Viking

I don’t think our views are that far apart… although i do like the questions and debate back and forth. I DO NOT think there has been a radical change. But i do think there has been some change… Compared to prior years, their hit rate on investments in recent years is through the roof. It COULD simply be a multi-year hot streak (luck). Or the opportunity set has just been especially good/easy (stuff they really understand well - like FFH and FIH - has been exceptionally cheap). Or perhaps, as you suggest, the economic cycle is just working for the stuff they are invested in. Or some combination of the above. I like to think i am a pretty hard marker. Pretty blunt with my assessments when management messes up (probably too much so). So perhaps i am too quick to give management credit when things go well (like they have been recently).

i listened to 2 Farmers Edge conference calls post IPO and it was painful. Both times the company missed by a wide margin the targets that were laid out in the prospectus (IPO) and reiterated over time by management. The analysts were the most upset i have ever heard on a quarterly call. I do hope Farmers Edge makes a go of it. Given what i have seen and heard from management i hope Fairfax is done injecting new capital until the company is solidly profitable and delivering on its promises. Digit is a great example of where Fairfax hit the ball out of the park; the fact it is an insurance company and in India played to Fairfax’s strengths/circle of competence in both cases. Was Farmers Edge ever in Fairfax’s circle of competence? I have no idea but based on what we have seen so far… ————— Why Paul Rivette stepped down as President is a mystery to me. I don’t think it was to retire, given how busy he has been since (Torstar and Greenfirst being two examples of where he has popped up). I did some snooping with Greenfirst and their going to market process looked pretty messed up to me (might be normal for a company of their size trying to do what they are trying to do). Too speculative for me - although i think insiders could make big money given what is going on with lumber prices and all the consolidation going on.

@Thrifty3000 i think your theory has some truth… we will likely learn more when the AR comes out. And possibly more at the AGM. The bottom line, Prem has brought together a solid collection of businesses and people. Lots of good things happening in 2021. I am optimistic we will see further improvements in 2022.

I think it is instructive to look at some of the actual investments from 2013-2017 (see below). There are SO MANY terrible investments in this stretch. Far too many for it just to be bad luck. Many of the businesses performed terribly. And the poor performance had nothing to do with the economic cycle. It was so bad Fairfax had to get actively involved in many of the companies (to help fix financial, strategic or management issues). Prem said recently that Fairfax was NOT a private equity shop - actively involved in running the business. Fairfax had no choice with a bunch of there legacy investments. Now compare these older investmentscto the investments made from 2018-2021 there are HARDLY ANY terrible investments. The business performance is good to great. Fairfax’s involvement in running the business is minimal. And the companies have not needed a bunch of additional money from Fairfax to keep the lights on. The businesses are generally performing well and some are performing very well. ————— Yes, I questioned Fairfax’s investment in Stelco (2018) when I first saw it. And i was COMPLETELY WRONG. Of course, the boom in commodity prices has been the big catalyst for earnings and the share price. But the company had to survive a pandemic driven recession BEFORE it hit the jackpot of US$1,600 steel prices… which it did with flying colours. Because it had no debt. And great management. And an exceptional business plan. Fairfax is a passive partner. Same thing with the Carillion purchase (out of bankruptcy). At the time it screamed ‘old Fairfax’ to me. Looking like i was wrong again. The reverse merger with Horizon North in early 2020 did not look good at the time. Of course i knew little about the actual business. Despite being severely impacted by the pandemic, today the merged company is doing well (although in Q3 results slightly disappointed). Solid management team. Solid business plan. Solid balance sheet. Executing well. My guess is they will hit their $100 million EBITDA target in the next 18-24 months. Given its large size (Fairfax’s largest investment by far), Atlas/Seaspan is an extremely important example. Completely re-engineering the model for shipping. Delivered great results during the pandemic. More recently successfully executed massive multi-year new-build strategy. Solid balance sheet. Great management. And an exceptional business plan. Fairfax is a passive partner. These sorts of equity holdings have nothing in common with MANY of the equity purchases made pre-2018. This tells me Fairfax is using a different methodology. I am not suggesting it has been a radical change. But it looks to me like they are placing a much higher premium on: 1.) leadership/management 2.) business plan 3.) financial position/balance sheet (will it need more money from Fairfax to stay in business should adversity strike) ————— Below are just a few examples of ‘old Fairfax’: Fairfax Africa (Feb 2017) is a great example. Prem said Paul was the one who came up with the idea (wanted to replicate the successful Fairfax India). And Paul was in charge. And what a mess. The failure of this investment had nothing to with market cycle. Among other things, the stock selection was terrible. If you compare Helios and their approach in Africa with the former Fairfax Africa it is night and day. The failure of this investment resulted in financial and also significant reputational cost for Fairfax. Investors lost lots of money. And the analyst community looked like dummies. APR Energy (2015) was another catastrophe. A troubled, capital intensive business focussed on emerging markets (largest customer used to be Libya) - what could possibly go wrong? Terrible analysis by Fairfax. Bad business AND bad management (look at what Atlas did as soon as they got it). And 2 years later, Atlas is still trying to right the ship. APR’s failings have nothing to do with the economic cycle. Farmers Edge (Dec 2016) is looking like another good example of terrible investment process (initial decision and subsequent decisions to keep throwing good money after bad). What bailed Fairfax out (for now) was the SPAC bubble in 2021 - so the company was able to get another $140 million. I listened to two Farmers Edge conference calls last year. What a mess. The analyst community was absolutely shell shocked - there was a complete disconnect between what FE management said and what they were subsequently able to deliver 3 months later. Farmers Edge is one of the few problem children (from ‘old’ Fairfax) that i have my doubts about.

