Xerxes Posted September 19, 2020 Share Posted September 19, 2020 While, we tend to focus on the quarterly stream of data coming in for a public company like FFH, the narrative from Mr. Watsa has been to look for the long term. The purpose of this thread is not to re-hash the last 10 years (although i am showing a few metrics from 2010), we got enough threads for that and many horses has been slaughtered in the process, nor is to talk about the current short term dislocation, which many rightly or wrongly believe to be a great opportunity or not a so great opportunity. So where do you see the company in 2030-35. It is a very legitimate question to ask. After all, FFH and Prem Watsa are all about the very long term. To that end, let's ignore the equity bets that gets talked a lot around here. As we know those bets (except for the two mentioned below) are small and in the grand scheme of things were always, I believe, call-options-without-expiry kind of bets. 2030-35 - gross premium written 2010: gross premium $5.36 billion 2017: gross premium $12.2 billion [The boost from Allied World, I am guessing] 2019: gross premium $17.51 billion 2030-35: north of $30 billion [a target] - total float Was $13 billion in 2010 and now is ~$22 billion What does the hardening of the insurance cycle mean for the size of the float. I understand it means more discipline and profitable underwriting, but does it also mean an increase in the absolute size of the float - outstanding shares (hopefully 40% bought back) Was 20 million in 2010 and now is ~28 million; can FFH gobble up 40% of its outstanding shares by 2030-35 and reduce float down to 16-18 million, to pre-2008 levels. Massive share buy back can only be accretive to remaining shareholders if they are investing now in the business themselves. Otherwise you will see a flat share price with lower share count and thereby a shrinkage of the overall market cap. Glad to see there is a no misalignment. - size of the investment portfolio Was $19 billion in 2010 and now is ~$39 billion - book value Was $379 USD in 2010 and now is ~$422 USD ($486 USD in Dec 2019 pre-pandemic to be fair). A flat 1% compounding over ten years due to the shorts etc. With shorts removed and the upside un-capped: An unlikely 15% compounded rate of growth would mean $3,433 USD in 15 years from now A conservative (but possible) 10% compounded rate of growth would mean $1,762 USD in 15 years from now A low 5% compounded rate of growth would mean $877 USD in 15 years from now Should be noted that share buyback above BV tends to lower book-value-per-share and share buyback below BV tends to increase book-value-per-share. WILD CARD (ALPHA): - the size and growth of FIH in 2030-35 - the size and growth of Atlas in 2030-35 Perhaps, for FFH to achieve 15% compounded over the long term, it needs a home run on both of the above. If it gets 1 out of 2 totally right, that would mean 10%, and if gets both wrong, 5% compounded over the long term. Not sure if this is right framework to think about this but this is how i see it. Can Prem pull a Microsoft out of his hat and move away from his Ballmer era ? Link to comment Share on other sites More sharing options...
Viking Posted September 19, 2020 Share Posted September 19, 2020 Great question. It is very instructive that float, investment portfolio and share count are all up dramatically the past 10 years but BV per share is not. Five buckets: 1.) underwriting... are they able to get company wide CR to under 95 and then closer to 90: a tailwind, given current hard market and improvement at company over long term 2.) returns from bond portfolio: neutral to a headwind in future years (with zero and perhaps negative interest rates offset by solid long term track record) 3.) returns from equities: neutral (my assumption is the massive short bet kind of thing will not be repeated); poor overall record the past 10 years 4.) management creativity in surfacing value (First Capital sale, sale of 40% of runoff being two recent examples); a tailwind 5.) PE multiple Mr Market attaches to company (largely driven by investor confidence in management): a headwind My guess is FFH will do better a better job of growing BV over the next 10 years. If they do this then sentiment should improve and the PE multiple should expand. IF these both happen shareholders will be richly rewarded. —————— Watchout: amount of debt. Link to comment Share on other sites More sharing options...
