Fairfax 2024

[dartmonkey]

51 minutes ago, Jaygo said:

Do any Canadians hold FFH in USD. Sounds silly but I have lots of Canadian ideas right now but few US so i have a lot more USD cash laying around.

I own it all in USD (FRFHF) principally because I like getting the USD dividend in a US$-denominated account. In my TD accounts where I have my Fairfax shares, when I got a dividend in a Canadian account, TD thieved off 2% in converting the US$ dividend into CAD. Wouldn't be a problem if I owned it in my Interactive Brokers account, but my Fairfax holdings go back to a time before I had an IBKR account (>15 years ago).

 

Trading volume is about the same for the TSX (FFH) shares and for the US$ OTC shares anyways, so it makes sense for me to hold it on the US side.

[Jaygo]

2 minutes ago, dartmonkey said:

I own it all in USD (FRFHF) principally because I like getting the USD dividend in a US$-denominated account. In my TD accounts where I have my Fairfax shares, when I got a dividend in a Canadian account, TD thieved off 2% in converting the US$ dividend into CAD. Wouldn't be a problem if I owned it in my Interactive Brokers account, but my Fairfax holdings go back to a time before I had an IBKR account (>15 years ago).

 

Trading volume is about the same for the TSX (FFH) shares and for the US$ OTC shares anyways, so it makes sense for me to hold it on the US side.

Thanks. FRFHF doesn't seem to trade much at least on my garbage RBC brokerage account. It will show the same price all day then adjusts the following day.

 

 

[glider3834]

21 minutes ago, Daphne said:

Nuclear power company Westinghouse Electric and Seaspan ULC said on Thursday they have signed a memorandum of understanding to help expand nuclear projects in Canada and around the world.

With nuclear power garnering renewed interest as a cleaner energy source, countries such as Italy, United Kingdom, China and the United States are looking into nuclear technology firms such as Westinghouse to meet their carbon emission goals.

Westinghouse said Seaspan, which provides services such as shipbuilding and maintenance, has the potential to manufacture key components, including pipe spools and steel structures, used in its nuclear reactors.

I think this is Seaspan ULC rather than Seaspan Corp 

[RichardGibbons]

29 minutes ago, dartmonkey said:

I own it all in USD (FRFHF) principally because I like getting the USD dividend in a US$-denominated account. In my TD accounts where I have my Fairfax shares, when I got a dividend in a Canadian account, TD thieved off 2% in converting the US$ dividend into CAD. Wouldn't be a problem if I owned it in my Interactive Brokers account, but my Fairfax holdings go back to a time before I had an IBKR account (>15 years ago).

 

Trading volume is about the same for the TSX (FFH) shares and for the US$ OTC shares anyways, so it makes sense for me to hold it on the US side.

 

Funny, I do the same for the exact same reason.

[dartmonkey]

1 hour ago, Jaygo said:

FRFHF doesn't seem to trade much at least on my garbage RBC brokerage account. It will show the same price all day then adjusts the following day.

Yes, I probably get ripped off by TD with a bad spread when I buy or sell FRFHF there. I should probably just move everything over to Interactive Brokers where they treat you properly; the only reason I keep the TD account is (i) inertia and (ii) it's such a pain to trade there, for a variety of reasons, including the US$10 brokerage fee per trade, that I almost never make a trade (with a few exceptions; Muddy Waters, now Milton.) Making it difficult to trade has probably indirectly saved me a ton of money by making me just leave my now ~50% Fairfax position alone. If I could be sure I would respect my vow not to sell FFH at less than 2x book, I would just transfer all my funds over to IB.

 

Ideally, IB would set up a validation machine that would force me to insert my thumb to be painfully crushed for 60 seconds in order to go ahead with a sale of FFH shares. In the meantime, I let TD provide equivalent pain with no interest on cash balances, high transaction fees, usurious forex rates, and a crummy interface, but I get great returns...

[dartmonkey]

1 hour ago, glider3834 said:

I think this is Seaspan ULC rather than Seaspan Corp 

Yes. The companies are related - they have a common history and they even have the same logo!

