Viking

Agreed. WRB provides great insight into what is happening in the insurance market. Here are a couple of things that stood out to me (in addition to your notes): 1.) on rate increases: ‘don’t see the trend changing’. We are now in year 3. Hello hard market! 2.) on increases: 40% is rate and 60% is exposure 3.) on expense ratio: as higher written premiums from a year ago are now becoming higher earned premiums the expense ratio is falling (28%). 4.) on investments: 69% is in fixed income. Duration is 2.3 years. -AA quality. Yield has been declining. Ok with lower interest income in the near term. Positioned well should inflation/interest rates move higher in future. 5.) in addition to social inflation, now starting to talk about financial inflation as a risk. Final comment: ‘the stars have aligned’. Wow! My key takeaway is the hard market is continuing. We are already 3 weeks into Q4 so 2021 is looking like it will be a stellar year. 2022? We will see…

@StubbleJumper it is crazy to me how easy it is to get anchored in ones views; including when they are wrong. And once anchored, how persistent those views become. My spreadsheets help me to understand what Fairfax currently actually owns (versus what i think they own). But the real value of the spreadsheets is to be able to compare to the past. i like to compare Fairfax’s holdings today to its holdings 4 or 5 years ago. Has anything meaningful changed? If so, is it a good change for the company and shareholders? If so, how good? i view Fairfax today as a turnaround. But if nothing has changed at the company why should shareholders expect a different future? My next write up is going to dive into this topic: how does the Fairfax of today compare to the Fairfax that existed 4 short years ago? Here is a teaser of the Fairfax of 4 short years ago: No hard market in insurance. Still shorting stocks. No Atlas. Eurobank was broken. Blackberry debs had a $10 strike. No TRS of FFH. No Stelco. Digit was just a dream… And that is just with the big holdings

@petec, i made the mistake of adjusting all my spreadsheets to reflect what Fairfax reported in the 2020AR. The issue is their stated ownership stakes in their equity holdings excluded the Riverstone positions. So i am slowly reverting back to ownership numbers that include Riverstone positions (for all holdings). So for Atlas i am using share count from the most recent 13F. The 37% is from the 2020AR (and is understated); i think Fairfax ownership of Atlas is the low 40% range. I will update Atlas after both companies report Q3 results when we should get updated information. Some of the debentures may have been converted to stock as well. Bottom line, given its size, i will be updating the Atlas numbers (% ownership and shares owned).

@nwoodman thanks for all the info. Learned lots (hate that when it happens ). The Greek economy looks like it is turning the corner with 8% growth in 2021 and 4% predicted for 2022. Lots of tailwinds for Eurobank.

Glider, thanks for posting. I noticed the stock was up to Euro0.90 yesterday and was wondering why . I think the rise in property prices in Greece (that is happening everywhere in the world) is really helping Eurobank in two big unexpected ways: - tailwind to NPE estimates - tailwind to their profitable and large property business unit (former Grivalia). Hopefully Eurobank is able to get the dividend re-instated in 2022. That will confirm to investors that they are indeed through the Great Greek Financial Crisis and starting to write the next chapter in their history. A big deal. And should be very profitable for investors for many years to come.

I thought it would be interesting to look at the investment portfolio of Fairfax at a very high level. And specifically everything except the bond/cash holdings. So equities, partnerships, derivatives (like the TRS) and real estate. So I am treating the TRS on FFH shares as a stock position of $827 million. Fairfax India is calculated as a $678 million position (shares owned x stock price). All stock prices are based on Oct 19 closing price. Needless to say this is not an exact science with some estimates coming from different sources (2020YE and Q2 reports). Yes, there are errors as I have not spend a great deal of time of digging through what is included in the ‘other’ buckets (like Digit preferred shares?). The goal is to put something together that is generally accurate to help us understand the size and composition of Fairfax’s equity holdings (and I say equity in the broadest of definitions - see below). Please let me know if you see any big mistakes. Estimate of Fairfax’s total investment portfolio = $45 billion ‘Equity Holdings’ defined: equity holdings + partnerships + TRS + real estate = $14.8 billion = 33% of total investments Some Key Take Aways (file is attached below): 1.) Fairfax has a VERY large number of holdings. I actually track 50 different holdings. That does not include the more than 25% of the portfolio that is included in the various ‘other’ and ‘partnerships’ and real estate buckets. 2.) Atlas is the largest single holding at $1.83 billion or 12.4% (of what I broadly define as the ‘equity holdings' bucket) 3.) Total limited partnerships was $2.1 billion (June 30, 2021) or 14.2%. Yes, a much larger position than Atlas. 4.) Emerging market positions = 16% of portfolio. This is large. India is about 2/3 of this total. This is not including Digit preferred shares. 5.) Eurobank is the #2 holding at $1.18 billion = 8.0%. Is Greece considered EM? If so, this would increase Fairfax’s EM weighting to 24%. 6.) Resource positions = 10% of portfolio. Also large. 7.) Blackberry is the #3 holding at $1.17 billion = 7.9% ($11.52 stock price was used; this number moves lots) 8.) FFH Total Return Swaps is the #4 position at $827 million = 5.6% 9.) Fairfax India rounds out the top 5 (#5 position) at $678 million = 4.6% ($13 stock price vs $20 BV 10.) Top 3 individual positions = 28% of total. 72% is invested in something other than Atlas, Eurobank and Blackberry. Not as concentrated as I thought. 11.) 4 of the 5 largest holdings look cheap to crazy cheap to me: Atlas at $14.66; Eurobank at Euro0.90; Fairfax at US$421; Fairfax India at $13. Despite the massive increase in the value of this bucket the past 3 quarters there is lots of upside left. Fairfax Equity Holdings Oct 19 2021.xlsx

