Viking

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.

Happy to add a big chunk of Fairfax at an average price of US$475. Also added to Western Forest Products at open. Too slow to pick up Atlas or other forestry stocks.

Yes, it cracks me up when people bitch about holding cash. Just because that strategy doesn’t work for them does not mean it doesn’t work for others. Getting defensive at times and holding a higher cash weighting has been one of my most successful strategies over the past 20 years of investing. Moving to cash locks in gains and preserves wealth. (That ‘don’t lose what you got’ thing that Buffet keeps talking about.) And after moving to a high cash weighting within 6-9 months numerous mouth watering opportunities always come along… Every year investors get 3 or 4 great opportunities to put cash to work. The trick is to have the patience to wait. Sanjeev, well done ————— i am currently about 45% cash after making a few purchases today. ————— Liquidity is the key reason i prefer investing in stocks over investing in real estate. But, hey, we are all wired differently so i applaud those who prefer investing via real estate and are good at it.

My list is likely going to be very boring… as board members have likely learned over the years i like to trade around specific companies / sectors that i think i understand well (at the time). Where i like the set up. And to concentrate (less than 10 holdings). And right now, swing for base hits (versus home runs) kind of buys. Here are a few ideas: I really like the set up for lumber companies right now. West Fraser was down 5% today and i re-established a position. If it is down big tomorrow that will be one of my first purchases. If Interfor moves a bunch i might add to my position. I own positions in Resolute and Western FP. (I move around a lot within these 4 names as they all trade somewhat independently.) i also like the set up for Atlas. If it trades down to $13.70ish i will happily re- establish a position. I have been in and out of this company 3 or 4 times over the past year alone buying in the $14 range and selling after it runs into the $15’s for a high single digit gain. i am going to be watching Stelco. They just reported so this adds a little more volatility. If there is a big move down (no idea) i might re-establish a position. I love companies that have significant cash on hand and more coming via strong earnings (and so able to buy back shares that go on sale). Fairfax sub US$480 and i will be adding (already my largest position by far) but happy to add more if the price keeps dropping. I also am considering JPM (an old favourite), Shopify, Paypal… But i need to spend more time on this as there are a bunch of great companies selling at reasonable prices.

Well, looks like Biden was right after all… If futures are any indication, it looks like tomorrow will be another big down day in financial markets. The Nasdaq is already down close to 20% so it will be interesting to see how much lower it goes from here. The Nasdaq is still trading 35% higher than where it was trading in Feb 2020 (2 short years ago) so perhaps there is room for another leg lower. We will see. I will be watching for the ‘indiscriminate’ selling tomorrow. Reviewing/updating my buy list tonight…

Looks like Fairfax is pulling a BAM… Fairfax has three levers it is using to significantly increase its ownership share in Fairfax India India over time: 1.) taking performance fee in Fairfax India shares 2.) Fairfax India buying back a significant amount of its own shares (with Fairfax not selling any of its shares of Fairfax India) 3.) direct purchase of Fairfax India shares - like today $12/share? That is crazy cheap. A VERY GOOD investment for Fairfax shareholders with book value of Fairfax India much higher.

Population growth is one of the key drivers of GDP growth. Strong GDP growth is important input to rising living standards over time. Many developed economies currently have a severe labour shortage and this will slow economic growth (and quality of life) especially if it persists for years. Lots of advanced economies will be experiencing a demographic time bomb in the coming decades. Looks like the Liberals are targeting 55% of total immigration to be economic (help fill labour shortages). Makes sense. My daughter will be graduating from university and a couple of her buddies are international students and they are hoping to stay permanently after they graduate - and would be great assets for Canada. Significant immigration has been a key driver in creating the great country Canada is today (note, i did not say perfect). And lets face it, given its size, Canada still has a tiny population. Are there issues to be worked though? For sure. Just like there is for EVERY generation. (The issues will just be different.) What is clear is collectively our quality of life continues to significantly increase over time. ————— Japan's demographic time bomb is getting more dire, and it's a bad omen for the country - https://www.businessinsider.com/japans-population-is-shrinking-demographic-time-bomb-2018-6?r=UK&IR=T “An aging population like Japan's poses numerous problems. The government will have to spend more on healthcare, and that, coupled with a shrinking workforce and tax base, is a recipe for economic stagnation. It also means, among other things, that there will not be enough young people to care for the elderly.”

