Fairfax 2025

[73 Reds]

2 minutes ago, Munger_Disciple said:

 

Congrats @73 Reds! So you bought BRK in 1983? Tell us more

1st share cost me under $1k, including commissions (5% of pp back in those days).  Many more since.  Buffett created many multi millionaires.  Count me as one.

[This2ShallPass]

4 hours ago, SafetyinNumbers said:

I think of it as them buying back shares when they entered the TRS on a deferred payment plan. That  is, the TRS, was just financing. 

Ignoring TRS, question is generally on buybacks. At what P/B, would it not make sense to buy?

 

[gfp]

6 minutes ago, This2ShallPass said:

Ignoring TRS, question is generally on buybacks. At what P/B, would it not make sense to buy?

 

 

It doesn't really matter what the price-to-book ratio is for repurchases - it matters what the price to intrinsic value is.  If you care about the accounting effect of buying stock at a premium to book lowering reported BVPS you are already paying attention to the wrong thing.

 

Some companies are undervalued at 2x book and some companies are overvalued at .8x book - it's just an accounting figure it isn't an end-all-be-all even at a financial company.

 

If accretive repurchases have the side effect of lowering BVPS, it just further widens the gap between reported BV and intrinsic value for continuing shareholders.  Book value is a historical record.  It doesn't know the future.

[Viking]

45 minutes ago, 73 Reds said:

@Viking.  Nice post - thanks.  If Fairfax can consistently underwrite at a <100 CR and if the investment side avoids the mistakes of the 2010s, the stock may never be a "sell" unless money is needed.  This is the way I've viewed BRK for 42 years.  In some ways it is great not to be a proficient trader, and as Buffett often says, just treat stocks like you would a business or piece of real estate.   

 

I could have written this post to 1990's version of myself... I messed up with Berkshire Hathaway then. Big time. I owned the stock many times. And always sold it for a nice gain. But I missed out on making the big money (getting my position size right and then sitting on my hands). I am trying to not make the same mistake with Fairfax today.

 

Fairfax looks to me like it has a similar set-up to a much younger Berkshire Hathaway. I don't expect Fairfax to compound at +20%. But I think 15% over the next few years is doable (I am talking about intrinsic business value). Fairfax also will get there in very different way than BRK did back in the 1990's.   I am ok with that.

 

Congrats on your long-standing investment in Berkshire. Well done. 

[This2ShallPass]

23 minutes ago, gfp said:

It doesn't really matter what the price-to-book ratio is for repurchases - it matters what the price to intrinsic value is.  If you care about the accounting effect of buying stock at a premium to book lowering reported BVPS you are already paying attention to the wrong thing.

I don't think this is true for insurance companies, who are primarily valued at P/B multiples. There's a reason Buffett maintained the 1.2x P/B stance. He only changed that once operating companies became a bigger portion in which case agreed P/B is not the right metric (as it's not for many industries).

 

One exception that can be made is if there's significant difference between fair and carrying value. 

 

[gfp]

24 minutes ago, This2ShallPass said:

I don't think this is true for insurance companies, who are primarily valued at P/B multiples. There's a reason Buffett maintained the 1.2x P/B stance. He only changed that once operating companies became a bigger portion in which case agreed P/B is not the right metric (as it's not for many industries).

 

One exception that can be made is if there's significant difference between fair and carrying value. 

 

 

Insurance companies that have been built by a lot of recent M&A have book values that are marked closer to intrinsic value - Fairfax's book value gets updated upwards a lot more frequently than some other insurance companies (BRK included).  Warren wouldn't hesitate to buy Progressive at 2x book value and he probably values Chubb at something higher than 1.5x book value even though it is a straight plain vanilla insurance company with a conventional insurance company investment portfolio.

 

As an example, look at insurer RLI.  They trade for 4x book value or somewhere around there.  If they were acquired tomorrow for no acquisition premium by another insurance company, 4x book value would instantly become 1x book value in the accounting of the new firm.

