SafetyinNumbers

FFH cancelled 152k shares in August 2025 which is more in August than in the last three years combined.

RBA is an Industrial as shown below but the same logic applies. Scotia is apparently out with a note today and have RBA as their top pick to replace. The committee apparently told brokers last year that size matters more than sector weighting but it probably matters what the relative size is when it happens. Last year FFH was much bigger than TFII the next biggest component, right now the spread is smaller.

For sure. The longer it takes the better but it happens when it happens.

I posted about this on Twitter last night (@brownmarubozu if anyone is interested). It does look highly probable that an opening is coming in the next 12-18 months. The other two alternatives are CLS and RBA which are smaller but not financials so it’s possible they will skip FFH in their favour. Here is what the weightings look like now. I also included the exposure breakdowns. They could jump to RBA and justify it based on the industrial weighting.

Ultimately, it’s the leverage that is important for FFH going forward but I don’t think it’s so high that we have sweat at night. Historically, FFH did have some moments where shareholders were sweating at night but I think it’s in a much better position now. @Haryana if you are doing the analysis on leverage, I would look at the insurance float to equity ratio and debt to equity ratio. For the latter, I think the holdco debt matters more as some businesses like a utility might run with high leverage given the nature of the industry. Another way to do it would be to analyze investments to equity annually which in effect captures both the insurance float and any other debt. 3:1 investments to equity ratio can yield really amazing returns in a high nominal yield world. Seems like very good protection against inflation. Twenty years ago the street would have figured it out already but the market structure now makes money management a very different game.

Poseidon and Ki (which is not in the investment portfolio) are two others that really stack the deck for ROE to exceed 15% over the next 5 years. For BIAL probably need to add in the 20% performance fee which they get on 69% of the gain (5% is held by OMERS via Anchorage).

Looks like Fairfax sold some Metlen https://www.athexgroup.gr/sites/default/files/hermes_3/2025-09/el/c8d604f8-a1f1-4fe5-9604-f8a1f1cfe5be/1528_6356_2025_Greek_English_1.pdf

Class A fee structure: management fee 1.5% performance fee 20% hurdle rate 6% with a high-water mark Class I fee structure: management fee 0% performance fee 25% hurdle rate 6% with a high-water mark

I agree other insurance companies don’t do it because their incentives are short term and also because with equities there are going to be mistakes. Look at how many people still avoid Fairfax because of its mistakes over the years. It follows that it is still impacting the multiple. Most management teams want to give the market what they want (steady predictable growth on an adjusted earnings basis) which leads to a high multiple. It is ideal for raising capital to do accretive deals. Fairfax is the opposite. They don’t do anything to get a higher multiple but the quality of the shareholder base is improving over time which might lead to an appropriate multiple at some point.

I like this table to show the ROE decomposition. I think a 96 combined is way too conservative. More likely to be under 94 than 96 over the next 5 years, in my opinion as reserve releases ramp and they benefit from scale. Also, net premiums are closer to $28b and growing.

The Hamblin Watsa investment style is expected value and most investors are quality investors. On this board quality with a value screen. Quality investors don’t accept that a third of the investments will likely be duds and that we don’t know which investments will be duds ahead of time. I think @73 Reds is correct, that the focus should be on the results. I’m not sure we’ve ever had more visibility on future results so it’s easy to own at such a cheap valuation. If it starts getting cloudy at a high valuation it will be more difficult to own.

I really like this chart as I think it demonstrates that cat loss risk is about the same as it was a decade ago but net premiums written and shareholder’s equity are a lot bigger.

The message I keep hearing is a focus on quality. What is the last distressed asset they bought?

I think all of the gains that are being recognized annually as the portfolio turns over gives some clues as to how value surfaces over time.

I’m not sure it’s a coincidence

Allied and Odyssey had a lot of CAT losses

I don’t think they have a lot of distressed assets left. It’s just how accounting works that delays the recognition in the accounting statements for the increase in the multiple which comes when they liquidate the position. I’m not sure why that changes under Wade and Lawrence.

Actually he’s got pretty healthy growth in investment income.From my quick review, he doesn’t have anything for gains and expects underwriting to get much worse.

A Morningstar computer sets the target. He sets the moat rating and the financial estimates. It’s not surprising the algorithm doesn’t like the no moat rated stock where earnings are ultimately collapsing.

He’s still got 25k options

Hurricane season is usually a difficult period for FFH shares (see below) with it underperforming XFN (Canadian financials ETF) 8 out of the last 10 years. I thought this year would be different because of the exceptionally strong Q2 but so far it’s not. The next potential external catalysts are being added to the RBC Focus List on Sept 1 and/or S&P/TSX 60 index announcement on Sept 5. I think the focus list add has better odds than the index add but hard to call either likely. The RBC focus list has a 5% weighting in IFC and 0% in FFH while their analyst has a market perform on IFC and a buy on FFH. To me it makes sense to make the switch or move each to 2.5%. There was a meaningful amount of money indexed to the focus list when I was on the prop desk and I assume it’s only grown since then. The index add seems unlikely because AQN has stuck around 20bp and it seems with the sector weightings being as they are the committee rather wait until its hand is forced. For long term holders, the longer it takes the better as the index add will result in bigger multiple expansion all else being equal.

I think that’s probably an example of conservatism. IFRS would look for an objective value first for a fair value assessment and Fairfax could be aggressive and use Sokol’s estimate but instead they just use last trade.

Perhaps a function of the short report which argued they inflated numbers. A better report might be all the ways carrying values understate fair value!

I think there are a lot of reasons for the discount. Complexity is part of it because investors are lazy for the most part and if a stock doesn’t pass initial screens they are ignored. Fairfax also invests in securities most quality investors (growing majority since the GFC) wouldn’t touch like commodities and emerging markets. It’s hard for people to own Fairfax if they wouldn’t own their portfolio for heuristic reasons. Lower passive ownership than MKL and BRK is also a big part of the discount.

Fairfax is extracting quite a bit of cash between dividends and selling their proportionate share of the buybacks. It’s an exceptional seemingly reliable return especially when levered almost 3:1 in the investment portfolio. I think about Recipe that way too. They levered up in 2021, paid down the debt, levered up again in 2025 and perhaps in 2029, they will lever up again and pay Fairfax a big special dividend. IPO is an option but market likes growth and they don’t have to grow to provide great returns for Fairfax.