Viking

@73 Reds thank you for the comment. Regarding Berkshire Hathaway, i am a novice when it comes to understanding the company. So my comments are very high level. And they could be way off base. BRK appears to me to be a conglomerate today. Insurance is now one of many businesses. Float is a benefit, just much less of a benefit than it was 20 or 30 years ago. My read is for the past 5 years, perhaps longer, Berkshire Hathaway has been primarily run like a trust - with the focus on preserving the wealth of Berkshire Hathaway’s many, many long term and very wealthy shareholders (who have big tax issues if they sell). Berkshire Hathaway is no longer focussed primarily on building long term per share value for shareholders. Now this might change when Buffett is gone. But it adds a great deal of complexity for the new guy - because if he does something different and it doesn’t work out right away… well his job will just get that much more difficult. As per usual, i am probably way overthinking things. And i like to go to extremes sometimes when posting on the board - to test drive ideas… (thanks for pushing back Anyways, i don’t own BRK shares today. When i do, i usually hold it as a bond substitute.

I think the headwinds for Berkshire Hathaway have been growing over the past decade. The problems? 1.) The size of the company. 2.) its capital allocation policies - it looks to me like Buffett has painted himself into a corner. The problem is he likely has also painted his successor into a corner. An couple of examples: - buy and hold forever works best when you are growing rapidly - and earning returns of 20% per year. The queens in your portfolio dominate your dogs. But when you become an elephant and your growth slows - and your returns slow - your dogs become a bigger part of the total portfolio. The buy and hold forever mantra no longer works for BRK - but Buffett made promises decades ago to never sell. That bit of marketing is not going to age well. - not doing stock buybacks (starting much earlier and going heavier) has created the size problem for BRK today. But Buffett has couched buybacks in moral terms ‘taking advantage’ of BRK shareholders. Of course this is marketing. Buffett loves buybacks - look at Apple etc. Buffett also put Singleton on a pedestal and he was the king of buybacks. - is the focus on cash flow resulting in underinvestment at the companies? This appears to have been a big problem at Wells Fargo - they were more profitable than peers for year (and Buffett was constantly praising them) because they were underinvesting - and it blew up. It looks like the same thing has been happening at Geico - Progressive looks much better positioned from a technology perspective moving forward. Does BNSF have the same disease? Are the falling behind peers from a technology perspective? Anyways, i love Warren Buffett and i like BRK as a company. But i think they have some structural issues (some external and some internal) that might make it a challenge for them to outperform the S&P500 moving forward. I do think BRK will likely perform better than a balanced (stock and bond) portfolio. An alternative perspective…

Some initial thoughts: I think Sleep Country has been quite the success story over the past 30 years. Interesting to see Fairfax buying the whole company. This will be a significant add to the 'non-insurance consolidated' group of companies (Thomas Cook India, Recipe, Grivalia Hospitality, Dexter etc). It will be interesting to see if Fairfax keeps growing this bucket of companies. Fairfax has been heavily invested in this segment over the past decade, more recently with Leon's (the largest furniture retailer in Canada) and with The Brick before that. Bill Gregson, former CEO of the Brick, was probably involved. I wonder who the driver was of this deal: Prem / Wade / Other? Regardless, it will be interesting to hear what Wade Burton has to say about it on the Q2 conference call. Fairfax is buying Sleep Country at what must be at close to the bottom of the cycle. IF this is the kind of business you want to own - now is probably the right time to buy it. The housing market in Canada is terrible right now (interest rates ARE biting here). Another big private transaction. And another publicly traded holding is gone (Stelco). The publicly traded (especially the mark to market) part of Fairfax's equity holdings has been dramatically shrinking in recent years. The private part has been rapidly growing. Are more asset sales (like Stelco) on the way? What I want to know about Sleep Country (I know nothing about the company, other than it is usually where we shop - and have for decades - when we buy a new mattress set): How good is the management team? If they are good, are they all sticking around? What is the normalized earnings power of this business? How stable are earnings? What are the prospects for the business? What are the strategic reasons for this purchase? Cash cow type of business to be milked over time? Does this signify a trend to more aggressively grow the 'non-consolidated' bucket of holdings?

Fairfax - Unconstrained Capital Allocation All P/C insurance companies have two engines to drive earnings/business results over time: Insurance Investments Insurance Pretty much all P/C insurance companies try and do the same thing with their insurance operations - they try and generate an underwriting profit. Some are better at it than others. The combined ratio communicates how a company’s insurance business is performing. Investments Pretty much all P/C insurance companies generally do the same thing with their investment portfolio - they invest it primarily in bonds. The average yield on the investment portfolio communicates how a company’s investments are performing. Investors As a result, it is a pretty simple process for investors to evaluate most insurance companies. Warren Buffett Warren Buffett screwed everything up back in 1967 when Berkshire Hathaway purchased National Indemnity, a P/C insurance company. How did Buffett screw things up? Buffett knew something that apparently no one else at the time knew: equities earn a much higher return over time than bonds. So after he bought National Indemnity he began to put some of its investment portfolio into equities. And what was the result? Magic. Excess returns + compounding + time = exponential growth. And that is what happened to Berkshire Hathaway’s earnings and stock price. It was like Buffett had found a golden goose. Capitalism We all know how capitalism works. When someone discovers a better mousetrap - begins earnings outsized profits - everyone else will rush in and copy the better business model. And quickly compete the outsized returns away. And that is what happened. All the big P/C insurance companies began investing a part of their investment portfolio into equities and their returns over time improved markedly. And their investors made out like bandits. EXCEPT THAT IS NOT WHAT HAPPENED. Almost all P/C insurance companies did not copy what Warren Buffett was doing at Berkshire Hathaway. Why not? Are other P/C insurance companies run by stupid people? The fly in the ointment - Wall Street Volatility Efficient Market Hypothesis and Modern Portfolio Theory When it comes to equities, Wall Street says volatility is the same thing as risk. Stocks ARE volatile. So Wall Street decided this also meant that stocks were also very risky - and therefore more likely to go down in value. Of course, this is garbage. Here is what Warren Buffett had to say about risk at the BRK’s AGM in 1994: “We do define risk as the possibility of harm or injury. And in that respect we think it’s inextricably wound up in your time horizon for holding an asset. I mean, if your risk is that if you intend to buy XYZ Corporation at 11:30 this morning and sell it out before the close today, in our view that is a very risky transaction. Because we think 50 percent of the time you’re going to suffer some harm or injury. If you have a time horizon on a business, we think the risk of buying something like Coca-Cola at the price we bought it at a few years ago is essentially so close to nil, in terms of our perspective holding period. But if you asked me the risk of buying Coca-Cola this morning and you’re going to sell it tomorrow morning, I say that is a very risky transaction.” Short term focus Most P/C insurance companies are publicly traded companies. They are beholden to what Wall Street wants. Wall Street wants companies to hit quarterly earnings estimates - if a company misses, their stock usually gets punished. If this happens too many times, the CEO likely loses his job. Incentives matter. Most CEO’s want to keep Wall Street happy. As a result, they avoid volatility like the plague. The insurance business is volatile enough. Adding volatility to the investment side of the business is a bridge too far for most P/C insurance executives. So they have no interest in investing in equities. The odd ducks Well, there are a few odd ducks that decided to follow Warren Buffett’s lead: Markel Fairfax Financial What allowed these misfits to thumb their nose at Wall Street? Ownership structure Warren Buffett can do what he wants with Berkshire Hathaway because he is in control of the company. It just so happens the other two companies also have controlling shareholders: Markel - Markel family Fairfax Financial - Prem Watsa Long term focus This ownership structure allows each of these companies to focus on long term value creation for their shareholders. Higher lumpy returns (investing in equities) are preferred to lower smooth returns (investing exclusively in bonds). This can’t be right. This sounds too easy. How have these 3 companies performed over time? The long term performance of each of these 3 companies (since inception for each) has been epic. How did they achieve such impressive results? Their P/C insurance business was better than average (much better in the case of Berkshire Hathaway). But their outperformance overwhelmingly came from their investment results and their capital allocation decisions. What about today? A fork in the road. Berkshire Hathaway was so successful at investing in equities that it decided it wanted to own entire companies. This begat more success. Over the past 20 years, Berkshire Hathaway has morphed into a very successful conglomerate, with P/C insurance now only one part of a much larger company. Markel is doing its best to follow in Berkshire Hathaway’s footsteps and become a conglomerate itself. What about Fairfax Financial? Fairfax appears to have little interest in becoming a conglomerate like Berkshire Hathaway (notwithstanding their just announced purchase of Sleep Country). In fact, today Fairfax’s business model looks unique in the P/C insurance industry. Their uniqueness is not on the P/C insurance side of things. Here they have built one of the finest P/C insurance operations anywhere. They have a wonderful global platform. And they have forged a culture of strong underwriting discipline. All of this is similar to other well run P/C insurance companies. Fairfax’s uniqueness comes from how they approach capital allocation. Their approach is very different from traditional P/C insurance companies. And today it is also very different from the approach employed by both Berkshire Hathaway and Markel. When it comes to capital allocation, Fairfax is breaking new ground. Capital allocation Traditional P/C insurers At most P/C insurers, capital allocation is handled in a very traditional / straight forward manner. The basic options are captured in the table below. Berkshire Hathaway & Markel At Berkshire Hathaway and Markel, capital allocation is focussed on building long term shareholder value. But when it comes to capital allocation, certain options are not used and others are frowned upon. 1.) Assets are not sold. Buy and hold (ideally forever) is the goal. Therefore, this source of capital is generally not available. 2.) Equity is used in very limited way. Rarely is equity issued as a source of capital (looking at the past 10 years). Equity is used modestly used as a use of capital (share buybacks). 3.) Neither company pays a dividend. Fairfax Financial Setting the table: The most important source of capital is 'cash flow from operations'.' Fairfax is generating a record amount of cash flow from operations - and this record amount is expected to continue (and grow) in the coming years. Unlike traditional P/C insurance companies and Berkshire Hathaway and Markel, Fairfax uses all the capital allocation options at its disposal. But there is even more. Fairfax is finding new and innovative ways to allocate capital. They are doing some things that haven’t been seen from a P/C insurance company before. Like bringing minority equity partners on board when making large P/C insurance acquisitions. Fairfax has taken Warren Buffett’s original idea and made it even better: unconstrained capital allocation. The restaurant menu is stocked with choices: Sources of capital. Uses of capital. Internal. External. When it comes to capital allocation, Fairfax’s top priority is to be securely financed. After that, the goal is to allocate capital in a way that it results in the greatest long term per share value creation for shareholders. The key with this approach is to be: Open minded. Flexible. Creative. Opportunistic. Conviction - go big. With this capital allocation framework you take what Mr. Market gives you. And that is what Fairfax has been doing. Delivering a master-class in capital allocation. Here are some recent examples of what Fairfax has done: More than doubled the size (per share) of the P/C insurance business (NPW) over the past 5 years from $442/share in 2018 to $996/share in 2023. In late 2020/early 2021, purchased total return swaps - getting exposure to 1.96 million Fairfax shares at $373/share. This investment has increased in value by $1.5 billion over the past 3.5 years. In late 2021, via dutch auction, bought back 2 million Fairfax shares at $500/share. At March 31, 2024, Fairfax’s book value was $945/share. In late 2021, sold $5.2 billion in corporate bonds and shortened average duration of fixed income portfolio to 1.2 years - which shielded Fairfax’s balance sheet from billions in losses when interest rates spiked in 2022/2023. In 2022, sold the pet insurance business and realized a $1 billion gain after-tax. In 2022, sold Resolute Forest Products for $626 million (plus $183 million CVR) at the peak of the lumber market. In 2023, took out majority partner (KIPCO) and increased ownership in Gulf Insurance Group from 44% to 90% for total consideration of $740 million, securing Fairfax’s future in growing MENA region. In late 2023, extended the average duration of fixed income portfolio to about 3 years, locked in record interest income of $2 billion/year for the next 3 or 4 years. In January 2024, increased dividend by 50% to $15/share. In June 2024, Fairfax’s P/C insurance company in India, Digit, completed its successful IPO. In July 2024, sold Stelco (pending approvals) for consideration of $666 million, an 87% premium to where the stock had been trading. The list above is just a start. It really is amazing what Fairfax has been able to accomplish over the past 5 years. What really stands out is the number of tools - the breadth of options - that they have in their capital allocation toolkit today. They are proficient at using all of the tools. And they are using all of them: Organic growth Acquisitions Asset sales IPO Stock buybacks And look at the size/magnitude of the activities - many were +$1 billion in impact. The per share value creation for shareholders has been impressive. Importantly, Fairfax is not trying to copy someone else - like Berkshire Hathaway. Instead, Fairfax is now blazing their own trail. They are focussed on doing what they are really good at. Fairfax looks like a star athlete that is just hitting their prime. They have building towards this moment for 38 years. ————— If you want to better understand what is happening at Fairfax today you might want to read the following book. And pay special attention to the chapter on Henry Singleton - someone who will be the topic of a future post. “An outstanding book about CEOs who excelled at capital allocation.” Warren Buffett The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike https://www.amazon.ca/Outsiders-Unconventional-Radically-Rational-Blueprint/dp/1422162672

