FFH Q3 QNA

[nwoodman]

The QNA and only the QNA  :)

 

cheers

 

nwoodman

rec_+18008795206_02_Nov_2013_02_41_34.mp3

[obtuse_investor]

A little bit of celebrity worship there on that call-- I was expecting some critical questions after this quarter's results.

 

I have yet to listen to the rest of the call.

 

Thanks for posting this audio.

[Parsad]

Thanks for posting the audio...much appreciated!  Cheers!

[Zorrofan]

transcript of the whole call....

 

http://seekingalpha.com/article/1797812-fairfax-financial-holdings-limited-management-discusses-q3-2013-results-earnings-call-transcript?part=single

 

 

 

cheers

Zorro

[Partner24]

I'm tired at these commercials from FFH when things are not doing so well.

 

Our insurance companies are doing great...

 

However, we were affected by bla bla bla

 

Why not change these sentences?

 

Our insurance companies were not affected by hurricanes or any other major cat...

 

and

 

However, our hedging strategy...

 

Internal locus of control for the good and the bad things Prem! I'm a long term business partner Prem, not a potential customer. Moreover, supervisors hate employees who are always saying that it was not their fault when their decisions were not so good. Good examples should start at the top of the company.

 

http://en.wikipedia.org/wiki/Internal_locus_of_control

 

[mcliu]

Why's there only one real analyst on this call?

[beerbaron]

I'm not sure I understand the following:

 

Also, we own 75% of Thomas Cook, 74% of Ridley, which are consolidated in our statements. Unrealized gains on market values as of October 29, 2013, on both these positions is approximately $146 million. Thus, total unrealized gains not reflected on our balance sheet is $490 million.

 

Finally, Euro Properties, an investment we've made in an exceptional Greek REIT with outstanding management, where we have increased our investment through their rights issue, has another unrealized appreciation of $141 million as of October 29, 2013. And that also is not included in our balance sheet. So when you add all of that, we have a total of $631 million of unrealized gains that are not on our balance sheet.

 

So if a company owns control interest under IFRS the equity portion will be fixed at the purchase price and not MTM?

I guess then only the proportional interest of the income stream will be shown in the report...

 

BeerBaron

[oldye]

During these calls it does sound as if Prem would prefer to mark everything at intrinsic value but like everything with accounting you have to go with the lesser of two evils, and even though MTM is always being manipulated I don't think I would invest in a company where the accountants/regulators/ceo would decide what everything was worth. 

 

I guess it isn't fair because it certainly counts on all of their hedges/ stocks/ bonds. But if Fairfax gets to report the quarterly profits and losses of those companies they shouldn't get to mark them to market. 

 

I think Prem's language during these calls is consistent with all his previous calls.

 

I wonder who is buying these shares at these prices (I should also probably thank you)

 

 

 

 

[obtuse_investor]

...

 

So if a company owns control interest under IFRS the equity portion will be fixed at the purchase price and not MTM?

I guess then only the proportional interest of the income stream will be shown in the report...

 

BeerBaron

 

As far as I know, this is true under US GAAP too-- using the consolidated method.

[wknecht]

I'm not sure I understand the following:

 

Also, we own 75% of Thomas Cook, 74% of Ridley, which are consolidated in our statements. Unrealized gains on market values as of October 29, 2013, on both these positions is approximately $146 million. Thus, total unrealized gains not reflected on our balance sheet is $490 million.

 

Finally, Euro Properties, an investment we've made in an exceptional Greek REIT with outstanding management, where we have increased our investment through their rights issue, has another unrealized appreciation of $141 million as of October 29, 2013. And that also is not included in our balance sheet. So when you add all of that, we have a total of $631 million of unrealized gains that are not on our balance sheet.

 

So if a company owns control interest under IFRS the equity portion will be fixed at the purchase price and not MTM?

I guess then only the proportional interest of the income stream will be shown in the report...

 

BeerBaron

All income and expenses are reported in full, with a line item for non-controlling interest to deduct the proportion not owned by Fairfax. Basically the same story with the balance sheet accounts too.

[Partner24]

Well, if I would have been on that call, I would have asked one question:

 

1- Since you have once again hedged (near 2009), if we would not had any hedge, what would the FFH book value per share be today?

 

Frankly, after all we went through over the years, it's the first time I'm thinking about selling some shares. I feel somewhat disapointed about their lack of candor. But that's my own mistake. I should have focus on my own "well, what will happen with our ark if the sun shine?" instead of having a blind trusting and patient attitude.

 

Over the next few years, I will rather focus on very small and cheap businesses if there is some available. That being said, I will keep the great jockey stocks like Bidvest Group and Markel Corporation. They do not pretend to know what will happen with the economy and speculating with it. They rather focus on individual opportunities. Bidvest has done greater than Fairfax since 1988 even without all that insurance leverage and these complex and speculative macro predictions.

