Q3 - 2024

[mananainvesting]

If anyone has any recent/old Marval fund letter, could you please share [email protected]. It would be good to see how Ben writes/thinks and what the fund holds. Hopefully we get to see his shareholder letter next year for Fairfax India. Much appreciate the share. 

[Xerxes]

31 minutes ago, mananainvesting said:

If anyone has any recent/old Marval fund letter, could you please share [email protected]. It would be good to see how Ben writes/thinks and what the fund holds. Hopefully we get to see his shareholder letter next year for Fairfax India. Much appreciate the share. 

 

There was podcast that Ben did on India that year or in 2022 that I thought it was really good.

Macro stuff. And nothing "directionally" new, but I thought he presented the India opportunity much better than the FIH team.

 

This is before he became FIH chair.

 

 

[Munger_Disciple]

2 hours ago, gfp said:

 

?? - do we really want the optics of the company investing $100m into Ben Watsa's fund?  Seems unnecessary

 

 

Definitely not necessary.  

[mananainvesting]

59 minutes ago, Munger_Disciple said:

 

Definitely not necessary.  

If the after fees performance of fund is fantastic why not? 

[Viking]

2 hours ago, Parsad said:

Prem is widening the investment team pool for the day when he and the old guard (Brian, Roger, Chandran, etc) aren't there anymore.  As long as the new managers keep hitting average to good returns, the investment portfolio will provide reasonable gains.  Cheers!

Another strategic shift Fairfax appears to be making is to build out the size of the non-insurance operating companies bucket. In 2022 they took out Recipe. They just added Sleep Country. And in Q4, with the takeout of Peak Achievement (Bauer) they will add one more. This could take pre-tax earnings for non-insurance operating companies from $150 million to perhaps $300 or $350 million per year - which now makes it a meaningful number. 
 

This income stream is different from the other 4 incomes streams Fairfax has:
- It is not correlated with the insurance business/cycle - so provides important diversification to earnings. This benefits the income statement. 
- It also provides an important source of liquidity for the company - they are owned/controlled assets that could be sold if needed. This benefits the balance sheet.

 

It will be interesting to see if Fairfax continues to grow the non-insurance consolidated companies bucket in the coming years. 

[KPO]

28 minutes ago, Viking said:

Another strategic shift Fairfax appears to be making is to build out the size of the non-insurance operating companies bucket. In 2022 they took out Recipe. They just added Sleep Country. And in Q4, with the takeout of Peak Achievement (Bauer) they will add one more. This could take pre-tax earnings for non-insurance operating companies from $150 million to perhaps $300 or $350 million per year - which now makes it a meaningful number. 
 

This income stream is different from the other 4 incomes streams Fairfax has:
- It is not correlated with the insurance business/cycle - so provides important diversification to earnings. This benefits the income statement. 
- It also provides an important source of liquidity for the company - they are owned/controlled assets that could be sold if needed. This benefits the balance sheet.

 

It will be interesting to see if Fairfax continues to grow the non-insurance consolidated companies bucket in the coming years. 

Restaurants, sporting goods and bedding retail seems kind of random. I guess if they’re sustainably cash generative and the purchase prices are undemanding there’s no harm, but I always liked the idea of Berkshire buying building products companies, home builders, and auto / furniture retailers that benefit to some extent from some of the claims on insurance they underwrite. 

[Viking]

So 9 months into 2024, Fairfax has:

1.) Increased book value per share from $940 to $1,033, an increase of $93.

2.) Paid a dividend of $15/share.

3.) For non-insurance associate and consolidated holdings, increased excess of FV over CV from $1 billion to $1.9 billion, an increase of $900 million (pre-tax). This is significant value that has been created that is not captured in book value. 

• Also, the 'fair value for some of these holdings looks stupidly low (meaning book value is even more understated).
• Their stake in Fairfax India has a fair value of $857 million? It should be much more than this (driven by BIAL).
• The fair value for Poseidon, at $2 billion, has not changed in 2024. Sokol at Fairfax's AGM in April said the cost to build new containerships had increased 30%. Atlas is just taking delivery of the last of its newbuilds as part of its massive expansion strategy executed over the past 3 years - the value of which has just increased by around 30%. Yet the 'fair value' on Fairfax's balance sheet has not changed?
• There are more good examples.