Spekulatius Posted September 19, 2020 Share Posted September 19, 2020 I don’t see them producing 15% returns , this would be a very low probability. 10% returns are possible and if they can generate this somewhat consistently, one would get an additional return from rerating most likely. A few thing - with record low interest rate their prowess in bonds matter much less in the future than the past. They also need to generate decent return with their equity portfolio for a change. It seems to me a bit of a crapshoot if they can do this. What matter more than anything else is good underwriting. With lack of tailwind from bond investment income the combined rates for insurers will have to come down in order for them to earn adequate returns. FFH has made progress on this and it is important that they keep at it. We likely need combined ratio to average below 90% if the interest rates fall to near zero and stay there. Link to comment Share on other sites More sharing options...
bluedevil Posted September 21, 2020 Share Posted September 21, 2020 Great question! I see the following potential in Fairfax in 10 years: A company that writes $35 billion in premiums a year. The company achieves this through steady organic growth of 7-8% per year. Over the last ten years, the company has built roots all over the world. It harnesses it over the next 10 years by experiencing growth in areas where insurance penetration is very low (think Digit in India); and by taking what it does well in one country already and transporting it to other countries where it is already located. Sticking with the example of Digit, once it is up and running, nothing is stopping the company from taking the all digital, simple for consumers philosophy and applying it to other countries. There are hundreds of profit dials in the insurance operation that can be spread into other markets, and I believe that is exactly what Fairfax is focused on doing. Consider the value of a well disciplined underwriting operation that profitably writes 35 billion a year in insurance! I view this opportunity as the most attractive thing about an investment in Fairfax and think the odds are quite good of the company achieving a great result on the insurance side given the work that has already been done, the very long term underwriting and reserving discipline shown when companies are in the Fairfax stable, and the track record of Andy Barnard. On the other side of the house, investments, is what will determine whether Fairfax is a tremendous investment over the next 10 years, or a decent one, or a poor one. I know the company has one big thing it is favor over the next 10 years. It is structurally set up to be successful. While many institutional money managers are constrained by all kinds of issues -- short term focus of investors, "style box" constraints, and so on -- Prem has created a structure for HWIC where it can be focused on the long term and can go anyplace in any market or any region where there is value. Now it will be up to people like Wade Burton, Lawrence Chin, Quinn McLean, and Jamie Lowry to actually make good investment decisions, as opposed to being crushed by the SP500, as has happened over the last 10 years. To me, that is a wildcard. The missing ingredient at Fairfax these days -- it seems to me -- is a superstar money manager who can be trusted to oversee a 40 billion dollar portfolio, and the other money managers, for the next 20 years. Perhaps that is Wade Burton, but I have been a shareholder for a very long time that has ready every letter and listened to every call, and I couldn't tell you much about him, his philosophy, past investments or the like. This to me is the big unknown for Fairfax going forward. I will note that some of the past uncertainties around the company should not be present going forward. Prem has moved away from shorting, which takes one risk off the table. He has also moved away from buying other insurance companies in favor or organic growth, so less risk there as well. The company in my view continues to be plagued by being cash strapped and overextended at times, but if it can get past the current hump, presumably with future acquisitions and shorting curtailed, this will be less of a recurring problem in the next 10-15 years. Link to comment Share on other sites More sharing options...