Edited Tuesday at 07:17 PM by gfp

[petec]

2 hours ago, Txvestor said:

That assumes you know the net worth of the operator.  

$25M is not chump change to a lot of operators. Yea it's a rounding error to Fairfax, but to someone with execution capability and specialized skills it's an opportunity they probably wouldn't have without the likes of Fairfax at their side. 
Although there is limited details about this deal, my understanding is that they are leasing time shares/vacation rentals long term, and subletting them short term.

I don't think they will be actually owning those assets. 
Yes the financing rate is high, and that is where the asymmetric risk/reward comes in. 

as long as Fairfax is not on the hook for those loans(which is what I suspect since anything they back wouldn't be at those rates) then I think the onus is on the operator to make it work. And those margins in that industry can be spectacular. We will know in a few years but it could be a home run. 
 

Berkley is, as far as I can tell, a standard timeshare business. Individuals own the accommodation but the resorts are owned by the business. The business also charges annual and transaction to the owners and runs restaurants etc onsite. These assets and cash flows are now effectively owned by FFH since they own over 90% of the capital stack. 
 

The opportunity is to increase short term rentals when the timeshare owners are not in residence. The benefits are presumably shared between the timeshare owners and the business. 
 

I very much hope they are not leasing properties long term and renting them short term. That kind of duration mismatch is a recipe for disaster. 
 

 

[Viking]

38 minutes ago, This2ShallPass said:

I don't think this is true for insurance companies, who are primarily valued at P/B multiples. There's a reason Buffett maintained the 1.2x P/B stance. He only changed that once operating companies became a bigger portion in which case agreed P/B is not the right metric (as it's not for many industries).

 

One exception that can be made is if there's significant difference between fair and carrying value. 

 

I think you have to remember that Buffett in his younger years was able to compound at 20% per year in his sleep. So it made little sense for him to buy back stock - regardless of where it was trading. Fairfax is good, but they are not as good as Buffett in his prime (no one is). As a result, stock buybacks will make much more sense (as a capital allocation option) for Fairfax than they did for a younger/smaller Berkshire Hathaway.

 

Over the years, Berkshire has morphed into a huge conglomerate, with a side P/C insurance business. In recent years, Fairfax has doubled down on P/C insurance business (quadrupled its size the past 10 years if memory serves me correctly). So today, some comparisons between Berkshire and Fairfax make sense. Others do not (IMHO) - like applying Buffett's 1.2 x BV 'rule of thumb' for buybacks to Fairfax. 

Edited Tuesday at 07:31 PM by Viking

[73 Reds]

52 minutes ago, Viking said:

 

I could have written this post to 1990's version of myself... I messed up with Berkshire Hathaway then. Big time. I owned the stock many times. And always sold it for a nice gain. But I missed out on making the big money (getting my position size right and then sitting on my hands). I am trying to not make the same mistake with Fairfax today.

 

Fairfax looks to me like it has a similar set-up to a much younger Berkshire Hathaway. I don't expect Fairfax to compound at +20%. But I think 15% over the next few years is doable (I am talking about intrinsic business value). Fairfax also will get there in very different way than BRK did back in the 1990's.   I am ok with that.

 

Congrats on your long-standing investment in Berkshire. Well done. 

The credit all goes to Buffett and Charlie.  There is no real skill in accepting Buffett's advice to treat stocks like businesses rather than exchangeable pieces of paper or clicks.  With several other long-term holds, that has been by far the most important key to my investment success in stocks since I generally only buy the lowest of low-hanging fruit when it comes to public equities. 

[dartmonkey]

4 hours ago, Viking said:

Over the past 4 years, Fairfax’s shares have returned 308% (plus another $45/share in dividends), making it a ‘3 bagger’ in Peter Lynch parlance.

Quibble: this would be a 4-bagger, not a 3-bagger. Starting Dec 31st 2020 at $340.94, when it gets to $3409.40, it will be a 10-bagger, i.e an increase of 900%.

