Fairfax 2024 AGM

[Thrifty3000]

4 hours ago, vakilkp said:

Is this in terms of current price of FFH or the mechanics of the TRS?  Thanks for the running commentary

 

Regarding the TRS it sounded to me like Prem said:

 

- all the major Canadian banks are the counterparties

- the counterparties have hedging mechanisms to neutralize risk on their end

- the banks can't call the TRS's before the contracted date

- FFH has extended the contracts to at least 2025 (I'm not sure I heard that correctly, he may have even said 2026)

- FFH can continue extending the contracts.

 

My assumption is once FFH feels the TRS is no longer a bargain it will simply opt to not renew the contract (the exit price will factor in the underlying FFH share price as well as the carrying cost of the TRS).

[Thrifty3000]

1 minute ago, Thrifty3000 said:

 

Regarding the TRS it sounded to me like Prem said:

 

- all the major Canadian banks are the counterparties

- the counterparties have hedging mechanisms to neutralize risk on their end

- the banks can't call the TRS's before the contracted date

- FFH has extended the contracts to at least 2025 (I'm not sure I heard that correctly, he may have even said 2026)

- FFH can continue extending the contracts.

 

My assumption is once FFH feels the TRS is no longer a bargain it will simply opt to not renew the contract (the exit price will factor in the underlying FFH share price as well as the carrying cost of the TRS).

 

Also, I don't think anyone should expect FFH to repurchase/retire an equivalent amount of shares upon termination of the TRS. It appears to me FFH is already using the cash payouts from the quarterly TRS gains to repurchase shares. That makes sense since they're repurchasing undervalued shares with cash proceeds from their undervalued TRS asset.

[Thrifty3000]

PS. I bought a few more shares today to bring my position to a nice round number. First, to make it easier/possible to do the math in my head. Haha. Second, because watching this annual meeting further cemented we're sitting on one of the most obvious lollapaloozas we'll see in our lifetimes:

 

EXPERIENCE + INTEGRITY + CULTURE + NETWORK + SCALE + DECENTRALIZATION + GLOBAL PRESENCE + STRONG CASH FLOW + RISK PROFILE + AGILE OPPORTUNISM + CONTROLLING SHAREHOLDER + BENCH STRENGTH + FV DISCOUNT... = LOLLAPALOOZA!

[Xerxes]

53 minutes ago, Thrifty3000 said:

 

Regarding the TRS it sounded to me like Prem said:

 

- all the major Canadian banks are the counterparties

- the counterparties have hedging mechanisms to neutralize risk on their end

- the banks can't call the TRS's before the contracted date

- FFH has extended the contracts to at least 2025 (I'm not sure I heard that correctly, he may have even said 2026)

- FFH can continue extending the contracts.

 

My assumption is once FFH feels the TRS is no longer a bargain it will simply opt to not renew the contract (the exit price will factor in the underlying FFH share price as well as the carrying cost of the TRS).

On TRS, my simplistic take is that it was there to lever and extract juice the “transformational” step-change that he was betting on. 
 

Said differently I don’t think he would have put a TRS if it was only discount to BV that was too wide for his taste. Share repurchases takes care of that. 
 

I believe despite what he said share being still inexpensive, the TRS was really a bet on the step-change on the NAV rather discount to NAV. The fact that it was placed when it was at a discount it is just a bonus. 
 

And since that NAV will continue to grow to the tune of $125 per share per year, than the TRS will continue to stay on as NAV will continue to grow. Suffice to say $125 is the figure publicly stated, but the insiders know more than what we know. 
 

The only cost on the TRS is the fees to the Canadian banks. And some cash flow management if the stock dips. 

[Parsad]

1 hour ago, Thrifty3000 said:

PS. I bought a few more shares today to bring my position to a nice round number. First, to make it easier/possible to do the math in my head. Haha. Second, because watching this annual meeting further cemented we're sitting on one of the most obvious lollapaloozas we'll see in our lifetimes:

 

EXPERIENCE + INTEGRITY + CULTURE + NETWORK + SCALE + DECENTRALIZATION + GLOBAL PRESENCE + STRONG CASH FLOW + RISK PROFILE + AGILE OPPORTUNISM + CONTROLLING SHAREHOLDER + BENCH STRENGTH + FV DISCOUNT... = LOLLAPALOOZA!

 

+1!  Cheers!

