djokovic1

@KPO Frankly, I am not worried about the TRS w.r.t negative feedback loop. In a downside scenario if Fairfax stock fell an additional 30% from here over the next 4 quarters, the PnL hit will be ~USD $900m or around $50/share or around $12.5/quarter. The magnitude of that is ~ an extreme CAT year. While it will be manageable that $900m will be an opportunity cost loss, profits they could have been re-invested to keep compounding. So I don't think the size and magnitude is big enough to create a negative feedback loop. I also think they shouldn't be adding to the TRS but instead buy back as much stock as they can right now which is what I think they will do. And also start closing the TRS at higher prices. I believe the price when the TRS was first struck was ~$400. It has been a home run so far and shareholders have reaped the benefits. No one can time exits precisely and consistently, but I trust them to do the wise thing at the right time.

Thanks. Both those points would push expected EPS a bit higher. $65 accounting and $95 economic EPS. A little premature to do this calc today. But the major delta to end of month will only come from MtM moves. Great to have so many earnings streams locked and loaded.

Am I wrong in assuming that Q2 2026 EPS will be ~$90/share. That's including the one off Poseidon gain and the M2M value calculated by Viking as of end of May. Other items are at Q1 run-rate except income from associates that will reduce due to the Poseidon sale. I am not sure of the magnitude of negative impact of rising rates. The investment gains/losses in there do not capture impact on PnL from bond moves due to rate changes. But I wanted to put something in there as there is likely a negative impact in Q2. Obviously from here to end of June the big moves up and down can be the equity investments and the FFH share price itself re. TRS. I should clarify this is closer to an economic earnings view. Reported earnings will not include the Eurobank gain in the numbers, which as of right now will be ~$30/share after tax. So reported earnings, likely ~$60/share and economic earnings ~$90/share. Curious to hear thoughts on those ball park numbers (of course subject to market moves the next month).

I find the current share price super attractive. The stock price has been flat for a year while the business keeps compounding. And the future returns for the next 3-4 years are locked in except the equity gains/losses. But that too will keep compounding with a long term view. Downside risk is low at <8x EPS. I also think the next 3 year consensus estimates are obnoxiously wrong <US $ 200! as they don't factor in compounding over time. My biggest worry was rates going down but it seems more likely than not that rates are flat at best and likely go higher. It's hard for me to create a concrete bear case with a 5 year horizon.

Personally it’s because my return hurdle is 15-20%. For me, Berkshire and Markel don’t meet it. Fairfax and a few other non insurance businesses I own do.

market structure could have short term impacts on price (but not on value) and I don’t spend much time thinking about it. In the long term price will converge to intrinsic value. I avoid worrying about market structure etc because if you have alignment and good capital allocation (ie buybacks if stock is cheap), intrinsic value keeps compounding regardless. Which we have with Fairfax! Lot of companies in the UK are cheap arguably due to lack of flows into the UK and they continue to remain cheap in part due to lack of buybacks (until the good ones get taken out)

completely agree with this 100%. It’s based of my lived experience that most investors I know have studied or are invested in BRK/MKL but haven’t studied Fairfax or rejected it after a cursory look. Which explains to me why it trades at a big discount to peers. Nothing that time and continued execution won’t solve as long as we are right on management and their capital allocation. Bonus points: we get meaningful buybacks while we wait.

100% I agree Francis would be a great addition to the board! Loved his presentation shared by @mananainvesting It reminded me a bit of watching Li Liu present. I wonder why it hasn't happened yet? Seems like it would be a win win (as long as Francis has the time).

I spent a bit of time analysing their buybacks the last 12 months. A few observations: i) During closed period, roughly 1 month prior to earnings they put in a stricter limit on the buyback relative to when they do they buyback on their own through the NCIB. This limit seems to have been roughly CAD $2,350. In the recent past closed periods the reason they have bought back more is because the share price has usually been below that limit. This most recent closed period which was all of April, the share price was mostly above that limit as @SafetyinNumbers post shows. ii) The highest buyback price I have seen (not in closed period) is $2,475 so they have a higher limit on buybacks when they are doing it themselves (which makes sense as they are in control rather than a third party doing it) iii) This also means its likely that in non-closed period, if the shares price is depressed as currently, they are very likely to be buying back aggressively (my guess 1% a month). iv) The buyback price limit for excess cash should also be raised over time in line with intrinsic value compounding. Will be interesting to follow their actions albeit with a 1 month lag.

thanks!

Earnings were on April 30th so I am confused how they were buying back shares on 28-30th which clearly was during their closed period? Does it mean they don't have a buyback restriction during closed period? If that is true, then the buyback was purely limited by the $2,350 price limit (as you suggested)

I’m pretty certain, The buyback will be on at 1% a month till the next black out period (as long as the share price is at these levels).