@maxthetrade and @StubbleJumper thanks for chiming in… Bottom line, Q3 will be another very interesting quarter for Fairfax: 1.) size of catastrophe losses? 2.) top line insurance growth - still double digits? Rate vs exposure? 3.) how much longer will hard market continue for? 4.) annual update on reserving (i think this happens in Q3)? 5.) share of profit of associates: growing? 6.) Brit/CEO update? 7.) Riverstone / sale of 14% of Brit close: impact on financials (lower debt etc)? 8.) Eurolife - increase in ownership from 50 to 80% - impact on financials? 9.) Digit: is $46 gain in BV pushed out to Q4? 10.) GIG purchase of AXA closed in Sept 7; any impact on Fairfax’s financials? 11.) how do equity holdings perform inQ3? Any sales? Any new purchases? 12.) update on capital allocation moving forward? Do insurance subs have enough $ to grow on their own? Done repaying debt (i noticed another $85 million due in 2024 was repaid in Oct)? Are they ready to buy back stock in volume?

@maxthetrade has anything been published (news article?) on Brit’s exposure to German flooding?

I have said before that Brit is a watch-out for me. I do not understand the Lloyds platform (what its long term competitive advantages are). And Brit has underperformed most years since being acquired. The original CEO is long gone (he was also the guy who talked Fairfax into buying Bryte which has also been a chronic under-performer post acquisition). And CEO #2 just stepped down (leave) due to health reasons. This also makes me cautious when it comes to executing well something like Kai; just caution on my part. So we will see how Brit performed in Q3 The good news is Fairfax has owned the company for long enough that i would expect they understand what the issues are. And my guess is they will take any needed corrective actions. Allied is also on my watch list. Not because i expect issues. Just want to see a longer track record of solid performance to put it in the same category as Odyssey, Northbridge and Zenith.

Last year one of the earnings release announcements came out as late as the 24th (with earnings out a week later). My guess is the announcement will come in the next few days… But hey, feel free to speculate away

I do not understand what the problem is with the dividend as it is currently constructed. - Fairfax pays a US$10/share dividend. And they have paid it consistently since it was implemented (please correct me if i am wrong). - Yield is about 2.4%. Pretty good for today. - It is paid all in one shot (January). That is a little different but does it matter? - It has not been increased since being initiated. Given Fairfax’s earnings performance (minimal growth of BV) has been poor for years this is likely a good thing. Now as business performance improves in the coming years perhaps there will be demands from shareholders to start increasing the dividend in a more consistent way each year. (But my guess is most shareholders would probably favour share buybacks over a higher dividend right now). Does Prem benefit from the dividend payment? Yes. He is the largest shareholder, by far.

Thanks for posting. What i like about calculatedrisk is he is rational, fact based, open minded and balanced. “In conclusion, I agree with some of Zelman’s comments, but I’m skeptical of the “overbuilding” argument, and the “halt the market” is a clear exaggeration. Also I disagree with her apparent reference to prices falling (“top of the market”) . But I pay attention when Ivy Zelman speaks (and reconsider my views)!”

@Dean thanks for posting. The Tidefall write up is a very good concise summary of the opportunity Fairfax offers investors today. The transition of the equity portfolio to higher quality companies is further along than the letter suggests. This has been accomplished in many different ways: - Fairfax buying better: Atlas, Stelco are two recent examples - Fairfax selling poor performing holdings: APR - Fairfax fixing poor performing holdings: Fairfax Africa merger with Helios - Fairfax improving position of holdings: Grivalia merger with Eurobank, Dexterra reverse takeover of Horizon, Boat Rocker IPO - pandemic improving position of holdings: Atlas new build execution last 12 months has been breathtaking; windfall profits at RFP have allowed company to fix balance sheet issues; EXCO/nat gas spike? Fairfax has yet to reap its reward (in the form of higher earnings) for all the hard work done over the past 4-5 years of re-positioning and fixing its equity portfolio of companies. Many pot holes had to be filled in (often coming with a $50 or $100 million dollar cost each time). The pandemic then created a short term delay (given the type of equities Fairfax holds). The past 9 months has seen blowout earnings for Fairfax. It will be fun to see what earnings do over the next 12-18 months. Especially as we get more insight into what ‘normalized’ earnings actually looks like from insurance operations and investments. ———————- It would be an interesting exercise to grade each of the equity holdings (A, B, C, D, F) and then to give the overall equity portfolio at Fairfax a grade. Weight the company grades by size (% of overall equity holdings). And do this for each of the last 5 or 6 years. My guess is we would see a slow and steady improvement each year with 2021 receiving the highest grade. Grade: how has the management team performed the past 2 or 3 years? Is there a plan? Is profitability/free cash flow growing? How has free cash flow been deployed? Most importantly, how is company poised to perform the next 12-24 months? When i say ‘equity’ i would include everything except cash and bond holdings - so include shorts, deflation hedges and recent TRS position on FFH.