[ValueMaven]

@Parsad thank you for all of the updates!  You rock

[longlake95]

Parsad, thanks for the notes on the AGM. I was there this year, nice to see/meet so many of the managers of FFH companies and managers of some of the larger investees. 2 things really jumped out at me this year. Firstly, more discussion on buying better businesses and letting compounding work its magic ( a la, BRK). Second, I think I heard Prem correctly, when he said they only need a 5% return on the investment portfolio to achieve their 15% growth in BV hurdle. The 30 year return has been 7.7%CAGR. It reinforces how they just need to keep hitting singles and doubles for this to be a REALLY good investment over time. A few home-runs will just be icing on the cake.

 

The discussion on owning financials (and the 2.5x multiplier effect) in a growing economy was very interesting as well. Hard not to get excited about India for the next couple decades. 

 

 

Edited April 12 by longlake95

[ValueMaven]

anyone have a link or PDF of the AGM slides please?

 

 

[Viking]

On 4/13/2024 at 9:36 AM, ValueMaven said:

anyone have a link or PDF of the AGM slides please?

 

@ValueMaven  Fairfax usually posts the AGM presentation to their web site shortly after the meeting happens. Not sure on the exact timing (it's not there yet, from what I can see). 

[Viking]

Below are some random thoughts from attending Fairfax’s Annual General Meeting in April of 2024.

 

Fairfax organized events:

1. Going to the Fairfax, Fairfax India and Helios/Fairfax AGM’s were good.
2. Before the Fairfax and Fairfax India AGM’s, having an opportunity to talk to the management teams of Fairfax’s various insurance and non-insurance subsidiaries was good.

But what i have learned from attending the past 2 Fairfax AGM’s is there is much more to  this week than attending the Fairfax organized events. And that is the opportunity to meet and hang out with a large group of smart, nice, highly motivated and highly successful investors/people. And the group is wickedly diverse: age/life stage, geography, objective, occupation, expertise etc.

 

The opportunity to do this is like sprinkling ‘pixie dust’ on those involved. How can you not come away from the experience a better person/investor?

 

So i want to give a big, big thank you to all the people who organized all the various additional events (those not organized by Fairfax). I now look forward to attending those events even more than the Fairfax organized events (which i also like and get a lot of value from). Two AGM’s later, acquaintances have become friends.

 

I also want to say ‘thank you’ to all the members of Corner of Berkshire and Fairfax. Given the increase in Fairfax’s share price over the past 4 years, and my prolific posting, i have achieved a certain level of notoriety. Lots of people have made an enormous amount of money on Fairfax. I really appreciated meeting and talking to all the people who hunted me down during the various events to introduce themselves and/or to say ‘thanks’.

 

But i try to explain to people that the inspiration and lots of the content in my posts come from the larger ‘Corner of Berkshire and Fairfax’ community. I might be the front man. But if you like or find value in what you read, there is a much larger group of people (in the shadows) who deserve a bunch of the credit/goodwill. Bottom line, thanks to everyone on this board for taking the time to post your thoughts - and not just on Fairfax.

 

I also explain to people that any success they are having from investing in Fairfax has much more to do with them than anything they read on the board. Their success has come primarily from their investment process, decision-making and the actions they have taken. This will also be true in the future (good and bad). Your success (and failures) will be driven primarily from your own actions.

 

—————

 

Some takeaways from attending Fairfax's AGM:

 

1.) Sentiment in Fairfax has shifted. The ‘mood of the crowd’ at the AGM was decidedly upbeat.

one questioner said he thought the Blackberry purchase by Fairfax was a good decision. I almost fell out of my chair. Prem’s response? “Please come back to future AGM’s.” Those in the audience laughed out loud - but in a good way.

The fact we can discuss past failures (like Blackberry), recognize they were failures and move on is important.

 

2.) There were no surprises. It looks to be like we are at the ‘boring’ chug, chug, chug stage with Fairfax. Six years of hard work has brought us to this point in time: all three of their economic engines are performing at a very high level and delivering record results.

 

3.) The future looks very bright. Fairfax is poised to deliver a record amount of earnings over the next 3 years (perhaps more than $12 billion).

 

This is an extremely exciting time to be a shareholder. I can’t wait to see what Fairfax does in the coming years (how it allocates capital) and how much earnings grow from here.

