!  Cheers!

[Parsad]

8 hours ago, MMM20 said:

 

Thanks, I figured it wasn't the first time this was brought up. I'm wondering if Sokol as CEO is one plausible way the stock ends up rerating ~2-3x this decade. Maybe he's got a chip on his shoulder and learned some hard lessons from the way things ended at BRK. Fairfax looks like the ideal platform for him to build on and outdo BRK over the next decade or two. But yeah, he's 68 and I wonder if he'd be up for it. Maybe it's not worth speculating about, but I wonder if anyone has a strong opinion on this and/or a different one than a few years ago. 

 

 

I think he's quite content managing his own family office.  No bullshit and you still grow your wealth!  Really got the shaft at Berkshire...why risk going through that again.  Cheers!

[Parsad]

2 hours ago, UK said:

 

Definitelly could be hard for him to let sit everybody idle during soft insurance market:))

 

No, he understands reinsurance as well as anyone.  He's probably one of the most underrated operators in business.  Cheers!

[Parsad]

2 hours ago, John Hjorth said:

 

It is not the way things works anywhere. If proposed for a board position, you have to accept or reject the outlined pricinciples and practices for board membership compensation, which just would then just trigger a 'No, thank you.' And certainly Mr. Sokol already knows that.

 

Yeah, and he's already worth probably north of half a billion...$2M in compensation for a board seat would have no effect whatsoever.  If he does it, he'll do it for free.  Cheers!

[Thrifty3000]

What would be the impact to FFH earnings if US corporate taxes increase to 28% from 21% (when the Trump tax cuts expire)? Do we just reduce the US-based earnings, or is there some kind of tax treaty with Canada that changes the math?

[gfp]

2 minutes ago, Thrifty3000 said:

What would be the impact to FFH earnings if US corporate taxes increase to 28% from 21% (when the Trump tax cuts expire)? Do we just reduce the US-based earnings, or is there some kind of tax treaty with Canada that changes the math?

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

[Thrifty3000]

7 minutes ago, gfp said:

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

 

7 minutes ago, gfp said:

I don’t think the Trump corporate tax rate cuts expire. Congress would have to do something 

Ok, but Kamala is calling for 28% corporate tax in her budget plan. So I’m curious what the risk adjustment to fair value should be. 

[Thrifty3000]

Here are the corporate related elements of her plan…

 

[Maverick47]

43 minutes ago, Thrifty3000 said:

Ok, but Kamala is calling for 28% corporate tax in her budget plan. So I’m curious what the risk adjustment to fair value should be. 

Personally I’m not too worried about corporate tax rate changes over the long term.  Insurance companies will set rates targeting their desired after tax returns on allocated capital.  So if tax rates on US based income increase, and if target after tax returns are unchanged, insurers’ pricing formulas will simply adjust to charge their customers rates that will be sufficient to generate those after tax returns.  
 

You are correct to be concerned about what would happen in the short term.  Since rates are set in advance, to the extent that premiums in force are set based on lower tax rates, they will generate lower than desired profits between the time when tax rates are changed and when the rates can be adjusted upwards.  This should affect all insurance companies in the taxing jurisdiction relatively equally as a one time upward or downward impact on after tax earnings, depending on whether corporate tax rates are increased or decreased.