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

[Junior R]

no big move lol

[MMM20]

4 minutes ago, Junior R said:

no big move lol

 

Even if we believe this could be a real catalyst for the stock, we gotta keep in mind that this could happen any quarter, right? It's not like it's now delayed 18+ months and so outside of most investors time horizon (or otherwise dents the thesis in any way). End of hurricane season / typical run up into the ex-dividend date bigger factors IMHO, and the stock is still obviously cheap in both absolute and relative terms. Onward

 

Edited December 9 by MMM20

[dartmonkey]

On 12/8/2024 at 9:40 AM, SafetyinNumbers said:

Running a poll over on Twitter and so far it’s about half expecting a drawdown below 5%.

That's what I would have said, too. I guessed $50 down today, about 2.5%, and I wouldn't be surprised if that's the lowest it goes. Not enough for me to buy any more, if that turns out to be correct.

 

Of course, the whole market is at nosebleed prices, so if there's a general downturn, FFH will not be exempt.

 

When will the inclusion happen? If FFH being #25 in the list of Canadian companies by market cap is not enough to bump the #112, Algonquin, I can't see why being say #22, if they pass the 3 financials in front of them, would make much of a difference. If they just wait until one of the TSX 60 is bought out, the wait may be a lot longer than next March.

 

So an interesting question might be, what will FFH's rank be when it finally gets included? If FFH's price just follows its growth in book value about 15% every year for the next few years just from earnings accumulation, and if the inclusion happened iin 3 years, it might be up to about #19-20, assuming no major changes in the companies between #24 and #20 (National Bank, Intact, Sun Life, Imperial Oil, Loblaws)...

[SafetyinNumbers]

1 hour ago, dartmonkey said:

When will the inclusion happen? If FFH being #25 in the list of Canadian companies by market cap is not enough to bump the #112, Algonquin, I can't see why being say #22, if they pass the 3 financials in front of them, would make much of a difference. If they just wait until one of the TSX 60 is bought out, the wait may be a lot longer than next March.

 

So an interesting question might be, what will FFH's rank be when it finally gets included? If FFH's price just follows its growth in book value about 15% every year for the next few years just from earnings accumulation, and if the inclusion happened iin 3 years, it might be up to about #19-20, assuming no major changes in the companies between #24 and #20 (National Bank, Intact, Sun Life, Imperial Oil, Loblaws)...

I think the focus should be on float cap, not market cap. On that basis, FFH is 22nd as of Friday’s close. I think FFH has a shot of passing IFC in the next 6 months, which is another catalyst as it’s really going to make every fund overweight IFC reconsider staying underweight FFH.

 

I think the index committee was worried FFH was gamed after they tipped off the brokers that size matters more than sector representation on Sept 25. Deferring a quarter solves for any potential gaming and perception of preferential treatment for some of their biggest customers i.e. the brokers.

 

[Haryana]

On 12/2/2024 at 2:32 PM, dartmonkey said:

... And if FFH is not included, I bet we get a drop of at least 5%. That might be a good chance to buy before the next announcement. 

Above what you had actually said on the main Fairfax topic. 

Below what is easy to monkey around after looking the result. 

4 hours ago, dartmonkey said:

That's what I would have said, too. I guessed $50 down today, about 2.5%, and I wouldn't be surprised if that's the lowest it goes...

 

[dartmonkey]

 

5 minutes ago, Haryana said:

On 12/2/2024 at 4:32 PM, dartmonkey said:

... And if FFH is not included, I bet we get a drop of at least 5%. That might be a good chance to buy before the next announcement. 

Above what you had actually said on the main Fairfax topic. 

Below what is easy to monkey around after looking the result. 

4 hours ago, dartmonkey said:

That's what I would have said, too. I guessed $50 down today, about 2.5%, and I wouldn't be surprised if that's the lowest it goes...

 

True, I initially guessed 5% off, on Dec. 2, a week ago ($100),  but then on Dec. 6, Friday (at 8:07 PM), I guessed $50. It's off $42 right now, although it got as low as $80 off, so I guess I will go with my Friday pick  But it was before looking at the result, which we only got this morning.

[Haryana]

 

True, the lowest it went was about $80 CaD or about 4%. 

 

[gfp]

You guys need to step up the panic selling.  These fills are pathetic - do I need to post the Ge of Canada pdf another time?!

[Munger_Disciple]

31 minutes ago, gfp said:

You guys need to step up the panic selling.  These fills are pathetic - do I need to post the Ge of Canada pdf another time?!

 

I am not selling but you are truly bullish to keep buying at these prices  (I mean it was just a tiny correction of index related unwind). 

