james22 Posted January 7, 2015 Share Posted January 7, 2015 Thanks, Gio. I'm ever more convinced of the Fairfax position, just struggle paying a higher P/B than I have previously (and the sense that FRFHF may continue to drop with the market before their hedges are recognized and valued). But you're right: the argument for Fairfax is not today's P/B. Gio, Why today? Because I am getting nervous… During the last few weeks we have witnessed a short market correction… Which nonetheless was painful enough to prompt the FED into saying it is ready to stop the slow unwinding of QE and therefore to resume its stimulus… And the market promptly recovered… I like it less and less… And I demand more and more protection, meaning insulation from the general market. Gio Saw that too. Planning on a substantial increase in my FFH position come the new year when I roll my Roth 401k into my regular Roth IRA. Things haven't felt right to me for awhile - but seeing the reaction of general markets to a small correction was certainly disturbing and suggests that we are in fact addicted to the sugar high. Further, deflation in Europe appears even more likely than previously thought and small caps are better positioned for a fall than they've been previously and their bonds are killing it. What's not to like at roughly 1x book? You buy, Zach? Link to comment Share on other sites More sharing options...
giofranchi Posted January 7, 2015 Author Share Posted January 7, 2015 (and the sense that FRFHF may continue to drop with the market before their hedges are recognized and valued). I think no one really knows what might happen to the stock price of FFH (or any other security for that matter!) in the short run… But, if it drops together with the market, rather than being worried, I would be delighted! Because it would represent a great opportunity for buying more of a company that I know is bound to surprise the market with much stronger results than expected! If markets keep falling, and FFH’s stock price follows suit, I will be very glad to use my cash reserve and to buy more… Because I know that Q1 2015 results will be spectacular! All I’d have to do is to keep averaging down, and to wait 2-3 months… Before FFH announces a BVPS that has dramatically increased… What would happen then to its stock price?! As value investors we could hardly ask for more! ;) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted January 7, 2015 Author Share Posted January 7, 2015 Eurozone CPI negative for first time in 5 years http://www.marketwatch.com/story/eurozone-cpi-negative-for-first-time-in-5-years-2015-01-07?siteid=bnbh Gio Link to comment Share on other sites More sharing options...
james22 Posted January 7, 2015 Share Posted January 7, 2015 I'd be delighted too, of course, if Fairfax drops with the market. The question: do I use my cash reserve to buy more today. If markets keep falling, and FFH’s stock price follows suit, I will be very glad to use my cash reserve and to buy more… To be clear: you don't believe today's price attractive enough for you to use your cash reserve? At what price/P/B would you buy more? Link to comment Share on other sites More sharing options...
giofranchi Posted January 7, 2015 Author Share Posted January 7, 2015 To be clear: you don't believe today's price attractive enough for you to use your cash reserve? At what price/P/B would you buy more? Ah! That is not an easy question to answer… Because FFH is already my largest investment by far! And there are other investments I like as well, see for instance OAK... Let me try to answer this way: if I weren’t invested in FFH right now, I would be buying it, building at least a 10% position. Having already a large investment, instead, I think a would start adding to it, and gradually averaging down, at any price below 1.15 x BVPS. I understand though this might not be of great help…! ??? Gio Link to comment Share on other sites More sharing options...
james22 Posted January 7, 2015 Share Posted January 7, 2015 That's very helpful, Gio. Thank you. Link to comment Share on other sites More sharing options...
bluedevil Posted January 7, 2015 Share Posted January 7, 2015 I bought a chunk of Fairfax shares yesterday at 505. Higher than I have ever bought before on a P/B basis (I have never sold!), but it seems to me there is a lot of evidence that we are entering a "risk off" environment in which Fairfax should do extremely well, given the hedges, the CPI linked derivatives, the large holdings of high-quality long-term bonds and the large cash stockpile. I was particularly motivated by how the company has positioned itself vis a vis deflation. I thought about how low inflation is now and what might happen from the "shock" of equity prices in the US and Europe returning to a more normal level, and hit the purchase button. Link to comment Share on other sites More sharing options...
tombgrt Posted January 7, 2015 Share Posted January 7, 2015 Inflation would still be 0.6% in Europe without including energy products. Is there a spillover effect if you get deflation by one category? No opinion, just trying to understand better. Link to comment Share on other sites More sharing options...
steph Posted January 7, 2015 Share Posted January 7, 2015 Very curious about its book value at the end of the year. Equities down essentially due to large exposure in Greece (Eurobank) and hedges costing money. Bonds should be up. And I hope the CPI hedges will give a nice surprise... Link to comment Share on other sites More sharing options...
