Fairfax Financial (FFH.TO)

When you invest in this, you have to be prepared for volatility in earnings. Their insurance operations are well-run and well-managed, and their combined ratio is around 95% which is pretty good. They make a great deal of their earnings through their investment portfolio, which is large and well-managed, but has tremendous volatility. Lately, they’ve taken off a lot of hedges that they had, looking for more of a bear market going forward. Have also suffered with some of their equity shorts because markets have generally been going up. It always trades around BV, and right now it is about 1.25% of BV, so it is probably not a bad place to be looking at it. You have to be a long-term player to own these shares.

Underperformed the market by a significant amount over the last year or so. The primary reason is that they made a strategic bet against the market. When Trump happened and the market continued to run, they were caught on the wrong side of the trade. A well diversified company. Primarily in the insurance space, but has other holdings as well. In a down market, you are probably going to get a little bit of protection.

He likes this. If we get a break out from the declining range, he expects it will run up to the higher end of the prices that we saw in 2016, just below $800. He always likes to have an entry where his risk/reward is pretty good.

(A Top Pick April 4/16. Down 11%.) Not back to breakeven yet, but he was buying at around $590. At the time, this was his hedge against other stocks in his TFSA accounts, because Prem Watsa was Short the market at the time. After the election he sold all his long-dated bonds, and most recently sold all his bonds. He is now all in cash and covered his losses on his S&P puts. They made the Allied acquisition in Switzerland, as well as some underwriting investments in Fairfax India and Fairfax Africa. There are a lot of compelling reasons to want to continue owning the stock.

(A Top Pick Jan 13/16. Down 4%.) This has had a tougher time with the markets and their positioning. They made a big change in what they are doing. He had this as a sort of hedge when the markets were going topsy-turvy.

Finance and insurance companies tend to do well between January and April, along with a rise in interest rates. This one has been a laggard. Has been underperforming the market and has been trading lower. However, there is a possible level of support you could shoot off if you are a nimble trader. $600 is a level of support, and has been bouncing from that in the last couple of days. It is moving up to its 20 and 50 day moving averages. If it can hold that level of support, there might be something in order to trade off of. The problem is, if it is broken. $600 has been a support for quite a while, and if you break that, you are likely to see significant lower levels.

(Market Call Minute) She prefers to have more direct plays in the sectors or industries FFH-T is in.

We are all waiting for their yearend letter. They took some very aggressive bets on deflation. They have a massive derivative book on the CPI index on American and Europe going down. We need to see where he is. It is trading at EBV. $479, but you can’t judge quarter to quarter. Long term he would hold it here. It is a great one to hold in a bear market.

A global insurer, property, casualty, etc. Currently, they are trying to buy Allied World that has a $5 billion market cap, a Swiss based insurer. Right now, Fairfax is getting about 75% of their premiums from North America, and 25% from the rest of the world. It has spun off some different subsidiaries, and currently are in an IPO process for Fairfax Africa. A good company, but valuation is a little higher than what he likes to pay.

(Market Call Minute) They have clever management but it is reasonably fully valued. 15-20% upside max. Not one of his favourite financials.

It is known as a defensive holding. It has a long track record of being successful. There are other firms he would prefer and has a small short on this one. It has a place in a portfolio because it tends not to fall when the market does.

A stock that sort of has a love/hate relationship on the street, because they are not a pure play in anything they do. The insurance part lags their peer group. Its recent acquisition of Allied World may create some broader appeal. Prem Watsa’s track record is really good. Dividend yield of 2.23%. (Analysts’ price target is $762.23.)

They’ve had an about-face on strategy, and is a little different than what he would do. They’ve been deploying some of their capital, which is probably positive. The insurance operations are pretty stagnant, so it comes down to the investment portfolio. If you are a little more pro-growth oriented, you are probably going to get a little better performance than with the defensive play they’ve had over the past years.

(Market Call Minute.) He is with Prem Watsa. Better days lay ahead for the stock market as well as the US economy. If Prem is making moves to take advantage of that, you probably should buy.

Management has done a very good job. It was a difficult few years for them. You are able to buy them at a more attractive price than previously. You won’t get outsized returns but it is positioned to withstand pretty big shocks in the system.