Fairfax 2021

[ourkid8]

Now that's the million dollar question the market is trying to price.  BB has not on-boarded any tier 1 automakers onto Ivy yet and we do not have their pricing model.  I believe there will be a monthly reoccurring charge per vehicle to the automakers for this service.    Each individual car will also have also have access to an app store which they will pay to download apps.  As a rough estimate, determine their marketshare they can potentially capture, add a $5-7/month charge to each vehicle along with a couple of dollars of apps individuals will download and come up with a high level guesstimate.  At this point, that's all you can do to determine how much money they can potentially make from this. 

 

The difference with BB Ivy is that it is a co-venture with a proven player in Amazon.  They are not just using AWS services but also Amazon developers and amazon is going to put a lot of resources behind this venture.  How I see it playing out, Tesla is like the dominant EV closed player (Similar to Apple) but BB Ivy will be like Android playstore allowing numerous EV players to share data, accelerate their AI learning, create apps between themselves etc... and BB will be the gatekeeper. 

 

I totally disagree, take a look at BB Ivey and it's prospects are huge!!! As I have mentioned many times, BB's issue is execution as they are all in the hot segments of the market. (EV, Data security, working from home etc...)

 

 

Well quite. Hence my question. It's always had significant opportunities.

 

 

Okay.  So, how does BB make money from this, and how much? 

 

As a starting point, after a FFH debenture conversion, BB would have about 600m shares outstanding.  To justify the current share price, they'd need something like $1/sh EPS, or at least $1/sh of cash from ops, so call it roughly $600m annually.  They currently are on target for about $40m of cash from ops, which is actually an improvement over previous years.

 

It's great to partner with other successful companies, but it needs to eventually flow down to the bottom line.  The fact that they've generated bugger-all in terms of cash from ops over recent years is their problem.

 

 

SJ

[bluedevil]

With the stock price of Blackberry exploding higher for no real reason, I hope Fairfax takes the opportunity to take some chips off the table.  They have the convertible bonds which let them participate fully in any further upside while effectively presenting no risk of a permanent impairment on the invested amount.  Happy to see them ride that till the converts expire in 2023, but would be great to seem them cashing out some of the common stock as we get above $12.  Recall that BB was priced at less than $3 nine months ago!  The risk/reward has changed dramatically.  BB has a few avenues to pay off big, and the converts will be very valuable if one of them hits, but still seems pretty risky.  BB is playing in some good places (hat tip to John Chen on that), but it doesn't seem to be winning anywhere.

 

[Parsad]

With the stock price of Blackberry exploding higher for no real reason, I hope Fairfax takes the opportunity to take some chips off the table.  They have the convertible bonds which let them participate fully in any further upside while effectively presenting no risk of a permanent impairment on the invested amount.  Happy to see them ride that till the converts expire in 2023, but would be great to seem them cashing out some of the common stock as we get above $12.  Recall that BB was priced at less than $3 nine months ago!  The risk/reward has changed dramatically.  BB has a few avenues to pay off big, and the converts will be very valuable if one of them hits, but still seems pretty risky.  BB is playing in some good places (hat tip to John Chen on that), but it doesn't seem to be winning anywhere.

 

We don't know if the stock is moving on momentum, or perhaps there is something in the works.  Let's leave it up to the investment team to decide what to do.  Because if something is happening, they would have a better idea of the upside.  Either way, things look a lot better now than they did six months ago.  Cheers!

[Gregmal]

Leaving it up to the investment team certainly wasnt the right decision for the past decade. They should wind down the shitco investments and just repurchase stock or buy some Berkshire. If they can find away to remove the real dollar drag and market discount ascribed to some of the blunders, this will rerate in a hurry.

[Parsad]

Leaving it up to the investment team certainly wasnt the right decision for the past decade. They should wind down the shitco investments and just repurchase stock or buy some Berkshire. If they can find away to remove the real dollar drag and market discount ascribed to some of the blunders, this will rerate in a hurry.

 

Quarterbacking is the easiest thing in the world to do, until you actually are the quarterback.  Then you hear all of the bullshit from the Sunday morning couch quarterbacks about what you should be doing.  Cheers!

