villainx Posted February 11 Posted February 11 5 minutes ago, Viking said: @gfp, your chart provides a great summary of how much of Markel the family used to own. They went from about 24.5% in 1995 to 1.3% in 2024. That is a staggering difference. Actions speak louder than words. I hate/love to go there, but for this, I just wonder what was going on in their family dynamics - as well, what stuff was going behind the scenes in a seemingly peaceful and efficient business environment.
Maverick47 Posted February 12 Posted February 12 1 hour ago, villainx said: I hate/love to go there, but for this, I just wonder what was going on in their family dynamics - as well, what stuff was going behind the scenes in a seemingly peaceful and efficient business environment. I wouldn’t know about any of the reasons behind the sales, but have a couple of observations/theories. First, like Berkshire Hathaway, no dividends have been paid. These family members on the proxy statements were all either executives or board members. It’s possible that other Markels owned stock as well, but wouldn’t appear on this list if they were neither one. Second, once they retired as a fairly well paid executive, even if they stayed on the board, their board member fee income might be lower than their salaries and bonuses when they had been full time officers of the company. With no dividends, they might want to sell some shares to maintain former income levels…or simply want to diversify out of the stock for estate planning purposes. How about Berkshire and Fairfax in succeeding generations? I don’t believe Buffett will leave material amounts of A shares to his three children — and the company is so massive in terms of market cap that I can’t conceive of any successor CEO accumulating anywhere near a controlling interest on their own given that they are likely required to buy any shares of the company with their own money. Watsa may well leave his shares to his spouse and three children. Since the shares pay dividends, they may not have a reason or need to sell to generate income, at least initially. I’m personally most comfortable with Fairfax staying under Watsa family control for longer than Berkshire is likely to remain under Buffett family control, and as @Viking has observed, we really can no longer view Markel as being family controlled at all, so it may well end up being a cautionary tale for the other two companies. I think we have a case study of three similar family controlled businesses, with Markel furthest down the road of diluting family control via several generations of family members, and no current executive managers from the family that I’m aware of. Though the company went public in the late 80’s, I think it began as a family run business sometime in the 1930’s. I would consider Berkshire to be the next longest family controlled business, measuring from the mid 1960’s when Buffett took control, with Fairfax the newest one, beginning in the mid 80’s when Watsa took control. For those of us that see family control as a good thing, and see Fairfax as perhaps having some superior near term economic advantages over the other two, it doesn’t hurt the investment thesis to see that they are likely to have the longest runway for maintaining family control as well.
villainx Posted February 12 Posted February 12 1 hour ago, Maverick47 said: First, like Berkshire Hathaway, no dividends have been paid. Oh right. That definitely has some influence.
SafetyinNumbers Posted February 12 Posted February 12 5 hours ago, gfp said: @SafetyinNumbers I have a question about this interest (49.9% according to the 1992 letter) that Fairfax purchased in the Sixty Two Investment company - are these 800k look through shares counted as treasury stock at Fairfax when we cite a 22 million share count? I assume that these shares are outstanding and not cancelled but could still be handled at treasury stock for accounting purposes (just ask Sardar lol) They are netted out.
gfp Posted February 12 Posted February 12 Thanks I appreciate it. I wonder if those 799,230 shares don't pay a dividend.
SafetyinNumbers Posted February 12 Posted February 12 11 minutes ago, gfp said: Thanks I appreciate it. I wonder if those 799,230 shares don't pay a dividend. They probably pay a dividend but the money gets distributed back to FFH so it nets out.