i have no special insight on Grivalia’s merger with Eurobank. My guess is the merger happened because management of the two companies (and Fairfax) felt is was very beneficial for both organizations (and not just a make work project). Perhaps the merger improved the quality of Eurobank’s balance sheet; improved the quantity and quality of their earnings at the time; enhanced Eurobank’s real estate capabilities (important given the need to dramatically reduce non performing loans); accelerated their restructuring. Bottom line, Eurobank today is generally perceived to be the best positioned and best run bank in Greece - this suggests to me the merger with Grivalia was beneficial. But this is just a guess on my part.

Glider, yes, Fairfax is once again crazy cheap trading under US$470. I bought another big slug today so i am once again way overweight. And ok with that positioning as ‘the story’ just keeps getting better. My last post might have come across as being bearish. I am quite the opposite. I think investors are way underestimating the earnings power of the company moving forward. And that is because most investors use past results as the core input to value the company. Which usually is the right thing to do. My view is past results have been polluted primarily by the significant short losses. Past results also understate the benefits of the current hard market in insurance. Having said that, Fairfax’s performance will be more volatile than most insurers. As you mention, Q1 is shaping up to be a tough quarter for their mark to market stock portfolio. I also wonder if they will need to write down their Ukraine insurance operations. But there will also be good news in Q1 results. I am really looking forward to seeing what their underwriting results are. Was Q4 at 88 CR an outlier? I am hoping for 95 but i think there is a decent chance we may see a CR below 95. That would generate significant underwriting income and would be very bullish for Fairfax looking forward. And i am looking forward to the release of the AR. Looking forward to reading Prem's letter. And working through the whole report.

