Fairfax Financial Holdings Limited (Symbol-FFH)

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Grasu
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Fairfax Financial Holdings Limited (Symbol-FFH)

Post by Grasu »

Hi,

I was looking at Faifax for some time:
http://finance.google.com/finance?q=FFH ... arch&hl=en

Today more news about the subpoenas popped up all over the net and it looks like the market is reacting quite hard.

It doesn't look to me like there is any new information released today, the SEC investigation had been going on for some time.

Is it time to buy yet?

G
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optionable68
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Post by optionable68 »

This slide will hit Cundill hard
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Post by arnyk »

I went long Monday morning at $128. Nice two day pop, but I have longer term plans for this one.
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Post by twocentsworth »

Gosh, aren't you worried about their investment in the Brick Group? :lol:
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Post by lilbit »

optionable68, why will this slide hit Cundill hard? Thank you for helping me with this.
I've been learning from this forum for a long time now (over a year). First post.
Good judgement comes from experience, which comes from bad judgement.
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Post by arnyk »

twocentsworth wrote:Gosh, aren't you worried about their investment in the Brick Group? :lol:
Yeah, I bought it for the cash, so when I heard it just plunked down $25 million into the Brick, I was like *shit*. Then I rechecked the financials and realized...no biggie. By my conservative estimates, they still have between $2.5 - $3.5 BILLION in the bank account. :p
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Post by optionable68 »

lilbit wrote:optionable68, why will this slide hit Cundill hard? Thank you for helping me with this.
I've been learning from this forum for a long time now (over a year). First post.
FFH has been a large holding for several Cundill funds for some time. The 2 day bounce we have seen should mitigate the pain their unitholders would have otherwise faced.
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Post by arnyk »

Disclosure: I got this one...so if you buy it, that's good for me. So buy it. :P (PS: This is not a reccomendation to buy, however much money you lose, it ain't on me)
Fairfax Financial Holdings Limited: First Quarter Financial Results
16:34 EDT Thursday, April 27, 2006

TORONTO, ONTARIO--(CCNMatthews - April 27, 2006) -

(Note: All dollar amounts in this press release are expressed in U.S. dollars.)

Fairfax Financial Holdings Limited (TSX:FFH.SV)(NYSE:FFH) announces that it had net earnings of $172.1 million ($9.47 and $9.10 per share and per diluted share respectively) in the first quarter of 2006 while maintaining a strong financial position. Highlights for the 2006 first quarter were as follows (comparisons are to the first quarter of 2005, except as otherwise indicated):

- Net earnings increased in 2006 to $172.1 million ($9.47 and $9.10 per share and per diluted share respectively) from $35.2 million ($2.03 and $2.01 per share and per diluted share respectively) in 2005. Earnings from operations before income taxes increased to $357.4 million in 2006 from $104.3 million in 2005.
For those seriously into this, you'll want the full (interim) Q1 Report at their Website (PDF)
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Post by Norbert Schlenker »

https://secure.globeadvisor.com/servlet ... TICKER29-1
The property, casualty and life insurer said late Thursday that its previously reported financial results were not reliable, due to accounting errors uncovered during a recent review. Fairfax said the restatement could strip as much as $240-million from shareholders equity, but would not affect the company's cash flows.
WTF? This is about 10% of shareholder's equity. I have read and reread and rereread the earnings announcement, MD&A, and news release and I still don't understand WTF happened?

"Small errors made on small transactions between 1998 and 2001"? This company earns maybe $30-50 million a quarter - although very erratically - so $240 million is no mere bagatelle.

Ideas?
Nothing can protect people who want to buy the Brooklyn Bridge.
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Post by yielder »

Norbert Schlenker wrote:Ideas?
Who knows? Watsa has never been very communicative with investors. That and the property & casualty part of the business was enough for me to stay clear. Gimme a life & health insurer every instead.
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Post by arnyk »

Norbert Schlenker wrote:https://secure.globeadvisor.com/servlet ... TICKER29-1
The property, casualty and life insurer said late Thursday that its previously reported financial results were not reliable, due to accounting errors uncovered during a recent review. Fairfax said the restatement could strip as much as $240-million from shareholders equity, but would not affect the company's cash flows.
WTF? This is about 10% of shareholder's equity. I have read and reread and rereread the earnings announcement, MD&A, and news release and I still don't understand WTF happened?

"Small errors made on small transactions between 1998 and 2001"? This company earns maybe $30-50 million a quarter - although very erratically - so $240 million is no mere bagatelle.

Ideas?
Watsa claimed that the "errors" were predominantly forex (between US and Cdn) related.

