bearprowler6

Annual dividend has been declared: https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Declares-Annual-Dividend/default.aspx

Not sure how many of you are aware of the fund established by Dave Portnoy of Barstool Sports (now owned by Penn National Gaming) to help out restaurants and other small businesses who have been crushed by the pandemic. Portnoy seeded the fund with $500,000 of his own money and in the 10 days since the fund has been up and running he has raised over $10.5 million and provided a much needed financial lifeline to 45 businesses from across the country. To date he has received submissions for assistance from over 10,000 small businesses. The video submissions that have been selected by Portnoy and his team to receive assistance from the Barstool Fund can be viewed here along with the video that Portnoy recorded of himself explaining what he is hoping to achieve with this effort: https://www.barstoolsports.com/the-barstool-fund Portnoy also records the reactions of those selected when he connects with them to let them know that they will receive support from the Fund. The reactions of the various business owners can be viewed here: https://www.barstoolsports.com/topics/barstool-fund Portnoy is an interesting character. Love him or hate him...very few can question the amazing work he is doing with the Barstool Fund. I have contributed to the fund and if you are able I would ask that you consider doing the same. Together we can help save small business one at a time: https://www.barstoolsports.com/the-barstool-fund

Two wonderful contrary indicators that Fairfax's stock price will do well in 2021 and 2022! Mark my words. Cheers! Fairfax’s future earnings power is higher today than it was 12 months ago. Yet its shares are trading down 28% from a year ago. Fairfax has numerous tailwinds as we enter 2021. 1.) insurance businesses are in a hard market. Currently we are seeing solid net premiums written and top line growth. This should soon start feeding into stronger earnings. 2.) shares trading at US$336 are undervaluing equity investments. Q4 has seen a significant increase in value of equity investments. This should result in strong earnings in Q4. As the economic recovery takes hold Fairfax’s equity investments have lots more upside. With shares trading at US$336 the risk/reward looks pretty compelling to me :-) - when will Mr Market start buying shares? Not sure. But my guess is we should start to see improving earnings and growth in BV when Q4 results come out and that should help. - has Fairfax been a terrible buy and hold investment for the past 10 years? Absolutely. Over the years Fairfax has made a few posters a crazy amount of money (Fairfax was the reason i was able to quit my day job more than a decade ago :-) Viking....thanks for preparing the excellent summary of the business activity during the last year or so at Fairfax. Point 5 of your summary notes the debt issue of $650 million at 4.625% which took place in April 2020. I think you should also include the remaining amount outstanding on the line of credit which at the end of the third quarter was $700 million under this point as the company will also need to generate free cash flow to repay this amount.

I honestly cant see how you can make these statements? Interest rates are at all time lows---unless of course rates go negative in the US? A clear head wind for any insurance company even if Brian B is making the calls on duration and quality. Quality stocks---we are talking about Fairfax aren't we? And I would love to get your feedback on the comments attributed to Prem in the recent G&M article. Has Fairfax closed out all its shorts? Have the comments attributed to Prem in the article left him with enough wiggle room to short again in the future? I don't think they've taken out any other short positions. That doesn't mean they don't have existing short positions or other hedges. You cannot manage a leveraged reinsurance portfolio without hedging some of the risk. You'd be a fool not to! Whether that hedge is a large cash position or actual hedges is a matter of investment management...but Fairfax has always protected the downside to their portfolio, especially in periods of economic risk, and that's because it will ultimately affect their statutory surplus and ability to write business when premium pricing is high. In terms of buying quality bonds and stocks. They learned to stop buying crappy turnaround insurance businesses and put Andy Bernard in charge of overseeing all insurance operations, they could do the same with the investment portfolio. I think Wade Burton and Lawrence Chin will have more and more responsibilities. I imagine the next generation of Fairfax positions to look more like Tom Gaynor, rather than Fairfax when the old guard at Hamblin-Watsa was fully in charge. I also imagine we won't do as well on the bond side as Brian ages, so quality stocks will become more important. I think we'll also see a change in the types of private businesses they buy...better quality...tier 1 instead of tier 2 and 3. Cheers! Sanjeev, I did not ask about hedges. I asked about the comments attributed to Prem in the recent G&M regarding Fairfax's short positions. Specifically, the article attributed the following comment to Prem: "However, Mr. Watsa said the company is not making bets against any stock or sector at this time." If this is an accurate statement than Fairfax has closed out the short that caused the unexpected loss in Q3. If it is not accurate then Fairfax needs to correct the record. I also do not believe you have addressed the concern I raised about the ultra low interest rates. As you know, Fairfax is required to hold a significant portion of its overall portfolio in bonds. The yield on these securities has been all but eliminated given where rates are. The overall yield in the portfolio will continue to decrease as each bond being held matures. Any upward movement in rates will result in bond losses albeit unrealized if Fairfax is able to hold each bond to maturity. It is an open question whether the underwriting performance will be sufficient to offset the loss of yield on their bond holdings. I do not believe the loss in bond yield can be replaced by quality stocks. I am not sure what that statement even means? You also commented that you believe Fairfax will change the type of private businesses they invest in---Tier 1 instead of Tier 2 or 3. What specific evidence do you have to support that statement? I see no evidence of this at all with the possible exception of the reorganization of Fairfax Africa and on this one I would have preferred that the company acknowledged that Fairfax Africa was a mistake and sold off its holdings. In the meantime they continue to hold numerous retail and restaurant businesses that will take years to recover from the impact due to covid and if they do recover they will get back to being mediocre businesses at best. Finally, you have previously referenced the positive impact that Wade Burton and Lawrence Chin will have on overall investment results. Two very talented and hardworking individuals but for now and for the foreseeable future Prem is in charge. Enough said on that point. I just get a sense from what you write or how you write that you believe that everything will work out just fine. Clearly myself and other posters on here are not in that camp and have several very specific concerns that need to be addressed before we can wholeheartedly jump back into Fairfax in any meaningful way.