Fairfax performed terribly for the decade 2011-2020. Book value increased from US$364.55 to $478.33 = +31% (yes, they did pay a $10 dividend). Closing share price was US$437.01 Dec 31, 2011 and $433.85 on Dec 31, 2020. (Today the share price is $467.) Why? The insurance business performed ok over this decade. And the bond portfolio performed ok too. So what was the problem? The equity/derivative investments was the big problem. ————- The reason i keep coming back to this topic is because understanding why Fairfax performed so poorly in the past is an important input to understanding Fairfax today and how it might perform in future years. If nothing has changed at Fairfax (in terms of levers management has control over) why would we expect future results to change? ————- So what exactly was the problem with the equity derivative bucket from 2011-2020? I think there were 2 problems: one big and one smaller, but still important. 1.) shorting/CPI derivative bet: the shorting strategy cost the company US$450 million per year over 10 years from 2011-2020 (not 7 years as i previously stated). The deflation bet cost close to another $50 million per year on average over the same 10 years. So by discontinuing both of those strategies Fairfax has in essence removed a $500 million annual expenses. We saw the benefit of this in 2021 results. 2.) bad equity purchases: another very large annual ‘expense’ that Fairfax has had is write downs to bad equity purchases. I am being liberal with my definition of ‘write downs’ to include actions taken by Fairfax over the years that essentially destroyed shareholder value. I really need to calculate the actual numbers. My guess is this expense ran into the hundreds of millions many years (perhaps $150 - $200 million every year on average?). But unlike the ‘short’ and ‘CPI’ expenses i don’t think the ‘bad equity’ expense will be eliminated; but i do think it will be reduced dramatically moving forward. Why? Two reasons: 1.) Fairfax is making better decisions on new purchases beginning in 2018: the amount of new money Fairfax will have to spend to fix one or more of these companies (or light on fire in the case of a severe markdown in value) should be much less. 2.) most of the problem equities purchased prior to 2018 have largely been fixed (sold, merged, taken private, recapitalized). The financial hit to Fairfax earnings and its book value from these older holdings has largely happened. Why do we care? Another ‘expense’ running perhaps $150-$200 million per year has been greatly reduced. Given how Fairfax invests (deep value) there is always going to be some cost here; however, i do expect the cost to be smaller on average in future years. Fairfax has communicated they will no longer short stocks. Combining the two items, my guess is Fairfax has cut their ‘expenses’ by US+$600 million per year. This is $25 per share. This is money Fairfax will be able to now spend/invest on other things… things that will drive shareholder value. Every year. That compounding thing... except working for shareholders and not against them like it had been from 2011-2020. 2021 was a good start... look at all the good investments Fairfax made last year. It will be more of the same in 2022. Having another $600 million every year really helps...

@glider3834 I agree: Fairfax is investing much more ‘internally’ than in past years. 1.) Fairfax directly via significant buybacks (+2 million last year) 2.) Fairfax via TRS: giving them exposure to another 1.96 million shares of Fairfax 3.) Fairfax subs directly: Fairfax India 4.) expanding partnerships with existing long term partners: Kennedy Wilson And i also think this is indicative of a change in the filters that Fairfax is using in how it allocates capital. Simpler approach. More concentrated. To your point, low risk. Solid return. Kind of like shooting fish in barrel for them. So i am going to stick with my thesis that things have changed - in a good way.

@nwoodman yes, increase in total float in 2021 to about $27.5 billion from $24.3 billion is dramatic. The increase in 2020 was also large +$1.9 billion. The increase the past 2 years = $5.1 billion = 23%. Per share the increase in total float has been +34% over the past 2 years. Hello insurance hard market? The 3 years 2017-2019 saw float actually decrease by $0.5 billion. This was due primarily to the sale of Riverstone UK which reduced float in run-off by about $1.2 billion. Over these 3 years float at insurance and reinsurance subs was up only a very small amount. Page 23 of the 2020 AR has good detail. Premiums collected - claims paid out = insurance float What to expect in 2022? Given the hard market is expected to continue then it seems reasonable to assume solid growth in float at Fairfax in 2022. A tailwind. —————- “Insurers don’t pay out all the money they collect right away. Rather, an insurance company will collect money in the form of premiums, invest that money, and then pay out claims as needed at some future date. The difference between premiums collected and claims paid out is called insurance float.” - https://finmasters.com/warren-buffett-insurance-float/

