M

MindThink

Value Investing, Privacy, and What If.....?

FFH.TO - FairFax Financial - Analysis

Fairfax Financial
Ticker: ffh.to

*Note: All quotes and tables in this post are from Prem Watsa. From his 2020 Letter to shareholders. Unless otherwise stated*

Where is everyone?
Asleep?
Not paying attention?
Caught up in the hype of the absurdly overvalued?
Dabbling in Crypto?
Or, the memes?
Looky...Looky....What do we have here?

1. Do you understand the company?

  1. Worldwide Insurance business

    "Our insurance companies have been and will be the gift that keeps giving, as they
    provide us with a float, currently $22.7 billion, which does not cost us anything – in fact, in 2020 we were paid
    $309 million to keep the float– and which is then invested worldwide."

  2. Common Stock Investments

    "Over the years, we have made common stock investments pursuant to which we have significant ownership
    positions in a number of individual names. Although the returns can be lumpy, these holdings have served us well
    over the years – especially on sale. The downside of larger ownership positions is that the accounting rules for these
    holdings are somewhat confusing (even for us!). What we find useful in clarifying the accounting positions is to
    separate these common stockholdings into three buckets. Generally, for positions where we hold less than a 20%
    economic interest and no control, we mark to market; where we have an economic interest of 20% or more but no
    control (these holdings are called associates), we equity account; and where we have control or an economic interest
    above 50%, we consolidate. I hope that the following detailed commentary will help to break through the difficulties
    of understanding the value of our investments resulting from the accounting rules and to provide a better
    understanding of the value of our investments."

2. Does the company posses a strong moat?

  • Strong barriers to entry

3. Is management doing a good job?

  • Business Growth

"Since we began in 1985, our book value per share has compounded at 18.7% (including dividends) annually"

"Here’s how gross premiums per share have compounded since we began in 1985":

Year Gross Premiums Written (GPW) $ GPW $ per share
1985 17 3
1990 81 15
1995 920 104
2000 3,722 284
2005 5,516 310
2010 5,361 263
2015 8,331 375
2020 18,979 725

"Since inception, gross premiums per share have compounded at 17% per year since inception and 14% in the last five"
years. We expect significant growth in the next five years through organic growth."

  • Conservative Management

    "2020 was the blackest of black swans. Without any warning, the world’s economies closed. And our insurance
    subsidiaries were hit by COVID-19 losses of $669 million! At the same time, stock markets crashed in March 2020. As
    I said earlier, it was a real life stress test.

    Because of cash and marketable securities in our holding company of about $1 billion, no debt maturities to speak of
    in the three years 2020 to 2022, unused credit lines of $2 billion and well capitalized insurance subsidiaries and major
    non-insurance subsidiaries, we absorbed the effects of the pandemic and thrived. Our focus has always been to have a
    very strong financial position to meet the unexpected problems that the world experiences – often, ones we have not
    witnessed before! We will be even stronger in the future as we intend to hold cash (excluding any marketable
    securities) in excess of $1 billion in our holding company and to maintain and strengthen the other safeguards
    discussed earlier."

  • Management does not reach for yield. I.E not taking risky investments

    "In spite of not reaching for yield by taking credit risk or term risk,...."

  • Everyone makes mistakes. Truthful about mistakes.

    "Over the last 15 years, our insurance business has had a combined ratio less than 100%, but our investment returns in
    the 2011 – 2016 time period were very poor because of a cautious approach to financial markets (hedging our
    common stocks) and a stock performance impacted by poor stock selection and ‘‘value investing’’ being out of
    favour. I said in our 2019 annual report that we would not short stock market indices (like the S&P500) or common
    stocks of individual companies ever again, and our last remaining short position was closed out in 2020 (not soon
    enough, as it cost us $529 million in 2020)."

  • Financial Position

Ratio As at 2020 Annual
Net debt/total equity 34.3%
Net debt/net total capital 25.6%
Interest Coverage 3.3x
Interest and preferred share dividend coverage 2.7x
Total debt/total capital 29.7%

4. Is the company trading at a cheap price?

  • Investments

    "It is important to recognize that, because our common stock investments are shown on our balance sheet at the
    carrying values, for common stocks in both the second and third buckets it is only on sale that their market values
    will be reflected on our balance sheet. By showing the above tables to you on a regular basis, you can mark to market
    the great majority of our common stock positions – up and down! Additionally, remember, it is only in the long term
    that stock prices reflect underlying intrinsic values."

