Txvestor

And take the capital loss to offset some of the Poseidon gains.

I think 11 years in with meagre returns. The overall sentiment would be to sell. However, I do plan to hold because if you look at the projected passenger numbers for BIAL through the next five years, it's pretty impressive. And I happen to believe that the projected increase in air traffic will arrive. Otherwise the main assets remaining are IIFL CSB and Seven islands Shipping. All of which seem to be growing nicely. So unless I have a better capital allocation opportunity why sell and incur capital gains.

Even as they start H1 2026 with EPS probably under $100 a share. Maybe at about $90 or so. It wouldn't surprise me one bit if mark to market security values and interest rates and TRS move-in a good direction they still end up at eps of $200+ at the end of the year. The number of options management have to allocate the streams of cash that they get is one of the most distinguishing features of this security. Each allocation option has an expected rate of return and I think they know each one with a reasonable clarity.

Yes, but bear in mind two things. The first quarter of this year, the TRS position had a paper loss of 342M or about $16 a share and they had an interest rate going up headwind still ended with a quarterly eps of $32. This quarter the mark to market equities have done fairly well, and then there is the Poseidon sale to add to the other earning streams. The TRS loss looks to be about half that of Q1. So even against that headwind and the 0.2% or so bump in interest rates, we are likely to see a fairly strong eps print. They're not cash poor at this time. Finally leverage works both ways. And when market sentiment turns or if interest rates drop, the same headwinds will turn into tailwinds. At a price earnings of 7-8, I think they should use the excess cash that they have to just buy back stock. Rinse and repeat. And eventually, when the stock reaches closer to their assessment of intrinsic value, they can unwind the TRS position and delever more.

I agree. But wouldn't it be something if we exit after a decade plus and it goes to $100 in this hot air market. I know when it went to $30 in the Covid meme stock craze they couldn't exit due to their position size but there's no such constraint this time around. I also know it's damn near impossible to time it when it's moving based on hype. I had a small BB position that I exited at 17 to see it go all the way to 30 then back down.

Bringing Vikings point into this discussion, bear in mind, Fairfax has bought back about 9% of its shares outstanding during this time since early 2024. If as many believe these purchases were made at prices significantly below intrinsic value, and we're talking perhaps 30% below, and the price to book has not budged, that's an additional argument for it being a better value today. Their TRS position is another investment that over time driven this same direction, by magnifying shareholder impact.

They also need to have $ ready for KW buyout.

Forex rate will impact this. And it's unclear to me how much of this are one time gains from the airport city real estate gains. They cite 13.8x cash flow multiple on a 3B valuation. That's a $217M number. So yeah, I do think 500M is aggressive.

I think that might be a challenge if nothing else due to the weakness in the rupee which is approaching 100:1. The split between domestic v International is still around 5:1, although international is climbing as a share it's still going to be much smaller in 27/28. International passengers spend on average 3 or 4x a domestic passenger on concessions and airport fees are likewise. We'd be lucky to get to a 50/50 split in revenues by then. So the weak rupee impact will be significant. Likewise cargo fees are unlikely to keep pace. As they're already with a large share of that and more regional airports are opening up. Lastly the real estate is a huge component of the value potential here but again mostly domestic economy and real estate valuation driven. Whilst I do see growth, I think a 60% EBITDA increase is wildly optimistic. A $400M in 2yrs I could see. Their EBITDA margin is already near 70%. The good thing is whatever is earned is mostly going to be reinvested in the development of the airport so the capital investment side might be a little lower, and eventually valuations catch up. This is unfortunately one of those really long term plays that will test every investors patience.

As with so many things that Fairfax does, I think they like keeping optionality. I think the default would be to buy back the shares. However, the unlikely event that the market goes down significantly and Fairfax shares do well. They may choose to take it out as cash pay the capital gains tax and then use that money to buy some really beaten down equities. That's one scenario where it may make sense. But giving themselves that flexibility is something Fairfax seems to do everywhere.

I think the fact that it's not listed on the NYSE is also a factor. I doubt that will ever change as a result of the fiasco with the shorts exceptionally well chronicled in the book The Fairfax way. I thought the TSX60 add would have had a larger impact than it did but guess not. I think there's a fairly large pool of $ that will not invest outside of the US or in ADRs.

Absolutely and even when he finally started doing it; it was at prices well below IV, he started at 1.1XBV folly well knowing IV had exceeded by more than 10% over 50yrs of investing, and then upped it eventually to 1.3. I think generally he had this view that share buybacks were him exploiting an information edge and he probably looked at it like him buying back shares from his elder sister who didn't know details and just waited for annual updates. I expect Greg Abel who has the unenviable task of allocating cash flows of 10s of billions annually on top of the 380B watches to be a lot more aggressive in this regard. Realistically speaking, with Buffett fading out of the picture, consistent buybacks under 1.5BV or a dividend make a lot of sense. As I can't see them eating but unable to make almost any sized acquisition.

Not just then. There were times well after the GFC around the time Buffett announced he had undergone treatment for prostate cancer. Where it was cheap for a long time, around $75-85 a b-share. The appetite to buy back just wasn't as strong back then.

And my wish as a long term shareholder is that they use excess cash to concentrate my position in what we(and more importantly they) know is at values where the LT inbuilt ROI makes it an easy hurdle. Honestly they should measure that option vs any other use of that investable cash. Double down on what's working and cheap. Why not, with the excess cash as long as the balance sheet is sound and there's a margin of safety. We don't need empire builders. With a balance sheet of around $108B, that's plenty adequate to just be objective and neutral with optionality and 360 about where best additional capital goes.