 

Factoring in dividends:  according to Yahoo Finance, FRFHF was at an adjusted price of $314.96 at the end of 2020, so it is now at 471% of its price just over 4 years ago, almost a 5-bagger.

[Munger_Disciple]

3 hours ago, 73 Reds said:

1st share cost me under $1k, including commissions (5% of pp back in those days).  Many more since.  Buffett created many multi millionaires.  Count me as one.

 

You & @dealraker might be the longest tenured BRK shareholders on the board. 

Buffett in the 2022 AR:  "There are many Berkshire centimillionaires and, yes, billionaires who have never studied our financial figures."

Edited Tuesday at 09:31 PM by Munger_Disciple

[73 Reds]

33 minutes ago, Munger_Disciple said:

 

You & @dealraker might be the longest tenured BRK shareholders on the board. 

Buffett in the 2022 AR:  "There are many Berkshire centimillionaires and, yes, billionaires who have never studied our financial figures."

Trust and Integrity.  There are not many public companies where these qualities are beyond reproach and an annual shareholder letter teaches so many valuable life lessons.  

[Munger_Disciple]

2 minutes ago, 73 Reds said:

Trust and Integrity.  There are not many public companies where these qualities are beyond reproach and an annual shareholder letter teaches so many valuable life lessons.  

 

  I am with you; been a BRK shareholder for 24 years now

[giulio]

2 hours ago, Viking said:

don't expect Fairfax to compound at +20%. But I think 15% over the next few years is doable (I am talking about intrinsic business value)

I believe the reason for ffh extraordinary share performance was the extreme discount to intrinsic value at which it was trading in 2020/2021.

You were buying a dollar bill for 50 cents and the dollar would double in a short period of time. You don't get a better scenario than this one.

At 300/400 per share you could see the business was easily worth multiples of that.

Then, the intrinsic value started growing thanks to higher earnings and buybacks.

Share price had a lot of catch up to do, and still has imo.

Combining an asset value valuation + look through earnings method made this clear to me in 2021.

 

@This2ShallPass book value is accounting, iv is what matters. A business doing 15% roe, trading at 1.5 book is selling for 10x earnings. Is this expensive?

 

Best,

G

 

[Munger_Disciple]

4 hours ago, gfp said:

 

It doesn't really matter what the price-to-book ratio is for repurchases - it matters what the price to intrinsic value is.  If you care about the accounting effect of buying stock at a premium to book lowering reported BVPS you are already paying attention to the wrong thing.

 

Some companies are undervalued at 2x book and some companies are overvalued at .8x book - it's just an accounting figure it isn't an end-all-be-all even at a financial company.

 

If accretive repurchases have the side effect of lowering BVPS, it just further widens the gap between reported BV and intrinsic value for continuing shareholders.  Book value is a historical record.  It doesn't know the future.

 

 Exactly!

 

Book value is the input into the business and intrinsic value is the output of the business. 

 

Companies like See's, Coca-Cola, Costco can operate with almost no capital at all. 

Edited Tuesday at 10:29 PM by Munger_Disciple

[Viking]

1 hour ago, giulio said:

I believe the reason for ffh extraordinary share performance was the extreme discount to intrinsic value at which it was trading in 2020/2021.

You were buying a dollar bill for 50 cents and the dollar would double in a short period of time. You don't get a better scenario than this one.

At 300/400 per share you could see the business was easily worth multiples of that.

Then, the intrinsic value started growing thanks to higher earnings and buybacks.

Share price had a lot of catch up to do, and still has imo.

Combining an asset value valuation + look through earnings method made this clear to me in 2021.

 

@This2ShallPass book value is accounting, iv is what matters. A business doing 15% roe, trading at 1.5 book is selling for 10x earnings. Is this expensive?

