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Updated June 1, 2026 An update of my book/collection of posts on Fairfax is attached below. New posts have been added. The book now has ~950 pages of material on Fairfax. My goal is not size - but I will continue to add material that I think adds value for those interested in learning more about Fairfax. I don't re-read the entire document when I post updated versions. If you see any big errors please let me know. Please note, not everything in the book has been brought up to date. That would have required a couple of months of work… and by the time it was done, much of it would be out of date again. My current plan is to keep updating parts of the document as time goes by. Bottom line, this document should be a much better resource for board members / investors than what existed before. I hope you find it useful. --------- For members who enjoy reading my posts on Fairfax I have attached at the bottom of this post two documents: Fairfax - The Emergence of a Wonderful Company: PDF file contains more than 100 of my best posts on Fairfax from over the past 2 years, organized into 20 chapters. Excel workbook: Companion document to the PDF file, contains 14 worksheets (see below for details). Sanjeev, thanks for everything you do running this board. For all the members on this investing forum, ‘thank you’ for breaking bread on a daily basis and sharing your thoughts on investing and life. Over the years, it has been a life changing experience for me and my family. What is contained in this document is the collective wisdom of this group. Let’s hope i have captured it reasonably well. A message from the legal department: Both documents are incomplete and contain errors. What is contained in the attached documents is not intended to be investing/financial advice. Its purpose is to educate and entertain. ----------- The Excel file contains 14 worksheets: FFH-24: lists and tracks many of Fairfax's equity holdings in real time Size: ranking of Fairfax's equity holdings by size Moves: detailed compilation of many on Fairfax's transactions going back to 2010 - organized by year Earnings Estimate: 2025 and 2026 Premiums: the build for 'underwriting profit' Interest: the build for 'interest and dividend income' Associate Equities: the build for 'share of profit of associates' Consolidated Equities: Non-insurance Consolidated Companies Investments: the build to calculate the return on the total investment portfolio Shares: reviews 'effective shares outstanding' Excess of Fair Value over Carrying Value: for the non-insurance associate and consolidated holdings Float: the build for float 13yr View: A 13 year view of many key metrics for Fairfax IFRS 17: Effects of discounting and risk adjustment - quarterly summary of historical numbers used in earnings forecast Fairfax May 2026 -compressed.pdf Fairfax May 2026.xlsx

Every month I get with my wife to review our financial situation. This month the of Crip-Family net worth was not impressive, and when returns are compared against the S&P, it looks even worse. I gave her the low down, specifically, that Fairfax really killed our returns YTD and in May especially. She asked "What happened with Fairfax?"...response was "Not a damn thing, literally no bad news". This is instructive...company moves notably lower with, from what I can see, zero reason. Yes, it is frustrating to see the impact on the net worth, this is the kind of thing we live for...company getting better and price getting cheaper. We have been buying on the way down, but hindsight says we should have waited a little longer. -Crip

We need to change the title to ‘Fairfax Stock - New 52-week Low’

Thanks for the advice. I do have fond memories of camping with my Dad. I remember once while camping he wanted to listen to a soccer match and took out his Grundig short wave, looked at the specs in the manual and figured out that he needed a 20 foot antennae to get the game. He attached wire to the antennae and attached it to a couple of trees that my brother and I climbed up to get it high enough.

Check out my most recent article for the Globe and Mail about Fairfax. This is a gift article. https://www.theglobeandmail.com/gift/b04eb1bcd666173196423362ad31a8785d529ba1ad1cee14b25891c6ca2ccfbf/AKS47ZLUWZFSXEKQVGUNGOWYCU/

Good question, @Viking…and the answer has to be that it is much better for Fairfax to buy out minority owners of the high quality insurers they already know and trust than to pay higher multiples for partial or total ownership of insurers that might be acquisition targets in external markets, but of whose management and reserving practices they are not as familiar with. Think back to when Buffett owned half of GEICO’s common stock, and had to pay a market price plus a premium to gain full ownership of the company whose reserving practices and operational and investment management were all known and trusted by him. Fairfax is in an even better position than Buffett was given the prices at which they are able to take out their trusted minority partners. And if for some reason Fairfax stock looks to be an even better investment than buying out minority partners, we can trust that Fairfax will find a way to balance their reinvestment opportunities as they did when they sold 10% of Odyssey to enable a Fairfax stock buyback. I think we can all agree that doing that was better for us as remaining shareholders than if they had borrowed funds externally (probably at an even higher cost?) and used it to take out some minority interests instead. Bottom line, I don’t need Fairfax to make the exact reinvestments that I, with my lack of direct knowledge of their opportunity set, think they should make. They have more than earned my trust that they will continue to treat me as a partner and that the reinvestment decisions they make in the future will be those that are likely to benefit us both.

Met Ben Watsa at a Europe value investor conference. Asked him why Fairfax was short duration at high rates. Mostly comes down to protecting the downside as they see potential for an inflationary spike.

