Viking

Looks like a very smart use of Hellenic Bank’s significant excess capital. Should be lots of synergies and cross selling opportunities. Valuation: “Hellenic Bank would acquire 100% of CNP Cyprus Insurance Holdings for a total consideration of €182m (corresponding to 1.0x CNP CIH book value).” https://www.cnp.fr/en/the-cnp-assurances-group/newsroom/press-releases/2024/cnp-assurances-has-entered-into-exclusive-negotiations-for-the-sale-of-its-subsidiary-cnp-cyprus-insurance-holdings-to-hellenic-bank-public-company

@nwoodman What Sokol said at Fairfax's AGM was, IMHO, one of the most important pieces of new information to come out of the entire event. Poseidon is Fairfax's third largest equity holding (with a value of +$2 billion), after Eurobank and FFH-TRS. Poseidon's performance in 2023 was disappointing (share of profit of associates of $150 million), compared to the guidance Atlas provided in their investor day back in March of 2022. However, it appears performance should improve markedly in 2024 and the coming years. "So the ships we're delivering this year, if you wanted to duplicate them, a, it would take you 2 years, but also you'd pay a 30% premium. So we have a build-in margin that is purely good fortune from our perspective, but nonetheless, you take it when it comes along. So that's where we are. Now that's going to show some pretty dramatic improvement in economics this year. We'll probably see revenues up around 25%, EBITDA north of 35% and net income above 20% growth from '23 through '24, but that's just a function of these ships coming on." David Sokol "...your investment should go up about 50% this year just based on the increased cash flow of the business" David Sokol This is big news. And something to monitor moving forward as Fairfax reports quarterly results. ---------- Below is the guidance Atlas provided in March of 2022.

Interesting take on gold at the 12:26 mark of the interview. Nick says gold is moving higher primarily because the US government has weaponized the US$. He says that sanctions on Russia have taught other countries (like China) that it would be foolish for them to have all their US$ on a ledger in the US or Europe. There are very few assets that can be priced in US$ and stored anywhere (like in your own country). Once the gold is in their country it is safe from sanctions. He said pre-2020, central banks used to buy about 10% of gold. This has doubled - to about 20% today. This is causing higher prices. Nick said central banks slowed down purchases in recent months but the market is now front running the fact that central banks will keep buying gold (at some point). He said central banks have to keep buying (they don’t have a choice) so they will come back at some point. He does not think the recent move in gold is due to concerns about inflation.

@SafetyinNumbers , the short answer is i am not sure. On their calls, WRB typically tries and stay very top line. They are going to make a lot of money over the next 2 years. The analysts want to get into the weeds. So it appears the analysts found some things in the weeds that they don’t like. WRB might have done some reserve strengthening from 2019 and prior years? It appears the total insurance market is softening… yet WRB guided to 10 to 15% growth for 2024 (‘trust us’)? The average duration of the fixed income portfolio is only at 2.5 years?

@dartmonkey here is what was said near the end of the Q1 conference call. I think Rob’s comments at the end of the conversation were meant to be in jest… Brian Meredith Yes, thanks. Hi, good morning. Two questions. Rich, I'm just curious, could you just give us the actual income that you generated from the Argentina inflation bonds in the quarter? Just so I don't have to do the math. Rich Baio Rob, I'm not sure we've then generally given that level of detail. I'm not sure if... Brian Meredith I can back into it with what you said in the yield, but I just wanted to know what the actual number was. Rich Baio Why don't we take it offline? Rob Berkley Yes, Brian, he's just going to check with an attorney and call you back. How about that? Brian Meredith Okay, fair.

WR Berkely reported Q1 results this morning. Results looked good to me. But clearly Mr Market wasn’t happy - the stock is currently down 6%. 2024 is shaping up to be a decent year for the overall insurance market. My guess is we are approaching the tail end of the hard market in the overall P/C insurance market. As a result, i think we see lots of volatility with insurance stocks as they report results. We are also approaching hurricane season, which tends to be a volatile period for P/C insurance stocks. Chubb reports results tomorrow (Wed). Here are some notes from WRB’s conference call: - “the business is firing on all cylinders”; both investments and insurance - “enthusiastic about 2024 and the groundwork laid for 2025” - “better than average chance we can grow top line 10-15% in 2024” ; lots of variability by business line. - top line growth in net premiums written was 10.7% - increase in rate was 7.8%, above loss cost trend in aggregate. - 80% renewal ratio - “record investment income and Q1 underwriting profit” - fixed income book yield = 4.2% (excluding Argentina transaction) and new money rate is currently 5.25% to 5.5%. - “earnings power of business has considerable upside from here” - fixed income duration extended from 2.4 to 2.5 years. - “average life of reserves is just under 4 years” - adverse development from soft market from 2019 and prior years should largely be in rear view mirror. - share buybacks: do not buy back stock blindly; only when they feel it offers good value. They did not buy back any stock in Q1.