I honestly cant see how you can make these statements? Interest rates are at all time lows---unless of course rates go negative in the US? A clear head wind for any insurance company even if Brian B is making the calls on duration and quality. Quality stocks---we are talking about Fairfax aren't we? And I would love to get your feedback on the comments attributed to Prem in the recent G&M article. Has Fairfax closed out all its shorts? Have the comments attributed to Prem in the article left him with enough wiggle room to short again in the future?

Sanjeev....I was wondering how long it was going to take you to respond to my post. I now have my answer. You are loyal to Prem and I get that. I do however believe that you are not as objective as you could be when it comes to discussing his investing results. BTW...that's okay...this is your board and you can do with it what you want. The job/role of any investment manager is to respond to the world they encounter. Holding onto positions thinking that you are right and the rest of the world is wrong year after year after year makes no sense. At least not to me. We must all adapt. This is a point Gregmal has made on numerous occasions and I happen to agree with him. Yes the amount of government intervention in this magnitude has never happened before. So what. It did happen. It was happening before our eyes. We all had to respond to that. Prem does not get a pass on this simply because of his past successes. Or because he is a great guy and a wonderful friend. Prem often quotes Ben Graham. Did Graham sit on losing "bets" or positions for 10 years? If I recall correctly Graham had a 2-3 year hold period and then he got out of the position if his original thesis did not play out the way he thought it would. Either you follow Graham or you don't. I feel at times that value investors love to sit around with each other and tell each other how smart they are. How stupid everyone else is for not getting it. They seem to take comfort in holding onto their positions in the face of all evidence to the contrary. When Prem says that the last 10 years has been tough on value investors. What does he accomplish by saying this other than being part of the misery loves company bandwagon. For what its worth...I thought Prem's deflation bet was brilliant. The amount invested (I believe something like $500-$600 million) for the potential payoff made sense to me. The fact that it did not work out was okay. I do not however agree with him doubling down over and over again on losing positions in Blackberry, Eurobank and Resolute Forest Products to name just a few. Holding onto these positions year after year because value investing will prevail makes no sense. Gates is a wonderful example. I am glad you brought him up. What about the old man himself... Warren Buffett? He seems to have done okay over the last 10 years. Bill Ackman is also someone who comes to mind. After a tough few years he pivoted and reacted to the way the world was and not how he wanted it to be. I really do not want to go back and forth here. I know I will never convince you of my views and I can assure you that you won't convince me of yours. I still hold a smallish legacy position in Fairfax and hope it does well. I was just frustrated by some Prem's comments in the G&M article and decided to respond to them on this board. Thanks for providing a place for me to do so.

In my view these are two of the most important statements made by Prem in that article: “For value investors, this has been a tough decade,” Mr. Watsa said. “I tell people, value investing has worked over a 100 years, you just have to be patient.” In the past, Fairfax has successfully positioned portfolios to take profit from market selloffs, using derivative-based investment strategies. However, Mr. Watsa said the company is not making bets against any stock or sector at this time. His focus is on finding underpriced, established companies that growth-focused investors overlook." I am pleased to see him acknowledge in writing that Fairfax does not currently have any shorts. Is this how everyone else reads this or can we rely on Prem to somehow spin his way out of this once again when further losses on shorts are recorded? Now for the comment about a tough decade for a value investor? How utterly ridiculous! How about he misread the impact of low interest rates and Fed policy intervention? How about he didn't understand the impact of technology on so many industry and sectors. Sitting around waiting for 10 years "patiently" waiting for value investing to be back in vogue means you were wrong with your stock selection. Its as simple as that. Even if his picks shine for the next 10 years on average over 20 years he will be lucky to breakeven on many of his selections. In my view, Prem did not adapt and is now unable/unwilling to admit he was wrong.

