Viking

To quote Russell Crowe from one my favourite scenes from the movie ‘A Good Year’. ‘Well lab rats… today is greedy bastard day’ Big add to my Interfor (down 6.5%) and West Fraser (down 5%) positions. Lumber prices are flat. All lumber companies are going to report monster Q1 profits. What to do with all those earnings? Weak share price? Hello meaningful stock buybacks.

@glider3834 i also saw the disclosure of ShawKwei & Partners. Dec 31 Fairfax had $374 invested +$202 new $ = $575 million investment. This is material - making it a top 10 equity holding. Solid long term track record. I love the additional disclosure from Fairfax. It allows investors to better understand where the equity $ is parked. The update on EXCO is timely. That business performed well in 2021. And it certainly looks well positioned as we start 2022. Fairfax certainly is well positioned with its various commodity holdings. Especially if the current boom in prices lasts into 2023. - Stelco: steel - Resolute Forest Products: lumber - EXCO: nat gas - Altius (royalties): copper, iron ore, coal, potash - Foran: copper, zinc (2025 start?) - Ensign Energy: oil drilling

+1

Startup Ki has been on my watch list since first announced by Brit. This business is exploding in size. A doubling of gross premiums in 2022? With a combined ratio below 100%? Not what i was expecting. Very happy to see expectations for CR < 100 in 2022. “Ki, Brit’s partnership with Blackstone, had a fantastic year in 2021 under Mark Allan’s leadership, writing nearly $400 million in gross premiums in its very first year. There is no question that Ki’s digital platform works and it expects to write $800 million in 2022 with a combined ratio below 100%. Ki had the fastest start-up in Lloyd’s history.” ————— “At Brit, the management team deserves great credit for bringing in the year at a combined ratio of 97%, absorbing another larger-than-usual level of catastrophe losses. The underlying strength of its portfolio, along with reserve releases flowing from prior years, allowed Brit to close with $56 million of underwriting profit. Along with growth in its core syndicate, Brit benefited from the successful launch of the Mark Allan-led Ki Syndicate, which recorded almost $400 million of gross premiums written in its first year of operation. Ki is the first fully automated follow only underwriter operating in the Lloyd’s subscription market. With Martin Thompson stepping in as interim CEO while Matthew Wilson takes a health-related leave of absence, Brit enters 2022 with a strong head of steam and a bright future.”

Yes, We got confirmation that Fairfax made a few sales in Q4: - Leon’s 7.2 million shares at C$25 = C$180 million - IIFL Wealth 4.1 million shares for proceeds of about US$78 million - IFL Finance 28.4 million shares for proceeds of about US$115 million All 3 positions were sold for very healthy gains. And as has been mentioned by others, with the recent purchase of Fairfax India at a substantial discount to BV Fairfax was able with its Indian positions to essentially sell high and buy low a few months later (with part of the proceeds). It is almost comical because Fairfax India owns substantial stakes in all the IIFL Wealth and Finance. A small but very good trade for Fairfax shareholders. This also further concentrates their Indian holdings in Fairfax India which simplifies things a little. Exiting Leon’s also looks smart. Fairfax got a very good exit price - near all time highs at C$25/share. Shares currently trade at $22. Shares traded at $16 pre-pandemic. Fairfax also recently received a special $1.25 dividend (Oct). Home furnishing retailers have seen a boom in business in Canada due to the pandemic. It is less certain how sales will trend post pandemic - especially if we see a shift in consumer spending in Canada towards services. Bottom line, today it looks like a great move by Fairfax.

@StubbleJumper you make some great points. I completely agree the transactions where Fairfax partners with OMERS, CPPIB, AIMCO) come with a definite cost. To be completely honest i do not understand all the puts and takes very well. Do we know how much Fairfax will have to pay the partners to buy the position in Odyssey back? 1.) Is it a fixed amount known today - like perhaps US$900 million? 2.) Or is the amount unknown and based off the future value of Odyssey (9.9% of a much higher future value)? Understanding this is important to understanding the true cost of the deal over its life. if it is option 1.) above i like the deal a whole lot more than if it is option 2.) If 9.9% of Odyssey is ‘worth’ $900 million today, we KNOW 9.9% will be worth much more in 5 years time (my guess is Odyssey will compound in value at 12-15% over the next 5 years given we are still in a hard market). It might be interesting to look at the Eurolife deal to better understand how all the financial puts and takes worked over its lifetime.