Canfor (CFP.TO) at C$14.35. Time to scratch my (monthly?) lumber itch. Market cap is $1.7 billion. Net debt is a positive $300 million (net cash position). So enterprise value is about $1.4 billion. They also have +$900 million of duties on deposit. This is worth something. The stock is selling off aggressively because interest/mortgage rates have moved higher.

@MMM20 It is interesting how everyone views Fairfax’s equity portfolio. Mostly, people seem to view it through the prism of their own investing framework. The reason i like their current equity portfolio so much is more because of a relative perspective: 7 years ago it was stuffed full of underperforming holdings; or holdings with a poor outlook. That is no longer the case (or much less the case). As a result, i expect it to perform much better compared to the portfolio that existed 7 years ago.

@Dinar If Fairfax has performed so poorly on the investment side, how did they compound book value at 18.4% over 38 years? Insurance/underwriting?

@MungerWunger given my visibility on this board and Twitter when it comes to Fairfax, i am hesitant to post on position size. For a whole bunch of reasons. But let me try and answer in a different way. My goal is to get my Fairfax weighting down to 33% of my total portfolio - it is higher than that today. Context is important when discussing weightings. Today, i own no real estate. I do not have a day job. All i have are financial assets. So having even 33% in one stock is probably a dumb idea. Most of my financial assets are held in tax free accounts - so i can move in and out of positions easily with no tax consequences. I also sometimes flex my stock positions up and down to take advantage of volatility. As an example, i doubled my small Canfor position today when the stock fell to C$14.55. I was adding to my Telus and BCE positions 2 weeks ago when they sold off. When these stocks move higher i will likely sell some and reduce my position size. So my position weightings will bounce around depending on volatility. Why 33% for Fairfax? That feels like a reasonable position size given its prospects today (which i like a lot). But i remain open minded. Importantly, I might change my mind tomorrow. If Fairfax starts to allocate capital in a way that i do not like i might shrink my allocation. Or when i get to 33% i might decide that my weighting is still too high (i use my gut to help me with position size - so i won’t know until i get there). Or i might decide my weighting is too low. Perhaps something else happens (my health? … knock on wood) that causes me to want to reduce my position size. Perhaps another investment i understand really well gets even cheaper than Fairfax and i decide to shift some funds. One more example: In Q1 2020 when Covid was coming (and before equity markets crashed), i moved 100% of my portfolio to cash. Bottom line: lots of variables are at play that determine position size for me - for all my holdings. The important thing is people need to do find an investment strategy that fits their personal situation and how they are wired. Position size of any one holding is part of this. And concentration is usually a terrible idea for most investors. ————— Broad based index funds are now 30% of my portfolio (XIC, VO and VOO - 1/3 in each). I am really enjoying this 2H 2023 decision. My goal is to get my index fund weightings to over 50% over the next year or two. I want to get a big chunk of my portfolio into ‘set and forget’ mode. As i get older i am shifting from ‘build wealth’ to ‘preserve wealth’. Index funds today seem like a good option. Getting started with index funds also seems to make sense from an estate planning perspective (my spouse is not a financial person). And i have suggested to my kids that they invest exclusively through index funds (when i am not around to help them out).

@petec perhaps were you and i differ: i agree with you that rising interest rates was a big opportunity for Fairfax. But opportunity means nothing without proper execution. And the execution at Fairfax has been excellent. And as a result we now have $2 billion a year of interest income. I think it is incredibly difficult to do what Fairfax did with their fixed income portfolio over the past 3 years. 1.) they took the average duration down to 1.2 years in Q4 2021. Sold a bunch of corporate bonds at a yield of 1%. 2.) they were then super disciplined as interest rates started to rise - they waited all through 2022. It wasn’t until Q1 2023 that they started to meaningfully extended the average duration (to 2.5 years). And having the discipline to wait until Q4 to get really aggressive extending duration (to 3 years) was, in hindsight, sheer brilliance. I remember when everyone thought the 10 year US Treasury yield would peak at 3%. The fact the fixed income team did not meaningfully extend duration earlier and at much lower yields is amazing.

