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I don't think I am double counting. What I am capturing for each year is: Actual realized investment gains. Actual change in excess of FV over CV for associate and non-insurance market traded consolidated companies. Take the recent Poseidon sale. In Q1, prior to the sale closing, the $837 million gain was sitting in excess of FV over CV. In Q2, when the sale closed, the $837 million will flip into realized investment gains (and gets subtracted from excess of FV over CV). There will be a put and a take. But no double counting. The interesting thing is even with the $837 million 'hit' to excess of FV over CV in Q2, my math says it will still increase from $3.9 billion to about $4.1 billion, or +$200 million. Why? The market value of Eurobank was way up (+$900 million). Yes, Eurobank's CV will increase by share of profit of associates. But Eurobank also paid Fairfax a big dividend - this will reduce CV. I think the Eurobank stuff is reported with a one quarter lag. ----------- Economic versus accounting earnings My goal is to measure Fairfax's actual economic earnings. Not to measure accounting earnings (which materially understates a bunch of things). Now, the big swing will be when Fairfax sells Eurobank. That will result in a massive increase in realized gains and a massive hit to excess of FV over CV. That will spike accounting earnings. But it won't spike economic earnings nearly as much (it will depend on the sale price). Because Eurobank's share price (market value) increased in prior years. Make sense?

1/3 of HST and ABNB

On Tilson: performance over time is what matters. People's character changes over the years, or maybe he was having a particularly bad or good day...all that stuff is subjective. What's his long term performance record?

Begun the unwind of our pair trade, proceeds temporarily moving through fixed income. SD

Some of those companies also pay a healthy dividend every month . The straits will reopen, but it is not going to be the US doing it, and the Bab-el-Mandeb is a bargaining chip; the concede the Bab-el-Mandeb (Red Sea exit) in return for an open SOH, that supports all. Today's big drop has a lot of manipulation behind it. SD

I think there is double counting, but it is not 5 and 6, it is 3 and 6. Fairfax's proportion of associates' and consolidated companies' earnings is already fully counted as earnings. Much of those earnings are retained, and they increase the value of the holdings. It is true that accounting rules prevent Fairfax from declaring all that extra book value, so book value is understated, but the earnings are all there. Since much of the increased of fair value over carrying value is from earnings that we have already counted, adding in the gain in FV over CV counts those earnings a second time. IMHO.

SiN knows this but just to avoid having other people going down the wrong track like I started to, the target share price is C$3300 to $3450, wheread the $185 eps is surely in USD, so the ratio is not 18-19, it's 13. Sounds reasonable, if unlikely (i.e. it is a 39% increase from today's price.)

Meh I dunno. Last week these semiconductor funboys released huge numbers (e.g. https://finance.yahoo.com/technology/ai/articles/samsung-sk-hynix-prepare-major-185441252.html) and even had that AI summit in San Fran with the South Korean president and Jansen Huang. It's like they're pulling out the big guns but it stinks of desperation - they need to borrow capital and the stocks already having cracked 30-40% isn't helping things and it's really not going to help if things sell off another 20% from here. In the midst of all this, Bank of Korea raises 25 basis points! I mean yea it's only Bank of Korea but still Nasdaq action indicate weakness. Today NQ sold off below 28000 and just 2 months ago, this would have bounced back 1500 points easy. Now it can barely bounce 200 points? I mean come on I thought about closing the shorts and taking pretty good profits this morning but I'm gonna ride these bad boys. I fully expect these funboys to get desperate and pull out even more stops, in which case the squeeze could become epic. But hey, if you're ready to put it on da line, you should leave da casino....

Is there some way to frame an IPO of Fannie/Freddie as victory in Iran/SoH? Perhaps then they'll finally get done I know according to Trump we've already won, and according to DJT an IPO is imminent ....for awhile....but two wrongs make a right so maybe we can tie a bow on both of these at the same time

With reference to engine 5 and 6 of the investment side of the income. Realized gains and excess FV over CV. Wouldn't there be double counting. Because eventually those excess FVs will flow through into the realized gains. I see engine 6 as more or a 5 in process.

