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

[Crip1]

This may have been said before but, honestly, I don't care about index inclusion. 

 

We all invest for the return and the financial security that return provides. We all have different approaches, preferences, tolerance levels, etc. One thing I'd surmise, after reading this board for years, is that most of us want an investment that allows us to sit and do nothing but watch it grow, and at this point of it's history, that is exactly what Fairfax has become. As long as management doesn't do anything stupid, lethargy, bordering on sloth, will make us notably wealthier in the coming 5-10 years, irrespective of whether or not it's included in any index. All the shareholders have to do is to keep an eye out for any management actions that are stupid...that's it. What can be easier. Hell, I'd LOVE a whole basket of these companies and, again, could not care less about index inclusion.

 

We can argue the level with which Fairfax undervalued, but the vast majority of the holders do believe that it's under-valued. Now, if it shot up 25%, 35%, 50% overnight, I have to think others as well as myself, would be tempted to sell...the hold/sell would require a difficult decision. Right now, the decision to hold is easy...blissfully easy. It is jumping over a 2 inch hurdle.

 

Dismounting soapbox. 

 

-Crip

[vinod1]

2 minutes ago, Crip1 said:

This may have been said before but, honestly, I don't care about index inclusion. 

 

We all invest for the return and the financial security that return provides. We all have different approaches, preferences, tolerance levels, etc. One thing I'd surmise, after reading this board for years, is that most of us want an investment that allows us to sit and do nothing but watch it grow, and at this point of it's history, that is exactly what Fairfax has become. As long as management doesn't do anything stupid, lethargy, bordering on sloth, will make us notably wealthier in the coming 5-10 years, irrespective of whether or not it's included in any index. All the shareholders have to do is to keep an eye out for any management actions that are stupid...that's it. What can be easier. Hell, I'd LOVE a whole basket of these companies and, again, could not care less about index inclusion.

 

We can argue the level with which Fairfax undervalued, but the vast majority of the holders do believe that it's under-valued. Now, if it shot up 25%, 35%, 50% overnight, I have to think others as well as myself, would be tempted to sell...the hold/sell would require a difficult decision. Right now, the decision to hold is easy...blissfully easy. It is jumping over a 2 inch hurdle.

 

Dismounting soapbox. 

 

-Crip

 

Agree 100% with this. 

 

Imagine if Fairfax shot up to $900 when book value was $450 per share just a little while back. It would have been awfully hard not to reduce or sell out of the stock. I would rather have something that can compound at an attractive rate for a long time that is reasonably priced. 

 

I am trying not to look at this until 2033 (for a 10 year hold).

 

Vinod

[SafetyinNumbers]

We wait until March for the next opportunity or if something in the 60 gets acquired before then it will open up a spot.

[Thrifty3000]

Imagine you have $500 billion. Would you rather own $30 billion of an index with an earnings yield of maybe 4% that’s growing 5 or 6% annually, or a single, diversified, conglomerate, with an earnings yield of 10 or more percent that’s growing 10 to 14% annually?

 

No matter what, both assets will be under, fairly and over-valued over time, whether or not said conglomerate is or isn’t in said index.

[Viking]

Well said everyone. My interest in the S&P/TSX 60 add is primarily as an item of interest. I do think it will be a modest tailwind to shares when it happens. As CIBC said in their research report, the add is coming, we just don’t know the timing. 

[gfp]

There's always the method that worked for Berkshire.  Acquire a current TSX 60 company and they gotta add you

[Haryana]

This announcement is only for additions to the Composite.

No announcement or change reported yet on the 60 index. 

 

No removal of AQN(Algonquin) which mean opportunity is just postponed to the next report. 

[Hamburg Investor]

22 minutes ago, Viking said:

Well said everyone. My interest in the S&P/TSX 60 add is primarily as an item of interest. I do think it will be a modest tailwind to shares when it happens. As CIBC said in their research report, the add is coming, we just don’t know the timing. 

Wouldn‘t it be a tailwind for the shortterm pricing, but a headwind for the longterm?

 

- If price gets higher and less volatile, buybacks are less good investments (cheaper is better)

- So buybacks get less attractive. So either Prem buys back at a more expensive price (which is less good then it be for intrinsic value then it would be without being added) or he doesn’t at all, as the price gets too high (which is less good for intrinsic value then it would be without being added).

 

Paraphrasing Buffett from memory: As long as you are not a seller of stock, but a buyer, (what you are, if the business you hold shares of buys back stocks) cheaper prices are always better.

 

Who thinks, Berkshire shareholders would be better off today, if BRK would have been added to the Dow 20+ years ago? (Maybe that’s another reason, why BRK never splitted the A shares…)?  If you don’t think that would have helped BRK, why do you think, for FFH it would be?