What do people on the board feel are the biggest risks when investing in Fairfax today? Let’s spend some time discussing/debating these as a group - it is important that we live in the real world. So please post your thoughts. When I was at Fairfax’s AGM a number of people I talked to identified interest rates/lower bond yields as a big risk. So let’s start here. Fairfax risk: “What if interest rates/bond yields are much lower in 4 or 5 years time. Causing interest income to fall precipitously?” Interest rates/lower bond yields were a watch out for me at Fairfax when the average duration of the fixed income portfolio was 1.6 years at the end of 2022. But in Q1 2023 we learned Fairfax had pushed this out to 2.5 years. And in Q4 2023 we learned Fairfax had pushed it out again, this time to about 3 years. Fairfax has locked in interest income of about $2 billion for each of the next 3 to 4 years. Significantly extending duration is a big deal. So ‘much lower’ interest rates/bond yields, if that happens, is really a potential problem looking out 4 or 5 years. Predicting macro Trying to predict macro looking out 1 year is pretty tough… buy trying to predict macro looking out 4 or 5 years? Good luck with that. I think we will see persistently higher inflation in the coming years. Perhaps an average of around 3% to 3.5% per year. As a result, i think Fairfax will be given lots of opportunities in the coming years to keep the average duration of their fixed income portfolio at around 3 years if that is what they want to do. Just like what we are seeing today (mid-April), where bond yields have spiked and Fairfax is being given a nice opportunity to extend duration if they want. Alignment When investing in Fairfax over the last 2 decades, i find it is helpful to be aligned with the positioning of their investment portfolio (it allows that ‘sleep well at night’ thing). From around 2011 to 2018 i did not like how Fairfax was positioned with their investment portfolio so i did not own the stock. Today? I like how Fairfax is positioned with their investment portfolio; it is a good fit for me. Given i think it likely that inflation remains higher than expected in the coming years: Fixed income: I like that they have extended the average duration to 3 years. And i am comfortable they will be able to reinvest at an acceptable rate in the coming years. Equities: I like the exposure to commodities and industrials. I think paying attention to macro is useful mostly at inflection points. The rest of the time, it is probably best to just ignore it.

@petec I really appreciate the opportunity to discuss/debate Fairfax. One of the keys to valuing Fairfax today is your assessment of two things: 1.) How good is their insurance business? - Is it average or above average (compared to peers)? 2.) How good is their investment team at Hamblin Watsa? - Is it average or above average (compared to peers)? Here is my quick assessment: I think the insurance business is above average (compared to peers). Not best-in-class yet but definitely better than average. Importantly it appears to be improving in quality; trend is important when looking forward. I think their investment team (at Hamblin Watsa) is best-in-class (compared to peers). Especially in a high interest rate environment (versus a zero interest rate environment) with lots of volatility in financial markets. This is important because Fairfax generates about 80% of their income streams from investments and only 20% from insurance underwriting. (I think most insurers are about 55-60% from investments and 40-45% from insurance underwriting - don't quote me on this split). Fairfax is currently earnings about 7.5% on its investment portfolio and this is significantly more than P/C insurance peers. This outperformance will likely continue for the next couple of years (one reason being the average duration of the fixed income portfolio has been extended to about 3 years). There is a very good chance Fairfax's average ROE over the next three years will be 15% or higher (it could easily be in the high teens). Fairfax has been the best performing P/C insurance company over the past 5 years (in terms of BV growth). It also has the best prospects looking out three years (given its significant leverage to investments and their current positioning). And it is by far the cheapest today. It is within this context that I think Fairfax trading today at a P/BV = 1.1 is crazy cheap. Especially when compared to P/C insurance peers today. Most trade at a P/BV of 1.4 x or higher. The set-up today at Fairfax looks an awful lot like a much younger Berkshire Hathaway. In that context I think a P/BV multiple of 1.1 x is nuts.