 

Prem’s comments

 

4.) “Culture is our (Fairfax’s) most valuable asset.”

• Creation and protection, trust, long term focus, fair and friendly

Guess how much time investors/analysts spend on this topic? Close to zero. And yet we think we understand Fairfax and can value it properly without understanding this?

 

5.) Personnel announcements: Retiring: Brad Martin

 

6.) Conference Calls

• Prem will no longer participate in conference calls. They will be handled by Peter Clark, Jen Allen and Wade Burton. This is a big change for Fairfax. I am looking forward to hearing from Wade Burton.

7.) The average duration of the fixed income portfolio at Dec 31 was about 3 years. Yield = 4.6%. Limited credit risk (mostly government securities).

 

8.) Insurance Market

 

Odyssey - Brian Young

• Market is slowing / Shrinking crop insurance / Reinsurance - positive / Challenge to grow in 2024.

It’s looking like Brian is being groomed to be Andy Barnard’s eventual replacement. Solid succession planning, as a number of key Fairfax executives are getting long on the tooth.

 

Allied - Lou

• Things are starting to moderate / Growth phase allowed the company to scale - hence their low expense ratio / Issues: inflation and climate change - trying to anticipate future losses / Market is stable / Industry adjusted for higher cost of risk / Not a great flow of new capital coming in.

9.) Kennedy Wilson - Bill McMorrow

• Fairfax has invested $13 billion with Kennedy Wilson over the last decade / Of this total $8 billion has been returned / On returned funds, return to Fairfax has been in excess of 20%.
• Keys: Trust, Culture, Ability to make decisions quickly. PacWest deal was 30 days (inception to close).

10.) Poseidon - David Sokol

• Cost to build a new ship today is 30% higher than when Poseidon placed their significant new-build orders.
• Expect net income to increase 20% in 2024. Expect Fairfax’s investment should go up 50% based on increase in cash flows (not sure time-frame).
• $18 billion in contracted revenue.
• New capacity is coming - expects significant scrapping to happen, driven by most fuel inefficient vessels.

Poseidon’s performance was a disappointment for me in 2023. It appeared to me that management got caught unprepared for spiking interest rates. It looks like we should see improving results moving forward. This is a very large holding for Fairfax. I think i also heard that Poseidon is looking for sell APR (but this might just be a false rumour).

 

11.) Question: what has Prem learned from Charlie?

• Buying good businesses at fair prices.
• Strong track record
• Strong management
• “Looking for positions where we can compound for the long term.”

Given its large size today, are we seeing Hamblin Watsa shift their value investing framework to more of a ‘quality at a fair price’ and away from ‘deep value?’

 

12.) How to model catastrophes? Peter Clark answered.

• Calculate probable maximum losses
• Benefit from diversification of premiums across global operations
• Write with limits.
• I think he said all the insurance companies do their own modelling and these all roll up to Fairfax where they do the same thing on a total company basis.

13.) Eurobank

• Fairfax’s cost basis = €0.92/share
• Dividend est €0.09/share; will likely be lump sum payment when it happens.
• As Eurobank is an associate holding the dividend will not hit ‘interest and dividend’ bucket, but it will show up as increase in cash at Fairfax.
• Payout ratio goal in 2025 = 40% and in 2026 = 50%.
• Decided 100% dividend for 2023; moving forward, split between dividend and share repurchases will depend on share price (buy back shares when they trade under book value).
• Why Cypress is an ideal launchpad into Europe for businesses in India? The two counties share some important things: both were part of the British Commonwealth, therefore they have similar legal systems and business language (english).

14.) Orla mining: Pierre Lasonde is a large investor. There are roots to Franco Nevada.

• Backing smart people
• Low cost producer

Pierre Lassonde is also a big investor in Foran Mining. Fairfax wants to partner with the right people.

 

15.) Plans to grow investments in China?

• Currently own a legacy stake in insurer Alltrust (15%? With a value of $75 million?)
• No plans to invest any more money in China; prefer democracies.

16.) FFH - TRS

• Counterparties are Canadian banks.
• TRS position has been extended 2025 or 2026?
• Fairfax today is inexpensive.
• Huge potential to that position.

17.) Final comments from Prem

• Fairfax has seen a big tansformation over the past 6 years.
• Size: company has increased substantially
• Now has income stability: interest income of $2 billion

Fairfax’s book value is conservatively stated.

