Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 0
some of you (in the past ?) were into Fairfax... getting creamed in an interview on cnbc atm. !! "paper gains, financial loands internally, private loans, overstated values, smoke and mirrors , misleading accounts ".......pretty much saying again , like before "racketeering..". see Carson Block interview happening now.....critical of Price Waterhouse auditors there too...
No. of Recommendations: 0
Carson Block has short position....reckons book value should be 20% lower...at least...
No. of Recommendations: 0
Good morning Hbird, I'm watching. Believe me, for many years I've wondered WHY Buffett was willing to sell off his life's work via the foundations near BV after 2006? I think his, shareholder friendly moves, were in response to lagging HIS hurdle, spy, for 5-10 year periods which never should have been his self imposed hurdle anyway ?? Take care.
No. of Recommendations: 14
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).
His big example Digit has the 49% equity stake held on the books at $130 million and is accounted for under the equity method. Mandatorily convertible preferred shares that Fairfax owns (which will take the ownership level up to 74% of Digit) were written up in connection to an 'observable market transaction' where Sequoia put a $3.5 Billion mark on Digit. Is that too high? Who knows until they come public. But if 49% of the equity is in FFH book value at $130m I really don't think that is a smoking gun. Basically his entire analysis of Digit was errors.
Block's understanding of the IFRS accounting change focuses on why Fairfax had a bigger increase in book value (+6%) compared to other Canadian insurance companies. He doesn't attempt to understand why. (Fairfax had an extremely short duration bond portfolio at the time, something like 1.6 years avg. duration). Carson doesn't try to understand the rules. It's lazy analysis.
I wonder what figure he has penciled in for Q4 earnings one week from today? I have a huge number penciled in. But I spent more than 2 weeks on it.
That's what makes a market. Fairfax can't say much in the quiet period until the conference call a week from tomorrow.
One thing I know for sure is that I know more about the company than Carson Block.
No. of Recommendations: 0
Agree -- while there might be a degree of optimism in some of the asset valuations, I don't think there's fraudulent accounting here, or anything close to it. I'm not sure Muddy Waters actually cares -- so long as they can create that impression long enough to make a quick Loonie.
No. of Recommendations: 0
“One thing I know for sure is that I know more about the company than Carson Block.”
I always question why CNBC gives these guys air time. Sensationalism I know.
No. of Recommendations: 9
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
No. of Recommendations: 0
No. of Recommendations: 0
Thanks for that history and insight.very cogent. Had not looked at FFH for many a year. started a very small position for LT at 915 and change this morning.
No. of Recommendations: 0
-oops , fat finger ..925.
No. of Recommendations: 11
That short seller report on Fairfax was a surprise.
Fairfax is a large and complex business. I do not know it well enough to have a meaningful investment and my comments should be taken lightly.
The insurance business has performed exceptionally well for a long time now. That is very valuable. However, insurance is a dangerous business.
Fairfax has played a blinder on the bond portfolio in recent years. They acted rationally and Buffett like, when rates were near zero, staying in short dated bonds, earning next to nothing. Avoiding the disastrous returns that buyers of longer duration bonds purchased a few years ago a near zero rates, have experienced. When rates whet up, Fairfax has locked in higher rates. And importantly both moves were done on scale. Fairfax is now is a sweet spot and enjoying large increases in bond interest income. Against a backdrop of a low price to book and PE ratio, shorting the company is an odd strategy. There must be easier ways to try and make money than this.
Outside of the bond portfolio, Fairfax has a smaller investment operation. This is what this short seller is focused on. I’m in no position to assess Fairfax capital allocation skills, but from what I can see, the investments performance, in public and private companies are nothing impressive. That might be a function of the difficult environment for deep value investors. The market ratings on statistically cheap companies has been low for some time. It’s always dangerous to compare any capital allocator to Buffett. Buffett’s approach is easy to understand. The idea of allocating capital at 15% or more is very attractive but sadly for almost everyone: over long periods of time, people generally can’t do what Buffett does.
My understanding, is that Fairfax has not demonstrated an ability to allocate capital outside of the bond portfolio (tied to insurance) in a fashion that makes Fairfax attractive for that reason for a long term buy and hold. Shorting it for that reason, sounds like a bad idea, given that it’s not likely to be disastrous. It does however demonstrate, how much higher quality Berkshire is compared to Fairfax in my opinion.
