YouSaid · the spoken record

Jake Taylor

lines on the record: 38
first: 2020-10-04
most recent: 2020-10-04
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“On Twitter, I'm probably more active there than I should be. But I met Farnham Jake One. I do the value after hours weekly podcasts with our mutual friend, Toby, and Bill Brewster. If you want to learn more about our investment company, www.farnum-street.com. And all of our letters are public. I try to spend a lot of time writing good letters because I want to go back and be able to read them 20 years from now, not be embarrassed by what I wrote. And then lastly, I have my book came out last year called The Rebel Allocator. And it's a good gift for young people if they're interested in business and investing. I actually, you know, I wanted to condense a decade plus worth of learning that I'd been doing about business and investing and write something for my kids. And then I figured, you know, why not help everyone else out with it? So that might be a good gift idea for that young person in your life.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“For anything, even liquid stocks, I always put in limit orders. And it's a better way of being disciplined. And sometimes it bites you in the butt because you don't get as much filled as you wanted and the price moves away from you and you go, ah, dang it. I probably would have paid a little bit more to get those extra shares, but I didn't. And that happens. But the other side is the very bad outcome where you bought a bunch of shares at a price much higher than you were anticipating. And now you're like, oh, that was not what I was aiming for.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Well, let's say that you just put in what's called a market order. That just means that the brokerage account will go and fill that order no matter what the price. They're going to buy whatever shares are available at whatever price. And they're going to get your 50 shares if you put in 50. Now, if you put in the limit order, it will buy as many as it can up to that particular price. With something that's as thinly traded as Fairfax Africa is, even if you're not a big investor, you can move the price around quite a bit and change the economics and the bet that you're making without even realizing it. If you were to, let's say, push the price up 50% because you weren't paying attention to your order, now all of a sudden, you know, you bought shares that were 50% more expensive and they probably don't fit the math that you did before you put in the order, right? So I would say, especially in today's high-frequency trading world where everyone is trying to front run everyone, I never put in market order.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Get a chance again to be kind of in the sun. It would be poetic justice for them. And I think it's always nice when you can root for both a good outcome for humanity and also for your portfolio.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Here, if they can sort of get things together and maybe the market stops discounting everything as hard as it has been for the things that they own. You sort of have two layers of cheapness. You have the underlying, which has gotten beaten up and very cheap. And then you have the bigger, the wrapper that it comes in, which is the fund, which is also discounted heavily. So there are a few different ways to win if you get any kind of reversion to the mean. Use limit orders. coffee can it buy it for your grandkids and come back in 2050 and the world has changed dramatically and africa is a very reasonable place to do business you know and there's something i find to be personally very rewarding about the idea that there are so many other people in the world who are hopefully going to have much better life experiences in places where historically it has been a pretty rough place to have been born so let's all hope like it wouldn't it be nice to root for africa to”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And we do a full add back of that $509 million that's been laid out already. Let's just assume that it goes back to par, basically. We put the $86 million in cash back in. And by the way, we're not assuming any returns on any investment here. This is just to go back to PAR, right? So it's still relatively conservative. That gives us a $595 million book value. And the highest price to book that it's ever traded at was in 2017, which was $1.47 times. So let's use that as our multiple. And that gives us an $875 million market cap, which is plus $338 from where we are today. So let's assume that as sort of a blended probability that our base and our bear and our bowl cases were all equally likely, 33% chance of either any of those three happening. Well, that implies 146% expected return on those blended probabilities. So, you know, there's a lot of potential upside.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Times price to book on this, which seems appropriate if it's a reasonably managed fund. So we're adding back that 20% that we considered an overly pessimistic mark-to-market. And at a $486 million book value, that would give us a $486 million price, which is $143 from where we are today. Now let's take an overly bearish case. We don't add back anything. We keep book value at $390 million. We take the worst price to book it's ever traded at, which was in early 2020, which is actually 0.3 price to book. And that gives us $117 million implied value. That's 40% down from where we are today. Okay. I would say that's probably a little bit overly bearish, but just for fun, let some bookends on this. Now let's make a little bit of a bullish case for this. Let's assume that these guys with a 35-year track record are not as dumb as the market is making them look right now.