 

Best,

G

@giulio , a agree that Fairfax’s shares were very undervalued in 2020. But I think 2 other factors have also contributed a great deal - perhaps they are equally important to the spike in the share price. 
 

1.) Managements decisions. The decisions the management team at Fairfax have made since 2020 have been exceptional. They have delivered billions in incremental shareholder value. This was not visible to shareholders in 2020.

• Putting on the FFH-TRS position
• Selling pet insurance / selling Resolute Forest Products at the peak of the lumber cycle / Stelco sale in 2024.
• Aggressively buying back stock over past 4 years (sale of 10% of Odyssey was brilliant). 
• Buying more of much of what they already owned (too many transactions over the past 4 years to list)

2.) External events. External factors (finally) aligned with how Fairfax was positioned. This also delivered billions in incremental shareholder value. This was also not visible in 2020. 

• Spiking in inflation and interest rates when the fixed income portfolio was sitting at 1.2 years average duration.
• Hard market in insurance since late 2019. 
• Renaissance of Greek economy - catapulting the investment in Eurobank.
• Modi’s continued transformation of economy in India - pro capitalist - spiking Indian equities.

So over the last 4 years we had three things happen at the same time:

• Wicked low share price.
• Best in class execution from management.
• External environment lining up with how Fairfax was positioned. 

The key in my mind was staying up to date on what was happening at the company / monitoring the story. Understanding what was going on with the fundamentals (continually/materially improving year after year) helped an investor not get anchored to the stock price.

Edited Tuesday at 10:50 PM by Viking

[Viking]

1 hour ago, giulio said:

 

@This2ShallPass book value is accounting, iv is what matters. A business doing 15% roe, trading at 1.5 book is selling for 10x earnings. Is this expensive?

 

Best,

G

 

I think one of the keys when looking at PE is earnings quality. If earnings quality is low (like cyclical companies) then using PE is not useful. But PE is useful for high quality earnings streams. Fairfax’s biggest income stream today (by far) is interest and dividend income - very high quality. Especially with an average duration on the fixed income portfolio of 3.3 years. Underwriting is high quality. As is share of profit of associates. With the additions of Sleep Country and Peak Achievements, the non-insurance consolidated companies income stream will be increasing materially in size and in consistency/quality. 
 

Given the transformation that Fairfax has seen in its business/income streams over the past 4 years (to much higher quality sources), its PE today provides more information when looking at valuation than is generally appreciated (IMHO). 
 

—————

 

Not that long ago (pre 2021), around 45% of earnings at Fairfax were driven by investment gains, which was very volatile. That is no longer the case. I think investment gains is now closer to 20% of the total. Investment gains is still a big number. It’s the other 4 income streams that have ballooned in size. 

Edited Tuesday at 10:52 PM by Viking

[Txvestor]

4 hours ago, Viking said:

@giulio , a agree that Fairfax’s shares were very undervalued in 2020. But I think 2 other factors have also contributed a great deal - perhaps they are equally important to the spike in the share price. 
 

1.) Managements decisions. The decisions the management team at Fairfax have made since 2020 have been exceptional. They have delivered billions in incremental shareholder value. This was not visible to shareholders in 2020.

• Putting on the FFH-TRS position
• Selling pet insurance / selling Resolute Forest Products at the peak of the lumber cycle / Stelco sale in 2024.
• Aggressively buying back stock over past 4 years (sale of 10% of Odyssey was brilliant). 
• Buying more of much of what they already owned (too many transactions over the past 4 years to list)

2.) External events. External factors (finally) aligned with how Fairfax was positioned. This also delivered billions in incremental shareholder value. This was also not visible in 2020. 

• Spiking in inflation and interest rates when the fixed income portfolio was sitting at 1.2 years average duration.
• Hard market in insurance since late 2019. 
• Renaissance of Greek economy - catapulting the investment in Eurobank.
• Modi’s continued transformation of economy in India - pro capitalist - spiking Indian equities.