[Xerxes]

In Q4 we know their equity positions increased in value by over $1.4 billion. (Yes, a majority of the positions are not mark to market.) In the last 2 weeks Blackberry is up another $300 million. It looks like their stake in Digit may be worth $400 million more.

 

V

 

what is the based on ?

[bearprowler6]

With the stock price of Blackberry exploding higher for no real reason, I hope Fairfax takes the opportunity to take some chips off the table.  They have the convertible bonds which let them participate fully in any further upside while effectively presenting no risk of a permanent impairment on the invested amount.  Happy to see them ride that till the converts expire in 2023, but would be great to seem them cashing out some of the common stock as we get above $12.  Recall that BB was priced at less than $3 nine months ago!  The risk/reward has changed dramatically.  BB has a few avenues to pay off big, and the converts will be very valuable if one of them hits, but still seems pretty risky.  BB is playing in some good places (hat tip to John Chen on that), but it doesn't seem to be winning anywhere.

 

We don't know if the stock is moving on momentum, or perhaps there is something in the works.  Let's leave it up to the investment team to decide what to do.  Because if something is happening, they would have a better idea of the upside.  Either way, things look a lot better now than they did six months ago.  Cheers!

 

Seems senior Roger Lace (a senior member of Fairfax's investment team) thought it best to take some of his own money off the table:

 

https://www.smarteranalyst.com/new-blurbs/the-senior-officer-of-blackberry-bb-is-selling-shares/

 

Hopefully, the same prudence is being applied to the BB shares held within Fairfax!

[petec]

In Q4 we know their equity positions increased in value by over $1.4 billion. (Yes, a majority of the positions are not mark to market.) In the last 2 weeks Blackberry is up another $300 million. It looks like their stake in Digit may be worth $400 million more.

 

V

 

what is the based on ?

 

The difference between the old valuation and the one just announced ;)

[Gregmal]

Leaving it up to the investment team certainly wasnt the right decision for the past decade. They should wind down the shitco investments and just repurchase stock or buy some Berkshire. If they can find away to remove the real dollar drag and market discount ascribed to some of the blunders, this will rerate in a hurry.

 

Quarterbacking is the easiest thing in the world to do, until you actually are the quarterback.  Then you hear all of the bullshit from the Sunday morning couch quarterbacks about what you should be doing.  Cheers!

 

Yea...that would be true if there wasn't tons of people doing live play by play during much of the timeframe in question. Except there has been. Look at the difference between this and Berkshire. People start salivating every time there's speculation Buffett might be buying something new. People hold the breathe every time Prem does the same and are basically just praying for breakeven with half of the portfolio. Thats a big reason for the discount in the market.

[Parsad]

Leaving it up to the investment team certainly wasnt the right decision for the past decade. They should wind down the shitco investments and just repurchase stock or buy some Berkshire. If they can find away to remove the real dollar drag and market discount ascribed to some of the blunders, this will rerate in a hurry.

 

Quarterbacking is the easiest thing in the world to do, until you actually are the quarterback.  Then you hear all of the bullshit from the Sunday morning couch quarterbacks about what you should be doing.  Cheers!

 

Yea...that would be true if there wasn't tons of people doing live play by play during much of the timeframe in question. Except there has been. Look at the difference between this and Berkshire. People start salivating every time there's speculation Buffett might be buying something new. People hold the breathe every time Prem does the same and are basically just praying for breakeven with half of the portfolio. Thats a big reason for the discount in the market.

 

That discount has created wonderful buying opportunities for both short-term and long-term FFH shareholders.  When was the last time someone could buy Berkshire or even Markel at similar discounts...2008/2009?  Your deference to Fairfax's supposed ineptitude actually helps investors in Fairfax, because those big cyclical swings drop the price to below intrinsic value relatively regularly, and then it generally rebounds to higher historical prices.  That's value investing!  Cheers! 

[Gregmal]

Sure there are valid points to that, but at some point, I would imagine a shareholder hope that they fire on all cylinders and run efficiently rather than giving everyone a perpetual discount to buy as a result of poor decision making.

[Parsad]

Sure there are valid points to that, but at some point, I would imagine a shareholder hope that they fire on all cylinders and run efficiently rather than giving everyone a perpetual discount to buy as a result of poor decision making.