@petec great comment. Lots of interesting ideas to discuss/debate. “Personal view but I think the board has a good handle on the facts, but the psychology has swung about 70% of the way from focussing on the bad to focussing on the good.” I agree that the psychology of people on the board has shifted. My view is the shift has happened because execution, fundamentals and results have been steadily improving at Fairfax. Most of the discussions on the board are focussed on what has been happening at Fairfax - the facts. Fairfax has been executing exceptionally well. The fundamentals keep getting better every year. Reported results have been excellent. As a result most of the posts in recent years have had a positive spin. Now i don’t expect this to continue forever. I do expect at some point the Disney movie called ‘Fairfax Financial’ will end - and Fairfax will become a regular boring company. And the posts on the board will reflect that reality and become a little more balanced. I am trying to find the bad. But it is really hard right now. Yes, that is a bizarre statement to make. Especially when it comes to Fairfax. But today, the important tailwinds greatly outnumber the important headwinds. Still. Importantly, i am not going to make bad stuff up. So i can tick the ‘bad stuff’ box in my analysis of the company. When you make stuff up (both good and bad) it gets into your head. And likely warps your valuation of the company - and position size. Making stuff up is dangerous - i know this from personal experience. Following Fairfax right now is like watching Michael Jordan in his prime. Now back in the day, when watching Jordan play, i could have tried to find a bunch of things that he was doing poorly. Would that have been helpful? I have two questions: 1.) If investors understand the facts so well today why does Fairfax trade at a P/BV of 1.1 x (ext. March 31 book value) and a PE of 6.7 x (est 2024 earnings)? For the past 3 years, Fairfax has been playing like Michael Jordan in his prime. But Fairfax’s stock is being valued today like they are a bench player. That makes no sense. 2.) If investors understand the facts so well why are so many people thinking/discussing selling down their position? Now i do understand that people only buy a stock for one reason - they think it’s going to go up in price. And yes, people sell a stock for a multitude of reasons: It is fully valued They find another stock they like more (offers better value) They are way overweight Tax reasons Need the cash Take profits - “That suckers gone up a lot” But i think a lot of people are thinking about selling just because the stock has gone up a lot. Their mental process has less to do with facts and more to do with fear/greed/psychology. —————- Now i do have a long list of risks for Fairfax that i am monitoring/managing. I have discussed many of these risks over the past 3 years. My biggest risk owning Fairfax today is my concentrated position. But that risk has much more to do with me than it does with Fairfax. This post is long enough already. Let’s leave the discussion of risks to another day.

@LC This is a great question. Your answer will depend of your assessment of three things: 1.) what Fairfax has accomplished over the past year 2.) what the company is worth today 3.) how the company should be valued. Fairfax earned $189/share in 2023. My view is intrinsic value went up by more than that. The earnings visibility of Fairfax has improved markedly (with extending the duration of the fixed income portfolio). I think the quality of the company is better today than it was a year ago - we had another 12 months to grade management. One of the reasons i go to the AGM i get the opportunity to talk to really smart investors. Most people i talked to said they felt Fairfax was probably worth about 1.5x book value. This is a higher multiple than last year. ————— “is Fairfax as easy of a “buy” today, versus 6, 12, 24 months ago?” That depends on whether or not you view Fairfax as a higher quality company today than what you thought a year ago (use whatever time-frame you want here). And whether it deserves a higher multiple than you thought a year ago. Fairfax trades today at a P/BV of about 1.1 (to my estimated March 31 BV) and a PE of 6.6 x (my estimated 2023 earnings of $160). Is it cheap? Yup.

@MMM20 My steroid comment was directed more at the growth that we are seeing in earnings, particularly operating income. Probably the wrong way to phrase it. In terms of fragility, i don’t think Fairfax is more susceptible today to a black swan event than they were five years ago. The hard market in insurance has likely given Fairfax (and all insurers) the opportunity to get their reserves more in order (from the soft market years pre-2019). Terms and conditions on policies have also likely improved on business written over the past 4 years. The fixed income portfolio is locked and loaded with about $2 billion in interest income coming each year over the next 4 years. That is a big, big shock absorber. Within the equity portfolio, most of the holdings have moved up the quality ladder. At the same time, mark to market holdings are now less than 50% of the holdings - this will significantly reduce volatility moving forward. Bottom line, today Fairfax’s looks much better positioned today to deal with any future adversity / black swan event than they were 5 years ago.