So over the last 4 years we had three things happen at the same time:

• Wicked low share price.
• Best in class execution from management.
• External environment lining up with how Fairfax was positioned. 

The key in my mind was staying up to date on what was happening at the company / monitoring the story. Understanding what was going on with the fundamentals (continually/materially improving year after year) helped an investor not get anchored to the stock price.

Agree fully with these points. However in honor of Munger, let's invert. just to consider the contrarian view. 
These events/actions were in the past how many are sustainable or relevant to the future? 

-The FFH-TRS are arguably less value

additive now than 3yrs ago as the stock has made a massive move. I think the unwinding has begun. 

-Selling some cyclical holdings at their peak was definitely wonderful, but I don't see too much more coming. Some like BB don't seem to be going anywhere. 

-Stock buybacks are now at considerably higher valuations and above BV(compared to well below previously) and for a given amount of capital outlay will shrink the shares outstanding much less. The gap between share price and IV has closed. 

-Interest rates do seem to have peaked, although the timing of any fall is unclear, certainly longer they stay up the better for Fairfax but it's quite possible and even likely we see a modest decline in rates over the duration beyond which they have extended their bond portfolio. Each 1% change maybe worth $650M in annual earnings to them(either direction).  
 

-Their Insurance businesses aren't growing nearly as much and outside of the acquisition of gulf total underwritten didn't very much last year. Its certainly not likely to be a growth engine go forth even as it will likely generate solid underwriting profit. 
 

-Upswing in the Greek economy is definitely helping them, but the overall EU economy prognosis doesn't seem particularly rosy. And that's what the Greek economy is tied to mostly.
 

-Modi barely hung on to power last year. Having had to resort to a minority gov t albeit with mostly stable partners. His power has somewhat been checked.
He's also 74 and this is likely his last term in gov't. If Congress(who dominated politics pre 2014) returns to power next they won't be anything near as pro business. 
 

So to my mind the factors lifting Fairfax from $2100 Can onwards aren't appearing as strong as those that lifted it from $500 Can. to current. 
 

They certainly aren't overvalued or anything and seem set to generate a good $200-250 Can. a year or so in annual EPS, and there maybe some rerating yet on the basis of earnings quality compared to the overall market; but I'm not seeing where the growth and additional value creation comes from. 

 

 

 

Edited yesterday at 03:24 AM by Txvestor

[Parsad]

8 hours ago, gfp said:

 

It doesn't really matter what the price-to-book ratio is for repurchases - it matters what the price to intrinsic value is.  If you care about the accounting effect of buying stock at a premium to book lowering reported BVPS you are already paying attention to the wrong thing.

 

Some companies are undervalued at 2x book and some companies are overvalued at .8x book - it's just an accounting figure it isn't an end-all-be-all even at a financial company.

 

If accretive repurchases have the side effect of lowering BVPS, it just further widens the gap between reported BV and intrinsic value for continuing shareholders.  Book value is a historical record.  It doesn't know the future.

 

Correct.

 

8 hours ago, gfp said:

 

Insurance companies that have been built by a lot of recent M&A have book values that are marked closer to intrinsic value - Fairfax's book value gets updated upwards a lot more frequently than some other insurance companies (BRK included).  Warren wouldn't hesitate to buy Progressive at 2x book value and he probably values Chubb at something higher than 1.5x book value even though it is a straight plain vanilla insurance company with a conventional insurance company investment portfolio.

 

As an example, look at insurer RLI.  They trade for 4x book value or somewhere around there.  If they were acquired tomorrow for no acquisition premium by another insurance company, 4x book value would instantly become 1x book value in the accounting of the new firm.

 

Incorrect.  You want to buy at a discount to intrinsic value...basically, the return you would want to achieve if the stock moved up to intrinsic value.

 

A higher book value for MKL, RLI, Chubb or anyone else is irrelevant...only the discount to intrinsic value you want to pay.