If this is the case the question becomes at what financing cost to Fairfax? OMERS is a major Canadian pension plan with total assets of approx $110 billion CAD (approx USD $86 billion). So a $1 billion "temporary" loan to Fairfax to finance the AW acquisition is not an immaterial amount. Also, any "delay" in repayment by Fairfax would attract an additional financing cost since OMERS is not known as the most charitable source of funds out there.

close .. "We closed our acquisition of Allied World on July 6, 2017 and we welcomed Scott Carmilani and Allied World’s 1,430 employees to the Fairfax family. As you know, Allied World is the largest acquisition that we have done and we pursued this acquisition because of Allied World’s outstanding track record over its 15 years of existence and the quality of its management team. We are very thankful to our financing partners OMERS ($1 billion), AIMCO ($0.5 billion) and two others. We issued a total of 5.1 million shares for Allied World. The effect of this acquisition is shown in the table below, which was previously presented to you at our 2017 annual shareholders’ meeting:" "Not shown in the table above is our investment in Eurolife led by Alex Sarrigeorgiou. As you know, Eurolife is one of Greece’s leading life and non-life insurance companies, created by Eurobank in 2000. We bought our share of Eurolife in 2016 for $181 million, with Eurolife being 40% owned by us, 40% by OMERS and 20% by Eurobank. We expect to buy out OMERS within the next two years, so Eurolife will become a Fairfax insurance subsidiary. Eurolife has earned $111 million (our share) since we acquired it, benefitting greatly from a Greek bond portfolio of about A1 billion. The non-life portfolio had a combined ratio less than 70% again in 2017. We are very excited to be partners with Alex and his team at Eurolife as they build a very successful company in Greece." unless i am reading this wrong, Eurolife is pretty insignificant ref: 2018 letter So, you are saying it's more like: 1.) funding subs in hard market ==> Allied, ORH, Brit and Zenith are okay, but over a few years C&F and NB could use perhaps $300m 2.) funding likely January dividend ==> $270m/year for each of 2021-23 = $810m 3.) take out Eurolife partner (OMERS) ==> $181m 5.) take out Allied partners (OMERS) ==> $1B So, it might be ~$2.3B to do all four. If they have EPS=$30/sh, that basically will eat up three years of a conservative Net Income number. SJ Would the Allied World buyout not also include the financing provided by AIMCO ($500 million) as well as the unspecified amount provided by the unnamed other financing partners? If so, the funds required by Fairfax would be in excess of $1.5 billion??

https://www.cnbc.com/2020/12/05/bitcoin-price-buying-bitcoin-how-this-family-buys-sells-everything-in-cryptocurrency.html

More news: https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Announces-Sale-of-RiverStone-Europe-to-CVC/default.aspx

Further news: http://www.gulfinsgroup.com/Renderers/Showmedia.ashx?Id=dbc9fdcb-3bfc-4344-b1fe-58301ca2a6fb&download=false

Xerxes---thank-you for doing this work. Although I agree with the consensus view that Fairfax looks cheap on a BV basis I cannot justify adding to my investment because of issues such as this one. I do continue to hold a very small legacy position in the company -- more out of habit than for any good fundamental reason. So the company is tight for cash and we can look at $1 billion that was basically flushed down the drain? Until this behavior stops (it was supposed to stop at the end of 2016) and until the company deals with its many long time underperforming equity (both public and private) investments it is not a very attractive long term investment. I sincerely applaud those that bought late last Friday or at the open on Monday. A nice short term profit for sure. But nothing has fundamentally changed with this company and that is what keeps me away.