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So let's start with $86 million on the balance sheet in cash. Now, I'll let you make your own discounts to that if you think that it's being mismanaged and that that $86 million isn't worth what it is in those guys' hands. But I'm going to count it as $86 million at the top. And so far, they've laid out $509 million in investments, and it's carried it at, call it $300 million. So as a thought exercise, let's assume that the market was overly pessimistic that basket of securities. And we remarked those assets to only a 20% loss. So we're moving that number back up to 400 million from 300 million. Now, 400 million plus the 86 million in cash, that gives us a 486 million dollar value. Now, remember that the current price to book is 0.51. And I would say as a base case, let's assume that you can just get one.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Looking at it, you have to recognize that this is a very low volume stock. It trades less than $20,000 per day. So anytime you have an incredibly low volume stock, you have to really take every single current market price with a very large grain of salt because there's just not many dollars behind the market movements. So Mr. Market, it's a very light load for Mr. Market to move the price around when the volume is that low. All the more reason why the coffee can is probably the smart play.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, the recent catalyst, I have to assume, has been like the rest of the world has recognized the economic impacts of COVID. And for whatever reason, the U.S., especially tech, like we talked about, have kind of remained blissfully unaware of it. So it's been beaten up lately. Now, a potential positive impact might be the Helios investment partners and a little background on them. They're an African PE firm, basically, that started in 2004, and they run about $3.6 billion on their platform of funds. So they're taking over operations, sharing economics with Fairfax. And I'm hopeful that this will give maybe even more opportunity to find interesting investments within Africa for Fairfax Africa, because the guys running it have been doing this for longer than the previous managers who are doing this. So that was announced on July 10th. This potential change, and the stock is flat in that time. So no one seems to care. I don't think anyone.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Start to catch, you know, you start getting some investment returns. The underlying business is within the structure start to compound. That will be reflected eventually. But this is an incredibly long-term opportunity. And this is a perfect thing for what I call like a coffee can approach. You buy some of this, you stick it in a coffee can, you bury it in your backyard, you don't look at it for 20 years and you come back and you're surprised to see what happens.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, it's not liquidating, so I wouldn't really consider it in the cigar butt category. But it definitely qualifies as a 50 cent dollar, I think. And I'll walk through the math on that. So right now, the book value is $6.62 per share, which is equates to $390 million total. And we talked already about how dramatic the mark-to-market losses are in there. Those are shown in that $390 billion. So inside of that, you have $86 million of cash, $161 million of bonds and loans, and $136 million in stocks. Now, currently, there are 59 million shares outstanding, and let's call it a $3.30 price-ish. That's a $200 million market cap implied. So we're already at a price to book of 0.5. Now, I would say that is it a compounder? Potentially, if and when the business”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, that's a great point. In just the first six months of 2020, Fairfax Africa recognized $26 million in losses just from foreign exchange. I think my counter to that would be that no fiat currency is a layup in today's world. The dollar is the reserve currency now, but that's not etched in stone. There could be a day where maybe that FX actually helps. And for me personally, I have plenty of assets and liabilities denominated in dollars in my portfolio. So I don't mind getting some other exposure to other currencies. All the research I've done on hedging indicates that it tends to balance out with the costs over time and that there's no real advantage to it. The other thing too is that a weaker currency can actually be a plus sometimes because it can make your exports more attractive in a country. So there can often cause a little export economic boom because of a devaluation. So it's not 100% clear that”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“At $34 million. So that's an 80% haircut. Their investment in CIG, they put in $55 million. They're carrying it at $6 million. That's a 90% haircut. Their loan book, 87 million, carried it at 79% or 79 million. That's a 10% haircut. The private equity side, AGH 87 million carried at 63 million. That's a 28% haircut. Phil Africa, that's a 35% haircut. Grow capital, 75% haircut. So all total, they have $509 million that they've deployed. And it's carried on the books at $299 million. So that's a 41% haircut. So you have to ask yourself, is fair value really that 41% loss? Or do these guys know what they're doing? And these are just more short-term quotational losses. That's really, I think, one of the key things of Untangling this investment.