Subject: Re: FAIRFAX /FFH
I'm a Fairfax shareholder and purchased additional shares this morning on the decline. I read the Muddy Waters report and watched his interview on CNBC. He gets a lot of stuff wrong, doesn't seem too up to date on anything at all going right, has basically done zero work on the company before 2020 and lets us know that the company should be properly valued at a 4x or less after-tax earnings multiple. There are assets on Fairfax's balance sheet that have been written up and others that are carried at far below "fair value." Overall, BVPS is not out of line (and is about to get marked a lot higher for year-end).


I follow the company closely and I completely agree with nola's reading of the Muddy Waters report.

I think MW does make a good case for some of the book value marks of Fairfax's holdings being a bit aggressive, and many of them, while legal, may well have been made, as the report's authors suggest, with the purpose of not running afoul of lending covenants while they made investments (insurance acquisitions, writing a lot of insurance in a hard market, making new equity investments) that would have been harder to do or to finance if they had taken some of the writeoffs on equity holdings that they could have taken.

But that said, you have a company that is trading at about 1.1x BV (1.0x after today's 11% haircut!), trading at about 6x earnings, with the prospect of making about the same level of earnings or better for at least the next 2 years. And the company's book value, while it may be overstated for some of the positions that Muddy Waters has alluded to (Recipe, Allied Insurance, Digit, and so on), but you might say the opposite of some of the really big positions (notably Eurobank and Fairfax India) that may mean that total book value is understated, not overstated.

I don't have a lot of cash lying around and Fairfax was already my biggest investment, so I have only purchased a modest number of new shares today. It's not so much that 11% off represents such a great deal (the shares are up about 60% over the last year), but I predict this falling knife will stop falling abruptly when the company releases what are likely to be stellar earnings results for 2023, a week from today.

dtb