@Hoodlum, it is difficult to "value" Fairfax's equity portfolio. What do you include? Market value/price? Or carrying value/prices? How should FFH-total return swaps be captured in the analysis? Bottom line, it is complicated. I normally use my Excel spreadsheet because it is easy and consistent - but this overstates the $ value of individual holdings and the total (it captures all market traded holdings at market value, including FFH-TRS). Bottom line, my numbers materially understate Fairfax's actual performance (which should be measured using carry value for associate and non-insurance holdings). In terms of where equities go (% of total investments), the key will be what Fairfax does with capital allocation. In recent years, Fairfax's primary use of capital has been share buybacks (shrinking their capital base). They have also spend a significant amount in recent years taking out their insurance partners - and they still have two large stakes to go: Allied World and Odyssey (growing insurance earnings). I don't think Fairfax has any desire to become a big conglomerate like Berkshire Hathaway. Bottom line, it will be interesting to see where the fixed income/equities split goes in the coming years.

That's the beauty of IPCO. Anything over $60 oil and we'll do well here.

March 2027 NFLX LEAP calls. Nibbled on some LQDA common stock.

NBF is at $60 for the quarter and $185 for the year.

I agree (and my portfolio benefits immensely on days like today where oil is down (with semis...), but it's about probabilities and price/value, and what I find interesting is that you can buy some cheap portfolio protection currently, as some of these E&P companies hardly price in anything more than $70 USD oil (and shale needs something like ~63-65$ to be economic, which seems like a reasonable assumptions for a long term floor, and one which has been moving higher). So you make a lot of money every day oil is at $80 USD, a ton of money if we get a period >$100 USD (while others parts of the portfolio might get smacked) and do okay even if oil goes down to $65. Is IPCO my best idea currently? I'm not really sure, but it gives my portfolio something beneficial. (and despite oil being ~flat since I first bought in '22, it's a 3x)

Given that the US shares of SK Hynix still trade at a large premium to the KRX-traded primary listing (and an even bigger discount to that holdco that owns 20% of SKHY) - it is probably a better short than Micron. Micron is a good long here, believe it or not. Head & Shoulders top about to blow up in a bunch of traders faces. don't be one of them!

I just got lucky and I didn't close my short position yet so who knows how this will play out I do think SKHY is a better short than Micron

Great timing. Thanks for this idea.

What makes you think 80% of MAGA can even read? Ask their leader what was the last book he read or look how MAGA followers tend to believe the outragous lies he spouts on a daily basis.

This takes me way back to HS. My first experience with beer (a terrible one). Me and a buddy went on a backpacking trip over fall break in the New River Gorge WV and nabbed some Guinness Extra Stout from his Dads cellar thinking it would be awesome. Did some 30 mile trail and stopped about half way to camp. "Nothing like a beer after a long hike!" Yuck! Can still remember the awful taste of warm Extra Stout to someone without a taste for beer. Ended up using it to cook instead lol

Do perpetuals for Doge and Shiba Inu count? Because those exist.

Thanks @Viking for this detailed writeup. When we look at the Associate and Consolidated $ amounts, are we seeing the value on the book for these? If so, I wonder how FV would impact the percentage breakdown of these when compared with the Marked to Market bucket. The FV amount would also increase the total equities amount in comparison to Fixed Income. I wonder if the insurance regulators look at FV of equities when determining the percentage of high quality fixed incomed that is needed when investing. I could see FV of equities growing to over 50% of the Investment portfolio with Fairfax over time.