• Could sell insurance companies at multiples of stated book value.

How to value Fairfax?

• Start with book value.
• Use ROE over time.

Investing - has changed over the last couple of years.

• Phil Carret: management

Edited April 15 by Viking

[hasilp89]

12 hours ago, Viking said:

I think i also heard that Poseidon is looking for sell APR (but this might just be a false rumour).

Don't believe it is a rumor, Dave Sokol did say that. 

It was wonderful to meet you and many others!

[juniorr]

On 4/14/2024 at 9:22 PM, Viking said:

Below are some random thoughts from attending Fairfax’s Annual General Meeting in April of 2024.

 

Fairfax organized events:

1. Going to the Fairfax, Fairfax India and Helios/Fairfax AGM’s were good.
2. Before the Fairfax and Fairfax India AGM’s, having an opportunity to talk to the management teams of Fairfax’s various insurance and non-insurance subsidiaries was good.

But what i have learned from attending the past 2 Fairfax AGM’s is there is much more to  this week than attending the Fairfax organized events. And that is the opportunity to meet and hang out with a large group of smart, nice, highly motivated and highly successful investors/people. And the group is wickedly diverse: age/life stage, geography, objective, occupation, expertise etc.

 

The opportunity to do this is like sprinkling ‘pixie dust’ on those involved. How can you not come away from the experience a better person/investor?

 

So i want to give a big, big thank you to all the people who organized all the various additional events (those not organized by Fairfax). I now look forward to attending those events even more than the Fairfax organized events (which i also like and get a lot of value from). Two AGM’s later, acquaintances have become friends.

 

I also want to say ‘thank you’ to all the members of Corner of Berkshire and Fairfax. Given the increase in Fairfax’s share price over the past 4 years, and my prolific posting, i have achieved a certain level of notoriety. Lots of people have made an enormous amount of money on Fairfax. I really appreciated meeting and talking to all the people who hunted me down during the various events to introduce themselves and/or to say ‘thanks’.

 

But i try to explain to people that the inspiration and lots of the content in my posts come from the larger ‘Corner of Berkshire and Fairfax’ community. I might be the front man. But if you like or find value in what you read, there is a much larger group of people (in the shadows) who deserve a bunch of the credit/goodwill. Bottom line, thanks to everyone on this board for taking the time to post your thoughts - and not just on Fairfax.

 

I also explain to people that any success they are having from investing in Fairfax has much more to do with them than anything they read on the board. Their success has come primarily from their investment process, decision-making and the actions they have taken. This will also be true in the future (good and bad). Your success (and failures) will be driven primarily from your own actions.

 

—————

 

Some takeaways from attending Fairfax's AGM:

 

1.) Sentiment in Fairfax has shifted. The ‘mood of the crowd’ at the AGM was decidedly upbeat.

one questioner said he thought the Blackberry purchase by Fairfax was a good decision. I almost fell out of my chair. Prem’s response? “Please come back to future AGM’s.” Those in the audience laughed out loud - but in a good way.

The fact we can discuss past failures (like Blackberry), recognize they were failures and move on is important.

 

2.) There were no surprises. It looks to be like we are at the ‘boring’ chug, chug, chug stage with Fairfax. Six years of hard work has brought us to this point in time: all three of their economic engines are performing at a very high level and delivering record results.

 

3.) The future looks very bright. Fairfax is poised to deliver a record amount of earnings over the next 3 years (perhaps more than $12 billion).

 

This is an extremely exciting time to be a shareholder. I can’t wait to see what Fairfax does in the coming years (how it allocates capital) and how much earnings grow from here.

 

Prem’s comments

 

4.) “Culture is our (Fairfax’s) most valuable asset.”

• Creation and protection, trust, long term focus, fair and friendly

Guess how much time investors/analysts spend on this topic? Close to zero. And yet we think we understand Fairfax and can value it properly without understanding this?

 

5.) Personnel announcements: Retiring: Brad Martin

 

6.) Conference Calls

• Prem will no longer participate in conference calls. They will be handled by Peter Clark, Jen Allen and Wade Burton. This is a big change for Fairfax. I am looking forward to hearing from Wade Burton.

7.) The average duration of the fixed income portfolio at Dec 31 was about 3 years. Yield = 4.6%. Limited credit risk (mostly government securities).