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“You have to take a very, very long view and trust that these guys did not get really dumb overnight all of a sudden. And then the other thing too is that the price that you pay, you can mitigate a lot, a lot of problems with the price that you pay. So in fact, there's a great quote by Buffett. It says that prices might due diligence. So if you get enough low enough price, it requires less hurdle of having to understand every single little intricate moving piece inside of an investment thesis. So really the bigger question is how stupid do you think the Fairfax guys are? And do you trust more the recent market quotes that they have to mark their book to? Or do you trust their long-term analysis of what they're working on? So really, it's a question of how efficient do you think markets are. So let's look at some of the numbers here that are inside Fairfax Africa. Their public investment in Atlas Mara, they've put in $159 million. They're carrying it on the book.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Let's talk about circle of competence for a minute. It's really about finding an interpreting information and how do you do that? I think, you know, I don't know if you know this, but 18% of the matter in the universe is visible and the other 82% is dark matter. And I've wondered if that same ratio actually applies to these businesses that we study. Maybe we get a glimpse at 18% of the relevant facts based on what's reported to us. But there's another 82% of this person doesn't like this person inside the company or this competitor's coming for the company. We don't even know it. There's all kinds of very relevant facts that we probably don't have access to. And there's always more than we can know than being outside passive shareholders. And this is especially true if you're 10,000 miles away from where all the action is happening. So that requires a lot of trust and management. And to be honest, it's been a little rough for Fairfax Africa so far.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Is a long ways away from where we are. They're not eligible for any performance fees until it's back up to $11.81, which is light years away from where we are today. So this new transaction with this company called Helios is my understanding is the economics will now be shared with Helios. And that Fairfax is effectively outsourcing more of the boots on the ground to a group that's been doing this since 2004. The other thing you can do is actually buy Fairfax, like what we were talking about as a hedge to your expense structure in Fairfax, Africa, because now you're owning the fees that are being paid. So there's a lot to like here. And we'll get into a little bit more probably in a minute about valuation, but that's a good place to stop.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“In Africa. Now, Fairfax, the parent company, owns 59% of Fairfax Africa. So they have invested almost 60% of the funds that are in that fund came from the parent company. Now, there's a transaction that's going to be coming up soon that they're voting on that will diminish them down to 32% most likely if it gets approved. But they're still going to retain 53% of the voting rights. So they're still in charge of this thing. But it's not perfect, right? There's some issues. Nothing's ever perfect. So to operate the fund, Fairfax, the parent company, charges management fees on the fund. And it's a half a percent for uninvested money and 1.5% on invested money. And for that fee, they have to provide a CEO and a CFO and manage these investments. Now there's also Fairfax can earn performance fees, which is 20% above a 5% hurdle measured every three years. The good news is today.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so the average guess is 50, but the actual number is more than 400. So to give you a little context, there are 400 people per retail establishment in the US. There are 60,000 people in Africa per retail establishment. So it doesn't take a lot of us foresight to imagine a simple business like Walmart or McDonald's or 7-Eleven being able to grow rapidly in that kind of environment under the right conditions. Let's take all those numbers. What do we do with them, right? Like I think we have a reasonably sound argument for that there are some strong tailwinds, but how do we participate in that, right? So that's when I happen to see that Fairfax had launched a fund specifically to invest in Africa. And I trust them to do the due diligence on the ground that I'm not able to do 10,000 miles away. And I know that they have sort of a value tilt, which is what I'm drawn to. And they will be investing on my behalf.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Is that technology is really going to help out because you're going to be able to avoid a lot of the potential cost of infrastructure that we currently have. So imagine skipping over landlines and going right to cell phones. Africa already actually has the most mobile payment accounts of any continent. So they've taken banking to their phone faster than we have in the US. So a little quiz here. How many African companies are there with more than $1 billion of revenue?”