 

Who do you think is going to make more money over the next 5 years?  Someone buying Berkshire today or Fairfax today?

 

When Fairfax hit four times book in 1998...if someone didn't sell, that's their foolishness.  Just like investors not taking advantage of discounts over the long-term. 

 

If you are a value investor, you never fall in love with any stock...no matter who the manager is.  At some point, you sell and move to other discounted investments. 

 

Cheers!

[Buckeye]

Sure there are valid points to that, but at some point, I would imagine a shareholder hope that they fire on all cylinders and run efficiently rather than giving everyone a perpetual discount to buy as a result of poor decision making.

 

Who do you think is going to make more money over the next 5 years?  Someone buying Berkshire today or Fairfax today?

 

When Fairfax hit four times book in 1998...if someone didn't sell, that's their foolishness.  Just like investors not taking advantage of discounts over the long-term. 

 

If you are a value investor, you never fall in love with any stock...no matter who the manager is.  At some point, you sell and move to other discounted investments. 

 

Cheers!

 

Someone buying Markel.  ;D

[Parsad]

Sure there are valid points to that, but at some point, I would imagine a shareholder hope that they fire on all cylinders and run efficiently rather than giving everyone a perpetual discount to buy as a result of poor decision making.

 

Who do you think is going to make more money over the next 5 years?  Someone buying Berkshire today or Fairfax today?

 

When Fairfax hit four times book in 1998...if someone didn't sell, that's their foolishness.  Just like investors not taking advantage of discounts over the long-term. 

 

If you are a value investor, you never fall in love with any stock...no matter who the manager is.  At some point, you sell and move to other discounted investments. 

 

Cheers!

 

Someone buying Markel.  ;D

 

Possibly.  I think it needs to get a bit cheaper...like back in March/April.  It's small enough to compound faster than Berkshire.  Otherwise at current valuations, I still give Fairfax the edge.  Cheers!

[Xerxes]

In Q4 we know their equity positions increased in value by over $1.4 billion. (Yes, a majority of the positions are not mark to market.) In the last 2 weeks Blackberry is up another $300 million. It looks like their stake in Digit may be worth $400 million more.

 

V

 

what is the based on ?

 

The difference between the old valuation and the one just announced ;)

 

Thanks ... haha

Didn't realize it was that big and it was re-valued recently. Thought it was a walnut size investment. Actually, i remember now that Amazon was also an investor in it (small amount).

 

09/30/2019: $100-$500 million valuation

12/10/2020: $800-$900 million valuation

01/15/2021: $1.9 billion valuation

 

Mind you, these unholy valuations are in the age of low interest rate.

 

Was there a strategic rationale that you recall as to why Digit was not part of FIH's portfolio ?

 

Good news is that tomorrow, is the ex-dividend date, so if the share price was being bid up by unholy traders bent on capturing the jumbo-dividend, that should take some wind out of its sail.

 

 

On a different note, for the hope-FFH-sell/trim Blackberry crowd. Imagine if BB was a private company (wholly owned by FFH), you wouldn't see any of these emotions and reactions. When was the last time anyone here complained about AGT Food strategy on a quarterly basis.

 

The fact is BB had to transition from a $20 billion phone business into $+1 billion software business all in a public forum for all to see as it went 2 steps forward, 1 step back, but always moving forward. That and also it is not that there are no suitors. There is always a buyer at a price. Chen's job is to complete his job before being able to sell it at a valuation worth of its potential (if needed) for an agreed upon purchase price.

 

[hobbit]

In Q4 we know their equity positions increased in value by over $1.4 billion. (Yes, a majority of the positions are not mark to market.) In the last 2 weeks Blackberry is up another $300 million. It looks like their stake in Digit may be worth $400 million more.

 

V

 

what is the based on ?

 

The difference between the old valuation and the one just announced ;)

 

Thanks ... haha

Didn't realize it was that big and it was re-valued recently. Thought it was a walnut size investment. Actually, i remember now that Amazon was also an investor in it (small amount).

 

09/30/2019: $100-$500 million valuation

12/10/2020: $800-$900 million valuation

01/15/2021: $1.9 billion valuation

 

Mind you, these unholy valuations are in the age of low interest rate.