What is perhaps the ideal set up for a stock investment? 1.) growing earnings 2.) expanding multiple 3.) falling share count. When all three metrics are improving at the same time the increase in a stocks price can be breathtaking. A very good recent example of this is Apple; its stock price has increased 400% in just the past 3 years. ————— So for all investments it can be instructive to monitor shares outstanding. And the trend. Both past and, more importantly, what will likely happen in the future. So how is Fairfax doing on the share count metric? An important shift has been happening the past 4 years. They have pivoted from being a serial issuer of shares (2015-2017) to being an aggressive buyer of their shares (2018-2021). And this trend picked up considerable steam in 2021 - the share count came down 8%. Share count has come down a total 14.4% the past 4 years which is a significant reduction. This trend will likely continue in the coming years. My guess is we could see share count at Fairfax come down another 1 million shares (4% of shares outstanding) in 2022; cost would be US$510 million which seems reasonable (especially given how undervalued the shares are). On the recent Q4 call Prem said share share repurchases were a top priority - although they would not be done at the expense of Fairfax’s financial position or if they hindered insurance subs ability to grow premiums in current hard market. The US$10 dividend was paid in Q1 (cost US$240 million) so my guess is a majority of the buybacks will happen in Q2 to Q4. ————— What can we learn from looking into Fairfax’s past? In short, Fairfax has used share issuance in recent years to fund its rapid international growth strategy: 2015: Brit 2016: ICICI Lombard, Eurolife, South Africa, Indonesia, Latin America, Eastern Europe 2017: Allied World (67%) Over a 3 year period (2015-2017) Fairfax grew the share count by 6.6 million (at about US$455/share) to fund the many acquisitions listed above. Total weighted average shares outstanding increased 30% from 21.2 in 2014 to to 27.8 million in 2017. ————— What do we know about Fairfax’s future plans? Fairfax has said pretty clearly that it will NOT be making any large acquisitions of new insurance companies moving forward. They are very happy with their global insurance foot print as it exists today. They are open to making smaller bolt on acquisitions (i.e. Singapore Re in 2021). And they likely will, over time, look to buy out minority partners in insurers they currently own (i.e. Eurolife in 2021). ————— Dec 31, 2021 = 23.866 million shares outstanding Share count has been reduced by 14.4% in past 4 years Weighted average shares outstanding 2021 26.0 (2 million shares repurchased in Dec will show in 2022) 2020 26.2 2019 26.8 2018 27.2 2017 27.8 5.1 million at US$432; Allied (67%) 2016 23.1 1 million at C$735 - ICICI Lombard, Eurolife, Indonesia, S Africa, Lat Am, E Europe 2015 22.2 1 million at C650; Brit US$1.9 billion 2014 21.2 2013 21.2 1 million at C$431 2012 20.2 2011 20.4 2010 20.5 2009 20.0 2.9 million at US$347; Odyssey $1 billion 2008 17.5 Northbridge (37%) take private C$686 million

@barminov i think your comment nails exactly what is going on...

