CIBC says Fairfax is likely to be added to the S&P/TSX 60 in December 2024 - sell decisions

[Hoodlum]

7 minutes ago, SafetyinNumbers said:

In Canada are you including the ATS volume as well or just the TSX?

 

For Canada I was only looking at the TSX

[Masterofnone]

My crystal ball is always cloudy, but I agree with Sleepydragon. There seems to be jockeying around any index add well in advance and price action rarely exceeds 7% intra-day and often fades. A portion of every day's price action for the past month or two has likely had a component of odds making on an index add. If I had to guess, I would expect a 4-5% jump near open with a 2-3% gain overall. There is buying now with the intent to fill the needs of the indexers in the future. Now if there isn't an addition, the price will likely drop significantly.

[KPO]

14 hours ago, SafetyinNumbers said:

Fairfax is likely to be added to the S&P//TSX Composite in December 2024 according to CIBC. They estimate 900k shares of index demand. Since stock prices are just supply and demand, it's possible Fairfax has a big price movement around this event either up or down depending on the flows. 

 

I expect the price movement will be upward but it's possible many investors are using the index add to lighten up their positions because it was a catalyst they were waiting for and they don't see another catalyst so the risk is multiple contraction and a drawdown. If there are enough of those shareholders the stock could whipsaw lower. 

 

In the case where the index buyers overwhelm short term oriented shareholders it will be up to value-oriented shareholders to provide supply. Given this board's collective holdings of Fairfax probably rank it a top 10 shareholder it's a pretty amazing resource that we can tap into.

 

Please share how you think about the sell decision. Is it all at once? Is it based on price or value? What's the rationale behind either decision? I want to avoid a sell decisions based on concentration as I think sizing is unique to every individual.

 

I want to make it clear, I don't  analyze all of my sell decisions like this but I think Fairfax is a generational opportunity so I don't want to make a mistake. My current plan is to sell when I expect forward ROE drop below 10% because that's my hurdle rate. I chose it because it's long term equity returns and it's what I needed to make to be comfortable when I was made redundant in 2012. It's designed to keep me invested as Fairfax has a lot of right tails and I want to be exposed to them as long as possible.

 

I think consistent double digit ROEs will lead to multiple expansion. Right now the streak is at 4 which includes 2024 because it will be hard to lose money in Q4. I think the streak can run to 8 years at least given the current outlook. The outlook will change but I think its a small leap that ROE averages double digits for 8 years or more.  If so the remaining shareholders might want to stay where they are being treated well. That could lead to untold multiple expansion. The beauty is its a free option because the base return is so high.

 

If anyone feels comfortable sharing their own sell plan, please do. At the very least I think it is worth thinking about. I think mine is going to be hard to stick to. Hopefully because the multiple is so high but growth is still good and not because I see something I think is better and I'm wrong about.

I wouldn’t bother to sell unless insiders start selling in volume, as they seem to still have a lot of levers. That said, what are the odds that they use this as an opportunity to unwind some or all of the total return swaps on the ~2M shares? 

[SafetyinNumbers]

1 hour ago, Masterofnone said:

My crystal ball is always cloudy, but I agree with Sleepydragon. There seems to be jockeying around any index add well in advance and price action rarely exceeds 7% intra-day and often fades. A portion of every day's price action for the past month or two has likely had a component of odds making on an index add. If I had to guess, I would expect a 4-5% jump near open with a 2-3% gain overall. There is buying now with the intent to fill the needs of the indexers in the future. Now if there isn't an addition, the price will likely drop significantly.

I assume most of the buying happens after it’s official. That leaves 10 days to get positioned. I think it’s interesting to think about where it trades by the close on Dec 20 or by the end of the year. 

[Masterofnone]

1 minute ago, SafetyinNumbers said:

I assume most of the buying happens after it’s official. That leaves 10 days to get positioned. I think it’s interesting to think about where it trades by the close on Dec 20 or by the end of the year. 

But there is buying now in anticipation of that demand, with the intent to sell into the mandated adds.

[cwericb]

Personal view. The share price goes up, goes down. Haven't ever sold a share because I am too dumb to try and time the market. If I sold when I thought the price was going to go down, I can assure you the price would jump. And, I would probably never get back in because I would still be waiting for the next price drop or get too ticked off to get back in because I had missed a big price jump. About a third or quarter of my shares were purchased at about $200. Looking back, there were a few frustrating periods with share price, but there were also a number of times when markets would tank and FFH would either stay stable or rise and defy market trends. FFH does help one sleep at night. I often wonder how successful those here who have traded in and out of Fairfax have been over the years. JMHO

[SafetyinNumbers]

9 minutes ago, Masterofnone said:

But there is buying now in anticipation of that demand, with the intent to sell into the mandated adds.