Libs Posted January 7, 2015 Share Posted January 7, 2015 European CPI -.02%. http://www.nytimes.com/2015/01/08/business/international/europe-economy-deflation.html Link to comment Share on other sites More sharing options...
giofranchi Posted January 7, 2015 Author Share Posted January 7, 2015 Equities down essentially due to large exposure in Greece (Eurobank) and hedges costing money. Maybe… But recently they have shifted their attention from the stock market to their insurance & reinsurance underwriting operations and to bonds, significantly shrinking their holdings in stocks and therefore the amount of equity hedges too. I think operating results and the gains from their bonds portfolio might more than offset their losses in equities and equity hedges… But, who knows?! We will see! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
steph Posted January 7, 2015 Share Posted January 7, 2015 yes, I also believe book value should be slightly up since the end of 3rd quarter. Link to comment Share on other sites More sharing options...
frommi Posted January 7, 2015 Share Posted January 7, 2015 From my limited knowledge bookvalue should be up more than 10% in q4 because of the bond portfolio. But who knows maybe i misinterpreted something in the annual report. Link to comment Share on other sites More sharing options...
steph Posted January 7, 2015 Share Posted January 7, 2015 From my limited knowledge bookvalue should be up more than 10% in q4 because of the bond portfolio. But who knows maybe i misinterpreted something in the annual report. That would be nice! Greek exposure should cost +/- 5% of book. Link to comment Share on other sites More sharing options...
frommi Posted January 7, 2015 Share Posted January 7, 2015 From my limited knowledge bookvalue should be up more than 10% in q4 because of the bond portfolio. But who knows maybe i misinterpreted something in the annual report. That would be nice! Greek exposure should cost +/- 5% of book. I can`t really believe that number, what are the big greek positions that result in this? Link to comment Share on other sites More sharing options...
steph Posted January 7, 2015 Share Posted January 7, 2015 From my limited knowledge bookvalue should be up more than 10% in q4 because of the bond portfolio. But who knows maybe i misinterpreted something in the annual report. That would be nice! Greek exposure should cost +/- 5% of book. I can`t really believe that number, what are the big greek positions that result in this? They hold 2.441.440.286 shares of Eurobank which were at 0.312 at the end of september and at 0.187 at the end of the year. So this is down +/- 360 million USD for the quarter. This is their largest position, but they have other positions too. So, maybe not 5% but certainly 4%. Link to comment Share on other sites More sharing options...
tombgrt Posted January 7, 2015 Share Posted January 7, 2015 Add SD, Ibm, xco, ... But why is some temporary bv movement relevant anyway? Link to comment Share on other sites More sharing options...
ourkid8 Posted January 7, 2015 Share Posted January 7, 2015 Good luck on SD and XCO! I had a large position in SD that just got destroyed. Tks, S Add SD, Ibm, xco, ... But why is some temporary bv movement relevant anyway? Link to comment Share on other sites More sharing options...
frommi Posted January 7, 2015 Share Posted January 7, 2015 They hold 2.441.440.286 shares of Eurobank which were at 0.312 at the end of september and at 0.187 at the end of the year. So this is down +/- 360 million USD for the quarter. This is their largest position, but they have other positions too. So, maybe not 5% but certainly 4%. Thanks, i thought the overall investment in eurobank was only 400 million. Add SD, Ibm, xco, ... But why is some temporary bv movement relevant anyway? I like to be ahead of the market. Imagine you knew that BV is 50% down in the quarter but the market hasn`t priced that in. Would you ignore that? Of course it doesn`t matter if it is now 5% more or less, but knowing it roughly gives me a good feeling. Link to comment Share on other sites More sharing options...
giofranchi Posted January 8, 2015 Author Share Posted January 8, 2015 They hold 2.441.440.286 shares of Eurobank which were at 0.312 at the end of september and at 0.187 at the end of the year. So this is down +/- 360 million USD for the quarter. This is their largest position, but they have other positions too. So, maybe not 5% but certainly 4%. Actually I hadn’t realized FFH’s investment in Eurobank was that large… And of course FFH’s exposure to the energy sector will weight on Q4 2014 results… If they post a loss for Q4 2014, we will probably see a contraction in the multiple they are selling for today… And maybe we will get another chance to buy or to increase our investment in FFH. ;) Gio Link to comment Share on other sites More sharing options...
