Latest / The Dutch Investors / #105 | The beauty of Fairfax: Q&A with Asheef Lalani (Brown)

Transcript

#105 | The beauty of Fairfax: Q&A with Asheef Lalani (Brown) · The Dutch Investors

• 0:00
  SPEAKER_00: Hey again.
• 0:00
  SPEAKER_00: Over the past few months I've been researching Fairfax Financial Holdings or Fairfax.
• 0:05
  SPEAKER_00: I read the Fairfax Way alongside with its annual report and shareholder letters.
• 0:09
  SPEAKER_00: Light Berkshire Headway and Markel.
• 0:12
  SPEAKER_00: Fairfax is a combination of a insurance company and an investment vehicle.
• 0:17
  SPEAKER_00: The company is listed in Canada, but is operating globally.
• 0:20
  SPEAKER_00: Today I have the opportunity to sit down with a true Fairfax expert.
• 0:24
  SPEAKER_00: He's been following the company for five years now and will help us get a bit deeper understanding of the business.
• 0:36
  SPEAKER_01: It's always fun to uh to talk about Fairfax.
• 0:51
  SPEAKER_00: First, could you give us a brief introduction about yourself and perhaps tell us about your first encounter with Fairfax?
• 0:58
  SPEAKER_01: Sure.
• 0:59
  SPEAKER_01: So I um uh my background is uh I was born in Canada, lucky enough to be born in Canada, uh, with two two parents who uh really valued education.
• 1:06
  SPEAKER_01: Um and and and um my brothers and I took that forward.
• 1:10
  SPEAKER_01: You know, I became an accountant, uh chartered accounting, uh, after studying um math and accounting at the University of Waterloo.
• 1:16
  SPEAKER_01: Um I then went to uh PWC and worked in auditing.
• 1:20
  SPEAKER_01: And uh as soon as I was uh able to uh qualify for the CA, I left uh and went to UBS, which is um a Swiss investment bank uh at the time.
• 1:31
  SPEAKER_01: Uh we were half employee owned actually.
• 1:33
  SPEAKER_01: And I worked there for 10 years.
• 1:34
  SPEAKER_01: Uh, you know, first two years were um between equity research and equity sales uh as a salesperson and a bit of a desk analyst as well.
• 1:42
  SPEAKER_01: And then the last eight years I was in the prop desk working in uh the fundamental investment group, uh, where we were essentially using you know value principles uh to run uh a long short portfolio.
• 1:53
  SPEAKER_01: Um and uh in 2012 I left the bank because um we had uh the the new rule came in post the GFC uh called uh the Volca rule, uh which essentially uh made it um illegal, I suppose, for investment banks to, or banks rather, to use their capital um to uh use their uh I guess customer deposits uh to make uh proprietary trading uh bets, for lack of a better word.
• 2:21
  SPEAKER_01: So uh I left the I left the bank then um and uh and I just started managing my own capital.
• 2:26
  SPEAKER_01: Uh in the last few years, I've joined a couple of corporate boards.
• 2:29
  SPEAKER_01: I'm on the board of uh Sailfish Royalty, which I joined in 2023, uh, and I'm on the board of Mako Mining, uh, which I joined uh last year.
• 2:38
  SPEAKER_01: Uh both are involved in the uh in the gold and precious metals uh business and and both are controlled by uh Wexford Capital.
• 2:46
  SPEAKER_01: So they're uh they're sister companies uh and and they're related.
• 2:49
  SPEAKER_01: Um and uh it's been a terrific experience, uh, you know, um being on being on those boards as well.
• 2:55
  SPEAKER_00: Amazing, amazing.
• 2:56
  SPEAKER_00: And we are today uh here to talk about Fairfax.
• 2:59
  SPEAKER_00: How did you encounter Fairfax, Ashiv?
• 3:02
  SPEAKER_01: So so Fairfax, um obviously being uh focused on Canadian investing since I started, um, you know, the name has always been um something that uh has has been a favorite for a lot of investors, uh, even when I first started in 2002.
• 3:17
  SPEAKER_01: But uh, you know, I always personally thought it was uh too complicated and too much of a black box and never really spent uh a lot of time on it.
• 3:24
  SPEAKER_01: Um but in 2021, my good friend uh Charlie Fisher uh suggested that I take a look because uh he had noticed that the you know the the investment portfolio had done really well uh in late uh 2020 and early 2021.
• 3:40
  SPEAKER_01: Um but the Fairfax stock itself was not following.
• 3:43
  SPEAKER_01: So there was a bit of a gap between where the book value was and and where the uh where the stock uh was trading.
• 3:49
  SPEAKER_01: And so it offered an opportunity um to take advantage of that.
• 3:53
  SPEAKER_01: So I initially got into it.
• 3:54
  SPEAKER_01: I, you know, to an extent it was almost just a trade.
• 3:57
  SPEAKER_01: It's like, oh, this is gonna they're gonna report earnings, um, the stock's gonna go up, and you know, then I'll consider selling, right?
• 4:03
  SPEAKER_01: So, like as a lot of us do.
• 4:05
  SPEAKER_01: Um, but I had you know I was in the process of trying to change my process to try to hold on to winners longer.
• 4:11
  SPEAKER_01: I think um I think uh the prop desk experience made me uh always want to take profits quickly and avoid uh drawdowns.
• 4:18
  SPEAKER_01: Um and so I've been I was trying to extend my process, and the more I learned about Fairfax, uh the more interested I got.
• 4:24
  SPEAKER_01: Um and so you know, since then I've been you know adding to my position, it it seems like uh you know, every few months, uh depending on whenever there's a there's an opportunity.
• 4:34
  SPEAKER_00: Yeah, it's uh it must have been quite a ride as the stock has performed quite well over the recent years.
• 4:39
  SPEAKER_00: Maybe a short introduction about what Fairfax actually is.
• 4:43
  SPEAKER_00: Uh so Fairfax is a holding company.
• 4:46
  SPEAKER_00: Um I would say it's uh it's for a large part an insurer, but it's also a reinsurer, it owns re-insurers, publicly listed companies, and privately held businesses.
• 4:56
  SPEAKER_00: Um maybe we can start by diving a little bit deeper into the insurance business.
• 5:01
  SPEAKER_00: Chief, could you tell us what kinds of risks Fairfax typically uh underwrites?
• 5:07
  SPEAKER_01: Sure.
• 5:08
  SPEAKER_01: So Fairfax is focused uh mainly on commercial insurance, right?
• 5:11
  SPEAKER_01: So not the insurance that most of us as um individuals are used to um dealing with, right?
• 5:17
  SPEAKER_01: So not like the um you know auto, personal auto and and personal home type insurance, but more commercial risks.
• 5:24
  SPEAKER_01: Um and so and and and that includes you know property um and casualty and specialty lines.
• 5:30
  SPEAKER_01: And Fairfax's business is about 35% property, uh, and the rest is um is casualty and specialty, uh, cat with casualty being around 55% uh of the total.
• 5:42
  SPEAKER_01: So uh weighed towards casualty.
• 5:44
  SPEAKER_01: Um and then geographically they're mixed uh across um you know Canada, Europe, um, US, and Asia um and South America.
• 5:54
  SPEAKER_01: So very global versus a lot of the peers that that we're that we're used to uh comparing Fairfax to.
• 6:00
  SPEAKER_01: Um about 35% of the business is international if you take into account the um the international books of the large insurers like Allied World and Odyssey uh and Brit.
• 6:11
  SPEAKER_01: Um and as you mentioned, you know, Fairfax has a lot of um subsidiaries, they really do um take the decentralized approach seriously, uh, and that applies to their insurance businesses as well as their non-insurance businesses.
• 6:24
  SPEAKER_00: Yeah, yeah, exactly.
• 6:26
  SPEAKER_00: And how does that compare to to Markel, for instance, or Berkshire?
• 6:30
  SPEAKER_00: And do you think they are competing in the insurance segment, or what's your view on that?
• 6:35
  SPEAKER_01: For sure.
• 6:36
  SPEAKER_01: Yeah, Markel and Berkshire um would definitely compete with Fairfax on uh on all lines, uh, but but geographically that'd be more focused on Europe and North America, um, and less so on international.
• 6:49
  SPEAKER_01: Yeah.
• 6:49
  SPEAKER_01: Uh but they're they're definitely in competition.
• 6:51
  SPEAKER_01: And Fairfax now has grown so much that it's uh a top 20 global insurer.
• 6:55
  SPEAKER_00: Yeah, yeah, it's it's quite a quite a big insurer with all the subsidiaries indeed.
• 7:00
  SPEAKER_00: Uh do you feel do you believe that the Fairfax insurance business has uh has a moat, or what is their competitive advantage in their uh in their insurance segment?
• 7:08
  SPEAKER_01: Sure.
• 7:09
  SPEAKER_01: So the the moat for Fairfax is really its culture.
• 7:12
  SPEAKER_01: Uh, you know, like in the in the insurance business, anyone can write insurance.
• 7:15
  SPEAKER_01: Um you just have to have capital to write it.
• 7:18
  SPEAKER_01: And depending on the type of insurance you write, you may not find out for years that you wrote it at a bad price, right?
• 7:22
  SPEAKER_01: So uh in that sense, there's there's really no uh competitive moat to anyone selling insurance, but to be profitable at it takes um you know a culture that will only write insurance when it's profitable and and try to take uh good risks.
• 7:37
  SPEAKER_01: Um and so that if anything, that is that is Fairfax's mode.
• 7:41
  SPEAKER_01: It's and it is its culture, effectively.