Fairfax is a three legged stool: 1.) insurance / underwriting - solid 2.) investing part 1: fixed income - solid 3.) investing equities / op co’s - a mess The way to make very good money with Fairfax for the past 20 years is to wait for the turn in stool leg 3. (Mr Market was always slow to catch on so the shares became $20 bills lying on the ground in plain sight for all to see.) The problem for Fairfax investors is stool leg 3 has underperformed for the last 7 years (more than offsetting the gains made in stool legs 1 and 2). The good news for new investors in Fairfax is with shares trading at US$266 they will likely do well moving forward if Fairfax simply stops losing money with bucket 3. Crazy thing to say... but i think it is true (posters think i am only hard on Trump :-) And that is how out of favour this company is today... People do not want to own it because they expect Fairfax to lose more money in bucket 3. There are lots of legacy dogs still barking in the shadows: Toys R Us, Recipe, Blackberry to name a few that quickly come to mind... Now having said all that i might reestablish a position tomorrow. Because, to Sanjeev’s point, if they ever start to make a positive return from stool leg 3 the stock will rock. The other potential catalyst for shares is Prem’s creativity in surfacing value. Hi Viking...I agree with your 3 legged stool analogy concerning Fairfax with one exception. To date Fairfax's fixed income investing has been very solid---in my view the real strength of the company over the last many years. My concern is that given the ultra low interest rate environment we are in and will likely remain in for a very long time I am not at all optimistic going forward that Fairfax will enjoy the lift that it has from its fixed income investments in the same way that that it has over the last 30 years. Sure it can fund some private debt deals and achieve some yield enhancement in the corporate market but the bulk of its fixed income investments will be in governments bonds and hence return virtually nothing for the foreseeable future. This will put even more pressure on its equity investments and on this point point I could not agree with you more---- this part of the 3 legged stool is a total mess. So although a few posters on here are saying that all Fairfax needs to do is achieve a 3% return on its investments in order to achieve a 15% long term compound on its shares from this point forward I am not so sure this is as much of a slam dunk as some others on here seem to think it is. Your thoughts/comments and those of others would be appreciated. Well, then create your own pro-forma income statement for 2021. It might look a little like this: 1) UW profit Net Written Premiums $16B (up 6.5% over 2020) Consolidated Ratio: 94% (take the YTD CR, strip out the 10 cat points for 2020 and replace with 4 cat points for 2021) UW profit = $960m 2) Investment returns Investment portfolio $40B Investment return 2% (bond duration is strangely favourable for this assumption) Inv profit = $800m 3) Overhead = $200m (just grab the number from 2018) 4) Interest = $500m (run rate the first three-quarters of 2020) Earnings before taxes = $960m + 800 - 200 - 500 = $1,060m Taxes = $281m (tax rate 26.5%) Earnings after tax = $779m Sharecount: 26.2 milion EPS = $779/26.2 = $30 Is there anything outrageous about that bit of school-boy arithmetic? The current stock price is US$268, so a basic EPS of $30/sh would be an 11% earnings yield, which is not reliant on much of an investment return and makes no assumption of further price increases. The 15% target would be left in the dust if FFH actually got a 3% investment return. SJ SJ---your "school boy arithmetic" seems reasonable for 2021. My question however related to the potential for long term compounding for the shares at the 15% level. Your 2% investment return assumption which produces $800m in your analysis for 2021 seems high post 2021(note the drop off in interest and dividend income from 2019 to 2020). If my concern is correct on this point than an investment return well in excess of the 3% target is needed to achieve the 15% overall earnings yield. Expecting Prem (and team) to produce this level of long term investment returns on a sustainable basis is simply not reasonable based on either the results of the last 10 years nor the longer term prospects for the company's current equity holdings. The 2% is already very conservative. Of the portfolio, about $10b is corporate bonds yielding about 3.5% with a 3-yr duration, ~$17B is governments bills and bonds yielding about 0.5%, plus another ~$13B is equity-like investments (preferreds, common stocks, investments in associates). There should be no trouble at all to make 2% until the end of 2022 when the corporates will mostly need to be rolled. When you weight it all out, getting a weighted 3% might require about a ~6% return on the equity-like investments, which is not a particularly outrageous hurdle. After 2022, who the hell knows? It could go a couple of different ways. Either the risk-free rate remains at 0.5% in the "lower for longer" scenario, in which case you should expect to see tighter underwriting practices and higher insurance prices, or the risk-free will return to a more "normal" level which makes the 3% return easily attainable. But, over the longer term, capital will leave the industry if there is not some acceptable combination of underwriting and investment profit. SJ Very reasonable---thank-you! Seems like a good time however to remind everyone of the compound total annual investment returns actually achieved by Fairfax over the last 10 years or so: 2011-2016: 2.3% 2017-2019: 5.6% And yes I know that we need to look forward and not focus on the mistakes of the past however Prem seems unwilling to address several losing equity positions (both private and public markets) which account for a significant portion of Fairfax's current equity holdings. Combine this with the ultra low interest rates which in my view will be around for a very long time and we have a perfect storm which will work against Fairfax achieving the overall investment return it requires to achieve the 15% earnings yield. For what its worth...I hope my concerns are not valid and Fairfax shares soar however we are dealing with Prem so I believe a healthy dose of skepticism is warranted! So what this is saying, is even over past decade where investment returns were dismal and outweighed by short TRS and deflation swaps, they still managed the +2-3% compounded that is the benchmark for a 15-20% ROE going forward? And we don't have a hedged equity portfolio any more and many of their investments are off 50% or more from peaks at the end of 2019 period so seems to me that it doesn't take much to get this shop moving in that 2-3% direction. TwoCitiesCapital---that is certainly one interpretation of what has been presented. Another way to look at it---despite the higher yields offered by bonds between 2011 and 2019 and the gains realized on their massive bond portfolio during that same time frame due to falling rates they were only able to realize average overall investment returns of 2.3% for the period 2011-2016 and 5.6% for 2017-2019. As SJ pointed out earlier....Fairfax currently holds $10B in corporate bonds yielding 3.5% for another 2 years, $17B in government bonds yielding 0.5% and approx $13B in equity like investments (preferreds, common stock and investments in associates). Unless interest rates rise (in my view this is not likely) then $27B in overall bonds will earn next to nothing within 2 years which means the overall investment return will be solely dependent on the equity holdings which I believe is a very scary prospect for any investor into Fairfax who is looking to achieve a long term earnings yield of 15% or better.