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Trillion cubic feet of natural gas off of Mozambique alone, which is 20 years worth of European demand. And that's just Mozambique. The other thing is that there's one-fifth of the penetration testing compared to OECD soil. So they just haven't dug into the African soil like they have all the other rest of the countries. So who knows what other kind of buried treasures are in there, whether it's petrochemical or rare earth minerals? There's all kinds of opportunities there. We just don't even know yet. Now let's talk a little bit about infrastructure. In the US, we use 19 times the electricity measured in kilowatt hours per capita than Africa does. U.S. has 6.2 times the rail density, the bricks, which are Brazil, Russia, India, China, have five times the road density of Africa. So there's lots and lots of opportunity for useful infrastructure to be built to improve the quality of life there. And what's interesting is that one hypothesis”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Crime and illness and other things. You could sort of say that cities make a doubling of everything that's human, but it's a 1.15 times multiplier. So imagine 90 cities with more than a million people working, solving problems. It's actually a very exciting time, I think, for Africa. Now let's talk about geography of Africa. If you look at a map, the Mercator projection greatly distorts reality. Africa is huge. It's a further flight from Cairo to Johannesburg than it is from the US to Europe. It's over an eight-hour flight. Africa has three times the landmass size of Europe. It's 11 million square miles. And I think, you know, a lot of us think about Africa, we say like, oh, it's all desert, right? Let's actually wrong. It has 60% of the world's arable land. So it's not hard to imagine that eventually they figure out how to, you know, being geographically located between the east and the west, they could be a very advantageous place to be sort of the world's breadbasket. Now, there are 180”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Goods and services, there's going to be a lot of people living very reasonable lives in Africa by 2050, is what I would guess. The other thing is that Africa is very young. So the median age right now in the US is 35. China 37, Europe 42, Japan 46. The African median age is 20. And 70% of Africa's population is under 30 years old. So they are incredibly young. And they're young and they're hungry. And I think those are two good recipes for eventually making large economic strides. So the other thing is it's reason that there will be 90 cities in Africa of one million plus population by 2030. There's this interesting book by Jeffrey West called Scale, where he talks about how the doubling of the size of a city more than doubles the output of both wages and patent output. It's due to density and network geometries. Now, you also get more than a doubling of”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Let me start with, I think, last time that I was on, I gave the story about talking to Charlie Munger and how he told me that I should be fishing where the fish are and not fighting all the other cod fishermen for where everyone else is looking. So I sat down and I'm staring at a globe and I'm spinning it. And what do I see? I notice Africa and it's staring me right in the face. So I started doing some research and I'm going to share some numbers with you about Africa that I think are quite interesting. And really a bet on Africa is a bet on three things. Demographics, geography, and infrastructure. So there's this saying that demographics are destiny. The UN projects that there will be 1.3 billion people added to Africa by 2050 and that they will have a 1 billion person middle class. That's six times the size of the US middle class. So that's an incredibly big population to be servicing”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Now, just for fun, and I don't typically do this because I recognize that the investment world has much fatter tales than what a standard deviation doesn't conform to standard deviations, but this is a starting point. But one standard deviation to the upside, I would say, gets you to 1.3 priced a book, which implies a $540 price, which is 88% from where we are today. And then let's say one standard deviation downward gets us to basically like one times price to book. And that's a $430 price, which is about 50% up from where we are. So it's definitely cheap. If you think that Pram and company have any talent still, I think you're getting a pretty good bet and you're paying a reasonable price for that bet.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“As maligned as priced a book is as a factor these days by investment professionals, I still think it's a very appropriate place to start for valuing banks and insurance companies. So the current price to book of Fairfax is 0.69. So call it 70 cents on the dollar. Now, if you go back and look over the last 15 years, the average price to book that Fairfax has traded at is $1.16. And the standard deviation of the price to book over that 15 years is 0.133. So I thought, let's just take a base case being, what's the long run average that Fairfax has historically traded at? And we'll multiply by that price to book, and what would that tell us that we should expect for the share price? So 1.16 gives us a 485 share price, which is plus 68% roughly from where we are today. That's actually not that bad. Like, Fairfax is cheap right now.