Fairfax down 8% this morning

[rijk]

 

this article talks about 250k shares out of 20 million?

 

regards

rijk

 

http://ca.reuters.com/article/businessNews/idCABRE8AE1C720121115

[Viking]

Book Value = $360. Stock trading at $348. P/BV = 0.97

 

ST Negative: expect ugly Q4 results due to US hurricane; FFH tends to get hit pretty hard with these sorts of things.

 

Medium Term Catalyst: insurance markets are clearly hardening; FFH will benefit, perhaps in a big way. US hurricane will help - short term, hurricane is a negative but medium term it should prove to be a benefit as prices increase.

 

Their investment portfolio will go sideways until their is a big sell off at which time FFH will have the cash to make out like bandits.

 

In the good old days in a sell off you could always count on FFH P/BV dropping to about 0.80. Since they delisted from the NYSE the stock has not traded below BV very often. I am happy to re-establish a position today below book and ride the improvement in insurance; what they do moving forward on the investing side is a bonus - based on past history, my thinking is they are due for some nice upside surprises over the next year or two. Nice to be back in the saddle again... 

[dartmonkey]

Book Value = $360. Stock trading at $348. P/BV = 0.97

 

...

 

Their investment portfolio will go sideways until their is a big sell off at which time FFH will have the cash to make out like bandits.

 

 

Going sideways has not looked like such a bad thing, in the last couple of weeks!

 

Pretty amazing to see such a big drop for what seems like such a technicality. Do we get to go back up when the company is readmitted to the MSCI club? Anyways, it' a good example of the virtues of having a little extra cash (do as I say, not as I do); I hope FFH is taking some advantage, while it lasts.

[A_Hamilton]

Book Value = $360. Stock trading at $348. P/BV = 0.97

 

...

 

Their investment portfolio will go sideways until their is a big sell off at which time FFH will have the cash to make out like bandits.

 

 

Going sideways has not looked like such a bad thing, in the last couple of weeks!

 

Pretty amazing to see such a big drop for what seems like such a technicality. Do we get to go back up when the company is readmitted to the MSCI club? Anyways, it' a good example of the virtues of having a little extra cash (do as I say, not as I do); I hope FFH is taking some advantage, while it lasts.

 

I don't know how bad insurance hit will be (I'm thinking at least $300 million pre-tax), but FFH will also have sizeable gains on Cunningham Lindsey sale/The Brick sale and it looks like for the first time in what seems like a long time, the company's public equities are outperforming the indices that FFH's hedges them with.

[SI]

So 250,000 shares is more than 15 days of average volume the way I calculated it. Either way, 281k shares have traded today. Like someone previously said, hopefully Prem looks at the incremental $88mn MSCI indexers(or closet indexers) was available for sale as an opportunity.

[ubuy2wron]

Bought some today just a 2% position. I was showering when the stock was trading @ 336 only able to buy at slightly lower than VWAP.

[matjone]

Shouldn't make that much of a difference.  I read an interview where Walter Schloss said "you never catch the bottom".  I still think you should get one of those waterproof phones.

[Santayana]

Ended up doubling my holdings today.  About 75% of my long equity position is Fairfax now.

[accutronman]

In for 100 at $347. Early Black Friday special.

[matjone]

Do you guys buy FRFHF or FFH?  I bought FRFHF before because it was all my broker would allow.

[accutronman]

Do you guys buy FRFHF or FFH?  I bought FRFHF before because it was all my broker would allow.

 

FRFHF

[Uccmal]

Now, Which of you is responsible for pushing the stock back up?

 

This really shows the bad side of index investing.  In order to get an etf back in line with the index stock has to be sold at a loss, as per the day before.  And when a stock is added the opposite happens.  In both cases it is disadvatages to an ETF investor.  Sell,low, buy high. 

[rkbabang]

I've always wondered why index funds don't take some time to buy or sell when there is an index change.  Do they really have to do it the same day? You aren't accurately representing the market value of the companies in your index if you are forcing a large change in the market value yourself.  Index funds are supposed to mirror the market not cause large swings in stock prices.  If they bought or sold over 2 weeks or a month whenever there was a change it would soften the effects.

[ubuy2wron]

I've always wondered why index funds don't take some time to buy or sell when there is an index change.  Do they really have to do it the same day? You aren't accurately representing the market value of the companies in your index if you are forcing a large change in the market value yourself.  Index funds are supposed to mirror the market not cause large swings in stock prices.  If they bought or sold over 2 weeks or a month whenever there was a change it would soften the effects.

There are hedgies and  trading desks that make a very nice business out of front running additions and deletions to indexes. If I was mirroring an index I would not buy the bottom 10% of the constituants because of the churn and volatility. When you are dealing with the russell  2000 for instance you can see some pretty extreme swings in prices when less liquid names get added or dropped.

[obtuse_investor]

Now, Which of you is responsible for pushing the stock back up?

 

It is unfortunate indeed.

 

I am hoping the great many of closet indexers out there will slowly sell over next couple weeks and bring price back down to where I can nibble on it.

[Vinayd]

Some dividend paying companies have issued news releases that they are moving up the timing of their quarterly dividend from January to Dec. 27th, in light of the uncertainty of the 'fiscal cliff' outcomes related to adjustments to dividend tax treatment.

 

I think this is an important issue for Fairfax shareholders for 2 reasons:

1. Fairfax dividend is ANNUAL.  Therefore, the impact can be more pronounced compared to companies issuing quarterly diviends

2. Fairfax shareholder base is unique in that a higher percentage of shareholders tend to hold a high percentage of their wealth in Fairfax shares.  Therefore, for fairfax shareholder base; counting on a certain dividend payment is more pronounced.