petec Posted September 21, 2020 Share Posted September 21, 2020 Great question! I see the following potential in Fairfax in 10 years: A company that writes $35 billion in premiums a year. The company achieves this through steady organic growth of 7-8% per year. Over the last ten years, the company has built roots all over the world. It harnesses it over the next 10 years by experiencing growth in areas where insurance penetration is very low (think Digit in India); and by taking what it does well in one country already and transporting it to other countries where it is already located. Sticking with the example of Digit, once it is up and running, nothing is stopping the company from taking the all digital, simple for consumers philosophy and applying it to other countries. There are hundreds of profit dials in the insurance operation that can be spread into other markets, and I believe that is exactly what Fairfax is focused on doing. Consider the value of a well disciplined underwriting operation that profitably writes 35 billion a year in insurance! I view this opportunity as the most attractive thing about an investment in Fairfax and think the odds are quite good of the company achieving a great result on the insurance side given the work that has already been done, the very long term underwriting and reserving discipline shown when companies are in the Fairfax stable, and the track record of Andy Barnard. On the other side of the house, investments, is what will determine whether Fairfax is a tremendous investment over the next 10 years, or a decent one, or a poor one. I know the company has one big thing it is favor over the next 10 years. It is structurally set up to be successful. While many institutional money managers are constrained by all kinds of issues -- short term focus of investors, "style box" constraints, and so on -- Prem has created a structure for HWIC where it can be focused on the long term and can go anyplace in any market or any region where there is value. Now it will be up to people like Wade Burton, Lawrence Chin, Quinn McLean, and Jamie Lowry to actually make good investment decisions, as opposed to being crushed by the SP500, as has happened over the last 10 years. To me, that is a wildcard. The missing ingredient at Fairfax these days -- it seems to me -- is a superstar money manager who can be trusted to oversee a 40 billion dollar portfolio, and the other money managers, for the next 20 years. Perhaps that is Wade Burton, but I have been a shareholder for a very long time that has ready every letter and listened to every call, and I couldn't tell you much about him, his philosophy, past investments or the like. This to me is the big unknown for Fairfax going forward. I will note that some of the past uncertainties around the company should not be present going forward. Prem has moved away from shorting, which takes one risk off the table. He has also moved away from buying other insurance companies in favor or organic growth, so less risk there as well. The company in my view continues to be plagued by being cash strapped and overextended at times, but if it can get past the current hump, presumably with future acquisitions and shorting curtailed, this will be less of a recurring problem in the next 10-15 years. This is a very good post. My view is that the risk of real downside in the investing side is much reduced by the promise not to short, and so the outlook from here for the whole entity at this starting price sits somewhere between OK and superb. That's a decent range for me. Link to comment Share on other sites More sharing options...
Xerxes Posted September 22, 2020 Author Share Posted September 22, 2020 Thanks folks for great posts. I'll edit my first post to add $35 billion as gross premium as idea for 2030-35. Here is the growth over the years. 2000: gross premium $6.5 billion 2001: gross premium $6.83 billion 2002: gross premium $8.12 billion ------- between years, mostly flat, lower and closer to $5-6 billion range [not sure what happened here] 2008: gross premium $5.06 billion 2009: gross premium $5.09 billion 2010: gross premium $5.36 billion 2011: gross premium $6.74 billion 2012: gross premium $7.39 billion 2013: gross premium $7.22 billion 2014: gross premium $7.45 billion 2015: gross premium $8.65 billion 2016: gross premium $9.53 billion 2017: gross premium $12.2 billion [The boost from Allied World, I am guessing] 2018: gross premium $15.52 billion 2019: gross premium $17.51 billion 2030-35: north of $30 billion Was reading Lawrence Cunningham book called "dear shareholders ..." Bought it not because of BRK and FFH, mostly to learn about other companies. That said read the portion about FFH first. The two except on buyback from 1988 and 1999: When he needs to move, he will move. 1988: during 1998, Fairfax shares traded in a range of $11.75 to $15.125. At the lower end of range, we felt our shares were an excellent investment for the company and instituted a buyback of 10% of the float. We managed to purchase only 14,200 shares at average price of $12.94 per share. We will continue to repurchase our shares if we consider that to be the best investment available for your company. 1999:There is a silver lining in every cloud. Because of the very significant decline in our stock price, we were able to buy back 706,103 shares of Fairfax at an average price of $293 per share, approximately 5% of the shares outstanding. So far in 2000, we have repurchased an additional 244,044 shares at an average price of $190 per share. In 1990, under similar conditions, we repurchased 1.8 million shares or 25% of the shares outstanding at approximately $9 per share – one of the better investments we have made! Link to comment Share on other sites More sharing options...