Fairfax Q2-2025 Earning Results - 7 High-Level Thoughts I thought this would be a good time to get out of the weeds. Instead, with our review of Q2 results at Fairfax, we are going to zoom out today and look at the big picture. What did we learn about Fairfax from their Q2, 2025 results? Let me know if you agree/disagree with my list. What did I miss? 1.) Fairfax has a very good P/C insurance business Combined ratio = 93.3% Underwriting profit = $427 million Net premiums written growth = 4.8% Yes, the hard market is slowing. Top line growth in insurance is slowing. Nice to see that Fairfax is being disciplined (although Mr. Market will probably not like it). However, Fairfax will be able to continue to grow their P/C insurance business at above average rates - in addition to growth of NPW - by taking out their minority partners (see comment 5 below). 2.) Fairfax’s most important income stream spiked higher in Q2 Interest and dividend income = $666 million (was $606.5 million in Q1) Increasing by 10% in one quarter is a big deal. This puts the annual number at about $2.6 billion. It increased because the total investment portfolio continues to grow in size. And Fairfax continues to invest it very well. Yield of fixed income portfolio = 5.1% (same as Q1) Average duration of fixed income portfolio = 2.4 years (down from 3.3 in Q1) Fairfax also reduced the average duration of its fixed income portfolio from 3.3 to 2.4 years. They sold U.S. treasury bonds with maturities principally between 28 to 30 years for net proceeds of $1,129.2. Why? Probably because investors are not being compensated appropriately for the inflation risk on long dated US Treasuries. This is prudent risk management on the part of Fairfax - protect the balance sheet. Will analysts hate this move - because it reduces ‘visibility’? Probably. But analysts are focussed on the short term. Fairfax is running the business for the long term - and shareholders should applaud that. 3.) A new income stream is breaking out for Fairfax Fairfax already has 4 large income streams: underwriting profit, interest and dividend income, share of profit of associates and investment gains. The fifth income stream is non-insurance consolidated equity holdings. In recent years Fairfax has been investing heavily in this bucket of equity holdings. Since 2022, it has added Recipe, Grivalia Hospitality, Sleep Country, Meadow Foods and Peak Achievements. To go with legacy holdings AGT Food Ingredients, Dexterra and Sporting Life. I have been (impatiently) waiting 2 years for this bucket of equities to start delivering bottom line results that are in line with its potential - and it appears we might be there. Q2 = $126 million This puts the annual number at about $500 million. This is an important emerging income stream for Fairfax. My guess is it will be Fairfax’s fastest growing income stream moving forward - especially with the hard market in insurance slowing (capital will go to where it earns the best return). And yes, results for this group will have some volatility. 4.) Fairfax (and the team at Hamblin Watsa) continues to invest exceptionally well We got two important updates on the conference call today regarding a couple of Fairfax’s largest investments in recent years. PacWest construction loan portfolio In June of 2023, Kennedy Wilson and Fairfax purchased a $4 billion construction loan portfolio from PacWest. PacWest was caught in the regional bank crisis and they were forced to sell their best assets at a discount. (Of note, Kennedy Wilson also got the loan platform from Pac West - the 40 people who were running the loan portfolio also moved over the Kennedy Wilson.) We got an update today on how this investment has been performing for Fairfax over the past three years. Wade Burton, CIO and VP of Hamblin Watsa on the Fairfax conference call today: “Within the fixed income portfolio, our mortgages continue to perform well. We have been repaid on $1.8 of mortgages from the Pacific Western Bank transaction, where we purchased approximately $4 billion in commitments at 95% of par in 2023. The IRR on the loans repaid thus far is 14.7%. Thanks to the outstanding work of Bill McMorrow, Matt Windisch and their team at Kennedy Wilson, these mortgages are proving to be a fantastic investment for Fairfax.” Blizzard Vacatia (Berkley Group) One of Fairfax’s largest investments in 2025 (January) was the purchase of the Berkley Group, one of the largest independent timeshare companies in the US. With this deal, Fairfax partnered with Caroline Shin and her team at Vacatia. The partnership is called Blizzard Vacatia. Fairfax invested $810 million in various fixed income instruments (with an average yield of 8.6%) and $25 million in equity (50% ownership position). We got an update today on how this investment has been performing for Fairfax YTD. Wade Burton, CIO and VP of Hamblin Watsa on the Fairfax conference call today: “It’s early days in the timeshare investment, Berkeley, run by Caroline Shin, but so far, it has exceeded expectations. Berkeley has approximately 125,000 available room nights per month. They started the year at virtually nil occupancy for overnight stays. In month one, Caroline brought that number to 10%, the next month 20%, and the third month 35%. I’m happy to report year to date operating income has already reached our full year expectations. Again, outstanding and capable partners doing an excellent job for Fairfax shareholders.” 5.) Fairfax telegraphed how it will continue to grow its P/C insurance business - even as the hard market slows Minority interests own stakes in Fairfax’s two largest P/C insurance companies: Allied World = 16.6% Odyssey Re = 9.9% As a result, not all of the earnings from these two companies are accruing to Fairfax common shareholders. Taking out the minority shareholders will be an easy way for Fairfax to grow its P/C insurance business - it will boost the total amount of earnings that accrue to its common shareholders. On the Q2 conference call Fairfax confirmed that it would like to take out its minority partners in its two insurance businesses. They will likely to this in two steps: Allied World later this year (my best guess) and Odyssey in 2026 (or perhaps 2027). The timing will likely be determined by the opportunity set that exists in financial markets in general. If a better capital allocation opportunity comes along, perhaps they will delay taking out minority partners. Because of the call option feature (put in place when the deals were initially struck), Fairfax is able to buy out the minority partners at a very favourable price. As a result, these transactions are high certainty, solid return uses of capital for Fairfax. Taking out minority partners will be a way for Fairfax to grow its bottom line (the part that accrues to its common shareholders) even if the hard market slows further in the coming years. Brilliant planning and execution on the part of Fairfax. 6.) Economic results are much better than accounting results Excess of fair value over carrying value for associate and consolidated holdings increased from $1.4 billion to $2.4 billion, or $111/FFH share (pre-tax). The increase in the quarter was $1 billion, or $46/share pre-tax. This amount is not captured in Fairfax’s reported results (EPS, BV or ROE). This puts the economic value created by Fairfax in Q2 at about $97 share (EPS of $62 plus excess of FV over CV of $35). 7.) Fairfax is exceptionally well positioned today With $3 billion in cash to the holding company, Fairfax is all cashed up. The insurance subs are also overcapitalized (by about $3 billion) - with the hard market slowing, this is another chunk of money that could be sent as a dividend to Fairfax to be redeployed elsewhere. Fairfax is also generating about $1 billion in earnings each quarter. Fairfax has built an earnings juggernaut. Importantly, it is just getting started. Compounding is just starting to kick in… This is resulting in exponential growth. This is very hard for investors to grasp (humans think linearly). This will likely cause investors to underestimate future earnings - and that is what we have seen in each of the past 4 years (like a dog chasing its tail, earnings estimates for Fairfax have consistently been too low and subsequently keep getting revised higher). Fairfax has spent the last 39 years building out its investment management business. It has an amazing range of internal capabilities. This will allow the company to be very nimble and opportunistic moving forward. At the same time, Fairfax has developed a large number of relationships with external capital allocators. Fairfax is viewed as being trustworthy and desirable partner. This is resulting in deal flow - Fairfax’s phone is ringing. Volatility is back. Interest rates have normalized. The macro environment is highly uncertain (tariffs being just one factor). Volatility is a wonderful thing for a value investor like Fairfax - it gives them the opportunity to deploy capital at very attractive rates of return. And Fairfax is on a ‘hot streak’ (a reference to Stanley Druckenmiller). For the past 5 years the team at Fairfax has been executing exceptionally well. ‘They are seeing the ball really well…’