 

8.) Insurance Market

 

Odyssey - Brian Young

• Market is slowing / Shrinking crop insurance / Reinsurance - positive / Challenge to grow in 2024.

It’s looking like Brian is being groomed to be Andy Barnard’s eventual replacement. Solid succession planning, as a number of key Fairfax executives are getting long on the tooth.

 

Allied - Lou

• Things are starting to moderate / Growth phase allowed the company to scale - hence their low expense ratio / Issues: inflation and climate change - trying to anticipate future losses / Market is stable / Industry adjusted for higher cost of risk / Not a great flow of new capital coming in.

9.) Kennedy Wilson - Bill McMorrow

• Fairfax has invested $13 billion with Kennedy Wilson over the last decade / Of this total $8 billion has been returned / On returned funds, return to Fairfax has been in excess of 20%.
• Keys: Trust, Culture, Ability to make decisions quickly. PacWest deal was 30 days (inception to close).

10.) Poseidon - David Sokol

• Cost to build a new ship today is 30% higher than when Poseidon placed their significant new-build orders.
• Expect net income to increase 20% in 2024. Expect Fairfax’s investment should go up 50% based on increase in cash flows (not sure time-frame).
• $18 billion in contracted revenue.
• New capacity is coming - expects significant scrapping to happen, driven by most fuel inefficient vessels.

Poseidon’s performance was a disappointment for me in 2023. It appeared to me that management got caught unprepared for spiking interest rates. It looks like we should see improving results moving forward. This is a very large holding for Fairfax. I think i also heard that Poseidon is looking for sell APR (but this might just be a false rumour).

 

11.) Question: what has Prem learned from Charlie?

• Buying good businesses at fair prices.
• Strong track record
• Strong management
• “Looking for positions where we can compound for the long term.”

Given its large size today, are we seeing Hamblin Watsa shift their value investing framework to more of a ‘quality at a fair price’ and away from ‘deep value?’

 

12.) How to model catastrophes? Peter Clark answered.

• Calculate probable maximum losses
• Benefit from diversification of premiums across global operations
• Write with limits.
• I think he said all the insurance companies do their own modelling and these all roll up to Fairfax where they do the same thing on a total company basis.

13.) Eurobank

• Fairfax’s cost basis = €0.92/share
• Dividend est €0.09/share; will likely be lump sum payment when it happens.
• As Eurobank is an associate holding the dividend will not hit ‘interest and dividend’ bucket, but it will show up as increase in cash at Fairfax.
• Payout ratio goal in 2025 = 40% and in 2026 = 50%.
• Decided 100% dividend for 2023; moving forward, split between dividend and share repurchases will depend on share price (buy back shares when they trade under book value).
• Why Cypress is an ideal launchpad into Europe for businesses in India? The two counties share some important things: both were part of the British Commonwealth, therefore they have similar legal systems and business language (english).

14.) Orla mining: Pierre Lasonde is a large investor. There are roots to Franco Nevada.

• Backing smart people
• Low cost producer

Pierre Lassonde is also a big investor in Foran Mining. Fairfax wants to partner with the right people.

 

15.) Plans to grow investments in China?

• Currently own a legacy stake in insurer Alltrust (15%? With a value of $75 million?)
• No plans to invest any more money in China; prefer democracies.

16.) FFH - TRS

• Counterparties are Canadian banks.
• TRS position has been extended 2025 or 2026?
• Fairfax today is inexpensive.
• Huge potential to that position.

17.) Final comments from Prem

• Fairfax has seen a big tansformation over the past 6 years.
• Size: company has increased substantially
• Now has income stability: interest income of $2 billion

Fairfax’s book value is conservatively stated.

• Could sell insurance companies at multiples of stated book value.

How to value Fairfax?

• Start with book value.
• Use ROE over time.

Investing - has changed over the last couple of years.

• Phil Carret: management

 

 

This was the big take away for me and made me add more stock

 

11.) Question: what has Prem learned from Charlie?

• Buying good businesses at fair prices.
• Strong track record
• Strong management
• “Looking for positions where we can compound for the long term.”

Given its large size today, are we seeing Hamblin Watsa shift their value investing framework to more of a ‘quality at a fair price’ and away from ‘deep value?’

[netcash1]

Was there any commentary at the AGM on Fairfax's ability to increase its stake in Go Digit above it 49%? It would seem that this is a hold up in their ability to IPO Digit

[MMM20]

 

Incredible. And nowadays no one can hand wave it away as driven by the early years. 