• 7:43
  SPEAKER_01: And you know, they've you you look at Fairfax and you look at how long its um its executives have been there.
• 7:49
  SPEAKER_01: Um, and you know, I'm not sure what the average is, but it seems like it's you know 20 years.
• 7:54
  SPEAKER_01: Um so these you know, people have grown up with these businesses, um, they have agency, and so they're very motivated, um, and they really buy into the culture.
• 8:03
  SPEAKER_01: Um, and the incentive schemes are tied not to revenue growth but to profitability, which is really important in the insurance business.
• 8:09
  SPEAKER_01: Um, and it's very different than how the what the market values, right?
• 8:12
  SPEAKER_01: The market really values revenue growth, uh, I think above all uh under the current market structure.
• 8:17
  SPEAKER_01: So it there are times when I think there's a disconnect between where um you know Fairfax trades and and and um where it where it's worth, and part of it is just because of the the market structure.
• 8:30
  SPEAKER_00: Yeah, yeah, exactly.
• 8:31
  SPEAKER_00: Their gross written premiums have grown actually over the last few years quite fast by cost uh and quite a fast pace.
• 8:37
  SPEAKER_00: It's also because of the uh yeah, the hard environment they are operating in, the hard market I uh I should say.
• 8:45
  SPEAKER_00: Um now we see that turning.
• 8:47
  SPEAKER_00: Any any ideas how this will evolve in the in the coming few years?
• 8:51
  SPEAKER_01: Yeah, it's really hard to know when when uh a soft market will turn hard again, right?
• 8:55
  SPEAKER_01: So we had a hard market for uh almost five years, um between 2020 and and 2025.
• 9:02
  SPEAKER_01: Um and you could see Fairfax's growth start to slow earlier than everyone else.
• 9:06
  SPEAKER_01: You know, they they they grew really fast, they grew faster than everyone at the start of the hard market, and that's because they had prepared.
• 9:13
  SPEAKER_01: Um, you know, they had kept their bond duration really low when interest rates were really low, uh, which seems very seems like common sense, right?
• 9:22
  SPEAKER_01: You have you know, you're earning uh, you know, 1% if you extend up to five years, you're earning half a percent if you go up for uh you know one year, you might as well just just keep your your uh bonds at the short short end of the range in case rates go up.
• 9:35
  SPEAKER_01: And when rates went up in 2022, a lot of the competitors had matched their duration of their bond portfolio with the duration of their claims.
• 9:43
  SPEAKER_01: And so the resulting hit to their book value um and their their capital made it so that they couldn't write as much business as they otherwise would have in a hard market.
• 9:53
  SPEAKER_01: And that's part of the reason why the market got harder than I think uh people thought, and perhaps lasted longer than people thought.
• 9:58
  SPEAKER_01: But obviously, now we're four years later, those bonds have uh have now matured, those losses have gone away, capital is fixed, interest rates are higher, there's more income coming in.
• 10:08
  SPEAKER_01: So there's more capital chasing after insurance premiums.
• 10:11
  SPEAKER_01: And on top of that, you know, we've had very quiet hurricane season last year uh and this year so far, and all that leads to a weaker property market.
• 10:19
  SPEAKER_01: And I would say that the property market is is softer um than the casualty market.
• 10:24
  SPEAKER_01: There are certainly parts of the casualty market that are also soft, uh, but property is is softer than anything else.
• 10:29
  SPEAKER_01: Um and Fairfax's mix though allows them to still you know grow uh reasonably well despite the uh the soft market and the you know the international exposure also helps a lot.
• 10:39
  SPEAKER_00: Yeah, yeah.
• 10:40
  SPEAKER_00: Most important thing is profitability.
• 10:42
  SPEAKER_00: So we can uh we can take a look at their combined ratio that has been in the low 90s for the last uh last year, so that's excellent for an insurer.
• 10:50
  SPEAKER_00: The lower the better.
• 10:51
  SPEAKER_00: Uh it's not like uh KinSale.
• 10:53
  SPEAKER_00: Kinsail operates in the 80s, uh uh mid-70s, even uh with the combined ratio.
• 11:00
  SPEAKER_00: So that is world class.
• 11:01
  SPEAKER_00: Um, but that is another environment.
• 11:04
  SPEAKER_00: They're operating in the specialty insurance, and that's only part of Fairfax's business model.
• 11:09
  SPEAKER_00: Um, so yeah, we couldn't we can say Fairfax has done a stellar job with their insurance so far.
• 11:15
  SPEAKER_01: Yeah, absolutely.
• 11:16
  SPEAKER_01: And KinSale is a fantastic company.
• 11:18
  SPEAKER_01: I've had the chance to uh sit down um in a group setting with uh with the CEO a couple times now, uh, and I'm a big fan of KinSale.
• 11:26
  SPEAKER_01: Um but their edge really comes from their technology stack and their ability to um um write smaller um smaller uh ticket sizes or premiums uh than a lot of the uh competitors.
• 11:38
  SPEAKER_01: Um and so as a result, they're their their productivity of their underwriters is higher, um, and they're able to select for better risks and add terms and conditions that makes make their um uh uh results better uh effectively and end up with less losses.
• 11:54
  SPEAKER_01: And so um it's there's a there's a fundamental reason why they have edge and and it shows up in the in the minor ratio, like you said, and obviously then in in the roE.
• 12:03
  SPEAKER_01: Um and they're rewarded by it for the market, their you know, their valuation is multiples higher than than Fairfax's.
• 12:08
  SPEAKER_00: Yeah, yeah.
• 12:09
  SPEAKER_00: Talking about their tech stack, how do you think that compares to to Fairfax's?
• 12:13
  SPEAKER_00: Is that uh does Fairfax operate on a legacy tech stack, or is it are they trying to innovate?
• 12:19
  SPEAKER_00: How what's your view on that?
• 12:20
  SPEAKER_01: I think there's a there's a mix of of you know um different uh you know they have so many different insurance subsidiaries and and some of them are older and some of them are younger.
• 12:28
  SPEAKER_01: So there's probably a mix of systems across.
• 12:31
  SPEAKER_01: Um but Fairfax is taking advantage of all of their um diverse operations by trying to, I think, apply more technology.
• 12:39
  SPEAKER_01: Um and and you could see it, you know, when when when premiums first took off, you know, that you could see a drop in the expense ratio um reflecting some of the operating leverage that you'd expect, right?
• 12:51
  SPEAKER_01: Um and then and then after that, you saw that they started to say that hey, we're spending more on technology.
• 12:56
  SPEAKER_01: Um and so they they're giving up some of their um the combined ratio to invest in technology.
• 13:02
  SPEAKER_01: Um they've done this in a number of ways.
• 13:04
  SPEAKER_01: They, you know, they have um um they have a company called Fairfax Digital Services, which is run by um an old ENY uh consultant um who uh and they use that that Fairfax Digital Technology will provide services to all of the other insurance companies uh within uh within Fairfax, and it's a way of trying to bring them um to improve their systems.
• 13:26
  SPEAKER_01: Um they started a company called Key that was in in the UK that was initially part of Brit and now has spun off onto its own.
• 13:35
  SPEAKER_01: Uh and Key is something that is uh effectively, um, depending on how you look at it, uh I would say 20 to 40% owned by Fairfax and the rest is owned by Blackstone.
• 13:45
  SPEAKER_01: Um and that is like a an AI-first algorithmic uh trading operation based on the Lloyd's of London market.
• 13:53
  SPEAKER_01: Um and so they are, you know, they are uh using AI and technology to figure out which um you know which uh insurance companies to follow on the Lloyd's market, effectively.
• 14:04
  SPEAKER_01: Um and that business has grown from you know zero in premiums to a billion in premiums in five years.
• 14:10
  SPEAKER_01: Um phenomenal growth.
• 14:12
  SPEAKER_01: It's already very profitable, looks very different than Lemonade, for example, which is a you know, someone other people would point to as uh as a company that is uh you know using AI and using technology in a way to grow very quickly.
• 14:23
  SPEAKER_01: Uh you know, key is profitable, was was profitable very quickly, is profitable now, um, still investing a lot in technology um and also sharing those learnings with the rest of the Fairfax family, which is which is really important.
• 14:35
  SPEAKER_00: Yeah, super interesting business indeed.
• 14:38
  SPEAKER_00: And uh yeah, we must mention, I believe this is on uh determined on a subsidiary level what kind of tech stack they operate.
• 14:45
  SPEAKER_00: There's nothing pushed from above, uh, but there are some uh yeah, they they of course try to help.
• 14:50
  SPEAKER_01: Yeah, absolutely.
• 14:51
  SPEAKER_01: And so and you know, certainly there would be like you know attempts to say like we should invest to try to improve our future productivity, right?
• 14:59
  SPEAKER_01: And and I think I think they're doing that, and they're they're very um, I think, aggressive on using AI within the company, um, but not necessarily investing in it, which is what which is what I think a lot of other investors uh would like to see uh you know companies like Fairfax do.
• 15:14
  SPEAKER_01: Um, you know, obviously Berkshire has done that recently by you know by Google.
• 15:18
  SPEAKER_01: Um so you know there's there's uh there's there's different approaches, I think, for different companies, but certainly on a productivity level, Fairfax is certainly investing to improve the productivity.
• 15:28
  SPEAKER_00: Yeah.
• 15:29
  SPEAKER_00: Yeah, so they have uh they have a good uh insurance business and all that insurance that creates, of course, unfloat uh money they received early on, and uh likely um they can invest uh for a certain time period.