Glider, to adjust for minority we can made some rough adjustments using 2020 numbers where float is broken down by insurance sub. Not sure if we should adjust also for Odyssey; if so, after minority interest, Fairfax has total float in excess of US$1,000/share. For those with a better handle on accounting than me, please correct me where i am wrong. My goal is to come up with a roughly accurate per share total float number for Fairfax that we can use to help us understand what float is and what it means for Fairfax shareholders. ————— Float (insurance and reinsurance ) $25.9 - $3 = $22.9 / 24 million = $954/ share Total float (including reinsurance of $1.6?/24 million) adds another $65/share = $1,020 Float 2020. Minority % & $ 1.) Allied. $5.7. 30%. $1.71 2.) Brit. $3.2. 14%. $0.45 3.) Odyssey. $5.9. 10%. $0.59 Total. $2.75 billion - lets bump this to $3 to account for growth in 2021

What a bizarre take on what is going on. Walks and quacks like propoganda…so… He makes what Russia is doing sound so Disney (helped with lots of smiles). The reality, of course, is quite different. If what this guy says is true Ukraine would have rolled over by now. The fact it hasn’t and Putin felt it necessary to already offer peace talks with no conditions tells you all you need to know about what a disaster this has been for Russia. (Of course, The talks are a complete smoke screen on the part of Putin - meant to give the press in the West false hope… but i think people are finally starting to understand Putin’s playbook…). 1.) I think it is pretty well understood that Russia’s initial plan was PutinKrieg into Kiev, kill the Ukraine leadership, and install a puppet regime. BIG FAIL. Yes, they have now moved on to plan ‘B’. 2.) speed was everything for Russia. - That was the best way to avoid the worst of the sanctions. The longer this goes on the more the rest of the world will respond - not good for Russia. The stuff we are seeing is unprecedented (see below for another example). And more is likely coming. Russia is already paying a huge price for its Ukraine catastrophe. - every day that passes is another day Ukraine is able to re-arm itself via Poland. The arms from other countries are now rolling into Ukraine - and now in volume. This is all part of the Russian plan? 3.) Ukrainians do not see the Russians as liberators (that guns and killing thing…). That is such a BS take. Achieving military victory will likely come for the Russians (no idea.. and hope not). But good luck governing a country full of people who hate you and are armed to the teeth. And the longer the war drags on the deeper the hatred of all things Russia will only increase among the Ukrainian population. 4.) Putin has made President Zelensky a national hero in Ukraine. “I need ammunition, not a ride” is already one of the great quotes. Zelensky is giving his country leadership and hope. The guy has been a rock star. Not what Russia expected. Zelensky was voted in with +70% of the popular vote… and my guess is he is much more popular today. He has also become an inspiration for the rest of the world. ————— Switzerland says it will freeze Russian assets, setting aside a tradition of neutrality. - https://www.nytimes.com/2022/02/28/world/europe/switzerland-russian-assets-freeze.html GENEVA — Switzerland, a favorite destination for Russian oligarchs and their money, announced on Monday that it would freeze Russian financial assets in the country, setting aside a deeply rooted tradition of neutrality to join the European Union and a growing number of nations seeking to penalize Russia for the invasion of Ukraine. After a meeting with the Swiss Federal Council, Switzerland’s president, Ignazio Cassis, said that the country would immediately freeze the assets of Russia’s president, Vladimir V. Putin, Prime Minister Mikhail V. Mishustin and Foreign Minister Sergey V. Lavrov, as well as all 367 individuals sanctioned last week by the European Union. Switzerland said it was departing from its usual policy of neutrality because of “the unprecedented military attack by Russia on a sovereign European state,” but expressed a willingness to help mediate in the conflict. It also joined European neighbors in closing its airspace to Russian aircraft, except for humanitarian or diplomatic purposes. But said it would evaluate whether to join in subsequent E.U. sanctions on a case-by-case basis.

