FFH Performance

[tyska]

Sure has missed out on a lot of the gains in the market. Sold out the kids account in June at little over 402, to insulate their account a little from the massive hurricane season forecast  ;). Bought back in today at a little under 399. It's not easy being a FFH convert.

 

Dan

[StubbleJumper]

Yeah, I was just looking at the share price this morning and thinking that it's reasonably priced at 99% of the stated Q3 BV. 

 

There may be some opportunities to scoop up a few bargains this month as people dump their losers to trigger tax losses, but unfortunately FFH is unlikely to fall into that category.

[Uccmal]

Call it potential energy....

 

I have them booking alot of gains recently on CWB, Rim, gov't bonds from Zenith.  Offsetting are the SPY total return swaps.

[T-bone1]

Don't forget ICO . . . up 52% QTD,

[ERICOPOLY]

I thought when they boosted their hedge program that they went primarily with Russel2000 total return swaps.  That index is up 30% from the summer lows.

[Uccmal]

Eric, I recall the original 30% of swaps being set on the S&P at 1062 -these are obviously underwater.  You are probably right about the Russel swaps - I lose track.

 

Now that I think about it they may have had in topside SWAPs to protect on the upside as well which are likely in the money.  Anyway, I dont plan on revisiting the financials until Feb.

 

[Viking]

Bond yields moving up dramatically are going to result in a hit to year end book values for insurers (offset by gains in equities).

 

Treasuries      Dec 8  Sept 30 June 30

5 year            1.88    1.27      1.79

10 year          3.27    2.53      2.97

 

It looks to me that muni yields are also up about 75 basis points since Sept 30.

 

There are so many puts and takes (particularly for insurers like FFH who also have hedges in place) that it will be very difficult to forecast Q4 results and YE book value. The good news from the rise in bond yields is insurers will be able to reinvest at higher rates which will help future earnings. Bottom line is the well run companies looks to me to be crazy cheap.

[Parsad]

Sure has missed out on a lot of the gains in the market. Sold out the kids account in June at little over 402, to insulate their account a little from the massive hurricane season forecast  . Bought back in today at a little under 399. It's not easy being a FFH convert.

 

I wouldn't worry about it too much.  They were wrong for a long time before they were proven right on the credit default swaps and "1 in 50 year storm."  In this business, you often are going against the grain and that's the only way to preserve capital over the long-run.  I suspected they would be wrong in the short-term, and Prem expected as much from statements he made in the media...there is only so much you can do when governments around the world are doing everything in their power to lower interest rates and spur asset inflation.  But Prem looks out 5 to 10 years, not one or two years! 

 

They should be able to increase book value at a reasonable rate simply from their dividend/interest income and organic growth in the insurance business.  The Lollapalooza effect comes into play when they get a signficant opportunity to invest in undervalued securities.  They will face some volatility in the stock price until they can exploit such occasions, and it will be tough for the stock price to outperform the market when people are so optimistic.  But the consensus is often wrong longer term, and I don't expect things to get easier as governments run out of ammo. 

 

At some point, the system has to cleanse itself and the piper will be paid...be it through a protracted stagnant economy or severe volatility.  In general business is improving, but frictional costs to do business will increase and similar costs are going to hit the average consumer.  Any inflationary costs will also ultimately be passed down to businesses and then consumers.  No easy way out, and that's what Prem expects.  Cheers!

[Myth465]

I bought a sliver of a position today. It feels good to own FFH again, I have held since 2007 and sold 6 months ago due to my leaps.

[FFHWatcher]

Somebody just blew about $7,000 in about 15 seconds buying FFH.  What the heck!!!!!

Drove the price from $400 to $410 from 9:31:57 to 9:32:12 with a bunch of 100 share blocks. 

Increased the price by $1. every 1-3 seconds in some cases.  Dumb trading (so far).  I'm not saying that I have never traded like an idiot but this time it wasn't me. 

[Uccmal]

Crazy that the price is still so low, or crazy that some computer glitched on a trading program?

[Myth465]

Call me crazy but I think FFH is fairly priced given the underwriting numbers and the pricing of other "higher quality" insurers (based on under writing consistency). Also for the investments Mr. Market typically only pays up once the gains are realized or marked up, so that arm of the business probably wont get much of a premium.

 

With that said I did recently buy back and will scale things up overtime. Hopefully we have a hidden investment gain, which will cause me to ramp up a little quicker than expected.

[twacowfca]

Crazy that the price is still so low, or crazy that some computer glitched on a trading program?

 

Could be.  100 shares is the typical front running amount for basic computer trades.  Maybe a retail customer thought he would get a better price breaking up a few hundred shares to be purchased into 100 share blocks.  Then the computer may have dumbly pushed ahead in the line.  Both the retail customer and the computer traider evidently took a haircut. ???  What may work on a highly liquid stock may boomerang on a $400 lightly traded stock.

[FFHWatcher]

My only question is, will the market eventually let FFH get to a p/e of <1 ?  kidding.

If the trend continues...significant share buybacks have to become more and more likely.  I think raising the dividend and moving to quarterly will increase the number of potential shareholders.  Purists will keep the money within FFH, which obviously hasn't hurt them in the past.  Really, are you going to invest the cash better than Prem and the FFH team?  Maybe, but the odds are against you.

[ECCO]

 

 

 

I too rebought FFH recently.

I figured why not pick up the dividend next month.

The $10.00 dividend in January was the first one I missed since FFH has been paying one.

I didn't like missing it.

 

I always wonder what to do near the dividend date. Why do you prefer to buy the stock at lets say 400$, get a 10$ dividend and then see the price go down to 390$, instead of buying the stock after the dividend date and paying the stock 390$?