[maxthetrade]

Thank you all for your comments and thoughts! I was travelling in Rome last week and couldn't listen to the virtual meeting, is there a way to still access the audio feed?

 

 

[UK]

17 hours ago, MMM20 said:

 

Incredible. And nowadays no one can hand wave it away as driven by the early years. 

 

BRKA @ ~15.5?

[MMM20]

1 hour ago, UK said:

 

BRKA @ ~15.5?

Not sure exactly, but FFH has now compounded at ~15% post-GFC when they supposedly lost their fastball. Hey, maybe the unprecedented interest rate environment had something to do with it after all. 
 

Edited April 17 by MMM20

[ValueMaven]

Meeting slides are up: 

 

https://www.fairfax.ca/wp-content/uploads/Fairfax-AGM-2024.pdf

[Spooky]

On 4/16/2024 at 12:56 PM, juniorr said:

 

 

This was the big take away for me and made me add more stock

 

11.) Question: what has Prem learned from Charlie?

• Buying good businesses at fair prices.
• Strong track record
• Strong management
• “Looking for positions where we can compound for the long term.”

Given its large size today, are we seeing Hamblin Watsa shift their value investing framework to more of a ‘quality at a fair price’ and away from ‘deep value?’

 

Same. Like to see the evolution in their investing style happening.

[petec]

On 4/11/2024 at 11:14 PM, Thrifty3000 said:

PS. I bought a few more shares today to bring my position to a nice round number. First, to make it easier/possible to do the math in my head. Haha. Second, because watching this annual meeting further cemented we're sitting on one of the most obvious lollapaloozas we'll see in our lifetimes:

 

EXPERIENCE + INTEGRITY + CULTURE + NETWORK + SCALE + DECENTRALIZATION + GLOBAL PRESENCE + STRONG CASH FLOW + RISK PROFILE + AGILE OPPORTUNISM + CONTROLLING SHAREHOLDER + BENCH STRENGTH + FV DISCOUNT... = LOLLAPALOOZA!

 

I totally agree but this does make me laugh - half of these things were seen as negative 4 years ago, when Prem had lost it in the eyes of this board.

[petec]

On 4/15/2024 at 2:22 AM, Viking said:

Guess how much time investors/analysts spend on this topic? Close to zero.

 

Agreed, yet in the long term it is the only thing that matters.

[nwoodman]

Worthwhile posting two extra excerpts from the AGM that I found somewhat reassuring in terms of future capital allocation.  

 

I also can’t wait to hear Peter Clark on the CCs moving forwards,  seems a very coherent  and rational thinker.

 

Peter Clarke

 

Sure. Just on the underwriting side, though, over time, sort of when we acquired companies, our focus changed somewhat. In the late 1990s, early 2000s, we bought turnaround companies, but if you look at -- and most recent, starting with Zenith and Brit and Allied, we bought companies with strong track records, strong management teams. So it's really what we started with has been hugely successful for us, and then just having and keeping people for the long term. Like Prem has said, Brian Young has been with us 28 years. He knows the culture. He knows the company. He knows Fairfax as well as any of us. So the management teams we have in place right now have been with us so long that the culture is just ingrained within the company. Gulf, for example, we've been invested in Gulf for about 12 years, and an outstanding track record. They're 94% combined ratio for the better part of that whole time period, with very strong reserving, so it's -- I would say it's really the companies, when we're acquiring them now, are much higher quality than they might have been in the past.

 

 

Are there any principles you learned from Charlie that's been applied to Fairfax' success over the years?

 

V. Watsa

The big one was just -- Charlie made this point years ago, 2 points. One was that, earlier on, like us, they depended on stock gains, bond gains. In fact, it's like when they began years ago. And then they got the ability to be a railroad company, Burlington Northern, to get operating income, but one of the biggest [ pluses ], biggest questions that -- answers that you suggested was that you have to have patience. And when you see an opportunity, you're going big when you understand it. And when you don't understand it, just stay away. So all insurance people, of course, when they saw that opportunity, we double our premium, right? Interest rates, when we saw the opportunity, [ we went 4 years ], but going forward -- it's a very good question. We're big now. And the idea of buying good businesses at fair prices, big positions, compounding for a long period of time, we're focused on that, looking at that. We've got good investments like we've had with Kennedy Wilson and with Seaspan Poseidon, but we'd be looking at -- and this is not an environment right now that you can find them because the prices are high, but we're looking at getting positions in companies where we can compound for a lot of -- without any tax, as they say. But we learned a lot from Berkshire and Charlie. I mean we followed them for a long, long time.