Fairfax is a three legged stool: 1.) insurance / underwriting - solid 2.) investing part 1: fixed income - solid 3.) investing equities / op co’s - a mess The way to make very good money with Fairfax for the past 20 years is to wait for the turn in stool leg 3. (Mr Market was always slow to catch on so the shares became $20 bills lying on the ground in plain sight for all to see.) The problem for Fairfax investors is stool leg 3 has underperformed for the last 7 years (more than offsetting the gains made in stool legs 1 and 2). The good news for new investors in Fairfax is with shares trading at US$266 they will likely do well moving forward if Fairfax simply stops losing money with bucket 3. Crazy thing to say... but i think it is true (posters think i am only hard on Trump :-) And that is how out of favour this company is today... People do not want to own it because they expect Fairfax to lose more money in bucket 3. There are lots of legacy dogs still barking in the shadows: Toys R Us, Recipe, Blackberry to name a few that quickly come to mind... Now having said all that i might reestablish a position tomorrow. Because, to Sanjeev’s point, if they ever start to make a positive return from stool leg 3 the stock will rock. The other potential catalyst for shares is Prem’s creativity in surfacing value. Hi Viking...I agree with your 3 legged stool analogy concerning Fairfax with one exception. To date Fairfax's fixed income investing has been very solid---in my view the real strength of the company over the last many years. My concern is that given the ultra low interest rate environment we are in and will likely remain in for a very long time I am not at all optimistic going forward that Fairfax will enjoy the lift that it has from its fixed income investments in the same way that that it has over the last 30 years. Sure it can fund some private debt deals and achieve some yield enhancement in the corporate market but the bulk of its fixed income investments will be in governments bonds and hence return virtually nothing for the foreseeable future. This will put even more pressure on its equity investments and on this point point I could not agree with you more---- this part of the 3 legged stool is a total mess. So although a few posters on here are saying that all Fairfax needs to do is achieve a 3% return on its investments in order to achieve a 15% long term compound on its shares from this point forward I am not so sure this is as much of a slam dunk as some others on here seem to think it is. Your thoughts/comments and those of others would be appreciated. Well, then create your own pro-forma income statement for 2021. It might look a little like this: 1) UW profit Net Written Premiums $16B (up 6.5% over 2020) Consolidated Ratio: 94% (take the YTD CR, strip out the 10 cat points for 2020 and replace with 4 cat points for 2021) UW profit = $960m 2) Investment returns Investment portfolio $40B Investment return 2% (bond duration is strangely favourable for this assumption) Inv profit = $800m 3) Overhead = $200m (just grab the number from 2018) 4) Interest = $500m (run rate the first three-quarters of 2020) Earnings before taxes = $960m + 800 - 200 - 500 = $1,060m Taxes = $281m (tax rate 26.5%) Earnings after tax = $779m Sharecount: 26.2 milion EPS = $779/26.2 = $30 Is there anything outrageous about that bit of school-boy arithmetic? The current stock price is US$268, so a basic EPS of $30/sh would be an 11% earnings yield, which is not reliant on much of an investment return and makes no assumption of further price increases. The 15% target would be left in the dust if FFH actually got a 3% investment return. SJ SJ---your "school boy arithmetic" seems reasonable for 2021. My question however related to the potential for long term compounding for the shares at the 15% level. Your 2% investment return assumption which produces $800m in your analysis for 2021 seems high post 2021(note the drop off in interest and dividend income from 2019 to 2020). If my concern is correct on this point than an investment return well in excess of the 3% target is needed to achieve the 15% overall earnings yield. Expecting Prem (and team) to produce this level of long term investment returns on a sustainable basis is simply not reasonable based on either the results of the last 10 years nor the longer term prospects for the company's current equity holdings. The 2% is already very conservative. Of the portfolio, about $10b is corporate bonds yielding about 3.5% with a 3-yr duration, ~$17B is governments bills and bonds yielding about 0.5%, plus another ~$13B is equity-like investments (preferreds, common stocks, investments in associates). There should be no trouble at all to make 2% until the end of 2022 when the corporates will mostly need to be rolled. When you weight it all out, getting a weighted 3% might require about a ~6% return on the equity-like investments, which is not a particularly outrageous hurdle. After 2022, who the hell knows? It could go a couple of different ways. Either the risk-free rate remains at 0.5% in the "lower for longer" scenario, in which case you should expect to see tighter underwriting practices and higher insurance prices, or the risk-free will return to a more "normal" level which makes the 3% return easily attainable. But, over the longer term, capital will leave the industry if there is not some acceptable combination of underwriting and investment profit. SJ Very reasonable---thank-you! Seems like a good time however to remind everyone of the compound total annual investment returns actually achieved by Fairfax over the last 10 years or so: 2011-2016: 2.3% 2017-2019: 5.6% And yes I know that we need to look forward and not focus on the mistakes of the past however Prem seems unwilling to address several losing equity positions (both private and public markets) which account for a significant portion of Fairfax's current equity holdings. Combine this with the ultra low interest rates which in my view will be around for a very long time and we have a perfect storm which will work against Fairfax achieving the overall investment return it requires to achieve the 15% earnings yield. For what its worth...I hope my concerns are not valid and Fairfax shares soar however we are dealing with Prem so I believe a healthy dose of skepticism is warranted!