I went on a podcast and spoke mostly about Fairfax. https://t.co/x7v5g2OvGf

This is one of my favorite things to rant about so let me apologize in advance. This isn't a comment about Brett Horn in particular - I don't know him, and maybe he's great. But what I strongly recommend is to look to the broker analysts as a gauge of popular sentiment (if even that) or to understand how brokers drum up business. Nothing more. It is not a coincidence that companies reliant on capital raising tend to get the widest coverage and the best ratings. But since the ostensible separation of research from investment banking (and the removal of skin in the game - analysts ability to actually buy stocks in their coverage universe - in the name of removing conflicts of interest), the job is basically a glorified sales job for trading volumes. And many of them, if they do get a real nugget of information or have an actual insight, share it behind closed doors with whichever client trades the most through their bank. In other words... I wouldn't think that hard about it. The analyst incentive is to not stand out in a bad way and keep making ~$1-2mm/year to keep their kids in fancy schools. Even if one is actually bearish, he/she almost certainly won't stick his/her neck out and risk embarrassment and losing that cushy gig. Sorry, I've done that job as a bright eyed and bushy tailed junior analyst and unfortunately saw how the sausage is made, so maybe I'm too cynical now. Maybe the general takeaway is to keep your expectations low and allow yourself be pleasantly surprised, but the clear and simple fact is that @Viking and others with real insight and skin in the game do a 10x better job than any broker analyst. Maybe this wasn't the case in Lee Cooperman's days at GS (though it was probably even sketchier then) but it is now. At the bare minimum, the pay and prestige aren't what they used to be. The real talent is elsewhere. Expect the sell side estimates to keep climbing higher as Fairfax executes.

I once saw a cheers-less post. Gregmal was being disciplined over in the Disney thread…

@newtovalue you are welcome. Nice to hear that others find value in some of the posts. I use writing as a way to get my thoughts in order. And i love it when people take the other side as i spend a fair bit of time trying to figure out why i am wrong. I think my track record is pretty decent figuring out the earnings part of the equation. I am pretty terrible at figuring out the multiple expansion part of the equation (i tend to sell my big positions too early).

Ok. Let’s use a 40 year time horizon (I don’t). Their stock price compounded at better than 19% per year (US$, dividends included). And for the first 25 years of this time period they had some pretty crappy insurance businesses. Their stellar results were driven primarily by their investment decisions - which you characterize as ‘mediocre.’ Please square that circle… PS: Fairfax is a contradiction. What people think about the company. And what the company actually did. There is, IMHO, a massive disconnect.

US$1,605 - Could not help myself. - Added another 10% to my largest position. $70/share in earnings in Q2 looks to be a conservative estimate, so, that means $100/share in 1H of 2026 which puts them on pace for another year of EPS in excess of $200. Selling for just over $1,600... -Crip

BAMI initiation at NBF last week

We used to do Chalet Swiss near Yonge/Dundas. Appropriate upgrade!

Apollo out with a presentation on why the yield curve is steepening.

Thank you Viking for all the amazing work you put into this and especially for sharing it with us. It is very helpfull. I wish you all an amazing 2026!