[gfp]

6 minutes ago, Munger_Disciple said:

 

I am not selling but you are truly bullish to keep buying at these prices  (I mean it was just a tiny correction of index related unwind). 

 

Well I am bullish but this is more just trying to replace a couple shares sold in my wife's IRA.  I was hoping for more of a drawdown.  There's always tomorrow..

 

Edited December 9 by gfp

[Munger_Disciple]

23 minutes ago, gfp said:

 

Well I am bullish but this is more just trying to replace a couple shares sold in my wife's IRA.  I was hoping for more of a drawdown.  There's always tomorrow..

 

 

[Parsad]

You guys crack me up!  Stop looking for index inclusion...stop thinking that Fairfax will only go up forever...stop worrying that it might drop if it isn't included in the index...this stuff will drive you crazy and make you do the stupidest things.

 

Buy it when it's cheap and hold on if you want to make it a bigger and bigger portion of your net worth.

 

Otherwise, buy when it's cheap and sell when it's dear.

 

Prem is only human...as is the rest of the team.  They will do everything they can to increase shareholder value, and it sure looks like they can continue at a 15% ROE for the next 2-5 years.  But things will go up and down...that's just the nature of the beast and being a distressed value investor.  

 

Worry about the bigger picture...the investments they pick, the insurance businesses, their stakes in Greece and India, the bond portfolio, investments in associates that are now very large like Eurobank and Atlas...index inclusion didn't get them to where they are and in the grand scheme of things it won't mean anything!  Cheers!

[SafetyinNumbers]

1 hour ago, Parsad said:

You guys crack me up!  Stop looking for index inclusion...stop thinking that Fairfax will only go up forever...stop worrying that it might drop if it isn't included in the index...this stuff will drive you crazy and make you do the stupidest things.

 

Buy it when it's cheap and hold on if you want to make it a bigger and bigger portion of your net worth.

 

Otherwise, buy when it's cheap and sell when it's dear.

 

Prem is only human...as is the rest of the team.  They will do everything they can to increase shareholder value, and it sure looks like they can continue at a 15% ROE for the next 2-5 years.  But things will go up and down...that's just the nature of the beast and being a distressed value investor.  

 

Worry about the bigger picture...the investments they pick, the insurance businesses, their stakes in Greece and India, the bond portfolio, investments in associates that are now very large like Eurobank and Atlas...index inclusion didn't get them to where they are and in the grand scheme of things it won't mean anything!  Cheers!

I post a lot explaining the short term moves because that’s what I got paid to do when I was at UBS. I figure I might as well share it to get feedback and appreciate other perspectives. I don’t trade my position and have only added to FFH on pullbacks usually after I understand why it’s pulling back. The last four years all of the pullbacks have had nothing to do with intrinsic value shrinking, this pullback being no exception. 
 

Parsad, it sounds like you wouldn’t start a position now if you didn’t have one already. Is that fair?
 

 

[Parsad]

4 hours ago, SafetyinNumbers said:

I post a lot explaining the short term moves because that’s what I got paid to do when I was at UBS. I figure I might as well share it to get feedback and appreciate other perspectives. I don’t trade my position and have only added to FFH on pullbacks usually after I understand why it’s pulling back. The last four years all of the pullbacks have had nothing to do with intrinsic value shrinking, this pullback being no exception. 
 

Parsad, it sounds like you wouldn’t start a position now if you didn’t have one already. Is that fair?
 

 

 

Yes, correct.  It already makes up about 25% of my net worth, and I'm comfortable with that long-term.  If Prem can grow it 15% a year from here, that's as good as it gets.  Cheers!  

[73 Reds]

11 hours ago, Parsad said:

You guys crack me up!  Stop looking for index inclusion...stop thinking that Fairfax will only go up forever...stop worrying that it might drop if it isn't included in the index...this stuff will drive you crazy and make you do the stupidest things.

 

Buy it when it's cheap and hold on if you want to make it a bigger and bigger portion of your net worth.

 

Otherwise, buy when it's cheap and sell when it's dear.

 

Prem is only human...as is the rest of the team.  They will do everything they can to increase shareholder value, and it sure looks like they can continue at a 15% ROE for the next 2-5 years.  But things will go up and down...that's just the nature of the beast and being a distressed value investor.  

 

Worry about the bigger picture...the investments they pick, the insurance businesses, their stakes in Greece and India, the bond portfolio, investments in associates that are now very large like Eurobank and Atlas...index inclusion didn't get them to where they are and in the grand scheme of things it won't mean anything!  Cheers!

Yep.  Hard to understand the infatuation with index inclusion unless your time horizon is 10 minutes.  I'd rather see an announcement that Fairfax will NEVER be included in the index - better buying opportunity and as you said, nothing about the company will change.  Look no further than Berkshire - Buffett and shareholders could have cared less about index inclusion and performance didn't suffer.  