I would add to that, having minority stakes outstanding in Insurance subs as well as other non insurance yet majority owned subs. Eg AGT foods. If it gets cheap enough, I'm sure they retain the right to buy it out. And when they're buying these things back, they're buying very well known entities. Another area they're not often given credit for is how they incubate companies, especially in the insurance space they know well. Think ICICI Lombard, Digit, Ki etc every so often one of these seems to blow up into a Billion plus investment gain outcome.

That valuation difference along with a willingness to buyback shares with surplus capital is a significant advantage for long term shareholders. I don't think I've found a team that gives itself a more 360 optionality for capital allocation than this management team. And the fact that they're buying back shares at a robust clip gives me confidence that they're buying are easily stepping over their ROE hurdle with those purchases. And that's a more than adequate return over the long term for me. Especially where I can defer tax payment of LT capital gains.

Easy and better when it's a never sell asset.

As someone who first bought a small position in Fairfax in 2008 then increased it to a modest position by 2010/2011 and then suffered the decade of mediocrity, then gradually increased my position over the past 6yrs to where it is -at a 25% position today. I will say this, the market is likely adapting to the new Fairfax even slower than I did. Its not US listed, and doesn't make for a splashy visual in any portfolio, its just a more boring and in the markets eyes still very inconsistent compounder. Aside from that some of the insane and arguably not repeatable returns in tech, think NVDA APPL GOOG etc. make Fairfax look boring. However if you look at valuations vs available runway a different picture emerges. I truly believe the CDS windfall was part of the reason they did the equity and deflation hedges which along with low interest rates and poor equity selections lost them that decade of the 2010s. They are absolutely a much different company now in almost every measure. Better and equally importantly a bigger and more diversified insurance operation. Better likelihood of a period of higher interest rates. It doesn't seem too hard for me to pencil in a 5% return onto the bond portfolio. A 360* optionality of investments including private equity type, public equities, bonds, CRE backed investments, stock buybacks, minority interest buyouts, funding insurance subsidiary growth whereever it exists, venture capital incubation of start ups, Indian infrastructure build, and so on. Not too many investment managers have all that available. They can do any or none of them based on price and expected returns. Added to that is an approximate 3:1 leverage. Which means a 5% total portfolio return gives them the 15% ROE. Atleast pretax. And if you given them any credit whatsoever for the other value creation options above, that's easily your post tax return. I think they hit 7.7% last year. Thats the power of leverage and compounding combined together. Of course it works in both directions but when you see the risk controls they have, like the short term bond durations and maniacal emphasis on underwriting standards, diversification, limited public equities exposure, Cash and available credit line positions etc. There's reason to believe they constantly look at that aspect very closely. I don't have much concerns that they are set up for a 10-15% average compounding rate over the next decade. Thats a 3-4x and if they do that at some point a rerating of the valuation is also inevitable. Getting us to that 5x. It will for sure be interesting to see the evolution. If they give us a 5x return, it wouldn't surprise me if they did it with only a 2.5-3x bump in market cap either. And at that point if it plays out like that, you could imagine the value add of the current share buybacks.

A fair point. However changes within their insurance segments over the past decade deserve some qualitative analysis as well. Insurance markets done harden or soften homogeneously. 1) They are much more internationally diversified. 20% of their underwritten premiums being outside of their transitional markets now according to the last Q call. 2) I believe they have also gone into more lines of insurance beyond traditional P&C. Workman's comp being one that comes to mind. Zenith is actually appears to be entering a hardening cycle for example. 3) They are able to keep more net written premiums and develop other cross synergies due to their global scale and depth, something which was less possible 10yrs ago. 4) Allied world which is a quality insurer that was added in the last decade and that added about 40% to their underwritten premiums, arguably skewing them to the better. 5) Last but certainly not least, the Barnard/Young effect. Where an executive with a wealth of industry experience worked to improve their operations across the board. I don't think that all of these factors can be ignored as having had some positive impact on insurance operations. If anything I'm glad we will be getting a softening cycle to test the impact of these items. They're a top 20 global insurer and they need to be able to compete with the big boys. We will know in a few years whether this is right or not. I'm in the camp that they are a better insurance operator today. Top half and possibly even top quartile.

A wildcard to earnings is the TRS position. I think we all agree the stock is cheap, but Mr Market can't be unpredictable. It's already off $300 from its peak, that's north of $500M that could quite easily show up in the earnings statement over the course of the year.

BV down to $19.08 despite a $82.5M mark up in BIAL. Main drivers being the declining stock prices of IIFL Finance, IIFL Capital, CSB, Fairchem organics and 5paisa, as well as write down in Sanmar which they eventually exited after the Q ended. Additionally they has $156M in forex writedown with the 5+% Rupee devaluation. Will be interesting to see how the market reacts to this. I wouldn't be surprised to see a bit of a sell off.

Yeah they added mostly treasuries which went from about 40 to 42B and pushed out the duration to about ~3yrs from~ 2.5yrs. 1st lein mortgages are at 11%, I imagine that % will trend higher with the KW acquisition in years to come.

Any reason you didn't include the TRS position in this? I mean they've repeatedly stated that they consider it an investment, and it's grown into a rather large one at that.

They had other opportunities with that entire $17M they got. Thats an insane comment for something they not just invested in for 10yrs but also lent money to and added further capital. They got into a heavily cyclical commoditized business and the cycle has not turned. It was an error, pure and simple.

As well it should. One of their main and initial investments was a majority wipeout after 10yrs. Thats not insignificant. 10yrs is more than adequate to measure performance, and save for promises and small and partial exits we don't have meaningful progress. And yet they started at 30% and have taken performance fees peaking their ownership at 42% and have taken fees as cash as well. I think if they keep pushing the integrity narrative, this will be a huge black mark on their reputation .