 

[dartmonkey]

48 minutes ago, Haryana said:

This announcement is only for additions to the Composite.

No announcement or change reported yet on the 60 index. 

In previous announcements, when there have been changes both to the Composite and the 60, they have announced both at the same time. So it is safe to conclude that there are no changes to the 60.

 

Now it will be interesting to see if FFH shares drop on Monday. If they do, it will be because some were expecting a bump on the expected inclusion. My guess is we see a $50 drop on Monday. Of course, it doesn't really matter, as others have said, since (a) it will allow for more buybacks and (b) it's just postponing the inevitable.

 

But I tend to agree with those who think a high share price would be / will be a good thing. At current prices that are much higher than a year ago, buybacks are still probably value-enhancing, but they're not the slam dunk they were. And a high price would allow them more flexibility in how they finance things like the anticipated Indian bank acquisition or buying back stakes of companies they have parked with OMERS. In fact, the ideal would be a run-up to 3x book for a while, so they could issue a bunch of shares and reduce their leverage. Or even better, 3x book next year, issue shares, then plunge back to 1x book, buy those shares back, rinse, repeat. The Henry Singleton technique.

[Masterofnone]

On 11/19 FFH.TO closed at ~$1923. Since then, it has gained 6.7% in a little over two weeks. I would think that much or all of this rise was due to Index addition speculation. Hopefully it will overshoot with selling/shorting over the next week and present another modest buying/buyback opportunity.

 

Same company today and Monday.

[gfp]

27 minutes ago, Masterofnone said:

On 11/19 FFH.TO closed at ~$1923. Since then, it has gained 6.7% in a little over two weeks. I would think that much or all of this rise was due to Index addition speculation. Hopefully it will overshoot with selling/shorting over the next week and present another modest buying/buyback opportunity.

 

Same company today and Monday.

 

Lets do it!  "GE of Canada" !!

Fairfax-Financial_FFH_MW_20240208.pdf

[Parsad]

8 hours ago, Crip1 said:

This may have been said before but, honestly, I don't care about index inclusion. 

 

We all invest for the return and the financial security that return provides. We all have different approaches, preferences, tolerance levels, etc. One thing I'd surmise, after reading this board for years, is that most of us want an investment that allows us to sit and do nothing but watch it grow, and at this point of it's history, that is exactly what Fairfax has become. As long as management doesn't do anything stupid, lethargy, bordering on sloth, will make us notably wealthier in the coming 5-10 years, irrespective of whether or not it's included in any index. All the shareholders have to do is to keep an eye out for any management actions that are stupid...that's it. What can be easier. Hell, I'd LOVE a whole basket of these companies and, again, could not care less about index inclusion.

 

We can argue the level with which Fairfax undervalued, but the vast majority of the holders do believe that it's under-valued. Now, if it shot up 25%, 35%, 50% overnight, I have to think others as well as myself, would be tempted to sell...the hold/sell would require a difficult decision. Right now, the decision to hold is easy...blissfully easy. It is jumping over a 2 inch hurdle.

 

Dismounting soapbox. 

 

-Crip

 

+1!  Cheers!

[Parsad]

8 hours ago, Thrifty3000 said:

Imagine you have $500 billion. Would you rather own $30 billion of an index with an earnings yield of maybe 4% that’s growing 5 or 6% annually, or a single, diversified, conglomerate, with an earnings yield of 10 or more percent that’s growing 10 to 14% annually?

 

No matter what, both assets will be under, fairly and over-valued over time, whether or not said conglomerate is or isn’t in said index.

 

I would manage $500B exactly the same way I manage $5M.  I would want to be able to sleep at night with nary a concern if markets fall 50% tomorrow morning, or war breaks out in Europe or an 8.0 earthquake hits a major city.  Cheers!

[Parsad]

4 hours ago, Masterofnone said:

On 11/19 FFH.TO closed at ~$1923. Since then, it has gained 6.7% in a little over two weeks. I would think that much or all of this rise was due to Index addition speculation. Hopefully it will overshoot with selling/shorting over the next week and present another modest buying/buyback opportunity.

 

Same company today and Monday.

 

Might be a combination of things...index inclusion speculation, end of the hurricane season, approaching dividend, etc.  Cheers!

[73 Reds]

8 hours ago, Masterofnone said:

On 11/19 FFH.TO closed at ~$1923. Since then, it has gained 6.7% in a little over two weeks. I would think that much or all of this rise was due to Index addition speculation. Hopefully it will overshoot with selling/shorting over the next week and present another modest buying/buyback opportunity.

 

Same company today and Monday.