Fairfax is a three legged stool: 1.) insurance / underwriting - solid 2.) investing part 1: fixed income - solid 3.) investing equities / op co’s - a mess The way to make very good money with Fairfax for the past 20 years is to wait for the turn in stool leg 3. (Mr Market was always slow to catch on so the shares became $20 bills lying on the ground in plain sight for all to see.) The problem for Fairfax investors is stool leg 3 has underperformed for the last 7 years (more than offsetting the gains made in stool legs 1 and 2). The good news for new investors in Fairfax is with shares trading at US$266 they will likely do well moving forward if Fairfax simply stops losing money with bucket 3. Crazy thing to say... but i think it is true (posters think i am only hard on Trump :-) And that is how out of favour this company is today... People do not want to own it because they expect Fairfax to lose more money in bucket 3. There are lots of legacy dogs still barking in the shadows: Toys R Us, Recipe, Blackberry to name a few that quickly come to mind... Now having said all that i might reestablish a position tomorrow. Because, to Sanjeev’s point, if they ever start to make a positive return from stool leg 3 the stock will rock. The other potential catalyst for shares is Prem’s creativity in surfacing value. Hi Viking...I agree with your 3 legged stool analogy concerning Fairfax with one exception. To date Fairfax's fixed income investing has been very solid---in my view the real strength of the company over the last many years. My concern is that given the ultra low interest rate environment we are in and will likely remain in for a very long time I am not at all optimistic going forward that Fairfax will enjoy the lift that it has from its fixed income investments in the same way that that it has over the last 30 years. Sure it can fund some private debt deals and achieve some yield enhancement in the corporate market but the bulk of its fixed income investments will be in governments bonds and hence return virtually nothing for the foreseeable future. This will put even more pressure on its equity investments and on this point point I could not agree with you more---- this part of the 3 legged stool is a total mess. So although a few posters on here are saying that all Fairfax needs to do is achieve a 3% return on its investments in order to achieve a 15% long term compound on its shares from this point forward I am not so sure this is as much of a slam dunk as some others on here seem to think it is. Your thoughts/comments and those of others would be appreciated. Well, then create your own pro-forma income statement for 2021. It might look a little like this: 1) UW profit Net Written Premiums $16B (up 6.5% over 2020) Consolidated Ratio: 94% (take the YTD CR, strip out the 10 cat points for 2020 and replace with 4 cat points for 2021) UW profit = $960m 2) Investment returns Investment portfolio $40B Investment return 2% (bond duration is strangely favourable for this assumption) Inv profit = $800m 3) Overhead = $200m (just grab the number from 2018) 4) Interest = $500m (run rate the first three-quarters of 2020) Earnings before taxes = $960m + 800 - 200 - 500 = $1,060m Taxes = $281m (tax rate 26.5%) Earnings after tax = $779m Sharecount: 26.2 milion EPS = $779/26.2 = $30 Is there anything outrageous about that bit of school-boy arithmetic? The current stock price is US$268, so a basic EPS of $30/sh would be an 11% earnings yield, which is not reliant on much of an investment return and makes no assumption of further price increases. The 15% target would be left in the dust if FFH actually got a 3% investment return. SJ SJ---your "school boy arithmetic" seems reasonable for 2021. My question however related to the potential for long term compounding for the shares at the 15% level. Your 2% investment return assumption which produces $800m in your analysis for 2021 seems high post 2021(note the drop off in interest and dividend income from 2019 to 2020). If my concern is correct on this point than an investment return well in excess of the 3% target is needed to achieve the 15% overall earnings yield. Expecting Prem (and team) to produce this level of long term investment returns on a sustainable basis is simply not reasonable based on either the results of the last 10 years nor the longer term prospects for the company's current equity holdings.

