Viking

‘One of the reasons that FFH's share price is in the shit-hole might be that market participants have lost confidence in Prem's decision making’ I totally agree! i think i have consistently said this is a big watch-out for me with Fairfax. Some really bad past decisions. Bad communication. If the stock was overvalued this would be enough to keep me out. If the stock was fairly valued this might be enough of a reason to keep me out. But with the stock dirt cheap - and my read that they have been making better decisions for a couple of years now - i am happy to own the shares. Has the decision making the past few years really gotten better (my reading of the tea leaves today)? Time will tell. I will keep an open mind. And if Fairfax starts to fall back into their old ways i will respond accordingly (likely exit). It just cracks me up that no one is giving them credit for the insurance businesses they have today. Or that we are in a hard market. Or Atlas. Or Stelco. Or India. All the fixes made to the many, many problems over the past 3-4 years. Does no one else see this? Regarding RFP: if the US has a housing boom (very likely with interest rates so low) then lumber pricing is going to remain well above long term averages. If lumber prices stay high RFP will print money given the pivot they made to lumber the last couple of years. Bottom line, i understand why Fairfax still owns RFP. Look at the decisions management has made at RFP the past few years. They have done exceptionally well. Commodity super cycle? There are very good reasons to want to be patient with RFP right now. But to call management negligent because they did not sell at $18 just makes no sense to me. (And let’s not get started on how you exit a position and realize only top $ when you own better than 10%.) We could have almost the exact discussion on Stelco. Man, why did they not sell out at CAN$50? Absolute dummies. And on Blackberry i have posted numerous times on why i though they should have unloaded Blackberry. When i read the Q1 release that was one of the big things i was looking for. But they still own it. Prem’s communication regarding Blackberry has been poor (i have read it all). So shareholders really are left to speculate. Not ideal. But i have reconciled myself to the fact they still own the company. And that they will monetize Blackberry at some future date. Hopefully we get some good news on Blackberry with the patent sale. In the meantime, what they do with Blackberry is not central to my thesis of why i think the company is cheap. So i do not let it become a distraction when i value Fairfax as a company. We are 11 months into the cyclical/value bull market (that group did not get going until Nov of 2020). With a large swath of companies peaking out in valuation in March/April. PERHAPS the bull market in these stocks has another leg higher. Maybe we actually get a multiyear run in cyclical/value? Fairfax’s equity holdings have performed pretty well the past 9 months… perhaps there is more upside to come Fairfax is getting roasted for bad buy decisions and now for not selling. The fact they have added $6 billion in value for shareholders in the last 9 months? Over $200/share? Doesn’t matter? Because they still own BB and RFP?

1.) ‘the past matters’. Yes it does. But ‘come on’ the Blackberry purchase was 8 or 9 years ago. Seriously? i have laid out in great detail all the many things Fairfax has done over the past 3 or 4 years to fix past mistakes. And where they have been putting new money to work. Yes, the past matters. But the decisions made the past 3 or 4 years matter way more than something they did almost a decade ago. So let’s start with the very recent past. I purchased my big slug of shares in Q4 of last year. So what have earnings been at Fairfax over the past 3 quarters (since purchase)? Net earnings. Change in Assoc (not in net earnings) Q4 $909 million. $32/share. $250 million Q1. $806 million. $29/share. $700 million Q2. $1.2 billion. $43/share. $800 million Total. $2.9 billion = $104/share. $1.75 billion = $67/share We also know a gain on Digit of $1.4 billion gain ($47/share) is coming. So add it all up: $6 billion ($218/share) in value creation for shareholders in just the last 3 quarters. So, yes, i love how this company IS PERFORMING. Just a friendly reminder… the stock is trading today at about $410. But the story gets even better. If you are looking forward. And you are interested in understanding what earnings will be in the future. Fairfax is actually an insurance company. (Not sure if you knew this with all the posting from you about the big Blackberry purchase 10 years or so ago). A big one. And we are in a hard market. And have been for a little over 2 years. We can expect that the current hard market will benefit Fairfax in a big way in future years - top and bottom line. Insurance hard markets are a BIG deal; they happen very infrequently (maybe every 15 years or so). But it takes time for the benefit to show up in the financial results (i know, i know, that future results thing that i keep bringing up that you find so annoying). And despite the huge run up the past 3 quarters the equity portfolio (as a whole) is still cheap (using June 30 marks). Atlas, about 20% of the equity holdings was $14.25. Cheap! Eurobank was EUR 0.85/share. Now i can hear you whining about Eurobank. I have a question… have you actually done the deep dive on Eurobank? Looked at financials, followed the multi year restructuring, listened to management team on a couple of calls, tried to figure out what GDP growth in Greece might be etc etc? And then put it all together to try and figure out what they will actually earn in 2022, 2023 and 2024? (Remember, i don’t give a shit what Eurobank earned in 2019, 2018, 2017, 2016, 2015…) My guess is your analysis of Eurobank probably involved ordering Calamari and a beer at your favourite pub. (That comment made me hungry and thirsty Bottom line, their investment portfolio is well positioned. And VERY well positioned should we see another leg up in the reopening trade (as the world gets to the other side of the Delta virus). Now do i give a shit what earnings were at Fairfax in 2019, 2018, 2017, 2016, 2015, 2014, 2013? NO! Because, as i said, i bought my core position in Q4 of last year. What i REALLY care about is what earnings are going to come in at for 2021, 2022, 2023, 2024. Future earnings are what matters. Now i realize i have only responded to the first of your 4 points; but i think this post is already too long so i am going to stop here (for now).