“I would much much prefer that on the equity component Prem and Fairfax act like Warren B.” @Gautam Sahgal I used to think along the same line as you. But i am not so sure anymore. The more i think about/study Fairfax the more i am coming to understand and appreciate their unique approach/strengths to capital allocation. When i was a new sales manager my focus initially was on fixing problems (problem employees or weaknesses of good employees). I learned over time that i had it ass backwards. I shifted and spent most of my time feeding my best employees (stars) and getting my weaker performers to focus on their strengths. I want to see Fairfax do what they are outstanding at: - Flexible - Creative - Unconventional - Conviction - Long term focus Look at some of Fairfax’s best investment the past 4 years: - total return swaps: 1.96 million shares at $373/share - dutch auction taking out 2 million shares at $500/share - managing average duration of fixed income portfolio - selling pet insurance for $1 billion gain after tax - selling RFP at peak pricing. - the Stelco investment (buy and sell). - i could go on. Asset sales are a big part of Fairfax capital allocation framework. As is seeding startups like First Capital, ICICI Lombard and now Digit. Would Warren Buffet have done any of these things? Fairfax also appears to have no desire to become a conglomerate. And they appear to be dramatically shrinking the size of the company (with all the buybacks). Not what Warren would do. Fairfax’s capital allocation has been exceptional since 2018. For the past 5 years Fairfax’s management team has been best-in-class among P/C insurers. They are on a hot streak. Do you tell a star basketball player how to shoot a basketball? (I.E. tell Larry Bird he would be a better basketball player if only he shot the ball like Magic Johnson?) They look singularly focussed on growing long term per share value for shareholders. I hope they continue to do the things they are really good at.

Prem just resigned from the board in Feb so it likely was not an option to sell before then. Moving forward my guess is Fairfax will treat BlackBerry like any other equity investment - hold it if they see it delivering on their (15%?) hurdle rate for equity investments. BlackBerry does play in some very interesting verticals. What i like is the remaining position is so small that even of it went to zero it wouldn’t matter to Fairfax. I would love to see them sell it. Just to get it off the books - like Resolute Forest Products. Just so we can stop being reminded about it every time we look at Fairfax’s collection of equity holdings. But that is based on emotion. The big learning for me in reviewing Fairfax’s investment exits/sales over the past 7 years is just how much they have improved their underlying business/profitability: - late 2016 - exited equity hedges - this was the big one - 2019 - APR sold to Altas/Poseidon - late 2020 - exited last short position - late 2020 - exit Fairfax Africa - 2022 - sold Resolute Forest Products - 2024 - exited BlackBerry debenture ($500 million) This was an amazing pivot - in both size and philosophy. Its a little crazy, but Fairfax exiting the equity hedges in late 2016 was the belling ringing moment for shareholders that results/performance had bottomed. The equity hedge (we probably should include the short positions as well) was the root cause of Fairfax’s decade of underperformance. Value in the business has been growing since they exited those 2 positions, and significantly in recent years. Since late 2018 it looks like Fairfax has been on mission to optimize its equity holdings. Stop the hemorrhaging of cash. Get rid of the dogs. Reallocate the cash to better opportunities. The job looks pretty much done to me. What now? Watch the cash roll in. And the intrinsic value build. My guess is we start to see more sales like Stelco - perhaps one per year - where Fairfax surfaces significant value. Great time to be a shareholder.

BlackBerry Debenture – 2020 to 2024 – Exiting a Big Mistake Blackberry has been one of Fairfax’s great investing mistakes (that is putting it politely). Fairfax began investing in BlackBerry in 2010 (it was called RIMM back then). By early 2014, Fairfax had invested a total of $1.287 billion. As of July 2024, Fairfax has received proceeds of about $700 million (interest and exit of debenture position). The value of the common stock position in BlackBerry, which Fairfax continues to hold, is $113 million. Bottom line, over the past 10 years Fairfax’s investment in BlackBerry has fallen in value by $474 million. Of course the financial cost to Fairfax and its shareholders has been much higher - when you factor in opportunity cost. Let’s assume in early 2014 that instead of investing in BlackBerry, Fairfax instead invested $1.287 billion in another company. Let’s assume that investment earned 8.5% per year (a modest hurdle rate). Today, that investment would be worth $2.9 billion. The ‘swing’ in value - what the BlackBerry investment is worth today ($813 million) versus what an alternative investment could have been worth ($2.9 billion) is $2.1 billion. That is a very rough approximation of how terrible the investment in BlackBerry has been for Fairfax. But the cost to Fairfax of its investment in BlackBerry goes well beyond financial. When you own such a large position is such a terrible investment the cost to the organization - in terms of resources and time - is likely enormous. On February 15, Prem announced his resignation from the Board of BlackBerry after serving since November 2013. Prem is a busy man (as are other people at Fairfax). The time spend on BlackBerry over the years added no value for Fairfax and its shareholders (in aggregate) - actually it appears to have subtracted significant value. Blackberry has also done significant repetitional damage to Fairfax - it was a high profile 10-year slow moving train wreck. Bottom line, the cost to Fairfax - financial, time, reputation - has been significant. Exiting a big mistake The fact that Fairfax has been materially reducing its exposure to BlackBerry over the past 4 years is a big deal. And great news for shareholders. In 3 separate transactions Fairfax has completely exited its $500 million debenture investment. Fairfax continues to hold its common share position, which today has a market value of $113 million. This holding is a market to market holding for Fairfax (so the significant losses have already been reflected in the financial statements over the years). Today, BlackBerry is Fairfax’s #24 largest equity holding at 0.6% of the equity portfolio (of $20 billion). BlackBerry is now a tiny investment for Fairfax. Fairfax shareholders can now put the BlackBerry investment behind them. Mistakes Mistakes are a fact of life when it comes to investing. What to do when you recognize you made one? Made sure you learn the lesson - so you do not repeat the mistake. And you probably exit the position and move on. What was Fairfax’s mistake with BlackBerry? When Fairfax made their initial investment in BlackBerry way back in 2010, they completely misjudged: The quality of the management team in place. The prospects for the company. Like with AbitibiBowater, when things got worse they then: Significantly increased the size of their investment. Thought they were a turnaround shop - and could ‘fix’ BlackBerry. I call this investing framework ’old Fairfax.’ Turning a lemon into lemonade Value investing framework: Right around 2018, it looks to me like Fairfax made important changes to their value investing framework. I have recently written about this so I won’t repeat myself. Bottom line, since 2018 Fairfax has been allocating capital exceptionally well. Shifting capital from poor investments to better opportunities: Exiting the BlackBerry debenture investment has freed up $500 million in capital that has been re-invested into better opportunities where Fairfax should be able to earn a much higher rate of return. When Fairfax does this it is like they are creating a new, growing income stream. Freeing up management’s time: The senior team at Fairfax has also exited a big headache. They can now spend their time on much more productive endevours. That is also a big win for shareholders. This move improves the overall quality and earnings power of the equity holdings. Over time this will result in more value creation for shareholders. Fairfax detractors They can’t let go. Yes, Fairfax has made some big mistakes. BlackBerry was a big one. But guess what... Fairfax has made many, many more great investments. And they appear to have stopped making big mistakes back in 2018. For the past 6.5 years, the team at Fairfax has been hitting the ball out of the park. At the same time they have been fixing ALL of the mistakes made in the past. Exiting the BlackBerry debenture is just one of many examples. As a result of this (and other developments), Fairfax has been transformed as a company. But some investors still refuse to see it - their dislike of the company is still too intense. Crazy but true. ————— Comments from Prem from Fairfax’s 2023AR: "That brings me to a major mea culpa! We began investing in Blackberry in 2010 and helped John Chen become CEO in November 2013 by investing $500 million in a convertible debenture at the same time. Blackberry had come down from $148 per share (down 95%) and had $10 billion in sales. I joined the Board in 2013. Our total investment in BlackBerry early in 2014 was $1.375 billion ($500 million in the convertible and $787 million in common shares). "When John joined the company, BlackBerry reported a loss of $1.0 billion – in one quarter and most analysts were predicting bankruptcy! BlackBerry was indeed in difficulty! John saved the company by quickly bringing it to breakeven on a cash basis and then on a net income basis. No CEO worked harder but, unfortunately, John could not make it grow! Revenues for the year ending February 2023 were $656 million. John retired from the company at the end of his contract on November 14, 2023 and I retired from the Board on February 15, 2024. We got our money back on our convertible ($167 million in 2020, $183 million in 2023 and $150 million in 2024) plus cumulative interest income of approximately $200 million. Our common stock position as of 2023 ($162 million or 8% of the company) which was acquired at a cost of $17.16 per share was valued on our balance sheet at $3.54 per share. Another horrendous investment by your Chairman. To make matters worse, imagine if we had invested it in the FAANG stocks! The opportunity cost to you our shareholder was huge! Please don’t do the calculation! No technology investment for me!"

Corporate Bonds – 2021 – Value Investing 101 / Protecting the Balance Sheet Below is the next instalment in my review of asset sales at Fairfax from the past 7 years. My goal is to provide some additional insight into the transformation that has happened at Fairfax (especially earnings). And help us better understand what might be coming in the future. Please share your thoughts. ————— To set the table, below is a prescient quote from Warren Buffett from Berkshire Hathaway’s 2020AR: “And bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.” ————— In 2021, Fairfax sold $5.2 billion of corporate bonds and realized a $253 million gain. The bonds were sold at a yield of approximately 1%. Most of the bonds had been purchased in March/April of 2020 during the Covid panic which caused credit spreads (and yields) to spike temporarily. The greatest bond bubble in history 2020 and 2021, bonds were in the blow off top (bubble high) part of the greatest bull market in history. Like .com stocks in 1999, bonds were selling at crazy high prices (well over their intrinsic value) - and their yields were at record low levels. In 2020 and 2021, there was no ‘margin of safety’ when purchasing bonds, especially those of longer duration. Instead, there was actually a very high probability that future returns for investors would be terrible. In 2020 and 2021 the risks of owning bonds had never been higher. Like past bubbles, when it came to bonds, Mr. Market had lost its mind. Value investing 101 Value investing is the central framework used by Fairfax and is used in both of its core businesses: insurance and investments (equities and bonds). What is a value investor to do when a historic bubble is blowing ever bigger? A value investor sells. And that is what Fairfax did in 2021 when they sold $5.2 billion in corporate bonds. It was a brilliant move. And highly contrarian; especially for a P/C insurance company. Protect the balance sheet And they did another thing that was even better. They moved the average duration of their fixed income portfolio to 1.2 years (they had been doing this for years). They did this to protect their balance sheet - protect it from significant losses should bond yields unexpectedly rise. Who else was thinking along the same lines as Fairfax? Some guy named Warren Buffett who manages a company called Berkshire Hathaway. What about other P/C insurance companies? Most P/C insurance companies have a stated policy of matching the average duration of their fixed income portfolio with the average duration of their insurance liabilities. This makes good sense - almost all of the time. But it is a terrible thing to do in an historic bond bubble. So why did they continue to do it? Even when it was obviously becoming more and more risky? The institutional imperative What is the institutional imperative? Warren Buffett defines it in Berkshire Hathaway’s 1990AR: “the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so.” Pretty much all P/C insurance companies match the average duration of their bond portfolio with the average duration of their insurance liabilities. What would be the consequences if this strategy blew up? There would be none - because they were all doing it. As a result they were all safe. Who could have known? What happened to P/C insurance companies when the bond bubble popped in 2022? When the bond bubble popped in 2022, the balance sheets of most P/C insurance companies got shredded - for many companies their book value fell 10% to 15% - for some it was more. The management teams at most P/C insurance companies had completely dropped the ball. Their risk management had been terrible. They were reckless and their shareholders would now pay a steep price. And what happened to the management teams? Nothing, of course. ‘Who could have known’ they all collectively said. How about Fairfax? Book value at Fairfax increased in 2022. Fairfax shielded their shareholders from billions in losses. That is outstanding risk management. Narrative Fairfax realized a nice gain of $253 million on their sale of $5.2 billion in corporate bonds in 2021. More importantly, by shortening the average duration of their fixed income portfolio to 1.2 years in late 2011, they protect their balance sheet - and shielded the company and investors from billions in losses. This is a great example of exceptional risk management. This is just another of many recent examples of how Fairfax has been running circles around the management teams of other P/C insurance companies in recent years. Fairfax’s growth in book value over the past 5 years has left peers in the dust. It is a testament to the benefits of active management. And value investing. And superior management. It is also an example of the benefit of having a majority/controlling shareholder. It’s not a fluke that it was all the publicly traded P/C insurance companies that were blindly following the herd over the cliff in 2020 and 2021. ———— Interest income update Interest income at Fairfax bottomed out at $568.4 million in 2021. When you add in the gain from the sale of $5.2 billion in corporate bonds, the total return on the fixed income portfolio was $821.4 million or 2.5% (calculated off the average size of $33.3 billion). Given the exceptionally low average duration of of the fixed income portfolio of 1.2 years at Dec 31, 2021, the earn though over the past 2.5 years from spiking interest rates has been much quicker for Fairfax than pretty much all other P/C insurance companies. As of Q1, 2024, interest income at Fairfax has ballooned to about $570 million per quarter and the yield on the fixed income portfolio (now $46 billion in size) is now 5%. It is amazing what the fixed income team at Fairfax has accomplished over the past 3 years. ———— From Fairfax’s 2021 Annual Report: “During 2021, we sold $5.2 billion in corporate bonds, mainly acquired in March/April of 2020, at a yield of approximately 1%, for a gain of $253 million. At the end of 2021, our fixed income portfolio, inclusive of cash and short term treasuries, which effectively comprised 72% of our investment portfolio, had a very short duration of approximately 1.2 years and an average rating of AA-.” Fairfax 2021AR