steph Posted January 8, 2015 Share Posted January 8, 2015 They hold 2.441.440.286 shares of Eurobank which were at 0.312 at the end of september and at 0.187 at the end of the year. So this is down +/- 360 million USD for the quarter. This is their largest position, but they have other positions too. So, maybe not 5% but certainly 4%. Actually I hadnt realized FFHs investment in Eurobank was that large And of course FFHs exposure to the energy sector will weight on Q4 2014 results If they post a loss for Q4 2014, we will probably see a contraction in the multiple they are selling for today And maybe we will get another chance to buy or to increase our investment in FFH. ;) Gio Yes funny that everybody talks about Blackberry and Resolute but their largest equity position was Eurobank. Bank of Ireland is also still a very important position. I am most curious about their deflation positions. Deflation and deflation expectations have risen sharply in Europe. I really wonder what impact this had on their book. Link to comment Share on other sites More sharing options...
giofranchi Posted January 8, 2015 Author Share Posted January 8, 2015 their largest equity position was Eurobank. If so I guess the best thing that could happen is Greece finally leaves the EU, we get another 40% devaluation due to currency adjustment, then the Greece economy will boom and Eurobank’s stock might triple or quadruple! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
tombgrt Posted January 8, 2015 Share Posted January 8, 2015 their largest equity position was Eurobank. If so I guess the best thing that could happen is Greece finally leaves the EU, we get another 40% devaluation due to currency adjustment, then the Greece economy will boom and Eurobank’s stock might triple or quadruple! ;) Cheers, Gio Greece's economy will boom if they leave the EU? What are they going to export? How will they pay for anything (basically everything) they want to import? They hold 2.441.440.286 shares of Eurobank which were at 0.312 at the end of september and at 0.187 at the end of the year. So this is down +/- 360 million USD for the quarter. This is their largest position, but they have other positions too. So, maybe not 5% but certainly 4%. Thanks, i thought the overall investment in eurobank was only 400 million. Add SD, Ibm, xco, ... But why is some temporary bv movement relevant anyway? I like to be ahead of the market. Imagine you knew that BV is 50% down in the quarter but the market hasn`t priced that in. Would you ignore that? Of course it doesn`t matter if it is now 5% more or less, but knowing it roughly gives me a good feeling. How roughly do you know if no one here mentioned energy losses that amount to as much as the Eurobank loss? Don't underestimate professional market participants. Aside from SotP valuation, they will put on their own multiple and get affected by sentiment etc. So how do you tell how the market will or should react to earnings if you don't know what they are accounting for and what is priced in? I would understand the need to discuss BV movement QoQ if for instance the CPI bet would pay off huge but I doubt you get an edge now. Also: If you believe in Fairfax's abilities to grow BV (15% yearly or not) and beat the market, does it matter if BV drops because of certain picks? Shouldn't they in general have roughly the same IV as what was assumed before, regardless of volatility and impact on BV? So how do those changes in BV really change IV for you as an investor? Link to comment Share on other sites More sharing options...
frommi Posted January 8, 2015 Share Posted January 8, 2015 I would understand the need to discuss BV movement QoQ if for instance the CPI bet would pay off huge but I doubt you get an edge now. Also: If you believe in Fairfax's abilities to grow BV (15% yearly or not) and beat the market, does it matter if BV drops because of certain picks? Shouldn't they in general have roughly the same IV as what was assumed before, regardless of volatility and impact on BV? So how do those changes in BV really change IV for you as an investor? For me, its easier to stay rational when i have cold hard (actual) numbers in front of me. You know how stupid the market sometimes is. Link to comment Share on other sites More sharing options...
giofranchi Posted January 8, 2015 Author Share Posted January 8, 2015 Greece's economy will boom if they leave the EU? What are they going to export? How will they pay for anything (basically everything) they want to import? Well, I guess when you have control over your own currency, you enjoy a freedom that otherwise is precluded to you. In an economic environment of too much debt, at least in Europe, the ability to print money shouldn’t be overlooked! I agree: it is nothing but another way to default on your debt… the difference is that to print money is easy! And Greece has a desperate need to reduce its overall debt somehow… Anyhow! ;) Gio Link to comment Share on other sites More sharing options...
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