 

 

 

 

[Nnejad]

If you exclude inflation or look in USD, I don't think Bidvest's growth has been far short of Fairfax's.

[giofranchi]

Well, if I would have been on that call, I would have asked one question:

 

1- Since you have once again hedged (near 2009), if we would not had any hedge, what would the FFH book value per share be today?

 

Frankly, after all we went through over the years, it's the first time I'm thinking about selling some shares. I feel somewhat disapointed about their lack of candor. But that's my own mistake. I should have focus on my own "well, what will happen with our ark if the sun shine?" instead of having a blind trusting and patient attitude.

 

Over the next few years, I will rather focus on very small and cheap businesses if there is some available. That being said, I will keep the great jockey stocks like Bidvest Group and Markel Corporation. They do not pretend to know what will happen with the economy and speculating with it. They rather focus on individual opportunities. Bidvest has done greater than Fairfax since 1988 even without all that insurance leverage and these complex and speculative macro predictions.

 

Partner24,

as I have always said, there is no substitute for knowing and understanding what you own.

 

When you believe in things that you don’t understand, then you suffer.

--Stevie Wonder

 

And, as I have always said, each investment must make strategic sense inside a larger organization.

 

Take, for instance, my own peculiar case: I don’t know many things about the economy, but I do believe we are in a deleveraging. And historically deleveragings have shown mixed outcomes: sometimes they have been benign, other times they have turned out to be very nasty.

Now, my organization has a lot of businesses which are doing very fine, and will go on achieving very satisfactory results, if the deleveraging we are living through continues to be benign. Is it so unconceivable to hold also a business that instead will do fine, if and when things should take a turn for the worse?

 

This goes beyond the idea of holding businesses that are cheap… To hold undervalued businesses is a prerequisite I always seek and demand, no matter what! But then I also look for some more general strategic view that might make sense.

 

But let’s say you don’t care about what I think, and how I do business, I still think that to sell FFH now might turn out to be one of the worst moment possible… If I were you, I would wait for:

1) At least a market correction: maybe we will never experience again a 50% market decline, but a 20% correction is very plausible;

2) The economy finally proves FFH wrong: I don’t think we will have to wait much longer to know, 1 or 2 more years, not longer.

 

giofranchi

 

[Guest Dazel]

 

I am no w firmly interested in buying Fairfax shares. The 3 billion dollar monumental mistake is worse then the 7 lean years combined in aggregate cost. Does not feel that way because Fairfax got lucky on the cat end.

The gains from 2008 are now a billion under water from this hedging mistake. I have made the argument in the past here when I compared markel to Fairfax. Markel is now over valued and Fairfax will be under valued going forward. We hope we get a "big" opportunity here. There is no one more trust worthy then Prem and his team. They have been extremely opportunistic in buying up insurance companies during the last 4 years. The base will be outstanding for the next 10 years...the hedging mistake while monumental has moved in Prem's favor because he "will" hold it...

Everyone makes mistakes...now people are acknowledging it where they were not for the last 2 years...I hate to see it as Prem and his team have literally made us wealthy with the sweat blood and tears.

Fairfax has laid the insurance roots for the next 10 years and they will have their day again...I am firmly behind them.

 

 

Dazel.

[T-bone1]

 

I am no w firmly interested in buying Fairfax shares. The 3 billion dollar monumental mistake is worse then the 7 lean years combined in aggregate cost. Does not feel that way because Fairfax got lucky on the cat end.

The gains from 2008 are now a billion under water from this hedging mistake. I have made the argument in the past here when I compared markel to Fairfax. Markel is now over valued and Fairfax will be under valued going forward. We hope we get a "big" opportunity here. There is no one more trust worthy then Prem and his team. They have been extremely opportunistic in buying up insurance companies during the last 4 years. The base will be outstanding for the next 10 years...the hedging mistake while monumental has moved in Prem's favor because he "will" hold it...

Everyone makes mistakes...now people are acknowledging it where they were not for the last 2 years...I hate to see it as Prem and his team have literally made us wealthy with the sweat blood and tears.

Fairfax has laid the insurance roots for the next 10 years and they will have their day again...I am firmly behind them.

 

 

Dazel.

+1

[james22]

Markel is now over valued...

 

At 1.8 P/B (below their 5-year P/B average of 1.22)?

 

I do hope for an opportunity to buy Fairfax soon.

[obtuse_investor]

The most disappointing thing for myself in this quarter's numbers was the realized loss on the equity hedges. Prem explained the reason behind it in the press release and the conference call. I appreciate them forthcoming with that info openly.

 

This goes to show that there is no such thing as a perfect hedge (except in an Englishman's garden). Hedging is hard and dangerous to your wealth when it goes wrong. As an investor in Fairfax with a short book, this is to be expected.

 

Prem is not going to be profiled in Michael Lewis's Big Short II. But you can be sure Fairfax will make it through the next crisis stronger then ever, and it may just happen to be not because of the hedges, but in spite of them.