Stelco - Reaping the Rewards of New Fairfax On July 15, 2024, Stelco announced that the company had been sold to Cleveland-Cliffs for about C$70/share (C$60/share cash + .454 share of CLF). Total proceeds to Fairfax should be about US$666 million ($570 million for Stelco + $96 million for CLF shares). The deal is expected to close in Q4 of 2024. Stelco is a great example of what I like to call ‘new Fairfax.’ In about 2018, Fairfax appeared to ‘tweak’ their value investing framework when it came to new equity purchases. One of the important changes was putting a much higher premium on partnering with great CEO/founders/owners. Fairfax’s new equity purchases since 2018 have been very good. Stelco was purchased in November 2018. Fairfax decided to partner with Alan Kestenbaum (CEO/founder/owner of Stelco). Over the past 7 years, Kestenbaum has put on a clinic on how to do capital allocation (see below for more). In short, Kestenbaum has been a rock star - even Billy Idol would agree. How has Fairfax’s investment in Stelco performed? I know… I know… Show me the money! In November 2018, Fairfax paid $193 million for 14.7% of Stelco. Over the past 3 years Stelco has repurchased 38% of all shares outstanding - so Fairfax now owns 23.6% of Stelco. When Fairfax announced their Stelco purchase in late 2018 I hated it. At the time, it screamed ‘old Fairfax’ to me. Boy was I wrong. Over its 6 year holding period, Fairfax stands to earn a total return of about $588 million, or 305%, on its investment in Stelco. The 6-years CAGR is 26.3%. That is an outstanding return. The return is made up of: Regular and special dividends = $115 million ($47 + $68). Expected proceeds from sale: Stelco shares sold = $570 million Cleveland-cliffs shares received = $96 million Fairfax has a carrying value for Stelco of $275 million (Q1 2024). When the deal closes in Q4, Fairfax will likely book a total pre-tax gain of about $392 million. New Fairfax - Reaping the Rewards Stelco is only one of the very good new investments that Fairfax has made since 2018. Fairfax has also ‘fixed’ most of their underperforming legacy equity holdings (purchased before 2018). As a result, the quality and earnings power of Fairfax’s current collection of equity holdings has never been better. Most importantly, the intrinsic value of their collection of equity holdings has been marching higher each year. Fairfax is monetizing one asset today. More asset sales are coming - I think this sale might be signalling the beginning of the next wave of equity monetizations. And like the sale of Stelco, when they happen they will surface significant hidden value for shareholders. I think most investors do not fully grasp this part of Fairfax’s business model. It has been so long since this part of Fairfax was working (equities) its like they have forgotten about it. This is leading many investors to underestimate the future earnings of Fairfax. Which is leading them to undervalue (still) the company. Yes, that sounds nuts. But I think it is true. Value investing 101 - the Fairfax Model - Sell high and buy low There is a second even bigger benefit to what Fairfax is doing. Realizing significant value hiding on the balance sheet is good (selling high). But reinvesting the proceeds back into undervalued assets (buying low) is even better - when you include the power/effect of compounding over time. In recent years, Fairfax has been putting on a clinic of the benefits of the P/C insurance / value investing business model. As a result, earnings, ROE and book value are spiking. For the past 4 years most investors have been one step behind what is actually happening under the hood at Fairfax. I think this continues to be the case today. And I love it - because it tells me that despite the run up in the shares over the past 4 years, much more likely lies ahead (as Fairfax delivers earnings and ROE that continues to ‘surprise’ to the upside). Stock buybacks In 2024, Fairfax continues to aggressively buy their back stock. Why? They know the stock is still very undervalued. Why? They see the value of all the assets residing on their balance sheet - and they know many will be monetized in the future - surfacing an incredible amount of incremental shareholder value over time. And they know the proceeds will then be reinvested into wonderful undervalued opportunities - creating even more shareholder value over time. The set-up for Fairfax and its shareholders has never looked better. Fairfax detractors But talk to Fairfax detractors - and my guess is they still view Stelco as a shitty investment. They explain it away with ‘Fairfax got lucky.’ It is a commodity producer after all! It cracks me up when I hear the detractors talk about Fairfax’s equity holdings. They usually have no idea what they are talking about. But boy do they ever have a lot of conviction when they express their views. What has made Stelco such a good investment for Fairfax? The CEO of Stelco, Alan Kestenbaum. Since buying Stelco out of bankruptcy in 2017 (via Bedrock Industries) his capital allocation decisions have been outstanding. Some examples: What did Stelco do with the earnings windfall from the historic bull market in steel in 2021 and 2022? He bought back 38% of shares outstanding. And he did not overpay. That was freaking brilliant. Fairfax’s ownership in Stelco increased from 14.7% to 23.6% - with no new money invested. A significant amount was paid out in the past 6 years in dividends = C$11.03/share Regular dividends = C$3.90/share and special dividends = $7.13/share. Two other brilliant moves by Kestenbaum: April 2020 - Minntac deal: at a cost of $100 million, got an 8-year supply agreement with US Steel with option to purchase 25% of Minntac (the largest iron ore mine in the US) – done when Covid was raging. June 2022: real estate sale of ‘Stelco lands’ for C$518 million. The timing of this sale is looking brilliant - at what might be close to the peak of Canada’s real estate bubble. And the final act? Selling the entire company for C$70.00 Kestenbaum has been schooling the steel industry on capital allocation for the past 7 years. ————— A short history of Fairfax’s investment in Stelco In November of 2018, Fairfax invested US$193 million in Stelco, buying 13 million shares at C$20.50. At the time, it was a deeply contrarian purchase. I did not like it. It screamed ‘old Fairfax’ to me: buy a bad business in a bad industry. Boy, was I wrong. ————— Stelco Corporate Presentation - Q1 2024 Results https://s201.q4cdn.com/143749161/files/doc_earnings/2024/q1/presentation/Q1-2024-Earnings-Presentation-FINAL.pdf ————— News release on sale from Stelco Cleveland-Cliffs to Acquire Stelco for C$70 per Share - July 15, 2024 https://investors.stelco.com/news/news-details/2024/Cleveland-Cliffs-to-Acquire-Stelco-for-C70-per-Share/default.aspx HAMILTON, Ontario--(BUSINESS WIRE)-- Stelco Holdings Inc. (TSX: STLC) (“Stelco” or the “Company”) is pleased to announce that it has entered into a definitive agreement (the “Arrangement Agreement”) with Cleveland-Cliffs Inc. (NYSE: CLF) (“Cliffs”), pursuant to which Cliffs has agreed to acquire all of the issued and outstanding common shares of Stelco (the “Transaction”) at a price of C$70.00 per share (the “Consideration”), consisting of C$60.00 in cash and 0.454 of a share of Cliffs common stock (equivalent to C$10.00 based on the closing price of Cliffs common stock on July 12, 2024) per Stelco share. The total enterprise value pursuant to the Transaction is approximately C$3.4 billion. The Consideration represents an 87% premium to Stelco’s closing share price of C$37.36 on July 12, 2024, and a 37% premium to Stelco’s 52-week high. Fairfax Financial Holdings, an affiliate of Lindsay Goldberg LLC, Alan Kestenbaum, and each of the other directors and executive officers of Stelco collectively holding approximately 45% of the current outstanding Stelco common shares have entered into support agreements to vote in favour of the Transaction, subject to customary exceptions. ————— Comments from Prem about Stelco from Fairfax's 2022AR. “2022 was an active and successful year for Alan Kestenbaum and the talented team at Stelco. The company ended the year with its second-best fiscal result since going public despite an approximately 50% decline in steel prices over the summer. Stelco is benefiting from the Cdn$900 million it has invested in its Lake Erie Works mill since 2017, which has made the mill one of the lowest-cost operators in North America. Stelco entered 2022 with an extremely strong balance sheet and put its capital to good use, completing three substantial issuer bids during the year, thereby repurchasing approximately 29% of its outstanding shares. These repurchases have resulted in Fairfax’s ownership increasing to 24% from 17% at the beginning of the year. In addition to share repurchases, Stelco paid a Cdn$3 per share special dividend and increased its regular dividend to Cdn$1.68 per share from Cdn$1.20 per share. Stelco maintains over Cdn$700 million of net cash on its balance sheet and we anticipate that it will continue to be active both investing in its operations and efficiently returning excess capital to shareholders. We are excited to continue as a significant investor in Alan Kestenbaum’s leadership at Stelco.” Prem Watsa – Fairfax 2022AR ————— Details of Stelco’s Hamilton land sale in 2022, for proceeds of $518 million. “Stelco Holdings Inc. (TSX: STLC) (“Stelco” or the “Company”) announced today that its wholly-owned subsidiary, Stelco Inc., has successfully closed a sale-leaseback transaction with an affiliate of Slate Asset Management (“Slate”). Stelco Inc. has sold the entirety of its interest in the approximately 800-acre parcel of land it occupies on the shores of Hamilton Harbour in Hamilton, Ontario to Slate for gross consideration of $518 million. In conjunction with the sale, Stelco Inc. has entered into a long-term lease arrangement for certain portions of the lands to continue its cokemaking and value-added steel finishing operations at its Hamilton Works site in Hamilton, Ontario.” https://www.thespec.com/news/hamilton-region/all-of-stelco-s-hamilton-land-sold-in-deal-that-would-see-it-transformed-into/article_17a333af-8198-5f97-9866-8c61ed8f799f.html? ————— Details of Stelco’s agreement with US Steel in 2020 to securing long term supply for iron ore pellets. Stelco Announces Option To Acquire 25% Interest In Minntac, The Largest Iron Ore Mine In The United States, And Entry Into Long-Term Extension Of Pellet Supply Agreement With U.S. Steel “Stelco will pay US$100 million, in cash, to U.S. Steel in consideration for the Option (the "Initial Consideration"). The Initial Consideration is payable in five US$20 million installments, with the first installment paid upon closing of the Option Agreement and the remaining four installments payable every two months thereafter. Upon the exercise of the Option, Stelco would pay a net exercise price of US$500 million.” Transaction Highlights: Secures long-term future of Stelco's steel production and solidifies Stelco's low-cost advantage Provides supply of high-quality iron ore pellets from a well-understood and consistent source for the next eight years, or longer if the Option is exercised Increases annual pellet supply to level required for Stelco's higher production capacity following this year's blast furnace upgrade project Supports Stelco's tactical flexibility model to deliver highest margin outcomes based on prevailing market conditions Creates a secure pathway for Stelco to become a vertically integrated player in the future through ownership in a low-cost iron ore source which is the largest producing iron ore mine in the Mesabi iron range Structured in stages that will preserve Stelco's strong balance sheet and financial flexibility https://investors.stelco.com/news/news-details/2020/Stelco-Announces-Option-to-Acquire-25-Interest-in-Minntac-the-Largest-Iron-Ore-Mine-in-the-United-States-and-Entry-into-Long-Term-Extension-of-Pellet-Supply-Agreement-with-U.S.-Steel-04-20-2020/default.aspx ————— Here is a little more information of Kestenbaum’s initial investment in Stelco in 2017. Purchase of Stelco out of bankruptcy: Bedrock gets steelmaker for less than $500 million https://www.thespec.com/business/stelco-deal-bedrock-gets-steelmaker-for-less-than-500-million/article_da943b70-1a93-5a35-acb4-92a6da05946a.html?

I was one of them. Here is an update on Fairfax’s investment in Stelco. Stelco is just one example of the significant value that is building on Fairfax’s balance sheet that will be realized in the coming years. This is the big thing most investors do not grasp (leading them to undervalue the company - still). This is likely a big reason why Fairfax continues to aggressively buy back stock at current prices - they know the value (although hidden) is there.