10% is a big chunk to lose yes, but I think the probability of this happening had already been "priced" in (just look at a 1-year chart). Fairfax was trading at significantly lower P/B than its historically low P/B, so maybe some people knew something.

Besides, it doesn't affect present and future cash flows, so fundamentally the operations will not be disrupted.

I'll have to admit though, I'm trying not listen to the noise too closely. Between this and the "Biovail" lawsuit they're filing, I really can't be bothered.

Oh yeah, they're filing a $6 billion lawsuit--
Fairfax files $6-billion suit against U.S. hedge funds

Canadian insurer Fairfax Financial Holdings Ltd. has filed a $6-billion (U.S.) lawsuit against a group of powerful U.S. hedge funds, alleging they plotted to destroy the company through a wide assortment of "dirty tricks," including the use of a "shadowy operative" to harass the chief executive officer's pastor.

The lawsuit, which was filed yesterday, pits one of Canada's most publicity-shy CEOs, Prem Watsa, against the secretive Steven Cohen, the founder of one of the world's most aggressive hedge funds, SAC Capital Management LLC.

Fairfax claims that SAC, working in concert with several other funds, a research analyst, and a pair of hedge fund "operatives," among others, masterminded an elaborate scheme to drive down the price of the company's stock in order to reap huge profit.

....
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Fairfax (Symbol-FFH) braces for meltdown

Post by randomwalker »

Fairfax braces for meltdown

Prem Watsa says safety margins are inadequate amid speculative bubble

May 26, 2007 04:30 AM
James Daw
Business columnist

Prem Watsa says investors around the world are not being paid enough for the inherent risk in stocks, bonds and real estate.

http://www.thestar.com/columnists/article/217898
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Post by Taggart »

I've been investing since 1981, the same year that Joe Granville made his infamous "Sell Everything!'' call, just before the biggest bull market ever.

Walter Schloss had this to say in 1991 (from Outstanding Investor Digest):

"Graham was concerned with limiting his risk and he didn't want to lose money. People don't remember what happened before and how things were. And that's one of the mistakes people make investing as well.

In the last 15 years it's been a remarkable stock market. But people forget what things were like during the 1930's. I think Graham-because he lived through that period-remembered it, was scared it would happen again and did everything he could to avoid it.

But in the process of avoiding it, he missed a lot of opportunities. That's one of the problems you always have-you don't really lose, but you don't really make, either.

I believe you should remember what took place-even if you weren't around at the time. One of the problems of a lot of people who went through the Depression-Ben Graham, Jerry Newman and others-is that they keep on thinking that things will always be like that.

Even Graham used to say-and quite correctly-that you can't run your investments as if a repeat of 1932 is around the corner. We can have a recession and things can go bad. But you can't plan on that happening. People who did missed this tremendous market.

Some people can do it. Most people can't and I don't think they should try."
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Post by pitz »

Its a rather alarmist point of view. Not saying he's right or wrong, but insofar as a bubble in equities, I have a hard time believing that.

Relative P/E ratios are still extremely low, amongst the lowest in history, compared to bond yields. LBO activity is just a fraction of what was experienced in the late 1980s. Outstanding margin debt only recently exceeded the 2000 highs, even though the money supply has more than doubled in the past 7 years. Many markets have only recently recovered to their 2000 trading levels. Dividend payout ratios and corporate indebtness have never been lower. Unemployment remains relatively high worldwide leading to minimal wage pressures. Resources still aren't anywhere near their inflation-adjusted historic highs, and much more flexibility and efficiency exists in the economy today than in the past.

As for emerging markets debt, theres two ways of looking at it: companies with better growth prospects should have better credit ratings than those with poor growth prospects, even if there is 'emerging markets' risk. Its rather arrogant (and perhaps racist) to suggest that EM debt should be priced higher merely because its not from Canada/USA/Europe. The definition of Emerging Market is rather out of date as well -- I would personally call Singapore/Korea/Taiwan/Malaysia/Mexico "developed markets" as they have advanced enormously in the past 25 years since the EM 'moniker' was developed.

And corporations really learned their lessons from the late 90s. They aren't building [over]capacity, but rather, are buying back shares and paying dividends. This is extremely responsible behaviour compared to all the excess capacity built in the late 90s that really wasn't needed in many sectors.
The Toronto Star wrote:Last July Fairfax filed a $5 billion (U.S.) lawsuit alleging certain hedge funds and investment managers engaged in a campaign of dirty tricks to drive down its share price.
Bizarre, why doesn't the guy just concentrate on running the business, rather than wasting shareholders' funds fighting the ownership of the business? In fact, a lower share price, to a value investor, is desirable, because it allows dividends to be re-invested less expensively and buybacks to take place at reduced prices.