Well given it is Super Bowl Sunday today let's think big and audacious and Fairfax… ————— In my previous post I suggested we might see Fairfax achieve a 94 combined ratio in 2022 - and that this might be a conservative estimate. I know, i know. That is NUTS. Crazy talk. EVERYONE KNOWS Fairfax always writes at a high ‘90’s CR. Just look at the past 5 years (see below for proof). And as recently as 2017 they wrote at 106.6. Barf. So a 94 CR is a pipe dream. Right? What if i told you there is a good chance they will actually achieve a 90CR. Consistently. In the coming years. Got your attention yet? ————— I would appreciate feedback from others on the board. I have said repeatedly i am NOT an insurance guy. Or an accountant. I have followed Fairfax very closely for the past 20 years (i did go cold turkey from about 2012-2018). Below I have constructed a thesis. And i would appreciate hearing why my thesis is wrong. Or not. But please… specifics, logic, reasoning etc. So we can all learn something. And hopefully make some money along the way… Because if I am right there is some BIG money to make with Fairfax in the next 12-24 months. ————— Just to set the table, let’s assume Fairfax delivers a 90CR in 2022. Yes, lets go crazy for a minute. What does that mean in cold hard underwriting earnings? US$18 billion in net earned premiums in 2022 x 0.10 (90CR) = $1.8 billion in underwriting income = $75/share (24 million shares). Holy shit Batman. ————— But Fairfax achieving a 90CR is like Prem deciding to sell Blackberry… it just ain’t going to happen. Right? Well, not so fast… Not only is it possible, it also might be LIKELY... OK, WHY? First we need to do some digging… ————— I had a strange thought yesterday: can anything be learned from looking at Fairfax’s CR - going back 21 years. Can history teach us anything? And can those learnings help us understand where Fairfax’s CR might be headed in the future. Because understanding future earnings is the key to understanding how the share price is valued today and where it might be headed in the future. (We REALLY LIKE the set-ups where the shares are undervalued at the same time profitability is increasing.) ————— So for fun lets look at Fairfax’s combined ratios for the past 21 years. Are there any patterns or is it completely random? Is there anything interesting going on? Our starting point is 2001 and the combined ratio that year was 120.9. And of course that number was driven by 9-11. Surprisingly (for me anyways) looking at Fairfax’s combined ratio for the past 20 years (2001-2021) you see 4 obvious cycles: hard market followed by soft market followed by hard market followed by soft market. 1.) from 2002-2007, Fairfax had 4 year stretch (over 5 years) where they achieved an average combined ratio of 97). I excluded the 2005 CR = 107.6 due to Hurricane Catrina - as it was an outlier. After all mother nature can always mess with an underlying trend for one year. This hard market bottomed at 97 because interest rates were high - US 10 year treasuries were yielding 5.5 to 6% (the ones on the books were yielding even more); corporates would have been higher yet. So with interest rates so high writing insurance business at a 97CR was very profitable. 2.) from 2008-2012, Fairfax had 5 year stretch where they achieved an average combined ratio of 105. 3.) from 2013-2016, Fairfax had a 4 year stretch where they achieved an average combined ratio under 92. This was a shocker for me. This stellar 4 year track record happened when I was not following Fairfax. (It's not the things you know that get you i trouble... its the things you think you know that ain't so.) 4.) from 2017-2021, Fairfax had a 5 year stretch where they achieved an average combined ratio of 99. This soft market peaked so much lower than the 2008-2012 soft market because interest rates are so much lower today - US 10 year treasuries are yielding 2%; corporates are modestly higher. With interest rates so low an average CR of 99 is not good. So to summarize the past 20 years: the average CR was 97 (hard market) then 105 (soft market) then 92 (hard market) then 99 (soft market). Those are BIG, BIG swings. ---------- What are the lessons? The insurance business is very cyclical. But each cycle, once established, lasts for years - 4 to 5 years to be precise. Like clockwork. And it appears as though we might be just beginning the next cycle change. From a soft market to a hard market. Fairfax reporting an 88CR in Q4 was like a school teacher ringing a bell. THE HARD MARKET IS NOW (FINALLY) SHOWING UP IN REPORTED RESULTS. You also see this when looking at results from other insurers. Because the insurance cycle is an industry event. The Q1 report will be important: if Fairfax reports a CR in the low 90’s then there is a pretty good chance that my thesis is correct and we are off to the races. So what is a realistic CR for Fairfax to report in 2022 and the next few years? The last hard market saw them deliver an average 92CR with interest rates higher than they are today. So that suggests to me in this next hard market cycle we could see an average CR below 92 and possibly below 90. And that is because crazy low interest rates has made this hard market cycle even more firm than normal. Companies understand earnings from interest and dividends are going to remain challenged so they HAVE TO EARN MORE FROM UNDERWRITING IF THEY ARE GOING TO HIT THEIR RETURN OBJECTIVES. And earn their year end bonuses. And keep their shareholders happy. ————— Now how do we know a low CR trend will last for years? It is because of how insurance companies set reserves. In soft markets the kitchen cupboard is allowed to run low, especially the last year or two (and reserve releases get smaller). No one wants to report a terrible CR (compared to peers) so they eat every last morsel they had previously squirrelled away in the pantry. In hard markets, especially in the first year or two, the kitchen cupboard needs to be completely re-stocked with groceries (it is empty after all and not having enough to eat is still fresh in everyones minds). So when a hard market begins reported CR’s are understated which allows reserves to be re-built. Think 2021. But once the restocking is done (and the pantry is now bursting with food) ALL THE PROFITS FROM THAT POINT FORWARD NOW FLOW TO THE CR. And the CR magically drops like a stone and stays low for years (remember, that pantry is full again… so we start to get above average reserve releases). ————— Now where this gets confusing for investors is the lag from when insurance companies SAY WE ARE IN A HARD MARKET to when we SEE IT SHOW UP IN A FALLING CR. It looks to me, 9 quarters into the current hard market, that we likely have just passed the point where all the pantries have now been fully restocked and we should start to see really impressive CR’s being reported by insurance companies in the coming quarters. Like a CR of 88 from Fairfax in Q4. The really cool thing is it will come as a complete shock to most investors (the analysts have been banging the drum for a few quarters now). THE IMPROVING PROFITABILITY IS NOT PRICED IN TO THE STOCK. Well, at least it isn’t for Fairfax. ————- CR Cat Losses Cat CR Events 2021 95 $1,203 7.5 Hurr Ida; Europe Fl; Texas WS 2020 97.8 $1,313 9.5 Covid; US Hurricanes 2019 96.9 $498 4.0 2018 97.3 $752 6.5 2017 106.6 $1,330 13.7 Hurr Harvey/Irma/Maria 2016 92.5 $353 4.6 2015 89.9 2014 90.8 2013 92.7 2012 99.9 2011 114.2 Japan earthquake; US storms 2010 103.5 Haiti earthquake 2009 99.8 2008 106.2 Hurricane Ike 2007 94 2006 95.5 2005 107.6 Hurricane Catrina 2004 97.5 2003 97.6 2002 101.5 2001 120.9 9-11