Resolute Forest Products – July 2022 – Being Opportunistic and Exiting a Mistake Below is the next instalment in my review of asset sales at Fairfax from the past 7 years. What do we see? Fairfax fixing their biggest problems. But I am getting ahead of myself. My goal is to provide some additional insight into the transformation that has happened at Fairfax (especially earnings). And help us better understand what might be coming in the future. Please share your thoughts. ————— In July 2022, Fairfax sold Resolute Forest Products (RFP) to Paper Excellence Group (a global diversified manufacturer of pulp and specialty, printing, writing and packaging papers) for total consideration of $665.6 million ($20.50/share). Fairfax accomplished 3 things with this sale: Got a great price for the asset - they sold it at the peak of the bull market in lumber. Were able to shift the proceeds/capital into much better investments/opportunities. Exited a big mistake - got one of their worst ever equity purchases off their books. ————— RFP was sold at $20.50/share. For perspective, back in March 2020, RFP shares traded as low as $1.20/share. Fairfax owned 30.5 million shares, so RFP’s market cap in March of 2020 was a total of $37 million. Two short years later Fairfax sold it for total proceeds of $665.6 million. Wow! Pre-pandemic, RFP’s shares traded at an average of about $6/share. In the historic lumber bull market of 2021, RFP’s shares traded at an average of about $12/share. Bottom line, at $20.50, Fairfax got an outstanding price for this company. But price is just the beginning of why this was a great move for Fairfax and its shareholders. RFP also owned some pretty crappy businesses: newsprint, paper and tissue. And the ‘good’ business, lumber, was/is getting killed by higher interest rates. I think RFP also had a large pension liability on its books. Bottom line, Fairfax sold what was overall (still) a very challenged business. The timing of the sale - in the middle of bear markets in both bonds and stocks - was also significant. It gave Fairfax the opportunity to redeploy the proceeds into opportunities with much better long term prospects. This sale improved the quality/earnings potential of Fairfax’s equity portfolio. There is also the psychological benefit of Fairfax selling RFP. This shouldn’t matter - but it does. AbitibiBowater/RFP was one of Fairfax’s worst-ever equity investments. I am guessing there are lots of long-term shareholders of Fairfax who are very happy that Fairfax sold RFP. It is a great example of another one of the ghosts of ‘old Fairfax’ being laid to rest by the current team at ‘new Fairfax’. ————— Old Fairfax - A short history of a terrible long term investment In 2008, Fairfax made an initial investment of $347 million in RFP (called AbitibiBowater back then). What did they get? Fairfax got a company - AbitibiBowater - that was: Poorly managed. Had a very stressed balance sheet (massive amount of debt). Had a terrible core business/prospects (newsprint and paper). Was statistically cheap - traded well below book value. I like to call the investment framework used by Fairfax at the time as ‘old Fairfax.’ It appeared to be some kind of deep value investing - focussed pretty much exclusively on finding statistically cheap companies (trading at big discounts to book value). What could possible go wrong? In 2010 AbitibiBowater filed for creditor protection. What did Fairfax do? They then decided they were a turnaround shop - and they pumped in even more money and time. By 2012, Fairfax had ‘invested’ a total of $791 million in RFP (AbitibiBowater was renamed RFP in 2011). Also buried in RFP’s sad history was the smelly (putting it politely) take-out in 2012 of Fibrek (SFK Pulp). Fairfax’s carrying value for RFP bottomed out at $134 million in 2020. To be fair, the management team at RFP had been doing a better job in recent years. The purchase of the three lumber mills in the US south in 2020 (at the bottom of the lumber cycle) was perfectly timed. Bottom line, the management team got RFP to a position where it was sold at a very high price. RFP is a great example of what Fairfax’s value investing framework USED TO LOOK LIKE. Not surprisingly, investments like RFP caused the returns on Fairfax’s investment portfolio to lag for much of the decade from 2010 to 2020. And this caused Fairfax's stock price to underperform over the same time period. ————— Why was Abitibi-Bowater / RFP one of Fairfax’s worst ever investments? Opportunity cost. From 2008 to 2012, Fairfax invested a total of $791 million in RFP/AbitibiBowater. 10 years later (2022), after dividends received and total proceeds of $665.6 from the sale, Fairfax was still underwater on its original investment. The real ‘cost’ of Fairfax’s investment in RFP was the opportunity cost. Over a 10 year period a $791 million investment should have returned more than $1 billion to Fairfax and its shareholders (if we assume a very low return of only 8.5% per year). ————— Was the problem with this investment that value investing in general was not working? This reason/excuse drives me crazy. Value investing has always worked. And it will likely always work in the future. But bad investing (usually) does not work - especially if you keep doing it. You might get lucky for a while. But eventually reality sets in. Buying a company that: Is poorly managed. Is highly leveraged. Has poor prospects. And then doubling down (money and time) when things go from bad to worse? That is not value investing. That is bad investing. Sorry there is no way to put lipstick on this pig. What AbitibiBowater/RFP investment (fiasco) illustrates is Fairfax had a problem with its value investing framework. It was a problem because the terrible investments (back in the 2014-2017 period) did not just include AbitibiBowater/RFP. It was also BlackBerry. And Eurobank (the initial investment). And Sandridge Energy. And Exco Resources. And Fairfax Africa. And APR Energy. And Farmers Edge. Fairfax had too many dogs in its equity portfolio all at the same time. To 'discover' the source of the problem - well, Fairfax needed to take a good hard look in the mirror. And that is what they did. But there is a silver lining to this story - The Emergence of New Fairfax From 2016 to 2017 it looks to me like Fairfax had its ‘come to Jesus’ moment with how it was managing its investment portfolio - Fairfax likely got tired of the investment portfolio’s constant bleeding of money (hundreds of millions every single year). And the fact it was stuffed with a bunch of shitty companies - so its prospects were bleak. In his shareholder letter in the 2018AR, Prem admitted that RFP had been ‘a very poor investment.’ It seems Fairfax’s was ready to embark on a new course. What did they do? Here is what I think happened (around 2018): Overhauled their value investing framework. Put a premium on: Partnering with quality management/founders. Strong balance sheet. Solid prospects. Got to work dealing with all the shitty holdings. New money would go to the top opportunities/performers - not to the shitty companies in need of more cash to keep the lights on (like had been happening). Fairfax would no longer be a piggy bank for poorly run equity holdings. Look at Fairfax’s new equity purchases beginning in 2018. They have been stellar (as a group). And over the past 6 years they also have been able to clean up most of the shitty holdings. Selling RFP for $665.5 million in 2022 was a very important part of this renewal process. We will review a few other of the larger sales in future posts. Over the past 7 years we have witnessed a remarkable turnaround in Fairfax’s equity portfolio - it has improved markedly in terms of overall quality/earnings power. Fairfax's equity portfolio of today (2024) does not resemble the equity portfolio that existed in 2017. And in recent years, we have also started to see the impact of the turnaround in Fairfax’s record reported results. Instead of bleeding money every year, Fairfax’s equity holdings are now delivering solid returns. And the good news story is just getting started. ————— The Genesis of Fairfax’s initial investment in AbitibiBowater in 2008 The 2 newspaper articles linked below provide some additional information on Fairfax’s initial investment in AbitibiBowater in 2008. From The Globe & Mail (April 2, 2008) "It may be tiny by global mergers and acquisitions standards, but the life-saving $350-million (U.S.) investment by Fairfax Financial Holdings Ltd. in troubled AbitibiBowater Inc. is giving deal makers lots to chew on. "For one thing, Fairfax's convertible debenture investment was crafted in three short days over the Easter weekend after Abitibi called late Thursday night to say the plan was the best offer it had on the table after weeks of negotiating with other unidentified suitors. "Within two days we went from zero to a fully drafted deal," said Fairfax's chief legal officer Paul Rivett, who credits his former Shearman & Sterling LLP Toronto partners Chris Cummings and counsel Stephen Centa with closing the deal so quickly. Assisting the group was Torys LLP partner David Chaikof." https://www.theglobeandmail.com/report-on-business/fairfax-abitibi-pact-sends-a-message-of-caution/article17983261/ From The Globe and Mail (March 14, 2008) - describing the initial transaction: Fairfax gambles on better times at AbitibiBowater https://www.theglobeandmail.com/report-on-business/fairfax-gambles-on-better-times-at-abitibibowater/article20383961/ It appears Paul Rivette was front and center with the AbitibiBowater investment for Fairfax. Paul ‘retired’ from Fairfax in February of 2020. Today Paul is Executive Chair and Director of Greenfirst Forest Products - a forestry company that closely resembles an ‘old Fairfax’ type of investment. ————— Comments from Prem about Resolute Forest Products from Fairfax’s 2022AR. “In July 2022, Resolute agreed to be purchased by the Paper Excellence Group. The cash portion of the deal, $20.50 per share, represented a 64% premium to Resolute’s pre-announcement price. Resolute’s shareholders will also receive contingent value rights tied to potential duty deposit refunds of up to $500 million. Fairfax, which held 40% of Resolute, agreed to vote in favour of the deal.” “Paper Excellence’s acquisition of Resolute closed on March 1, 2023. Our journey with Resolute began in a significant way in April 2008 with the purchase of approximately $350 million of an 8% AbitibiBowater convertible bond (at $10 per share) – almost 14 years ago! We added to our investment in Resolute in common shares and bonds over the years with a net investment after dividends of $715 million. With the interest income received on our bonds, sale proceeds of $622 million and with a little bit of good fortune on our remaining holdings in the contingent value rights, we may end up breaking even over this long holding period – although clearly a very poor long-term return. A big thank you to Remi Lalonde, Duncan Davies and Brad Martin for leading a strong turnaround in Resolute’s results over the last few years.” Prem Watsa – Fairfax 2022AR Comments from Prem about Resolute Forest Products from Fairfax’s 2018AR. “We have invested $791 million in Resolute and received a special dividend of $46 million, for a net investment cost of $745 million. Our initial investment was a convertible bond purchased in 2008 for $347 million. We invested an additional $131 million prior to Resolute entering into creditor protection and most of the remainder during the period from December 2010 to 2013. Subsequent to write-downs and our share of profits and losses over time, at December 31, 2018 we held our 30.4 million Resolute shares in our books at $300 million ($9.87 per share). The current fair market value of these shares is $244 million ($8.03 per share). You can see that Resolute has been a very poor investment to date!” Prem Watsa – Fairfax 2018AR ————— For long term shareholders, here is a trip down memory lane for RFP. A link to historical milestones at the company from 2008 to present… https://www.resolutefp.com/About_Us/Our_History/