4.) Effective shares outstanding have been reduced by 1 million = 4.3%.

• Much lower share count boosts investment per share, float per share and earnings per share.

Bottom line 2024 is shaping up to be another very good year for Fairfax and its shareholders. Fairfax has not done anything flashy. Just lots of solid execution. Boring. Kind of like watching paint dry. Expect more of the same in the coming years. (PS: That is what a compounding machine looks like.)

----------

Edited November 1 by Viking

[Parsad]

23 minutes ago, KPO said:

Restaurants, sporting goods and bedding retail seems kind of random. I guess if they’re sustainably cash generative and the purchase prices are undemanding there’s no harm, but I always liked the idea of Berkshire buying building products companies, home builders, and auto / furniture retailers that benefit to some extent from some of the claims on insurance they underwrite. 

 

They own a good swathe of Kennedy Wilson and have invested billions into their mortgage bonds...that's pretty good exposure to residential/commercial real estate markets.  

 

Remember, this is Berkshire 30 years earlier.  Give them some time.  Look at the core industrial businesses they are investing into in India.  They will do the same in North America when they get the opportunity. 

 

There is a lot of P/E competition in North America that didn't exist during Berkshire's heyday...so the opportunities are thinner and less frequent.  Usually, Fairfax will get their best opportunities when the world is falling apart and liquidity disappears!  Cheers!

[Viking]

30 minutes ago, Parsad said:

Usually, Fairfax will get their best opportunities when the world is falling apart and liquidity disappears!  Cheers!

@Parsad , great point. Volatility freaks out lots of Fairfax shareholders - but extreme volatility over the past 5 years is when Fairfax made their best investments. It’s very counterintuitive. 
 

In 2024 with volatility low in financial markets, Fairfax has resorted to hitting solid singles. Still gets the baserunners around the bases and across home plate. Still scores lots of runs. 

[Parsad]

24 minutes ago, Viking said:

@Parsad , great point. Volatility freaks out lots of Fairfax shareholders - but extreme volatility over the past 5 years is when Fairfax made their best investments. It’s very counterintuitive. 
 

In 2024 with volatility low in financial markets, Fairfax has resorted to hitting solid singles. Still gets the baserunners around the bases and across home plate. Still scores lots of runs. 

 

Usually, historically Fairfax shareholders have often seen the company in a precarious or challenging situation when markets were rising and things calm...such as their short positions, poor turnarounds, etc. 

 

This is the first time in probably 20+ years that Fairfax is steadily making money just from bond and dividend income, and smooth insurance operations.  Combine that with no dysfunction in their investment and associates portfolio, and FFH shareholders are having difficulty watching their company actually hitting ROE targets with ease and no encumbrances.  They're just not used to this...this is Berkshire territory!

 

Keep it up Prem!  Cheers!

[SafetyinNumbers]

8 minutes ago, Parsad said:

 

Usually, historically Fairfax shareholders have often seen the company in a precarious or challenging situation when markets were rising and things calm...such as their short positions, poor turnarounds, etc. 

 

This is the first time in probably 20+ years that Fairfax is steadily making money just from bond and dividend income, and smooth insurance operations.  Combine that with no dysfunction in their investment and associates portfolio, and FFH shareholders are having difficulty watching their company actually hitting ROE targets with ease and no encumbrances.  They're just not used to this...this is Berkshire territory!

 

Keep it up Prem!  Cheers!

Post Q324 there is nothing to stop index arbs from running up FFH shares into the likely 60 add in December. Book value is growing 3-5% per quarter which makes it easy to own. The wild card is where investors let go of their shares. Based on the discussions on this board maybe we won’t see much multiple expansion but there is only one way to find out. I’ll be holding on to my shares regardless of multiple as long as BV keeps growing 10%+/yr.

