Phoenix01

@Viking - Thank you for the amazing posts. Please keep them coming... In the spirt of improving the forecast, would it make sense to account for the base CR without an CATs and then layer in a CAT factor. That would allow a better look-through on the insurance operations, and more focus on the risks of potential CATs as we move through the wildfire and hurricane season.

I think it is all about the opportunity. As Mr. Market bounces the prices of investment up and down, different opportunities surface. FFH collects the best opportunities and they have proven that they are very good at it. The FFH price will fluctuate, and at some point in time, the shares will be fairly valued and eventually over valued (the market is a short term voting machine). This will make it harder to keep the shares if there are other glaring opportunities available at that time. For now I am grateful for the lower price that juices the buybacks and improves the investment thesis.

Gemini adds: Fairfax Financial Holdings Limited (FFH) imposes a quarterly blackout period that begins 15 calendar days prior to the date on which the quarterly financial results are released and ends at the end of the first full trading day after public disclosure. FFH release Q4 on 2/12 so they will be blacked out starting on 1/28. They will only be limited by their limit: 11,371 shares There were 236k shares traded yesterday. Automatic Share Purchase Plans (ASPPs): Fairfax can, however, make purchases of its own shares under a pre-approved ASPP during a blackout period, provided the parameters were established before the blackout commenced.

Don't forget the reserve redundancies. This serves as layer of capital protection and defers profits by years.

Here is table that shows FFH treasury purchases and Issuances over the past 6 years. FFH does has not disclosed the cost of the shares issued before 2023.

The building of positions ahead of the opening follows the Lassonde curve:

It will be interesting to see how the inclusion in index will impact the volume around the dividend. Last year the dividend was announced on January 3rd and payable on January 23, 2025 to shareholders of record on January 16, 2025.

@Viking - Thank you yet another great post. Regarding the virtuous circle: Higher prices → higher market cap → increased index and momentum demand → higher prices. These cycles can take years to fully play out. FFH also has the TRS that will further amplify this effect. It will be interesting to watch what FFH does with the TRS over time.

From the article: Fairfax Financial Holdings Fairfax Financial may be the closest thing to a mini Berkshire Hathaway -- and it may be a better bet at this point. The Toronto-based property and casualty insurer has strong insurance operations, an excellent investment record, and phenomenal long-term performance under founder and chairman Prem Watsa, 75. The company targets 15% annual growth in book value, against what's probably high-single-digit growth at Berkshire. It has a market value of about $40 billion, against Berkshire's $1.1 trillion, which makes it easier to grow. "This is like investing in Berkshire in 1993," says investor Charlie Frischer. Its current price/book ratio of 1.5 is in line with Berkshire's, but Frischer says the true figure for Fairfax is closer to a cheaper 1.25 times because some investments are carried below market value. It has an excellent portfolio of Indian investments such as a controlling stake in the Bangalore airport. Fairfax even partners with a Berkshire alumnus, David Sokol, who was once viewed as a successor to Warren Buffett. Sokol runs a containership business in which Fairfax owns a 43% stake. The stock trades mainly in Canada, and has thinly traded U.S. shares now around $1,750.

This does seem like potentially a wonderful holiday gift, however, I will wait for the results before celebrating. That said, there are some really interesting tailwinds: 1) Earning growth (~$200/Sh in 2025 + TRS based on any large price movement) - base assumption of 15% annual growth rate - reduced preferred dividend payment ($50M/yr) starting 2026 (+$2.5/Sh) - reduced non-controlling dividend (was $295M in 2024). In 2024 FFH exercised options to buy back Brit non-controlling interest (~$100M/yr in non-controlling dividends - SWAG). - reduced non-controlling earnings (was $450M in 2024). In 2024 FFH exercised options to buy back Brit non-controlling interest (was $137M in 2024 in non-controlling earnings). In 2025 Recipe bought back the non-controlling interest (now 100% owned by FFH), but has negligible impact. - remaining options on non-controlling interests for Allied that expire in September 2026 & call options on Odyssey that expire in 2029. Allied had non-controlling interest earning of $176M in 2024 and Odyssey of 128M in 2024. 2) Multiple growth - Forced buying - Inclusion in S&P/TSX60 (extent is tbd) - Forced buying by FFH - Treasury purchases to fund employee share -based awards (208k shares purchased in 2024). - Limited float - At end Q3 there were 21.3M shares outstanding. Adjusting for 1.5M multiple-voting; 800k internal interest adjustment (the 62 company); 1.8M Treasury shares; 1.2M Shares issued as employee share based awards; 500k shares held by Prem; give an available float of ~ 15.5M Shares. If you further reduced by the TRS (1.7M shares) this give a float of 13.8M shares. 3) Virtuous TRS feedback loop - as the earnings grow, the "value" of the TRS appreciates (base assumption of 15% annually) - as the multiple grows, the TRS impact on earnings & cashflow increases on top of the 15% - In the first 9 months of 2025 the TRS produced gains of $585M. We are down so far in Q4, but I think that might reverse by YE. In 2024 the TRS produced gains of $1,033M and in 2023 $635M.