Fairfax’s most recent brand new equity investment was Foran Mining in August. Fairfax invested C$100 million and received 55.6 million shares (cost of C$1.80) and 16 million warrants (exercisable at C$2.09). Shares popped two days ago and closed today at $2.52. So Fairfax’s position has increased in price by C$45 million. Why? Positive drill results. Yes, early days. But a positive development with hopefully more to come. Chug, chug, chug… Foran Announces 70% Increase in Indicated Resources at McIlvenna Bay - https://finance.yahoo.com/news/foran-announces-70-increase-indicated-110000525.html VANCOUVER, BC, Oct. 14, 2021 /CNW/ - Foran Mining Corporation (TSXV: FOM) ("Foran" or the "Company") is pleased to announce an updated mineral resource estimate (the "2021 Resource Estimate") for the Company's 100%-owned McIlvenna Bay Deposit ("McIlvenna Bay" or the "Deposit") located in east-central Saskatchewan. The 2021 Resource Estimate outlines significant changes to the resource at McIlvenna Bay compared to the previous resource estimate published in 2019, with over 25,000m of infill and expansion drilling in 36 holes were completed since the prior estimate. To date, the Deposit has been defined by approximately 152,000m of drilling within 285 holes. ———————- Fairfax’s investment: - https://www.newswire.ca/news-releases/foran-mining-announces-completion-of-strategic-c-100-million-private-placement-by-fairfax-893112199.html “The net proceeds of the Financing will be used to rapidly advance the development of the McIlvenna Bay Project and centralized mill for the Hanson Lake District as well as further exploration on the Company's substantial land holdings, enable further investment in key technological and operational research and equipment, and for general corporate purposes.”

Xerxes, the investment advisor talking in the video explained pretty clearly why Fairfax stock is trading so low today: - Fairfax’s stock price has been a dog forever so it will continue to be a dog forever. - Analysis? ‘Black box’ and ‘Prem is a market timer’. - With the stock trading at US$400, investors should SELL this dog. Everybody listening should say ‘woof’. Who can argue with logic like that? And it was delivered with such conviction. I loved it. I think we are at the capitulation stage Not a word about - Fairfax’s actual business today - what it will likely earn this year and in 2022 - how its insurance business is positioned - how its investments are positioned - mention of Digit might even be warranted ALL that matters is the past. So why learn/discuss stuff that happened in the recent past? And certainly don’t discuss today - because it doesn’t matter! So we are at that really interesting stage with Fairfax. Issues driving poor past performance have largely been fixed. Business results are smoking. BV is spiking. Future prospects are very good (with both insurance and investments). Stock trading at US$400 (cheapest valuation, or close to cheapest, it has ever traded)