StubbleJumper Posted September 22, 2020 Share Posted September 22, 2020 In 2035, Prem would be 85. Let us hope that his health and mental acuity hold. It is interesting that nobody in this thread has made mention of Ben or Christine. SJ Link to comment Share on other sites More sharing options...
Viking Posted September 22, 2020 Share Posted September 22, 2020 In 2035, Prem would be 85. Let us hope that his health and mental acuity hold. It is interesting that nobody in this thread has made mention of Ben or Christine. SJ Yes, there are lots more things that will play into where Fairfax is in 10-15 years (and how well shareholders do): 1.) Succession planning: important, especially for Fairfax given Prem’s voting control stake 2.) Prem’s personality / character: you either are ok with this or not My guess is a fair number of investors (familiar with the company) have both of these as watch outs. Personally, i am ok with the risks with shares trading at current prices (i am being compensated for the added risk). Also makes it hard to make Fairfax a permanent hold. Link to comment Share on other sites More sharing options...
petec Posted September 22, 2020 Share Posted September 22, 2020 I would be more positive on both. On succession, I see no evidence so far that Prem's intention is anything other than what he says it is, namely, to put his votes in the hands of a family member who understands and preserves the culture - much as Buffett is doing by making Howard Berkshire's Chairman. Yes, there is risk here, but only inasmuch as there is in any controlled company. On personality/character: clearly this has led to mistakes, but it is also pretty much the reason for the existence and long term success of the firm. On balance it is a positive. Link to comment Share on other sites More sharing options...
Xerxes Posted September 22, 2020 Author Share Posted September 22, 2020 SJ Great point and highly relevant one, which I seemed to have missed in my initial post. Link to comment Share on other sites More sharing options...
Parsad Posted September 25, 2020 Share Posted September 25, 2020 In 2035, Prem would be 85. Let us hope that his health and mental acuity hold. It is interesting that nobody in this thread has made mention of Ben or Christine. SJ Succession planning is something Fairfax gave much more thought to than Berkshire did at their relative ages. Fairfax has always been a company run by committee...Berkshire until very recently, was always Buffett & Munger...and then really just Buffett. Ben & Christine aren't being groomed as Prem's replacement, just like Howard Buffett isn't Warren's replacement. They are there to maintain the culture their father instilled in the business, like Howard is there at Berkshire to do the same. And everyone is talking about Fairfax 10-15 years from now. How about Fairfax as an investment until it simply reaches fair value...I'm talking 2-3 years? If Fairfax just recovered to book, plus 5% growth a year, that would be about $700 CDN in 3 years or around 23% a year. That's as far as I'm looking like any of my portfolio holdings. Cheers! Link to comment Share on other sites More sharing options...
Xerxes Posted September 25, 2020 Author Share Posted September 25, 2020 Makes perfect sense Parsad. You go for the best risk/reward for that trade. And the spring is loaded on that one. My impression was that though everyone is talking about the short term trade, ... and not enough the long term past the current woes. A series of events turned Berkshire from $10 billion insurance business into a $100 billion conglomerate in early 2000s and it is not just due to Buffet. There was luck involved. Just trying to see what is possible. Link to comment Share on other sites More sharing options...