Bank of Ireland – 2014 to 2017 – Value Investing 101 Over the next week my plan is to continue reviewing a number of Fairfax's asset sales - this time from the investment management side of the business. We will start with Bank of Ireland. We will also review the following 'sales': Equity hedges/shorts (2016/2020), Fairfax Africa (2020), Corporate bonds (2021), Resolute Forest Products (2022), Blackberry Debentures (2020/2024). What do you see with most of these sales? Fairfax fixing their biggest problems. But I am getting ahead of myself. My goal with reviewing the sales in detail is to provide some additional insights - that should provide a little more colour into the transformation that has happened at Fairfax (especially earnings). And help us better understand what might be coming in the future. Please share your thoughts / insights. ---------- Value investing is at the core of how Fairfax/Hamblin Watsa manage their investments. Fairfax’s investment in Bank of Ireland provides a great ‘how-to-do’ example of value investing. Ben Graham, the father of value investing, taught that stocks should be purchased when they trade at a large discount to their intrinsic value. Buying stocks with a large ‘margin of safety’ provides an investor with downside protection (should they be wrong) and significant upside potential (should they be right). Stocks trading at a large margin of safety are usually deeply out of favour. And Graham also taught that stocks should be sold when they are ‘dear’ or trade at a premium to their intrinsic value. Rinse and repeat. ————— One of Fairfax’s great investments made in the decade of the 2010s was Bank of Ireland. In October 2011, Fairfax invested €280 million ($387) for an 8.7% stake in Bank of Ireland. Fairfax exited their position in 4 sales made in 2014, 2015, 2016 and 2017. How did they do? My estimate is Fairfax realized a total gain on this investment of about $800 million, or about 200%. That is an outstanding return over a 6-year period (with 1/3 of the position exited in year 3 and another 1/3 exited in year 4). My final number (gain) is an estimate. Fairfax provided us with an update in March of 2017 (the 2016AR). My guess is they sold their remaining position in 2017 at close to where Eurobank was marked when they provided their update. It is interesting that Fairfax never provided a final summary for this investment in the 2017AR. Value Investing 101 Maximum pessimism is often a great time to buy out of favour and undervalued stocks. Buying an Irish bank shortly after the biggest real estate bubble in history popped was a deeply contrarian thing to do. In 2011, when Fairfax made its investment, Bank of Ireland was trading at a significant discount to book value. Concentration When they find the right opportunity, Fairfax is not afraid to concentrate their position. At the time, Bank of Ireland was a large investment for Fairfax (common shareholders’ equity was $7.4 billion at Dec 31, 2011). Bottom line, Bank of Ireland is a great example of value investing done well by the team at Fairfax. Some additional thoughts: the power of relationships/connections and deal flow The idea to invest in Bank of Ireland came from Bill McMorrow at Kennedy Wilson. The initial investment was made with big partners: Wilbur Ross, Mark Denning (Capital Research) and Will Danoff (Fidelity). After stepping down as CEO of Bank of Ireland in 2016, Ritchie Boucher worked as an advisor to Fairfax, Eurobank and Kennedy Wilson. ————— Comments from Prem in Fairfax’s 2011 Annual Report “And there is more to the McMorrow story. While Bill was negotiating the purchase of some real estate loans from Bank of Ireland, he was really impressed with Ritchie Boucher, the Bank’s CEO. Bill introduced Ritchie to us, and we too were very impressed. With the help of our friends at Canadian Western Bank, one of the best banks in Canada, we thoroughly reviewed the opportunity and then quickly formed an investment group with Wilbur Ross, Mark Denning from Capital Research and Will Danoff at Fidelity, which purchased $1.6 billion of Bank of Ireland shares on a rights issue (Fairfax’s share was $387 million). This issue reduced the Irish government’s stake in Bank of Ireland from 36% to 15%. In spite of having hundreds of years of history and the strongest credit culture in the country, Bank of Ireland barely survived the real estate crisis in Ireland, where both house prices and commercial real estate prices dropped by approximately 50% from their highs. It is the only major Irish bank to survive that crisis – the rest of the Irish banking industry is now government owned. The rights issue plus other capital generated by Bank of Ireland has resulted in the Bank having capital to withstand an even further drop in Irish commercial real estate prices and Irish house prices. Bank of Ireland is very strongly capitalized, led by an excellent banker, Ritchie Boucher, and its shares were available at a significant discount to book value. We look forward to being long term shareholders of Bank of Ireland and hope to make more investments in that country as it continues under strong leadership diligently remedying its economic problems. Ireland by the way is a leading location of choice for foreign direct investment because of its talent, tax regime and technology capabilities together with its unique pro-business environment. Our nSpire Re subsidiary has been in Dublin since 1990 and was a great help in making our decision to invest in Bank of Ireland.” Prem Watsa - Fairfax 2011AR Comments from Prem in Fairfax’s 2013 Annual Report “It is amazing to witness the transformation that has taken place in Ireland. In 2011, when we made our investment in the Bank of Ireland at €0.10 per share, 10-year Government of Ireland rates were 12%, housing prices had come down 40% and sentiment was bleak. Since then, 10-year Government of Ireland rates have dropped to 3.1%, house prices have bottomed out and have begun to rise, Ireland has access to the bond markets again and capital is flooding into Ireland! Under Richie Boucher’s strong leadership, the Bank of Ireland continues to do well as it recently refinanced its government-owned €1.8 billion preferred by doing a €580 million equity issue at €0.26 per share and selling the rest into the marketplace. Also, it did a €750 million unsecured five-year bond financing at 3.34%! The Irish Government has now had all its loans to the Bank of Ireland paid back and its 13.95% ownership of the common stock is in a sizeable profit position. We thank the Irish Government for its exceptional support of the Bank of Ireland and look forward to the Bank’s continued progress under Richie’s leadership. “As this letter went to print, because of the significant appreciation in our position in the Bank of Ireland, we rebalanced that position by selling a third of it at approximately €0.33 per share. The Bank of Ireland has been one of our most successful investments because of the outstanding performance of Richie and his management team. We continue to be strong supporters of Richie and the Bank of Ireland.” Fairfax 2013AR Comments from Prem in Fairfax’s 2016 Annual Report “Richie Boucher at the Bank of Ireland had another outstanding year in 2016 as the Bank earned €793 million. In 2016, the Bank continued to improve: non-performing loans fell by €4.1 billion (34%); pre-tax profit exceeded €1 billion for the second straight year; the pension deficit narrowed to €0.45 billion (from €1.19 billion); the CET1 ratio improved from 12.9% to 14.2%; and the Bank was number one or number two in every major product line in Ireland. Bank of Ireland is on firm footing and is poised to benefit from Ireland’s recovering economy – estimated GDP growth in 2016 was 5.2% and unemployment is projected to fall to 6.8% in 2017.” “We purchased 2.8 billion shares of Bank of Ireland stock in late 2011 at €0.10 per share. As of today, we have sold 85% of our position at €0.32 per share, for a total realized and unrealized gain of approximately $806 million. Richie has produced outstanding results for us and we are fortunate that he consented to join the Eurobank Board. Bank of Ireland is expected to announce its first dividend in the last eight years in 2017!” Fairfax 2016AR

Summary of Fairfax's P/C Insurance Asset Sales Over the past week we have reviewed 4 different asset sales that Fairfax made in its P/C insurance business from 2017 to 2023. In my summary below I have included a 5th sale - Ambridge Group. It is smaller than the other sales, but still of a meaningful size. The total proceeds from the 5 sales made from 2017 to 2023 was about $6.4 billion. The pre-tax gain was more than $3.8 billion or an average or about $540 million per year - for each of the past 7 years. WOW! What else have we learned? When looked at the 5 sales in aggregate: 1.) Delivered an outstanding return for Fairfax and its shareholders. - First Capital, pet insurance and Ambridge were all sold at premium valuations. 2.) Improved the quality of the company - Strategic pivot in India (from ICICI Lombard to Digit, where Fairfax now has a control position). - sold RiverStone Europe (run-off), one of their lower quality P/C insurance businesses. Both objectives of good capital allocation were achieved. But the story gets even better. Did the significant sales (proceeds were $6.4 billion) over the past 7 years materially shrink the size of Fairfax’s P/C insurance business? It makes sense that it would have. But it did not. In fact the opposite happened. It appears Fairfax was able to use the significant proceeds from the asset sales to accelerate their growth - by acquisition and then in the hard market. Fairfax grew net premiums written from $8.1 billion in 2016 to $22.9 billion in 2023, growth of 183% or a CAGR of 16%. We included the per share numbers. Importantly, the growth in NPW over the 7 years period (2016 to 2023) did not happen as a result of the issuance of new shares. Fairfax was able to have its cake (significantly grow NPW) and eat it too (monetize assets at premium valuations). Brilliantly executed. Value investing When most investors think of value investing, they think exclusively in terms of equities. The value investing framework is infused into all parts of Fairfax - investments (equities and fixed income) and P/C insurance. The benefits of active management Over the past 7 years, Fairfax has put on a clinic on the significant benefits of active management. The Fairfax team has been best-in-class among P/C insurers with their overall execution over the past 7 years. And it is not close. Most investors have not figured this out yet. Despite its monster run the past three years, Fairfax’s stock continues to trade at a big discount to peers. Investors in Fairfax are getting best-in-class management at a significant discount. What about the investment management business? Fairfax has two businesses: P/C insurance and investment management. We have completed our review of asset sales in the P/C insurance business. Next we will review asset sales from the past 7 years in Fairfax’s investment management business. What else can we learn? Much more to come over the next week. Our story will read like Charles Dickens classic 'A Tale of Two Cities.'

Pet Insurance – June 2022 – Capitalizing on a Mania in Cats and Dogs Below is instalment 4 in my review of asset sales at Fairfax from the past 7 or 8 years. My goal is to provide some additional insights - that should provide a little more colour into the transformation that has happened at Fairfax (especially earnings). And help us better understand what might be coming in the future. Please share your thoughts / insights. ---------- Pets have been a rapidly growing business segment in North America for the past 30 years. Covid took this growth to a new, higher level. Especially the services part of the business (veterinary services, pet insurance, supplies etc). On the service side, the business model was shifting to a ‘one stop shop’ model for pet owners – get all your pet needs taken care by one provider. The big players in the industry (like JAB Holding) were in a race to consolidate (to get scale) and the price for good assets went through the roof – reaching mania/bubble proportions. Fairfax had no desire to expand into other aspects of the pet business (vet care or supplies). Therefore, consolidation was a significant risk to its pet insurance business. ---------- “While the pet insurance market was valued at US$10.1 billion in 2023, a report from Allied Market Research revealed that it is projected to reach US$38.3 billion by 2033, growing at a compound annual growth rate (CAGR) of 14.5% from 2024 to 2033.” https://www.insurancebusinessmag.com/ca/news/breaking-news/doubledigit-growth-projected-for-pet-insurance-market-489864.aspx#:~:text=While the pet insurance market,14.5% from 2024 to 2033. ---------- What do you do when someone offers you an obscene price for a business? In June 2022, Fairfax announced it had sold its pet insurance business (which resided in Crum & Forster) to JAB Holding for $1.4 billion. With the sale, Fairfax realized a gain of $1.2 billion pre-tax and $934 million after-tax. The reaction from investors? Disbelief. Even investors who were knowledgeable about Fairfax didn’t know Crum & Forster actually owned a pet insurance business – it was so small. Fairfax’s stock actually sold off in the months after they announced the sale. It was like Mr. Market refused to believe that the announced deal was real. It was a little surreal. Of course, Q3-2022 was a wonderful time to buy Fairfax’s stock (it traded as low as $450/share). The sale of the pet insurance business has resulted in one of Fairfax’s great investment gains ever. The business was worth much more to JAB than it was to Fairfax. Selling it at a premium valuation was the right decision. This is a great example of Fairfax being open minded and opportunistic with its capital allocation framework. The fact they were able to execute the deal in the middle of a bear market (in both stocks and bonds) was also significant – this provided the opportunity to also reinvest the significant proceeds into other assets that were selling at steep discounts and/or support the growth of the insurance subsidiaries in the hard market. This is a great example of the significant benefits that can come from active management - sell an asset at a bubble high price and flip the proceeds into other assets selling at bear market low prices. Test driving a new capital allocator JAB Holdings has a long and successful track record. As part of the deal to sell its pet insurance business, Fairfax agreed to invest $200 million with JAB – a relatively small sum for Fairfax. Fairfax has a long history of doing this. If they like what they see they will likely expand their relationship with JAB in the future - give them more money to invest. This is a great way to find/establish relationships with the best global capital allocators. A Short history of the pet insurance business at Fairfax In 2013, Crum and Forster purchased pet insurer The Hartville Group (based in US) for $34 million. In 2014, Fairfax purchased Pethealth (based in Canada) for $89 million. In August of 2020, Pethealth was folded into Crum and Forster, creating the 4th largest pet insurance business. https://www.cfins.com/pethealth-to-combine-with-crum-will-create-fourth-largest-pet-insurance-enti/ ————— What was the size of the pet insurance business? Based on Prem’s answer to a question on Fairfax’s Q2, 2022 conference call, the annual revenue was $350 million. This was a very small business – when compared to the price it sold for. Mark Dwelle (RBC): “…Another quick numbers question. If I may, on the sale of the Pet Insurance business. Can you give us a sense of kind of a range of about how much revenue you'll be, I guess, selling when that happens? And again, it's just I'm trying to understand as we get into next year, that's revenue that will go away from Crum and to be able to keep track of the run rate there.” Prem Watsa: “…But forex must be $350 million, and it's a Pet Insurance and it's in the United States, mainly, but Canada and then the UK, some, and obviously, we like the price. But JAB is they get a lot of good things from Crum, including data on 30 million pets, and ASPCA support for 16 years. And so we think it's a win-win. We think JAB is going to do extremely well. They're focused on this segment. Not only Pet Insurance, but supplies and pet care hospitals. And we just think they'll -- this company has done very well we've seen what they've done in coffee. And we think over time, they're going to do very well. Fairfax’s Q2 Earnings Conference Call ————— Comments from Prem on the sale of the pet insurance business from Fairfax’s 2022AR. “Late in 2021, Gary McGeddy, who runs the Accident and Health division at Crum & Forster, called Andy to suggest that we sell our pet insurance business as there was much consolidation taking place in the pet industry (insurance, food, hospitals, etc.) and we were perhaps not well placed to benefit from it. After much discussion, Morgan Stanley introduced us to Olivier Goudet, CEO of JAB Holdings. JAB, under Chairman Peter Harf and CEO Olivier Goudet, has a terrific record of consolidating many industries, including coffee and restaurants, so we decided to sell our pet insurance business to them for $1.4 billion, resulting in a net pre-tax profit of $1.2 billion. As JAB has a very impressive record, we decided to invest $200 million in their Fund 5 (which focuses on the pet industry), and also take back a $250 million note with an interest rate of 6% as part of the sale proceeds. We think JAB will be a great owner of our pet insurance business and wish them and all our employees much success.” Fairfax 2022AR More details on the sale of the pet insurance business from Fairfax’s 2022AR. “On October 31, 2022 the company sold its interests in the Crum & Forster Pet Insurance Group and Pethealth, including all of their worldwide operations, to Independence Pet Group and certain of its affiliates, which are majority owned by JAB Holding Company (“JAB”), for $1.4 billion, paid as $1.15 billion in cash and $250.0 in debentures. The company also committed to invest $200.0 in JCP V, a JAB consumer fund. As a result of the sale, the company recorded a pre-tax gain of $1,213.2, inclusive of foreign currency translation losses that were reclassified from accumulated other comprehensive income (loss) to the consolidated statement of earnings, and selling expenses, in gain on sale and consolidation of insurance subsidiaries in the consolidated statement of earnings (an after-tax gain of $933.9), and deconsolidated assets and liabilities with carrying values of $149.1 and $32.0.” Fairfax’s 2022AR ————— Details of Fairfax’s Acquisition of Hartville Group and Pethealth Media release of Fairfax’s acquisition of Hartville in 2013. TORONTO, ONTARIO--(Marketwired - May 15, 2013) - Fairfax Financial Holdings Limited (TSX:FFH) announces the signing of a merger agreement with Hartville Group, Inc., of Canton, Ohio, pursuant to which Hartville will become wholly-owned by Crum & Forster's United States Fire Insurance Company. The transaction, which is subject to customary conditions including regulatory approval, is expected to close early in the third quarter of 2013. Hartville, one of the oldest and largest pet insurance providers in the U.S., provides pet insurance plans under several brand names, including Hartville Pet Insurance and the Petshealth Care Plan. Hartville also is the exclusive strategic partner for pet insurance with The American Society for the Prevention of Cruelty to Animals®. "We are very excited to have Hartville join the Fairfax group," said Prem Watsa, Chairman and CEO of Fairfax. "This acquisition represents a new phase in our existing relationship with Hartville through Fairmont Specialty. As a result of the vertical integration created by this merger, Hartville's pet insurance programs will be uniquely positioned in the industry to generate sustainable growth." Media release of Fairfax’s acquisition of Pethealth in 2014. TORONTO, ONTARIO, August 29, 2014 – Fairfax Financial Holdings Limited (TSX: FFH) and Pethealth Inc. (TSX: PTZ) announced today that they have entered into an arrangement agreement under which Fairfax will acquire all of the outstanding common shares of Pethealth for $2.79 per share in cash. In addition, under the terms of the transaction, Fairfax will acquire all of the outstanding preferred shares of Pethealth for a purchase price of $2.79 per share in cash, plus any dividends accrued but unpaid up to, but excluding, the day of closing. The purchase price represents a premium of approximately 26% to the closing price of Pethealth’s common shares on the TSX on August 29, 2014 and a premium of approximately 69% to the closing price of Pethealth’s common shares on the TSX on August 15, 2014. The purchase price also represents a premium of approximately 69% to Pethealth’s volume weighted average share price for the twenty trading days ending on August 15, 2014 and a premium of 36% to the all-time high price of Pethealth’s common shares prior to such date. Total cash consideration of approximately $100 million will be paid for Pethealth’s common and preferred shares and options. The transaction, which will be completed by way of a plan of arrangement (the “Arrangement”), is subject to certain customary closing conditions, and is expected to close in the fourth quarter of 2014.