[SafetyinNumbers]

5 hours ago, Parsad said:

 

Yes, correct.  It already makes up about 25% of my net worth, and I'm comfortable with that long-term.  If Prem can grow it 15% a year from here, that's as good as it gets.  Cheers!  

The question was meant to ask if you didn’t own it already would you start a position now? Try putting yourself in the shoes of someone who wasn’t as smart or lucky as you who just happened upon FFH today. It doesn’t have to start at a 25% weight. Let’s say 5% for arguments sake.

[SafetyinNumbers]

26 minutes ago, 73 Reds said:

Yep.  Hard to understand the infatuation with index inclusion unless your time horizon is 10 minutes.  I'd rather see an announcement that Fairfax will NEVER be included in the index - better buying opportunity and as you said, nothing about the company will change.  Look no further than Berkshire - Buffett and shareholders could have cared less about index inclusion and performance didn't suffer.  

Hard disagree. The index add has the potential to result in long term multiple expansion. The higher the multiple, the more resilient FFH is to shocks. That’s a very good thing for very long term shareholders. If Berkshire wasn’t in the benchmark it would probably have a much lower valuation today, FWIW. 

 

Also, here’s your headline, courtesy of Scotia and the Globe and Mail.

 

[73 Reds]

6 minutes ago, SafetyinNumbers said:

Hard disagree. The index add has the potential to result in long term multiple expansion. The higher the multiple, the more resilient FFH is to shocks. That’s a very good thing for very long term shareholders. If Berkshire wasn’t in the benchmark it would probably have a much lower valuation today, FWIW. 

 

Also, here’s your headline, courtesy of Scotia and the Globe and Mail.

 

What is "long term"?  Stocks go in, stocks come out.  Index composition changes.  The stocks that leave undoubtedly underperform while they are in the index.  I think the issue is not index inclusion but WHY a stock worthy of index inclusion - whether or not it is added, does well.    As said, I don't understand the focus on index inclusion which is merely a consequence of factors that truly are material.

[Jaygo]

@Parsad @73 Reds 

 

Just food for thought, I think you are both likely correct but you may not be looking at it from other peoples perspective. You both are older and very likely far richer than myself so do not fully understand my motivation.

 

I trade trade around positions I like in an attempt to boost performance and allow for higher risk securities as well. Admittedly it doesn't always work but usually it does. 

 

I have a core holding in Fairfax that I hold similar to your beliefs, long term without much handwringing. It is also the around the maximum percentage I am willing to hold in any one security. 

 

But I also took on some debt and bought a good bit more expecting the index inclusion as outlined by @SafetyinNumbers. His reasoning was very sound and I like the company. I sold yesterday as the index inclusion did not happen, and paid off the portion of margin. I made $ 14,000 USD on the trade. It could have been better but at my stage in life 14k is important, I'm not retired, I work and have a family of 4 to support so this was a great result all based off what I felt was a very very good probability of index inclusion and the run up into it.

 

I would imagine some on the forum say 14k, lol this guys doing all that for 14k. Just buy and hold you fool!

Well yes I am because in my life 14k is about a month of hard work.

 

If i'm still doing this in my 50's and 60's I may have screwed up but for now this is how I "beat the market" 

 

Everyone is at a different stage in life. I'm in the maximization stage and even a few % per year make a huge difference.

[73 Reds]

2 minutes ago, Jaygo said:

@Parsad @73 Reds 

 

Just food for thought, I think you are both likely correct but you may not be looking at it from other peoples perspective. You both are older and very likely far richer than myself so do not fully understand my motivation.

 

I trade trade around positions I like in an attempt to boost performance and allow for higher risk securities as well. Admittedly it doesn't always work but usually it does. 

 

I have a core holding in Fairfax that I hold similar to your beliefs, long term without much handwringing. It is also the around the maximum percentage I am willing to hold in any one security. 

 

But I also took on some debt and bought a good bit more expecting the index inclusion as outlined by @SafetyinNumbers. His reasoning was very sound and I like the company. I sold yesterday as the index inclusion did not happen, and paid off the portion of margin. I made $ 14,000 USD on the trade. It could have been better but at my stage in life 14k is important, I'm not retired, I work and have a family of 4 to support so this was a great result all based off what I felt was a very very good probability of index inclusion and the run up into it.

 

I would imagine some on the forum say 14k, lol this guys doing all that for 14k. Just buy and hold you fool!

Well yes I am because in my life 14k is about a month of hard work.

 

If i'm still doing this in my 50's and 60's I may have screwed up but for now this is how I "beat the market" 

 

Everyone is at a different stage in life. I'm in the maximization stage and even a few % per year make a huge difference.