There is some but I think most of the buying happens post announcement and the people buying now usually sell into the demand leading up to the add post announcement.

[Masterofnone]

Likewise, will not sell. Don't have any ideas of anything as good with current valuations.

[Hoodlum]

21 minutes ago, Masterofnone said:

But there is buying now in anticipation of that demand, with the intent to sell into the mandated adds.

 

Daily volumes have not changed.  Maybe there are fewer investors selling in anticipation of the Index add.

[Viking]

There are two angles to Fairfax being added to the S&P/TSX60:

1.) short term impact on supply/demand for shares - as funds get positioned

2.) long term impact on demand for shares

 

My view is index investing is only going to increase in popularity. As a result, demand for broad based index funds is likely to grow strongly in the coming years. As has been pointed out by @SafetyinNumbers, these buyers are largely price agnostic.
 

My guess is an add to the S&P/TSX60 will be a modest tailwind for Fairfax’s stock price in the coming years.

[MMM20]

 

It's hard to separate the concentration / asset allocation question from the sell decision. Some of us think of our FFH investment as a "core" position and a "tactical" component that has been big for the past couple years. I sold MKL (and index funds) to load up on FFH in 2021. Now that the expected return differential between the two seems less extreme (and Gayner has been buying a bit recently), I'm starting to think about swapping some back. Maybe any pop on index inclusion would be a reasonable opportunity to do so. I wouldn't be doing this if I didn't still have that big "tactical" chunk of FFH and very little in the way of core / plain vanilla / index-ish US equities. FFH is still trading at less than half of intrinsic value though and would still be my biggest position and ~3-4x what I'd allocate to MKL.

 

 

Edited Wednesday at 08:16 PM by MMM20

[Castanza]

I’ve been trying to focus more on building core anchors for my portfolio and not get involved in unnecessarily complicated market timings, sectors, or situations. In short I don’t need the money in the foreseeable future and I think FFH will be worth more than it is now over the next 2,5,10 years. 

[cwericb]

30 minutes ago, Castanza said:

I’ve been trying to focus more on building core anchors for my portfolio and not get involved in unnecessarily complicated market timings, sectors, or situations. In short I don’t need the money in the foreseeable future and I think FFH will be worth more than it is now over the next 2,5,10 years. 

 

Exactly.

[Buckeye]

10 hours ago, cwericb said:

Personal view. The share price goes up, goes down. Haven't ever sold a share because I am too dumb to try and time the market. If I sold when I thought the price was going to go down, I can assure you the price would jump. And, I would probably never get back in because I would still be waiting for the next price drop or get too ticked off to get back in because I had missed a big price jump. About a third or quarter of my shares were purchased at about $200. Looking back, there were a few frustrating periods with share price, but there were also a number of times when markets would tank and FFH would either stay stable or rise and defy market trends. FFH does help one sleep at night. I often wonder how successful those here who have traded in and out of Fairfax have been over the years. JMHO

I am with cwer on this. It’s a large position for me and I have no intention to sell anytime in the next 20 years (or more if I can help it). It’s seems like this compound train is just getting started.  

 

TBH, even if it doubled (which I know it won’t) but even if it did I probably wouldn’t sell. Partly because I am lazy (selling stresses me out sometimes) and partly because I wouldn’t know what to do with the proceeds.  
 

Plus, even it doubled (which it won’t) and then retreated a bit, my binoculars are telling me there’s a quadruple in the not too distant future. 

Edited Thursday at 02:45 AM by Buckeye

[Mystery Guest]

11 hours ago, cwericb said:

Personal view. The share price goes up, goes down. Haven't ever sold a share because I am too dumb to try and time the market. If I sold when I thought the price was going to go down, I can assure you the price would jump. And, I would probably never get back in because I would still be waiting for the next price drop or get too ticked off to get back in because I had missed a big price jump. About a third or quarter of my shares were purchased at about $200. Looking back, there were a few frustrating periods with share price, but there were also a number of times when markets would tank and FFH would either stay stable or rise and defy market trends. FFH does help one sleep at night. I often wonder how successful those here who have traded in and out of Fairfax have been over the years. JMHO

 

21 minutes ago, Buckeye said:

I am with cwer on this. It’s a large position for me and I have no intention to sell anytime in the next 20 years (or more if I can help it). It’s seems like this compound train is just getting started.  

 

TBH, even if it doubled (which I know it won’t) but even if it did I probably wouldn’t sell. Partly because I am lazy (selling stresses me out sometimes) and partly because I wouldn’t know what to do with the proceeds.  
 