Viking Posted September 25, 2020 Share Posted September 25, 2020 Xerxes, for Fairfax to become a long term holding for me i would need to see changes with how Fairfax executes the equity part of their investment portfolio. If they are going to continue putting significant amounts of money in shitty situations then Fairfax will continue to be a short term trade for me. I wish they would tweak their model and simply reduce the number of shitty situation buys and move up the quality chain just a little. So reduce the Resolute, RIMM, Eurobank, Recipe, Toys R Us, Stelco and all the special situation Canadian stuff they have. Right now you can build out a basket of high quality utility, pipeline, telecom, reit stocks that pay a 5% dividend yield (on average). These companies will grow their dividends 4-6% in the comping years. In a zero interest rate world solid, stable, predictable. Would be great for an insurance company to own... maybe 20% of their equity portfolio. Then you have a basket of high quality companies as your core equity holdings. Atlas might fall into this basket (we need a few more years of actual results to know). IIFL companies, Quess, Egypt Bank. Have a few flyers... like Digit in India. But limit these to industries where Fairfax has a deep understanding (like insurance). But please, please, reduce the low quality (company, industry, country... some are all three) ‘investments’. Ben Graham defined investing as: “safety of principle and adequate return. Anything NOT meeting this definition is a speculation.” There has been lots of hand wringing about how value investing is dead. My view is what we have instead seen is lots of shitty investing. Its not value investing and never has been. Look at Graham’s definition of value investing. Fairfax got away with it for the first 15-20 years of their existence so it became hard wired. Mark Twain said “its not what you know that gets you in trouble. Its what you think you know that aint so.” Fairfax has the bones of what can become a wonderful business. But they MUST make one small pivot. Move up the quality tree with the investment portfolio. And become real value investors... PS: recessions happen every 8-10 years... they provide wonderful opportunities to reflect on how successful your investing style is. The insurance side of Fairfax is handicapped right now because they own too much dog shit in their investment portfolio. But this is very predicable. Dog shit companies get crushed in recessions. In 2008 recession Fairfax had these wonderful CDS that masked everything else. Quality is what gets buy and hold value investors through recessions. PS 2: i think we might be seeing a slow shift with the equity portfolio that is encouraging. Reversing the massive short bet and all the commentary afterwards. Atlas has been the largest purchase the past few years and it looks encouraging (although it is still too early to say; and the position size has become too large). Other small examples of dealing with past mistakes: selling APR to Atlas and Fairfax Africa to Helios. Lots more work to be done. But at least to me it appears the super tanker might by slowly changing direction. Link to comment Share on other sites More sharing options...
petec Posted September 25, 2020 Share Posted September 25, 2020 I don’t entirely agree with your characterizations, Viking. For example, I’m not sure Atlas is a better business than Stelco, and it has far more debt, so its arguably riskier. The difference between the two is the price Prem paid relative to intrinsic value. That, and the position size; credit to him for sizing them right, I suppose. Eurobank to me is also a mistake of price rather than anything else. This is my biggest issue with Prem. He says he’s a value investor but often, when he buys things, I run my slide rule over them and I don’t think they’re that cheap. Resolute, on the other hand, is a classic case of a bad business. BlackBerry is a great example of totally missing what’s going on. Those were poorly chosen assets, not just expensive ones. I agree there are signs of mistakes being rectified, which is great. That, plus the promise not to hedge, the success of the rest of the investment team, the discount to book, the hard market, and the leverage, all make me think the next 5 years could work out quite well. Link to comment Share on other sites More sharing options...
petec Posted September 25, 2020 Share Posted September 25, 2020 By the way, why do you characterize Eurobank as a low quality investment and CIB as a high quality one? Is this rondo with the quality of the franchise, or the domicile? Link to comment Share on other sites More sharing options...