Yup

BE gap now closed...:

Article 3 in the 6 part series. Articles 4 to 6 will be posted tomorrow. How Fairfax Invests Most investors think of Fairfax's investment portfolio as a collection of stocks and bonds. That view is incomplete. Over the past four decades, Fairfax has built a broad investment platform capable of investing across public and private markets, debt and equity, developed and emerging economies, and through a wide variety of investment structures. These capabilities significantly expand Fairfax's investment opportunity set. They allow management to allocate capital wherever it believes the best long-term risk-adjusted returns can be earned. Each capability expands the range of opportunities available to Fairfax. Together, they create an investment platform that is significantly broader than that of a typical property and casualty insurer. Fixed Income Most insurers invest conservatively in government and investment-grade corporate bonds. Fairfax has developed expertise across a much broader fixed income universe, including distressed debt and special situations when market conditions warrant. Management also actively adjusts portfolio duration, credit exposure and liquidity as market conditions change. The company demonstrated this capability in 2021 by positioning the portfolio for rising interest rates. When rates increased sharply over the following two years, Fairfax largely avoided the significant bond losses experienced by many financial institutions while preserving the flexibility to reinvest at much higher yields. The investment strategy demonstrates Fairfax's ability to actively manage risk while positioning the portfolio to capitalize on changing market conditions. Public Equities Fairfax invests in publicly traded companies around the world, seeking businesses with capable management, strong competitive positions and attractive long-term economics. Public markets provide liquidity and a broad opportunity set, allowing Fairfax to capitalize on periods when market prices diverge significantly from intrinsic value. Eurobank illustrates this capability. Fairfax invested after the Greek banking crisis, when investor sentiment remained deeply negative. As Greece's economy recovered, interest rates normalized and management executed exceptionally well, Eurobank became one of the most successful public equity investments in Fairfax's history. The investment demonstrates Fairfax's value investing discipline: investing in quality businesses when they are out of favour and allowing time for business performance to drive investment returns. Private Businesses Fairfax has demonstrated the ability to acquire, build and own private businesses across multiple industries. Private ownership allows Fairfax to partner directly with management teams, influence capital allocation and support long-term value creation without the pressures of public markets. Peak Achievement (Bauer) illustrates this capability. Fairfax partnered with Sagard to acquire the business out of bankruptcy in 2017, backing an experienced management team with patient, long-term capital. As the business recovered and performed well, Fairfax acquired Sagard's ownership interest in 2024. The investment demonstrates Fairfax's ability to identify strong management teams, support operational improvement and increase ownership in successful businesses over time. Venture Investing Fairfax also invests selectively in early-stage businesses. By partnering with exceptional entrepreneurs early, Fairfax can participate in the creation of valuable businesses long before they become attractive public or private acquisition opportunities. Digit Insurance illustrates this capability. Fairfax made a modest investment when the company was still a start-up, backing an experienced management team led by Kamesh Goyal. As the business grew into one of India's leading digital insurers, it completed a successful initial public offering and became one of Fairfax's most successful investments of the past decade. The investment demonstrates Fairfax's ability to identify exceptional entrepreneurs early and generate outsized returns from relatively modest initial investments. Real Assets Fairfax invests selectively in infrastructure, real estate and natural resource businesses that own durable assets capable of generating long-term cash flow. These investments provide recurring income while offering protection against inflation and diversification across economic cycles. Bangalore International Airport illustrates this capability. Fairfax recognized the opportunity early, acquired a controlling interest and installed an experienced management team led by Hari Marar. As the airport expanded and passenger traffic grew, Fairfax increased its ownership to approximately 74%. The investment demonstrates Fairfax's ability to identify attractive real assets, actively improve their performance and increase ownership as long-term value is created. Investment Structuring Fairfax has developed expertise in structuring investments using preferred shares, convertible securities, warrants, swaps and other customized financing arrangements. Rather than simply buying stocks or bonds, management creatively structures investments to tailor risk and return, solve financing problems and capitalize on short-term opportunities when financial markets become dislocated. Fairfax's use of total return swaps illustrates this capability. In 2020, management believed Fairfax's shares were trading at a substantial discount to intrinsic value but wanted to preserve cash during a period of significant