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What to do with Fairfax?


dfcanuck
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Those that know me know that Fairfax has by far been my largest holding for years. :)  It still is.  However, in the last few months, I have sold roughly 40% and reinvested in other beaten-up investments.  For me, this was prudent, as I am not comfortable with any holding exceeding 25% of portfolio value.  There is nothing harder than selling your multi-year winners, yet history (Sino-Forest for example), tells me this is usally the right thing to do.  I still expect to hold Fairfax "forever", but may be 2-25% of holdings depending on other opportunities and FFH price.  Go Prem!  I am still with you!       

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Funny you should state that - I was in the same boat, and to be honest, a very good and durable boat for the last 12 months.  I have managed however to cut my FFH holdings to slightly under 50% of my portfolio; I figure I will keep it at that ratio - Prem Captains these boats better than I do :)

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dfcanuck, I have brought my FFH Leaps holdings down by about 30% and converted a 3 leaps over after Christmas to catch the dividend.  The reasoning for this was to reduce overweightedness in general (I no longer have hedging on my FFH leaps - used to have a few puts), and to catch the value on some Jan 2010 Leaps (260s).  The 260 Leaps were selling at around 80 when I sold them with the stock at 310 US.  For any number of reasons the 260 (2010) number may not hold its value through the year.  If it gets cheap again I will buy 2011 Leaps if they are reasonably priced.  In an indirect way I also cut down on my FFH holding by the NB takeover.  I replaced the stock with other cheaper holdings, especially in the RRSPs.

 

My position is still close to 50% which is okay for now.  At 1.5 times Dec. 31, 2009 book I will reassess if it is still a deal.  This company remains one of the best ways for crisis investing.  That bank deal is another wonderful example of FFHs skill.  I love it.

 

I love this board.  I actually didn't lose this post when I toggled to another window.  It's great man.  Jeez, I sound drunk. 

 

Noobie... [/color]

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Another option is direct investment in some of the stuff FFH owns. You still have some FFH weighting (via FFH's investment in the coy you've chosen) but end up with more chance of hitting a bigger 'X'-bagger.

 

Different kinds of risk, generally higher volatility, & also the potential for discontinuity (FFH is not obliged to bail out the coy if/when it screws up).

 

 

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Good portfolio management question.

 

I believe in meritocracy. If a business intrinsicaly perform than the others, it's prospects still look good and the price is fair, I prefer to keep them rather than sell them.

 

You can compare that with horses. If a horse run faster than the others and don't need a lot of food, you should give them a field to run. If a horse don't run, but eat a lot, you should prefer to sell it to somebody else.

 

Or, for Canadians investors, you can compare that with hockey players. An employer that I had was an ex goalkeeper in the NHL. He used to tell me that when somebody want to put some pucks in the net and he's good at it, you give him ice. When business managers want to prosper and they are good at it, you give them cash.

 

So, to me, Fairfax is actually the crown jewel in my portfolio and it's still fairly cheap, so instead of selling them, I keep buying some. Fairfax weigh for 35% AT COST in my portfolio. I'll try to keep that percentage, unless I find a better business to own (unlikely), it's long term prospects are deteriorate or the price become too expensive.

 

Cheers!

 

 

 

 

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Guest Broxburnboy

I'm looking forward to the year end results. There may be some outstanding gains in their bond positions. Anyone have more details on this?

Given their skill at hedging, I'm thinking there may be some pleasant surprises. Going forward, it's hard to see the macro economic environment improving, so personally I remain bearish on the stock markets, or at least not bullish. So for now, I'll be holding all my FFH, I don't see much risk in doing so, they are well diversified. It remains a source of stability in what may prove a very interesting year.

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Guest ericopoly

I won't sell at this price, but then I'm looking at the USD price, not CDN.

 

It's just starting to get interesting -- at least, we'll see what they have to say... in less than a week!

 

Remember when Cardboard always said it would trade based on operating income?  We'll see where that income is now.  I am empathetic to the operating income valuation approach; it is certainly easy to understand why they do it that way. 

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I too have some concerns with my overall weighting in Fairfax. But it has far outshined the rest of my positions.Do you keep holding on to your winner where you have faith in the captain of the ship or diversify  where you don't have the same confidence?

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"I too have some concerns with my overall weighting in Fairfax. But it has far outshined the rest of my positions.Do you keep holding on to your winner where you have faith in the captain of the ship or diversify  where you don't have the same confidence?"

