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Current market price of FFH


Smazz
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Ok, take it for what it is worth as this is just top of my head computing but,

for those like me, who have owned this company (off and on) for a decade plus, the current over BV for FFH currently, knowing (estimate of course) they will prob be taking another hit on the Q1 number yet we are going over BV right now is bewildering. Ive sat on the company when they had nothing but good numbers and they were way (relatively speaking) under book.

 

IMO, the pension funds through the hedges funds are really reaching here - the only explanations i can up with. Im not saying paying over book for FFH wont work out in the long run, Im just saying that the majority of players out there dont have a long term plan.

 

This stuff just makes me say "huh?"

 

That is all  ;D

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...knowing (estimate of course) they will prob be taking another hit on the Q1 number yet we are going over BV right now is bewildering...This stuff just makes me say "huh?"

 

That is all  ;D

 

i'm bewildered too. their exposure to long term treasuriesis my only real source of discomfort with ffh. i find myself holding on while holding my nose at the same time. but what do i know?! they're definately extreme contrarians here but they've got a record in fixed income investing that leaves the pimco's of the world in the dust, & pimco's record is considered top tier. never the less, sometimes the crowd is right...in fact it usually is except at turning points.

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Ok, take it for what it is worth as this is just top of my head computing but,

for those like me, who have owned this company (off and on) for a decade plus, the current over BV for FFH currently, knowing (estimate of course) they will prob be taking another hit on the Q1 number yet we are going over BV right now is bewildering. Ive sat on the company when they had nothing but good numbers and they were way (relatively speaking) under book.

 

IMO, the pension funds through the hedges funds are really reaching here - the only explanations i can up with. Im not saying paying over book for FFH wont work out in the long run, Im just saying that the majority of players out there dont have a long term plan.

 

This stuff just makes me say "huh?"

 

That is all  ;D

 

The exchange rate rate USD/CAD has to be taken into account, but even when this is worked in, the price to book ratio has on average  been over one when measured at year end.

 

From page 213 in Fairfax' annual report 2010 (PPS is closing price in CAD):

Year

increase in BVPS

BVPS

EPS

PPS

1985

–           

1.52 

(1.35)

3.25

1986

179.6%     

4.25 

0.98 

12.75

1987

48.2%       

6.30 

1.72 

12.37

1988

31.1%       

8.26 

1.63 

15.00

1989

27.1%       

10.50

1.87 

18.75

1990

41.3%       

14.84

2.42 

11.00

1991

23.9%       

18.38

3.34 

21.25

1992

0.9%       

18.55

1.44 

25.00

1993

42.3%       

26.39

4.19 

61.25

1994

17.7%       

31.06

3.41 

67.00

1995

25.2%       

38.89

7.15 

98.00

1996

62.8%       

63.31

11.26 

290.00

1997

36.3%       

86.28

14.12 

320.00

1998

30.4%       

112.49

23.60 

540.00

1999

38.3%       

155.55

3.20 

245.50

2000

(4.8 )%     

148.14

5.04 

228.50

2001

(21)%       

117.03

(31.93)

164.00

2002

7.0%       

125.25

17.49 

121.11

2003

30.7%       

163.70

19.51 

226.11

2004

(0.6)%     

162.76

3.11 

202.24

2005

(15.5)%     

137.50

(27.75)

168.00

2006

9.2%       

150.16

11.92 

231.67

2007

53.2%       

230.01

58.38 

287.00

2008

21.0%       

278.28

79.53 

390.00

2009

32.9%       

369.80

43.75 

410.00

2010

2.6%       

379.46

21.31 

408.99

 

Cheers!

 

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The exchange rate rate USD/CAD has to be taken into account, but even when this is worked in, the price to book ratio has on average  been over one when measured at year end.

 

From page 213 in Fairfax' annual report 2010 (PPS is closing price in CAD):

 

A couple things:

You can forget about avgs when going back from inception because alot of those days are done - in addition, I remember from experience quite a few of those years when the numbers were all but evident they had good financials yet the price was below/par BV. When the numbers did come out -it was reflected back closer to par +. That is what i am saying here really, just in reverse.