Greece has been an interesting geography for Fairfax for the last decade. And given the size of Fairfax’s two Greek investments (Eurobank and Eurolife) I thought it would be interesting to dust off a few old annual reports and learn a little more about how Fairfax got to where it is today. Fairfax’s 10 year history in Greece has had a couple of triumphs (Grivalia, Eurolife), one catastrophe (initial investment in Eurobank), continuing adversity and perseverance, heroes, villains, a depression, a pestilence, loyalty, creativity (merger of Praktiker with Eurolife) and years of hard work - it all reads like one of the books of the Iliad by Homer. So what does Fairfax have in Greece today? Eurolife: 80% ownership of a well managed and profitable insurance company; has about 10% marketshare in Greece. Eurobank: 32.4% ownership of a well managed bank that includes a very large and profitable property company (former Grivalia); its balance sheet fixed and profitability poised to jump as the Greek economy improves and real estate prices continue their multi-year move higher. Praktiker: 100% ownership - a Home Depot type business? Much smaller than the other two listed above. ———————— Eurobank Dec 31 2019 - Fair Value $1,164.4 million; Carrying Value (associates) $1,164.4; share of profit n/a Dec 31 2020 - Fair Value $799.9 million; Carrying Value (associates) $1,166.3; share of profit (-11.9) Eurolife Dec 31 2019 50% ownership - Fair Value 403.1 million; share of profit $154.8 Dec 31 2020 50% ownership - Fair Value 457.9 million; Carrying Value (associates) 336.2; share of profit 6.1 ————————— Below is a short summary of the odyssey of how Fairfax got to where it is today with its 3 large Greek investments. 3 investments? Read on… All good stories always start at the beginning. So… Why did Fairfax invest in Greece? Answer: Ireland. What? Fairfax had outstanding success investing in a distressed Irish bank (Bank of Ireland) in late 2011 after the Great Financial Crisis (I think they made +$800 million on this investment - tripled their money in a little over 5 years). And business partner, Kennedy Wilson, had great success investing in real estate in Dublin. So as the cash register was ringing on their Irish investment Fairfax saw similar opportunities in Greece. What was the timeline of the Greek purchases? 2011: purchased 3.8% position in Grivalia (Europroperties) run by George Chryssiko who is one of the heroes of this story the Greek journey begins Aug 2012: Grivalia (Eurobank Properties REIT) - Fairfax increased ownership from 3.8 to 18% for $50 million 2013: Grivalia (Eurobank Properties REIT) - Fairfax increased ownership to 41% for $20 million (plus?) Dec 2014: Eurobank: Fairfax makes initial investment of 400 million Euro with group of investors (including Brookfield, Wilbur Ross, Fidelity, Mackenzie, Capital Research and Management) unemployment rate in Greece in 2014 is 28%! Nov 2015: Eurobank recapitalization (forced by ECB, definitely one of the villains of our story Fairfax invests an additional 350 million Euro; ownership increases from 12.5% to 17%. 1 for 100 reverse share split; sold new shares for 1 euro. Aug 2016: Eurolife: Fairfax purchases 80% ownership; 40% to Fairfax for $181 million and 40% to OMERS for $181 million. purchased from Eurobank. Fairfax was aided in its bid by its ownership in Eurobank (viewed as being good partner); important to Eurobank because the bank was retaining 20% ownership and much of Eurolife’s business was transacted through Eurobank distribution channels. referendum in Greece in 2015; Tsipras/Syriza elected; Syria refugees 2017: Grivalia - Fairfax Increased ownership to 52.7% for $100 million 2018: Eurolife - Fairfax increased ownership to 50%; bought 10% from OMERS (whose ownership decreased to 30%) Nov 2018 (closed May 2019): Eurobank - Fairfax increases stake to 32.4% via merger with Grivalia Properties. all stock transaction valued at US$866 million Fairfax owned 18% Eurobank and 54% of Grivalia; on close Fairfax owned 32.4% of new Eurobank Grivalia paid 40.5 million Euro special dividend Eurobank launched property management business run by Grivalia CEO July 2021 Eurolife: increased ownership to 80% (purchased OMERS 30% stake for $142.6); Eurobank owns remaining 20% ————————- Other Greek investments: 2013 Mytilineos - 5% for 30 million Euro ($41 million) - sold in 2018? 2014 Praktiker Hellas AE - bought 100% for 21 million Euro - still owns? ————————- Why is Eurolife considered a gem? 2019AR: Through the crisis in Greece, we acquired a gem in Eurolife, a Greek property and casualty and life insurance company that operates predominantly in Greece but also in Romania. Alex Sarrigeorgiou has run Eurolife since 2004, following Eurobank’s decision to grow its insurance business, and we acquired it with OMERS as our partner in 2016. Since our initial 40% purchase of Eurolife in 2016 for Euro163 million, Eurolife has earned Euro347 million and paid dividends of Euro298 million and shareholders’ equity has increased from Euro400 million to Euro720 million at the end of 2019 after the payment of dividends. This phenomenal performance was predominantly because Eurolife had a significant holding of Greek government bonds whose rates went from 8% to 1% during that time period while its non-life business had an average combined ratio of 72%. We currently own 50% and equity account for Eurolife but plan to buy the rest of OMERS’ shares in 2020. 2020AR: Finally, in Greece, Eurolife has been an extraordinary investment for Fairfax. Writing both Life and Property/Casualty lines, the company in 2020 generated over $500 million of gross premiums written and produced net income of $130 million. Led by Alex Sarrigeorgiou, Eurolife has a track record second to none in the Greek market. ————————— Here is a little more information on Grivalia which is now part of Eurobank. With property prices on a multi-year move higher Grivalia is an important profit engine for Eurobank. 2017AR: In 2017, we raised our equity interest in Grivalia to 52.7% by buying 10.3% for $100 million when Eurobank decided to divest its interest in Grivalia. It has been six years since we first met George Chryssikos, the outstanding CEO of Grivalia. Through Wade Burton, we took our first position in Grivalia in 2011 at Euro5.77 per share. George has navigated the Greek economic crisis superbly by buying only the highest quality commercial buildings and shopping centres at huge discounts to replacement cost and unlevered returns of 8% to 10%, not using excessive leverage and always focusing on the long term. We are very excited to be partners with George and his team as they build a fantastic real estate company. Like Bill McMorrow at Kennedy Wilson, George has a unique nose for value in real estate! And like all our Fairfax companies, he is building a fine company, focused on its customers, looking after its employees, making a return for shareholders and gratefully reinvesting in the communities where it operates. Business is a good thing!! ————————— 2019AR: Merger of Grivalia Properties REIC and Eurobank Ergasias S.A. Early in 2019, Fokion Karavias (CEO of Eurobank) and George Chryssikos (CEO of Grivalia) came up with the idea of merging Grivalia into Eurobank, to strengthen the capital position of Eurobank, and accelerating its non-performing loan stock reduction through spinning out Euro7.5 billion of non-performing loans from the bank to its shareholders. We thought it was a brilliant idea but the process took time as it was subject to shareholder approval at Eurobank and Grivalia and regulatory approval from the ECB. As part of the same plan, Eurobank sold its non-performing loans management unit, FPS, to doValue S.p.A. (a public company listed in Italy) for Euro360 million. We expect all these transactions to close by March 31, 2020 and Eurobank to be well capitalized and on its way to earning 10% on its shareholders’ equity in 2020. Last year, Greece had an election in which the business friendly party of Kyriakos Mitsotakis won a majority in the parliament. As the new Prime Minister, Kyriakos has the opportunity to transform Greece by encouraging foreign investment into the country and by being business friendly. Ten-year Greek government bonds, which peaked at a yield of 37% in 2012, came down to 10% in 2016 and are now trading below 1%. Recently, Greece did a 15-year bond issue at 1.9% and a 30-year issue at 2.5%. The animal spirits are coming back to Greece and we think the Greek economy and Greek companies will thrive. Eurobank should benefit!! Our cost of 1.2 billion shares of Eurobank after the Grivalia transaction is now 94¢ versus a book value of approximately 135¢ per share post the transaction. At year end, Eurobank was selling at 68% of book value and 6.5x normalized earnings. We still believe it will be a good investment for us. On May 17, 2019 Grivalia Properties REIC (‘‘Grivalia Properties’’) merged into Eurobank Ergasias S.A. (‘‘Eurobank’’), as a result of which shareholders of Grivalia Properties, including the company, received 15.8 newly issued Eurobank shares in exchange for each share of Grivalia Properties. Accordingly, the company deconsolidated Grivalia Properties from the Non-insurance companies reporting segment, recognized a non-cash gain of $171.3 and reduced non-controlling interests by $466.2. In connection with the merger, Grivalia Properties had paid a pre-merger capital dividend of Euro0.42 per share on February 5, 2019. The company owned approximately 53% of Grivalia Properties and 18% of Eurobank prior to the merger, and owned 32.4% of Eurobank upon completion of the merger.