Viking Posted September 25, 2020 Share Posted September 25, 2020 By the way, why do you characterize Eurobank as a low quality investment and CIB as a high quality one? Is this rondo with the quality of the franchise, or the domicile? I was looking at each across three metrics: company, industry, country From the little bit of reading i did on CIB last year they appear to have a very good track record over many years (decades if memory serves me correct). The issue for Fairfax has been currency. But even with all the country/currency issues the investment has not been terrible (in US$ terms). Eurobank looks to me to be a much more complicated situation with many more risks. The Greek economy was an issue. The government debt was an issue. Grecce’s path forward in the Euro zone was an issue. All the bad loans on the books of all the Greek banks was a massive issue. The proposed carve out of bad loans was risky (great idea but needing lots of time to play out). The merger with Grivalia had risks (all big mergers in banking do). Throw in the risk of another recession hitting (what we are seeing now) and the risk now is progress made is set back years. Position size also matters. If this investment was small i wouldn’t care. It is a massive investment so position size added more risk. CIB? Solid company with proven business model - need to watch country / currency risk. Chug, chug, chug Eurobank? Solid company? Not sure yet. Proven business model? Not sure yet. Likely years more of more of work to get back to break even for Fairfax. And this assumes things in Europe start to get better. There is a decent chance the Eurozone could be mired in recession for years. Some may say: who could have predicted the pandemic? The simple answer is bad things, like recessions, happen all the time and often unexpectedly. Fairfax is an insurer and one would think they understand how to calculate and manage risks - and carry the learnings into the investment portfolio. Instead they have been messing up badly for many, many years. They need to stop with the outsized poorly considered investments. The position size of Altas is another big, big red flag. Fairfax last year talked about having maximum position sizes as a learning from past mistakes. I think they said they wanted to limit equity position sizes to $1 billion. What do they do? They proceed grow Atlas to well past 1 billion. They better hope Atlas does not mess up, given its size. This swing for the fence mentality is great when it works but can be devastating when it does not work and you are trying to re-build investor confidence. PS: in February of this year I was thinking Eurobank was very close to turning the corner and finally rewarding Fairfax shareholders. The pandemic/recession changed things overnight. But that is sometimes what happens. Fairfax has built a company to knock the lights out when times are good (overweight higher risk investments like Atlas, Eurobank, EM equities). But they missed the monetization phase and now that times are bad Book Value had been ravaged and they are left trying to dig out. Link to comment Share on other sites More sharing options...
petec Posted September 26, 2020 Share Posted September 26, 2020 I share a lot of those views but fwiw the points of difference are below. CIB is a fantastic bank and will outgrow inflation so currency is not a risk long term. But I don’t trust Egyptian institutions. CIB could compound at 15% for 30 years and then go to zero. Chug chug boom. I don’t know how to handicap that. Eurobank is a very well run and is a great option on reflation in a country that’s had a depression for 10 years and has a newly-consolidated banking sector. There was no risk in the Grivalia merger, which wasn’t a banking merger - more of an equity raise. Institutions are far stronger than in Egypt (arguably true even if they leave the EU). Fairfax’s mistake was being too early and buying too much at (far) too high a price, but I think there is a high probability that the return from here is superb. Atlas equity stake is, I believe, below $1bn. Link to comment Share on other sites More sharing options...
Viking Posted September 26, 2020 Share Posted September 26, 2020 Thanks for the questions and for providing your perspective. I don’t think we are too far apart :-). Great to debate ideas and perspectives. I learn something new every time. On a more positive note, Fairfax has done some nice things in 2020: 1.) closing of the European Runoff deal was nice to see. Got very good value and the timing of the cash from the sale was ideal. - https://www.canadianunderwriter.ca/insurance/the-thinking-behind-the-latest-omers-pc-insurer-deal-1004177121/ 2.) the significant bond purchases made after the virus sell off. I think it has already resulted in a couple hundred million in unrealized gains with an increase in dividend yield the next couple of years. 3.) insurance business (Underwriting) is chug, chug, chugging along. Hopefully they will be able to monetize a few more assets this year. Link to comment Share on other sites More sharing options...
petec Posted September 26, 2020 Share Posted September 26, 2020 Agreed with one exception: so far they haven’t *monetised* anything in the strict sense. They’ve swapped one asset for another (APR for Atlas, Dexterra for Horizon, FAH for HFP). I like the look of each deal but none is cash. Link to comment Share on other sites More sharing options...
Viking Posted September 26, 2020 Share Posted September 26, 2020 Agreed with one exception: so far they haven’t *monetised* anything in the strict sense. They’ve swapped one asset for another (APR for Atlas, Dexterra for Horizon, FAH for HFP). I like the look of each deal but none is cash. Yes, i was thinking about those deals but was too lazy to look them up. On pivot Fairfax looks to me making is partnering with established players to manage some of their assets. Smart. The Blackberry Convertible debenture deal is a big win. So as discussed, the tanker does look to be slowly changing course :-) Link to comment Share on other sites More sharing options...