Sale of Riverstone Europe – 2019 to 2020 – Improving the Quality of the P/C Insurance Business Below is instalment 3 in my review of asset sales at Fairfax from the past 7 or 8 years. My goal is to provide some additional insights - that should provide a little more colour into the transformation that has happened at Fairfax (especially earnings). And help us better understand what might be coming in the future. Please share your thoughts / insights. First, a quick review: Capital allocation Capital allocation is the most important responsibility of a management team. Why? Capital allocation decisions are what drive the long-term performance of a company and important metrics like reported earnings, growth in book value and return on equity. In turn, these metrics drive the multiple given to the stock by Mr. Market - and finally the share price and investment returns for shareholders. When done well, capital allocation does two important things: Delivers a solid return. Improves the quality of the company. Asset Sales Asset sales are one part of capital allocation that separates Fairfax from its peers. In selling an asset, Fairfax is essentially trading a stream of future cash flows for a lump sum today. Why sell an asset? Sometimes another company - who is willing to pay up - values an asset at a much higher value than you do. There also can be important strategic reasons to sell an asset. Asset sales have been a very important part of Fairfax’s capital allocation framework, realizing significant value for Fairfax and its shareholders over the years. ———— Riverstone Europe – 2019 to 2020 – Improving the Quality of the P/C Insurance Business In two different transactions, Fairfax sold the biggest piece of its run-off business, RiverStone Europe, for announced total proceeds of about $1.5 billion. In December of 2019, Fairfax sold 40% of RiverStone Europe to OMERS for $599 million. In December of 2020, CVC Capital Partners bought 100% of RiverStone Europe - taking out both Fairfax and OMERS. This was a significant sale for Fairfax for a couple of reasons: It dramatically shrunk the size of Fairfax’s run-off business by more than 70%. In turn, the sale likely materially reduced Fairfax’s exposure to long-tail insurance liabilities (a good thing in the high inflation world of today). For P/C insurers, run-off businesses are generally considered to be low quality. Selling RiverStone Europe improved the overall quality of Fairfax’s remaining P/C insurance business. 2019/2020 was also a time when Fairfax was short on cash. Their investment portfolio was underperforming. The timing of this sale was very good. By late 2020, it was clear the hard market in P/C insurance had arrived. Fairfax was aggressively expanding its P/C insurance business - to do this some of the insurance subs would needed more capital. The proceeds from the sales of RiverStone Europe would be put to very good use. Essentially, Fairfax was able to sell the majority of its run-off business for a fair price. And use the proceeds to then aggressively grow its P/C insurance business in a hard market. They were able to shift a significant amount of capital from a low quality business into high quality businesses. Well at least that is what it looks like they did (looking at it today). ————— A short review of Fairfax’s run-off business Fairfax had two run-off operations: The Resolution Group (TRG - US) and RiverStone Europe. Run-off has historically been a very large part of Fairfax’s total P/C insurance business. It looks like the run-off business peaked out at 25% of Fairfax’s common shareholders’ equity at December 31, 2014 - nine short years ago. Today (December 31, 2023), the runoff business represents 1.8%. That is a massive reduction in size. The first big step down (to 14%) happened in 2017 - that is the year Allied World was purchased. The second big step down (to 4%) happened in 2019, when Fairfax sold 40% of RiverStone Europe to OMERS (and RiverStone Europe was deconsolidated). But it is also interesting to note that since 2020, Fairfax has continued to shrink the size of its runoff business (in both absolute and percentage terms). Does this make Fairfax a higher quality P/C company than it was in the past? Yes, I think it does. But I am not an insurance expert. I would love to hear what other board members think. What is runoff? “Run-off portfolio refers to insurance policies or reinsurance contracts terminated but for which the Insurer or the Reinsurer remains liable for until the final settlement and payment of the claims. It may be a business or a territory for which the Insurer or Reinsurer is no longer operating but where contracts or liabilities are still in force.” “Due to these outstanding claims or the potential claims to be notified, the Insurer or Reinsurer must set up reserves; especially for long tail businesses (such as motor liability, medical malpractice, and general third party liability). These risks are highly volatile. Moreover, discontinued run-off businesses must respect Solvency 2 rules. Their management requires resources. Run-off liabilities may require significant equity at the expense of the development of new businesses.” Source: CCR RE https://blog.ccr-re.com/en/what-is-run-off PWC Global Insurance Run-off Survey https://www.pwc.com/gx/en/industries/financial-services/publications/global-insurance-run-off-survey.html Why did Fairfax sell RiverStone Europe? RiverStone Europe was a quality business. It was well run and profitable. But it also wanted to grow - and to do that it needed capital - and a lot of it. But in the years before 2021, Fairfax did not have a lot of excess capital. And with the hard market, any excess capital Fairfax did have was going to go to its traditional P/C insurance business - not runoff. The solution? Sell RiverStone Europe for a fair price. And then use the proceeds to aggressively grow the traditional P/C business in the hard market. And that is what Fairfax has done. What a smart strategic pivot. The sale was also a very good move for RiverStone Europe. It looks like they have been growing like a weed the past couple of years and are very profitable. This sale looks like it was a win for everyone involved. RiverStone International - 2023AR https://www.rsml.co.uk/wp-content/uploads/2024/05/RIHL-Consolidated-2023-Annual-Report.pdf Was it a mistake for Fairfax to sell RiverStone Europe? My view is Mr. Market does not like P/C insurance businesses that have a big run-off business. For a whole bunch of reasons. As a result, it was highly unlikely they were ever going to value a ’good’ run-off business appropriately. We all think Fairfax should trade at a much higher multiple than what it is trading at today. That likely would not happen if the runoff business was still 20 to 25% of shareholders’ equity. Of note, with the sale, Fairfax did give up a significant amount of investments ($2.375 billion at Dec 31, 2019). ————— Details of RiverStone Europe’s Sale To CVC From Fairfax’s 2020AR “Late in 2020 we announced the sale of RiverStone Europe (owned 60% by us and 40% by OMERS) to CVC Capital Partners. RiverStone Europe is an industry leader in run-off insurance services, and CVC’s scale and vision will give RiverStone Europe, under the continued leadership of Luke Tanzer and his management team, the opportunity to further grow the business. Nick Bentley and Luke are also very supportive of this transaction, based on their strong belief that it is the best way for RiverStone Europe to continue to grow and pursue run-off transactions. RiverStone Europe was born out of the acquisition of Sphere Drake Insurance Company. Due to performance issues, in 1999 it was put under the management of RiverStone. For the first ten years RiverStone Europe was kept busy with many of our own run-off portfolios including Sphere Drake Bermuda, Skandia UK, CTR and the Kingsmead Agency at Lloyd’s. By 2008 they drove down the reserves and were down to only 53 staff and $100 million in capital. Instead of closing the operations we pivoted from internal run-off to third party acquisitions. They did their first deal in 2010 and have never looked back. They have completed over 20 transactions bringing in over $5 billion of assets and producing a great return on capital, which allowed us to sell the company at $1.35 billion. RiverStone Europe is a great story of success, first directly under the leadership of Nick Bentley and then for the last twelve years Luke Tanzer. We wish Luke and all employees at RiverStone Europe much success in the future.” “We began equity accounting RiverStone Barbados in 2020, so its investment portfolio is no longer consolidated. Within its investment portfolio are positions of many of the common stocks listed in the common stock holdings table above. For example, RiverStone Barbados owns 9.7 million shares of Fairfax India that are not included in the 41.9 million shares of Fairfax India we show in the common stock holdings table (combining both would give us 51.6 million shares or 34.5% ownership). The same can be said for a number of other holdings such as Atlas, BlackBerry, Commercial International Bank and Recipe. As part of the sale of RiverStone Barbados to CVC, we have the opportunity to purchase these securities over the next two years, at December 31, 2019 prices.” “At our RiverStone run-off operations, led by Nick Bentley, while not recently active in U.S. run-off acquisitions (other than some small very successful captive insurance deals), the team has been very busy focusing on our U.S. legacy reserves, especially asbestos claims. Although we needed to strengthen reserves again in 2020 (about half of the previous year), the team continues to deliver significant value and savings from its dedicated focus and best in class experience – I can assure you these reserves are in good hands. As mentioned previously, late in 2020 we announced the sale of our remaining interest in RiverStone’s European business to CVC Capital Partners. Luke Tanzer and his entire team at RiverStone Europe had a very busy year, closing five run-off deals. They are excited to continue to expand in the very active UK run-off market, and again, we wish them all the best going forward.” ———— More information from Fairfax’s 2020AR Sale of RiverStone Barbados to CVC Capital Partners "On December 2, 2020 the company entered into an agreement with CVC Capital Partners (‘‘CVC’’) whereby CVC will acquire 100% of RiverStone (Barbados) Ltd. (‘‘RiverStone Barbados’’). OMERS, the pension plan for Ontario’s municipal employees, will sell its 40.0% joint venture interest in RiverStone Barbados as part of the transaction. On closing the company expects to receive proceeds of approximately $730 for its 60.0% joint venture interest in RiverStone Barbados and a contingent value instrument for potential future proceeds of up to $235.7. Closing of the transaction is subject to various regulatory approvals and is expected to occur in the first quarter of 2021. Pursuant to the agreement with CVC, prior to closing the company entered into an arrangement with RiverStone Barbados to purchase (unless sold earlier) certain investments owned by RiverStone Barbados at a fixed price of approximately $1.2 billion prior to the end of 2022." Contribution of European Run-off to a joint venture "On March 31, 2020 the company contributed its wholly owned European run-off group (‘‘European Run-off’’) to RiverStone (Barbados) Ltd. (‘‘RiverStone Barbados’’), a newly created joint venture entity, for cash proceeds of $599.5 and a 60.0% equity interest in RiverStone Barbados with a fair value of $605.0. OMERS, the pension plan for municipal employees in the province of Ontario, contemporaneously subscribed for a 40.0% equity interest for cash consideration of $599.5, based on the fair value of European Run-off at December 31, 2019 pursuant to a subscription agreement on December 20, 2019, and entered into a shareholders’ agreement with the company to jointly direct the relevant activities of RiverStone Barbados. At closing on March 31, 2020, the company deconsolidated the assets and liabilities of European Run-off from assets held for sale and liabilities associated with assets held for sale on the consolidated balance sheet respectively, which included European Run-off’s unrestricted cash and cash equivalents of $377.8, and commenced applying the equity method of accounting to its joint venture interest in RiverStone Barbados. The company recorded a pre-tax gain on deconsolidation of insurance subsidiary of $117.1 in the consolidated statement of earnings, comprised of a gain of $243.4 on the disposal of 40.0% of European Run-off and a gain of $35.6 on remeasurement to fair value at the closing date of the 60.0% of European Run-off retained, partially offset by foreign currency translation losses of $161.9 that were reclassified from accumulated other comprehensive income (loss) to the consolidated statement of earnings. The deconsolidation of European Run-off increased the company’s non-controlling interests by $340.4 at March 31, 2020 as RiverStone Barbados holds investments in certain of the company’s subsidiaries as described in note 16."