The expected value framing makes no sense. They didn't exit duration in 2015 when rates were lower. They didn't add duration in 2018/2019 when rates were higher than where they exited. They exited their duration immediately following Trump's election. They said themselves that they expected economic growth to take off and rates to run much higher. They were wrong. They got rates modestly higher, never locked those in, a global pandemic and recession where long-end rates went to 0, missed out on additional income and massive capital gains potential for a handful of years, and were bailed out of all of it by a combination of an unforeseen hard market for insurance which ballooned the float that could then be invested at higher rates as rates rose their fastest pace in 50-years ....from supply chain disruptions/inflation expectations and not Trump's economic growth from policies passed 5-years priors. I'm not upset about it. The terrible call and investor fatigue after a string of terrible calls is what allowed me to renter the position in size at $250-450 2-years after selling my stake for $500-600. But I'm not rewriting the history because they got lucky - they were wrong from 2016 - 2020. They were right from 2021 - 2024. 2025 onward remains to be seen, but it's a coin toss and I don't like those odds. Would prefer to see neutral duration positioning with their alpha earned on credit opportunities. They seem to have a better track record with that.

Ncib where N means Normal.

I see we hit $2400cdn this morning. The gains on the TRS are going to look great for this qtr. Sing Re (Fairfax Asia) is now licensed to sell reinsurance in India. I guess the regulator had no concerns with Fairfax owning both Go Digit and Sing Re? https://www.lifeinsuranceinternational.com/news/sing-re-reinsurance-licence-india/ The regulatory approval enables the company to establish an IFSC Insurance Office (IIO) in Gujarat International Finance Tec-City (GIFT City). The move authorises Sing Re to conduct property & casualty (P&C) reinsurance as a Category – 2 reinsurer within the Order of Preference framework. The new IIO is expected to facilitate Sing Re’s access to the Indian reinsurance market.

Thanks all for the comments. I may be wrong, but I think you will find that if you take those same dates 2009-2020 and plot both FFH and the TSX index on a graph, you will find that Fairfax actually out performed the TSX during that period. So while performance might not have been great, it appears to have at least beat the index - and this doesn't include dividends. Further, there were times during the GFC when stocks were hit hard and yet Fairfax stock price stayed level or increased. Now while that may sound like a detail, it balanced off losers in my personal portfolio during that period and helped me to sleep at night. I have held FFH since 2007 @ about $215 a share and added through time. If I had tried to time the market there is no way I would ever been smart enough to have cherry picked when to jump in and out of FFH. But I am quite happy with my returns on Fairfax and it represents a bit over 50% of my portfolio.

Yep, that wasn’t on my bingo card for 2025. These guys have more angles than a protractor.

i received my copy few weeks ago. thanks for the thread guys. I think I ll have a go at these F Chou letters. I prefer Chou than in your face types like Ackman. The Forbes article from 3 years ago alludes to Francis wanting to become as big as Berkshire, is that truly the vision !?! Surely not as a private company PS: Forbes perhaps can tune down the rhetoric and maybe say as big as Fairfax. Or Markel for the American audience.

Right, we discussed this a few days ago. Seems like the answer is, indefinitely! Fairfax made about $2.4b in net earnings APART from investment gains last year (underwriting, interest income, share of earnings of associates), so it is at about 13 times earnings even without its investment gains (or 9 times earnings if you include the investment gains. On the thesis that they will never pick good equity investments or make any money from them except by luck, they're still cheap, half of Intact's multiple. And Fairfax's might occasionally make a gain on investment too...

First bought in 2016 as a tracker position at $653 CAD. Leaned-in in the past 5 years. Three-quarters of shares were bought post-2020. Nothing has been sold. Based on my archives, my average cost bottomed at $494 CAD in January 2021, then average cost has been going up. Today's average cost is at $660 CAD.

Different recap…”when I went all in” always owned shares sometimes much less than others. 2002/2003 Peter Cundill was buying Fairfax hand over fist and that is what brought me here. I was able to buy shares in free fall at $67 per share during bear raid in 2003. It was an american holiday and it was an epic crash day i will never forget it. Sanjeev put a crew of vagabonds together and we all made small fortunes on the upswing into $300. (Cdn) analyzing and more appropriately believing in Prem Watsa…we have bonded (pardon the pun) forever. Brian Bradstreet had a billion dollar gain on “the long bond” bet in 2003 and that was the size of the market cap at the time. (I recently came across momento’s from that time and sent them to Prem’s office) 2007/2008 We were able to calculate the credit default swap values by looking at the financials and calling traders for quotes in the marketplace. Our AI! Fairfax made $2b plus on those bets and we all knew it but the market did not…had 50% of my net worth in Fairfax. It was the third best performing stock in the world in 2008 up 50%. Did you know that Brian Bradstreet offered to buyout all Michael Burry’s clients at 100 cents on the dollar? Very disappointed Fairfax was not in “the big short”. Covid debacle/2021 Once again I loaded up in the $350 range…unfortunately I sold the largest of my position after the tender offer…there were many other bargains around but i highly regret missing a lot of the $700 move up…I have been a buyer this year though Fairfax has become a powerhouse! There are high quality people on this board and with regards to Fairfax that certainly could be a movie but they would rather watch “Roaring Kitty”! Lol. Sign of the times. I cut my teeth here and Prem and Fairfax are the foundation of what I am good at…we learned how to fish on this board and I will never forget it. Thank you Fairfax team you have been feeding my family for more than two decades. cheers, Dazel