• 15:43
  SPEAKER_00: Um, what are your thoughts on Fairfax's investments uh in other companies?
• 15:47
  SPEAKER_00: Like they now have an investment in Eurobag uh that dates back to 2014, they've been holding it for for a while now.
• 15:54
  SPEAKER_00: It has been a stellar investment uh due to uh they bought it during the Greek debt crisis.
• 15:59
  SPEAKER_00: It certainly has been a wonderful turnaround.
• 16:02
  SPEAKER_00: But right now, that yeah, I have mixed feelings about mixed feelings about this.
• 16:07
  SPEAKER_00: It's an investment that generated a wonderful return, but right now, do you don't you think there are more attractive opportunities with a better risk uh reward profile achieved?
• 16:16
  SPEAKER_01: You know, I mean there are always things that that you can do and and and uh and you can sell, but you know, Eurobank it still trades cheap.
• 16:24
  SPEAKER_01: You know, despite the tremendous performance we've seen, it still only trades at about 10 times earnings.
• 16:29
  SPEAKER_01: Um it still forecasts to have a high teens ROE, um, doesn't trade at that big up premium to book value.
• 16:35
  SPEAKER_01: Um and so you know it continues to generate very high returns and it's in and it's returning capital.
• 16:41
  SPEAKER_01: So, you know, Eurobank is paying dividends, it is buying back stock.
• 16:45
  SPEAKER_01: Uh Fairfax, because they're close to the 33% cap that uh foreign investors allowed to own in a in a Greek bank, uh, is forced to sell into the buyback as well.
• 16:54
  SPEAKER_01: So they they are getting about half of the earnings back effectively um and and selling that every year.
• 17:01
  SPEAKER_01: Um and so the carrying value isn't going up that much, um, despite the the fair value uh continuing to go up.
• 17:08
  SPEAKER_01: You know, I I think they the you know selling now um would be selling you know well below intrinsic value.
• 17:16
  SPEAKER_01: Um and I think there's an opportunity here to get really close to intrinsic value, um depending on how it plays out in the next few years.
• 17:22
  SPEAKER_01: You know, Fairfax takes an approach of uh betting on the on the jockey.
• 17:26
  SPEAKER_01: Um so it's a different approach than Markel and Berkshire.
• 17:30
  SPEAKER_01: Though certainly Berkshire and Markel will also want to find a good jockey when they make the initial investment, but um they have a they have a strategy of uh never selling.
• 17:38
  SPEAKER_01: Uh whereas Fairfax says, hey, if the jockey's ready to sell and he thinks it's a good time to sell, and he's the best cap allocator we know in that sector, or he's a very good cap allocator in that sector, we're gonna trust him and we're gonna sell when he's ready to sell.
• 17:50
  SPEAKER_01: And so I think, you know, if Fokian, who's the CEO uh of Eurobank, who I've had the chance to speak to a few times, uh, if he decides, okay, this is a good time for us to sell, um, I think you could see Eurobank be sold to another European bank at some point um and and uh to take advantage of the of their you know position in in Greece uh and and increasingly in in Bulgaria and Cyprus as well.
• 18:14
  SPEAKER_00: Yeah, okay, interesting.
• 18:16
  SPEAKER_00: Uh Eurobank has been quite a large holding of um of Fairfax, right?
• 18:21
  SPEAKER_00: And do you know how how much of their portfolio it currently is?
• 18:24
  SPEAKER_01: Well, it depends how you look at it, right?
• 18:26
  SPEAKER_01: So it's marked at about 10% of their um of their uh you know carrying value of their investments, right?
• 18:32
  SPEAKER_01: So about about 2.7, 2.8 billion, something, something like that, out of about you know 25, 26 billion of equity investments.
• 18:40
  SPEAKER_01: But on a on a fair value basis, it's about double that.
• 18:43
  SPEAKER_01: So, you know, so it it's it looks like a lot bigger on a on a fair value basis.
• 18:46
  SPEAKER_01: Um and it's really important, you know, it really contributes a lot to earnings, right?
• 18:50
  SPEAKER_01: Because um, because Fairfax owns over 20% uh and less than 50%, they have to account for it on an equity accounted basis.
• 18:58
  SPEAKER_01: So, you know, on a on a trailing one-quarter basis, Fairfax will recognize the earnings of Eurobank um every quarter.
• 19:06
  SPEAKER_01: So um, you know, given the size of the investment, um, it contributes, you know, over$25 a share of earnings a year uh out of Fairfax's uh earnings, uh, which are you know, if you look at analyst expectations, are around you know 190 to 200 um dollars per share uh US of earnings.
• 19:24
  SPEAKER_01: So it's a meaningful contributor to earnings.
• 19:26
  SPEAKER_01: And because it's carried at such a low level, it really contributes to ROE at a high level, right?
• 19:32
  SPEAKER_01: So, you know, just having uh uh just that one position, um, because it could it's a 10% of the portfolio, say, just to use rounding numbers, but has a 20% ROE on their carrying value, um, right?
• 19:44
  SPEAKER_01: Earnings divided by their carrying value, and their carrying value is half of market value, uh, it contributes to ROE at 20%.
• 19:50
  SPEAKER_01: And so it it just that just that one investment contributes 2% returns to the entire equity portfolio.
• 19:57
  SPEAKER_01: So with only you know using 10% of the carrying value.
• 20:00
  SPEAKER_01: So it's a really meaningful contributor to earnings.
• 20:02
  SPEAKER_01: And I think I think it's it's uh it the the hard part about selling it is how do you replace those earnings, right?
• 20:08
  SPEAKER_01: Um and so you you know you you have to you have to think about that as well, I think, when you make a decision.
• 20:12
  SPEAKER_01: Um and there might be something coming up soon, right?
• 20:15
  SPEAKER_01: There's uh you know, there's a lot of chatter uh in uh in India that Fairfax is very close to uh closing on IDBI Bank, uh, which is uh an Indian bank that has uh a very high return profile as well.
• 20:28
  SPEAKER_01: It you know, depending on on what metrics you look at, you know, ROE could be 15 to 20 percent, and and they could be buying it at uh you know around the same multiple that that Fairfax trades at, around 1.3 times book.
• 20:40
  SPEAKER_01: So um so that that could be something that that could come into the fold and contribute a lot to earnings, and maybe they'll want to own less Eurobank in that in that scenario because they want less bank banking exposure, but it doesn't it doesn't make sense to me to try to look at selling that at all.
• 20:55
  SPEAKER_00: Okay, okay.
• 20:57
  SPEAKER_00: What about Fairfax India?
• 20:58
  SPEAKER_00: You know, you you said we we should mention that on the on the on the show as well.
• 21:02
  SPEAKER_00: What's your view on Fairfax India?
• 21:04
  SPEAKER_00: Why is it interesting?
• 21:06
  SPEAKER_01: Well, so Fairfax India, um just as a bit of background, is uh is a company that uh Fairfax started in 2015.
• 21:13
  SPEAKER_01: So um they wanted to make investments in India, um and they decided they would set up a structure where minority investors could also participate.
• 21:22
  SPEAKER_01: Uh and they set it up uh with you know a few lead investors.
• 21:26
  SPEAKER_01: Um, you know, my understanding it was it was some of the bigger names like Fidelity uh that were involved.
• 21:31
  SPEAKER_01: Uh Omers, which is a partner on Fairfax on a lot of things a lot of things, still owns 20 million shares of uh of uh Fairfax India, which is around 15% of the of the shares outstanding.
• 21:43
  SPEAKER_01: Um and so they they um they set this up uh you know 11 years ago now, and it it does charge performance fees.
• 21:51
  SPEAKER_01: Um, and they have accumulated a bunch of investments, but the sort of headline investment is an investment in the Bangalore airport.
• 21:58
  SPEAKER_01: Um, you know, they they It's B-I-A-L, is it or BIL is that kind of the short form for it.
• 22:04
  SPEAKER_01: They have put some of that stake in the Bangalore airport into a subsidiary called Anchorage, which Omers uh previously mentioned, the uh the Ontario Pension Fund uh has a direct stake in Anchorage as well.
• 22:16
  SPEAKER_01: Um, and the plan is to IPO that asset.
• 22:19
  SPEAKER_01: Um, and it has been the plan for five years and it hasn't happened yet, leading to a lot of frustration for people who were you know buying uh Fairfax in India for a short-term uh gain.
• 22:29
  SPEAKER_01: Um, but the value of the airport, even though it has an IPO, has continued to grow um pretty dramatically over the period uh over the last five years and continues to go up pretty dramatically.
• 22:41
  SPEAKER_01: And so when you look at you know valuations of airports uh in India and across the world, um, you know, Fairfax has it marked at only about 10 times trailing earnings uh trailing uh cash flow or EBITDA.
• 22:55
  SPEAKER_01: Um and the chances are when it lists, it's gonna get much higher.
• 22:59
  SPEAKER_01: Um there's some speculation that um that Adani, who's another uh airport operator, uh the biggest airport operator in India, uh, is looking to raise capital for its airports, and the valuation that's been talked about is you know 35 times EBITDA, which is a remarkable number.
• 23:14
  SPEAKER_01: Um, you know, 20 to 25 times Ibita is a pretty reasonable, I think, assumption for where this might come out.
• 23:22
  SPEAKER_01: Um and when you combine that with the Ibita growth that they're seeing as they as they uh you know add expansions, you know, add terminals, uh have their international passengers uh increase more than domestic passengers, and international passengers are much more profitable um than domestic passengers, that the overall EBITDA is going to go up pretty quickly.
