Notes on Fairfax Financial Holdings' Shareholder Letters (1998-2017)
Notes on 1998 Letter
I particularly enjoyed this one's commentary on the market environment back in 1998. It is interesting to note that he was very attuned to the market's valuation risk and adjusted Fairfax's portfolio heavily in favor of bonds and cash and away from equities (7% of total portfolio vs. up to 35% in earlier years).
Here was my favorite section:
"We continue to be very concerned about the level of the U.S. stock market as discussed in our 1996 and 1997 Annual Reports – even though the S&P 500 increased again by 26.7% in 1998. The possibility of deflation, mindless long term investing in mutual funds and a lack of investment ‘‘values’’ in the North American stock markets do not appear to bother most investors. In fact, speculation is rampant in the U.S. markets as demonstrated by the ‘‘internet’’ stocks. America Online has a market cap that exceeds the total market cap of the five largest Canadian banks even though AOL has been a public company for only six years. Amazon.com has a market cap that is in excess of Sears (U.S.) even though Sears annually earns more than twice Amazon.com’s revenues. Finally, Yahoo! has a market cap in excess of Boeing even though the latter has revenues of $55 billion compared to Yahoo!’s $190 million. The speculative juices are flowing freely in the U.S. but the music will stop and many investors (speculators!) will not have any chairs to sit on. Caveat emptor!"
How times have changed for Sears and Amazon! But nonetheless, are we surprised about the internet bubble bursting when valuations were at such insane levels?
Notes on 2000 Letter:
In this letter, Prem Watsa highlights his portfolio companies' shortcomings:
Return on equity of 4.1% (measly by Fairfax's historical standards).
Fairfax stock sold for less than book value for over 15 months but allowed Fairfax to repurchase shares at prices immediately accretive to shareho