Sounds like the sort of nonsense the people at overstock.com were engaging in with respect to the hedge funds. Too bad managers can't just mind their own business, and leave the market price of their stock to the market.
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Post by NormR »

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Post by rhenderson »

Still, some caution may not be ill advised.

"Here’s a warning sign to investors riding this bull market: While stock benchmarks are hitting all-time highs, so too is the amount of short selling"

http://www.siliconinvestor.com/readmsg. ... d=23579060

A long,long time ago in 1990 the Nikkei was running at around 40000 and today, 17 years later it's at ??

How many investors today can wait 17 years to break even if we take a similar hit ?
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Post by NormR »

pitz wrote:Its a rather alarmist point of view. Not saying he's right or wrong, but insofar as a bubble in equities, I have a hard time believing that.
The talk was "Ben Graham and Bubbles." So, you'd expect some discussion of bubbles :)

At no point did Prem say that all hell was about to break loose. Indeed, he discussed two recent purchases (Torstar and SFK Pulp) in the Q&A. Fairfax has hedged against a market decline.

But remember, they're a P&C insurer and subject to a different set of constraints than individual investors.
pitz wrote:Relative P/E ratios are still extremely low, amongst the lowest in history, compared to bond yields.
Oh? P/Es are generally near average or above average (in the U.S. & Canada based on TTM figures).

Prem thought that corporate profit margins were well above average and likely to suffer from some mean reversion.
pitz wrote:Outstanding margin debt only recently exceeded the 2000 highs, even though the money supply has more than doubled in the past 7 years.
Oh, and I'm sure that derivative-related debt has been fully accounted for ...

pitz wrote:Dividend payout ratios and corporate indebtness have never been lower.
Never is a long time. Do you have proof on this one?
pitz wrote:Resources still aren't anywhere near their inflation-adjusted historic highs, and much more flexibility and efficiency exists in the economy today than in the past.
Should resource prices go up or down over the long-term due to technological advances?

pitz wrote:As for emerging markets debt, theres two ways of looking at it: companies with better growth prospects should have better credit ratings than those with poor growth prospects, even if there is 'emerging markets' risk. Its rather arrogant (and perhaps racist) to suggest that EM debt should be priced higher merely because its not from Canada/USA/Europe.

racist!? :lol:
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Post by Taggart »

Looking at Prem's Torstar.

P/E Ratio = 20.3

Price/Sales Ratio = 1.12

Price/Book Value = 1.98

Price/Cash Flow Ratio = 13.90

Debt/Equity Ratio = 0.85

If the stock price gets quite a bit cheaper, and they get their debt down, I might consider it. Otherwise, I'll pass on this one.
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Post by NormR »

Taggart wrote:Looking at Prem's Torstar.

P/E Ratio = 20.3

Price/Sales Ratio = 1.12

Price/Book Value = 1.98

Price/Cash Flow Ratio = 13.90

Debt/Equity Ratio = 0.85

If the stock price gets quite a bit cheaper, and they get their debt down, I might consider it. Otherwise, I'll pass on this one.
It's not at the top of my list either. Prem said that it was a sum-of-parts buy.
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Post by Taggart »

NormR wrote:
Taggart wrote:Looking at Prem's Torstar.

P/E Ratio = 20.3

Price/Sales Ratio = 1.12

Price/Book Value = 1.98

Price/Cash Flow Ratio = 13.90

Debt/Equity Ratio = 0.85

If the stock price gets quite a bit cheaper, and they get their debt down, I might consider it. Otherwise, I'll pass on this one.
It's not at the top of my list either. Prem said that it was a sum-of-parts buy.
Sum-of-parts buy. I had to think about that one, for a minute. Yes, you're right, some value investors, break up the various divisions in a company, and mentally separate them to see if there's any value within. Certainly, less competition valuing a company this way, but it entails a lot of detective work, more than I would be competent to do.