Below are some random thoughts from attending Fairfax’s Annual General Meeting in April of 2024. Fairfax organized events: Going to the Fairfax, Fairfax India and Helios/Fairfax AGM’s were good. Before the Fairfax and Fairfax India AGM’s, having an opportunity to talk to the management teams of Fairfax’s various insurance and non-insurance subsidiaries was good. But what i have learned from attending the past 2 Fairfax AGM’s is there is much more to this week than attending the Fairfax organized events. And that is the opportunity to meet and hang out with a large group of smart, nice, highly motivated and highly successful investors/people. And the group is wickedly diverse: age/life stage, geography, objective, occupation, expertise etc. The opportunity to do this is like sprinkling ‘pixie dust’ on those involved. How can you not come away from the experience a better person/investor? So i want to give a big, big thank you to all the people who organized all the various additional events (those not organized by Fairfax). I now look forward to attending those events even more than the Fairfax organized events (which i also like and get a lot of value from). Two AGM’s later, acquaintances have become friends. I also want to say ‘thank you’ to all the members of Corner of Berkshire and Fairfax. Given the increase in Fairfax’s share price over the past 4 years, and my prolific posting, i have achieved a certain level of notoriety. Lots of people have made an enormous amount of money on Fairfax. I really appreciated meeting and talking to all the people who hunted me down during the various events to introduce themselves and/or to say ‘thanks’. But i try to explain to people that the inspiration and lots of the content in my posts come from the larger ‘Corner of Berkshire and Fairfax’ community. I might be the front man. But if you like or find value in what you read, there is a much larger group of people (in the shadows) who deserve a bunch of the credit/goodwill. Bottom line, thanks to everyone on this board for taking the time to post your thoughts - and not just on Fairfax. I also explain to people that any success they are having from investing in Fairfax has much more to do with them than anything they read on the board. Their success has come primarily from their investment process, decision-making and the actions they have taken. This will also be true in the future (good and bad). Your success (and failures) will be driven primarily from your own actions. ————— Some takeaways from attending Fairfax's AGM: 1.) Sentiment in Fairfax has shifted. The ‘mood of the crowd’ at the AGM was decidedly upbeat. one questioner said he thought the Blackberry purchase by Fairfax was a good decision. I almost fell out of my chair. Prem’s response? “Please come back to future AGM’s.” Those in the audience laughed out loud - but in a good way. The fact we can discuss past failures (like Blackberry), recognize they were failures and move on is important. 2.) There were no surprises. It looks to be like we are at the ‘boring’ chug, chug, chug stage with Fairfax. Six years of hard work has brought us to this point in time: all three of their economic engines are performing at a very high level and delivering record results. 3.) The future looks very bright. Fairfax is poised to deliver a record amount of earnings over the next 3 years (perhaps more than $12 billion). This is an extremely exciting time to be a shareholder. I can’t wait to see what Fairfax does in the coming years (how it allocates capital) and how much earnings grow from here. Prem’s comments 4.) “Culture is our (Fairfax’s) most valuable asset.” Creation and protection, trust, long term focus, fair and friendly Guess how much time investors/analysts spend on this topic? Close to zero. And yet we think we understand Fairfax and can value it properly without understanding this? 5.) Personnel announcements: Retiring: Brad Martin 6.) Conference Calls Prem will no longer participate in conference calls. They will be handled by Peter Clark, Jen Allen and Wade Burton. This is a big change for Fairfax. I am looking forward to hearing from Wade Burton. 