Question - what happens to the price of an essential commodity that is trading below its cost of production? Answer - either the price goes up or there is a shortage At the current prices, the global inventories are drying up

https://www.reuters.com/markets/commodities/opec-advance-oil-output-hike-plan-with-bigger-may-boost-2025-04-03/ LONDON/MOSCOW, April 3 (Reuters) - Eight OPEC+ countries unexpectedly agreed on Thursday to advance their plan to phase out oil output cuts by increasing output by 411,000 barrels per day in May, a decision that prompted oil prices to extend earlier sharp losses. Oil, which was already down over 4% on U.S. President Donald Trump's announcement of tariffs on trading partners, extended declines after OPEC updated its plans in a statement, with Brent crude dropping over 6% to below $70 a barrel. It is interesting to see that the Trump admin has some leverage over OPEC+.

https://worldoil.com/news/2025/3/13/ceraweek-2025-how-exxonmobil-is-applying-technology-to-maximize-value-in-the-permian-basin/ Of the “10–13 layers [of targeted oil resources], we’re probably developing only seven to eight of those today.” He added that this results in resource recovery of only about 6-8%, with a great deal of undrilled resources yet to be fully unlocked. Seems like 70% of the permian layers have been exploited. Operators are developing new technology to go after the rest. It will be interesting to see how the permian reacts output reacts to oil prices.

I think that focusing on the rate of growth is the most important thing here. Production will grow, stabilize and then drop. We are still in the growth stage, but it slowing. The slowing growth is the basis for the "PEAK SHALE" call. Just keep in mind that we have yet to reach peak coal....

In 1999, FFH was trading over $550, and it had dropped under $200 in 2000. That caught my attention and started my journey with FFH as I was buying up shares around $170. One year later, I felt like genius as the price rose up to $289 in 2001. Then the short attacks started and that was when I switched from being more of a technical trader to a value investor. Thanks to @Parsad and the amazing folks on this board (@Crip1 @Dazel @cwericb @Viking @SharperDingaan), I was able to learn about the insurance business and FFH in particular. When I showed up to the AGM and met the FFH management in person, I was blown away by their openness and integrity. They were clearly smarter than I will ever be, and I thought it would be a good idea to have them manage my money. My conviction grew stronger as the short attacks intensified and I kept buying all the way down. My lowest entry was at $75 and I scraping together every dollar I could to buy at what I was convinced was the bottom. The rapid rise to $225 ballooned my net worth in a few months, and that scared me into selling half my position. I vowed to never sell the remaining position and have kept that position ever since. Not the smartest move, but I have learned a lot from the painful journey (as well articulated by @Buffett_Groupie). I am grateful to have had a front row seat to see the pre-AGM activities and this forum grow over the 25 years.

They may not be able to write more business if their balance sheets are impaired by rising longer term rates. I am trying to figure out which of FFH competitors are exposed.

Beside Brian potentially making huge gains with the rise in the long term rates, what will the impact be on the the underwriting? How many P&C insurance companies are going to be capital constraint based on these rising rates? Will this be the basis for the hard market to continue? Have any board members dug into this?

If the stock price goes up, they make money. If the price goes down they buy back more shares. Not seeing the down side as long as the business continues to deliver lots of cashflow.

My perspective is that Nvidia has cornered the market on Compute and all the major AI players are scrambling to get as much as possible to scale their models and gain first mover advantage on this massive opportunity. This will peak like it did for Cisco and Nortel, but I do not know the timeline and have no insight. The major tech players have no choice but to accelerate the development of their AI models, but the eventual monetization path is not clear. It will be interesting to see how this plays out, but again I have no insight. Data is the foundation for training these models. Shutterstock is the leader in providing licensed data for training the AI models. That is the part of the puzzle that has yet to solved. I have posted more on the SSTK thread.

We all owe Andy Benard a massive amount of gratitude for his leadership in turning around the FFH insurance subs.

Prem kept the insurance companies independent of each other prior to 2011. When they were placed under a single leadership umbrella, they shared best practices and there was a huge improvement. Each company remains independent, but accountable to the single leadership team.

He is an analyst for RBC that covers Fairfax. He has been fairly conservative with his valuations in the past.