Normally i am pretty good with this stuff. But every once in a while i just can’t help myself… i have said my piece and time to move on. So i am done commenting on this topic

@Gregmal i understand that you do not have a problem with your post. I was trying to communicate to you that i have a problem with your post. I was trying to provide you with some feedback. Most people wouldn’t bother. And what was your response? Not ‘i hear you’. Rather it was to double down and insult me. And to give me the green light to insult you right back. Because you have ‘thick skin’? Seriously? Are we back in high school? What makes this board work is respect for other board members. The last thing we all want is for the quality of discourse on this board to go into the sewer. That is a slippery slope to hell for any message board. ‘Dumb fuck Canadians’ crosses the line for me into the sewer. This has nothing to do with ‘thick skin’ - it is about how we communicate and how we chose treat each other.

@Gregmal hey, you might want to step back from the ledge… what is up with all the anger and hate? ‘Dumb fuck Canadians’? Seriously? You realize there are Canadians on this board. Whether you meant it or not you just insulted all of us. If you have an issue with what a restaurant owner does, i can understand that. But to extrapolate that to ‘Dumb fuck Canadians’ is crossing the line. At least from my perspective. i hope we can all show some restraint and show some respect for other board members, regardless if we agree with their views. ————— Now you realize it was one restaurant in Quebec. For the simple reason Stubble suggest. And was a symbolic gesture. It was done because the restaurant owner wanted to support Ukraine and denounce Putin. - https://montreal.ctvnews.ca/quebec-diner-drops-poutine-from-the-menu-the-word-not-the-dish-to-denounce-putin-1.5800157 After Russia, Canada has the largest population of Ukrainians in the world living outside of Ukraine. So yes, LOTS of people in this country are wanting to do whatever they can to show support. Personally I applaud what they are trying to do. But hey, each unto their own…

i think i am a pretty hard marker. But i think Fairfax will hit BV of US$1,000 in 4 years. And possibly in 3 years. How? 1.) underwriting: i think we could see a multi year run where Fairfax achieves a better than 94CR. The 88 in Q4 has me wondering. I can’t wait to see Q1… if its in the low 90’s we may be off to the races (sub 94 CR). 2.) interest and dividend income: if Fairfax is able to deploy a sizeable chunk of their fixed income portfolio at higher rates (like what we have seen announced with Kennedy Wilson) we should see interest and dividend income jump. These two buckets alone could deliver +$2 billion per year pre-tax as soon as 2023. And $2.5 billion in a couple of years is possible. i also expect the equity holdings to deliver solid results (on average) the next few years. Digit IPO would be gravy. Of course there will be some surprises (but these will be both positive and negative) so i am not too worried on this front given how the company is positioned today.

@glider3834 the US banks are also down 20% in the past 4 weeks so this is a global sell off. I am pretty confident that Fairfax will be buying back another big slug of stock especially if shares continue to trade under US$500 for any length of time. The NCIB is a logical place to start. Q1 they paid the dividend. So perhaps meaningful buybacks start to happen in Q2. Another thing that jumped out to me reading Prem’s letter was the importance of balance sheet strength. Fairfax got its balance sheet fixed in 2021 after seeing debt increase meaningfully for three straight years. Subs and equity holdings were also on the same debt reduction diet in 2021 so this was clearly a company wide initiative. And sounds like we will be seeing more of the same in 2022 (likely at a lesser pace). My guess is the balance sheet got TOO STRETCHED during the pandemic… but the lesson was learned and moving forward we will see Fairfax/subs/equity holdings with much better balance sheets moving forward. Love it.

@Cevian i agree. It is clear to me that Fairfax has put a PREMIUM on partnering with talented people. And it nurtures those relationships for decades. You see this: - at the insurance subs - Hamblin Watsa and Fairbridge - the many public and private equity holdings This has always been a part of Fairfax. It just looks to me like they are moving even more in this direction.

@nwoodman i completely agree. The letter was VERY logically laid out. Comprehensive. With pretty much all of the information a shareholder needs to understand the company. And like you said, VERY coherent. That is not easy to do given all of Fairfax’s different businesses. For me the letter read like a coming out party for Fairfax. What a superb: - collection of assets - collection of people - collection of relationships Prem’s letter was written like a proud father walking his daughter down the aisle. The cumulation of 37 years of hard work on full display. And he is understandably proud of what the team at Fairfax has created: a top 25 global insurer that is exceptionally well positioned.