Wow Francis is amazing! Thanks for sharing @mananainvesting. My sense is his not as famous as he should be outside of Fairfax community and Canada? Does anyone have his track record? Love the aspect he raises re. Investement leverage being high 2.5x-3x is super powerful which is what we have at Fairfax. To be fair a lot of other insurers also have high investment leverage (2.5x-3x) but none of them have i) A large allocation to equities like fairfax ii) a lot of the investing is outsourced (i.e more fees)

Yes on this website, but most investors I know don't know much about it and those who do still shun Fairfax for 2010-2020. I did too. Everyone knows Markel and Berkshire. Much fewer know about Fairfax and fewer still are willing to look deeper to consider investing in it. But that's irrelevant, what's important is whether they continue compounding at 15-20%. I don't understand this thinking. If it's cheap enough, then you should want them to buy back as much stock as possible with excess cash (you own the stock after all because its cheap!). Rather than having to do extra work and find new investments. And that's with 0% taxes. Any sort of taxes makes the argument for divs much worse. It's a cultural problem in the UK, rare to find support for buybacks. On the torque, I am very happy with it. From my perspective they are maximising the horsepower of their engine with prudent leverage. Berkshire arguably is underlevered. Markel in the middle. The biggest risk would be a zero interest rate scenario again which you alluded to.

Happy to get some counter balancing views! I don't know much about Lancashire, it looks cheap but Fairfax trades at a similar earnings and book value multiple. (Your 1.9x BV is incorrect in my view). I estimate $220-$240 EPS in 2026 and similar in 2027. So FFH trades at ~7.5x P/E (consensus isn't too different ~8x PE). Also Fairfax has a much longer track record of compounding, 40 years at 19%. Lancashire is 12% for 20 years, good but doesn't compare to Fairfax at a similar multiple. ROE is not the most important metric. It's ROE * Reinvestment rate. Fairfax is redeploying most of its capital. Lancashire doesn't do buybacks even though it's so cheap...why? It's a common problem with UK companies. The delta between 19% compounding and 12% compounding is driven mainly by great capital allocation and additional return from investing well (we disagree on that but if you work through the numbers you will see the delta comes from good investing). Lastly I had shared this earlier on the board:

Hi Kab, None of the other insurers apart from a small handful invest well i.e optimising investment leverage, investing a sufficient proportion of the book in equities and managing the duration of the FI book rather than blindly matching liability duration. Most of the value creation at a well run insurer comes from the investment operation (not insurance operation) -> Although yes the insurance operations is the bedrock, providing float at negative cost when done well. Re. the guidance, it's one part of the rough $5bn they expect to earn annually for the next 3-4 years. Having looked at Prem's communication since inception, I think its much more about telling it as it is (trying to be accurate) rather than anything else. With regard to the TRS discussion, based on my impressions from and around the AGM, they are mindful of the risk reward changing if Fairfax gets closer to intrinsic value and will act accordingly.

Yes completely agree Viking. I was commenting on the Q1 earnings w.r.t the irrationality of yesterday's price move, which arguably the Poseidon sale doesn't impact. From the point of view of the stock price move after Q1 earnings the facts about the Poseidon sale were known before the Q1 earnings, ie it should already be reflected in the FFH price before earnings (although reality is much more messy). All short term stuff, but never boring to see how markets behave.

Pretty nonsensical move as others on the board have pointed out. I find it surprising because there were no surprises in the earnings, they were in line with my expectations. If anything the premium growth was a positive surprise. Well, markets are not efficient in the short term. At these prices I expect the buyback to progress at 1% a month pace similar to March.

Well the board called the price action and Viking the EPS We have it all covered.

Of course it has zero effect on Fairfax. But that analysis is lazy at best. I’m exaggerating a bit, but if that’s the level of investment due diligence….

Just read through the Markel transcript who had a mediocre Q1 (Poor performing equity portfolio- BRK, Brookfield and some one offs so I don’t think any read through to FFH) Interestingly Tom Gayner towards the end was extolling how Markel has bought back 10% of shares out in 5 years which he with examples of other public insurers was showcasing that Markel is in the top tier wrt buybacks. But he flippantly got the Fairfax numbers very wrong and seemingly glossed over it. a) Fairfax has bought ~20% of shares out in last 5 years which is more than double all the examples he cited but he conveniently doesn’t mention that b) Tom also makes a surface level comment that it will take Fairfax another 5 years to buy 10% of shares out. Well they bought back 1% of shares out in 1 month! (March). If premium growth is flat, contrary to Tom’s remarks I think Fairfax can buy 10% of shares out in 1-2 years (not 5). If a public company CEO is commenting on other companies capital allocation they should atleast be roughly right, not an order of magnitude off.

They will be much more sensitive to close the TRS (ie well before intrinsic value is reached) vs buying back stock. Also they cannot buy back all the TRS through buybacks because they don’t have that much excess capital lying around. So it will have to be a mix of buy backs and selling it down.

Congrats! It's the best thing in the world. Sometimes, I am just walking along my 2 kids with my wife, the sun is shining, the kids are singing along and nothing could be more perfect. And those moments happen quite often. Of course on the other side, there is disciplining and many more demands on your time and less quality time with your partner. But quite interestingly unlike in investing, with kids, I cherish and am grateful for the good times and don't really remember the bad times. I guess that's why it's so fulfilling for most. Unlike investing, where due to loss aversion, the losses hurt much more than the joys of the gains.

Chubb and WRB with solid results for Q1. No major cats (last year was cali wildfire). Mid single digit premium growth. Seeing increased competition especially on property side.

You can imagine my joy when he said that!