 

Whether Fairfax decided to move up their annual dividend to end-of-December, or leaves it at their regularly scheduled January timeframe -- I think they should issue a press release on their decision, as to assist in tax planning for their shareholder base.

 

Concurrently, if you may have questions / concerns on the above issue -- it might be worthwhile to send a note to Investor relations to let them know your thoughts (...Prem, by moving up the dividend by 30-days, just this one time, will save me XXX in taxes!!)  ;)

 

As a side benefit, an updated dividend payment may force a mini short-squeeze on those front-running the MSCI mirror fund sellers over the next few weeks!

 

cheers,

Vinayd

[Redskin212]

Good point - I am sending my email to Prem right now.

[StubbleJumper]

Not sure how much sympathy that FFH will have for US shareholders wrt the fiscal cliff.  For every US shareholder who gets a tax benefit from the potential advancing of the annual dividend, there'll probably be a Canadian shareholder whose tax planning gets screwed up by the unexpected lumpiness of dividend income.

 

To a certain extent, FFH can't win on this issue.

 

 

SJ

[Vinayd]

True stubblejumper,

 

I think it will come down to where the majority of FFH shares are held (US accounts vs Canadian).

 

Regardless of their decision, I think they need to communicate a decision to the shareholder base thay they have proactively thought about it, and its consequences, and therefore are implementing the following:

 

option 1: move it up 30 days,

option 2: pay $5 in Dec, and $5 in January -- or some other combination

option 3 : allow cash dividend payments by Dec. 27th, and allow DRIP payments in January, hence giving the shareholder the option to choose the timing

option 4: do nothing -- leave it as January 2013.

 

The bigger issue here is comumunicating their intention, so shareholders can do tax planning -- as the dividend only comes around once per year -- and their shareholder base tends to hold a high percentage of their wealth in FFH shares.

 

To not send a press release, I think is somewhat irresponsible, given the heavy news flow around the fiscal cliff and its tax implications.

 

cheers,

Vinayd

[NormR]

They could just stop paying a dividend

[Kraven]

The good thing about history is that it can teach us something.  I think I know of just the right situation.  In season 2 of the Brady Bunch, the boys find a wallet in it with $1100.  They plan to keep it for themselves, but then the girls want their cut.  Mike and Carol insist they give it to the police in order to discover if anyone is looking for it.  Right before the end of the 30 day period Mr and Mrs Stoner pick it up and stop by the house to give their thanks (from him and the missus) and give the kids a reward.  After trying to give the kids $20 as a reward, they turn it down for $18 instead since that is easier to split 6 ways.  The entire Brady family was thrilled that the Stoners got back their life savings and once again the Bradys taught us that it's better to do for others than ourselves.  So there you go.  It's all there and solves this dividend problem.

[DynamicPerception]

Not a good choice for me NormR.

The dividends pay my anual trip/entries to the WSOP.

[Parsad]

I don't think they should anything, and just leave the dividend payment to when they do it normally every year.  The fiscal cliff at worst is only going to affect tax planning for one year...this year's dividend...after that you will pay regardless.

 

By catering to U.S. shareholders, and only those in taxable accounts, they would be penalizing shareholders in every other jurisdiction (especially Canadian), as they would have received two dividend payments this year.  So some people may be pushed over thresholds that claw back on their Old-Age Security or other benefits...even Pharmacare. 

 

Fairfax is in the investment business, and you could go so far as to say they are in the tax planning business for shareholders to the extent their ownership is based around the company.  But they are not in the  tax planning business for their shareholders personal income taxes.  Cheers! 

[Vinayd]

Thanks all for the posts. 

 

Regardless of the decision -- I hope Fairfax communicates its intention.

 

I'm in the camp that FFH should give shareholders an option:

1. Either a cash payment on Dec. 27th, or a DRIP payment in January.  This way, individuals can decide which timeframe is beneficial for them, and won't add administrative burden (...as shareholders can easily switch to DRIP or Cash by calling their broker). And, sell their DRIP shares at a time convenient to them.

 

Fairfax, after all, has built its shareholder base by being fair/friendly to their shareholders.  If they wanted to stay away from shareholder tax issues -- then they could have simply stuck with buying back shares.  Dividends attract a certain type of shareholder (...and has allowed long term shareholders with a well earned income stream), that FFH is courting.  This issue is compounded by Fairfax's decision of an ANNUAL dividend (...versus quarterly), to keep administration minimal and maintain a large base of like minded longterm shareholders.

Fairfax has proactively thought about issuing a dividend (..versus not), and making it an annual one (...versus quarterly).  Both of these decisions came to bear from thinking about the needs of their shareholder base, and reasons for owning share of FFH.

 

For US shareholders,  2 Dividend payments at ~15% tax treatment in 2012 versus 1 dividend at marginal rate of ~39.6% in 2013 is very significant.  If FFH US shareholder base is large (i.e.: ~30% - 50% of their shares), it is a decision that they need to think about and communicate to this shareholder base.

 

Waltmart is leading the way, although the below article seems to politicize it by indicating how this decision benefits the Walton family.  I think it is a good decision, and regardless of the large international investor base in WMT, they recognized the issue and made a decision. -- Good for them!  As these large US blue chip companies start announcing, it would be good to see FFH lead, versus being forced to follow.

 

http://www.reuters.com/article/2012/11/19/walmart-dividend-idUSL4N08Z3CB20121119

 

[biaggio]

http://www.canadianinsider.com/node/7?ticker=FFH

 

FYI, Brian Bradstreet was buying during the downturn