Fairfax is a three legged stool: 1.) insurance / underwriting - solid 2.) investing part 1: fixed income - solid 3.) investing equities / op co’s - a mess The way to make very good money with Fairfax for the past 20 years is to wait for the turn in stool leg 3. (Mr Market was always slow to catch on so the shares became $20 bills lying on the ground in plain sight for all to see.) The problem for Fairfax investors is stool leg 3 has underperformed for the last 7 years (more than offsetting the gains made in stool legs 1 and 2). The good news for new investors in Fairfax is with shares trading at US$266 they will likely do well moving forward if Fairfax simply stops losing money with bucket 3. Crazy thing to say... but i think it is true (posters think i am only hard on Trump :-) And that is how out of favour this company is today... People do not want to own it because they expect Fairfax to lose more money in bucket 3. There are lots of legacy dogs still barking in the shadows: Toys R Us, Recipe, Blackberry to name a few that quickly come to mind... Now having said all that i might reestablish a position tomorrow. Because, to Sanjeev’s point, if they ever start to make a positive return from stool leg 3 the stock will rock. The other potential catalyst for shares is Prem’s creativity in surfacing value. Hi Viking...I agree with your 3 legged stool analogy concerning Fairfax with one exception. To date Fairfax's fixed income investing has been very solid---in my view the real strength of the company over the last many years. My concern is that given the ultra low interest rate environment we are in and will likely remain in for a very long time I am not at all optimistic going forward that Fairfax will enjoy the lift that it has from its fixed income investments in the same way that that it has over the last 30 years. Sure it can fund some private debt deals and achieve some yield enhancement in the corporate market but the bulk of its fixed income investments will be in governments bonds and hence return virtually nothing for the foreseeable future. This will put even more pressure on its equity investments and on this point point I could not agree with you more---- this part of the 3 legged stool is a total mess. So although a few posters on here are saying that all Fairfax needs to do is achieve a 3% return on its investments in order to achieve a 15% long term compound on its shares from this point forward I am not so sure this is as much of a slam dunk as some others on here seem to think it is. Your thoughts/comments and those of others would be appreciated.

OMERS always got paid its dividends in cash. I'm not sure whether that was a preferential arrangement, or whether Fairfax opted to capitalise Brit to grow by taking stock instead. I need to revisit the disclosures on Brit over the years. I think OMERS have done quite well. Well, yes, that was the second part of my observation. Not only did the buyout cost rise compared to guidance that I recall Prem providing during earlier teleconferences, but also it seems that OMERS was on the receiving end of a 9% dividend? WTF? It doesn't really make me feel better about any of the other existing partnerships that FFH has established with OMERS. SJ The lack of transparency/full disclosure around the various funding that OMERS has provided over the years is all you need to know. Prem continues to play up what a great partner Fairfax has in OMERS....great for OMERS and not so great for Fairfax shareholders. I continue to believe that Fairfax got way ahead of itself and could not internally fund the organic growth of its insurance companies, the share buybacks that Prem had promised and the various acquisitions that it made. OMERS was more than willing to "help" out and provide the capital needed. Although the cash level at the holdco remained essentially flat during the first 9 months of 2020: $1.153 billion at Sept 30/20 versus $1.099 billion at Dec 31/19 this only occurred because Fairfax drew $700 million on its line of credit, received $599.5 million on the sale of a portion of its Riverstone European Runoff business (to ....you guessed it.....OMERS) and completed a 10 year senior note offering of $650 million at 4.625%. To summarize----cash level essentially flat, insurance hard market supported and Brit's minority interest bought out however at a cost of approx $1.950 billion in 9 months.

Q3 Results are out: https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Financial-Holdings-Financial-Results-for-The-Third-Quarter/default.aspx

Seems the My Pillow guy has found the cure...?? https://www.cnn.com/videos/business/2020/08/18/mike-lindell-mypillow-ceo-coronavirus-cooper-intv-full-nr-vpx.cnn Why this clown gets any air time at all amazes me. Why anyone would listen to him, including the chief clown in the White House, is mind boggling.