The shocker for me when Fairfax reported Q4 results on Friday was the combined ratio of 88 for Q4 - which brought Fairfax down to a 95 CR for full year 2021 ($801 million underwriting profit). It now looks to me like a CR of 94 could be a conservative estimate for 2022 (given 2021 was 4th worst year on record for cat losses). Three short months ago i estimated Fairfax would post a 97CR for full year 2021. Very wrong. And i felt a 96 CR was an achievable estimate for 2022. Looking very wrong today as well. So whats the big deal? So what if the CR improves by a couple of percent. Does it really make much of a difference in $? Yup. If Fairfax can achieve a 94CR next year they will earn about US$1.1 billion from underwriting = $46/share. Fairfax shares are trading at under US$520 today. Now, yes, $46 is pre tax. But still… that is nuts. Because that $46 does not include: 1.) GROWING interest and dividend income (they benefit big time from rising rates) 2.) GROWING share of profit of associates (driven by Eurobank and Altas, both poised to have breakout earnings in 2022) 3.) gains from an investment portfolio that is skewed to cyclicals/value/resources (net gains totalled $2.3 billion in 2021) 4.) another $400 million gain in Q1 from Digit is coming (after net gains of $1.49 billion in 2021) ————— Net earned premiums. Underwriting profit 2022. $18.1 est. $1,100 est. $46/share 2021. $15.5. $801. $31/share 2020. $13.9. $308. $12/share —————- Fairfax earned an underwriting profit of about $335 million per year on average from 2018-2020 ($13/share). It was $801 million in 2021. Estimated underwriting profit of $1.1 billion in 2022. Yes, the magnitude of the increase is very large and meaningful, especially when you compare it to the average from 2018-2020 (more than a $750 million increase). ————— Conservative reserving tailwind: given we have been in an insurance hard market for over two years now (i use Q4 2019 as the start) all P&C insurance companies have had ample opportunity to pad reserves pretty well. This padding of reserves is not captured in the reported CR. So it does not sshow up in reported earnings. Rather, the benefit resides (and hides) within P&C balance sheets. This is a hidden asset that will benefit shareholders ONLY in future years via reserve releases. Who cares? This suggests to me we will likely see reported CR start to surprise to the downside (modestly) in the coming years driven in part by higher than expected reserve releases. ————— How might 2023 look? Well, we are only 10.5 months away. And we are supposed to be long term investors (not traders). So lets put forward some numbers of how 2023 might look for Fairfax: net premiums earned = $19 billion x 93CR = $1.33 billion / 23 million shares outstanding = $58/share. Just from underwriting… Remember, shares are trading < $520 today. ————— Yup… an improving CR is a big deal and definitely something to pay attention to. Q1 results will be key: was the low CR in Q4 an outlier or a sign of better things to come? ————— What am i conveniently ignoring? 1.) losses from runoff: averaging about $200 million per year and not included in my analysis above… hopefully 2021 was a bit of a kitchen sink thing… so lets assume ongoing losses here = $100 million per year. 2.) not sure how the sale of 9.9% of Odyssey will flow through the financials… there is a cost; just not sure which buckets it will be paid from… anyone have any thoughts? (I am a sales/management guy not an accountant.)