Investors in insurance companies usually spill a great deal of ink discussing this wonderful thing called float. Yet, other than a casual mention, it is rarely discussed with respect to Fairfax. Why is this? Is float REALLY that important? Or is it simply not that important for Fairfax? More to the point, why was book value growth so poor at Fairfax for so many years? It had growing ‘float’ during these years. Why should investors expect ‘float’ to matter for Fairfax in 2022 and in future years? What of substance has actually changed at Fairfax? i would love to hear other board members thoughts. ————— To set the table, here is a little background information. Fairfax reports float in two ways: 1.) ‘Float’: insurance and reinsurance 2.) ‘Total Float’: insurance and reinsurance + run-off From the Feb 10 (Q4) earnings release: YE. Float Per share 2021. $25.9 billion +14.2%. $1,080 +24.6%. (24 million shares) 2020. $22.7. $866 Numbers above do not include Run-off = $1.6 billion on 2020. Total Float. Per share. (From p23 of 2020AR) 2020. $24.3. $927 2019. $22.4. $834 2015. $17.2. $775 2010. $13.1. $641 From p23 2020AR: “Float is essentially the sum of loss reserves, including loss adjustment expense reserves, insurance contract payables, and unearned premium reserves, less insurance contract receivables, reinsurance recoverables and deferred premium acquisition costs. Our long term goal is to increase the float at no cost, by achieving combined ratios consistently at or below 100%. This, combined with our ability to invest the float well, is why we feel we can achieve our long term objective of compounding book value per share by 15% per annum. This no cost float is perhaps one of Fairfax’s biggest assets and could be the key reason for our success in the future. In 2020, our ‘‘cost of float’’ was a 1.4% benefit, as we made an underwriting profit. In the last ten years, our float has cost us nothing (in fact, it provided an average 1.2% benefit per year), while during that time it cost the Government of Canada an average 2.2% per year to borrow for ten years – an advantage for us over the Government of Canada of 3.4% per year.” ————— Float: How Insurance Companies Can Leverage Buffett’s Secret to Wealth - https://einvestingforbeginners.com/insurance-float-ahern/

I did a quick search in the archives and was not able to find a general thread on investing in commodities. I am listening to the pod cast linked below and am finding it very educational. Lyn Alden is quickly becoming one of my favourite investment professionals to listen to, and not just from a commodities perspective. Podcast: We Study Billionaires Guest: Lyn Alden Posted: Sat Feb 26 https://podcasts.apple.com/ca/podcast/we-study-billionaires-the-investors-podcast-network/id928933489?i=1000552327751 IN THIS EPISODE, YOU’LL LEARN: • 01:03 - Why do commodities perform well in inflationary periods? • 08:55 - Why do different generations and nationalities look differently at gold? • 11:26 - How to best invest in commodities. • 15:21 - How can commodities markets be manipulated andHow much should your portfolio be exposed to commodities? • 19:57 - Why you should compare the price of gold to real interest rates. • 29:13 - Are there any classes that investors should not hold? • 33:30 - Why the M2 money supply growth should be your default yardstick when measuring real returns for asset classes. • 52:18 - Should you own gold or gold stocks? • 1:03:03 - What will the next monetary system look like?