7.) The average duration of the fixed income portfolio at Dec 31 was about 3 years. Yield = 4.6%. Limited credit risk (mostly government securities). 8.) Insurance Market Odyssey - Brian Young Market is slowing / Shrinking crop insurance / Reinsurance - positive / Challenge to grow in 2024. It’s looking like Brian is being groomed to be Andy Barnard’s eventual replacement. Solid succession planning, as a number of key Fairfax executives are getting long on the tooth. Allied - Lou Things are starting to moderate / Growth phase allowed the company to scale - hence their low expense ratio / Issues: inflation and climate change - trying to anticipate future losses / Market is stable / Industry adjusted for higher cost of risk / Not a great flow of new capital coming in. 9.) Kennedy Wilson - Bill McMorrow Fairfax has invested $13 billion with Kennedy Wilson over the last decade / Of this total $8 billion has been returned / On returned funds, return to Fairfax has been in excess of 20%. Keys: Trust, Culture, Ability to make decisions quickly. PacWest deal was 30 days (inception to close). 10.) Poseidon - David Sokol Cost to build a new ship today is 30% higher than when Poseidon placed their significant new-build orders. Expect net income to increase 20% in 2024. Expect Fairfax’s investment should go up 50% based on increase in cash flows (not sure time-frame). $18 billion in contracted revenue. New capacity is coming - expects significant scrapping to happen, driven by most fuel inefficient vessels. Poseidon’s performance was a disappointment for me in 2023. It appeared to me that management got caught unprepared for spiking interest rates. It looks like we should see improving results moving forward. This is a very large holding for Fairfax. I think i also heard that Poseidon is looking for sell APR (but this might just be a false rumour). 11.) Question: what has Prem learned from Charlie? Buying good businesses at fair prices. Strong track record Strong management “Looking for positions where we can compound for the long term.” Given its large size today, are we seeing Hamblin Watsa shift their value investing framework to more of a ‘quality at a fair price’ and away from ‘deep value?’ 12.) How to model catastrophes? Peter Clark answered. Calculate probable maximum losses Benefit from diversification of premiums across global operations Write with limits. I think he said all the insurance companies do their own modelling and these all roll up to Fairfax where they do the same thing on a total company basis. 13.) Eurobank Fairfax’s cost basis = €0.92/share Dividend est €0.09/share; will likely be lump sum payment when it happens. As Eurobank is an associate holding the dividend will not hit ‘interest and dividend’ bucket, but it will show up as increase in cash at Fairfax. Payout ratio goal in 2025 = 40% and in 2026 = 50%. Decided 100% dividend for 2023; moving forward, split between dividend and share repurchases will depend on share price (buy back shares when they trade under book value). Why Cypress is an ideal launchpad into Europe for businesses in India? The two counties share some important things: both were part of the British Commonwealth, therefore they have similar legal systems and business language (english). 14.) Orla mining: Pierre Lasonde is a large investor. There are roots to Franco Nevada. Backing smart people Low cost producer Pierre Lassonde is also a big investor in Foran Mining. Fairfax wants to partner with the right people. 15.) Plans to grow investments in China? Currently own a legacy stake in insurer Alltrust (15%? With a value of $75 million?) No plans to invest any more money in China; prefer democracies. 16.) FFH - TRS Counterparties are Canadian banks. TRS position has been extended 2025 or 2026? Fairfax today is inexpensive. Huge potential to that position. 17.) Final comments from Prem Fairfax has seen a big tansformation over the past 6 years. Size: company has increased substantially Now has income stability: interest income of $2 billion Fairfax’s book value is conservatively stated. Could sell insurance companies at multiples of stated book value. How to value Fairfax? Start with book value. Use ROE over time. Investing - has changed over the last couple of years. Phil Carret: management