Well, at least this is good news for Recipe and their +1,000 restaurants in Canada. Does Prem have Trudeau’s ear? “The government is proposing that the GST/HST be fully and temporarily relieved on holiday essentials, like groceries, restaurant meals, drinks, snacks, children’s clothing, and gifts, from December 14, 2024, to February 15, 2025.” The GST on restaurant meals in Canada is 5%. More for provinces with the HST (harmonized federal and provincial taxes). So this is a meaningful reduction. - https://www.canada.ca/en/department-finance/news/2024/11/more-money-in-your-pocket-a-tax-break-for-all-canadians.html# The current federal Liberal government has to be the worst federal government in Canadian history - at least in my lifetime. And we have had some bad ones. The current $250 cheque per adult + 2 month tax break (on a few things) is just the latest in their bat shit crazy management of the Canadian economy, especially over the past 6 or 7 years. I have tried to keep away from politics - but this Liberal government just keeps setting new lows. I am completely dumbfounded by what they say and do. Fortunately, Canada is less than 12 months away from a federal election - my only hope is that Trudeau stays on as leader of the Liberals. PS: My family will now be getting cheques for 5 x $250 = $1,250. Money we do not need. I suppose i should be celebrating…

22% annualized over the last five years. Cheers!

Best of luck, friend. I read your posts when you post in the Ideas section. I am rooting for you.

Agree with above. All should be disclosed. Will it? Unlikely.

Who is Henry Singleton? And why should a Fairfax shareholder care? “The failure of business schools to study men like (Henry) Singleton is a crime." Warren Buffett (quote from John Train’s book The Money Masters) Fairfax’s business model has been inspired by many great businesspeople/investors over the years. Who are some that immediately come to mind? Here is my top 3 list: Ben Graham - Value investing framework. Warren Buffett - P/C insurance model (float); operating structure. John Templeton - Go international; buy at the point of maximum pessimism. Did I get the top 3 right? Let me know what you think. Who should be #4 on the list? I think it might be Henry Singleton. What did Fairfax learn from Henry Singleton? How to think about - and do - capital allocation. The big picture part of capital allocation. Use all the available tools (both ‘sources of cash’ and ‘uses of cash’) and use them at the right time. And go big when appropriate. (Another more recent thing is optimizing the cash that is being earned by the operating businesses.) Who is Henry Singleton? Henry Singleton is an individual who is not well followed. That is interesting given his amazing accomplishments over his lifetime. Below is a short biography from Wikipedia: “Henry Earl Singleton (November 27, 1916 – August 31, 1999) was an American electrical engineer, business executive, and rancher/land owner. Singleton made significant contributions to aircraft inertial guidance and was elected to the National Academy of Engineering. He co-founded Teledyne, Inc., one of America's most successful conglomerates, and was its chief executive officer for three decades. Late in life, Singleton became one of the largest holders of ranchland in the United States.” https://en.wikipedia.org/wiki/Henry_Earl_Singleton What was Henry Singleton’s track record? Here is how William Thorndike, author of The Outsiders, sums up Henry Singleton’s track record: “Singleton left behind an extraordinary record, dwarfing both his peers and the market. From 1963 (the first year for which we have reliable stock data) to 1990, when he stepped down as chairman, Singleton delivered a remarkable 20.4 percent compound annual return to his shareholders (including spin-offs), compared to an 8.0 percent return for the S&P 500 over the same period and an 11.6 percent return for the other major conglomerate stocks. “A dollar invested with Henry Singleton in 1963 would have been worth $180.94 by 1990, an almost ninefold outperformance versus his peers and a more than twelvefold outperformance versus the S&P 500…” William Thorndike - The Outsiders Here is what Warren Buffett, a pretty hard marker, had to say about Henry Singleton: "Henry Singleton of Teledyne has the single best operating and capital deployment record in American business." Warren Buffett Bottom line, when it comes to building long term per share value for shareholders, Henry Singleton is one of the all-time greats. What were Henry Singleton’s greatest strengths? Singleton was exceptional at both core jobs of a CEO: Operating the business Capital allocation Singleton’s overarching objective was to maximizing long term per share value for shareholders. Corporate structure A key part of Singleton’s success was the corporate structure / operating model he set up at Teledyne: Operating businesses Decentralized Entrepreneurial Capital allocation Centralized Small head office Does this structure look familiar? The inspiration for Berkshire Hathaway’s corporate structure likely came from Henry Singleton and Teledyne. Fairfax also employs this same structure. Operating businesses Singleton was very good at operating businesses - putting in place the right structure, incentives and people. And the focus of the operating businesses was on cash generation, especially when the company completed the acquisition phase of its growth in the late 1960’s. This last point is critically important because optimizing