Viking Posted February 12 Author Posted February 12 Here are some of the questions/things I will be paying attention to when Fairfax reports earnings tomorrow. Insurance Top line: One more quarter of boost from consolidation of GIG. Resumption of growth at Odyssey? Resumption of growth at Brit? Bottom line: CR? Where do losses from Milton come in? Level of reserve releases? Preliminary losses for California wild fires? Investments Interest and dividend income - trend? Flat? Investment gains Mark to market investment gains - Q4 estimate from my tracker is $200 million (this does not track everything) Stelco sale - realized gain of $366 million? Peak Achievement - takeout of Sagard - revaluation of its legacy 43.5% position? AGT Food Ingredients - sale of rail assets - did this close in Q4? Any mention of financial impact? Sleep Country - commentary? How much did they earn in Q4? Is non-insurance consolidated bucket / ‘Other’ growing? Fixed income Impact of significant increase in interest rates in Q4 How big is unrealized loss in bond portfolio? How big is gain in IFRS 17? What is net impact of the two? (-$200 million? It was a positive in Q3 when interest rates went the other way.) What is average duration of fixed income portfolio? At Sept 30 it was 3.5 years. Have any changes been made to the composition of the fixed income portfolio? Runoff - adverse development? -150 to -$200 million? Interest expense - higher, given the issuance of new debt. Tax rate Headwind in 2024. Where does it come in for the year? Guidance for 2025? Share buybacks Do they buy back about 300,000 in Q4? How many were retired? Currency US$ strength will be a headwind to BVPS Economic value versus accounting value What is annual change in excess of FV over CV for associate and consolidated equities? Was $900 million at Sept 30. Stelco sale closing in Q4 will reduce this amount. Per share (after tax) amount should be added to EPS to come up with rough increase in intrinsic value during the year. This still misses some items but it is better than simply looking at EPS for the year. Miscellaneous Buying back Brit minority interest = $383 million Any impact on financial statements? Preferred shares - reduced in Q4 by $250 million. Ki - Commentary about move to stand alone company?
gfp Posted February 12 Posted February 12 26 minutes ago, Viking said: Guidance for 2025? I feel like we know almost everything that will be reported in Q4 ahead of time and all eyes (ears) will be on the conference call for guidance on Q1 wildfire exposures.
Hoodlum Posted February 12 Posted February 12 A great summary @Viking and covers most of my questions. Regarding the Bond duration, with the Q3/2023 call/results, Fairfax was very specific in what week they extended their duration which turned out to be the peak for long Treasury rates. I will listen to hear if they mention something similar related to the January peak, especially the longer 10 year Treasuries. This may have been discussed here already, but does the sale of the Eurobank shares in any way affect how their remaining Eurobank shares are reported/valued on their books.
Hoodlum Posted February 12 Posted February 12 (edited) 16 minutes ago, gfp said: I feel like we know almost everything that will be reported in Q4 ahead of time and all eyes (ears) will be on the conference call for guidance on Q1 wildfire exposures. I suspect some of this will be new to the analysts that are following Fairfax. The sale price of Peak could only be determined if they looked at Power Corp's financial. I am not sure how far they go with their analysis. The Milton Hurricane and Wildfire exposures will be interesting to see. Edited February 12 by Hoodlum
SafetyinNumbers Posted February 12 Posted February 12 1 hour ago, Hoodlum said: This may have been discussed here already, but does the sale of the Eurobank shares in any way affect how their remaining Eurobank shares are reported/valued on their books. They only take a gain on what they sold, I believe.
Munger_Disciple Posted February 12 Posted February 12 1 hour ago, gfp said: I feel like we know almost everything that will be reported in Q4 ahead of time and all eyes (ears) will be on the conference call for guidance on Q1 wildfire exposures.
SafetyinNumbers Posted February 12 Posted February 12 1 hour ago, Hoodlum said: The Milton Hurricane and Wildfire exposures will be interesting to see. What do you think the estimate for each will be? I haven’t thought about it much. It seems like the comps were relatively reasonable. I don’t think it changes the long term story but it could hit the stock. Is it possible there is enough concern, it’s holding back the stock?