Glider, great charts. Yes, the stock is wicked cheap at US$400 The set-up for Fairfax is the best I have ever seen (other than when they were sitting on the big CDS gains back in 2007-08). The difference is Fairfax is positioned exceptionally well right now (lots of tailwinds to both insurance and investing sides of the business) and this should continue to drive solid top line and earnings growth for the next couple of years. The key will be patience.

Who has been spending money to increase oil and gas production the past 2 years? No one. With oil spiking are we seeing the usual spike in spending at the big players to significantly increase production? No. Capital discipline like we have never seen. Especially the frack group. The big European producers are exiting oil and gas as fast as they can - they are focussed solely on alternatives today and moving forward. Norway? Their big oil fund is exiting all oil investments (just a little ironic?). Who wants to LEND to oil and gas producers. No one. ‘ESG’ risk is driving big changes at investment banks and pension funds etc Who wants to LEND to oil and gas producers today? No one. ‘ESG’ risk is driving big changes at investment banks, pension funds etc. They are running from current oil and gas investments let alone spending more. And we are just getting started. Oil and gas IS the new tobacco. What are the companies doing with their free cash flow? Paying down debt (good luck rolling that over in a few more years). And with shares at crazy cheap valuation stock buybacks make way more sense than growing production. Choosing production growth over buybacks in the current environment will get a senior management team fired. I agree Covid has created all sorts of distortions. And i am not suggesting oil will top $100 and stay there for years. But the hate driving the investment/ESG climate suggests to me that oil and gas prices will likely stay higher for longer.