Xerxes Posted September 27, 2020 Author Share Posted September 27, 2020 Ultimately, while the team at FFH corporate office has been clever in the last few years in some of its restructuring and non-cash book-value-driven asset swaps, these were all plan Bs, because their original investment thesis (plan A) didn't go through either by bad luck or plain bad judgement. At least FFH corporate office is good at being in the underdog position and are adapting. Some good news perhaps: Looks like Longleaf Partners Fund which had been steadily selling FFH every quarter from 2018 through Q4 2019, is buying back FFH. They know FFH well. But the ultimate long term test toward re-rating would be bringing new institutional investors, though most of those are not comfortable with lumpy return. In its report the fund state, Prem Watsa putting his own money in was a factor. From the report => Ref: Longleaf-Semi-annual-Report-6.30.20.pdf "Additionally, Fairfax Financial (FFH), which was a star in the global financial crisis (GFC) downturn, has so far disappointed from a stock price perspective in the current downturn. From a relative perspective, FFH also suffered as a cloud hangs over many insurers due to the ongoing business interruption insurance debate over COVID-19. FFH was also grouped with emerging market stocks after a decade of value-accretive investments outside of North America amidst an environment where US large cap companies have continued to dominate global markets. We took our time to reassess our FFH case and ultimately decided to buy more, a decision which was bolstered further when CEO/Founder Prem Watsa stepped up with a personal investment of over $100 million. We have filtered through the tough reality of the “new normal” environment into our appraisals for each business and made changes in our portfolio positioning where appropriate to reflect our new outlook." Portfolio Holdings at June 30, 2020 Net Assets Investments EXOR N.V. 8.7 CenturyLink, Inc. 7.4 FedEx Corporation 6.5 Melco International 5.4 Fairfax Financial 5.1 Prosus N.V. 5.0 About Exor, referencing FFH ==> "The COVID impact on top of an already firming price environment is translating to the hardest (most positive) reinsurance pricing environment in years. We believe this is a good time to be allocating capital to the space. That is also part of the calculus in investing in Fairfax and its Odyssey reinsurance subsidiary, with whom our long history also informs our current bullish view. We are disappointednot to receive deal liquidity at what would have been an opportune time, but we were happy to see CEO John Elkann’s discipline in refusing to negotiate a lower, fire sale price in the face of a dramatically improving business environment. PartnerRe is well positioned to thrive over the next f" Link to comment Share on other sites More sharing options...
Pedro Posted September 27, 2020 Share Posted September 27, 2020 Liking the thread and glad we have something to look back on to learn from. Lots of bull cases inverting below. Searching for the known unknowns to see both sides. Any other ideas? -cats rise at greater frequency/severity which makes the hardening market neeeding to keep up with increased costs. -history repeats itself and another poor directional long term bet hurts BV -succession in the bond area doesn't live up to bradstreets returns -equity investments remain Achilles heel -virus lawsuits become the new asbestos and drag on for decades increasing non cat claims costs -market doesn't like the lumpyness and continues to value at multiples below competition -insurance industry undergoes fast disruption from AI companies - although the Brit/Ki/Google seem like we are leading that game Link to comment Share on other sites More sharing options...
Xerxes Posted November 3, 2020 Author Share Posted November 3, 2020 Don't want to suppress the jolly mood in the "FFH 2020" thread. So I'll post this here in this thread, just as a data point to be aware of. I took me only 5 minutes. Just went through the annual release for every year, and only copied the "realized gain/loss" through shorts/hedges and the likes. I ignored all the unrealized stuff, given that it would be captured when they are realized if not reversed. End of 2016, is when FFH management made the pivot away from hedges/shorts and took its losses. Unless, i made a mistake, i am counting about a $1 billion of realized losses in shorts since the pivot to move away from shorts was made. That sum is 3x the size of current FFH investment value in Blackberry common shares. Yes, in the grand scheme of things, that comes to 2% of a $40 billion portfolio and maybe shorts are for FFH, what bitcoin is for some. Small position big potential upside. But it is almost as if they cannot help themselves to not short technology growth companies. Betting against the central bank printing press has never been a profitable trade. Anyways ... 2011: zero 2012: $6.3 million 2013: ($1.350) billion 2014: $13 million 2015: $126 million 2016: ($2.634) billion 2017: ($553) million (almost all of it in Q4 2017!) 2018: ($248) million 2019: ($20.7) million 2020 (through Q3): ($327) million Link to comment Share on other sites More sharing options...