@Gregmal The whole reason we are discussing this top is to share ideas, better understand the situation and hopefully learn something new along the way. - ‘walk in someone else's shoes’ is a mental model i have used for years for lots of different situations. I find it useful. Clearly you don’t. Just because it doesn’t work for you doesn’t mean it doesn’t work for others. Of course, i have no idea how ordinary Ukrainians are feeling right now - they are living real time though a human catastrophe. But i will TRY to understand. - if a stud Hockey player of Russian descent want to raise his family in Russia that is great. Back to that self determination thing. My comments previously about Russia are referencing the Russian state - not the Russian people. - Russia does not have a right (legal or moral) to invade a sovereign country and bomb and kill its inhabitants. Because it was ‘poked’ by Europe/US? Seriously? Even if true, it does not justify his actions. Is that the new threshold for war? - Putin told us exactly why he went into Ukraine. Well he keeps updating the list of reasons. The latest is he is liberating the country: ‘de-Nazification’. Not the ‘poke’ thing you mention… got to prevent the genocide… his words. ————- As Russian bombs pound Ukraine, and its soldiers pour into Ukrainian territory, the question on everyone’s mind is: Why? What does Russia hope to accomplish with a massive invasion? Russian President Vladimir Putin gave his version of an answer in his televised speech Wednesday night, announcing a “special military operation” whose “goal is to protect people who have been abused by the genocide of the Kyiv regime for eight years.” Ultimately: “We will strive for the demilitarization and de-Nazification of Ukraine, as well as bringing to justice those who committed numerous bloody crimes against civilians.” - https://www.vox.com/2022/2/24/22948944/putin-ukraine-nazi-russia-speech-declare-war

@Gregmal i did not say the people in Ukraine are fighting because they want an ‘American’ way of life. I did not write about the US at all. I thought i was writing about Ukraine. And the Ukraine people. And what they want. And willing to die for. ————— The Ukrainian people are fighting for the ‘Ukrainian way of life’ and the ability to determine what that is. That self determination thing… ————— So you might find it helpful to forget for a second that you are American. Pretend that you live in Kiev today. With your family. Russian bombs are reducing the city to rubble. Some of your friends/family are probably dying. What are you thinking about? American way of life? Please… When you put your head in the mouth of a lion what do you think it is going to do? Ukrainian’s have been there before and they aren’t stupid. And they are fighting like hell.

I think your analysis is 35 years old (perhaps longer). It was accurate when the Soviet Union still existed. And it was true when Czarist Russia still existed. The simple answer is world has changed dramatically the past 35 years and your analysis completely misses this fact. China is a great example. Japan as well. Russia as well. Your analysis completely misses one really important concept: what do the individual countries in eastern Europe want? How badly do they want it? How much are they prepared to sacrifice to get what they want? Lets forget about Ukraine for a minute. Lets look at the 3 Baltic states: Lithuania, Latvia and Estonia. Look at the incredible advancements these three countries have made in improving the quality of life for their citizens since breaking free from the Soviet Union in 1990. It is breathtaking. Do you think the people in these countries want to get re-assimilated into Russia because of some outdated view of history? The problem with your analysis is it completely misses all the changes that have happened in all the individual countries in eastern Europe. They ARE NOT the same countries they were 35 years ago. BECAUSE THE EXPECTATIONS OF THE PEOPLE HAVE CHANGED. Its not the FAULT of the US. Or NATO. Your analysis is all about Russia and its ‘historical right’ to take back what it once had. That is BS. Empires fall. Its that Darwin thing. Survival of the fittest. Russia is in decline and has been for 50-60 years. And by invading Ukraine, Putin is simply accelerating the decline. The individual countries in eastern Europe all want a better life. Estonia, Latvia and Lithuania are great examples of what is possible. All countries in eastern Europe want what the Baltic countries are achieving: a better life today and for future generations. SELF DETERMINATION. Ukrainia’s pivot to the West was all about a better path to build a better future - self determination. Now for a country in eastern Europe to build a better life IT HAS TO ESCAPE THE SHACKLES OF RUSSIA. Lots of countries were able to escape and they understood NATO was the only option to remain free. Ukraine unfortunately was late to pivot to the West and was not able to join NATO. Russia, a dying empire, is now trying to re-establish its old borders. And the Ukrainian people are putting up an incredible fight. History is littered with examples of empires that rise and fall. Dictatorships do not decline quietly. What we are seeing is the end of the Russian empire. And we are seeing individual countries in eastern Europe exercise their right to self determination. A new chapter is now being written in history book of eastern Europe. ————— Lets pretend you are married to a complete asshole. A drunk. Beat you every day of your life. Treated your kids like shit (beat them too). And then one day you escaped - you found a place to live where you were no longer beaten… You divorced your husband. You found a job… your quality of life improved… your kids future looked bright. Every day you thanked your lucky stars you had been able to escape your old abusive relationship. And then one day your old husband showed up. Said he did not ‘recognize’ the divorce. And that you and your kids MUST move back in with him. It is obvious he is drunk. So what do you do? You decide to fight… and to fight to the bitter end. That is what is going on in Ukraine. And it is incredible to watch what they have been able to accomplish so far. We are learning THE PEOPLE OF EASTERN EUROPE ARE DONE WITH LIVING IN THE RUSSIAN EMPIRE. Brave new world.

