Fairfax 2024

[Hoodlum]

3 hours ago, TwoCitiesCapital said:

 

QED

 

Slightly better than expected given another extension if duration, but basically all but totally offset. 

 

The duration on our bond liabilities are around 3.5 years, so it’s a little longer than it was last quarter, and if you look at our liabilities, it’s relatively close. We don’t match on purpose, but where we sit today, our liability duration is close to our asset duration. You can sort of see that in the IFRS 17 numbers, that we had a big loss on the discounting, about $750 million, $760 million that

was offset almost--very closely with the $800 million-plus of gains on our bond portfolio, so we’re pretty much matched where we are today.” Peter Clarke

 

@Viking  Another great summary as usual.  The more I think about it, I believe we may never see the share price of FFH fully reflect its intrinsic value.  Most investors don’t spend the time necessary to fully understand how the value is being built. But that is fine as I will continue to hold while averaging double digit returns. 

Edited November 4, 2024 by Hoodlum

[SafetyinNumbers]

1 hour ago, Hoodlum said:

 The more I think about it, I believe we may never see the share price of FFH fully reflect its intrinsic value.  Most investors don’t spend the time necessary to fully understand how the value is being built. But that is fine as I will continue to hold while averaging double digit returns. 

I agree with you that most investors don’t spend the time to understand how the value is being built but that has nothing to do with if FFH will ever fully reflect its intrinsic value. Multiple expansion takes aggressive buyers and reluctant sellers. The buying is coming from the 60 index add and all of the Canadian active funds that are underweight which is value insensitive . Meanwhile, share buybacks and the TRS have cleaned up 7m shares since 2019 from the weakest (read value investor) hands.
 

For those remaining, 2024 will be the fourth year with ROE north of 15%. I think anyone who has a rudimentary understanding of the business model can predict the next 4 years will also be north of 15% on average. If I’m right, the shareholders left will be reluctant sellers by the end of 8 years and the multiple could challenge something like Intact Financial at 3x BV despite recent poor returns. That’s why my plan to sell is based on forward returns and not valuation. 
 

Call me a reluctant seller.

Edited November 4, 2024 by SafetyinNumbers

[mananainvesting]

4 hours ago, SafetyinNumbers said:

I agree with you that most investors don’t spend the time to understand how the value is being built but that has nothing to do with if FFH will ever fully reflect its intrinsic value. Multiple expansion takes aggressive buyers and reluctant sellers. The buying is coming from the 60 index add and all of the Canadian active funds that are underweight which is value insensitive . Meanwhile, share buybacks and the TRS have cleaned up 7m shares since 2019 from the weakest (read value investor) hands.
 

For those remaining, 2024 will be the fourth year with ROE north of 15%. I think anyone who has a rudimentary understanding of the business model can predict the next 4 years will also be north of 15% on average. If I’m right, the shareholders left will be reluctant sellers by the end of 8 years and the multiple could challenge something like Intact Financial at 3x BV despite recent poor returns. That’s why my plan to sell is based on forward returns and not valuation. 
 

Call me a reluctant seller.

 

Turnover in cad is low, not sure what it was few years ago . Currently 1% lower than intact. 

 

[SafetyinNumbers]

4 hours ago, Haryana said:

Fairfax is just about 5% from overtaking Intact to be the top P&C of Canada, that could make people notice and dig deep.

Float cap matters more than market cap. The 60 add will make them dig deep. I’m also sure IFC will be issuing more equity soon to increase its weighting.

 

 

[LC]

Adding back the 87$ in fair value increase, we still trade at about 1.2x BV.

[MMM20]

Has anyone seen a version of this chart that adjusts for fair value in excess of carrying value over time? If not, I'll probably create it myself. My sense is that when you look at it that way, the multiple hasn't changed much over the past few years. 

 

 

 

Edited November 4, 2024 by MMM20

[MMM20]

FWIW, more support for the idea that FFH should trade in the 2-2.5x book range.

 

[MMM20]

Here's Cormark playing devil's advocate, or something like that.

 

[Hoodlum]

7 minutes ago, MMM20 said:

Here's Cormark playing devil's advocate, or something like that.

 

 

I believe this is the first admission that the book multiple needs to be increased (1.1x to 1.25x).  While still a ways off from where I think it needs to be (I am not selling at 1.5x book), I think we will see further increases of the book multiple from other analysts.  

[SafetyinNumbers]

I went on a podcast and spoke mostly about Fairfax.

 

https://t.co/x7v5g2OvGf

[nwoodman]

2 hours ago, SafetyinNumbers said:

I went on a podcast and spoke mostly about Fairfax.

 

https://t.co/x7v5g2OvGf

Very eloquent and enjoyable.  The value inside value cannot be repeated enough.  A Russian Doll of value investing

[SafetyinNumbers]

1 hour ago, nwoodman said:

Very eloquent and enjoyable.  The value inside value cannot be repeated enough.  A Russian Doll of value investing

Thanks @nwoodman! I appreciate the kind words and absolutely agree. The right tails are so exciting. 