 

Was there a strategic rationale that you recall as to why Digit was not part of FIH's portfolio ?

Good news is that tomorrow, is the ex-dividend date, so if the share price was being bid up by unholy traders bent on capturing the jumbo-dividend, that should take some wind out of its sail.

 

 

On a different note, for the hope-FFH-sell/trim Blackberry crowd. Imagine if BB was a private company (wholly owned by FFH), you wouldn't see any of these emotions and reactions. When was the last time anyone here complained about AGT Food strategy on a quarterly basis.

 

The fact is BB had to transition from a $20 billion phone business into $+1 billion software business all in a public forum for all to see as it went 2 steps forward, 1 step back, but always moving forward. That and also it is not that there are no suitors. There is always a buyer at a price. Chen's job is to complete his job before being able to sell it at a valuation worth of its potential (if needed) for an agreed upon purchase price.

 

As per this article FIH is an investor in Digit. I dont think FIH has mentioned this anywhere though

 

https://www.vccircle.com/fairfax-a91-partners-backed-digit-insurance-is-india-s-newest-unicorn/

[petec]

I think FIH explicitly does not do insurance. That’s left to the mother ship. I think the article is wrong. Not 100% sure though.

[StubbleJumper]

 

On a different note, for the hope-FFH-sell/trim Blackberry crowd. Imagine if BB was a private company (wholly owned by FFH), you wouldn't see any of these emotions and reactions. When was the last time anyone here complained about AGT Food strategy on a quarterly basis.

 

 

Okay, I will rise to the bait.

 

YES, if BB were a wholly owned sub, you would have still seen plenty of emotions and reactions to the fact that it has been on the balance sheet for a DECADE and has barely provided any cashflows for the holdco or the insurance subs (the only cashflows have been the interest on the debs).  What is more, it has been burning through cash for multiple years, writing down assets and generally languishing.  Any wholly owned asset showing those characteristics would have raised the ire of shareholders, unless FFH could find a way to "hide" its poor performance by mixing it in with a bunch of other subs (eg, we never did get much disclosure about how well Toys R Us is doing, nor did we get much info about how the Port of Churchill was doing...they were not material, so that may be a reason for not having provided disclosure, but let us just say that it's nice to not need to provide a detailed report if the acquisitions are losers).

 

The complaints about BB have rarely been about BB's strategy or even their execution.  BB has always been a tech company and has always been subject to a rapidly changing operating environment, so that is what it is -- the lack of predictability has been present from Day 1.  The complaints have mainly been about the amount of capital that FFH dedicated to a company which clearly is outside of their sphere of competence, and the fact that FFH continued to pile more and more capital into BB as the price declined.  This is principally a question of decisions around position-sizing and risk management.  That question of position-sizing remains an issue today because it limits FFH's range of potential exit strategies (as an "insider" on the BoD, they effectively cannot easily trim their position because of the requirement for regulatory disclosure for their trades).

 

 

The fact is BB had to transition from a $20 billion phone business into $+1 billion software business all in a public forum for all to see as it went 2 steps forward, 1 step back, but always moving forward. That and also it is not that there are no suitors. There is always a buyer at a price. Chen's job is to complete his job before being able to sell it at a valuation worth of its potential (if needed) for an agreed upon purchase price.

 

No comment on BB's transition away from smartphones towards software -- good luck to them.  But, at a certain point, shareholders like FFH need to undertake their own valuation exercise.  Understanding that there will be 600m shares outstanding after FFH converts the debs and that the prevailing price is US$13+ today, that gives you a basic market cap of US$8B.  So, how much annual income do we eventually need to see to support a $8B market cap?  My take is that you'd need more income than BB is capable of generating  (I threw the question out a couple of days ago and nobody rose to the bait).  But, I might be wrong.  Trimming your position as the price rises is a very basic strategy to manage that risk.  Given the rapid rise in price, I wouldn't even object to the full divestment of the position, but my concern about that is that BB YOLO might not last long enough for that...

 

 

SJ

 

[no_free_lunch]

FFH is down over 4% today. I don't see other insurers down.  Is anyone aware of any news that may be driving this?

[StubbleJumper]

FFH is down over 4% today. I don't see other insurers down.  Is anyone aware of any news that may be driving this?