How fast Germany appears to pivoting away from Russia is the shocker for me (in a good way). This has quickly resulted in a united Europe and much more support for Ukraine (weapons) and pain for Russia (sanctions) than anyone expected at this point. It appears Putin has completely misread Germany and how they would react. And Europe as well. The longer Ukraine holds out the worse this is looking for Putin. If Putin ramps up the killing of civilians in Ukraine (indiscriminate bombing) - which i think is likely the longer this goes on - the country to watch is China. In the face of significant civilian deaths in Ukraine, and the rising risk of this spreading to other parts of Europe (lets actually listen what Putin is saying), China’s position of supporting Russia will become increasingly difficult - China will look complicit with Russia. And this will then draw China into the conflict (indirectly - by association). Lets face it… the ONLY REASON Russia will be able to continue with its military operations in Europe (as sanctions ramp up) is BECAUSE OF THE SUPPORT IT IS GETTING FROM CHINA (which will allow it to get around the sanctions). US companies with significant business in China will look extremely hypocritical - and subject to the risk of a big backlash in Europe and the West. I am not sure if Xi was expecting this tail risk to manifest itself so quickly (with his open support of Russia cemented right before the Olympics started). ————— Are Europeans going to want to buy and iPhone that is made in China when China is the country propping up Russia’s invasion of Ukraine? (And with Putin aspiring to return Russia to its former Soviet footprint - meaning Ukraine is just the start for him.) This is the chess part of investing… the thinking ahead a few moves part. The problem with wars is once they start… where they go is UNKNOWABLE. Putin is now learning this lesson. China is probably starting to sweat just a little. Western companies with significant operations in China…. well, as i have said before, i have no idea what they are thinking… ————— That ESG thing that is so important these days to investing is about to get a whole lot more interesting when you add the Ukrainian layer… Climate change is one thing. Civilians dying daily in Europe is quite another. BP offloading its Russia interests is just the start… ————— Germany to set up €100bn fund to boost its military strength - https://www.theguardian.com/world/2022/feb/27/germany-set-up-fund-boost-military-strength-ukraine-putin During his half-hour address, Scholz said Putin’s decision to launch a war “marked a turning point in the history of our continent”. The military conflict would be a lengthy one, he said, stressing that he saw it as “Putin’s war” and “not a war of the Russian people”. He said the conflict would alter the world and called it “a catastrophe for Ukraine”, but said it would “also prove to be a catastrophe for Russia”. Scholz issued five “mandates for action”, including: the delivery of weapons to Ukraine, which he said “can be the only answer to Putin’s aggression”; supporting sanctions against Russian interests, including the suspension of the Swift payment system; ensuring the war does not spill over into other countries, citing the importance of Nato’s article 5; a significant increase in German military spending as well as other strategic changes, including an effort to decrease German dependence on Russian gas, and the construction of two terminals allowing the import of liquid petroleum gas in the ports of Brunsbüttel and Wilhelmshaven.

This quote from his letter made me think of one aspect of the great value provided by this board. When we post, should we have a picture in our mind that we are talking to an orangutan? “Teaching, like writing, has helped me develop and clarify my own thoughts. Charlie calls this phenomenon the orangutan effect: If you sit down with an orangutan and carefully explain to it one of your cherished ideas, you may leave behind a puzzled primate, but will yourself exit thinking more clearly.”

China also has pretty much a monopoly on iPhone production... if someone can explain to me what companies like Apple are thinking I am all ears... clearly i am an idiot

No. I was adding to my Fairfax position given how cheap it currently is. Fairfax India is on my watch list and sub $12 has been a great entry point the past year.

While i think it is highly likely that China will bring Taiwan back into the family i think the word ‘attack’ is too strong. How will they do it? No idea. When? Not sure; just sooner than people think. It will likely happen in stages over time; think years - just like Hong Kong, except longer. Xi, just like Putin, has stated in writing what is coming. We need to become better listeners when people like Putin and Xi speak. I think we would be foolish to not take Xi at his word when it comes to Taiwans future. When ready, China will start to apply the screws… Look at how easy and relatively quick it has been for China to remake Hong Kong in its image (a couple of years is nothing in China's long 2,000 year history). Why do you think so much chip production is frantically trying to move back to the US? Following the money can also be instructive. Do i think my macro view on Taiwan is actionable? No, of course not (on its own). At least not for me and how i invest. Too many moving pieces. Timing uncertain. Now if i held a big position in a Taiwan based equity would my macro view be an input? Yup. Doesn’t mean i wouldn’t own it… i would just have my eyes wide open to what is coming. ————— China-Taiwan tensions: Xi Jinping says 'reunification' must be fulfilled https://www.bbc.com/news/world-asia-china-58854081 ————— i invested in oil back in December for a whole bunch of reasons. The impending invasion of the Ukraine just became another tailwind to an already strong thesis (that oil prices were headed higher).

i think Francis Chou has spoken pretty openly about the mistakes he made when investing in Abitibi/Resolute. I am pretty sure he fessed up it was, plain and simple, a bad purchase. And it took him years to learn why. My guess is the same light bulb went on at Fairfax. Now it may be that 30 years ago that exact same purchase (Abitibi) may have turned into a great investment. Bottom line, it looks to me like some important lessons have been learned. And as a Fairfax shareholder this gives me a greater confidence level that future equity purchases will be solid investments. But i will remain open minded.