Fairfax will have strong earnings growth over the next two or three years. Good luck shorting that at a low book value and PE. It would take a blow up in insurance underwriting (they have a long and great record), or some big investment write downs (possible but no obvious reason for that on the cards).
What happens to the share price after the large run up in recent years? In the short term, I guess it could cool off a little, as it has become less under valued and now a short seller attack. But my best guess is management will blow away the short seller arguments, starting next week when they report strong earnings.
In the long term, the short seller report does provide a useful reminder, that Fairfax is not in the Berkshire league, when it comes to compounding capital.
My personal opinion is, Fairfax has been a good value play over recent months and may continue to be, but it’s not high enough quality, to be a core part of my portfolio long term. Nothing particularly special about it and it has risks associated with it that can be avoided elsewhere.
Apologies to long term Fairfax holders, that will know the company and situation better than me.
No. of Recommendations: 4
The insurance business has performed exceptionally well for a long time now. That is very valuable. However, insurance is a dangerous business.And surprises are usually bad.
Here’s where I learned that lesson:
https://www.pwc.co.uk/services/business-restructur...Not saying Fairfax is not reserving correctly, I have no idea. When it comes to insurance it’s Berkshire only for me.
No. of Recommendations: 1
FFH was listed in the US Stock market about 10 years ago. But I can't find it now. I owned it about 16 years ago and sold it all close to $300. Look at its current price in Toronto at $1260 Canadian dollar, and about $300 (CD) 16 years ago, its about 4 times appreciation, less than BRK's performance. What's the reason of owning FFH rather than BRK?
No. of Recommendations: 9
FFH was listed in the US Stock market about 10 years ago. But I can't find it now. I owned it about 16 years ago and sold it all close to $300. Look at its current price in Toronto at $1260 Canadian dollar, and about $300 (CD) 16 years ago, its about 4 times appreciation, less than BRK's performance. What's the reason of owning FFH rather than BRK?
Well I think you will find that Fairfax outperformed Berkshire during that period despite a long stretch during that period that Fairfax describes as their "seven lean years" were they woefully underperformed for a number of reasons (loss-making equity hedging and poor equity investment selections being the main ones). Fairfax pays a dividend and it is important to include those in your comparison. But it is close enough to a tie that it doesn't matter.
There is certainly nothing wrong with an all-Berkshire portfolio.
Berkshire is already valued at $865 Billion and Fairfax is much smaller (despite their market cap doubling [and share count falling] in the last 3 years). It is much easier for Fairfax to do a deal that moves the needle so to speak (recent pet insurance sale to JAB is a good example of a deal that was material to Fairfax and would have been buried in a footnote at BRK). Fairfax is running their insurance businesses well and has a lot of international growth in the insurance biz.
Fairfax is a very good investor in fixed income, not so much in equities. If Fairfax lost Brian Bradstreet, their star bond investor, I would probably reduce my concentration in the shares.
As you mentioned, Fairfax dropped their NYSE listing many years ago and trades in Toronto. There is also a US over the counter unsponsored thing with the ticker symbol FRFHF. There is also a side investment vehicle for direct exposure to their non-insurance investments in India that holds some very attractive assets but carries a hedge-fund like incentive fee structure (FIH in Toronto, FFXDF over the counter).
I own both FFH and FIH and have done well in both so far. At this moment the India assets are probably the more undervalued of the two but that type of structure is not for everyone.
No. of Recommendations: 0
"Well I think you will find that Fairfax outperformed Berkshire during that period despite a long stretch during that period that Fairfax describes as their "seven lean years" were they woefully underperformed for a number of reasons (loss-making equity hedging and poor equity investment selections being the main ones). Fairfax pays a dividend and it is important to include those in your comparison. But it is close enough to a tie that it doesn't matter.
"
Thanks for the info. I agree FFH is a good alternative for diversification. Over the years, I have found qualitative is more important than quantitative in investment. In this regard, I would stick with BRK since I have known it much better and have more confident. I think high tech would be a better alternative as it become more clear year by year that's the future. I have slowly tapped into high tech in the past two years, Meta, Google. I only regret that I didn't dive into it two years ago when the tide fell to the bottom.
No. of Recommendations: 0
Fairfax has a lot of float.
No. of Recommendations: 1