 

Buffett set his purchases at 1.2 times book value, because that would provide him a return higher than the S&P 500 long-term as market price meets intrinsic value.  But if BRK's intrinsic value becomes larger, and the discount to intrinsic value increases, then he could theoretically buy at a higher price to book value and still hit his annual return target.

 

Cheers!

 

 

[gfp]

5 minutes ago, Parsad said:

 

Correct.

 

 

Incorrect.  You want to buy at a discount to intrinsic value...basically, the return you would want to achieve if the stock moved up to intrinsic value.

 

A higher book value for MKL, RLI, Chubb or anyone else is irrelevant...only the discount to intrinsic value you want to pay.

 

Buffett set his purchases at 1.2 times book value, because that would provide him a return higher than the S&P 500 long-term as market price meets intrinsic value.  But if BRK's intrinsic value becomes larger, and the discount to intrinsic value increases, then he could theoretically buy at a higher price to book value and still hit his annual return target.

 

Cheers!

 

 

 

You missed my point or maybe you agreed with my point but misunderstood me

[SafetyinNumbers]

38 minutes ago, Txvestor said:

Agree fully with these points. However in honor of Munger, let's invert. just to consider the contrarian view. 
These events/actions were in the past how many are sustainable or relevant to the future? 

-The FFH-TRS are arguably less value

additive now than 3yrs ago as the stock has made a massive move. I think the unwinding has begun. 

-Selling some cyclical holdings at their peak was definitely wonderful, but I don't see too much more coming. Some like BB don't seem to be going anywhere. 

-Stock buybacks are now at considerably higher valuations and above BV(compared to well below previously) and for a given amount of capital outlay will shrink the shares outstanding much less. The gap between share price and IV has closed. 

-Interest rates do seem to have peaked, although the timing of any fall is unclear, certainly longer they stay up the better for Fairfax but it's quite possible and even likely we see a modest decline in rates over the duration beyond which they have extended their bond portfolio. Each 1% change maybe worth $650M in annual earnings to them(either direction).  
 

-Their Insurance businesses aren't growing nearly as much and outside of the acquisition of gulf total underwritten didn't very much last year. Its certainly not likely to be a growth engine go forth even as it will likely generate solid underwriting profit. 
 

-Upswing in the Greek economy is definitely helping them, but the overall EU economy prognosis doesn't seem particularly rosy. And that's what the Greek economy is tied to mostly.
 

-Modi barely hung on to power last year. Having had to resort to a minority gov t albeit with mostly stable partners. His power has somewhat been checked.
He's also 74 and this is likely his last term in gov't. If Congress(who dominated politics pre 2014) returns to power next they won't be anything near as pro business. 
 

So to my mind the factors lifting Fairfax from $2100 Can onwards aren't appearing as strong as those that lifted it from $500 Can. to current. 
 

They certainly aren't overvalued or anything and seem set to generate a good $200-250 Can. a year or so in annual EPS, and there maybe some rerating yet on the basis of earnings quality compared to the overall market; but I'm not seeing where the growth and additional value creation comes from. 

 

 

 

What's your average ROE estimate for the next. 5 years and what multiple do you think that's worth?

[Maverick47]

50 minutes ago, Txvestor said:

They certainly aren't overvalued or anything and seem set to generate a good $200-250 Can. a year or so in annual EPS, but I'm not seeing where the growth and additional value creation comes from. 

I would agree with the assessment that they seem set to generate a good $200-$250 Can. a year or so in annual EPS and cannot say that any of my other investment ideas can approach this sort of positive future earnings expectations relative even to current market valuation.  The next question is what they will do with the $600 to $750 per share over the next three years.  Probably $60 Can comes back to us as dividends, but that still leaves $540 to $690 or so to be reinvested over the next 3 years.  I am comfortable with the track record of management that they will find advantageous things to do with this. Some are easy, such as buying out minority interests in subs such as Odyssey and Allied World, much as they did with Brit recently.  
 