 

Seaspan Corp (mostly ocean transport) was spun off from the Washington family owned Seaspan ULC (tugboats, ferries, shipyards); the Washington family still owns part of each of them, but Fairfax only owns the Seaspan Corp side (the parent company of which was called Atlas but is now called Poseidon.)

[Xerxes]

This is more of a Brookfield story as the 51% owner of Westinghouse, with Cameco owning the balance 49%

[Junior R]

1 hour ago, dartmonkey said:

Yes, I probably get ripped off by TD with a bad spread when I buy or sell FRFHF there. I should probably just move everything over to Interactive Brokers where they treat you properly; the only reason I keep the TD account is (i) inertia and (ii) it's such a pain to trade there, for a variety of reasons, including the US$10 brokerage fee per trade, that I almost never make a trade (with a few exceptions; Muddy Waters, now Milton.) Making it difficult to trade has probably indirectly saved me a ton of money by making me just leave my now ~50% Fairfax position alone. If I could be sure I would respect my vow not to sell FFH at less than 2x book, I would just transfer all my funds over to IB.

 

Ideally, IB would set up a validation machine that would force me to insert my thumb to be painfully crushed for 60 seconds in order to go ahead with a sale of FFH shares. In the meantime, I let TD provide equivalent pain with no interest on cash balances, high transaction fees, usurious forex rates, and a crummy interface, but I get great returns...

You can just FFH in CAD account using CAD then journal it over to USD side and not face this issue

[sleepydragon]

On 10/7/2024 at 11:05 AM, MMM20 said:

I missed this last week. CIBC's "index specialist" now thinks FFH is #1 in the queue for inclusion in the TSX 60, which would bring "close to 1mm shares of demand into the stock, representing ~15x its 30-day average daily volume." I'm guessing this is music to @SafetyinNumbers's ears and explains the recent strength. Here's hoping we eventually get to sell at a big premium to intrinsic value to know-nothing index investors. Sorry, grandma!

 

 

I used to do a lot of studies on these before. I remembered the highest prediction power variable that predicts the “pop” return is the dollar amount, not the days of $adv. also, TSX 60 is a small index. For SP500, such add is about 10% pop. For SP400, maybe 4%. You can look at historical what the “pop” is for past index adds to TSX. I suspect it’s not much.

 

 

[SafetyinNumbers]

3 hours ago, sleepydragon said:

I used to do a lot of studies on these before. I remembered the highest prediction power variable that predicts the “pop” return is the dollar amount, not the days of $adv. also, TSX 60 is a small index. For SP500, such add is about 10% pop. For SP400, maybe 4%. You can look at historical what the “pop” is for past index adds to TSX. I suspect it’s not much.

 

 

It all depends on the extant shareholders and where the marginal sellers are whether they are basing their decisions on price or value. 

[sleepydragon]

Just now, SafetyinNumbers said:

It all depends on the extant shareholders and where the marginal sellers are whether they are basing their decisions on price or value. 

This is a very good point. 

[Xerxes]

In Q4 of 2016, Prem Watsa and team sold off their bond portfolio and shorten its duration. That was around the election of President Trump. 
 

Today, the bond portfolio is already short (shorter than 4 anyways), the hedges are already off. And the size of the overall business is just bigger than 2016. 
 

Do you believe that there is an event-driven trade with the U.S. election this time around that FFH has up his sleeve. 

 

ref: 2016 investor letter 

[Hoodlum]

Berkley is suggesting at best flat pricing for renewals.  It sounds like Hurricane Milton losses will come under what was initially thought, which will be good for Q4 earning but not so good for 2025 pricing and future earning.

 

https://in.investing.com/news/stock-market-news/earnings-call-w-r-berkley-reports-robust-q3-results-amid-market-shifts-93CH-4481988

 

Quote

Rob Berkley: I think it is a little bit early to reach a conclusion on that. I think we are going to -- at this stage, the outcome of both storms you referenced, and particularly Milton, I don't think that has really come into a very sharp focus, and we are going to just have to see where things settle out. I think the reinsurance marketplace is doing what it can to position itself as I understand it, for flat and my expectation is that unless Milton proves to be uglier, it is going to be a challenge for them to actually achieve flat. As far as the insurance marketplace goes, we'll see how it unfolds, and we are going to have to see what the losses are.