uncertainty. Rather than repurchasing shares outright, Fairfax used total return swaps to gain significant economic exposure while committing relatively little capital. As Fairfax's share price recovered, the position became one of the company's most successful investments of the past five years. The investment demonstrates management's creativity in structuring investments to capitalize on attractive opportunities. Special Situations Fairfax has repeatedly invested where other investors were unwilling or unable to provide capital. Periods of financial distress and market dislocation often create attractive opportunities for patient, long-term investors. Dexterra illustrates this capability well. Fairfax invested after the collapse of Carillion plc, recognizing that the problems lay with the UK parent, not the Canadian operations. It later supported the combination with Horizon North, creating a stronger, better-positioned business. Dexterra has since expanded into the United States, and its share price has performed exceptionally well. The investment demonstrates Fairfax's ability to create long-term value through patient capital and disciplined execution. International Investing Fairfax has invested internationally for decades. Management has consistently demonstrated a willingness to invest wherever it finds the best long-term opportunities, regardless of geography. Fairbridge illustrates this capability. Fairfax built its investment platform in India through Fairbridge, led by Sumit Maheshwari. Its on-the-ground presence provides deep local knowledge, trusted relationships and investment expertise that strengthen Fairfax's ability to source, evaluate and manage investments in one of the world's fastest-growing economies. Relationship Investing Many of Fairfax's best investment opportunities originate through long-standing relationships rather than competitive auctions. By partnering with experienced entrepreneurs, investment managers and business families, Fairfax gains access to proprietary opportunities that may not be available to other investors. The acquisition of portions of PacWest's loan portfolio alongside Kennedy Wilson illustrates this capability. During the 2023 regional banking turmoil, Fairfax partnered with an experienced real estate investor to acquire assets under attractive terms. The investment demonstrates how trusted relationships can expand Fairfax's opportunity set during periods of market dislocation. Capital Recycling Fairfax does not simply make investments. It actively recycles capital by continually reallocating it to the opportunities offering the highest expected long-term returns. As investments mature and new opportunities emerge, management has demonstrated a willingness to sell businesses, increase ownership in successful investments, repurchase Fairfax shares and redeploy capital wherever it believes it can create the most value. Fairfax's share repurchases since 2018 illustrate this capability. Management has repurchased a meaningful percentage of the company's outstanding shares when it believed they were trading below intrinsic value, while also increasing ownership in successful businesses and redeploying capital from mature investments into new opportunities. The repurchases demonstrate Fairfax's willingness to treat its own shares like any other investment opportunity, allocating capital where it believes it will earn the highest long-term return. Summary Over the past four decades, Fairfax has built an unusually broad set of investment capabilities. This breadth gives management a significant competitive advantage. Rather than being confined to a particular asset class, geography or investment structure, Fairfax can allocate capital wherever it believes long-term risk-adjusted returns are most attractive. A larger opportunity set increases the probability of finding exceptional investment opportunities. Capabilities alone, however, are not enough. Management must also execute well. Fairfax's record provides a compelling answer. Over the past 40 years, the company has compounded its share price at approximately 19% annually. That performance is not the result of a single successful investment or favourable market cycle. It is the cumulative result of disciplined capital allocation over four decades. Recent execution has been equally impressive. Management has successfully navigated changing fixed income markets, generated outstanding returns from public and private investments, structured investments creatively, recycled capital with discipline and acted decisively during periods of market dislocation. The result has been exceptional growth in book value per share, intrinsic value and Fairfax's share price. Today, Fairfax is generating record amounts of capital from both its insurance and investment businesses. Its insurance operations are stronger than ever, and its investment platform has never been broader or more capable. Together, these businesses position Fairfax well to continue creating long-term shareholder value. The company appears well positioned to continue delivering above-average growth in intrinsic value per share over the long term. A Final Observation Fairfax's investment platform also helps explain why the company differs from most property and casualty insurers. Many of Fairfax's investment capabilities are difficult to recognize, difficult to value and often do not show up in reported financial results until years later. As a result, investors tend to underappreciate them. This helps explain why Fairfax can be a difficult company to understand, analyze and value.