I also learned from another site this morning the importance of keeping away from value traps from an expat who invested in cheap Thai stocks. This was her post:

"Well, just bear in mind that they are at bottom with reasons as well. I invested in the Thai exchange in 2002 using this basis of unbelievable fundamentals and I hit the jackpot with only one stock and the others were dud. I now learn that the prospect of each company counts a lot."
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Post by NormR »

Taggart wrote:I also learned from another site this morning the importance of keeping away from value traps from an expat who invested in cheap Thai stocks. This was her post:

"Well, just bear in mind that they are at bottom with reasons as well. I invested in the Thai exchange in 2002 using this basis of unbelievable fundamentals and I hit the jackpot with only one stock and the others were dud. I now learn that the prospect of each company counts a lot."
Ah, but what was the average return of the strategy? One jackpot can make up for several failures.
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Post by Taggart »

NormR wrote:
Taggart wrote:I also learned from another site this morning the importance of keeping away from value traps from an expat who invested in cheap Thai stocks. This was her post:

"Well, just bear in mind that they are at bottom with reasons as well. I invested in the Thai exchange in 2002 using this basis of unbelievable fundamentals and I hit the jackpot with only one stock and the others were dud. I now learn that the prospect of each company counts a lot."
Ah, but what was the average return of the strategy? One jackpot can make up for several failures.
I don't know, but I'll see if I can find out. I believe your own batting average has been higher. Didn't John Templeton say at one time, words to the effect, that if he made the right calls on 60-70% of his buys, then he'd achieved success?
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Post by dusty2 »

May isn't a bad time to take some profits - June is even better. Everyone is feeling great now and the sun is shining. But, bond prices are getting tempting and the U.S. has an election coming up. Sometimes, September rolls around and hogs get slaughtered. Then again, chickens get killed, too.
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Post by Taggart »

Taggart wrote:
NormR wrote:
Taggart wrote:I also learned from another site this morning the importance of keeping away from value traps from an expat who invested in cheap Thai stocks. This was her post:

"Well, just bear in mind that they are at bottom with reasons as well. I invested in the Thai exchange in 2002 using this basis of unbelievable fundamentals and I hit the jackpot with only one stock and the others were dud. I now learn that the prospect of each company counts a lot."
Ah, but what was the average return of the strategy? One jackpot can make up for several failures.
I don't know, but I'll see if I can find out. I believe your own batting average has been higher. Didn't John Templeton say at one time, words to the effect, that if he made the right calls on 60-70% of his buys, then he'd achieved success?
OK Norm. Her problems seem to stem from the buying of cheap "small caps". Here's her answer in full below: (Note: SET=Stock Exchange of Thailand).

"The profit from my jackpot stock covered only 30% of my losses on the other ten duds. I still keep these dud stocks of 100 units each in order to remind me of not to take some analysts too seriously.

After these losses, in 2003 I concentrated on big caps instead and hit the jackpots on all stocks invested, mainly PTT and Shin, and realised them with a total gain of 140% of the investment during the week of Tak Bai fiasco in Feb 2004. If I still hold these stocks today, its value would be reduced to the gain of 30% only. So, this is another important point of investment of "when to realise your profit".

I think I have succeeded in getting away from those duds pretty well by following Ben Graham's philosophy of picking stocks that have a fall back position. Only big-caps give you that comfort. Another advantage is that one's mind remains less fuzzy by concentrating only on the big caps which are not many in Thai stocks. Among SET 50 there are 5 stocks that covers almost half of the Thai stock activities. In order not to miss out on small-caps, I have invested in the small-cap fund as managed by Aberdeen which so far has given me a 4% return after two quarters.

Because of the concentration on the big caps, I have become quite good on the future market on SET 50 stocks and to date has given a nice sum of returns of 50% after a period of six months. The beauty is the index is not easily manipulated and the market is pretty fair for those with economic and financial knowledge."
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Post by Taggart »

cont'd:

I asked the poster another question.

Q: You had a very high proportion of duds. Aside from the fact they were small cap, was that the only problem, or were there other factors you noticed causing them to be failures, such as high debt ratios, lack of earnings or dividends, obsolete products, or too many stocks in your picks from one sector?

A: The main reason is that small caps are easily manipulated with small volumes especially by the owners. Another reason is that some of them have bad prospects. They are not money-machines like big-cap. They do not have monopolistic position like the big-caps. Twice I followed the analysts too religiously on these small caps with these attractive fundamentals and lost quite substantially. The analysts have not much to write on the big caps and they love to come out with the prophecy on the small caps. The analysts that I trust now are mainly foreign related such DBS, Phatra, and Tisco. I just ignore the rest. Historically, the three had failed me only 20% on their analysis.

---------------------------------------

After reading the above, I saw this recent link at Stingy Investor, Turtles in Omaha. We all know that even some large stocks can be manipulated by their management here in the western world. It's left me wondering if the poster's problem is an issue of behavioral finance, or is it the fact that value investing using small caps in certain emerging markets just doesn't work?

On a side note today, Jeff Rubin is predicting Loonie to hit par, or is he just seeing a lot of white swans?
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