bearprowler6 Posted November 3, 2020 Share Posted November 3, 2020 Don't want to suppress the jolly mood in the "FFH 2020" thread. So I'll post this here in this thread, just as a data point to be aware of. I took me only 5 minutes. Just went through the annual release for every year, and only copied the "realized gain/loss" through shorts/hedges and the likes. I ignored all the unrealized stuff, given that it would be captured when they are realized if not reversed. End of 2016, is when FFH management made the pivot away from hedges/shorts and took its losses. Unless, i made a mistake, i am counting about a $1 billion of realized losses in shorts since the pivot to move away from shorts was made. That sum is 3x the size of current FFH investment value in Blackberry common shares. Yes, in the grand scheme of things, that comes to 2% of a $40 billion portfolio and maybe shorts are for FFH, what bitcoin is for some. Small position big potential upside. But it is almost as if they cannot help themselves to not short technology growth companies. Betting against the central bank printing press has never been a profitable trade. Anyways ... 2011: zero 2012: $6.3 million 2013: ($1.350) billion 2014: $13 million 2015: $126 million 2016: ($2.634) billion 2017: ($553) million (almost all of it in Q4 2017!) 2018: ($248) million 2019: ($20.7) million 2020 (through Q3): ($327) million Xerxes---thank-you for doing this work. Although I agree with the consensus view that Fairfax looks cheap on a BV basis I cannot justify adding to my investment because of issues such as this one. I do continue to hold a very small legacy position in the company -- more out of habit than for any good fundamental reason. So the company is tight for cash and we can look at $1 billion that was basically flushed down the drain? Until this behavior stops (it was supposed to stop at the end of 2016) and until the company deals with its many long time underperforming equity (both public and private) investments it is not a very attractive long term investment. I sincerely applaud those that bought late last Friday or at the open on Monday. A nice short term profit for sure. But nothing has fundamentally changed with this company and that is what keeps me away. Link to comment Share on other sites More sharing options...
Xerxes Posted November 6, 2020 Author Share Posted November 6, 2020 Hopefully i didn't screw up the numbers as I jumped from one year to next: Below is the "realized" investment gains/losses that FFH booked against its equity at the end of each year. The purpose is to ignore the unrealized gain/losses as those are either reversed or realized at a later date. So no double counting. Also I ignored the shorts and equity hedges. I am just isolating the historical return on equity/bond investment over the past ten years. 2011: $703 million (equity) + $424 million (bond) 2012: $470 million (equity) + $566 million (bond) 2013: $1,324 million (equity) + $65 million (bond) 2014: $596 million (equity) + $103 million (bond) 2015: $818 million (equity) + $26 million (bond) 2016: ($184) million (equity) + $648 million (bond) 2017: $200 million (equity) + $419 million (bond) 2018: $1,326 million (equity) + $106 million (bond) 2019: $792 million (equity) + ($55) million (bond) 2020 (through Q3): $371 million From 2011-2019, net investment return through equity investment was about $6 billion. In the same period, net investment return from fixed-income was about $2.3 billion. Either i screwed up the number and that i missed a big negative somewhere, or FFH, when you look pass noises about its equity choices that make big headlines, doest seem to be that bad, if you do not take into consideration of the hedges and unrealized gain/loss. Maybe i ll double check, to be sure Link to comment Share on other sites More sharing options...
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