Plus, even it doubled (which it won’t) and then retreated a bit, my binoculars are telling me there’s a quadruple in the not too distant future. 

I am in this camp. Been a shareholder since before the first Short attack. Backed up the truck back then. Then backed up the truck again during the pandemic.  I have a substantial core position which I have been told has "CONCENTRATION RISK" so at some point I will have to sell down to a "reduced risk" position. On the other hand after this many years I see the key risk as missing out on this 18 bagger turning into a 100 bagger.  I actually don't care about the quoted price, as long as they keep hitting their targets I am ok with Lumpy Results. I will also say I am finally understanding Buffett's claim that the best holding period is FOREVER ... my original shares bought at $100 are now spitting out $200+ in earnings annually. Why would one disturb that unless one were to see other dollars for sale for 50 cents or less. I would also be ok with a 50% reduction in the quoted price, unless Prem actually raided the Church Kitty and left town. 

 

Cheers  

[MMM20]

16 hours ago, MMM20 said:

It's hard to separate the concentration / asset allocation question from the sell decision. Some of us think of our FFH investment as a "core" position and a "tactical" component that has been big for the past couple years. I sold MKL (and index funds) to load up on FFH in 2021. Now that the expected return differential between the two seems less extreme (and Gayner has been buying a bit recently), I'm starting to think about swapping some back. Maybe any pop on index inclusion would be a reasonable opportunity to do so. I wouldn't be doing this if I didn't still have that big "tactical" chunk of FFH and very little in the way of core / plain vanilla / index-ish US equities. FFH is still trading at less than half of intrinsic value though and would still be my biggest position and ~3-4x what I'd allocate to MKL.

 

Maybe a related question for anyone who follows BRK and MKL too. At what valuations (on current book or eps) would you be indifferent between the three? 

 

Edited Thursday at 10:59 AM by MMM20

[dartmonkey]

On 11/12/2024 at 8:00 PM, SafetyinNumbers said:

r, I don't  analyze all of my sell decisions like this but I think Fairfax is a generational opportunity so I don't want to make a mistake. My current plan is to sell when I expect forward ROE drop below 10% because that's my hurdle rate. I chose it because it's long term equity returns and it's what I needed to make to be comfortable when I was made redundant in 2012. It's designed to keep me invested as Fairfax has a lot of right tails and I want to be exposed to them as long as possible.

 

Count me in the viking/castanza/ cwericb etc crowd, with the thinking that this is a core position with the potential of being worth 5x as much in 8-10 years, based on how the insurance companies are performing, how the investing decisions are being made, and how  long the runway is. So just hold the damn stock. I don’t want any metric (ROE?) or short-term performance wobble (a bad earnings year, R?) to bump me out and miss this opportunity. Why would I do that to myself?

[Viking]

5 hours ago, MMM20 said:

 

Maybe a related question for anyone who follows BRK and MKL too. At what valuations (on current book or eps) would you be indifferent between the three? 

 

In recent years (past 6), Fairfax’s capital allocation has been much better than BRK or MKL. It probably makes sense to hold Fairfax as long as that remains the case. Let time and compounding work its magic.

[mananainvesting]

I do not plan to sell the stock anytime soon, roughly I think fair value of the stock is ~$3000 USD, valuing it on the basis of how Gayner shows to value Markel (Investments- debt +value of Insurance biz + value of associates/ventures). I also agree that I might take a harder look if I think Forward ROE is going to be below 10. I also wouldn’t mind paying a premium(not costco like premium :D)  to a company with a good culture where the terminal risk is low and getting lower with additions to associates. 

 

Nothing is for sure and I might do a U-turn later if circumstances change or if I think I was wrong. However, as now I plan to hold for a long time. 

 

Cheers and I appreciate the discussion. 

[Hamburg Investor]

I plan to sell my stocks, when retiring regularly ("4% rule" - so step by step); hopefully in around 7 years. 

I'd sell/reduce Fairfax before in the following cases:
1. if I feel the need for diversification, which I just did, as FFH was near 50% and the weighting of the insurance within my portfolio pushed above 67%. So I sold MKL and FFH and bought some small caps I like. I think I begin not feeling comfortable, if FFHs at its current valuations is above 50% of my portfolio and if less than a third of my portfolio isn't insurance (while 10% is BRK and I like it for the float, but I don't see BRK as an insurance company with stocks and wholly owned businesses, but more like a fund of different businesses, including insurance). 