[Xerxes]

4 hours ago, SafetyinNumbers said:

I went on a podcast and spoke mostly about Fairfax.

 

https://t.co/x7v5g2OvGf

my man ! Thank you 

 

new podcast series for me as well.
Never heard of this one before. 

[SafetyinNumbers]

15 minutes ago, Xerxes said:

my man ! Thank you 

 

new podcast series for me as well.
Never heard of this one before. 

I hope you enjoy it. Anthony, the host, has great energy! 

[whatstheofficerproblem]

Since Trump favors cuts and spending, which is bad for the deficit because without additional taxes there will be issuance of more bonds, the bonds are selling off. Fairfax's bond portfolio duration was 3.5 years, the yields are up. How will this effect the mark-to-market value of the bonds in the interim?

[Dinar]

35 minutes ago, whatstheofficerproblem said:

Since Trump favors cuts and spending, which is bad for the deficit because without additional taxes there will be issuance of more bonds, the bonds are selling off. Fairfax's bond portfolio duration was 3.5 years, the yields are up. How will this effect the mark-to-market value of the bonds in the interim?

It should be offset by the higher discount factor on the insurance liabilities. 

[UK]

51 minutes ago, whatstheofficerproblem said:

Since Trump favors cuts and spending, which is bad for the deficit because without additional taxes there will be issuance of more bonds, the bonds are selling off. Fairfax's bond portfolio duration was 3.5 years, the yields are up. How will this effect the mark-to-market value of the bonds in the interim?

 

Short term wise bond portfolio is matched with insurance liabilities and longer term higher rates is way better for FFH and I think the latter is also more important.

[UK]

7 hours ago, SafetyinNumbers said:

I went on a podcast and spoke mostly about Fairfax.

 

https://t.co/x7v5g2OvGf

 

Thanks! This will be the first thing I will listen to asap:)

[MarioP]

23 hours ago, SafetyinNumbers said:

I went on a podcast and spoke mostly about Fairfax.

 

https://t.co/x7v5g2OvGf

Terrefic podcast. And don’t skip it because you know Fairfax. There is lots of interesting things, specialy your view of how the market work now that it is dominated by quants and indexers.

 

And I must confess something : I’m one of those value guy who never bought Fairfax India because I didn’t want to pay the fees . I will have a serious look at it now that I know that they are waived until at least 21.

[SafetyinNumbers]

14 minutes ago, MarioP said:

Terrefic podcast. And don’t skip it because you know Fairfax. There is lots of interesting things, specialy your view of how the market work now that it is dominated by quants and indexers.

 

And I must confess something : I’m one of those value guy who never bought Fairfax India because I didn’t want to pay the fees . I will have a serious look at it now that I know that they are waived until at least 21.

Thanks for listening! On FIH, the fees aren’t waived until the most recent book value ~$21.5, just that they are already paid up to the end of 2023 and any additional since then to end of Q324 already accrued above the 5% hurdle rate.

[mananainvesting]

@SafetyinNumbers: Fantastic Podcast! Enjoyed the listen just like your previous podcast with Bill Brewster.

[Viking]

On 11/5/2024 at 3:32 PM, SafetyinNumbers said:

I went on a podcast and spoke mostly about Fairfax.

 

https://t.co/x7v5g2OvGf

@SafetyinNumbers , i finally got the time to listen to your podcast (I am just finishing up my vacation). You did a fantastic job! It was very comprehensive. It was a great review for me on many topics. And i also learned a great deal. It also provided me with some ideas that might make interesting long post articles in the future. Thank you!

[Haryana]

9 hours ago, mananainvesting said:

@SafetyinNumbers: Fantastic Podcast! Enjoyed the listen just like your previous podcast with Bill Brewster.

Here is that for easy reference 

https://podcasters.spotify.com/pod/show/william-brewster1/episodes/Charles-Frischer-and-Asheef-Lalani---Fairfax-Is-A-Fat-Pitch-e2757vs

 

Edited November 7, 2024 by Haryana

[Haryana]

11 hours ago, SafetyinNumbers said:

Thanks for listening! On FIH, the fees aren’t waived until the most recent book value ~$21.5, just that they are already paid up to the end of 2023 and any additional since then to end of Q324 already accrued above the 5% hurdle rate.

Would you agree with the following perspective - 

The fee is already paid up to the current book value ($21.5). So, if the book value grows only 5% (~$1) in a year from now and also the market price catches up from $15 to $22.5, then all of this 50% price gain will be without paying any fee. 

Edited November 7, 2024 by Haryana

[SafetyinNumbers]

Thanks @mananainvesting and @Viking! Viking I’m looking forward to what you come up with. I find your analysis extremely helpful!

 

@Haryana I think that makes sense on the performance fees but it’s hard to believe the discount closes entirely except if investors really want to own BIAL post IPO.