Will they buy back more stock?  Given that I believe they are currently undervalued relative to their lesser quality insurance peers, I am willing to trust management that they will do so using a very rational value investing framework.  After all, Prem has explicitly mentioned Henry Singleton’s example with Teledyne, and he was willing to use his stock as currency for acquisitions when it was overvalued, and bought the stock back aggressively when it was undervalued.  
 

For a good while now I have been thinking of Fairfax in my own portfolio as one I have the strongest conviction for…and when I need to raise funds for retirement income purposes, it is not a name that I have been selling…

 

 

 

[This2ShallPass]

 

1 hour ago, Parsad said:

Buffett set his purchases at 1.2 times book value, because that would provide him a return higher than the S&P 500 long-term as market price meets intrinsic value.  But if BRK's intrinsic value becomes larger, and the discount to intrinsic value increases, then he could theoretically buy at a higher price to book value and still hit his annual return target.

He still set the metric as BV not P/E or anything else because that's the most appropriate metric to value insurance companies. That's all I'm saying, P/B you pay should not be ignored and buying back shares at high multiples to book value won't be accretive in my opinion. At that point, I would rather FF go buy some operating businesses with that cash.

 

9 hours ago, Viking said:

I think you have to remember that Buffett in his younger years was able to compound at 20% per year in his sleep. So it made little sense for him to buy back stock - regardless of where it was trading.

He only changed the 1.2x BV stance in his 80s. I think he believed buying a predominantly insurance company at high book multiples was not good. Btw, I'm sure Berkshire IV was higher than their BV for major periods of their existence.

 

6 hours ago, Viking said:

ut PE is useful for high quality earnings streams. Fairfax’s biggest income stream today (by far) is interest and dividend income - very high quality. Especially with an average duration on the fixed income portfolio of 3.3 years. Underwriting is high quality. As is share of profit of associates. With the additions of Sleep Country and Peak Achievements, the non-insurance consolidated companies income stream will be increasing materially in size and in consistency/quality. 

I agree BV is not a good metric for the non insurance companies. But the fixed income earnings, they increase BV correct and so shouldn't be an issue? The predictability in those income streams deserve a higher P/B multiple. 

 

10 hours ago, gfp said:

Warren wouldn't hesitate to buy Progressive at 2x book value and he probably values Chubb at something higher than 1.5x book value even though it is a straight plain vanilla insurance company with a conventional insurance company investment portfolio.

Agreed, a more predictable investment portfolio  + consistently better underwriting performance will be valued at higher multiple. 

 

[Parsad]

34 minutes ago, This2ShallPass said:

 

He still set the metric as BV not P/E or anything else because that's the most appropriate metric to value insurance companies. That's all I'm saying, P/B you pay should not be ignored and buying back shares at high multiples to book value won't be accretive in my opinion. At that point, I would rather FF go buy some operating businesses with that cash.

 

 

P/B can be used for a quick no-analysis pricing of an insurance company.  You know the insurance company and generally how they operate...if you can buy it below book, it's probably a good deal.

 

But price to intrinsic value is the proper metric.  And you want to buy at such a discount to intrinsic value that you hit the long-term return you want...12%, 15%, 20%, whatever.

 

Price to book isn't accurate if a company uses significant asset to equity leverage (e.g. Fairfax) or invests in other things other than bonds...including wholly-owned, non-insurance operating businesses (e.g. Berkshire).  Cheers!

[This2ShallPass]

7 minutes ago, Parsad said:

Price to book isn't accurate if a company uses significant asset to equity leverage (e.g. Fairfax) or invests in other things other than bonds...including wholly-owned, non-insurance operating businesses (e.g. Berkshire). 

Good point on Fairfax leverage. But, then why did Prem and Buffett use BV growth as the primary measure of the company success all these years? Is it just that's the closest proxy and IV is debatable?

 

Edited yesterday at 06:30 AM by This2ShallPass