Fairfax said during the Q4 call the AR would be released today (March 4) after markets close.

@ValueArb Thank you for taking the time to post and providing all the links. I have lots to learn and posts like yours help lots.

I am not suggesting China is funding the Russian war directly. The West is applying sanctions to cripple the Russian economy. Which will hopefully push Russia to stop their war in Ukraine. If China now dramatically increases purchases from Russia (which i suspect they will) then this will neuter what the West is trying to accomplish. The Russian economy will continue to chug along. And this will provide Putin with the new $ he will need to continue to wage war; wars are expensive, especially long wars. If this is how things play out then i think it is fair to say that China is indirectly funding the Russian war in Ukraine.

Prem did state that Wade and Laurence would be getting a big increase in the amount of money they directly manage due to their outstanding track record. This supports your thesis of how Fairfax is currently allocating capital… with new money going to top performers.

The immediate risk for China is they are essentially bankrolling Russia’s invasion of Ukraine from this point forward. If its obvious to me i think others can also figure it out. The ‘no limits’ pact signed a couple of short weeks ago when they KNEW Russia was planning on invading Ukraine, a sovereign country, is instructive. Its useful for investors to look at what companies, and countries in this case, actually do - and pay less attention to what they say. If things get worse in Ukraine in terms of Russian tactics (likely) and it becomes a genocide (it is well past the human catastrophe description) then China’s policy will become untenable. ‘No limits’ pact will become increasingly untenable for China the longer the war continues and genocide becomes how it is viewed in the West. There is a very real chance China will become toxic. And as we have learned with Russia, when the mob (Western governments) pivot it can be quick and violent. War is NOT a Disney movie. Investors in anything Russia did not get taken out behind the woodshed - they got decapitated. HISTORY PROVIDED NO GUIDE. And thats because the sample size for ‘big European war’ is too small (and we haven’t had one for 75 years). And don’t kid yourself, this is a big European war. The Ukraine war is likely just getting started. And everyone is watching it via social media. The ultimate reality show with an old school, brutal Russian dictator writing the script. (Who clearly has no concern for loss of life.) WHAT COULD POSSIBLY GO WRONG? Remember… that ‘no limits’ thing as this situation deteriorates… Investors in Chinese assets (and US companies with big operations in China) are at risk if China continues with its policy of not only supporting but enabling Russia’s war machine. This is no longer a low probability tail risk. The problems with wars, especially big ones, is once they start it is IMPOSSIBLE TO PREDICT where they will go next. Big wars usually start out as small wars that… well… get out of control… Not saying that is GOING TO HAPPEN. But the tail risks are rising daily…

@Parsad Do you know if Paul is still involved with Hamblin Watsa?

I will move on from my constant posts on this topic. And that is because it is presenting a very unbalanced view on Fairfax. I have been focussed on what went wrong - largely to highlight what i think has actually changed for the better. But in doing so i have not spilled much ink talking about all the things Fairfax has done well over the past 10 years. And there have been many successes. And obviously Paul was an integral part of that. Bottom line, the company is exceptionally well positioned today. And they are poised to exceed expectations in the coming years (in terms of BV growth). So i am both happy and excited to own a significant chunk of shares today. Can’t wait to see what they do!

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.