• 23:41
  SPEAKER_01: Uh and so the value is is gonna go up pretty significantly.
• 23:44
  SPEAKER_01: So if you look at it now, they have the airport marked at about a 3 billion um equity value for the for uh 100% of it.
• 23:52
  SPEAKER_01: You know, there 69% is marked at about 2.1 billion.
• 23:56
  SPEAKER_01: The um the mark that eventually, you know, if it just trade at a at a reasonable multiple on next year's um on next year's Ebita or or 2028 Ebita, that stake could easily be worth you know 12 billion.
• 24:10
  SPEAKER_01: Um uh or that total equity value could easily be 12 billion, not 3 billion.
• 24:15
  SPEAKER_01: Um, and that excess value, you know, uh will drop down to to uh the book value of uh of the airport.
• 24:22
  SPEAKER_01: Um, you know, Fairfax, India, one of the things that I don't think people appreciate is how conservative Fairfax is with how it value values things.
• 24:30
  SPEAKER_01: And so it uses very aggressive uh discount rates um and low terminal uh growth rates um to try to make the valuation um you know lower than uh I think um you know you could argue it's being just very conservative, uh, but in reality, it really does keep the marks well below uh you know fair value.
• 24:51
  SPEAKER_01: And so when it lists, um they they'll start to be able to mark the market, uh mark the position to market.
• 24:57
  SPEAKER_01: And so we'll get an increase in book value that might be more reflective of where intrinsic value is.
• 25:03
  SPEAKER_01: Um so because you know, book value basically what's been happening is that the gap between book value and intrinsic value has been expanding um as that as the um investment you know carries over time.
• 25:17
  SPEAKER_01: And this, you know, by having an IPO and a mark to market, it'll be an opportunity for the book value and intrinsic value gap to shrink.
• 25:24
  SPEAKER_00: Yeah, yeah, they can certainly unlock value that way.
• 25:27
  SPEAKER_00: Okay, you have now named uh yeah, we have now named Fair Effects India, we have now named Eurobank.
• 25:33
  SPEAKER_00: Are there are there any hidden gems you believe that are yeah, might unlock uh yeah, new value in Fair Effects?
• 25:40
  SPEAKER_01: Yeah, I mean there's so many things that you can look at.
• 25:43
  SPEAKER_01: I mean, I I I look at that portfolio as being um you know full of options.
• 25:47
  SPEAKER_01: You know, I it's very similar to how I look at my own portfolio, just a lot of a lot of things that have um, you know, I hope have a lot of margin of safety um and uh have sort of right tails that are hard to um to pin down, but could be you know really big, right?
• 26:04
  SPEAKER_01: So, you know, Fairfax Um uh there's a company called Poseidon that Fairfax owns, which they sold about half their stake uh earlier this year.
• 26:13
  SPEAKER_01: Um, you know, it's still uh marked at the original cost basis for what they have left at$15.50.
• 26:19
  SPEAKER_01: They just sold the stake at$28.30.
• 26:22
  SPEAKER_01: Chances are they're gonna sell the rest of it next year at probably uh a higher price than where they sold the last piece.
• 26:27
  SPEAKER_01: So that's a big gain that's gonna be coming.
• 26:30
  SPEAKER_01: Um, you know, that we can fairly high confidence about.
• 26:34
  SPEAKER_01: Um you know, there's uh uh a company that I also uh uh own shares directly in called Greenfire Resources, uh, which they hold through a partnership called uh Waterus uh Fund Three.
• 26:45
  SPEAKER_01: Um those shares um uh they're they're that that company is current currently going through a rights issue.
• 26:52
  SPEAKER_01: And so Fairfax will be increasing their investment uh in uh the LP, uh, you know, the limited partnership, Waterus three, will then make the investment in Greenfire.
• 27:02
  SPEAKER_01: Um, and you know, that business I think is probably has a chance to you know double over the next year.
• 27:07
  SPEAKER_01: And that's so that's another, you know, it could be another 30, 35 bucks of of earnings per share uh if the if the valuation uh were to go up.
• 27:15
  SPEAKER_01: Um and you can go down the list, there's just so many things that that we can pick at where it's pretty clear that the marks are too low.
• 27:24
  SPEAKER_01: Um, you know, they have an entire part of the portfolio that's uh you know consolidated non-insurance companies.
• 27:30
  SPEAKER_01: Um and when you look at sort of the metrics uh associated with that, they're marked at you know less than 4 billion, um, but they have you know revenues that are maybe closer to 8 billion, um something like Fairfax India uh uh would be in that and the airport would be would be included in that.
• 27:46
  SPEAKER_01: If you go through all the different companies and you try to figure out what all the the extra value is, um, you know, we talked about key, it's another, you know, it's on the insurance side, but um, you know, if you look at the shareholder agreement between um between um Key and uh Blackstone or between Fairfax and Blackstone, uh effectively uh it's it suggests that they will eventually uh do an IPO.
• 28:14
  SPEAKER_01: And you know, we've already been in this investment for six years.
• 28:17
  SPEAKER_01: Uh Blackstone um, you know, has uh their investment through funds, which you know want to return capital after after you know six, seven years of time.
• 28:26
  SPEAKER_01: So the chances are you know we're gonna see a listing of key at some point in the next year or two.
• 28:31
  SPEAKER_01: Um and we talked about how quickly that has grown and the kind of valuations that an AI, fintech, insurance company backed by Blackstone might get on the LSE.
• 28:40
  SPEAKER_01: And so that could be a gain of a couple billion dollars.
• 28:43
  SPEAKER_01: So when you go through all of them, it's not hard to get to sort of eight to ten billion dollars worth of gains that are unrecognized on the balance sheet.
• 28:50
  SPEAKER_01: Um, and another way to think about that is that's future ROE, right?
• 28:54
  SPEAKER_01: So, you know, as they turn the portfolio over, and we know that their that their strategy is different than Mark Calvin Berkshire, that they will turn the portfolio over, um, that you're there are going to be gains that are that are recognized.
• 29:06
  SPEAKER_01: Um at the very least, uh, if some of these things get listed and and they don't sell any, then maybe there won't be no won't be a gain recognized.
• 29:13
  SPEAKER_01: But the fair value or carrying value that we can track will will grow um and show us that oh there's a lot lot more value here than it than it looks like.
• 29:22
  SPEAKER_00: Yeah, yeah, there's definitely uh yeah, they are definitely conservative with their with their uh estimations and uh with the valuations with the carrying value.
• 29:32
  SPEAKER_00: So let's move over to uh to the to the big men, I would say, uh Prem Whatsa.
• 29:37
  SPEAKER_00: We can't have a discussion without Fairfax without mentioning him.
• 29:41
  SPEAKER_00: Uh he's the CEO, he's the founder of Fairfax, has been with the business for I think close to 40 years now.
• 29:48
  SPEAKER_00: Yeah, that's right.
• 29:51
  SPEAKER_00: 41.
• 29:51
  SPEAKER_00: Yeah, keep uh keep counting.
• 29:54
  SPEAKER_00: What did Prem uh do you did you ever met Prem WhatsApp himself, Achieve?
• 29:59
  SPEAKER_01: Uh I have I've met Prem every you know every meeting.
• 30:01
  SPEAKER_01: One of the great things about the Fairfax meeting is that it's not um it's not so big that you can't uh if you'd like to spend some time with Prem, um at least say hello and and that sort of thing.
• 30:11
  SPEAKER_01: He's he's around, uh especially at the Fairfax India meeting because it's a smaller meeting, and so if you want time with with Prem, you can you can definitely get a hold of him.
• 30:19
  SPEAKER_01: Um so I've had a chance to talk to him, not like a deep conversation or anything like that, but uh just to say hello and and thank him for for all that he does.
• 30:27
  SPEAKER_01: Um and the more you learn about Prem, you just appreciate um you know how how great a man he is and what he's accomplished and how he's accomplished it.
• 30:35
  SPEAKER_01: You know, I think there's a um there's a certain part of society, especially now, that really um uh frowns on capitalism uh and and sort of favors uh you know different different economic models.
• 30:46
  SPEAKER_01: Um but but Prem I think has sort of used Fairfax to demonstrate how um capitalism can done it be done in a in a way that that benefits society.
• 30:56
  SPEAKER_01: Uh, you know, he's he's involved with charities.
• 30:59
  SPEAKER_01: Um I had a chance to go to a dinner, um, a gala for the Horatio Alger Society of Canada, uh, where he is the chairman.
• 31:07
  SPEAKER_01: Uh and Horatio Alger, what it does is it helps kids uh who otherwise not be may not be able to go to university because of their um family situation, whether they be you know uh in single-parent families, low income, uh, you know, there might be abuse in the family.
• 31:23
  SPEAKER_01: There might be all kinds of things where promising students uh who otherwise wouldn't be able to go to university are now able to go to university.
• 31:29
  SPEAKER_01: And they start helping these kids uh as early as 16 years old, um, you know, grade 11 so they can make it into um you know into university and and then give back to society themselves.
• 31:41
  SPEAKER_01: So it's you know it's applying the power of compounding um you know to the to the philanthropy side as well, which I think is really, really powerful.
• 31:49
  SPEAKER_01: Uh I'm a I'm a big fan of Prem and everyone I've met at at um at Fairfax is also a big fan of Prem.
• 31:55
  SPEAKER_01: I I don't I haven't heard anyone who works for him say uh say a bad word about him.
• 31:59
  SPEAKER_00: No, he's like definitely super smart, and uh when you read the book The Fairfax Way, you can get a good understanding about uh his background as well.