When I first went to the Berkshire meeting, there was like less than 200 people, at the annual meeting. And we used to have a dinner on Sunday night. Mike Goldberg used to be there those days, with Ajit Jain. A dinner on Sunday night and the annual meeting on a Monday morning, before it shifted to the weekend. And so it's a long history. We learned a ton from them, yes. So thank you for your question. Maybe a follow-up there...

[SafetyinNumbers]

1 hour ago, nwoodman said:

 

 

V. Watsa

The big one was just -- Charlie made this point years ago, 2 points. One was that, earlier on, like us, they depended on stock gains, bond gains. In fact, it's like when they began years ago. And then they got the ability to be a railroad company, Burlington Northern, to get operating income, but one of the biggest [ pluses ], biggest questions that -- answers that you suggested was that you have to have patience. And when you see an opportunity, you're going big when you understand it. And when you don't understand it, just stay away. So all insurance people, of course, when they saw that opportunity, we double our premium, right? Interest rates, when we saw the opportunity, [ we went 4 years ], but going forward -- it's a very good question. We're big now. And the idea of buying good businesses at fair prices, big positions, compounding for a long period of time, we're focused on that, looking at that. We've got good investments like we've had with Kennedy Wilson and with Seaspan Poseidon, but we'd be looking at -- and this is not an environment right now that you can find them because the prices are high, but we're looking at getting positions in companies where we can compound for a lot of -- without any tax, as they say. But we learned a lot from Berkshire and Charlie. I mean we followed them for a long, long time.

When I first went to the Berkshire meeting, there was like less than 200 people, at the annual meeting. And we used to have a dinner on Sunday night. Mike Goldberg used to be there those days, with Ajit Jain. A dinner on Sunday night and the annual meeting on a Monday morning, before it shifted to the weekend. And so it's a long history. We learned a ton from them, yes. So thank you for your question. Maybe a follow-up there...

Thanks for sharing. This moment at the AGM forced me to add even though it’s a full position. If I can paraphrase Prem here: We’re sitting with the bat on our shoulders waiting for fat pitches and virtually every one we have swung on lately has been knocked out of the park.

 

We should have a rating system based on dollars. If a trade makes $1b it’s a home run like the TRS, duration decisions which allowed for the premium growth and saved billions, the SIB etc..

 

Right now, I think they are stating plainly that quality compounders on sale is their sweet spot. The beauty of the giant float is that just stacking cash gets them over a 15% ROE. I can see how buying a crash could increase returns and increase the multiple i.e. decrease negative Social Value. Lots of investors won’t buy Fairfax because they only buy quality and Fairfax does not own quality i.e. Fairfax owns stocks they would never buy. Part of Markel’s premium is because they are associated with quality as it’s certainly not because of recent returns. I had a PM friend say FFH’s reputation is as a junk collector but that could change quickly if price changes quickly.
 

They also seem to have a lot of excess capital. Float is $33b but they have $45b of fixed income. If there is a market dislocation like the pandemic etc… Fairfax might be in the position to deploy 20% or more of its market cap in high quality stocks or the index at a fair price. VOO on the 13F maybe isn’t much of a head scratcher anymore but a capital allocation decision consistent with a new mentality.

 

Of course, we’ll have to see what they actually do but each fat pitch they swing at could super charge ROE and BV if they get a hit and it seems to me like an environment rich in potential fat pitches including a market dislocation. 

 

 

Edited April 22 by SafetyinNumbers

[nwoodman]

20 minutes ago, SafetyinNumbers said:

Thanks for sharing. This moment at the AGM forced me to add even though it’s a full position. If I can paraphrase Prem here: We’re sitting with the bat on our shoulders waiting for fat pitches and virtually every one we have swung on lately has been knocked out of the park.

 

We should have a rating system based on dollars. If a trade makes $1b it’s a home run like the TRS, duration decisions which allowed for the premium growth and saved billions, the SIB etc..