cash feeds the ‘sources of cash’ part of capital allocation. Capital allocation In the rest of this post we are going to focus on the greatest strength of Singleton - capital allocation - because it is not well understood. And because it perhaps offers great insight into how Fairfax operates today. Singleton’s Capital allocation framework Singleton was a trailblazer when it came to capital allocation. What made Singleton stand out from peers at the time? Open minded/range - he was open to using all tools in the capital allocation toolbox (for both ‘sources of cash ‘ and ‘uses of cash’). Flexible - he was open minded / he adapted to changing circumstances. Rational/analytical - he used the right tool for the right job at the right time. Opportunistic/conviction - big opportunities were exploited very aggressively (he had a temperament that allowed him to do this). Independent thinker/contrarian - he often did the opposite of what conventional wisdom suggested was the right thing to do at the time. Unconventional - it did not matter to him that Wall Street did not/frowned on some of his methods / the use of certain tools. Control: it is important to note that Singleton was firmly in control of Teledyne. This control gave him the freedom to execute his unconventional approach to running Teledyne. Shareholders’ Equity - the genius of Henry Singleton We are going to focus on what Henry Singleton is known for most - his aggressive/prolific management of the company’s stock - both in issuing stock and buying it back. Singleton followed a pretty simple playbook: When stock is overvalued - aggressively issue stock and use it as currency to grow the business (buying other companies when they are available at much lower valuations). When stock is undervalued - use much higher cash flow from the business to aggressively buy back shares. Singleton had two distinct phases: 1.) Aggressively issue Teledyne stock (1960 to 1968) - executed at an average PE of 25x Allowed Teledyne to get much more back (value of companies being purchased) than what he was giving up (value of Teledyne’s stock). Singleton bought 128 companies using Teledyne’s stock; he massively expanded the size and scale of the company. 2.) Aggressively buy back Teledyne stock (1971 to 1984) - executed at an average PE of 8x Allowed Teledyne to get much more back (value of Teledyne’s stock) than what he was giving up (using cash in some other way). He bought back stock using tender offers (not open market purchases). Reduced shares outstanding at Teledyne by 90% by the time he was done. Unlike today, in the 1970’s buying back stock was viewed very negatively by Wall Street - it was viewed as a sign of weak/poor business prospects/management. What really stands out with Singleton is: The scale in which he operated when executing a winning strategy - both the massive number of shares he issued and the massive number of shares he then repurchased. Each phase lasted/was executed over a full decade. The discipline he demonstrated: shares were only issued at a premium valuation and repurchased at a low valuation. Singleton had an unfair advantage ‘Good artists borrow. Great artists steal.’ Picasso/Steve Jobs What company did Singleton understand better than any other? Teledyne - his own company. He also understood the company much better than Mr. Market and Wall Street. Singleton took Benjamin Graham’s insight on Mr. Market and the stock market in general and applied a unique twist - he applied it to Teledyne’s stock. The end result was amazing per share value creation for long term shareholders. Was Singleton taking advantage of Teledyne’s shareholders? Warren Buffett often talks about buybacks along moral lines - at least when it comes to Berkshire Hathaway and how the company thinks about its own shareholders. My view is this is more good marketing from Buffett than anything else. Buffett loves it when companies he owns buy back a bunch of their own stock - Apple is a great current example. And we know he thinks very highly of Henry Singleton. In recent years, Buffett has relented and has started buying back Berkshire Hathaway stock in meaningful quantities. The truth is long term shareholders of Teledyne made out exceptionally well - they made a fortune holding Teledyne stock over the decades. Bottom line, shareholders’ equity is an exceptionally important tool in the capital allocation toolbox that management teams can use to grow per share value for shareholders. If it is such a good idea why is it not used more? The interesting thing is most management teams are terrible in their execution of this strategy: they tend to issue their own stock at low valuations and buy back their stock at high valuations. These activities destroy long term per share value for shareholders. Most companies don’t utilize this strategy more aggressively because they are terrible at it. What does all this have to with Fairfax? Not all companies are terrible at executing this strategy. That is what we will explore in our next post. —————- Twenty Punch Investments https://www.twentypunchinvestments.com/p/henry-singleton-and-teledyne —————- A Case Study in Financial Brilliance - Teledyne by Leon Coopermam https://fundamentalfinanceplaybook.com/wp-content/uploads/2019/02/leon-cooperman-case-study-henry-singleton-teledyne.pdf —————- Henry Singleton: A Capital Allocation Masterclass in Three Acts by Kingswell https://www.kingswell.io/p/henry-singleton-a-capital-allocation —————- The Outsiders | William Thorndike | Talks at Google