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P (04/08/2011) = 377.99

B (12/31/2010) = 379.46

P/B =1.0x

 

We know the P/B is seasonal for FFH, usually at its peak around the AGM, & it seldom goes > 1.05-1.10x

It is very likely that Japan will result in one of the largest reinsurance losses in history. Odyssey Re is in this business, so what are the odds?

To provision you have to estimate the total cost to repair. How accurate can you really expect to be at this point?

 

Most would expect the current industry multiple to decline at least 5-10% once the estimates start arriving. FFH gets discounted more heavily because of its investment vs UW source of revenue.

 

Assume a provisioning that drops BV 25 to 354 & a P/B of .9x. Price drops 61 (16%) to around 318

Nothing to do with FFH fundamentals, just the tide falling

 

SD

 

 

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I can understand that intelligent investors wish a margin of safety between intrinsic value and market value in order to invest. However, just because someone makes a wish, doesn't mean it must come true or that it is the "correct" value.

 

Rather, a market value with a discount to the intrinsic value should be recognised for being just a fluke of the market, giving temporarily a discount to the true, intrinsic value. It doesn't need to happen, but it may happen. If it happens, it's irrational seen on a stand alone basis - why would anyone wish to sell something below the true value. Also, even if something has happened a couple of times, doesn't make it a rule that can be relied upon to usually happen. But then again, it might happen once more.

 

Additionally, just because the book value is stated in an annual report, the book value is not the same as intrinsic value. Indeed, for insurance companies, it would be considered irrational if all the work effort of thousands of people, experience and investments in building up the insurance (and investment) organisation should be considered to have zero value just because it happened to be grown organically and therefore not attached any goodwill in the annual accounts. Also there are other investments carried at below fair price. And the "quality" of loss reserves must be part of the equation too.

 

To me, it seems that the book value significantly understates the intrinsic value and that some hedge funds and the financial crisis has previously brought down the market price to irrationally low levels. But that it should be a rule to be relied upon; that we can somehow count on external "forces" to "magically" drive irrationally low levels in market price would seem irrational to me.

 

Even when the stock is trading at above current book value, it seems to me to be trading at significantly below intrinsic value.

 

Cheers!

 

 

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I have not had a post for Fairfax in some time as the story and balance sheet has become somewhat more transparent.  However and for those that say that they have held FFH for over 10 years, does one not remember the $1B with a (B) mark-to-market loss on bonds previously?  If one does remember, most knew then that book value was not as stated so why should we think BV is what is stated now given a large mark down on insured bonds.

 

Do market participants now know this, or is FFH truly overvalued?  A short-term setback on any cap loss will hurt, but surely welcomed given that most renewals were on 4/1 for Japanese P/C.  We should know or be able to ask in just a few weeks.  One long-term holder of FFH would surely assume that some cap losses will be offset by selling the rest of ICO after it is up another 40-50% since we sold half the position earlier this year.  What else may have been sold in 1st?

 

 

Cheers

JEast

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>Indeed, for insurance companies, it would be considered irrational if all the work effort of thousands of people, experience and investments in building up the insurance (and investment) organisation should be considered to have zero value

 

You can look at AIG as one example from insurance where the work effort of thousands of people was nullified by a few. There is also the example of SUNW ( later known as Java ) and NOVL whose value has declined dramatically from their peaks.

 

Of course companies can fail for a multitude of reasons. Indeed if you believe a company is about to fail, then paying anything for the stock might be a mistake. But this is besides the point.

 

I was talking about insurance companies in general and Fairfax specifically. In my opion, the intrinsic value seems to be quite a lot above book. Indeed, if you look at the aquisitions made then the price has been double significantly above book.

 

Cheers!

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Fairfax is not overvalued by any means.  It's not rock bottom cheap either.  I'm sure they took a hit in the 1st quarter with Japan losses, bond losses, but much of that was probably offset by gains in their equity portfolio.  We also don't have any idea what the full-year earning power is of Zenith and all the additional insurance businesses that were bought.  The company is hedged for better or for worse.  When opportunity comes, they will strike.  Cheers!