OK, you took on debt, which adds a dimension of risk and cost and short term perspective.  My point is for anyone with a long term horizon the issue is meaningless.  FWIW, my investment results improved dramatically when I avoided the urge to trade and to use margin debt.

[Jaygo]

3 minutes ago, 73 Reds said:

OK, you took on debt, which adds a dimension of risk and cost and short term perspective.  My point is for anyone with a long term horizon the issue is meaningless.  FWIW, my investment results improved dramatically when I avoided the urge to trade and to use margin debt.

 

I guess you can say I have a hybrid approach. A core long term holding and when an opportunity with a good chance comes up I scale up or down the holding. The risk was there but pretty low id say, we are in a bull market so a slow grind up with a catalyst is a decently sure bet.

 

In fact the reason I sold the position is not because I dont like Fairfax, its because I am trying to manage risk, the extra shares were never intended to be a long term holding, ( I already have that ) it was just a bet on a run up into the index inclusion.

[SafetyinNumbers]

28 minutes ago, 73 Reds said:

What is "long term"?  Stocks go in, stocks come out.  Index composition changes.  The stocks that leave undoubtedly underperform while they are in the index.  I think the issue is not index inclusion but WHY a stock worthy of index inclusion - whether or not it is added, does well.    As said, I don't understand the focus on index inclusion which is merely a consequence of factors that truly are material.

Nothing leaves the 60 unless it’s bought out or gets too small. Neither seem probable for FFH once it gets in. It’s a new 4% shareholder that buys stock every week. It encourages all of the active managers that are benchmarked to the index to take a look at FFH which may also increase demand. For investors that don’t own any FFH yet, it makes sense to pay attention to what might increase the multiple. I think stock prices are about supply and demand but others think the market is efficient. To each his own.

[dartmonkey]

1 hour ago, SafetyinNumbers said:

I think stock prices are about supply and demand but others think the market is efficient. To each his own.

I think both views expressed above can be reconciled by differentiating between the short term and the long term.

 

In the short term, the market is a voting machine, and that vote is expressed by supply and demand, with a new demand (like indexers buying 4% of outstanding shares) likely to push the price up. This could be an important consideration for someone who wants to buy new shares or trade around a position.

 

In the long term, the market is a weighing machine, and what counts is primarily sustainable earnings, and secondarily, asset values anchoring the value. If Fairfax continues earning 15% on equity for another 10 years, its price will be about 4 times today's price, and whether or not FFH is in the TSX 60 will be completely irrelevant to that. The focus of long term investors should be on earnings, on new investments and how likely they are to produce future earnings. 

 

For a long-term investor, inclusion in the TSX 60 and a subsequent share price increase also has 2 furthert small advantages, IMO:

(i) it makes liquidity less of an issue, since FFH adds the option of issuing shares, for instance if they wanted to buy a big Indian bank or reaquire assets from OMERS;

(ii) it reinforces Fairfax's visibility and credibility, in Canada and overseas, when it wants to do a big transaction. Admittedly, the lack of inclusion does not seem to be hampering Fairfax at the moment, but index inclusion would just be one more sign that the dark ages of the tech shorts, the Blackberry position, the macro bet on deflation, etc. are behind us and that the new Fairfax is concentrated on insurance and solid investments of the insurance float in sensible businesses.

[73 Reds]

1 hour ago, SafetyinNumbers said:

Nothing leaves the 60 unless it’s bought out or gets too small. Neither seem probable for FFH once it gets in. It’s a new 4% shareholder that buys stock every week. It encourages all of the active managers that are benchmarked to the index to take a look at FFH which may also increase demand. For investors that don’t own any FFH yet, it makes sense to pay attention to what might increase the multiple. I think stock prices are about supply and demand but others think the market is efficient. To each his own.

The flip side is in a market downturn for reasons having nothing to do with Fairfax, index funds sell all index holdings, including Fairfax.  I think a lot of folks have become complacent to the risk of a longer term broad market downturn simply because we haven't experienced one for a long while.  

[SafetyinNumbers]

8 minutes ago, 73 Reds said:

The flip side is in a market downturn for reasons having nothing to do with Fairfax, index funds sell all index holdings, including Fairfax.  I think a lot of folks have become complacent to the risk of a longer term broad market downturn simply because we haven't experienced one for a long while.  

That might be true but a broad market pullback likely lifts forward ROE for FFH if they reallocate from the fixed income portfolio to quality equities. FFH can also be aggressive with buybacks given the low P/B multiple and fast growing BV which will help stem a broader decline and also increase forward ROE. I don’t consider price volatility as risk the way most market practitioners do but everyone is on their own idiosyncratic journey.