 

ALLY,

While I hate when someone answers my question with a question, I would propose these to you. 1) Do you still feel that FFH is selling for a substantial discount to its conservative intrinsic value? 2) Do you have any other stocks on your radar screen which are selling at a higher discount? I think those are the more important questions to ask of yourself than the weighting issue.

 

Until the YE numbers come out next week, we can only speculate as to the IV of FFH, and therefore, the current discount to IV. Further, with the investments which Prem and co have made over the past year, it is not an easy task to estimate the IV. This is an area where a Buffettism really holds true...I would rather be approximately right than precisely wrong. I do not know the precise value of Fairfax but would presume that it is in the US$375 range at the low end, and likely higher. The key for me is going to see how FFH can underwrite in the coming years. Their underwriting performance has been mediocre at best compared the the Markels and Chubbs of the world. Now that they have sufficient capital, have been upgraded and we are entering into a harder market, the subs REALLY NEED to underwrite up to the standards of their top flight peers. If they can do this, they will receive a double whammy of rapidly increasing BV and will trade at a substantial premium to BV.

 

I recently sold my ORH at $53+ as, IMHO, it is not selling at a substantial discount to conservative IV, certainly not like it was in 2008 when it was in the US$35-37 range. I do not have issues with ORH per se, but the discount to IV was sufficiently low that it made sense to sell. If ORH were to drop, I may reinsert it into my portfolio. I am not selling FFH yet despite the fact that it is my largest holding (and is commanding a higher percentage of the overall by outperforming my other holdings). I may do this with FFH in the future, time will tell.

 

-Crip

 

 

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I too have some concerns with my overall weighting in Fairfax. But it has far outshined the rest of my positions.Do you keep holding on to your winner where you have faith in the captain of the ship or diversify  where you don't have the same confidence?

 

Great question. My answer is to keep the winners and the ones in wich you have the most confidence in, as long that they don't trade over a fair price.

 

To me, tThere is no Fairfax no. 2 out there. Neither Prem of the South  ;)

 

That being said, I always stay open minded and very interested to hear new investment ideas, but remind myself that our human nature sometimes tell us that the girl next door is better than the one we already have and to quote Pascal, "All men's miseries derive from not being able to sit in a quiet room alone".

 

 

 

 

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Consider what the next one quarter EMV might look after FFH reports.

 

P(x1) of the price staying the same is fairly small, P(x2) of price rising is moderatly high (Q1 is where you make the $ for the year), & P(x3) of the price falling is moderately high (group think & great results temporarily boosted todays price). Multiply by the associated values (V1, V2, V3). But what if V1 is negative, & V3 is strongly negative ?

 

The point is that existing price growth is unlikely to maintain the same clip, & that the probabilities also assume no major change to the 'baked in' current market assumptions. There are many other coys where the odds are more favourable, but the specific company risk is higher. FFH options, sale/repurchase, etc. should be high on your list.

 

'Baked in' assumptions could also be changing. Manulife has just publicly asked officialdom for insurance similar to WEBs coverage for mono-line insurers, & for the purposes of covering acquisitions (releases reserves). Should it occurr it's highly likely that it will be offerred to not just Manulife.

 

Simple buy/hold may not be the most optimal any more

 

 

 

 

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I always felt value investors make their money when they buy, during the last couple of years you'd be better off if you sold early and bought more during the summer but whats to say that this year there isn't significant multiple expansion during the summer? 

 

The absolute truth is that your returns will mirror those of the business's that you own over time, market timing isn't value investing.

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Ive always stuck to the mantra that I wouldnt buy any of it if I didnt feel comfortable owning all of it.

 

Thats prob why my portfolio is so very very concentrated.

 

The only time I will deviate from this is for a timing issue. I.e. If I know there is going to be volitility and I will need some liquidity I make adjustments.

 

IMO, it should be more a timing issue rather than a quality/size issue.

 

Rules 1 and 2 should always be answered before going forward.

 

These guidelines (for me anyway) have rewarded me handsomely.

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Ive always stuck to the mantra that I wouldnt buy any of it if I didnt feel comfortable owning all of it.

 

Thats prob why my portfolio is so very very concentrated.

 

Well Smazz, IMO, that's far from being a bad mantra to have! When you ask yourself this question, you naturally end up having far less stocks in your list than otherwise, unless your circle of competence is very wide and deep.

 

 

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