Q2 Results are out: https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Second-Quarter/default.aspx

Well, yes, that is one potentially valid conclusion, and I generally view it as solid, sound advice. But, there is yet one more problem with an outfit that sometimes does not seem to respect its partners. That problem is that the controlling shareholder has, until recently, only owned 7% of the economic interest in FFH but is likely now up to 9% ownership of the economic interest. That arrangement once again creates incentive problems because it creates a situation where every dollar of FFH's money that the controlling shareholder channels to his pet projects only costs him personally 9-cents. This might be a potential explanation for seemingly strange decisions like hiving off $50m of FFH's investment portfolio to be managed by Ben Watsa. What is FFH paying Ben's firm to manage that $50m? Is it 200 bps per year? More? Less? Nobody on the outside knows. But, what we do know is that if it is 200 bps, that makes $1 million per year, and of that sum Prem would pay $90k to guarantee his son a job while the minority (majority) shareholders would pay the other $910k. Prem could have allowed his son to manage $50m of his personal assets, which would also have guaranteed Ben a job, but then Prem alone would be paying the freight on that. Is it the same type of situation with TS? As others have noted, the TS controversy amounts to chicken-feed in the context of FFH's operations. Giving Paul Rivett a sweet-heart deal on TS would only potentially cost a few million of FFH's dollars. But, is this a case where Prem is happily spending 9-cent dollars for the benefit of his friends? Who really knows at this point. I would hope that Prem provides an explanation at the next quarterly call. The problem with this type of personal conduct that gives the appearance of a potential conflict of interest is that it casts suspicion on both good and bad decisions. The charitable gifts that FFH makes are the same sort of thing where Prem is effectively spending 9-cent dollars. We like to believe that all of these donations are made with the most altruistic and best intentions. But, now, when an expenditure is made that is not perfectly obviously aligned with the duty of a fiduciary, it is hard to not have a niggling concern in the back of one's head that the expenditure might not really be in the interest of shareholders. SJ The "market" has responded to all of Prem's actions in the way that matters most; Fairfax's share price has gone no where. In fact, it is currently back to where it was at the end of 2013. Closing Price in CAD: Dec 31/13: $424.21 Dec 31/14: $608.78 . . . . Dec 31/19: $609.74 July 16/20: $424.41 It will take performance of 15% per year for the next 3 years to get us slightly above the price at the end of Dec 31/14! So this will be a 9 year period where the share price will have done absolutely nothing. There are many reasons for the under performance of the share price however I can't help but think that Prem's pattern of personal conduct has played at least a small part.

A few comments/questions: 1) Perhaps most importantly, in my view Fairfax's behavior on the Torstar acquisition (and during the several examples cited earlier in this thread) cannot be justified by the "deal flow" sent its way. 2) What about the deals Fairfax did not get a chance to look at because of how it behaved on previous deals? There is no way of knowing this however it is a possibility. Are you sure the company's reputation is as strong as it ever was? 3) Finally, what deals that headed toward Fairfax are you specifically referring to? And are you sure the terms of those deals did not adversely impact Fairfax due to the company's previous behavior?

Stop defending him....this one is not even close.... The revised Rivett/Bitove bid works out for something like $60 million in total to acquire a company that has $70 million CASH on its books and NO DEBT and no unfunded pension liability plus it has various minority investments that conservatively will raise a further $100 million when they are sold. You're asking some shareholders to stop defending him, but have you or anyone asked Prem why he is supporting the Bitove/Rivett deal? You guys always talk about self-dealing at Fairfax...show me some frickin' examples. The only things you guys point to is Resolute and now this. Resolute was to the benefit of Fairfax shareholders. If the Bitove/Rivett deal wins, do you think there might be some long-term opportunity for Fairfax? And why are you pissed off at the investor and not Torstar management...they are the ones who should be explaining why they are supporting a specific deal to all shareholders. Cheers! Here we go again....the old "long term"response! I have written on here before....without a specific timeline the phrase long term is meaningless! As far as I can see Fairfax has been silent on its motives for accepting a lower price for its Torstar shares (than offered by the competing group)...so in the absence of a description of any future beenfit that may accrue to Fairfax shareholders I assume none exists. furthermore, Stubble Jumper outlined it very well when he raised concerns with the actions of both Torstar's board/management and Fairfax! Have to leave the board for a few minutes since Greg Sorbora (part of the group completing against Bitove/Rivett) is about to be interviewed on BNNBloomberg.

Stop defending him....this one is not even close.... The revised Rivett/Bitove bid works out for something like $60 million in total to acquire a company that has $70 million CASH on its books and NO DEBT and no unfunded pension liability plus it has various minority investments that conservatively will raise a further $100 million when they are sold.