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One does remember when 1B in cash was just a dream and that the 1 with a B number is not so large in the big picture anymore (or as it once was) so perhaps one has answered ones own question?

 

Disclaimer: If this post made zero sense I apologize as i am writing under sleep deprivation ;D

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Guest longinvestor

Fairfax is not overvalued by any means.  It's not rock bottom cheap either.  I'm sure they took a hit in the 1st quarter with Japan losses, bond losses, but much of that was probably offset by gains in their equity portfolio.  We also don't have any idea what the full-year earning power is of Zenith and all the additional insurance businesses that were bought.  The company is hedged for better or for worse.  When opportunity comes, they will strike.  Cheers!

Agree. All this discussion of whether the stock is priced high (or low) according to BV in the current quarter is unbecoming of this value investing board. We all know Prem is focused on growing value over the long term. FFH is positioned very well right now as Parsad notes.

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Agree. All this discussion of whether the stock is priced high (or low) according to BV in the current quarter is unbecoming of this value investing board. We all know Prem is focused on growing value over the long term. FFH is positioned very well right now as Parsad notes.

I agree (or rationalize, given my current holdings?) that FFH appears to be rock solid.  And one of the nice things about this board is that few threads revolve around where each stock closed each day.  But price is fundamental to discussion of value (the highest quality company is not a good investment at every price).    I am interested in the opinions of others on whether the current price of FFH is high or low ... but mostly when accompanied by the reasoning.  Long FFH. 

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Easy there with the holier than though posts please.

 

Unbecoming of a message board? ::) Some people are taking themselves a little to seriously.

 

Perhaps re read the beginning of the post " Ok, take it for what it is worth as this is just top of my head computing but,"

 

I know there is something in the bible about casting stones but..

 

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If the big shots give too much importance on what they will look like because of a given quarter results, it's a little bit like someone who would come at a fine dining restaurant and ask for a cheesburger.  ;)

 

Im speaking through experience -that in fact does happen

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Agree. All this discussion of whether the stock is priced high (or low) according to BV in the current quarter is unbecoming of this value investing board. We all know Prem is focused on growing value over the long term. FFH is positioned very well right now as Parsad notes.

I agree (or rationalize, given my current holdings?) that FFH appears to be rock solid.  And one of the nice things about this board is that few threads revolve around where each stock closed each day.  But price is fundamental to discussion of value (the highest quality company is not a good investment at every price).    I am interested in the opinions of others on whether the current price of FFH is high or low ... but mostly when accompanied by the reasoning.  Long FFH. 

 

My judgement is based on the answer to these two questions:

 

1) Do I think PW and his team can meet or exceed their goal of growing BVPS by 15% p.a. over the long run (5-10 years)?

2) If they can, would I pay the current 5-10% premium over BVPS of around USD$360-370?

 

To (1), I believe they can; and to (2) I would if I did not hold any today but because I already have a significant position, I would buy more only if it gets cheaper.

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Mohnish Pabrai has sold out of FFH and LUK but stills holds on to BRK as of end of 2010. It is not to say that the equation hasnt changed since then but Mohnish is much a fan of FFH/BRK as anyone out there.

 

Mohnish hasn't sold any of his Fairfax shares.  Doesn't have to report Canadian holdings.  Cheers!

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  • 4 months later...

Anybody looking at buying FFH at today's valuation (~$380) ?

 

I have been wanting to add FFH, waiting for it to become cheaper for a while now.

 

Thought I would post this to change or add to all the recent discussions on macro trends etc which I have enjoyed.

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Mohnish Pabrai has sold out of FFH and LUK but stills holds on to BRK as of end of 2010. It is not to say that the equation hasnt changed since then but Mohnish is much a fan of FFH/BRK as anyone out there.

 

Mohnish hasn't sold any of his Fairfax shares.  Doesn't have to report Canadian holdings.  Cheers!

 

Fairfax is the only thing we've bought recently with the exception of our arbitrage in TRH.  :)

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