@nwoodman, yes, Eurobank is poised to do very well moving forward. NPL are down considerably to 7.5% (from +30% a few years ago); the balance sheet is largely finally fixed. Property prices in Greece have been increasing for years with no let down during covid; and Eurobank has a significant and very profitable real estate business (formerly know as Grivalia and before that Eurobank Properties). Greek GDP is expected to grow 6% in 2022. The government is very pro business driving through many needed reforms. Bottom line, it reminds me of the situation with big US banks in 2016. Everyone hated the banks. Shitty past returns. Run by crooks. Turnaround was taking too long… 6 years and counting! Dogs with fleas. And then earnings popped. Then the market multiple increased. And the stocks rocked. The caterpillars had turned into butterflies. And now everyone loves Jamie D. and Brian M. - such great CEO’s smooch In 2022 it looks like we are at the ‘earnings pop’ stage with Eurobank. After Atlas, my guess is Eurobank will deliver the largest increase in value to Fairfax shareholders in 2022.

+1. Investor sentiment has been falling since April. And now most investors are currently bearish (by a sizeable margin).Can we go lower? Of course. My guess is have a couple more week of turbulence and as we get to the other side of the Delta wave we will see the reopening trade act 2. And my guess is it will be a fast and furious move to the upside. The news flow on the virus has been very good of late. Kids 5+ will soon be getting vaccinated. Therapeutics will soon be available. Governments/organizations finally have enough public support to mandate vaccinations and vaccine passports (at least in most parts of Canada). Opening up of international travel should be a big catalyst for markets (although perhaps another quarter or two away). - https://ycharts.com/indicators/us_investor_sentiment_bull_bear_spread

Well lumber prices, after bottoming out at US$500 in August, are moving higher once again and have just topped $700. Lumber is proving to be the posted child for ‘cyclical’. The interesting thing for investors is in the last bull market in lumber (2018) prices PEAKED at $600. At todays pricing of $700 lumber companies are once again making lots of money. And the recent run up in prices looks like it might continue for a while. The supply / demand picture for lumber is VERY constructive. New home construction is very strong and looks poised to stay strong for the next couple of years. BC, the historic swing producer in NA, is reducing capacity (lack of logs) and will be for years to come. Bottom line, lumber prices are likely to remain much higher (on average) than their historic levels for the next couple of years. What does this have to do with Fairfax? Well, they own a big chunk of one of the largest lumber producers in North America: Resolute Forest Products. ———————- Fairfax owns 30.5 million shares of RFP. With shares at US$13, market value = US$400 million With 79 million outstanding, ownership = 39% Market cap = US$1 billion TTM Adj. EBITDA = $935 (yes, that number is right Total Debt = reduced to $303 million (rate of 4.95%) Net debt = $125 million (June 30) Cash Lumber Duties on deposit = $332 million Duty increasing from 20 to 30% on US sales (timing?) Pension Deficit = $445 (down $184 last 6 months) Significant US tax attributes of $2.5 billion pre tax ———————— And Resolute just named a new person to their board. Who? Some guy named Duncan Davies. “Mr. Davies will succeed Bradley P. Martin as the company's non-executive chairman. Mr. Martin of Fairfax Financial Holdings Limited will continue to serve as vice chairman of Resolute's now eight-member board.” - https://resolutefp.mediaroom.com/2021-09-13-Duncan-K-Davies-Named-Chairman-of-the-Board-of-Resolute Who is Duncan Davies? He was President and CEO of Interfor for 20 years (until 2019) growing it into one of the largest pure play lumber companies in NA. Before joining Interfor he was an investment banker. He lead the strategic pivot at Interfor into the US South and Pacific Northwest which in hindsight was brilliant. - https://financialpost.com/commodities/agriculture/id-work-forever-but-thats-not-fair-interfor-announces-leadership-change-amid-headwinds What does this mean for Resolute? This just confirms the company recognizes that lumber is the present and future of the company. BC is home to three of the top 4 lumber producers in North America (West Fraser, Canfor and Interfor). It is very smart of Resolute to tap into that knowledge base as they are still early days in their pivot to lumber. It also looks like Resolute might be looking to grow in lumber via M&A. In their most recent company presentation there is a slide ‘Capital Allocation: Top Priorities’. Listed at the top of the list is ‘Acquisition opportunities – lumber and pulp at the right price’ https://www.resolutefp.com/uploadedFiles/Investors/Presentations_and_Webcasts/Presentation_Items/RFP-TD-Securities-Paper-Forest-Products-Conference- 2021-08-29.pdf I think i will get out the popcorn and start watching what is going on with lumber futures again ——————————— Where will M&A opportunities come from? Perhaps further consolidation of wood markets (log baskets, lumber and pulp mills) in Ontario/Quebec. Another poster introduced a new player - GreenFirst - their deal with Rayonier just closed (old assets of Tembec). Their Chairman of the Board is some guy named Paul Rivett - https://www.newswire.ca/news-releases/greenfirst-completes-acquisition-of-rayonier-forest-and-paper-product-assets-834363239.html Rayonier purchase of Tembec in 2017 - https://www.northernontariobusiness.com/industry-news/forestry/tembec-acquired-by-florida-cellulose-maker-624608