[Parsad]

12 minutes ago, SafetyinNumbers said:

Post Q324 there is nothing to stop index arbs from running up FFH shares into the likely 60 add in December. Book value is growing 3-5% per quarter which makes it easy to own. The wild card is where investors let go of their shares. Based on the discussions on this board maybe we won’t see much multiple expansion but there is only one way to find out. I’ll be holding on to my shares regardless of multiple as long as BV keeps growing 10%+/yr.

 

Same.  I don't need homeruns anymore from my investments.  As long as they grow with singles and doubles, I'm fine.  Cheers!

[SafetyinNumbers]

4 hours ago, Parsad said:

 

Same.  I don't need homeruns anymore from my investments.  As long as they grow with singles and doubles, I'm fine.  Cheers!

Ironically, by keeping a reasonable hurdle rate of 10%, one leaves themselves open for a home run because the margin of safety is very high and the right tails are wide open on ROE and multiple expansion.
 

If one book ends ROE range for the next 5 years at ~15-20% and the terminal multiple between ~1.2-2.5x, the stock CAGRs between ~15-40%. That’s a return between 2-5x in 5 years. Unfortunately, I think many value investors will miss out because they are up a lot and they are afraid of drawdowns.

[Castanza]

9 hours ago, Parsad said:

 

They own a good swathe of Kennedy Wilson and have invested billions into their mortgage bonds...that's pretty good exposure to residential/commercial real estate markets.  

 

Remember, this is Berkshire 30 years earlier.  Give them some time.  Look at the core industrial businesses they are investing into in India.  They will do the same in North America when they get the opportunity. 

 

There is a lot of P/E competition in North America that didn't exist during Berkshire's heyday...so the opportunities are thinner and less frequent.  Usually, Fairfax will get their best opportunities when the world is falling apart and liquidity disappears!  Cheers!

 

Does Prem discuss their hurdle rate when looking for acquisitions? I know Mark Leonard over at Constellation noted they had to lower theirs from ~20% to somewhere in the mid teens (likely) primarily due to competition in North America for their investment space. Wondering if Fairfax is having to do the same?

[73 Reds]

9 hours ago, Viking said:

So 9 months into 2024, Fairfax has:

1.) Increased book value per share from $940 to $1,033, an increase of $93.

2.) Paid a dividend of $15/share.

3.) For non-insurance associate and consolidated holdings, increased excess of FV over CV from $1 billion to $1.9 billion, an increase of $900 million (pre-tax). This is significant value that has been created that is not captured in book value. 

• Also, the 'fair value for some of these holdings looks stupidly low (meaning book value is even more understated).
• Their stake in Fairfax India has a fair value of $857 million? It should be much more than this (driven by BIAL).
• The fair value for Poseidon, at $2 billion, has not changed in 2024. Sokol at Fairfax's AGM in April said the cost to build new containerships had increased 30%. Atlas is just taking delivery of the last of its newbuilds as part of its massive expansion strategy executed over the past 3 years - the value of which has just increased by around 30%. Yet the 'fair value' on Fairfax's balance sheet has not changed?
• There are more good examples.

4.) Effective shares outstanding have been reduced by 1 million = 4.3%.

• Much lower share count boosts investment per share, float per share and earnings per share.

Bottom line 2024 is shaping up to be another very good year for Fairfax and its shareholders. Fairfax has not done anything flashy. Just lots of solid execution. Boring. Kind of like watching paint dry. Expect more of the same in the coming years. (PS: That is what a compounding machine looks like.)

----------

@viking Watching paint dry is wonderful.  Knowing that when you wake up in the morning you are worth that much more than when you fell asleep last night feels good.  Weekdays, weekends, holidays - all the same!

[SafetyinNumbers]

1 minute ago, Castanza said:

 

Does Prem discuss their hurdle rate when looking for acquisitions? I know Mark Leonard over at Constellation noted they had to lower theirs from ~20% to somewhere in the mid teens (likely) primarily due to competition in North America for their investment space. Wondering if Fairfax is having to do the same?

15% for equity investments. 