2. A function of 1 is, if Fairfax outperforms my other investments by a lot and pb ratio grows e. g. into the direction of 2, than a. the concentration of my portfolio in FFH grows and at the same time b. my hunger for such a concentrated bet would go down a bit (maybe to a maximum of 30% or 40% of the portfolio), so I probably would sell step by step and buy other things.
3. if I find something much more compelling as a bargain (e. g. sustainable roe around 30% or above in the small cap world) and Fairfax is much more expensive in comparison.

4. if valuation gets absurd (minimum pb ratio of 3.0, maybe 5.0. 
5 if the insurance sector gets structurally into a crisis or disrupted (something like "AI is disturbing the moat of BRK, MKL, FFH, which I don't see).

 

[Xerxes]

On 11/13/2024 at 8:28 PM, Castanza said:

I’ve been trying to focus more on building core anchors for my portfolio and not get involved in unnecessarily complicated market timings, sectors, or situations. In short I don’t need the money in the foreseeable future and I think FFH will be worth more than it is now over the next 2,5,10 years. 

 

what are core anchors do you have ?

if you don’t mind me asking 

 

I think StJoe was another .. others ?
 

[Castanza]

5 hours ago, Xerxes said:

 

what are core anchors do you have ?

if you don’t mind me asking 

 

I think StJoe was another .. others ?
 

 

Current

MSFT - last add ~2020 (20%)

RTX - last add ~2020 (13%)

FRFHF (20%->18%)

BRK.B (10%->8%)

GOOGL (8%)

CNSWF (6%) New add 

JOE (5%) - Reduced from 10% to 5% in light of current short-term headwinds 

CPRT (5%)

WFG (5%)

MELI (3%) New add 

 

Cash ~9%

 

I did lighten up on FFH and BRK.B just a bit. Mainly just because they are near ATH and will trade around them a bit etc. Probably won't reduce either anymore than I already have. I'm looking in increase CNSFW as a long-term position. Plus raising a bit of cash just in case JOE drops like a rock. Overtime MSFT and RTX will become smaller positions for me....but they just keep chugging along....

 

AIV Sold out of with a small profit back when the COBF RE team was discussing the disappointing sales numbers. 

NNI  Sold on the bump, don't want to follow long-term and felt there are better opportunities elsewhere. Still a fine company though

OXY  Decided to avoid energy as it's too complex for me. I'll leave that to Buffett

 

 

From Share your Portfolio thread

August:

MSFT

RTX

FRFHF

BRK.b

JOE

GOOGL

AIV

NNI 

OXY

CPRT

WFG

Edited 15 hours ago by Castanza

[Xerxes]

Thanks. 
your MSFT was very well timed. The bluest of the blue chips. 

[Castanza]

2 hours ago, Xerxes said:

Thanks. 
your MSFT was very well timed. The bluest of the blue chips. 

Only added a small chunk in 2020. the majority was added between 2016 and 2018. Especially during that weird market thing in 2018 where everything dumped in December. That was pretty early in my "investment career" if you can even call it that. It was a time when I surfaced from the r/wsb mentality and actually thought longer term. Just happened to get lucky. Moves prior to that were buying NVDA in 2013 when it was around $30 and then selling when it was like $50 or something. Can't even remember exactly. Did a similar thing with AMD.....bought them both because you know...."computer games and such." I like to think we all have those "wasted years" in investing....Maybe it was just me lol 

 

Anyways... 

[Dinar]

3 hours ago, Castanza said:

 

Current

MSFT - last add ~2020 (20%)

RTX - last add ~2020 (13%)

FRFHF (20%->18%)

BRK.B (10%->8%)

GOOGL (8%)

CNSFW (6%) New add 

JOE (5%) - Reduced from 10% to 5% in light of current short-term headwinds 

CPRT (5%)

WFG (5%)

MELI (3%) New add 

 

Cash ~9%

 

I did lighten up on FFH and BRK.B just a bit. Mainly just because they are near ATH and will trade around them a bit etc. Probably won't reduce either anymore than I already have. I'm looking in increase CNSFW as a long-term position. Plus raising a bit of cash just in case JOE drops like a rock. Overtime MSFT and RTX will become smaller positions for me....but they just keep chugging along....

 

AIV Sold out of with a small profit back when the COBF RE team was discussing the disappointing sales numbers. 

NNI  Sold on the bump, don't want to follow long-term and felt there are better opportunities elsewhere. Still a fine company though

OXY  Decided to avoid energy as it's too complex for me. I'll leave that to Buffett

 

 

From Share your Portfolio thread

August:

MSFT

RTX

FRFHF

BRK.b

JOE

GOOGL

AIV

NNI 

OXY

CPRT

WFG

What is CNSFW?  Cannot find it, thank you.