@glider3834 I am looking forward to seeing what the June 30 share count is when Fairfax reports Q2 results. If they keep the current pace of buybacks up there is a good chance they will reduce effective shares outstanding by +1 million in 2024 to 22 million (or less). Fairfax historically only buys back stock when they think it is trading at a cheap valuation. And i think they can value the company pretty well. I continue to think the piece that investors are getting wrong is the quality of the insurance AND the quality of the investment portfolio (much improved and best in company’s history) - and the multiple that warrants. But Fairfax gets it - hence why they continue to buy back stock hand over fist in 2024. Buying back stock at current prices is like shooting fish in a barrel (from a capital allocation perspective).

My oldest daughter (24) is in Toronto visiting a couple of fiends. What is she doing? My younger daughter's (21) response (at the bottom) cracked me up. Fairfax is definitely a family affair in our house PS: my kids TFSA's are 100% in Fairfax (since they were opened a couple of years ago). They are very happy shareholders (they look at their account balances).

Below is instalment 2 in my review of asset sales at Fairfax from the past 7 or 8 years. My goal is to provide some additional insights - that should provide a little more colour into the transformation that has happened at Fairfax (especially earnings). And help us better understand what might be coming in the future. Please share your thoughts / insights. First Capital – August 2017 – The Amazing Mr. Athappan First Capital provides many outstanding examples of what Fairfax does well as a company. But three really stand out: The incredible power of partnering with outstanding people – and letting time and compounding work its magic. The benefit of being opportunistic – sometimes a buyer is willing to pay a truly obscene price for an asset. International focus – In 2001 Fairfax seeded ICICI Lombard (India). In 2002 Fairfax seeded First Capital (Singapore). Both have become home run investments for Fairfax and its shareholders. ————— In 2017, Fairfax sold First Capital for $1.7 billion and booked a $1 billion gain after-tax. The amount Fairfax received from this sale was a complete shocker at the time. First Capital was sold for more than 3 times book value. As part of the deal, Fairfax also established a strategic partnership with Mitsui Sumitomo, making a great deal even better. At the time, First Capital was the largest P/C insurer based in Singapore. In 2016 it had shareholders’ equity of $473 million and gross premiums written of $384 million. The CR was 86.4% and underwriting profit was $41 million. Fairfax’s initial (and only) investment in First Capital was $35 million in 2002. This investment had a CAGR of about 30% over a 15-year period. Wow! The bottom line was Mitsui Sumitomo was willing to pay a king’s ransom to become the largest P/C insurer in Singapore. 2017 was also a time when Fairfax was short on cash. Their investment portfolio was underperforming. And they were at the tail end of their aggressive international P/C insurance expansion - their $4.9 billion purchase of Allied World closed in July 2017. The sale of First Capital was announced in August of 2017. Importantly, First Capital was sold at more than 3 times book value. Allied World was purchased at 1.3 times book value. Over the past 7 years, Allied World has become a wonderful acquisition for Fairfax. What was First Capital such a big success story for Fairfax? The amazing Mr. Athappan. Fairfax picked the right partner way back in 2002. Mr. (Ramaswamy) Athappan was an incredible leader/partner/entrepreneur. Not only did he build First Capital from scratch, he also has his fingerprints all over Fairfax’s many insurance acquisitions in Southeast Asia over the past 15 years. After the sale of First Capital, Mr. Athappan (and his son Gobi) continued to manage Fairfax’s diverse collection of P/C insurance holdings in Southeast Asia. Of interest, the purchase of Singapore Re (the 72% Fairfax did not already own) for $103 million in 2021 is looking like it was timed perfectly, right before the onset of the hard market in reinsurance. Unfortunately, Mr. Athappan passed away in May of 2024 at the age of 78. In June 2024, Mr. Athappan’s son, Gobi, was appointed Chairman and CEO of Fairfax Asia. The Athappan gift keeps on giving to Fairfax and its shareholders. Fairfax Asia is a significant platform for Fairfax in a very important region that should continue to grow nicely in the coming years. Mr. Athappan was one of the founding members of the $1 billion club at Fairfax - individuals who have built enormous value for Fairfax and its shareholders over the years. ————— Mr. Athappan’s legacy: Fairfax Asia ————— Link to Mitsui Sumitomo’s presentation on acquisition of First Capital in August 2017. https://www.ms-ad-hd.com/en/ir/ir_event/event/presentation/main/06/teaserItems1/00/linkList/0/link/20170824_info_e.pdf ————— Quote from Fairfax’s press release on May 23, 2024. “Over the past 22 years, Mr. Athappan has been a driving force in developing Fairfax’s insurance operations in Southeast Asia. He made invaluable contributions to the success of Fairfax and Fairfax Asia over these years through his leadership, mentorship and guidance. “Mr. Athappan was an exceptional leader with an incredible track record of success. He was a trusted and valued colleague, but most importantly, he was a very good friend of mine and many others here at Fairfax,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax. “To his family members and loved ones, we send our deepest condolences on the loss of a very special person.” ————— Comments from Prem about the sale of First Capital from Fairfax’s 2017AR. "...Mr. Athappan has had an incredible record with us in building First Capital. We provided $35 million in 2002 to let him establish First Capital; 15 years later, with no additional capital having been added, he had grown First Capital to be the largest P&C company in Singapore and with the Mitsui Sumitomo deal, gave us back $1.7 billion. That’s a compound rate of return of approximately 30% annually. A fantastic track record by Mr. Athappan!” Prem explains why Fairfax agreed to sell First Capital. “For the past two years, Mr. Athappan has come to me saying that he had taken First Capital as far as he could in the commercial property and casualty business in Singapore and that he needed a partner like Mitsui with a brand name to build the personal lines business. I refused him twice as I really did not want to sell First Capital. His continued persistence, his position as the founder of the company, and the fact that he would continue to run Fairfax Asia and First Capital and we would have a 25% quota share in the business of First Capital going forward persuaded us, with unanimous support from our officers and directors, to form a global alliance with Mitsui Sumitomo Insurance Company and sell First Capital to them. We worked very closely with Matsumoto san, the Senior Executive Officer of International Business of Mitsui Sumitomo, and his team, and the partnership is going very well. Through our cooperation agreement with Mitsui Sumitomo, we have been working together on a number of fronts including opportunities on reinsurance, shared business and products and innovation to name a few. We are very excited to be a partner with Mitsui Sumitomo. Total proceeds from the sale of First Capital were $1.7 billion, resulting in an after-tax gain of $1.0 billion. I do want to emphasize that we agreed to this global alliance and sale only because of its truly unique circumstances and we do not see this being repeated! Our companies are not for sale, period!”

Did Fairfax not sell Easton to Rawlings? If it can happen in baseball why not hockey? https://sgbonline.com/rawlings-to-purchase-easton/ Transaction Details (Easton sale to Rawlings) The transaction is subject to the satisfaction of customary closing conditions, including the receipt of U.S. regulatory clearance. In 2018, Newell Brands Inc. sold Rawlings to a fund managed by Seidler Equity Partners (SEP), a private investment firm based in Marina del Rey, CA, for $395 million. Major League Baseball co-invested in the purchase. Rawlings, founded in 1887 and based in St. Louis, MO, comprises the Rawlings, Miken and Worth brands. Peak Achievement Athletics was acquired by two private equity groups, Sagard Holdings Inc. and Fairfax Financial Holdings, in bankruptcy proceedings in February 2017. The company is the parent of Bauer Hockey, Easton Baseball/Softball, Cascade Lacrosse and Maverik Lacrosse. Peak Achievement Athletics. The Easton hockey and cycling businesses are owned by other entities.