@ValueMaven Fairfax usually posts the AGM presentation to their web site shortly after the meeting happens. Not sure on the exact timing (it's not there yet, from what I can see).

What do board members think… Do we collectively have a good handle on Fairfax today? How about the more general investment community? Or, in another 12 months will we look back and say… ‘boy, was i ever off in my analysis of the company.’ Just like what has happened in each of the past 4 years. ————— Fairfax - 4 Years Later - Are We Really Any Smarter? Fairfax’s stock has compounded at 40.1% for each of the last 4 years. Lots of investors missed participating in the run-up of the stock because they misunderstood and mis-judged the company. Fast forward to today. Most investors think they have a much better understanding of Fairfax and the opportunity it currently presents. I am not so sure. I think Fairfax remains a misunderstood company. And that is because: The fundamentals at Fairfax have been improving at a faster rate than investors generally understand or recognize. Driven by the reinvestment of $4 billion in annual earnings, profit growth over the next couple of years will likely exceed investors expectations. So investors continue to materially underestimate the potential of the company and the growing earnings it will be able to generate in the coming years. ————— At the 15th Annual Fairfax Financial Shareholders Dinner on Wed April 10 there were a number of different events. One event was a Q&A on Fairfax moderated by Trevor (Tidefall Capital) with 2 panelists: me and Asheef @SafetyinNumbers. Below are my opening comments: I want to start by saying thanks to Rob and the rest of the people involved for getting this event organized on short notice. It is a real privilege for me to be here. I also want to give thanks to the board members of the investing forum ‘Corner of Berkshire and Fairfax’. Much of what I have written on Fairfax over the past 3 years was inspired and augmented by members on this investing forum. A special thanks to Tarn for making the trip all the way from Australia. Thanks to Asheef and Trevor for joining me for this session. A quick message from the legal department Nothing discussed tonight is intended to be financial advice. It is intended to educate and entertain. Consult your financial advisor before buying any stocks. ———— OK, let’s get at why we are all here… to discuss that scrappy, unloved, misunderstood P/C insurance company called Fairfax Financial. Yes, make no mistake, it is still unloved and misunderstood. ———— Let’s start with a quick review of a few things. Over the past 4 years Fairfax’s stock has delivered a total return of 286%. That is a 4 year CAGR of 40.1%. How does that compare to the market averages? The S&P500 is up a total of 89%. The TSX is up a total of 60%. Bottom line, over the past 4 years Fairfax’s absolute and relative return has been outstanding. Ok, with a show of hands… 4 years ago, who in this room saw Fairfax delivering a CAGR of 40% per year over the following 4 years? Don’t be shy… No one. (No one in the room raised their hand.) That, I think, is super interesting. ————— Let’s fast forward to today. We are all so much smarter now when it comes to understanding Fairfax. Right? Me? I am not so sure. ————— So where are we at with Fairfax today? That’s what everyone here really wants to know. The stock is up 286% over the past 4 years… so it must be overvalued today… right? What’s the problem with this ‘analysis’? Well, it’s not actually ‘analysis’. The fact that Fairfax is up 286% tells us very little about the current valuation of the stock. And that is because price, on its own, is a terrible way to value a stock. ————— Ok. So what measures should we use to value Fairfax? Let’s look at two simple ones: PE and P/BV Fairfax’s: PE is under 7 x my estimate of normalized earnings, which is about $160/share P/BV is 1.1 x my estimate of book value at March 31, 2024 What do both of these two valuation measures tell us? Fairfax’s stock is crazy cheap. Yes, even after a 286% increase over 4 years. That is nuts. ————— How is this possible? First: Starting point matters. Fairfax was a hated stock in back in April of 2020. So Fairfax’s stock was much, much cheaper than any of us realized back in 2020. Second: Since 2018 the management team at Fairfax has been executing well. And since 2021 their execution has been exceptional. Here are 5 examples: Hard market in insurance. Over the past 4 years, net premiums written have increased from $13.3 billion to $22.9 billion or 73%. The CR has averaged 95.2%. The purchase of total return swaps in late 2020/early2021 has so far delivered about $1.4 billion in investment gains. The buyback of 2 million shares of Fairfax in December 2021 at $500/share. That is almost a 50% discount to current book value. And we know intrinsic value is much higher than book value. Sale of the pet insurance business in 2022 - which delivered a $1 billion after tax gain. This was like finding a pile of gold in your back yard - no one even knew they owned this business. Active management of the average duration of the fixed income portfolio. The move to 1.2 years in late 2021 and then the pivot to more than 3 years in late 2023. The financial benefit to Fairfax from these two moves can be measured in the billions. I’m just scratching the surface with these 5 examples. I could easily list another 10 examples of decisions made by Fairfax in recent years that have had a positive and meaningful impact on their financial results. Bottom line, the fundamentals at Fairfax have been not just getting better - they have been literally exploding higher. I have never seen anything like it in my 25 years of investing. As Peter Lynch would say ‘The story just keeps getting better’. But kind of on steroids. ————— Let’s try and summarize things: Where are we at with Fairfax today? The stock trading at a crazy cheap valuation. Fairfax has three of economic engines: Insurance investments - fixed income Investments - equities All three are performing at a high level at the same time - for the first time in the company’s history. As a result, Fairfax is poised to generate historically high earnings of $4 billion (more?) in each of the next 3 years. It should also deliver an average ROE of about 15%. The management team is best-in-class. When it comes to capital allocation, in Buffett’s words, the management team at Fairfax is hitting the ball like Ted Williams. In Druckenmiller’s words, the management team at Fairfax is on a hot streak. This highly performing team is about to get $12 billion in earnings over the next 3 years. Think of the value creation that is coming. ————— OK. So after all that… What is an investor to do? If you don’t know the answer to this question… well, you might want to stick to investing in index funds.