My oldest daughter (24) is in Toronto visiting a couple of fiends. What is she doing? My younger daughter's (21) response (at the bottom) cracked me up. Fairfax is definitely a family affair in our house PS: my kids TFSA's are 100% in Fairfax (since they were opened a couple of years ago). They are very happy shareholders (they look at their account balances).

Well I would just like to say thanks for the post nwoodman! I had just woken up, let out the puppy, and saw your post and said "What the fuck is the market doing??" and ran upstairs to start dumping BRK shares pre-market. Sold from 430 all the way down to 424. No clue what that market reaction was but I was like, "did they read the same report as me???"

https://www.seafarerfunds.com/prevailing-winds/china-commission-testimony-2023/ U.S.-China Economic and Security Review Commission China’s Current Economy: Implications for Investors and Supply Chains August 2023 At least for me, a well thought out presentation of China's issues and how the US should interact.

@StubbleJumper why do you think 1.) a 95-96CR is not sustainable over the next 5 years? What if Fairfax IS becoming a better underwriter? 2.) interest rates today are ‘favourable’? What if interest rates are simply back to normal? 3.) power of compounding is dead? it also appears you think Fairfax (and its equity holdings) will not invest record earnings well moving forward… $3.5 billion per year in earnings is a big number… it could deliver $350 million ($15/share) in incremental earnings to Fairfax each year if it is invested wisely. 2023 + 2024 + 2025 - year after year etc. You appear to be completely discounting the power of compounding looking forward… Yes, the hard market will end at some point. Yes that will slow top line organic growth. But why does that mean CR has to immediately increase to 100 or higher? Yes, interest rates have increased from when they were zero. Why do we think they will be going back there? People are anchored to the financial regime from 2008-2021. What if the next 10 years is different? Maybe we ARE in a structurally higher inflation environment. Which suggests we are also in a higher interest rate environment. Cost of capital matters again. Active management matters again. Since 2018, Fairfax has excelled with active management. Why do we think they are all of a sudden going to get stupid? Do i know how the future is going to unfold for Fairfax? No, of course not. I see a range of outcomes - some good and some bad. With a ‘baseline’ forecast i try and find the middle ground in the forecast. Some items will be too high; some will be too low. I also try to work with facts as much as possible. Do i know how the insurance cycle is going to work out? Ot the economy? Or interest rates? Macro? I have no idea. So why would i assume it all turns against Fairfax? My guess is there will be both puts and takes. What i see on the board is lots of pessimism. But no balance. No discussion of what might go better than expected. So i view people on the board as being too bearish in their outlook for Fairfax’s earnings moving forward. i don’t equate bearish with being conservative. Conservative would include a more balanced discussion of positives and negatives. I enjoyed listening to Howard Marks most recent memo: Further Thoughts on Sea Change - https://www.oaktreecapital.com/insights/memo/further-thoughts-on-sea-change ————— PS: look at Eurobank. Look at the turnaround at this company the past 5 years. Look at what it is earning today (a record amount) and what it is doing with those earnings (purchase of Hellenic Bank). My guess is EPS will increase 20% in 2024. They likely will be instituting a dividend in 2024 and payments to Fairfax could be $80-$90 million. This will increase total dividends received by Fairfax by 50%. It is meaningful. Not built into my $150 ‘normalized’ number. Digit? Do people think we are done with this investment? My guess is it is likely to deliver significant incremental value to Fairfax shareholders moving forward. GIG is a great real time example. This purchase will increase top line. And float. And investments. Fairfax is done after the GIG acquisition? Because we don’t know with certainty what they are going to do we assume they are going to do nothing? These are just three quick examples. Fairfax has so many levers to pull to drive value for shareholders moving forward with insurance and investments. My guess is they are going to continue to execute well. But i remain open minded.

On that point, historically they would be correct. The insurance cycle is self-correcting to the extent that attractive profits have always attracted new capital which subsequently made the attractive profits disappear. I will write once again what I wrote in January. If you give one of FFH's subs an extra $1 of capital, they can use it to write $2 of premium. That $2 of premium will earn 12-cents underwriting profit for the sub (Q2 CR=94). As we all know, the sub collects the premium long before it pays out an indemnity, so it gets float for a year of probably roughly $1 from writing those $2 of premium. The incremental $1 plus the original $1 of capital that you gave the sub can be invested today in a boring 12-month US treasury which closed Friday at 5.29%. So, in total, that incremental dollar of capital that you gave the Fairfax sub can earn about 22.58 cents of operating income. The profitability is ridiculous. A 20%+ margin will eventually attract new capital to the industry. As it always does, new capital will eventually push down underwriting profitability. There's a reason why Prem expressed a degree of surprise during the conference call that this hard market has endured as long as it has, and that new capital does not seem to be flowing into the industry. That being said, FFH has a few years of strong profits baked in. There will be at least 2 or 3 good years of profits, but understand that it will not continue forever. I see some truly enthusiastic valuation levels being proposed on this board for a company that sells a commodity product with few barriers to entry. There's still room for the price to run, but that will be mainly from the earnings that will be retained over the coming 2 or 3 years rather than some marked increase in fundamental valuation. SJ

Some guy using the name "Ben Dover" sent me this angry message today: Fuck you and forcing people to pay $50 to sign up for a membership on a god damn internet forum After your hilariously failed career as an "investor", you clearly are down on your luck and have to resort to bilking people for $$ on an internet forum. Not only are you a shitty investor, you're completely oblivious of sound business practices and are all but ensuring the death of this website. Pathetic loser. May God have mercy on your dumbfuck soul. Genius used his Goldman email address: [email protected] And I'm the pathetic loser, eh! Cheers!

John, I know you were probably kidding, but I was in the neighborhood and stopped by. They wouldn't let me inside here or at the stock exchange and seemed quite surprised that I wanted to see inside. Needless to say the better half didn't find it as amusing as I did when I was questioned by security. "No, I don't have an appointment with anyone in particular...but I work in finance and I'm on vacation so it all makes perfect sense you see..."

The risk of balance sheet recession is real and their lack of serious action to date is puzzling given the rapid deceleration in economy. Not sure what they are waiting on.... They have acknowledge the issue and the remedy at the highest level.... Folks point out the high level of local government debt. Central government debt isnt too bad and its all denominated in their own currency with low inflation and $6T foreign currency reserve (mostly dollar), they have both the fiscal space (to print and spend) and monetary space (low inflation) to stimulate the economy. The issue is timing....analysts have been screening immediate action needed but so far crickets.....other than small interest rate reduction earlier last week.