If i have used ‘dramatically’ when describing the changes i think have happened at Fairfax then, yes, that is too strong. The old guard at Fairfax are deep value investors at heart. The issues with Greece, its political system and its economy, were very well known at the time. Yes, the ECB was a wild card. Value investing is defined as ‘safety of principal and adequate return’. There was no ‘safety of principal’ putting money in Eurobank at the time (their initial purchase). It was a straight up high stakes gamble. It was a speculation not an investment, as defined by Graham. I just see way less ‘speculation’ with investments made in recent years (2018 to present) than in prior years. Lots of success stories. And i don’t think its luck. Grivalia is an example of where Fairfax made a very successful investment. (They did hit on a number of their investments pre-2018.) Same country; same monetary policy; same ECB. Folding Grivalia into the much larger Eurobank accelerate the improvements at Eurobank and made the new entity much stronger (1+1=2.5). Of course the actions of all governments worldwide (fiscal and monetary) during covid have been very beneficial.

Eurobank is a great example. The decision to purchase Eurobank when they did was, in hindsight, a terrible decision. The failure of that investment decision when made had absolutely nothing to do with the Fed or global monetary policy in place at the time. Fairfax completely misread the situation in Greece. The Greek economy was in much worse shape than they realized at the time. The political situation was worse than they realized. This economic/political situation made the turnaround at the bank pretty much impossible to execute at the time (regardless of how good management was). In short, it was a terrible risk/reward decision. And Fairfax paid the price as a very large investment way underperformed for many years. Eurobank also demonstrates one of the strengths of Fairfax: when they mess up with an investment they do their best to fix it. Over many years, if necessary. And they are willing to spend money and be highly creative to get the company positioned properly to be able to succeed. So do i like Eurobank today? Yes. A lot. Due to 6 years of hard work and merging with Grivalia, Eurobank is largely ‘fixed’. The political situation in Greece is ‘fixed’ (for now) with a pro business government. And the Greek economy has turned the corner and is poised very well heading into 2022. ————— All the poor equity purchases made from 2013-2017 had nothing to do with monetary policy at the time. Now the disastrous shorting policy… i am just happy that sad story is over. I agree monetary policy at the time was a factor in that failed strategy… but the bigger issue was the poor risk/reward decision making at Fairfax.

Thanks for taking the time to debate a super important aspect of Fairfax. Let me try and make my point another way… Let’s pretend Fairfax is a batter in baseball. From 2013-2017 its batting average was probably about .500 or lower (i.e. it ‘hit’ on less than 50% of its new equity investments over this time period). From 2018 to present its batting average is likely over .900 (hitting on over 90% of its equity investments). Forget the exact percentages. It looks to me like Fairfax’s ‘success rate’ when making new equity purchases (2018-present) is much, much higher - close to double - what it was (2013-2017). The list of bad investments made from 2013 to 2017 is long. - Cara (2013), Reitmans (2013), Torstar (2014), EXCO Resouces (2014), Eurobank (2015), APR (2015), Fairfax Africa (2016), Farmers Edge (2016), Mosaic (2016), Chorus (2016), AGT (2017) What are the terrible equity investments made 2018 to present? - ? There is no comparison. Fairfax is buying better situations/companies. Why is this? I don’t think it is luck. I think they are using a different, improved methodology. Yes, they continue to be deep value investors. They have just been much better at it in recent years.