Much ado about nothing, IMO.  Ignore the stock price if you are in this for the long haul.  Put in a limit buy order at whatever price you want to buy the stock and just follow the goings on of the company itself.  One of the best pieces of investment advice I ever got is to ignore daily (weekly, monthly etc..) price fluctuations if you are an owner rather than a renter of the stock.   Having an owner mentality made all the difference.

Edited December 7 by 73 Reds
missed line

[MMM20]

10 hours ago, Masterofnone said:

On 11/19 FFH.TO closed at ~$1923. Since then, it has gained 6.7% in a little over two weeks. I would think that much or all of this rise was due to Index addition speculation.

The market’s up and peers like WRB and MKL are up about the same as FFH over this recent stretch. No denying there was some index speculation going on but I’ve noticed the stock tends to run up after hurricane season and into the Jan ex dividend date, and I bet those are bigger factors. Don’t be surprised if that overwhelms whatever short term selloff and the stock bounces over the next month or so. Of course a fool’s errand to have any confidence on that, but I felt like pushing back.

 

Edited December 7 by MMM20

[Thrifty3000]

6 hours ago, Parsad said:

 

I would manage $500B exactly the same way I manage $5M.  I would want to be able to sleep at night with nary a concern if markets fall 50% tomorrow morning, or war breaks out in Europe or an 8.0 earthquake hits a major city.  Cheers!

If you’re having trouble sleeping, might I recommend:

https://therest.ca

[villainx]

2 hours ago, MMM20 said:

The market’s up and peers like WRB and MKL are up about the same as FFH over this recent stretch.

 

It's interesting that MKL seems to be consistently around 1.4 book value.  Bittersweet to see FFH above 1.4.

[John Hjorth]

9 minutes ago, villainx said:

 

It's interesting that MKL seems to be consistently around 1.4 book value.  Bittersweet to see FFH above 1.4.

 

I personally think the return of investing in MKL by now for some here on CoBF has to do with buying it at a price, that has turned out to be too steep, to get a satisfactory return. I consider it a 'special CoBF bias' here on CoBF.

[Parsad]

5 hours ago, Thrifty3000 said:

If you’re having trouble sleeping, might I recommend:

https://therest.ca

 

It's funny you sent me that.  I just bought a brand new king size bed (automated) and a new luxury mattress.  God my back has never felt better and I stretch out each night like I'm at a hotel.  I'm also buying super soft down pillows from the Fairmont Hotel arriving before Christmas...got new sheets, pillow cases and a super light duvet as well.  Not sure why I've never spent money on a quality bed, since I sleep for 6-8 hours a night, 7 days a week...that's a good chunk of anyone's day.  A good bed is definitely worth the money!  Cheers!

[John Hjorth]

18 minutes ago, Parsad said:

 

It's funny you sent me that.  I just bought a brand new king size bed (automated) and a new luxury mattress.  God my back has never felt better and I stretch out each night like I'm at a hotel.  I'm also buying super soft down pillows from the Fairmont Hotel arriving before Christmas...got new sheets, pillow cases and a super light duvet as well.  Not sure why I've never spent money on a quality bed, since I sleep for 6-8 hours a night, 7 days a week...that's a good chunk of anyone's day.  A good bed is definitely worth the money!  Cheers!

 

It's true, the one third of ones life, that nobody invests in, or think about, or care about!

[Junior R]

ready to add more on any drawdown that is 10%

[SafetyinNumbers]

1 hour ago, Junior R said:

ready to add more on any drawdown that is 10%

Running a poll over on Twitter and so far it’s about half expecting a drawdown below 5%. If there are funds accumulating, the index committee did them a big favour by deferring. Presumably, FFH is live to be added every index review going forward (March is next) or if any companies are acquired in the 60. 
 

 

[cwericb]

 Not sure I understand this poll.

 

It could be months before Fairfax is added as stated above. If so, would expect the price of FFH shares will be reasonably higher than they are today not lower, by the time the company is added to the TSX60. So are you suggesting that Fairfax shares will fall and continue to do so until sometime in the future when (if) it is added?

 

Further I would think many of those who did purchase recently will probably hold onto their shares at least until the annual dividend next month. 

[SafetyinNumbers]

4 hours ago, cwericb said:

 Not sure I understand this poll.

 

It could be months before Fairfax is added as stated above. If so, would expect the price of FFH shares will be reasonably higher than they are today not lower, by the time the company is added to the TSX60. So are you suggesting that Fairfax shares will fall and continue to do so until sometime in the future when (if) it is added?

 

Further I would think many of those who did purchase recently will probably hold onto their shares at least until the annual dividend next month. 

Just asking what the maximum drawdown will be between Friday’s close and if it’s added in March. I expect it to be higher by then as well, perhaps even by the end of this week. However, if an active investor was still looking to add it may be interesting information for how aggressive they should be if the opportunity presents itself.