 

 

Consistent with the practice of prior years, the amount of this dividend was determined taking into account the current operating results of Fairfax and its insurance and reinsurance companies and the current cash position at the Fairfax holding company. Consequently, as each year’s circumstances are different, this dividend should not be regarded as indicative of the amount of any future annual dividends.

 

Do you guys expect a 10$ dividend this year?

 

 

 

[tombgrt]

 

 

 

I too rebought FFH recently.

I figured why not pick up the dividend next month.

The $10.00 dividend in January was the first one I missed since FFH has been paying one.

I didn't like missing it.

 

I always wonder what to do near the dividend date. Why do you prefer to buy the stock at lets say 400$, get a 10$ dividend and then see the price go down to 390$, instead of buying the stock after the dividend date and paying the stock 390$?

 

 

Consistent with the practice of prior years, the amount of this dividend was determined taking into account the current operating results of Fairfax and its insurance and reinsurance companies and the current cash position at the Fairfax holding company. Consequently, as each year’s circumstances are different, this dividend should not be regarded as indicative of the amount of any future annual dividends.

 

Do you guys expect a 10$ dividend this year?

 

 

 

 

Lets keep the dividend low shall we. I'm losing 50% on each dividend as an European.  :-X

 

I have a 7,5% position and will be adding after dividend if we are down a couple more percent.

[biaggio]

"shalab:

I think Fairfax over reserves which provides opportunity to buy."

 

Also, I think FFH is not writing as much business as the average insurance company for the amount of capital they have i.e fixed costs are spread over smaller amount of revenue.

 

I was also thinking that if FFH grows BV a lumpy 15%, then in 5 years they will have a BV of ~$800...and if by chance it is selling at 1.5 x BV then it could be worth $1200...so is it is a buy at $400 i.e will it matter if you but at $390 with or without the dividend

 

[Uccmal]

Shalab, have you backed out the Zenith Acquisition?  Also, the premium increase from other less visible acquisitions?  Just wonderin...

 

RE: The dividend - 20% increase would be a reasonable estimate.  $12.  It should be spread out through the year. 

 

tombgrt, that sucks to be sure but the dividend is now making up a signficant piece of annual book value growth.  Maybe the stock is cheaper after the ex-dividend date.

 

[oec2000]

This discussion comes up every now and then but if we all agree that FFH is undervalued here, shouldn't we all also agree that the rational thing is to minimize the dividend and use the funds for buybacks?

 

A rational investor should be agnostic as to whether he gets his returns in capital gains or income. A $10 dividend is worth only $10 to me (or less after tax for non-Canadian taxpayers). $10 used to buy back undervalued stock gives me some incremental value equal to the discount obtained through the buyback.

 

Buying back undervalued stock is the closest thing to alchemy that I can think of. FFH should scrap the dividend and use it for buybacks.

 

 

[Rabbitisrich]

This discussion comes up every now and then but if we all agree that FFH is undervalued here, shouldn't we all also agree that the rational thing is to minimize the dividend and use the funds for buybacks?

 

A rational investor should be agnostic as to whether he gets his returns in capital gains or income. A $10 dividend is worth only $10 to me (or less after tax for non-Canadian taxpayers). $10 used to buy back undervalued stock gives me some incremental value equal to the discount obtained through the buyback.

 

Buying back undervalued stock is the closest thing to alchemy that I can think of. FFH should scrap the dividend and use it for buybacks.

 

 

 

Yeah, fully agree; plus I don't like the increasing regularity of the dividend, which tends to attract dumb money to the table.

[ERICOPOLY]

They might be using the dividend vs buybacks because they don't want people to get the wrong impression if insiders are selling.

 

Look at MSFT -- Ballmer files to sell 10% of his shares and the news networks are abuzz.  But that's just unloading the increased ownership due to recent buybacks.  He's just bringing his ownership level back down to where it was.  Had they paid that cash (instead of buybacks) out as a dividend, there would be no confusion.

[Rabbitisrich]

True, but in the case of MSFT, there was only short-term confusion during a period when the company was in strong financial shape. You might even say that the dips transfered ownership to people with more confidence in the underlying business.

 

Steady dividends may attract a shareholder base which judges a company on the consistency and growth trend of its dividend. If we get too many owners who underestimate the earnings volatility of a healthy insurance company, we may be forced into a trade-off between intelligent dividend cuts and necessary stock sales.

[Myth465]

I think we all know the reason for the dividend and its a non issue. I also think buybacks arent very possible or likely given the float and amount that trades. FFH will likely continue buying insurers which is fine by me (as long as they can get the right one).

[oec2000]

They might be using the dividend vs buybacks because they don't want people to get the wrong impression if insiders are selling.

 

Look at MSFT -- Ballmer files to sell 10% of his shares and the news networks are abuzz.  But that's just unloading the increased ownership due to recent buybacks.  He's just bringing his ownership level back down to where it was.  Had they paid that cash (instead of buybacks) out as a dividend, there would be no confusion.

 

It shouldn't really matter in the long run, i.e. the voting vs weighing machines argument. It is difficult to isolate the reasons for MSFT's recent poor stock price performance. As for FFH, I would think that the typical shareholder is less prone to being influenced by such noise.

 

Paying excessive dividends (especially when it is accopmpanied by an issue of discounted shares) sends the wrong signal about capital allocation strategies. Given management's need for personal cashflow, I can see the rationale for special dividends occasionally when there is excess capital but it seems that expectations are growing for dividends to be maintained or even increased from this year's high level. For the sake of managing expectations, I feel it would be good to make a distinction between "base" and "special" dividends.