Greg, yes, Fairfax was my largest position back in early 2020. I also held a chunk of Fairfax India. And due to the pandemic i went 100% cash back in Feb/March 2020. And that was one of the best investment decisions i have ever made. (The day i sold a bunch of my shares I was skiing with my son and i had to cut it short and go into the lodge with my iPad to do some selling before markets closed (1 PM on the West Coast); we still talk about the conversation we had on the drive home later that day when i explained to him what i had done and why.) I think my many posts on the pandemic back in Feb/March was spot on (in terms of what was coming for equity markets) and hopefully a few board members found them helpful. Now you are probably wondering why i sold Fairfax back then. Well Fairfax has two businesses: insurance and investments. You want to own Fairfax when both are businesses are performing well and prospects are looking up (which i believed they were as we started 2020). Guess what a pandemic does for insurance? Back then we had no idea (if pandemic was covered by insurance). Not good. And potentially catastrophic. Guess what a pandemic does to investments (especially equities like Fairfax holds)? How do stocks do in a recession? Or a severe recession? They get slaughtered. The pandemic was new news. It was a terrible event for a company like Fairfax. So i exited 100% of my position. When the facts change i change my mind. What exactly is the problem you have with this? Now did i post that i had moved to 100% cash? Yes. Did i tout Fairfax after i exited my position? No. WTF? So how was i being ‘dishonest’? Please lets try and not hit below the belt with our comments… And, yes, i was largely out of Fairfax until Oct/Nov of last year. Despite the fact others had started to point out how cheap the stock had gotten. So guess when i bought most of my shares in Fairfax last fall? It was immediately after Pfizer announced the news of the vaccine. 90% efficacy. New news again! So back to my lesson on when to own Fairfax. How was the insurance side of the business doing? Well by Nov we had clarity that the pandemic would not be covered by most policies in the US. So the insurance hit from covid was largely know and moderate. At the same time we also got confirmation that insurance was indeed in a hard market. So insurance was flashing green. How about investments? Well the vaccine news was a game changer for stronger economic growth. And that is good for equities, especially the kind of equities that Fairfax owns. So the investment bucket was also flashing green. So with both insurance and investments poised to do well i decided it was time to buy Fairfax again. And given the stock was trading at its cheapest valuation ever i backed up the truck. Yahoo! Can we please get back to debating Fairfax?

Greg, is there a reason you do not debate what people actually say? When they say it? You ask questions. People give you thoughtful detailed answers. Often with facts. You chose not to debate the facts. Instead you paraphrase what ‘they’ say. And that of course makes it impossible to identify who you are talking about. Or what they actually said. And so of course it is impossible to actually intelligently engage in debate. i read you post above and i have no idea what you are talking about.