• 32:07
  SPEAKER_00: So uh I would recommend reading that as well if you are interested in Fairfax.
• 32:11
  SPEAKER_00: During the conversations you had with him, what did you have some key insights?
• 32:15
  SPEAKER_00: What's your opinion uh about the guy?
• 32:18
  SPEAKER_01: Well, I mean, I I think most of my opinions aren't gonna come from my conversations, but just but just generally.
• 32:23
  SPEAKER_01: Um I I think um you know I think you can see it in you when you if you watch the AGM or and you look at sort of the the the company's uh stated uh you know principles and and and values.
• 32:34
  SPEAKER_01: Um I think um I think even from the name of the company, you know, Fairfax um stands for Fair Friendly Acquisitions, right?
• 32:41
  SPEAKER_01: One of their one of the uh initial corporate uh secretaries, I believe, came up with the with the title uh or with the name, and uh and it fits.
• 32:48
  SPEAKER_01: You know, I think they are trying to be uh do business fairly, um, do things friendly, they don't do any any hostile type uh deals.
• 32:56
  SPEAKER_01: Um and uh and it works.
• 32:58
  SPEAKER_01: Uh and it works really well to I think generate a lot of goodwill, um, you know, uh and and build build Fairfax's network uh you know over time.
• 33:07
  SPEAKER_01: You know, it's been compound that network's been compounding for over 40 years as well.
• 33:11
  SPEAKER_00: He is uh he's also behind most of the capital, yeah, most of the big capital allocation decisions.
• 33:17
  SPEAKER_00: They are recently leading heavily into share buybacks.
• 33:20
  SPEAKER_00: What is your opinion about that move?
• 33:23
  SPEAKER_01: Yeah, I mean, I you know, Fairfax has been putting on a clinic on capital allocation for the for the past five, you know, five years, even longer if you really stretch it out.
• 33:32
  SPEAKER_01: But um, I think it's it's genius because like you so I don't think a lot of people appreciate how um the insurance industry works, but you know, when when you're in a hard market, um you're earning you know, you're earning a if you're earning a lot, you have to reinvest that that that earnings back into premium growth because you need to put up new capital every time you write new business.
• 33:53
  SPEAKER_01: Um and so when the insurance market softens, the opposite happens.
• 33:56
  SPEAKER_01: You know, the the uh there's a lot of extra free cash flow and you don't need it to grow the insurance business.
• 34:02
  SPEAKER_01: Um, one thing Fairfax tries to do, which I think it makes is why I think it's a superior investment just on a basis on a base level to um to Markel and Berkshire, is that it it does have more leverage, right?
• 34:15
  SPEAKER_01: So when you look at the investments per share and you compare it to book value, right, or shareholders equity, uh it's a ratio of pretty close to three to one.
• 34:24
  SPEAKER_01: So, you know, you're already from the jump before you get any underwriting income, um, you know, you're gonna get three times the performance of basically a a global uh uh global diversified balance fund, for lack of a better word.
• 34:39
  SPEAKER_01: You know, two-thirds in bonds, one third in equities, very diversified.
• 34:44
  SPEAKER_01: Um, and uh and that leverage is you know really drives uh the returns.
• 34:49
  SPEAKER_01: And so when you're when you're in a soft market, um, you know, one way to keep that leverage up is to write a lot of business, right?
• 34:56
  SPEAKER_01: Which you don't want to do in a soft market, and Fairfax would would never do that.
• 35:00
  SPEAKER_01: Um, the other thing you can do then is is buy back stock.
• 35:03
  SPEAKER_01: And so that's exactly what they've been doing.
• 35:05
  SPEAKER_01: And and you know, they've they've they thought their stock has been cheap for a long time.
• 35:08
  SPEAKER_01: And so when we were in a hard market, they got really creative and did other things to buy back stock, right?
• 35:13
  SPEAKER_01: They they entered into total return swaps on their own stock uh for almost uh two million shares.
• 35:18
  SPEAKER_01: Now it's down to about 1.3 million shares.
• 35:20
  SPEAKER_01: Um, they um they sold uh a stake in one of their insurance companies, Odyssey, uh, essentially sold um a preferred shares for lack of for lack of a better word, um, even though they were considered equity.
• 35:34
  SPEAKER_01: We can we can talk about that if you want, but there's a you know, there's a reason why they structure things the way they structure them.
• 35:38
  SPEAKER_01: Um but that that money was then used to to fund uh a substantial issuer bid or a tender offer, a Dutch tender offer, uh, which they did in in November of 2021.
• 35:49
  SPEAKER_01: Um and so that uh, you know, these ways they they these creative ways they had to buy stock back when they still needed to use all their earnings to grow their premiums, um, you know, really helped um you know increase all the per share metrics that we that we were that we're enjoying now.
• 36:04
  SPEAKER_01: Um and um and you know, they they in the first half of this year they bought back a little bit more stock than they bought last year.
• 36:12
  SPEAKER_01: Um they've taken a break now, um, so we'll see what they're what they're what's gonna come next.
• 36:18
  SPEAKER_01: Um but um but the the buybacks I I I suspect will will continue.
• 36:23
  SPEAKER_00: Yeah.
• 36:24
  SPEAKER_00: There are just so many ways Fairfax can reallocate its, it can allocate its capital.
• 36:28
  SPEAKER_00: It's like uh when they're when they are operating in a hard market, they can grow their premiums when they are uh when they yeah, when that's not the case, they can do share buybacks or they can do acquisitions.
• 36:40
  SPEAKER_00: There are just so many ways they can allocate, and you got to trust management, they make the right decisions.
• 36:45
  SPEAKER_01: Yeah, and the one thing that you know, so because they they use this financing um mechanism where they sell minority interests in some of their insurance businesses, right?
• 36:53
  SPEAKER_01: And we've seen them um, you know, they've done that with uh Allied World and Odyssey.
• 36:58
  SPEAKER_01: Uh those those are still outstanding.
• 37:00
  SPEAKER_01: Uh also Key is partially funded that way as well, with um with a separate class of shares that has a preferred return of 8%.
• 37:08
  SPEAKER_01: Um and so this is this is another way of using uh leverage uh effectively uh by keeping them in minority interests, and they have rights to buy those minority interests back over time.
• 37:18
  SPEAKER_01: Um and and so you're right, like when the when premium growth is slow, uh one thing that they can do is buy back stock, and if the stock is too expensive, then they can exercise their options and buy in these minority interests, uh, which is really accretive to earnings given how uh how they're structured.
• 37:34
  SPEAKER_00: Yeah, yeah.
• 37:35
  SPEAKER_00: I was thinking like, is this different than for instance a Markel or an Berkshire?
• 37:41
  SPEAKER_00: I don't really think it is.
• 37:43
  SPEAKER_00: Um yeah, again, you just got to trust uh the the manager, the management right and the the decisions they make.
• 37:50
  SPEAKER_01: Yeah, I think I think you know you see Markel and Berkshire also buying back stock right now.
• 37:54
  SPEAKER_01: I mean, you know, they're in the same boat in terms of they're they're generating a lot of excess uh capital because you know the market is slowed and they don't want to chase premium.
• 38:03
  SPEAKER_01: Um and so they're also buying stock back.
• 38:06
  SPEAKER_01: And and you know, I think part of the reason why, you know, um those, you know, Markel and and and Berkshire, uh, you know, they they do have like a lower uh leverage and so and and and they've they've had lower RoE recently, but they trade around a similar valuation, right?
• 38:24
  SPEAKER_01: So um, but they're still buying back stock.
• 38:26
  SPEAKER_01: And then we talked a little bit about Kin sale before, you know, in KinSale, and despite it trading at you know four times uh four to five times book value, it's still buying back stock with its excess capital because it doesn't have any other use for it.
• 38:37
  SPEAKER_01: Um whereas Fairfax has a lot of uses for its excess capital.
• 38:41
  SPEAKER_01: Um, and you know, when we talk about you know compounders, one of the biggest aspects of count compounders is the incremental return on their capital.
• 38:51
  SPEAKER_01: Um, and so for Fairfax, they have a lot of places where they can keep that return uh you know above 15%, and that's that's what they're trying to do.
• 39:01
  SPEAKER_00: Yeah, exactly.
• 39:02
  SPEAKER_00: Okay, so WhatsApp is now in his mid-70s.
• 39:05
  SPEAKER_00: Uh hopefully he can uh he can render business for another decade or so, but eventually he got to, yeah, Fairfax has to transition to a new CEO.
• 39:14
  SPEAKER_00: So yeah, what are your thoughts on that?
• 39:16
  SPEAKER_00: What are your thoughts on succession?
• 39:18
  SPEAKER_01: Yeah, I mean, I think Fairfax has done a really good job of of outlining who's gonna take over um uh eventually when uh when Prem leaves.
• 39:27
  SPEAKER_01: And what you know, I think I think Prem um as long as he's able, he will be there.
• 39:31
  SPEAKER_01: So you know Buffett went to 95.
• 39:33
  SPEAKER_01: If uh if Prem could could you know lives that long, he will go for he will go as long as he can he can go, I believe.
• 39:40
  SPEAKER_01: Um but they already have a plan.
• 39:42
  SPEAKER_01: So the plan is to you know split the chairmanship and the and the CEO role.
• 39:46
  SPEAKER_01: Right now, Prem does both.
• 39:48
  SPEAKER_01: Um the new chairman will be his son, Ben Watza.