  • Hints

    "By the way, our insurance companies are
    worth much more than the amount at which they are carried on our balance sheet – one reason why I think our stock
    is so undervalued."

    "Our consolidated non-insurance businesses (and your investment per share in them) are shown separately in the
    above table: they are significant, and again, are worth more than the amount at which they are carried on our
    balance sheet. As I said last year, we expect each of these non-insurance operations to generate a 15% annual return
    or better over the long term."

    "So as a shareholder of Fairfax, you benefit from four sources of income – underwriting income, interest and dividend
    income, income from our non-insurance businesses and capital gains."

  • In a June 15, 2020 press release, Prem Watsa said,

    “At our AGM and on our first quarter earnings release call, I said that our shares are ‘ridiculously cheap’. That statement reflected my recognition that in the 35 years since Fairfax began, I have never seen Fairfax shares sell at a bigger discount to their intrinsic value than they have recently. I have now backed up my strong words by purchasing close to US$150 million of Fairfax shares in the market over the last few days, as I believe that this will be an excellent long term investment.”

  • Mentioned again in 2020 annual letter

    "As I have said
    before, we think our intrinsic value far exceeds our book value. As shown in the table, there have been many years
    when our book value has increased significantly and our stock price has gone up more: please note 1993, 1995, 1996,
    1998, 2003, 2008 and 2014. As you can see, it has not happened in the last few years, but we expect it will
    happen again!"

    "Throughout much of last year following the pandemic-induced market plunge, I made public statements to the effect
    that our belief was that Fairfax shares were trading in the market at a ridiculously cheap price. In the summer I backed
    that up by personally purchasing close to $150 million of shares. Additionally, following our value investing
    philosophy, since the latter part of 2020 Fairfax has purchased total return swaps with respect to 1.4 million
    subordinate voting shares of Fairfax with a total market value at the time of those agreements of $484.9 million
    ($344.45 per share). We think this will be a great investment for Fairfax, perhaps our best yet!"

Valuation

Book Value to Market Cap

  1. Let's simplify. Let's only take Fairfax's common shareholder book value from Q2 2021, which is -> $15,350.6.
  2. Let's pretend this is the exact worth of the companies book value (even though its worth much more).
  3. The Market cap of Fairfax, as at Fri, Sept 3rd, is $15.153B (according to yahoo finance)
  4. So, we have book value of $15.350B and Market cap of $15.153B
  5. Book value alone is $197M higher than the price the company is trading for in the market ($567.02/share - Yahoo Finance - 09-03-2021)
  6. CHEAP!
  7. AND, we get the additional value, that should be added to the book value, plus future growth, for FREE! FOR FREE!

Book Value + Growth
The example above doesn't factor in any growth in book value, over the next x amount of years. It's just current equity - Market cap. Surely, the company is going to grow at some rate going forward. We know book value per share has compounded at 18.7% (including dividends) since 1985.

  1. Let's be a little safe. Let's say BV will only grow at 10%, compounded annually, over the next 10 years.
  2. In 10 years, BV of $15.3B would grow to $39.8B
  3. Compare that to today's book value.
  4. CHEAP!
  5. Patience + Long-Term = REWARDS!

I want a 15% ROI

  1. Can I get a 15% ROI?
  2. On a future book value of $39.8B (10yrs), I would have to buy the stock for $9.8B today.
  3. However, every company has a PE ratio, we're just using book as is.
  4. Add a PE, even the smallest, and the company is CHEAP!

Price to Book Compare

As at Fri, Sept 3rd

BRK.B = 1.37x
MKL = 1.31x
Now go look at FFH.TO and compare.

Conclusion

Personally, I believe the company is really cheap. So much so, that it renders a margin of safety calculation pointless. Prem, looks to be right, when he says,

"Investment returns are very sensitive to end date values, so with a stock price of only $341 per share at the end of
December 2020, our five and ten year and longer returns have been affected. We expect this to change as Fairfax
begins to reflect intrinsic values again. Nothing that a $1,000 share price won’t solve!"

I think we have a one foot bar here.

“We know how to step over one-foot bars. We don’t know how to jump over seven-foot bars. But we do know how to recognize, occasionally, what is a one-foot bar. And we know enough to stay away from the seven-foot bars, too.”
-- Warren Buffett

This is not investment advice. I may, or may not, own shares in this company at the time you read this.

What If -> The V@x is the Mark of The Beast?

I don't consider myself to be a religious girl, but:

In the Bible's Book of Revelation it says,

"He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads, and that no one may buy or sell except one who has the mark or the name of the beast, or the number of his name."