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Because they're so much more global, I would probably pick more of a global index, like maybe MSCI or something, and maybe even more bond exposure as well. Because, I mean, they just have a more full book. You know, they're not ever going to be 100% US equities, right? And that's what S&P 500 kind of represents as a benchmark.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“The SP 500, it's been the SP 5. And what I mean by that is Microsoft, Amazon, Google, Facebook, and Apple have accounted for plus 250% over the last five years. The rest of the S&P 500, those other four, the S&P 495, are up 25% total over the last five years. So if you missed those five stocks, which Fairfax did, you're going to look bad against the S&P 500 because there just wasn't much else to be had. And especially, you know, they've been more internationally focused than a lot of other companies and also more resource focused, natural resource focused, which I think, I don't know if that's like a Canadian thing seems like everybody in Canada likes natural resource companies. So that explains a lot of why we would say they've underperformed the S&P 500. But I'm not even sure if S&P 500 is an appropriate benchmark for Fairfax's operation.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Quite a bit lately. And that's a good sign for the premiums that Fairfax will be accepting. So there's potential that there's probably good underwriting happening right now. The other thing to look at is that their bond book that they have is very short duration. Most of it is less than five years. And it has this blended rate of 3.6%. So if you have locked in 3.6% for the next five years, it will be tough to get to 15%, but they run their operations very conservatively and they're not the only ones who have been hurt by these low interest rate in the environment. I mean, every bank and every insurance company is suffering through this. But, you know, they're very conservative and they've tended to lately take more ownership debt and preferreds than pure equity. So they've limited their downside a little bit while also accepting some smaller upsides, which we actually seen Berkshire be doing more lately as well. So the other thing that's important to note is that over the last five years, it really hasn't been”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Actually, still have $100 billion of notional value in these deflation hedge bets, CPI linked, that are carried on the books at only $7 million. So they've been written down almost to zero, these hedges. But, you know, you could imagine an alternate universe where maybe the market crashes in 2016 and it looks very much like that 2009, 2010 period again. And they look like geniuses and no one's questioning their track record at all. So 2017 to 2019 combined ratio 99% and investment returns 5.6%. So not bad. That's sort of like middling. But that's still going forward. That's going to take a little while to get to that 18% or to maintain that 18% that they've had if you're only getting, call it 1% on your operations and 5% on your investment book. So obviously it's going to take more to get back up to what they've been doing. My understanding is that in general, the insurance pricing market has hardened.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Bad underwriting, but great investment results. Then 2006 to 2010, combined ratio was 99% and investment returns were 11%. And a lot of that had to do actually with Prim made that same bet that a lot of guys got very famous for making, which was basically shorting housing bubble. He had the CDSs on housing. You could almost say that this was sort of the golden age for Fairfax. They had good underwriting and they had really good investment returns. And it could also sort of point to the idea that Fairfax probably does better during downturns and maybe not so good during bull markets. So 2011 to 2016, combined ratio of 96%, fantastic, investment returns 2.3%, very anemic. What happened? Well, PRAM was concerned, especially in the later part of that period, with where the market was. And he had a lot of hedges on. And that's a little bit equivalent to driving around with the parking brake on. So what's interesting is they...”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“You're right about the book value growth over that time period. And just to provide a little context around that, when they took over, it was $1.52 in book value in 1985. And now it's roughly $486. So over that same time period, the share prices compounded at $16.6 per annum. It's helpful to break up an insurance company, there's really two key variables. The first one is their combined ratio, which is the premiums that they accept versus the losses that they have to pay out, basically how profitable are your insurance operations. And then the second thing is what do you do with the money that you get? It's the return on the investment. So it's helpful to break up Fairfax into multiple time periods to trace the history. So if you look at 1986 to 2005, their combined ratio was 105%, which means they were losing money in their insurance operations. But their investment