• 39:51
  SPEAKER_01: And Ben is uh a very accomplished money manager in his own right.
• 39:55
  SPEAKER_01: Uh he runs um an India fund called Marval, um, who's had uh tremendous experience.
• 40:02
  SPEAKER_01: I I don't have a recent update, but I think at some point last year there the five-year return for Marval's fund was the best in Canada of any uh of any hedge fund.
• 40:11
  SPEAKER_01: So that's um so he's he's definitely put up very strong returns.
• 40:15
  SPEAKER_01: Um and if you listen to him speak and I and and there's you know there's stuff online of him talking on podcasts and doing presentations uh to pitch his own fund.
• 40:25
  SPEAKER_01: Um, you know, he invests in a very quality investment style, I would argue.
• 40:29
  SPEAKER_01: Um that being said, his role will not be in deciding what investments um to put into uh into Fairfax, he'll be the chairman, and his job will be to maintain the culture uh and make sure that they don't use the lose the culture, I believe, uh at Fairfax.
• 40:44
  SPEAKER_01: Um the CEO role will go to Peter Clark.
• 40:47
  SPEAKER_01: Uh he's currently the president COO and he's been with the business for um north of 25 years himself.
• 40:54
  SPEAKER_01: Um and he already, if you you know, if you listen to the um the conference calls, you know, Prem has dropped off the conference calls.
• 41:02
  SPEAKER_01: Um it's uh it's held by Peter Clark, um, the CFO uh and the CIO of Hamlin Watts, whose name is Wade Burton.
• 41:11
  SPEAKER_01: Uh and Wade is uh you know uh part of the investment committee as well.
• 41:15
  SPEAKER_01: He's obviously the CIO.
• 41:17
  SPEAKER_01: Uh there's a nine-person investment committee at at Fairfax, so it's not uh it's not a one-person uh show.
• 41:22
  SPEAKER_01: Obviously, Prem has the most influence um uh on on uh on bigger positions, uh, but you know, they have a lot of very talented um investors uh at Fairfax, at Hamlin Watsa.
• 41:35
  SPEAKER_01: And so there's a very solid team to come in and and uh and take over.
• 41:40
  SPEAKER_01: Um arguably they already are you know doing the work.
• 41:44
  SPEAKER_01: Um and because I I don't think there's a lot of um I think I think they're all very sympathetical about how they think.
• 41:49
  SPEAKER_01: It's a very common sense approach to investing.
• 41:51
  SPEAKER_01: I call it uh expected value investing, which is what I what I practice or how I describe what I do, which is you know, instead of you're basing your judgments or you're basing your investment decisions based on your judgment of the probably of the future probabilities, what what are the possible outcomes um and basing your risk reward off of that.
• 42:08
  SPEAKER_01: So you're trying to get a lot of margin of safety, uh, and then you're looking at the at the range of outcomes and seeing if you're getting uh getting a good price.
• 42:15
  SPEAKER_01: Yeah, and I think they follow the same investment style.
• 42:17
  SPEAKER_01: Whereas I think I think if you look at like Markel um especially and and and and Berkshire, um they tend to use a more um what I call deterministic approach as opposed to probabilistic.
• 42:29
  SPEAKER_01: So they use rules, heuristics, they're looking for a certain type of growth, uh steady, predictable, um, as opposed to wide-ranging, right?
• 42:37
  SPEAKER_01: Which is why Fairfax can you know make a uh uh you know a phenomenal amount of money on gold stocks that no one else, you know, that that Markel and and uh um and and Berkshire wouldn't, or make an investment in uh in a startup venture, uh, you know, AI insurance company like Key or an Indian PC uh insurance company like Go Digit, right?
• 42:59
  SPEAKER_01: So yeah, so they you know these types of like you know 10, 20 bagger type investments you know are not the kind of thing that that um that a quality value investor would do, which is what I think we describe Markell and Berkshire better, uh, but it's something that Fairfax can do because of their investing style.
• 43:16
  SPEAKER_00: Yeah, is it already set in stone that Peter Clark will succeed as CEO?
• 43:20
  SPEAKER_01: Or I believe so, yeah.
• 43:22
  SPEAKER_01: If you if you listen to um you know at the AGM, um Pram made it pretty clear that that uh Peter would take over uh when he left.
• 43:30
  SPEAKER_01: Um yeah, yeah, and same with Ben.
• 43:32
  SPEAKER_01: That's also been very clear that that Ben would take over as chairman.
• 43:35
  SPEAKER_00: Yeah, a little small fun fact about Ben.
• 43:38
  SPEAKER_00: Um you might know it, but uh maybe the listener don't.
• 43:43
  SPEAKER_00: Pram Watzer was such a such a fan of Benjamin Graham that he uh that he named his son his son after him, like uh Ben Benjamin Watson.
• 43:51
  SPEAKER_00: That's uh I found a genius.
• 43:52
  SPEAKER_00: Well while reading that I I got a smile on my face.
• 43:56
  SPEAKER_00: So Fairfax has uh has been one of the most complex companies for me to.
• 44:00
  SPEAKER_00: analyze because it operates in so many different industries, so many different uh yeah it it creates value in so many different ways.
• 44:07
  SPEAKER_01: Uh what do you believe uh the single most important key pi is to uh keep track of when evaluating Fairfax is she well I I think you can have there's a lot of things you can look at right um I I think the sort of the simplest thing to do I think for for investors is just to focus on investments per share.
• 44:26
  SPEAKER_01: You know investments per share uh gives you an idea of how much leverage uh you're getting when you buy when you buy Fairfax.
• 44:34
  SPEAKER_01: Um you know another another you know framing for Fairfax another way to think about it right is you know Hamlin Watts uh which is the investment manager that's inside of of uh Fairfax that manages the float for all the uh insurance companies um you know it's managing uh uh you know a 75 billion 78 billion dollar portfolio something in that range um and you know as a as a shareholder when you buy Fairfax um because the insurance business is of high quality um and the float is uh generating earnings uh enough earnings to um the underwriting is generating enough earnings to offset the head office expenses and the leverage expenses at the at the head office effectively it's like um it's like you're getting paid to own the portfolio right so like if you went and you you went to an another asset if you went and wanted to make an investment in a in a bond fund you would pay 100% a nav for that bond fund and you would have access to those returns and you'd pay some fees and then you wanted to buy a a diversified equity fund and you would you would make that investment and you know in Fairfax's case it's not just public market equities but it's consolidated companies and it's uh associate holdings so it's a it's a mix and a broad mix of investments you'd expect to pay a fee for that as well and those things would be marked at 100 cents in the dollar and you would enjoy the returns in this case you know you're buying Fairfax for uh about a$32 billion market cap uh US these are all US numbers versus a$75 billion investment portfolio that you have um that you are entitled to the returns of um you know on top of that you get paid um some underwriting income uh less the head office expenses and and and less the uh the leverage expenses and so so effectively I think the investments per share is a good idea to give you an idea of what another way to think about what intrinsic value actually is for Fairfax.
• 46:34
  SPEAKER_01: If you compare it you know to um to Markel and Berkshire you'll notice that Mark Berkshire trades pretty close to that that value.
• 46:41
  SPEAKER_01: So that's trading really close to I think what intrinsic value is um and Markel is at a at a at a discount but not as big a discount.
• 46:49
  SPEAKER_01: Yeah and investments per share do you mean uh book value per share or is that correct no no so I mean I mean the actual investments per share so so if you look at it at the end of um I didn't 2025 uh it was around thirty six hundred dollars US per share okay with the investments per share right and historically um Fairfax has returned about uh a little over seven percent I think around seven point three percent you know for since inception on the investment portfolio so you know if you were to say well if they can keep making seven percent on thirty six hundred um you know then um and then I I compare that to the share price that's a really good return on my share price right and that's again before you get the result the you know the underwriting income yeah expecting exactly as well so so it's a it's a it's a way of sort of like getting rid of all the noise because it is you know it it can be very complicated and certainly I I when we started talking about Fairfax you know I said that you know I didn't look at it for a long time because I thought it was a black box and it was it was hard to hard to understand.
• 47:52
  SPEAKER_01: But as I've spent time on it over the past five years and I had a really intelligent insurance investor like like my friend Charlie Fisher who's helping me understand how insurance works um and then the more you read and the more you more you absorb you you sort of realize well they can take a very simplistic approach and just look at you know what are the total investments as a way of uh of valuing Fairfax.
• 48:15
  SPEAKER_01: You know there's other methods too like I use four different methods for for valuing Fairfax.
• 48:19
  SPEAKER_01: You know one is that investments per share is one is one way very easy.
• 48:24
  SPEAKER_01: Okay so it's 3600 we trade at you know 1630 or something so there's a really big discount right and and you don't have to be that accurate right when you're doing that math because you're like well if it's over a 50% discount that usually means something's a buy when it's trading at a 50% discount to intrinsic and still growing right um and then you look at um another way to look at it is to to take float and book value and add those together is another way of looking at it because it gives you an idea as well.