They have been operating for decades.
In the shadows -- behind the scenes.
Dark agendas, cloaked and camouflaged with positive wording to prevent the masses from having any concern.
They sit atop the highest of positions
What sits below is all in full control
Are we here?
Is the end game near?
Could it be the Mark of the Beast?

That vial they are forcing arms to take.
Why are they trying to force so many?
Why the threat of losing privileges (freedoms) if you do not take?
Why are the masses allowing this to happen to their brothers and sisters?
Will they throw their freedoms down the drain, or will they make a stand?

Thinking short term?
What did they just inject into you?
Has it changed your life forever?
What about in the long term?
Will it change your life forever in the long run?
Will you still have a life?
Will you feel regret?
Do you know who is truthfully behind the agenda?
Do you even know what has been injected into your body?
How do you know?
Did you analyze the serum yourself?
Or, did you act on what you were being told?
Did you only listen to what the TV told you?
Were you paying attention to the lies that they're selling?

A fool lacks critical thinking.
A fool lacks thinking for self.
A fool follows what others tell them to do.
A fool follows the herd. Monkey see, Monkey do.
A fool buckles under fear
A fake alien invasion would have them hiding under their beds.
A fool thinks in the short term, not the long term
A fool is programmed by repetitive messaging
A fool is brainwashed, and believin' what they're sellin' yah
A fool deserves what is coming
Genius are they who have manipulated the minds of the many
They have too much information
They can't figure out the truth

A unique code
Injected inside
Banished from society
Invisible to the eye
Scannable
Networkable
DNA programmable
Linked to everything
Do what your told
Say only what you're allowed
Inject everything we give you
= Total control
= World Domination
= The Mark of The Beast!

What If?

This post is a what if scenario. By no means am I saying this is true. It's just thoughts from a mind. It's energy flowing through a conduit. It's simply MindThink!

Crypto Currency - Thoughts - Part 2

Someone left a comment on my previous post -> Crypto Currency - Thoughts - Part 1

That comment was:

how about crypto as novelty ?

I'm understading that comment as "holding Crypto" because it's a novelty item. In that case, Crypto is definetly new and interesting, and I wouldn't fault anyone for holding it for those reasons. From a technical perspective, it's very cool. It's going to take its place in the history books. That's for sure.

Unless the commenter meant, "Crypto as novelty" in the sense of another reason to stay away from it. In that case, it could take #5 as another reason to stay away from it.

5. It's Novelty
Crypto is new, interesting and exciting for many, but the novelty will most likely wear off in the future. At least for a majority of the Crypto out there. I would expect, if any, only a few, or even one, to survive in the long term. Making picking that specific one very difficult.

Regardless of what the commenter meant, I'm looking at it from an investing perspective, and personally believe I should stay away from it.

However, my crystal ball is broken and I have no idea what will happen in the future. I could be wrong, and I will most definetly make mistakes in my investing career. So, if you believe in Crypto for whatever your reason(s), by all means, don't listen to me and go for it.

This comment got me thinking about Crypto again, and I noticed I missed something in the previous post. I missed the blockchain. So here is my number six reason for staying away from crypto.

6. The Blockchain
The interesting thing about Crypto is what it's running on. That is the Blockchain, and I believe the blockchain is the technology that we need to focus on as investors. The blockchain is the technology of the future. Watch for talk about QR codes. It's all about data collection. It will run on and be secured by the blockchain. Remember, data is the new gold mine. Today all the hype is about Crypto currencies, but the hidden element under it all is the Blockchain.

This post is not investment advice. It's just my own opinion.

What If -> The Pandemic is a Distraction?

What if, the pandemic is a distraction to move along a different kind of agenda?

In the not to distant future, every individual will be assigned a unique QR code, if the masses allow it to happen. This QR code will link to everything about you, and it will run on the blockchain. Your medical records, bank account, shopping information, DNA (Hello, are you listening?), and pretty much anything else you can think about will be linked to it. Today, it's being referred to as the Vaccine Passport. Think the digital tracking of today is bad?

What if this QR code can be injected inside you, invisible, using something like nanotechnology, and connected to an AI system of sorts? The QR code could then be easily scanned with a smartphone or similar device, receiving the most up to date information of the individual. We didn't like what you posted on that message board, so no loan for you. A social credit score. Power! Control!

What if all this talk about a V@ccine Passport is to also bring in a requirement for a v@ccine schedule? Where each person has to take a v@ccine when they're told. What if this v@ccine schedule was used to change(edit) your code (your DNA) as those in control see fit?