[MMM20]

9 hours ago, SafetyinNumbers said:

Based on the discussions on this board maybe we won’t see much multiple expansion but there is only one way to find out.

I’m prob one of the few here to admit selling some over the past couple quarters but that took it from a 40% to 30% position to pass the sleep at night test and fund other ideas. Of course something could derail things but they’re now seemingly firing on all cylinders and it’s clearly compelling from a short term trade perspective too - let’s see what happens in December. I still think it’s worth better than 2x book or mid/high teens normalized earnings. I know others have thrown out 1.5x book and of course it will never be a straight line up even if index buyers. This is no CVNA after all 

 

Edited November 1 by MMM20

[gfp]

From the conference call they are predicting Milton losses "within the cat margin" and not having much of an affect on the expected combined ratio for Q4.  They mentioned claims are coming in slow so it is still uncertain but obviously a much better outcome than the direct hit on Tampa they had modeled.  

 

For "cat margin" they mentioned they have been absorbing about $1 Billion of cat losses annually, maybe 5 combined ratio points 

 

 

Marval Guru fund 22% annualized over the last 5 years confirmed on the call

Edited November 1 by gfp

[hasilp89]

13 hours ago, Munger_Disciple said:

 

Definitely not necessary.  

 

13 hours ago, mananainvesting said:

If anyone has any recent/old Marval fund letter, could you please share [email protected]. It would be good to see how Ben writes/thinks and what the fund holds. Hopefully we get to see his shareholder letter next year for Fairfax India. Much appreciate the share. 

Somebody asked

22%+ annualized since 2017

[hasilp89]

3 minutes ago, gfp said:

From the conference call they are predicting Milton losses "within the cat margin" and not having much of an affect on the expected combined ratio for Q4.  They mentioned claims are coming in slow so it is still uncertain but obviously a much better outcome than the direct hit on Tampa they had modeled.  

 

For "cat margin" they mentioned they have been absorbing about $1 Billion of cat losses annually, maybe 5 combined ratio points 

tracks to what is disclosed in the supplement

[mananainvesting]

1 minute ago, hasilp89 said:

 

Somebody asked

22%+ annualized since 2017

Yeah, they didnt give the number from 2017 but from last 5 years which is 22% annualized (Prasad confirmed as well yesterday). 5 years is a long enough time frame to see this likely to be a fantastic investment in the future. 

[gfp]

Fixed income average duration slightly increased to about 3.5 years which is pretty much matched with the duration of the insurance liabilities - which tracks with the roughly offsetting losses from discounting and gains on the bond portfolio under the new IFRS accounting for the quarter.  They mentioned they don't match them on purpose, they just happen to be matched in duration at the moment.

[MMM20]

17 minutes ago, hasilp89 said:

 

Somebody asked

22%+ annualized since 2017

Hey Prem, I’m 30%+ over the same period and uncorrelated. Call me.

 

Edited November 1 by MMM20

[73 Reds]

10 minutes ago, MMM20 said:

Hey Prem, I’m 30%+ over the same period and uncorrelated. Call me.

Makes Buffett's track record of nearly 20%/year since inception look all the more incredible.

[TwoCitiesCapital]

20 minutes ago, MMM20 said:

I’m prob one of the few here to admit selling some over the past couple quarters but that took it from a 40% to 30% position to pass the sleep at night test and fund other ideas. Of course something could derail things but they’re now seemingly firing on all cylinders and it’s clearly compelling from a short term trade perspective too - let’s see what happens in December. I still think it’s worth better than 2x book or mid/high teens normalized earnings. I know others have thrown out 1.5x book and of course it will never be a straight line up even if index buyers. This is no CVNA after all 

 

 

I didn't sell in the past few quarters, but sold a small portion of my position in 2023 to keep it below the position limits of 10% of networth that I set for myself. 

 

Now that Bitcoin, and other, names have performed fairly well in late-2023/2024, I have been able to hold onto shares this year and may actually be able to add in the next pullback. Isn't necessarily optimal - but the rules were set for a reason and am being diligent about following them.