Over the next 2 weeks my plan is to review a number of Fairfax's asset sales from the past 7 or 8 years. My view is Fairfax continues to be a misunderstood company. What to do? Educate investors. Explain to them what has actually been happening at the company over the past 7 years. This will also provide much needed colour regarding the transformation that has happened at Fairfax (especially earnings). And help us better understand what might be coming in the future. Please share your thoughts / insights. Future posts will review the following sales: First Capital, RiverStone Europe, Pet Insurance, Bank of Ireland, Corporate Bonds in late 2021 and Resolute Forest Products. Let me know if there are other 'sales' from the past 7 or 8 years that should be included/would be interesting to dig into. The focus is to provide more information on the breadth and quality of the decision making that has been happening at Fairfax for a long time now. ---------- ICICI Lombard – 2017 to 2019 – A Strategic Pivot in India ICICI Lombard presents many outstanding examples of what Fairfax does well as a company: 1. How strategic they are in their thinking. Back in 2001 who was thinking about investing in India? Fairfax was. 2. How long term they are in their thinking. This investment did very little (return wise) for the first 10 years of its existence. 3. The importance of picking the right partner. Fairfax nailed this by choosing to partner with ICICI Bank. 4. Having a decentralized structure. Fairfax was not actively involved in operating the company. But we have an added and unexpected twist: 5. The ability to pivot strategically when the facts change. What Fairfax accomplished with its P/C business in India over the past 7 years has been nothing short of epic. They completely disrupted what was a very successful situation/business model. Clayton Christensen (author of ‘The Innovator’s Dilemma’) would be proud. In 2016/17, Fairfax abruptly changed the strategic direction of their P/C insurance business in India. And they were successful. They have created billions of dollars in shareholder value in the process. But more importantly, they have secured their future in the growing P/C insurance market in India. Given the growth that is expected from the Indian economy in the coming decades, that is a big, big deal. What happened? Beginning in 2017, Fairfax executed a brilliant strategic pivot - away from longtime partner ICICI Lombard and to startup Digit. This was a very strategic, calculated, rational, gutsy, high risk / high reward decision. What was the financial impact? From 2017 to 2019, Fairfax sold their entire 34.9% stake in ICICI Lombard for proceeds of about $1.6 billion. Between realized gains and share of profit of associates it looks to me like they generated a total return of about $1.3 billion pre-tax (I think minimal tax was paid due to the tax jurisdictions where the ICICI Lombard positions were held). In 2017, Fairfax seeded Digit. At December 31, 2023, Fairfax’s Digit position (49%) had a cost basis of $154 million and a fair value estimate of $2.265 billion = CAGR of 62%. In Q2-2024 Digit completed its IPO in India, so we should get a valuation update when Fairfax reports Q2 results. The bottom line is Fairfax harvested gains of around $1.3 billion (from the sale of ICICI Lombard) and have generated additional gains of +$2 billion (in Digit). That is $3.3 billion in shareholder value creation in the last 7.5 years. And they own a significant stake/control position in one of the fastest growing P/C insurers in India. The timing of Fairfax’s sale of ICICI Lombard is also important – 2017 and 2019. Total proceeds were $1.6 billion. Unlike today, this was a time when Fairfax needed the cash. Fairfax commented that some of the proceeds from the 2019 sale would be used to support the insurance subsidiaries grow in the hard market (that was just getting started). Bottom line, Fairfax was able to put the proceeds from the sale of ICICI Lombard to good use. Why did Fairfax pivot from ICICI Lombard to Digit? The facts changed. Fairfax’s partnership with ICICI Bank was the perfect fit from 2001 to 2016. But not in 2017. ICICI Bank wanted to take ICICI Lombard public - and they didn’t want to reduce their ownership position to below 55%. To go public, at least 25% of the shares needed to be owned by retail investors/public. This meant Fairfax would have to reduce its ownership in ICICI Lombard from 34.9% to 20%. Going public would reduce Fairfax’s ownership in ICICI Lombard by 42%. Fairfax is a P/C insurance company. They were looking to expand their P/C insurance business/exposure in India - not reduce it significantly. What was the solution? Seed startup P/C insurer Digit - and partner with Kamesh Goyal. Importantly, Fairfax would have a control position in Digit – which is something they never had with ICICI Lombard. This move would require Fairfax to reduce their ownership in ICICI Lombard to 9.9%. India does not want cross ownership of P/C insurance companies. If you own a large position in one, the max position you can have in a second is 9.9%. ———— A short history of Fairfax’s investment in ICICI Lombard Fairfax began its insurance journey in India in 2000. That was the year the government in India opened the property and casualty insurance industry to foreign investment. Fairfax partnered with ICICI Bank, a large private bank in India, and created a joint venture called ICICI-Lombard. Fairfax invested $10 million for an interest of 26% in the new venture, the maximum allowed by Indian law at the time. ICICI-Lombard experienced rapid growth in the years that followed and by 2006, they had become the largest private general insurance company in India with a 12.5% market share. Over the years Fairfax made numerous capital infusions to support the growth of ICICI-Lombard and maintain their ownership at 26%. In 2015, the Indian government allowed foreign ownership in insurance companies to increase to 49%. That year Fairfax purchased an additional stake of 9% in ICICI-Lombard from ICICI Bank for $234 million; this increased Fairfax’s ownership in ICICI-Lombard to 34.9%. ————— Comments from Prem on ICICI Lombard from Fairfax’s 2017AR. “ICICI Lombard is an Indian insurance company that we began in 2001 from scratch as a minority partner with ICICI Bank. Over the following 16 years, ICICI Lombard went on to become the largest non-government-owned property and casualty insurance company in India. Until fairly recently, our ownership interest was limited to 26% by government mandate. About three years ago, the government allowed the foreign ownership to go to 49%, which resulted in our going to 35% by buying 9% from ICICI Bank. Since then, given ICICI Lombard’s intent to go public, ICICI Bank wanting to control ICICI Lombard with at least 55% ownership, and Indian law requiring that the public own at least 25% of a public company, our ownership would be reduced to a mere 20%. As property and casualty insurance is our core business and we are very optimistic about the growth prospects in India, and as Indian law does not permit an ownership of 10% or more in more than one insurance company, we agreed with ICICI Bank that we would reduce our interest in ICICI Lombard to below 10% so that we could start our own property and casualty company in India, Digit. ICICI Lombard is a great company led by an exceptional leader, Bhargav Dasgupta, and we wish them much success in the years to come. We have thoroughly enjoyed our partnership with ICICI Bank and its CEO Chanda Kochhar and we wish them also much success in the future.” “The reduction in our equity interest in ICICI Lombard from 35% to 9.9% resulted in cash proceeds of $909 million plus our continuing to own 45 million shares of ICICI Lombard worth $450 million at the IPO (now worth about $550 million) resulting in an after-tax gain of $930 million.” Comments from Prem on Digit from Fairfax’s 2017AR. “As I mentioned in the section on ICICI Lombard earlier, we are very excited to welcome Kamesh Goyal and his more than 240 employees at Digit to Fairfax. Kamesh built Bajaj Allianz from scratch to be the second largest non-government-owned P&C company in India and then spent a total of 17 years at Allianz, the last five years in Munich operating at the highest levels. He is building a digital property and casualty insurance company in India, which was created in December 2016 and has begun actively selling policies. We are very excited about the prospects of Digit.” From Fairfax’s 2017AR. On July 6, 2017 the company sold a 12.2% equity interest in ICICI Lombard General Insurance Company Limited (‘‘ICICI Lombard’’) to private equity investors for net proceeds of $376.3 and a net realized investment gain of $223.3. On September 19, 2017 the company sold an additional 12.1% equity interest through participation in ICICI Lombard’s initial public offering for net proceeds of $532.2 and a net realized investment gain of $372.3. The company’s remaining 9.9% equity interest in ICICI Lombard was reclassified from the equity method of accounting to common stock at FVTPL, resulting in a $334.5 re-measurement gain. Comments from Prem on the exit from the ICICI Lombard investment from Fairfax’s 2019AR. “We sold our last remaining position in ICICI Lombard in 2019 for $729 million. As I mentioned to you in our 2017 annual report, we helped build the largest private property and casualty company in India with our name, Lombard, very much continuing in the future. It has been a very profitable investment for us and we wish the management team, led by Bhargav Dasgupta, much success in the future.” From Fairfax’s 2019AR. “During 2019 the company sold its 9.9% equity interest in ICICI Lombard for gross proceeds of $729.0 and recognized a net gain on investment of $240.0 (realized gains of $311.2, of which $71.2 was recorded as unrealized gains in prior years), primarily related to the removal of the discount for lack of marketability previously applied by the company to the traded market price of its ICICI Lombard common stock.”

I am doing an update of Fairfax's investment in ICICI Lombard. In doing my research, I came across this old thread. What have we learned over the past 5 years? Back in 2017, Fairfax nailed the pivot of their P/C insurance business in India - in hindsight, the move was exceptional. It has generated billions in shareholder value. Probably more importantly, it secured a bright future for Fairfax's P/C insurance business in India for the coming decades. When Fairfax reports Q2 results we should get an update on what their stake in Digit is worth. Digit is trading up nicely since successfully completing their IPO. @petec you were spot of with your comments back in 2019. Well done.

@TB Regarding the risks of investing in India, (you point to one) if you are that uncomfortable (you sound quite concerned) then you probably should just stay clear of Fairfax. I try and deal in facts and fundamentals. The successful Digit IPO happening is a fact. That suggests to me that the current tensions between the Canadian and Indian government are not impacting Fairfax. Now if we get new information/facts that suggest otherwise I will update my perspective/view. But to speculate and then try and layer that speculation onto an investing thesis... well investing is hard enough - good luck with that. Where are interest rates going to go? How bad will hurricane season be? Will a key person at Fairfax get hit by a bus? The things you could worry about is large. But that is true for every investment out there. In terms of diluted shares, your 25 million number is the weighted average for 2023. The 24,352,667 number in my table is my guess of where diluted shares might be at May 10, 2024. I have 2023 year end diluted shares at 24.98 million. But as is the case with everything I share, people need to do their own due diligence - and make sure the numbers are accurate. I am human. (Ask my wife )

@TB Your first question is very timely. But I am going to answer the second question first: "(b) India exposure - is this a risk given the political tensions between Canada and India governments?" Your guess is as good as mine. It didn't seem to affect the Digit IPO. It seems like tensions might be easing. We will have our answer in a couple of years. @TB What do you think? Does it worry you? If so, in what way? Your first question is one I have been thinking more about. "(a) Looks like the share awards and diluted shares are going up year on year; should the investments be marked to diluted shares outstanding." I recently updated my share tracker to better understand what has been happening with the diluted share count (it is attached below). The short answer is, yes, using diluted shares is likely a better way to calculate per share metrics. Minority interests should also likely be included as well - I am pretty sure @glider3834 has pointed this out before. I use 'effective shares outstanding' in pretty much everything I do because that tends to be how Fairfax looks at things (and I have built my models years ago using their stuff as a starting point). Bottom line, investors need to do the analysis (and uses a share amount / minority interest) in a way that works for them. Dilution really jumped in 2020 and 2021 when Fairfax's stock price went insanely low. Dilution the past 2 years appears to have slowed quite a bit. @TB What do you think? Should diluted share count be used everywhere? Regarding diluted share count I would also love hearing what other board members think. I am not an accountant. And I have never seen details of how Fairfax's share based compensation program is structured (how the awards are made; what the vesting period is etc). I think it is long term in nature. I think Fairfax also has an employee stock purchase plan - my guess is Fairfax probably has a sweetener kicks - but again, I do not know the details (if there is a sweetener, is there a vesting period etc).

@73 Reds Thank you for taking the time to post. I like theory. But I like to live in the real world - and getting 'real world' examples/frameworks that others use to achieve 'success' is priceless. @gfp I want to expand on something you said: "I'm a firm believer that the tax bill can make people better long term investors who might be otherwise tempted to meddle." I agree that this is probably true for lots of people. I also think the more simple a person can keep the investing process the better. Not having to think about taxes can be a big benefit. Canada today has an enormous number of tax free accounts (TFSA, RRSP, FHSA, RESP). For younger Canadian board members (or older board members with kids/family members) there is a clear path to building enormous wealth - and that is fully utilizing the gift that the Canadian government has decided to provide. The reason I bring this up is because over my investing career I have not been a 'buy and hold' type of investor. Being able to compound wealth in tax free accounts for the past 20 years has been a game changer for me and my family. Now I have been holding a very concentrated position in Fairfax since the end of 2020 and I think the company has a bright future - so perhaps Fairfax will become my first long term hold. Most of my Fairfax position today is held in my taxable and TFSA accounts (the accounts I do not want to trade in). ---------- Buffett greatly admired Walter Schloss. Schloss estimated his average holding period was about 4 years. 'Why we invest the way we do.' https://thetaoofwealth.wordpress.com/wp-content/uploads/2016/01/why-we-invest-the-way-we-do-by-walter-schloss.pdf A Superinvestor of Graham-and-Doddsville http://www.fordhamgabellicenter.org/wp-content/uploads/2021/12/Walter-Schloss.pdf What really struck me reading 'Why we invest the way we do' was how your early life experiences/set backs often sets/highly influences your investing framework for the rest of your life. It helps me better understand young family members (who have grown up in a world of plenty).

Fairfax's Equity Holdings – Size Ranking at June 30, 2024 Fairfax has a total investment portfolio of about $66 billion, with the split roughly as follows: In this post we review the holdings in the equities bucket. To value a holding, we normally use current market value, which is the stock price at June 30, 2024, multiplied by the number of shares Fairfax owns. For private holdings we use Fairfax’s latest reported market/carrying value, which was March 31, 2023. Derivative holdings, like the FFH-TRS, are included at their notional value. Additional notes: Mytilineos * : includes exchangeable bonds John Keells * : includes convertible debentures What holdings are missing from my list below? AGT Food Ingredients and newer purchase Meadow Foods (2023) are two that come to mind. Ok, let’s get to the fun part of this post. What are some of the key take-aways? 1.) Fairfax has a pretty concentrated portfolio The top 3 holdings make up 35% of the total. The top 10 holdings make up 58% of the total. 2.) Steady improvement in quality/earnings power of the top holdings over the past 6 years: What happened? Since 2018, new money has been invested very well by Fairfax (FFH-TRS, buying more of existing holdings) Some high-quality businesses have continued to execute well (Fairfax India, Stelco) Some businesses, after years of effort, have turned around (Eurobank). Some businesses that were severely affected by Covid have emerged stronger (Thomas Cook India, BIAL) Some businesses were restructured/taken private (Exco, AGT) and are now performing much better. Some low-quality businesses were sold/merged/wound down (Resolute Forest Products, APR, Fairfax Africa). Some low-quality businesses have shrunk in size due to poor results (BlackBerry, Farmers Edge, Boat Rocker). The important point is the overall quality of Fairfax’s largest holdings have been steadily improving – as a result, after years of effort, their earnings power has increased dramatically. This should result in higher overall returns from the equity portfolio in the coming years. 3.) A slow shift away from mark-to-market holdings. Today, less than 50% of the total portfolio is held in the mark-to-market bucket. Back in 2019, my guess is closer to 80% of the total portfolio was held in the mark-to-market bucket. This shift should have the effect of smoothing Fairfax’s reported results moving forward, especially during bear markets. As a reminder, in Q1 of 2020, Fairfax had $1.1 billion in unrealized losses (when the equity portfolio was much smaller). As more holdings shift to the ‘Associates’ and ‘Consolidated’ buckets, it is the trend in underlying earnings at the individual holdings that will matter to Fairfax’s reported results and not a stock price - earnings are much more consistent than a stock price. Lower volatility in reported earnings should help Fairfax’s valuation (as volatility is considered bad by Mr. Market). This shift will also start to create a Berkshire Hathaway problem for Fairfax: over time book value will become an increasingly poor tool to use to value Fairfax. Why? The value of the ‘Associates’ and ‘Consolidated’ companies captured in book value each year will fall short of the increase in their true economic value. Look at Fairfax's top 5 holdings; 4 of them are showing an excess of market value over carrying value of $1.7 billion. Thomas Cook India has a market value of $871 million and a carrying value of only $214 million (excess od MV over CV is $657 million). I wonder when Fairfax will start unlocking some of this significant hidden value. Bottom line, Fairfax looks very well positioned today. But the story gets better: like the past 6 years, I expect the quality of Fairfax's equity holdings to continue to improve in 2024. That will improve future returns. And, like a virtuous circle, the cash flows will be re-invested growing the companies even more.