This is rather long but is an excellent and balanced piece on China opportunities but also glaring issues. This guy spent 30 years in the National Planning Commission coming up with the goals and execution for nation nth 5 year plan. https://www.pekingnology.com/p/ex-ndrc-officials-comprehensive-review The last paragraph says it all... In summary, to address the structural economic slowdown in China, it is not necessary to solely rely on expanding domestic demand. Stimulating government investment through fiscal stimulus is not sustainable, considering the increasing debt burden of local governments and the limited room for further borrowing. Instead, focusing on supply-side structural reforms, such as addressing regulations in the real estate sector and promoting long-term public rental housing, while encouraging innovation and entrepreneurship, can lead to more efficient and sustainable economic growth. These reforms can also foster the development of new industries, technologies, products, and services. Emphasizing market-oriented reforms, rule-of-law governance, property rights protection, inclusivity, openness, and innovation and entrepreneurship will contribute to overcoming the current economic challenges, aligning with the original intent of China's reform and opening-up policy initiated in 1978. We must unswervingly stick to that route. I think author is saying Xi has veered off course and thats not going to be good...we need to get back on the old track.... Three-legged stool of capitalism Chinese style is unlikely to work well because:- (i) rule-of-law governance - no CCP value destroying matras on tech/education, etc (ii) Openness - Foreigners were blocked access to CHinese equivalent from Bloomberg recently for financial/market data - Access to global uncensored internet so people can make informed decisions and foreigners can easily stay in touch with their famiies - Xi has made china more of a jail - who wants to live in a jail ? (iii) inclusivity - Xi prosecution of Uihguyr and tibetan culture , Pushing Han/Mandarin culture as the primary (iv) Entrepreneurship - stop attacking entrepreneurs , innovation comes from private enterprises, not SOE ...Xi has reversed trend favors SOEs. My point is China has potential, but they also have a lot of structural issues and the ideological Xi is not helping the situation with bad ideas.

@Luca, Yeah I know, but this topic is not about Swedish conglomerates in general, but about Swedish Investment Conglomerates, who are applying the special Swedish tax feature of "skabelonindtægt" [translated to English : "Template income"] while investing in listed companies, as I have explained upstream in this topic, where the company gets a deduction in its taxable income for dividends paid to its shareholders, while at same time not subject to tax on the received dividends from its listed investees. To me, a crazy tax practice, but I'm certainly happy to take advantage of it. Teqnion AB is not such a creature.

TA works in hindsight. It has no useful benefit in predicting what will happen next. I didn't care that Fairfax was at $400...I looked at price to book...it was at 0.55-0.6. That's all I cared about. Just like I don't use TA to predict when to sell. If FFH gets to 1.5 times book, I'm completely out. In between, I average in and average out. Simple and it works! Nothing to do with TA. Cheers!

That could be said for any country, state, county, city, or even company.

My ad of the day. It's getting ugly out (or in) there:

When I did my last update on Fairfax's earnings estimates for 2023 a couple of days ago, I noticed my spreadsheet had bunch of errors in it (mostly the historical information). I also: - added a few more years of history - added 2022 YTD numbers (to help forecast 2022 YE) - made a few tweaks to my 2022 & 2023 estimates ---------- Below is a short summary of what is included in each row. 1.) underwriting profit: is just insurance and reinsurance. Not runoff and life insurance (which is captured a couple of lines down). 2.) interest and dividends: for all of Fairfax 3.) share of profit of associates: for all of Fairfax; includes associate equity, real estate and insurance holdings 4.) life insurance and runoff: just underwriting results 5.) Other: captures Fairfax's consolidated equity holdings 6.) Interest expense: for all of Fairfax 7.) Corporate overhead 8.) Net gains (losses) on investments: captures realized and unrealized gains on Fairfax's fixed income and mark to market equity holdings (including derivatives like the TRS on FFH) 10.) Non-controlling interests: primarily the parts of Allied, Odyssey and Brit that Fairfax does not own I am least confident in my estimates for two buckets: Non-controlling interests and Income taxes. ---------- Below is a summary of Fairfax's equity holdings broken out by size and accounting treatment. A.) Mark to market is captured in 8.) Net gains (losses) on investments B.) Associates is captured in 3.) Share of profit of associates C.) Consolidated is captured in 5.) Other (revenue - expenses)

It always surprises me that when Buffett and Munger say that cryptocurrencies are worthless, there are thousands of intelligent people arguing otherwise. Buffett and Munger have a very, very high success rate with these predictions. The counter argument is always that Buffett doesn't understand crypto. That's like saying Einstein doesn't understand the relativitaets theory. An asset is worth the discounted cash flows. Since crypto doesn't produce anything, they are worthless.... Crypto people always come up with elegant theories, but investing is simple. The elegant theories are probably made from the people who are selling or profiting from high crypto prices or are technology people, which like the technology aspects of crypto. Investing is simple, but not easy.

I've found that the bottom in the past was always when more and more boardmembers (whether on COBF or the FOOL BRK Board) think there is no bottom or start to feel the despair. We aren't there yet, but I've certainly noticed more boardmembers thinking the world is about to blow apart. Cheers!

Just my 2c but these kind of ideas suck. No offense to the author. The reasons are simple though. Its too macro. Too complex. Too many things that can go wrong that dont allow you to make money even if your thesis is right. And at the moment, too many people are thinking its a good idea too because of what just happened with Russia. Its like the people saying you should buy puts after the markets gone down 10%. You would have just just as well, if not better owning VIX calls or US index puts as you would have shorting Russian stocks before the Ukraine thing unfolded. Just keep it simple and stay in your own backyard.