 

Edited October 22, 2024 by Hoodlum

[gfp]

18 minutes ago, Hoodlum said:

Berkley is suggesting at best flat pricing for renewals.  It sounds like Hurricane Milton losses will come under what was initially thought, which will be good for Q4 earning but not so good for 2025 pricing and future earning.

 

https://in.investing.com/news/stock-market-news/earnings-call-w-r-berkley-reports-robust-q3-results-amid-market-shifts-93CH-4481988

 

 

 

Here is today's newsletter out of the Baden-Baden conference of international reinsurers for those interested in more color (no paywall)

https://pdf.static.prod.wbm.infomaker.io/c80c8f7a-cdbf-57a6-9364-adb3617297fc?utm_source=listrak&utm_medium=email&utm_term=Download+issue+three%3a+22+October&utm_campaign=Welcome+to+our+Baden-Baden+Day+Three+edition%3a+Tuesday+22+October

[Viking]

Below are a few of the things i will be watching for when Fairfax reports Q3 earnings. The order of items reflects my level of interest - not how important they are to Fairfax and its performance over the long term.

 

Anything missing from my list?

 

1.) Impact of substantial decline in interest rates in Q3

 

When Fairfax reports Q3 results the 800lb gorilla will likely be the impact of the big decline in interest rates that we saw in Q3. Rates were down significantly across the curve.

 

This will have two big impacts of Fairfax:

1. Change in value of the fixed income portfolio - resulting in a big unrealized gain.
2. Impacts of IFRS accounting - resulting in a big loss.

My guess is the two impacts will net into a nice unrealized gain for Fairfax. How big? No idea. What do other board members think?

 

Of interest, so far in Q4 we have seen bond yields spike higher. Should this hold, this will reverse some of the net effect that happens in Q3.

 

Fairfax also tends to be pretty active in how they manage their fixed income portfolio (from an historical perspective). It will be interesting to see if they are able to find a way to take advantage of the extreme volatility we have seen in the bond market over the past 3 months.

 

 

2.) Capital allocation

 

Update on effective shares outstanding

• Under 22 million?
• any commentary? Still view shares as being significantly undervalued? (Are they still holding FFH-TRS position?)

Asset sale / purchase: any commentary?

• Purchase of Sleep Country. What will it deliver pre-tax to non-insurance consolidated bucket?
• Sale of Stelco. Pre-tax investment gain = $397 million, expect Q4 close?

3.) Insurance

• What is growth in net premiums written?
• What is CR?
• What is level of catastrophe losses? In line with expectations?
• What is level of reserve releases?
• Commentary on hard market?

4.) Interest and dividend income

• Is it still growing? Flat? Declining?
• Interest and dividend income was $590 million in Q1 and $614 million in Q2.
• Is Fairfax’s investment in Kennedy Wilson’s debt platform continuing to increase in size?

5.) What is share of profit of associates?

• Eurobank? Chug, chug, chug?
• Poseidon? Are we seeing green shoots?

6.) Equities

• What are investment gains from equities? The equities I track suggests mark to market gains from equities will be solid in the quarter.
• For Associate holdings, what is the excess of market value to carrying value? This is value that is not being captured by book value.

 

7.) What is book value per share?

• At June 30, 2024, BVPS = $979.65

8.) Miscellaneous topics

 

Some notes from 1H 2024 results:

• Tax rate looks elevated. Q3?
• Amount of earnings accruing to non-controlling interests looks elevated. Q3
• Currency has been a headwind to BV in 1H. Tailwind in Q3?
• Life-ins/runoff costs look elevated. Does trend continue in Q3?

 

Due to new issuance, the interest cost has popped higher. What is the new run rate?

Edited October 22, 2024 by Viking

[TwoCitiesCapital]

 

2 hours ago, Viking said:

1.) Impact of substantial decline in interest rates in Q3

 

When Fairfax reports Q3 results the 800lb gorilla will likely be the impact of the big decline in interest rates that we saw in Q3. Rates were down significantly across the curve.