What would need to be done in order to make this agenda a reality?

What if, it was something like this:

  1. Create a problem. --> Pandemic....Bad virus...Stay home....Nowhere is safe
  2. Watch for the reaction --> People in fear
  3. Provide them a solution --> We have a two dose v@ccine. Take it and protect yourself.

v@x 1
Installs the technology in all those who wilfully comply.

But, There will be many people who know something is not right, and they will oppose, and refuse to take it. What to do with them?

v@x 2
What if, the second dose is in the form of a w3apon? Those who are injected become a walking bi0 w3apon, passing something to the unv@ccinated. Something that works to exterminate them, and essentially eradicate the problem.

Result:
Now they're left with everyone who complied (the sheep), and the wolves, who would have fought are taken out of the equation. Now the plan can amp up, and move forward, focusing on the next set of goals towards completing the agenda.

What If?

This post is a what if scenario. By no means am I saying this is true. It's just thoughts from a mind. It's energy flowing through a conduit. It's simply MindThink!

What If -> It's Right In front of Your Face?

For certain world events, are we told exactly what will occur ahead of time?
Are a small minority able to see, while the others, mindlessly distracted, blindly agree?

SMACK!..... It's been right in front of your face this entire time.

COVID19 ----> Certificate of V@ccine Identification, and it started in 2019.

Now read the above line out load, take a step back, and then take a look at what's happening in the world today. Coincidence?

What if?

This post is a what if scenario. By no means am I saying this is true. It's just thoughts from a mind. It's energy flowing through a conduit. It's simply MindThink!

What If -> The V@x is a Technology?

Back in the day, very few people believed a computer would be required in everyday life. Now, look where we're at today.

What if, the v@x is a new type of technology? A technology that the minds of the masses are unable to comprehend at this current moment in time.

What if, these MRNA v@x's allow the user to be re-programmed--DNA altered, switches turned on and off by a carefully designed, as I'll call it, code injection? Some type of technology that is able to be programmed, like computer code, and then injected in an individual to change that individuals genome sequence forever. Nanobots with specific instructions to carry out, or something along those lines. A bio weapon if you will.

What power would that grant to the controller(s) of such a technology? They could change every person that takes the injection to their liking. Need more cancer in the world, to decrease the population and maintain the sustainability of the planet? No problem, code added to the next mandatory injection, updates the current DNA code in the injected individual, and then voila! Before long the cancer develops, and population decreases. They could launch it in the form of Russian Roulette. Some get the update, and some get the placebo. Allowing a targetted percentage of the population to be impacted by the specific code update, and meeting the desired outcome.

Not to be all dark, I'll take the other perspective. They could cure cancer or HIV. Flip the required DNA switches, and inject the update. Individual cured. Genius!

What if?

This post is a what if scenario. By no means am I saying this is true. It's just thoughts from a mind. It's energy flowing through a conduit. It's simply MindThink!

Crypto Currency - Thoughts - Part 1

Personally, I wouldn't touch crypto currency with a ten foot pole.

Here are my reasons why:

1. Price Stability
I cannot walk into a grocery store today and purchase a loaf of bread with crypto. Even if I could, the price volatility would make doing so very difficult. One day, a loaf of bread costs $2.00 in crypto, and suddenly the next day it's $5.00/loaf. It doesn't work in the market. It lacks price stability.

2. Market Acceptance
What businesses even accept crypto as a payment? They are few and far between. You're not going into Walmart or Costco and paying with Crypto currencies. Are you?

3. The Masses
The masses are invested in it, and the speculation is real. Have you ever heard of "tulip mania?" With Crypto though, you don't even get a Tulip Bulb. Instead, you're essesntially investing in, well...., a digital NOTHING.

4. Regulation
There are people who control the money of each nation, and they can print that money. They will not allow a competitor (crypto) to take that power from them. Thus, if things got bad enough, they would regulate crypto and stop it, protecting the power they have over nations.

I imagine crypto will exist in the future, but I bet, it will exist in the form of a central bank digital currency. A digital currency that is regulated to support price stability within the market. Similar to the dollar of today. One where those in power will still hold control. Also, allowing them the benefit of having all the data that would come from such a platform. They will know everything that everyone is doing. It's very likely that crypto, as we see it today, may be a gateway to such a future currency, and it will probably be a global currency at that.

Paper money will be ditched in the future, but for now, crypto is the one that should be ditched.

Read Part 2

This post is not investment advice. It's just my own opinion.