 

Right now, I think they are stating plainly that quality compounders on sale is their sweet spot. The beauty of the giant float is that just stacking cash gets them over a 15% ROE. I can see how buying a crash could increase returns and increase the multiple i.e. decrease negative Social Value. Lots of investors won’t buy Fairfax because they only buy quality and Fairfax does not own quality i.e. Fairfax owns stocks they would buy. Part of Markel’s premium is because they are associated with quality as it’s certainly not because of recent returns. I had a PM friend say FFH’s reputation is as a junk collector but that could change quickly if price changes quickly.
 

They also seem to have a lot of excess capital. Float is $33b but they have $45b of fixed income. If there is a market dislocation like the pandemic etc… Fairfax might be in the position to deploy 20% or more of its market cap in high quality stocks or the index at a fair price. VOO on the 13F maybe isn’t much of a head scratcher anymore but a capital allocation decision consistent with a new mentality.

 

Of course, we’ll have to see what they actually do but each fat pitch they swing at could super charge ROE and BV if they get a hit and it seems to me like an environment rich in potential fat pitches including a market dislocation. 

 

 

Nicely put and was just writing exactly this to a family member.  It might sound like hyperbole but this is the best setup for FFH I have seen in 20 years.  They make out very well in a higher for longer environment  but their opportunity to really make money is/when the SHTF.  

 

My only concern is they get hamstrung by an IDBI deal, due to its size,  just before truly great companies go on sale.  We shall see,  the macro tailwind in India would suggest that even if forced to overpay it won’t end up as a BBY. They also don’t strike me as being in trophy hunting mode.

 

The range of outcomes seems to be somewhere between good and great.  The other thing that struck me from this AGM, in particular,  is their emphasis on size and diversity of the insurance ops to absorb significant cats.  They will hurt but size and rational U/W counts.  Along these lines, I have been contemplating whether the path from $25bn to $100bn,  is easier than the path from $2.5bn to $10bn. 

 

 

 

 

 

 

[nwoodman]

I thought it would be worthwhile running the transcript through Claude to collate the various risks identified at the AGM.  Nothing that hasn’t already been discussed but may be of interest. The political risk in India post Modi is something that crosses my mind from time to time but is more than offset by the opportunity

 

Several potential risks and challenges for Fairfax were discussed during the AGM:

 

1. Catastrophe losses: While Fairfax is better positioned than ever to absorb large catastrophe losses, a major event like a Category 5 hurricane hitting Miami or a powerful storm devastating the Northeast could still cause significant losses and volatility in results. Climate change is making catastrophe losses more difficult to model and predict.

 

2. Inflation: Rising inflation could impact both the underwriting and investment sides of the business. On underwriting, Fairfax needs to ensure premiums are keeping up with rising claims costs. On investments, higher inflation could lead to further interest rate increases which would negatively impact bond prices.

 

3. Recession: While a recession would provide opportunities to deploy capital at attractive returns, it could also lead to higher underwriting losses from economically sensitive lines like workers compensation and trade credit. A severe recession could also cause mark-to-market losses on Fairfax's equity and credit investments.

 

4. Softening insurance market: After several years of hard market conditions, the property & casualty insurance market is starting to soften. This could make it harder for Fairfax to continue growing profitably, although management believes its positioning and discipline will allow it to outperform.

 

5. Execution risk on investments: While Fairfax has an excellent long-term investment track record, there is always a risk of individual investments not working out as expected. The company has a large amount of capital deployed in concentrated positions like Eurobank, Resolute, BlackBerry and Poseidon.

 

6. Key person risk: Prem Watsa has been the key driving force behind Fairfax's success over the past 35 years. While he shows no signs of slowing down and has a strong team around him, his eventual retirement could create uncertainty around strategic direction.

 

7. Regulatory and political risk: As a global insurer, Fairfax is exposed to regulatory changes and political instability in the many jurisdictions where it operates. Geopolitical tensions, trade disputes, and regime changes could disrupt operations and impact investments in specific countries.

 

8. Foreign exchange risk: Operating in many currencies around the world creates the risk of foreign exchange losses, although Fairfax actively manages this exposure.

 

While these risks bear watching, Fairfax's management expressed confidence in the company's ability to navigate challenges and capitalize on opportunities thanks to its strong culture, disciplined underwriting and investing approach, and decentralized structure. The company is seen as being in its strongest position ever to weather volatility.