returns were around 10% per annum. So, you know,”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“They have about $30 billion in what I would call liquid assets and then versus about $47 billion in liabilities that have to eventually be paid. So obviously those two numbers don't exactly match up. And you're going to need some kind of asset growth to meet those future liabilities. What's a little bit funny is that PREM and team have been maligned as bad stock pickers lately. But what's interesting is that only $1 in $6, I would say, of the liquid securities is actually in equities. It's a little bit ironic, actually. They've actually been helped by these regulatory handcuffs of insurance and had to be weighted into a lot of bonds. And that's actually kind of helped their investment results. So it's a little bit funny to see people who, you know, they have an incredibly long, good track record, but sort of like, what have you done for me lately? Like a lot of value guys have struggled a little bit. And so they actually have been bailed out a little bit by the fact that they have so many bonds based on their insurance operations.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“I think that Fairfax should be analyzed just like any other insurance company. And so we think about that. They take money now in premiums. What do they end up doing with it? How do they transform those premiums into assets? And then eventually use those to pay back claims. You know, what's left over after that? So when I look at Fairfax's balance sheet, they have about $10 billion in cash, about $15 billion in bonds and about $5 billion in stocks. And then below that, you'll have call it $3 billion in what I call joint ventures, which are just investments that they're making that they have to recognize on their balance sheet as ownership. About $700 million in derivatives and then $2.5 billion that's invested in Fairfax, India and Fairfax, Africa. And then you have about $12 billion in intangibles and other assets. Now, against that, you have $7 billion of debt and about $40 billion of predicted insurance liabilities.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“I remember the first time I went to the Fairfax meeting. Within five minutes, I had already met Prem and got a picture taken with him and moved on to the meeting and it's very small. And Berkshire, you can't get within 100 feet of Buffett because there's security and there's just a million people crowding around him. So a very different experience. And that speaks back to the size of the companies.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Prem is known as the Canadian Warren Buffett. One of the differences is that he's actually 20 years younger than Buffett, so he's only 70. But his background is he grew up in India, got a degree in chemical engineering from IIT Madras. And then he immigrated to Canada with eight rupees in his pocket. And he worked and put himself through the NBA program at Ivy Business School, which is in western Ontario. And now after founding Fairfax, he owns about 10% of the company. He's a billionaire. So it's really one of those rags to richest stories. The other thing that I've noticed from going to the shareholders meeting for a number of years now is that PRAM is an incredible cheerleader of his teams. He speaks so highly of everybody. You can see why everyone shows up to work wanting to impress him. I mean, Warren is good about that, but like the energy that Prim conveys is even stronger. And the other difference is between going to like a Berkshire meeting and Fairfax's.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Biggest difference is really in the size of the operations. I mean, Berkshire is an elephant in Fairfax is an ant. And to give you an idea, Berkshire's float is six times the size of Fairfax. They have similar underwriting profits last year, kind of surprisingly, but book value is 30 times X for Berkshire. Their cash flow from operations is 30 times. price to book also is 2x, right? So it's more expensive. And enterprise value is actually 75 times X. So they're quite a bit different in the size of the company. And I'd say in general that Berkshire has a lot more operating businesses between the railroad and the energy and probably a higher quality business than what Fairfax has amassed so far. But in general, they're underwriting their cultures, their investment approaches are relatively close together.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Sure. It was founded in 1985 by this Canadian immigrant named Prem Wattsa. And it's primarily a PNC property and casualty insurance company. And it has a lot of decentralized insurance companies around the globe that are part of its company. And what's kind of nice is also that they profess to have a value investing approach to the money that they manage. Their stated goal is to compound book value at 15% per annum. You know, since 1985, they've done it at 18.5%. So they've been achieving their goals for a long time, which you can't say about too many companies. The other thing I like is that the culture is what they call fair and friendly. There's never any hostile takeovers or anything like that. And they do draw a lot of comparisons to Berkshire, but they are definitely a little bit different.”
2020-10-04 · We Study Billionaires · TIP317: Intrinsic Value Assessment of Fairfax w/ Jake Taylor (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT