FairFax Financial Spots a Deal

Fairfax spots a deal - The Globe and Mail

After months of issuing preferred shares and debentures, the insurance giant Fairfax Financial Holdings Limited is initiating one of the largest share buybacks of it's history. At yesterday's closing price, it would be valued at over $600 million. Over the next 12 months, the company will buy close to 1.6 million shares, almost 10% of the current float. This means that the average daily volume of the company will be greatly influenced by the actions of the company.

The company's Chairman and CEO, Vivan Prem Watsa, has developed a reputation of value investor over the past 20 years. Having the company dedicate more than half a billion dollars to buying it's own shares instead of increase it's current investments is a clear sign that the FFH is currently trading under or close to it's book value. This is an hypothesis that will be confirmed on the next quarterly filing of the holding company. Note also that this move will greatly increase the seize of the CEO's control stake in the company, which is already pretty close to 50%.

However, before buying the stock, one should consider taking this news with care, as the final amount of the operation is not yet known. Some companies will issue such statements to stimulate a downbeat stock price. Fairfax is up a mere 2% for the year, this is therefore another possibility. If the transaction is completely filled, the remaining shareholders will be greatly rewarded as the company will showcase higher EPS.

This might not be a good time to buy the company's stock, but for those who already own it, it is definitely a great idea to hold on to it.

Full disclosure: Long FFH.TO

Ridley Inc. Reports Preliminary Results for Fiscal 2010 Fourth Quarter

Ridley Inc. (RCL.TO) Reports Preliminary Results for Fiscal 2010 Fourth Quarter

As stated in that MarletWatch article, the 4Q results of Ridley showcase improved operational performance for the company.

As they state it in their quarterly report, their loss has been narrowed compared to a year ago. This is good sing for a company on it's way to profitability.

Let's remind that Ridley Inc., the former subsidiary of it's Australian parent company, was sold to Fairfax Financial Holdings Limited in 2008. since then, the stock of the company has been pretty illiquid because of the large block owned by the Canadian insurer.

Their short term results have been altered by the critical conditions present in the current financial environment. Exempt from them, the company is on track for great success for their shareholders.

Depending on right assumptions, the company should yield great returns, since the parent company, Fairfax Financial Holdings Limited, should proceed to a complete buyout of the roughly 20 millions shares of that company that are still publicly traded on the Toronto Stock Exchance under the symbol RCL.TO.

Untill then, I will keep acquiring more stock in this interesting value play.

Full disclosure: Long RCL.TO

Institutional Investors and Stock Prices

In their quest to generate impressive returns to their clients, institutional investors shape the financial world. An average investor will tend to get heavily influenced by their investment choices.


Institutions generally tend to be banks, insurance companies, pension funds, mutual funds, investment trusts, unit trusts or hedge funds. They are very meaningful invertors because of the sheer size of assets that they manage.


Any individual wandering in the financial arena should consider getting more acquainted with those entities. If you are playing in the small capitalization and mid capitalization field, you should know that some of those investors shun companies that expose their stock prices to levels that they deem too low. In fact, some if those institutional investors establish minimum buying prices; in order to avoid the frequent price manipulation that incurs from companies have a too low stock price.


For most of those investors the minimum price will be set at 5$. This will explain why some companies experience huge gain in their stock price as soon as it hits that minimum price. A good example is DryShips over the past two years. However, some funds will go as low as 1$ per share.


Mass market movements are often the consequence of actions by those investors. If we take that market plunge of September 2008, one of the conclusions implies a chain reaction in the financial market.


Like any companiy, institutional investors have balance sheets and obligations towards their lenders and must maintain some capitalization levels in order to stay solvent. When news about a financial crisis were gaining grounds, many individual investors, who had their money managed by mutual funds, pension funds or companies, began redeeming their investment, thus causing a lot of stress on the cash position of those companies. Those institutional investors were forced to sell promising positions to fulfill their cash balances that were dwindling because of redemptions from clients or investors.


The investing world is a challenging one for value investors. Even if you get the right assumptions about the value of a company, institutional investors can dramatically affect your results because of their specific needs.