Ok Greg, let’s see what we can learn about Fairfax today 1.) Greg: ‘do you not believe something needs to change for FFH to get appreciated by the market?’ - Yes. And i want to see action from Fairfax (talk is cheap). So what has Fairfax been DOING that demonstrates that ‘change’ thing we all want to see is actually happening? Read on… The most important change we need to see is the business results need to get better. The stock is in the toilet because the business results over the past 7-8 years has been terrible. As i posted before growing $6 billion in shareholder value (+$200/share) over the past 9 months is a good start. Of course this needs to continue now for a couple of years. Not at that pace of course. But it would be nice to see them get close to that 15% growth in BV aspirational goal over the next couple of years. 2.) Greg: ‘corporate action?’ Yes. And this has happened and is happening. They have communicated two major strategic changes that address the two biggest factors dragging down shareholder returns in the past. The next generation of equity managers have been given significantly more $ to manage. Former President Paul Rivette is no longer with the company. a.) investing: no more shorting. Prem confirmed this has been incorporated into their investing policy book. This cost them perhaps as much as $4 billion in losses over 6 or 7 years. b.) no more new/large insurance acquisitions. In the past large acquisitions were funded largely by issuing new shares. My guess is poor performance from newly acquired insurance businesses has cost Fairfax north of $1 billion in the first couple of years after acquisition. c.) Fairfax has also announced that their younger investment managers (Wade Burton, Lawrence Chin) will also manage $3 billion of the equity portfolio (up from $1.5); a reward for their strong performance. d.) Paul Rivette leaving also might be significant (in terms of the types of investments Fairfax buys moving forward). It was Paul’s idea to start Fairfax Africa (he wanted to duplicate the success the Fairfax India team was having). And his job to manage it. I think his fingerprints were all over the many lives of RFP. Torstar is another. I wonder if his leaving was not tied to disagreements about strategy and future direction. He certainly did not leave Fairfax to retire and spend time with his family. This is just speculation on my part. i think Fairfax has also made other important changes over the past couple of years that i would classify as ‘corporate actions’. Fairfax has come to understand that they are not a turn around shop. The current equity holdings need to be profitable and fund their own growth. An enormous amount of work has been put into fixing past mistakes and they are now at a point where most of their equity holdings are good to very good holdings run by strong management teams. Are there laggards? Yes. But the number of fixes they have made the past 3 years is impressive. And if i am right, as we get to the other side of the pandemic, and businesses normalize we should see the benefits start to manifest in the financials via higher profitability. And the past couple of years Fairfax has largely stopped putting big money into deep value shitty company. And has pivoted to partnering with strong management teams. Atlas/Sokol. Stelco/Kestenbaum. Helios. Kennedy Wilson/mortgages. All very good moves. So when i add all the above up it looks to me like Fairfax is pivoting nicely. 3.) Greg: ‘would the following help’ a.) ‘NYSE listing’: i like this idea. Who don’t they? No idea. Good question for management on the quarterly call. b.) ‘A real buyback’: yes, i would love to see a large buyback! Prem has actually been pretty consistent in his answer to this question. How does Fairfax prioritize use of free cash flow: i.) take advantage of hard market: support growth of insurance subs ii.) reduce debt iii.) buy back stock The good news is with earnings and the jump in value of equity holdings the insurance subs likely need little money from the parent. And with the recent closing of the sale of Riverstone and 15% of Brit Fairfax had the cash to pay off their credit facility and get debt levels to a more acceptable level. So with i.) and ii.) done i expect buy back stock to become the focus at Fairfax. Now Q3 is the catastrophe quarter so it makes sense for Fairfax to be prudent. My guess is we will see the pace of buybacks pick up after they release Q3 results. And the pace of buybacks will depend on… (see next point) c.) ‘Monetizing big pieces of the equity portfolio’. And, yes, i would love to see this as well. Now you do realize they just sold that shitty runoff business they owned for a cool $1.26 billion ($700 million last month and $560 last year). Analysts hate runoff business. Good insurers don’t have them. So Fairfax simplified their business. Sold an asset. And realized a price that no one would have imagined. A+ grade for Fairfax management in this deal. Now what have they done with their equity holdings? They did sell APR to Atlas (for more Atlas shares at $11). Good sale? Hell yes! Get rid of a problem. Get more Atlas shares for cheap. A grade for Fairfax management. Have they made any big equity sales? No. Why not? No idea. Perhaps because they see more upside in the holdings? We are still in the middle of this pandemic. We are still early days in the recovery. It appears it is going to take another year or two to get to a more normalized economy. In the meantime we could see cyclical/value stock continue to chug higher (and perhaps much higher) with lots of volatility. My guess is we WILL see some large asset sales in the next 12 months. Especially if we get another leg up in the reopening trade like we had last Nov to March. But regardless, the equity holdings that Fairfax owns will be worth more money (collectively) in another 12 months as the economy expands and they execute on their business plans. And this is a good thing for shareholders. Now i think you want equity sales so they can take out a bunch of stock on the cheap. Yes? You do remember they did purchase TRS on 1.95 million FFH shares? So not technically a buyback but… Even you have to admit this was a pretty opportunistic/savvy thing for Fairfax management to do at the time (in the teeth of a pandemic).

‘FFH has a tendency to chew off more than they can handle. I am not sure they learned much in this regard. Just recently, they invested 100CAD in a mining venture. Do they really have expertise here? Maybe they do, I have no idea. Other than stopping shorting, ( which is significant) I am not convinced they have learned really anything.’ For sure this is a watch out. But because they sunk $100 million into a mining venture you are convinced they have not learned anything? But if you want to look at recent decisions would it not make more sense to start with Atlas? Recent purchase. And massive in size. This is now close to a $2 billion decision. Or what about Stelco? A $400 million decision? Or Carillion/Dexterra? Now a $200 million decision. Or the APR fix (sell to Atlas for $200 million). There are many more decisions made the past couple of years that should be good for shareholders in the coming years. Are they not putting together a pretty good string of mostly good to great decisions over a few years now? My read is if you look at Fairfax and break the company history into 4 year blocks. And list and analyze the top 15 management decisions each year. And compared the 4 year periods it would be VERY obvious that the 60 top decisions made the past 4 years are showing a clear break with the past. And they are working out much better for shareholders. Lots of shitty companies were purchased in the year 5-8 block. Most have been fixed over the past 4 years. And most of the new companies purchased the past 4 years are not shitty - like Atlas and Stelco - so they do not need to be fixed. Now Fairfax is not going to hit on every purchase. So i fully expect that some current holdings are going to underperform (hello Farmers Edge - but it was purchased in the year 5-8 block). But hey, i might be totally off base. So if we learn that Atlas is a big ponzi scheme. Or that the Stelco CEO is an idiot (like he decides to buy another steel company at peak valuations). Or that Eurobank is cooking the books (it is a black box bank after all). Or that the Indian investments are a sham (it is India after all…). Or that the insurance companies start reporting CR at 100 or more (it is Fairfax after all). Well if these sorts of things happen i will have to update my assessment of management at Fairfax.