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What are you trying to hedge against? For most passive portfolios, if it's a 30% drop in the market; either be a little more active, sell covered calls, roll puts on the relevant index, or sell down and put the funds into a money market fund. Tell yourself it's your next 2 years of living costs money, change your mind later. If it's an active and concentrated portfolio; just sell up to 50% of the vulnerable positions .... and buy back later. These portfolios make their money from change in share price (volatility), so use the opportunity ... don't destroy it. Of course, if you're happy with earning less from your side hustle .... SD

Yes, banks use leverage to earn an acceptable ROE on their own capital. The banks are also hedged so you are correct they likely own the equivalent number of shares or have other counterparties that want short exposure.

Are you referring to leverage by the counterparty? I thought the counterparty owned an equivalent number of shares as its exposure(?) Sorry for the confusion but I never did understand the precise mechanics.

They would owe the dividends to FFH on the TRS as well. It’s a lending business with almost no risk that probably gets the best capital treatment. It’s still good business once the leverage is factored in.

Higher is my guess. I think it’s hard to go below 1.2x BV given how active FFH is buying back stock so we’re at the lower end. It might take a hard market to go beyond 1.5x unless some quant funds jump back on board over time as BVPS starts growing again. What’s interesting is the optionality on how high it can go. The theory is higher lows and higher highs on the multiple over time.

Got it. Doesn't seem like a very high rate of return considering the counterparty has to own the stock to generate 3% interest plus whatever dividends it may receive.

Gemini: fairfax trs arrangement If you are referring to the corporate financial structure, Fairfax Financial Holdings Limited (TSX: FFH) has historically utilized Total Return Swap (TRS) arrangements to manage its stock portfolio, hedge risk, and execute share buybacks. [1, 2, 3] Fairfax's corporate TRS arrangements operate through the following mechanisms: How Fairfax’s Stock TRS Arrangements Work The Structure: Fairfax enters into derivative contracts with institutional counterparties who purchase Fairfax subordinate voting shares on the open market. [1, 2, 3] The Economics: Instead of physically purchasing all the shares itself (which requires massive upfront cash), Fairfax agrees to pay the counterparty a floating interest rate (e.g., SOFR plus a spread). In return, the counterparty passes all total returns (dividend payments and capital appreciation) back to Fairfax. [1, 2] Cash Preservation: Prem Watsa (Fairfax's CEO) uses these arrangements to gain the economic exposure of owning its own shares without heavily depleting the company's cash reserves at the holding level. If the share price drops, Fairfax must pay the counterparty for the loss; if the share price rises, the counterparty credits the gains to Fairfax. [1, 2]

They charge interest on the outstanding amount. My guess is FFH did the TRS in CAD given it’s with Canadian banks so are probably paying under 3% for the exposure. It’s just a form of leverage.

Please excuse the dumb question but if the counterparty owns an equivalent number of shares as its TRS exposure, how does it make money? Does it collect a "vig" either way?

Maybe he can now afford his child support payments.

I think there will always be a counterparty happy to do this trade with Fairfax. They buy the equivalent number of shares, and bill Fairfax every quarter based on how the shares have done. There’s no risk involved, since if the shares go up, they pay Fairfax the amount of the gain but they will have made the exact same amount on the shares they hold (presumably with no taxes, since they have offsetting losses on the TRS.) And inversely if the shares are down, they’ll have lost on the shares but they’ll have won an equal amount on the TRS. Then whenever Fairfax wants to end the arrangement, they sell the shares (probably but not necessarily to Fairfax) and pay out or take in whatever amount makes them break even, while keeping the small fees they’ll have earned every quarter. What’s not to like? I would think other banks would be jealous of whomever gets to do this deal. [I should have read to the end of the thread, this is all well explained by RichardGibbons and Djokovic.]

Just did it, no problem.

Yes. On the other and, the red card for the Swiss player doing a dive against Argentina without contact was justified. In this case the availability of VAR really helped. I wish they would book more players for simulating.

Like Trump when Robert Mueller passed away...I'm surprisingly the opposite of sad on this one! Cheers! https://www.cnn.com/2026/07/12/politics/sen-lindsey-graham-dies-at-71-hnk

Sanjeev [ @Parsad ], After this post, I delete the first one.

Can a couple of you do a "Test" post on here, and let me know if you can delete your own post? If not, please let me know if you see any messages or warnings. A member is having problems deleting his own posts. I tested my own, and I can delete them, but that may just be because I'm admin and can over-ride any issues happening. Cheers!

Peregrine visited Vancouver this weekend, and it was very nice having coffee with him and meeting his family! Cheers!

Can you use that framework to estimate what Fairfax’s multiple will be in five years?

Mike [ @cubsfan ], Youi're not updated on the actual status by now. Since POTUS' 'We need Greenland ...' quip in January 2026 [last time before Ankara], military personnel from Sweden, Norway, Germany, Great Britain, France, The Netherland and Finland has been stationed on Greenland. - - - o 0 o - - - USA has always been welcome to Greenland. But we expect our guests leave the room in the same state it was vacated, i.e. also removing nuclear waste : Wikipedia : Camp Century - - - o 0 o - - -

The bank is essentially renting out leveraged economic exposure to FFH shares to Fairfax. It earns the floating rate on the notional (its “spread” above its own cost of funds is its profit), while being neutral on the share price because it hedges by holding the physical shares. The bank takes on counterparty credit risk against Fairfax (mitigated by collateral) and liquidity/execution risk in managing the hedge, but has no directional view on FFH’s stock price.

Mike [ @cubsfan ], Let's enjoy the view to the economic outlook together! : [Btw : KAL's real name is Kevin Kallaugher - I'm dead sure he's a victim of typo on his birth certificate - a missing 't' in 'Kallaughter' ]

I wonder the same thing about the possibility of issuing shares well above book value, and then buying them back at less of a premium to book value later, as Singleton did many times with Teledyne. I would never quarrel with the wisdom of such a transaction from the perspective of one who intends to hold Fairfax shares for the long term, but from the standpoint of the “other parties” to these sorts of transactions, the idea of “Fool me once, shame on you, fool me twice, shame on me” comes to mind. I’m still struggling with understanding the motivation of the counterparties to the current TRS. Is it as simple as finding financial institutions that wanted fixed or floating income instruments and the Fairfax side of the swap promised them a risk margin above the sort of interest rates they would otherwise be able to obtain at the time the swap was entered into? So they used the funds they wanted to invest in fixed income, and used them to buy Fairfax common stock instead, entering into the TRS agreement with Fairfax for them?

I think a counterparty can hedge for a guaranteed profit (as long as Fairfax remains solvent)? Because of that, I think the answer is almost certainly "yes".

But based on the last TRS experience. Would there be a counterparty this time?

the better thing to look at is what they said before things blew up.