 

This will have two big impacts of Fairfax:

1. Change in value of the fixed income portfolio - resulting in a big unrealized gain.
2. Impacts of IFRS accounting - resulting in a big loss.

My guess is the two impacts will net into a nice unrealized gain for Fairfax. How big? No idea. What do other board members think?

 

 

I don't have a great understanding of the IFRS rule other than to recognize its some discounting mechanism that fluctuates with rates. Fairfax has previously benefitted from underweight duration as rates rose on a net basis. I would actually expect that this will go the other way now that rates are falling - though they've still locked in some relative benefit by extending duration to be less underweight their liabilities in recent quarters. 

 

Should be another $600+ million in interest income and perhaps an $800-$1B unrealized gain on rates (though 1/2 of that has likely reversed post quarter end). I'm going to guess most of that gain, if not more than all of it, gets wiped out by the IFRS adjustments. I'm thinking best case scenario is the rate move is neutralized and we keep the interest. 

Edited October 23, 2024 by TwoCitiesCapital

[SafetyinNumbers]

4 hours ago, Viking said:

 

5.) What is share of profit of associates?

• Eurobank? Chug, chug, chug?
• Poseidon? Are we seeing green shoots?

 

FFH reports Eurobank and Poseidon on a lag so we know these numbers already for Q3. 

[nwoodman]

@Viking good list as always, you have covered it nicely.  I am looking forward to:
 

1. Any color on fixed income.  I can’t help but feel Bradstreet is going to look like the superior allocator he is….again.

2. Underwriting margins (as always) and claims inflation.  

3. Any moves to repurchase Omer’s positions in subs

4. I hope they stick with the format from last qtrs CC, it worked well.  Would love to hear Wades’s thoughts on Ensign as well as their other commodity (gold ) positions.  Perhaps it would be accretive to point 1 above.  Conversation may be muted given the coming election

 

To be honest, as time goes on I am far less on the edge of my seat for the quarterly reports than a couple of years ago.  The position is now a much larger % of the portfolio, but the handwringing is less not more. 

 

 

 

Edited October 23, 2024 by nwoodman

[UK]

1 hour ago, nwoodman said:

To be honest, as time goes on I am far less on the edge of my seat for the quarterly reports than a couple of years ago.  The position is now a much larger % of the portfolio, but the handwringing is less not more. 

+1

[SafetyinNumbers]

1 hour ago, UK said:

To be honest, as time goes on I am far less on the edge of my seat for the quarterly reports than a couple of years ago.  The position is now a much larger % of the portfolio, but the handwringing is less not more. 
 

+1

Pretty sure this is how multiple expansion happens. 

[UK]

25 minutes ago, SafetyinNumbers said:

Pretty sure this is how multiple expansion happens. 

[nwoodman]

48 minutes ago, SafetyinNumbers said:

Pretty sure this is how multiple expansion happens. 

I will take continued compounding of book and EPS if it’s all the same to you sir

[SafetyinNumbers]

42 minutes ago, nwoodman said:

I will take continued compounding of book and EPS if it’s all the same to you sir

Luckily they usually come hand in hand!

[MMM20]

On 10/23/2024 at 5:20 AM, nwoodman said:

To be honest, as time goes on I am far less on the edge of my seat for the quarterly reports than a couple of years ago.  The position is now a much larger % of the portfolio, but the handwringing is less not more. 

 

Could you share more? Maybe I'm the opposite as I get uncomfortable when things start trading closer to fair value and I feel like I have a decision to make, which is probably why I sold some at ~$1,200 to bring it down to ~30% position (even though I think the risk/reward has gotten better and we're still nowhere near fair value - yes, I know that makes little sense on its face). Maybe it's a constitutional defect but I'm always looking what could go wrong and get no inherent joy from concentration in best ideas. It's constant tension between discomfort with the sizing and confidence in the analysis. The "sleep at night" test is all I've got. Any thoughts?

 

Edited October 24, 2024 by MMM20

[LC]

My stance is similar to @MMM20

Fairfax has been on a 2-3 year tear, and trades at 1.2-1.3x BV.

 

Could it go to 1.5x, 1.7x, 2x book? Sure - and probably deservedly.

But to push back: Do we also think many of the easy hurdles have already been cleared?