@Munger_Disciple here are a few comments to get you started: 1.) Andy Barnard is running the insurance side of Fairfax and has been for many years now (at least a decade). Prior to that he ran Odyssey Re. Odyssey has been one of the crown jewels of Fairfax - very good long term track record. I think Prem has discussed how Andy runs the insurance side of things (profit centre's, decentralized, high level of accountability etc)… i’ll do some searching and see what i can find. 2.) float: RBC has mentioned that Fairfax tends to write longer tail business 3.) leverage: i’ll let others more knowledgable than me comment here 4.) succession planning: Andy is running the insurance side of things. On the investment side of things i think there is a transition happening from the old guard (Prem - equities, Brian Bradstreet - Bonds) to the new guard (Wade Burton, Lawrence Chin etc. My guess is this has been happening for the last couple of years - and you can see it in the shift in types of equities Fairfax is putting new money in to the past 3 or 4 years (and how they have been fixing the many past equity mistakes made 4 and more years ago). In the last annual report Prem talked about how Wade/Lawrence would be getting more money to manage given their successful long term track record. Importantly, employees seem to really like Prem and working at Fairfax. It should be noted the CEO’s of both Brit and Allied both left after they were acquired.

Does anyone know how the 2 pension funds get paid for their 9.9% equity stake in Odyssey? Do they get paid solely via their share of Odyssey earnings? Or do they get paid via guaranteed fixed payment each year from Odyssey (more like a bond type payment). The answer to this will help me understand how meaningful the amount paid for 9.9% of Odyssey can actually be extrapolated to value all of Odyssey (and then Fairfax).

Oil was my number one ‘equity’ pick back in December. Oil was by far my largest holding in January (Cenovus and also some Suncor). The developing Ukraine situation just became another factor driving oil pricing oil higher. i have immense respect for Russia and China. They are playing chess while much of the West plays checkers (and this has been going on for years). It is just frustrating to me that they are so under-appreciated as adversaries. But, yes, lets get back to investing. The next geopolitical hit spot will be Taiwan. After the Olympics my guess is China will get busy with bringing the island back into the family. How the West responds to Russia in the Ukraine will inform China what to expect when they put the screws to Taiwan (spoiler alert; the Chinese are going to learn the West will do little. But my guess is China already understands this). What are the investment implications? What is the new oil? Semi-conductors. The question is how do you play the risk of a semi-conductor mayhem/shortage? My early read is get long semiconductor companies that are not domiciled in Taiwan. At a minimum companies who do not have a majority of their production in Taiwan. Hello Intel? I am an idiot when it comes to the semiconductor industry. Any suggestions from board members of best way to get up to speed?

@cubsfan Putin feared Trump? Trump had an open love affair with Putin. The french kiss in public kind of romance. Didn’t even try to hide it. Just watch the actual video footage of the times they got together. Trump looks like an undersexed teenage male who finally gets a date with the girl of his dreams… That behaviour made Putin fearful of Trump? ————— Now did the generals in the Pentagon understand Putin? Yup. Did Trump’s fawning etc make them vomit? Yup.