Munger_Disciple Posted February 12 Posted February 12 (edited) 21 hours ago, Maverick47 said: I wouldn’t know about any of the reasons behind the sales, but have a couple of observations/theories. First, like Berkshire Hathaway, no dividends have been paid. These family members on the proxy statements were all either executives or board members. It’s possible that other Markels owned stock as well, but wouldn’t appear on this list if they were neither one. Second, once they retired as a fairly well paid executive, even if they stayed on the board, their board member fee income might be lower than their salaries and bonuses when they had been full time officers of the company. With no dividends, they might want to sell some shares to maintain former income levels…or simply want to diversify out of the stock for estate planning purposes. How about Berkshire and Fairfax in succeeding generations? I don’t believe Buffett will leave material amounts of A shares to his three children — and the company is so massive in terms of market cap that I can’t conceive of any successor CEO accumulating anywhere near a controlling interest on their own given that they are likely required to buy any shares of the company with their own money. Watsa may well leave his shares to his spouse and three children. Since the shares pay dividends, they may not have a reason or need to sell to generate income, at least initially. I’m personally most comfortable with Fairfax staying under Watsa family control for longer than Berkshire is likely to remain under Buffett family control, and as @Viking has observed, we really can no longer view Markel as being family controlled at all, so it may well end up being a cautionary tale for the other two companies. I think we have a case study of three similar family controlled businesses, with Markel furthest down the road of diluting family control via several generations of family members, and no current executive managers from the family that I’m aware of. Though the company went public in the late 80’s, I think it began as a family run business sometime in the 1930’s. I would consider Berkshire to be the next longest family controlled business, measuring from the mid 1960’s when Buffett took control, with Fairfax the newest one, beginning in the mid 80’s when Watsa took control. For those of us that see family control as a good thing, and see Fairfax as perhaps having some superior near term economic advantages over the other two, it doesn’t hurt the investment thesis to see that they are likely to have the longest runway for maintaining family control as well. Generally agree with the post but I am a little more optimistic about BRK's longevity in its current form than perhaps you are. We know that the charity managed by Warren's three children will inherit Warren's controlling stake in BRK when he passes. So at least for the next decade, the charity will own a very large stake in BRK. And Howie & Susan will be on the board for another decade as well. On top of that, the BRK's board consists of Warren's friends who are deeply committed to BRK culture (Weitz, Davis, Witmer, etc.). It is also conceivable that BRK will start paying a small but regular dividend in the next few years which could extend time period of stock ownership of the charity that inherits Warren's stock. I am not worried about some PE or activist trying to take over BRK for at least 15 years or so. After that who knows? BRK will have to earn its success beyond that time frame. Exxon/ Standard Oil is a good example to replicate. And BRK & Exxon have some similarities; both have excellent long life assets, good management & a deep ingrained shareholder oriented culture. I'll be happy if BRK just manages to match S&P 500 performance over the next several decades. It will be hell of a company regardless for a very long time I think. Edited February 12 by Munger_Disciple
gfp Posted February 12 Posted February 12 43 minutes ago, SafetyinNumbers said: What do you think the estimate for each will be? I haven’t thought about it much. It seems like the comps were relatively reasonable. I don’t think it changes the long term story but it could hit the stock. Is it possible there is enough concern, it’s holding back the stock? Back on the Q3 call they were still having Milton losses trickle in slowly so they didn't have a full picture, but this is what they said at the time according to my notes: " 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 "
Maverick47 Posted February 12 Posted February 12 27 minutes ago, Munger_Disciple said: I'll be happy if BRK just manages to match S&P 500 performance over the next several decades. It will be hell of a company regardless for a very long time I think. Agreed @Munger_Disciple. I think BRK will be a good proxy for S&P 500 performance, but I wonder whether we might also expect a modest outperformance as well? And if a modest dividend is paid, then a lot of current shareholders will feel less pressure to sell some holdings as they age into retirement (such as myself). Reasons why BRK might still outperform the index? Tax efficiencies of allowing unrealized capital gains, float and deferred tax liabilities to continue to compound to benefit of shareholders. Ability of capital to be allocated within the corporate structure from income generating subs to utility and railroad subs that have ongoing needs of capital expenditure. And finally, the tendency to hold lots of cash and short term bonds as is the case today gives BRK a valuable option to deploy that in times of economic dislocation. And the cash holding provides some downside protection as well. I think that’s one of the main reasons I like holding BRK in my own retirement portfolio. I have a personally recognized weakness of not holding a lot of cash or bonds for downside protection myself. By leaving about a third of my retirement assets in BRK I keep telling myself I’ve got sort of a look through position in bonds and cash to make up for my own blind spot….