• 48:50
  SPEAKER_01: It takes out the leverage component but it gives you you know your float is um you know if you look at I call it the uh the Buffett method uh if you go and you read you know uh what Buffett has said about float or what uh the questions he's answered on um at the AGM about float it talks about float being um worth more than Cheryl's equities worth more than book value because um because it offers and this is only for a high quality insurance company right you have to assume that it's a high quality insurance company otherwise you can't because it because then you can lose float and there are times you know when when you know Fairfax made acquisitions afloat which they knew there were going to be losses that were coming but they paid so little for them it you know it didn't it didn't it was still a good investment to do uh the late 90s and you know that's when also when Berkshire you know bought Jen reed and had a similar experience right so um so but once you once you have a good view that hey this this insurance business makes money combined ratio is almost certainly going to be less than 100 uh reserves are high and and they're very conservative in how they reserve you can feel confidence that that that that loan effectively is a it's like a revolving loan that always grows right so um so in that sense it's worth um if you have the rights to the income associated with those investments that you know and with that float then it's just as good as owning that those assets directly and so so that's another method and if you look at Fairfax you know the um you know the float per share is pretty close to 2000 and the book value is about 1300 so you're about 3300 on that method so getting you know now 3300 3600 two two two ways of sort of quickly assessing what the valuation uh what the value intrinsic value might be um and then you can switch to more traditional methods like you can look at something like um you know a price to equity ratio right a price to sorry price to earnings ratio so you know price to earnings um you know you can you can pick various multiples what i what I suggest is um that uh that what most people consider a fair market multiple is like 15 times earnings um and fairfax has uh an above market ROE so if you were to value it at 15 times earnings that would also be a give you some margin of safety um and earnings you know of the last year you know around$200 a share forecast forward is is around$200 a share um you know because I think and I think the forecasts are quite conservative but that gets you to you know a$3,000 you know number and that's just using consensus you know EPS right still you know we're trading at$1600 still a very big discount to to the 3000 and the final approach is to is to use some sort of price the book multiple um and you know the you know a lot of you know I I have a it's a bit of a bugaboo for me because people talk about you know you can't rely book value is not relevant you shouldn't rely on book I think what what what Buffett uh meant by that is that's not the price you should value the company at like it's not expensive if it's trading north of book or cheap if it's trading a discount to book what matters is the returns on that book right so if you have a high high ROE you deserve a high uh price to book ratio and we can see that with kin sale right kin sale is a good example yeah it's roE is 25% you know it trades at over four times book value right so uh it's getting rewarded for the compounding effect of that book value um and for for Fairfax you know it's averaged a high teens roE uh since the beginning also for the last five years I would argue that is the most likely scenario over the next five years given what we know um and on that basis there's a there's a um uh a great investor named John Fox who I've had the pleasure of getting to know and and he gave a presentation to a small group of investors where he said look his rule of thumb is to take your ROE and divide by seven and that's a good measure uh for either your price of tangible book depending on using your return on tangible book or uh I adapted it to just your return on book value.
• 52:41
  SPEAKER_01: And so if you're earning a 17.5% you know ROE um you know divide by seven you know it's around a two and a half times you know book value.
• 52:51
  SPEAKER_01: And if you use two and a half times book value on Fairfax uh you get to sort of the mid 3000s as well.
• 52:56
  SPEAKER_01: So they all kind of triangulate to the same place.
• 52:59
  SPEAKER_01: And I don't I don't think that's my coincidence.
• 53:01
  SPEAKER_01: I think that's that's because of the math and and how the accounting works.
• 53:04
  SPEAKER_00: Yeah that's an interesting trick the divided by seven rule.
• 53:07
  SPEAKER_00: Never heard of that one before but uh might work.
• 53:10
  SPEAKER_01: Yeah it it's a bit it's a bit more um forgiving for a low low roE business you know because um you know the implication is that you know if you have a uh uh a 10% roE you should trade it around 1.3 times book you know um and that's gives you the opportunity you know that that potentially that roE is too low and could be improved right because um you can always add add leverage to to improve that uh or um or but when you're at a really high roE like if you're at like a 30% ROE um or the higher your roE goes it actually doesn't give you as much credit for that as much as maybe you should if you're actually able to compound at that really high rate for a long period of time.
• 53:52
  SPEAKER_01: Yeah um uh I think for insurance businesses um you know they're balance sheet based so they the the book I think is it becomes a really important aspect of how you would look at it and the returns from that book and how it compounds.
• 54:04
  SPEAKER_01: For a lot of insurance businesses that are not like uh Fairfax um the key is the returns on the incremental capital, right?
• 54:11
  SPEAKER_01: So Kin Sale's in a situation now where it can't grow as fast uh as it could in a hard market because the returns aren't as good.
• 54:18
  SPEAKER_01: And so it has to uh come up with other ways to return capital and their management team is incentivized on ROE and so they buy back stock because when you buy back stock above book it hits your ROE um really hard um and so your returns on equity are higher um and that's and that's sort of their motivation.
• 54:36
  SPEAKER_00: So yeah so following that rule uh a 7% ROE uh company that should trade around one time book value correct yeah okay yeah and I think if you if you listen to most people they you know they want like a seven percent free cash flow yield on something like that seems to be a hurdle rate that a lot of people have so it does it does make sense.
• 54:55
  SPEAKER_01: Yeah okay and what about the non-gap um measure non-gape measure um they call it reinsurance operating income they specify it in their annual report do you take a look at that or what are your thoughts on that yeah I think I think it's I think it's important to to look at all all these things I mean you can you can um you can calculate sort of what the core business uh generates and they've given you know soft guidance that you know five billion of of uh of income is is a pretty reasonable some pre-tax income is a pretty reasonable assumption based on um the the investment income uh and the underwriting income they expect so you know if you if they model to a 95 combined um and they're doing 30 billion in premiums you can you know you can get a billion and a half of of income from that um you know their investment portfolio bond portfolio is a little over 50 billion uh it earns a little over 5% coupon and you know the run rate on uh on last quarter was uh close to you know 750 million it was I think it was 735 million so you know next year that's probably a three billion number you know pretty easy to to use um and then they have these businesses like um the associate uh that are consolidated and uh associated uh income where they have you know more than 20% or more than 50% uh of the businesses and and that the the earnings of those companies go directly into Fairfax's earnings and and and there's a little more volatility in those lines than there would be in uh in interest income uh but um but you know they they've given an outlook of you know north of a billion uh on that line as well um so you can add all those up and you get a fairly good idea of what the sort of earnings power is uh before any gains right because the gains are are we don't know when they're gonna come um I would argue though that they they're more reliable than they used to be um because Fairfax has changed uh how it's invest what its investment portfolio looks like it has significantly more investments that are under their control and they can decide when they sell them uh when they turn things over um and uh and I think they're very strategic about how they do that.
• 57:00
  SPEAKER_00: Yeah agreed um so likely if the company keeps doing what it's currently doing this will be a good investment in my opinion what would need to happen for Fairfax to become a bad investment if I could figure that out I wouldn't have you know 45% of my um assets in Fairfax.
• 57:17
  SPEAKER_01: You know I uh it used to be as high as 60 but the stock has underperformed the rest of my uh investments over the last uh you know year and a half or so so I I have um yeah and I've added you know I I I was looking at some of the numbers and I you know I I think last year um when it hit um sort of its highest valuation so last year uh Fairfax got up to highest recent valuation I should say it got as high as 1.7 times book value uh on sort of trailing uh earnings this was like last July uh uh in 2025 um and since then the the multiple has shrunk all the way down to 1.25 times book value so the underperformance has entirely come from multiple contraction right and we went through the math of what a fair multiple is uh and and uh we were getting I guess closer to it uh now we're like less than half of uh of of where we potentially should be uh based on the performance and and expected performance and so um I can't figure out what it's gonna be that's gonna that's gonna derail uh the compounding um you know one of the things that we have which is we didn't have five six years ago is we do have this really big fair value over carrying value now certainly those investments were worth more than where they were marked at the time um but um but now you know the the market in many cases is rewarding those stocks with higher valuations uh or there have been precedent transactions like the Poseidon deal um and yet the none of that is in the the stock and if you look through sort of the publicly uh the public things that we can compare the fair value to towards the carrying value so this is entirely objective there's no um you know there's no opinion in that uh there's like another 250 doll of of book value that you could add to uh to Fairfax's book and that gets you pretty close to one times um you know book value on that basis um and we we can kind of know that those gains are gonna be realized right so when you take the you you take that and you take the um uh the interest and dividend income which is you know the bond portfolio it's short duration it's only a two year duration but uh the average maturity is three years and so you can kind of say that you know you kind of have a high confidence the next three years you're gonna get those those uh that interest income is gonna be coming in and you have a lot of optionality on that side too which you know people don't talk about but you know most of Fairfax's peers um uh not you know Berkshire for example Berkshire keeps all of its um a lot of its bond portfolio in short duration um uh treasuries uh but Fairfax um you know is more short duration than a lot of the other peers who tend to match their duration with um the bond duration with their claims duration and on top of that will own corporates uh high quality corporates regardless of what the spread is because they do want to pick up a little extra earnings um and uh because they're you know they're motivated by different things right and so for Fairfax they have a lot of optionality if credit spreads really widen um if the market goes down a lot they have the potential to you know add to add to their equity portfolio uh own less bonds um so there's a lot of there's a lot of levers they can pull uh in fact the more volatile the world is the better off you the higher the ROE at Fairfax will end up being so you know I I I there's a lot of people who say well I'd rather own uh cash um um because I'm worried about the market well I feel you know I'm levered long so I borrowed money to buy Fairfax I I'm you know which I don't suggest anyone do but but the reason why I do it is I think um I think Fairfax can take advantage of a pullback uh you know better uh than I might be able to um and so my forward and I don't and I don't know when a pullback's gonna come um and so I can earn you know 15% plus while I wait for this pullback and then if it comes then maybe my returns will go up you know a couple hundred basis points even higher.
• 1:01:19
  SPEAKER_01: Yeah.
• 1:01:20
  SPEAKER_01: Especially if they buy a bunch of stuff that is um that is marked to market.