I agree the Fed has completely changed the investing landscape the past 10 years (follow what they are doing with liquidity…). Druckenmiller is another super smart investor who openly says what the Fed has been doing the past 10 years has completely messed with his old methods. But is also think Fairfax’s terrible recent performance (7 years worth) was largely self inflicted: 1.) short strategy which cost it $450 million per year on average for 7 straight years finally ending in 2020 (CPI bet also cost about additional $50 million per year over same time period). 2.) prior to 2018 Fairfax made a lot of poor equity purchases (not all but far too many). And they usually doubled down on these poor purchases (buying more ‘cheaper’ shares, restructurings, take private deals etc). So the many poor equity purchases were another drain on Fairfax’s cash resources for many years (right up to present). But something happened in 2018 and in the years since. Fairfax has been making much, much better decisions with new equity purchases. 2018 is going to go down as a best ever year for Fairfax (kind of like analyzing draft years for a sports team): Digit, Seaspan, Stelco, Carillion Canada - now Dexterra, Toys R US. And the decisions (draft picks) in the years since have been good. TRS on FFH in 2021 being a great recent example. (So the team is very well stocked with young, high-end talent.) And over the past 4 years Fairfax has fixed most of the problem equity holdings they had at the start of 2018. (Lots of players from the old team have been let go and lots of those that remain have had their careers rejuvenated.) And that is why i like to refer to Fairfax 2018 and after as the ‘new Fairfax’. It is simply amazing the turnaround they have engineered in dramatically improving the quality of their equity portfolio the past 4 years. I think they are using changed/new, better methodologies when allocating capital. 2021 was a stellar year for equity returns for Fairfax. And shareholders should see much better results from the equity investments in the coming years… as ‘time is the friend of the wonderful business’. (Team Fairfax is, once again, ready to play at a championship level.) ————— ‘Old (bad) Fairfax’: Cara (2013), Reitmans (2013), Torstar (2014), EXCO Resouces (2014), Eurobank (2015), APR (2015), Fairfax Africa (2016), Farmers Edge (2016), Mosaic (2016), Chorus (2016), AGT (2017)

Xerxes, what i REALLY CARE ABOUT is what Fairfax is actually doing. With the levers that are IN THEIR CONTROL. I would love for Mr Market to agree with me (and drive Fairfax’s share price to at least BV = US$630). But Mr Market is not there YET. It took Fairfax years to damage its reputation. So my guess is it could take a couple years to re-build. And as a shareholder i am ok with that because that is somewhat out of Fairfax’s control today. With my analysis of Fairfax i am mostly focussed on the decisions they are making today/recent years, what earnings will be this year and what earnings will likely be in the next couple of years. Fairfax delivered in 2021. If it delivers in 2022 and 2023 then at some point Mr Market will get back on the train. The timing is impossible to predict.

What is much more important to me is what Fairfax is actually doing with its investment decisions. And its track record, in aggregate, the past 4-5 years has been stellar. Just look at the 2 decisions so far this year: 1.) Fairfax India - US$65 million - 5.4 million shares at US$12/share (0.61 x BV) - increases Fairfax ownership of Fairfax India to 41.8% - BV of Fairfax India at Dec 31 = $19.65/share 2.) Kennedy Wilson - US$300 million perpetual preferred equity. Dividend = 4.75% = $14.25 million per year - increase in first mortgage debt platform by $3 billion (from $2 to $5 billion). If this earns Fairfax an incremental 2% = $60 million increase in interest income once funds are fully deployed. Incremental 3% = $90 million per year. (Anyone have thoughts of what rate will be earned here?) - 7 year warrants for 13 million KW shares at a very reasonable strike price of $23 (about where shares are trading today) Both investments are with long term partners. Fairfax India is a classic value purchase; expanding ownership of a business they already control and own a significant stake in at a remarkably low price (0.6 x BV). Very low risk and high return. The investment in Kennedy Wilson is expanding a long standing, very profitable and very successful partnership in a meaningful way. Significantly expands Fairfax’s investment portfolios exposure to real estate which is in the sweet spot right now (as an asset class). Low risk and solid return. The Fairfax India purchase looks like a solid single (given its small size). The much larger Kennedy Wilson investment looks like a solid triple. Great investment decisions for Fairfax shareholders that build on the solid body of work we have been seeing for years now.