Hoodlum Posted February 12 Posted February 12 (edited) 1 hour ago, SafetyinNumbers said: What do you think the estimate for each will be? I haven’t thought about it much. It seems like the comps were relatively reasonable. I don’t think it changes the long term story but it could hit the stock. Is it possible there is enough concern, it’s holding back the stock? For East US Hurrcicanes, Fairfax usually trends towards 1/3 of what BRK estimates. So based on the $1.3-$1.5B range estimate from BRK, I am estimating ~$450M. The gain from the Stelco sale would offset most of this. The Wildfires is more difficult to predict as the last comparable event for the industry and Fairfax was in 2018 and a lot has changed since then. I will say anywhere from $200-400M, but that could still be off. Edited February 12 by Hoodlum
Munger_Disciple Posted February 12 Posted February 12 (edited) 1 hour ago, Maverick47 said: Agreed @Munger_Disciple. I think BRK will be a good proxy for S&P 500 performance, but I wonder whether we might also expect a modest outperformance as well? And if a modest dividend is paid, then a lot of current shareholders will feel less pressure to sell some holdings as they age into retirement (such as myself). Reasons why BRK might still outperform the index? Tax efficiencies of allowing unrealized capital gains, float and deferred tax liabilities to continue to compound to benefit of shareholders. Ability of capital to be allocated within the corporate structure from income generating subs to utility and railroad subs that have ongoing needs of capital expenditure. And finally, the tendency to hold lots of cash and short term bonds as is the case today gives BRK a valuable option to deploy that in times of economic dislocation. And the cash holding provides some downside protection as well. I think that’s one of the main reasons I like holding BRK in my own retirement portfolio. I have a personally recognized weakness of not holding a lot of cash or bonds for downside protection myself. By leaving about a third of my retirement assets in BRK I keep telling myself I’ve got sort of a look through position in bonds and cash to make up for my own blind spot…. On Dividends: I think buyback accomplishes the same thing as a dividend for continuing shareholders, who can then manufacture their own dividend at a time of their choosing in a more tax efficient manner by selling a small amount of their stock (only capital gains are taxed) w/o affecting their proportionate ownership in BRK. The trouble is that BRK stock is no longer cheap so a buyback is off the table for the time being. I suspect a dividend is almost inevitable at some point in the next few years. Then the dividend can be coupled with opportunistic buybacks to return capital to continuing shareholders. On Outperformance vs Index: A minor outperformance (like 1% per annum) is certainly possible over the next decade, if (1) rates stay elevated, and (2) market multiples return to a more "normal" range. All the reasons you state certainly help the cause. We should however heed Munger's advice: Secret to happiness in life (and investing) is having low expectations. On Safety: I agree that it is about as safe an asset as you can hold for retirement or any other purpose for the long term whether it outperforms the index or not. Edited February 13 by Munger_Disciple
Munger_Disciple Posted February 13 Posted February 13 (edited) 36 minutes ago, Hoodlum said: For East US Hurrcicanes, Fairfax usually trends towards 1/3 of what BRK estimates. So based on the $1.3-$1.5B range estimate from BRK, I am estimating ~$450M. The gain from the Stelco sale would offset most of this. The Wildfires is more difficult to predict as the last comparable event for the industry and Fairfax was in 2018 and a lot has changed since then. I will say anywhere from $200-400M, but that could still be off. I read somewhere that FFH has a 1% exposure generally to insured losses, which agrees with 1/3 of BRK exposure (BRK has 3%). However BRK had minimal exposure to CA wildfires. My expectation is that FFH losses for CA wildfires will be in the $500mm range, given the current estimates of $50B of total insured losses. Edited February 13 by Munger_Disciple
djokovic1 Posted February 13 Posted February 13 14 hours ago, Munger_Disciple said: I read somewhere that FFH has a 1% exposure generally to insured losses, which agrees with 1/3 of BRK exposure (BRK has 3%). However BRK had minimal exposure to CA wildfires. My expectation is that FFH losses for CA wildfires will be in the $500mm range, given the current estimates of $50B of total insured losses. FFH usually has 1-1.5% exposure of the total cat loss. The $50bn wildfire estimate also includes losses that are insured by the California State (If I recall correctly). My best guess would be ~$300m on the wildfires.
Munger_Disciple Posted February 13 Posted February 13 3 hours ago, djokovic1 said: FFH usually has 1-1.5% exposure of the total cat loss. The $50bn wildfire estimate also includes losses that are insured by the California State (If I recall correctly). My best guess would be ~$300m on the wildfires. One can only estimate a range for these types of things, but we will find out soon enough (like this evening)!
Santayana Posted February 13 Posted February 13 1 hour ago, Munger_Disciple said: One can only estimate a range for these types of things, but we will find out soon enough (like this evening)! We might have to wait for the call tomorrow since the fires were this year.
Munger_Disciple Posted February 13 Posted February 13 15 minutes ago, Santayana said: We might have to wait for the call tomorrow since the fires were this year. One would think they would say something in the press release?
gfp Posted February 13 Posted February 13 (edited) https://www.globenewswire.com/news-release/2025/02/13/3026345/0/en/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Year-Ended-December-31-2024.html Book value per basic share at December 31, 2024 was $1,059.60 Edited February 13 by gfp 1
Hoodlum Posted February 13 Posted February 13 The Foreign Currency loss of $22/share was the surprise from Q4. Something we didn't account for and would have been difficult to determine.
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