• 1:01:24
  unknown: Yeah.
• 1:01:25
  SPEAKER_00: Yeah you were quite convinced uh in in your bet in Fairfax otherwise it wouldn't be close to 50% of your portfolio.
• 1:01:31
  SPEAKER_01: So why do you believe this opportunity exists um I think it's a function of um of the market structure.
• 1:01:39
  SPEAKER_01: So you know I I I do I spent a lot of time thinking about this and and and given my background you know I have I have a different kind of experience than I think a lot of other investors you know I was um I was working in equity research before the great financial crisis and dealt with a lot of hedge funds and and other long only investors um and they invested a lot more like I did.
• 1:02:00
  SPEAKER_01: You know they would look they would and Fairfax does they would look through um and look for what the intrinsic value of the business was and make their investments based on absolute returns right um and I think what's changed in the market structure since the GFC is that investors are much more focused on relative returns.
• 1:02:20
  SPEAKER_01: And it makes sense right because when you think about what uh happened at the during the GFC, the first indication that a fund was going to start underperforming is that it started to underperform right like as soon as a uh an asset manager starts to underperform um the institutions now the allocators are now quickly going to those managers and saying why are you underperforming?
• 1:02:42
  SPEAKER_01: What did you do?
• 1:02:44
  SPEAKER_01: Why did you buy the stock that wasn't in your benchmark why didn't you buy the stock that was going up why are you buying the stock that's going down and I think with with uh with Fairfax you know that's that's exactly you know what happens right and and Fairfax you know because it has you know these uh variable earnings streams um especially the you know the gains uh on on equity investments and the returns on equity investments um it's hard for for um for investors to give them credit for that right so investors what happened you know I think after the GFC is that you had you had a couple things happen at the same time you had uh uh you know um uh a change in technology where cloud computing became you know very uh available and so the computing power went up a lot uh so it was much easier for quant funds to I think to analyze you know disparate groups of data and come up with correlations that um correlations to stock prices based on various factors.
• 1:03:41
  SPEAKER_01: And so while initially the value factor wasn't important the value factor really stopped mattering at some point um and the focus was more on momentum right and whether it be revenue momentum earnings momentum price momentum all of the that's where the focus was and that's what produced the highest returns right which is I think why like a lot of the money was herded into the same stocks and and there are a lot of quality and value investors who uh you know benefited from that and they were smart to hold on to their positions regardless of what the valuation was.
• 1:04:10
  SPEAKER_01: But you know in the past year we've seen some of those start to stumble because valuation ultimately did matter um and there was some rotation out of their quality their quality stocks and into other stocks that maybe were showing price momentum uh like energy or metals or or something like that.
• 1:04:25
  SPEAKER_01: And there's only so many dollars and so money shifts back and forth.
• 1:04:29
  SPEAKER_01: For Fairfax because it's you know because it's not quality in the in the in the sense of um how a quant would analyze quality which is based on the the the metrics the predictable earnings if you look at you know Fairfax's earnings guide or earnings estimates there's you could drive a truck through the earnings estimates right like you know a pessimistic analyst and optimistic analysts someone giving them a reasonable expectation on on uh on the equity portfolio someone else being very pessimistic so you can drive you drive these so it's hard to argue it's predictable and so the the the solution is just to avoid you know um and so so I think that's the primary reason why it trades cheap and you know in the last year the reason why I think um I should say like the five years we had this tremendous performance where the price to book value went from you know 0.7 times to 1.7 times you had a really giant multiple expansion at the same time you had giant um you know revenue growth right so I think ultimately it was the premium growth and the interest income growth that drove a lot of momentum um focused investors which which I would argue is most of the investments um investments that are actively managed these days uh into into um into Fairfax um and then you know once those start though the revenue momentum starts slow and interest rates seem like they had peaked out um you know those investors start to sell and that happen that happened you know about a year ago started about a year ago and so since then you know the because it's a soft market you know people don't want to own the stock um and in Canada especially a lot of the money went into uh into banks uh and the bank index had a tremendous performance uh and money was pulled out of the insurers so even though fairfax is one of the best insurance uh you know from a from a performance perspective is one of the best insurance companies in Canada uh it wasn't uh it wasn't uh even close to how the banks performed and and if you want to beat the market in the short term you have to you have to capture the the the performance that uh that they generate um and so that's why I think the opportunity you know exists ultimately um and if you can take a f your change of framing and look at okay I'm gonna focus on absolute returns and um then I think then I think it's really interesting.
• 1:06:36
  SPEAKER_01: The other thing I think is that that uh is that return expectations are really high.
• 1:06:41
  SPEAKER_01: And I you know I I look at Fairfax and I go well it's probably a 90% chance that they do better than the 15% you know book value per share growth over the next you know five years, 10 years.
• 1:06:54
  SPEAKER_01: But I'm always monitoring to make sure that if that changes I you know I will I will I will change as well.
• 1:06:59
  SPEAKER_01: But uh but that's kind of sort of my base case.
• 1:07:02
  SPEAKER_01: But it might be as high as like 25% a year, right?
• 1:07:05
  SPEAKER_01: But if you come at it from a uh of an approach where you'd be like I'm gonna use the most pessimistic assumptions um and you use uh um you know his the historical valuation as the basis for uh how you're gonna value it without even realizing what drives the the underlying returns um it's easy to say this is not gonna meet my return hurdle and so I can't own it you know and so I think a lot of people look at it that way uh and reality is that people want stocks that are always going up you know and and you know I think there's you know with with any with any great business and you know Fairfax has had uh you know a 40 plus year history of compounding 19% there have been times where it's been great and other times where where it hasn't been um and uh and right now I think we're we're at a really special point because it seems like uh you know every part of the business is is uh is working um you know underwriting is very profitable investments are are high interest rates are high enough that they're generating a really high return yeah agreed agreed uh yeah one thing is that the the soft market can take a lot of it can can go a lot softer than it currently is that it would hurt uh earnings of course as well but I think that's it do you have any less words achieve yeah I would just say that um you know I I I I think you're right people should read the book uh you know David Thomas's book I had a chance to meet Dave um at the AGM uh I think uh his book is great I I particularly like my favorite part is part three uh where um you can kind of see the influences on Fairfax's investment style whether it be from you know singleton or Phil Fisher or Munger or or or or Buffett you know there's um cundle peter cundle and and uh Templeton like you know all these guys have have done um had tremendous influence on on on Prem and on Fairfax and and Prem um I think um I think the you know their part of their you know philosophy is is uh no ego um and so the ability to sort of accept wisdom from others and then apply it um I think uh I think Fairfax is really good at that and you know if you look at what uh Prem's talked about Henry Singleton for a long time and what he did at Teledyne in terms of you know buying back shares you know Fairfax has taken the share count down from you know 28 million a few years ago to to 20 million uh now um and I suspect that um if the valuation stays low that that will continue uh especially if this if if we you know stay in a soft market longer right so you know a lot a longer soft market just means that we'll probably be able to buy a lot more stock back cheap.
• 1:09:43
  SPEAKER_01: What I suspect is that the next time we have a hard market uh that we'll get a lot of multiple expansion like we did in the last hard market.
• 1:09:49
  SPEAKER_01: You know we went from 0.6 times book to or 0.7 times book to 1.7 times book you know we're at 1.25 times now I could see us easily going up to over two times, two and a half times book on the next uh hard market.
• 1:10:02
  SPEAKER_01: Uh and the longer it takes to get to the hard market, the longer the hard market and hard market will be uh and potentially the more multiple expansion we'll get um because when all the momentum investors come back there'll be a lot less shares available for them to buy um and a lot of us hopefully will have very big gains and we'll be reluctant to pay taxes on those gains.
• 1:10:20
  SPEAKER_01: Agreed couldn't agree more thank you so much for joining us today uh shef um if listeners want to follow your work where can they find you so um i i post on twitter uh under uh brown marubozu um uh uh b-r-o-w-n m-a-r-u-b-o-z-u um and um you can find me on LinkedIn uh I'm also I also have uh a substack which I I rarely post anything but I have a few articles on Fairfax there called uh uh Bursie Park Capital um and you can look up that substack um but um but Twitter is probably the easiest place and if you have any questions I I try to answer uh everyone's questions um uh as long as they're uh as long as they're not too rude.
• 1:11:06
  SPEAKER_01: But even then sometimes I'll still answer and and deal with people.
• 1:11:09
  SPEAKER_01: I you know I don't I I I I find that um I try not to criticize anyone else's investments because um I know that when people critique my investments they usually don't have a good basis and and it's stuff I know really well.
• 1:11:23
  SPEAKER_01: So if someone else knows something else really well I'm not gonna spend time criticizing theirs.
• 1:11:27
  SPEAKER_01: I just try to try to stay positive and focus on that.
• 1:11:30
  SPEAKER_01: So uh you know come find me there.
• 1:11:32
  SPEAKER_00: Yeah.
• 1:11:32
  SPEAKER_00: There's a saying here in the Netherlands it's like uh feedback is fantastic uh translated to feedback is fantastic uh and uh yeah but it should be it shouldn't be rude of course we uh we should all beh behave thank you so much for your time today Ashiv uh and uh I can highly recommend anybody following your work it's uh really in depth about Fairfax especially so you are really a an expert thank you for uh thank you again for your time today if anybody wants to read our uh full 30 page write up on Fairfax you can do do so at uh yeah you have to become a TDI member you can do so at tditherminal.com or on substack and uh thank you for listening we hope to see you next time thank you