 

 

Xerxes noted that it is trading X-D today, so shave US$10/sh off the price for that alone.

 

 

SJ

[petec]

FFH is down over 4% today. I don't see other insurers down.  Is anyone aware of any news that may be driving this?

 

It's ex-dividend day. Over-reaction I know, but that's probably what's driving it.

[petec]

 

On a different note, for the hope-FFH-sell/trim Blackberry crowd. Imagine if BB was a private company (wholly owned by FFH), you wouldn't see any of these emotions and reactions. When was the last time anyone here complained about AGT Food strategy on a quarterly basis.

 

 

Okay, I will rise to the bait.

 

YES, if BB were a wholly owned sub, you would have still seen plenty of emotions and reactions to the fact that it has been on the balance sheet for a DECADE and has barely provided any cashflows for the holdco or the insurance subs (the only cashflows have been the interest on the debs).  What is more, it has been burning through cash for multiple years, writing down assets and generally languishing.  Any wholly owned asset showing those characteristics would have raised the ire of shareholders, unless FFH could find a way to "hide" its poor performance by mixing it in with a bunch of other subs (eg, we never did get much disclosure about how well Toys R Us is doing, nor did we get much info about how the Port of Churchill was doing...they were not material, so that may be a reason for not having provided disclosure, but let us just say that it's nice to not need to provide a detailed report if the acquisitions are losers).

 

The complaints about BB have rarely been about BB's strategy or even their execution.  BB has always been a tech company and has always been subject to a rapidly changing operating environment, so that is what it is -- the lack of predictability has been present from Day 1.  The complaints have mainly been about the amount of capital that FFH dedicated to a company which clearly is outside of their sphere of competence, and the fact that FFH continued to pile more and more capital into BB as the price declined.  This is principally a question of decisions around position-sizing and risk management.  That question of position-sizing remains an issue today because it limits FFH's range of potential exit strategies (as an "insider" on the BoD, they effectively cannot easily trim their position because of the requirement for regulatory disclosure for their trades).

 

 

The fact is BB had to transition from a $20 billion phone business into $+1 billion software business all in a public forum for all to see as it went 2 steps forward, 1 step back, but always moving forward. That and also it is not that there are no suitors. There is always a buyer at a price. Chen's job is to complete his job before being able to sell it at a valuation worth of its potential (if needed) for an agreed upon purchase price.

 

No comment on BB's transition away from smartphones towards software -- good luck to them.  But, at a certain point, shareholders like FFH need to undertake their own valuation exercise.  Understanding that there will be 600m shares outstanding after FFH converts the debs and that the prevailing price is US$13+ today, that gives you a basic market cap of US$8B.  So, how much annual income do we eventually need to see to support a $8B market cap?  My take is that you'd need more income than BB is capable of generating  (I threw the question out a couple of days ago and nobody rose to the bait).  But, I might be wrong.  Trimming your position as the price rises is a very basic strategy to manage that risk.  Given the rapid rise in price, I wouldn't even object to the full divestment of the position, but my concern about that is that BB YOLO might not last long enough for that...

 

 

SJ

 

Absolutely right. I don't think Fairfax will be able to capitalise on the current share price any time soon and I doubt it will last. Pity.

[ourkid8]

The USD denominated shares are only down 0.77 so a big discrepancy.

 

FFH is down over 4% today. I don't see other insurers down.  Is anyone aware of any news that may be driving this?

 

 

Xerxes noted that it is trading X-D today, so shave US$10/sh off the price for that alone.

 

 

SJ

[StubbleJumper]

The USD denominated shares are only down 0.77 so a big discrepancy.

 

FFH is down over 4% today. I don't see other insurers down.  Is anyone aware of any news that may be driving this?

 

 

Xerxes noted that it is trading X-D today, so shave US$10/sh off the price for that alone.

 

 

SJ

 

 

Yes, you are right.  Perhaps that problem occurred yesterday?  The current USDCAD=1.2646 and the FRFHF/FFH=1.2679, so the prices are at least consistent with today's exchange rate.

 

 

SJ

[no_free_lunch]

Thank you for the feedback everyone.

 

I will capitalize on this.  :)

 

I just wanted to see if there is some announcement I missed that pushed it down.