The Grey Cup of Value Investing

Benj Gallander and Ben Stadelmann
Monday, Monday April 20, 2015

The Super Bowl of investing, so to speak, is the Berkshire Hathaway meeting in Omaha, which we attended a number of years ago. It is truly a wonderful event, where throngs over 20,000 strong come to learn and praise, not necessarily in that order. If one is thinking of going, sooner is better than later, while Warren Buffett and Charlie Munger reside over the proceedings.

The Canadian equivalent, the Grey Cup if you will, is the Fairfax Financial Holdings gathering, which was held in Toronto last week. The resident wizard and CEO is Prem Watsa, who has had a marvelous run leading this organization. Benj owns some of their preferred shares, which he bought in October 2010 amidst the trough of the financial crisis.

One of the foremost features of the event is the shareholders’ dinner, now in its 10th year. The assembly, which is overseen by Sanjeev Parsad, raises money for The Crohn’s & Colitis Foundation of Canada, and this year Benj was honoured to be asked as one of the four speakers.

However, the four gents who addressed the gathering were just the warm-up act in many ways. After they finished, Wayne Gretzky, the Great One, said a few words before introducing Mr. Watsa, who then presented a number of CEOs from Fairfax’s far-flung global empire, before taking off apologetically as he does every year. He saves his voice and energy for the AGM the following day, where he talks for an hour and a half or so.

Some of the highlights of the dinner included hearing about Fairfax India, a fund started this year with a capital raise of $1.1 billion. Fairfax’s allotment was $300 million, 28 percent of the equity that somehow garners 95 percent of the votes. A nice deal if you can arrange it.

Cara Operations Ltd was also featured, the IPO this month a major success. CEO Bill Gregson talked about the restaurant industry in general and Cara’s place in it, drawing attention to current operations and an ambitious future. Though Fairfax primarily considers itself to be an organization that invests in value, Mr. Gregson opined how Cara could be a value play based on future growth. That will mean an expansion of the Swiss Chalet brand, an old favourite of ours, along with some of the other restaurant chains under this umbrella.

On the more famous FFH holdings is Blackberry and praise was heaped on CEO John Chen for hitting his targets since being hired in November 2013. Next up, a revenue increase is hopefully in the cards to propel the turnaround.

A couple of the Greek corporations that were talked about at last year’s dinner also returned front and centre to the conversation. Grivalia (GRIV-AT), formerly known as Europroperties, appears to be doing reasonably well, even with all of the difficulties in Greece. Though the stock price has slipped recently, management has been taking advantage of the travails of others in the sector to acquire properties at what they feel are excellent prices.

Eurobank (EGFEY-OTC), on the other hand, is struggling along at penny status on both the OTC and Athens’ exchanges. Still, it is a survivor in a field that has gone from over 20 banks to four of similar large size to GRIV. The fact that this investment was made in conjunction with renowned turnaround aficionado Wilbur Ross, Fidelity Investments and the Mackenzie Cundill Value Fund indicates some staying power.

The goal at FFH is to compound book value by 15 percent annually. While they have exceeded that over their 29 year existence, the hedging program, put in place because of a fear of an economic debacle causing a stock market swoon, has hurt results. While the stock price had a lovely run recently, the book value of $370 in 2009 is now merely $395.

People who have the time, money and inclination might consider heading to Omaha for the Berkshire AGM. Those who want to stay on the Canadian side of the border can definitely experience significant value by attending the Fairfax gathering. Both events are excellent chances to hobnob with some great value investors, while also talking to like-minded individuals — a fantastic learning experience indeed.