When you save you are ‘spending’ your money. It is being spent on financial independence. This appeals to people who value their independence.

What i do not understand is where Hamas fits into this war. I think they are the duly elected government of the people of Gaza. I think they are supported by a majority of the population of Gaza (i have read support is as high as 70%). i also think it is Hamas’ (stated?) objective to kill every Israeli citizen. That ‘River to the sea’ thing. Does Hamas not control education (everything) in Gaza? Are kids in Gaza not taught at a young age that killing Israeli’s is a good thing? Listening to the calls that Hamas fighters sent to their family back in Gaza - as they were murdering Israeli’s - was frightening. It provided great insight into the mindset of Hamas and many of the people in Gaza. I hear people/news organizations talking all the time about Palestine. NOBODY wants to talk about Hamas. Which to me is completely bizarre. Hamas controls Gaza - as long as it is in power, it is effectively Gaza. We might get a solution in Gaza when Hamas says publicly that it agrees to Israel’s right to exist. Of course, that will never happen. How do you negotiate with a political entity that has a stated aim to wipe you out? How do you agree to a two state solution when one side only wants to wipe the other side out? We are so naive in the West. I wish people would replace Palestinian with Hamas when they post on this topic. https://www.americanpurpose.com/articles/from-the-river-to-the-sea/

Updated April 8: For board members who are interested I have posted an updated version of 'Fairfax - Hiding in Plain Sight' PDF and the companion Excel workbook. Chapter 1 (overview of Fairfax) and Chapter 4 (float) have been updated. The PDF contains 350 pages of information on Fairfax. The Excel file contains a detailed build for my earnings estimate. Let me know if you have any suggestions for improvement. Missing material? Errors? Happy reading! PS: FYI, I will always keep the most recent version of both documents (PDF file and Excel workbook) in the first post of this thread. Fairfax Apr 8 2024.pdf Fairfax Apr 8 2024.xlsx

@This2ShallPass a question: Regarding BDT, when you calculate your total return of 70% are you assuming Fairfax invested the full $978 million in 2009? To calculate a reasonably accurate annual rate of return for Fairfax I think we would need a little more information (like how much Fairfax actually invested in BDT each year since 2009). We would also need to understand what is built into 'market value' of holdings at Dec 31, 2023 (many of the holdings are private companies). For the private holdings we rely heavily on the communication from Fairfax. I don't think Prem is blowing smoke when he says "Byron and his team have generated fantastic long-term returns for Fairfax, and we very much look forward to our continued partnership." Over the past 6 years, it looks to me like Fairfax has been steadily shifting capital from poor performers to stronger performers. If capital allocated to BDT and Shawkwei is increasing it tells me Fairfax sees these two organizations as being solid opportunities moving forward. Why do I give Fairfax the benefit of the doubt? Fairfax's capital allocation track record the past 6 years has been outstanding. For me, they have earned a certain level of trust.

@giulio I really enjoyed reading (and thinking) about your post. Probably the biggest point I have been trying to make with the equity portfolio is the 'change' thing. The end result? I think the equity portfolio is poised to earn a higher rate of return for Fairfax than it has historically. Like you, I have been thinking a lot about the amount of earnings that is being generated by Fairfax, capital allocation and compounding. The set-up today reminds me of a much younger Berkshire Hathaway. There is a good story in there somewhere!

@Dinar I think the investments with ShawKwei and BDT are mostly private in nature - not mark to market. A fair bit of the value is likely surfaced over long periods of time as the assets are sold. “We expect Kyle to make higher returns on monetization of his major assets.” Bottom line, my reference point is investments like Blackberry, Resolute Forest Products, Eurobank (the first purchase), Exco (before bankruptcy), Fairfax Africa, APR, AGT (before take private), Mosaic Capital, Farmers Edge, Astarta… Compared the that gallows row of investments, BDT and ShawKwei look just fine to me. But each unto their own…