glider, my one big wish for Fairfax is that Prem stops talking in public (other than saying a few words and kissing some babies). I find when he talks too much on any topic he inevitably says something that leads to misunderstandings. Its like what he says, what he thinks he says and what people think they hear are three different things. And he has been doing it for as long as i have followed Fairfax (close to 20 years). He has lots of strengths… look at the company he has built and the people he has assembled. Impressive. But ‘less is more’ when it comes to Q and A with analysts/public

I view Fairfax as a turnaround. They have been cleaning up past errors for at least the past three or four years. As i have done my deep dive into the various equity holdings this is a recurring theme. Most of the equity holdings are now positioned pretty well. Eurobank. Fixed (merged with Grivalia, dramatically reduced non-performing loan portfolio etc). APR. Fixed (sold to Atlas). Fairfax Africa. Fixed (I think); merged with Helios. EXCO. Fixed (restructured). Boat Rocker. IPO (can now execute growth strategy). Farmers Edge. IPO (can now execute growth strategy). Carillion/Dexterra. Reverse takeover of Horizon North (executing growth strategy). Toys R Us retail operations. Fixed (sold); now just own real estate. RFP. Fixed (aggressive pivot to lumber). BB. Pivot to software (cars and cybersecurity) and restructure debentures ($6 strike). Other equity holdings have continued to chug away. Their various Indian holdings (direct and through Fairfax India) are on fire. And new purchases (the past couple of years) have been good to very good. Atlas has already been a grand slam home run and it is just getting started; and it is now almost 20% of the whole equity portfolio. Stelco is looking like a home run. I think the Carillion purchase is going to be a good one. Buying 30% of Eurolife from OMERS is a good decision. Will all the equity holdings perform well from here? No, of course not. Farmers Edge looks shaky to me. But taken as a whole, the Fairfax equity portfolio looks better positioned than any time in the last 7 or 8 years (perhaps longer). At the same time the insurance side of the business is performing very well. Digit? Absolutely smoking. And all some people want to talk about is Blackberry? Its become a fetish of sort for some people (especially when the name ‘Prem’ is inserted into the same sentence). Was it a bad purchase 7 or 8 years ago? Yes. Is it going out of business? No. Is it a good or bad holding today at US $9 or $10? No idea. It is in a bunch of technology sweet spots. Is it in the early innings of a turn around? Yes. Will it work out? No idea. Will Fairfax sell it? No idea, but probably at some point (just like all the other equity positions Fairfax owns). My point is Blackberry no longer matters all that much to the overall Fairfax thesis. Yes, it is a large holding. But it steadily falling as a percentage of the overall investment portfolio. A lot of good things have been going on at Fairfax for a couple of years now. On balance, the company is very well positioned to deliver solid returns for investors.

The problem Fairfax India (and Fairfax) have right now is both management teams are delivering significant earnings. BV is jumping. And both companies are positioned to continue to post strong results moving forward. They have been executing well for years and we are just now starting to see the results (improving profitability and jump in BV). And the big ‘problem’ for investors is Mr Market is not paying attention. So the stock prices of both companies are trading at an ever decreasing multiple to BV. It is getting comical. The good news is Mr Market will eventually come to understand how crazy cheap the shares are. The move higher will be fast and furious. Greed will replace fear. The narrative will reverse. Prem will add a new chapter to his book (like an overage boxer who stages a comeback and wins another title - ‘surprising’ everyone in the process). This is just how the stock market works PS: and to be honest, i am really enjoying the whole ‘they are making money hand over fist and it is not being priced into the stock yet’ problem. That is called a first class problem.

Bearprowler, i fully agree that Fairfax needs to find a replacement for Prem for the conference calls. That is simply not one of his strengths. i love the idea of an investor day. Fairfax is complex and this would help greatly. Andy can talk insurance (with managers from operating subs). Someone other than Prem can talk investing: stocks and fixed income. Prem of course would get the first 15 minutes And they can walk everyone through the ‘new Fairfax’.

Xerxes, i think the core problem with Fairfax has been the extremely poor performance over the past 7-8 years. That then puts the spotlight on management. And rightly so. And all the warts get magnified. Brookfield owned a significant % of Norbord (OSB) shares since 2004. That holding period is a lot of lumber cycles. Yes, the West Fraser acquisition of Norbord this year gave them the opportunity/liquidity to unload their whole position. But how many previous ‘peaks’ in OSB pricing to unload their shares did they miss over the past 15 years? Was Brookfield Property Partners not a brutal investment for investors for many years? With Brookfield buying them back recently on very favourable terms for the parent? Is Brookfield not a wickedly complex organization? Are its financials not considered to be a black box. Is it not very promotional with its presentations? Yes, the shares of BAM are doing very well. And the narrative today surrounding Brookfield is also very positive. When your share price is rocking and you are not doing dumb things investors give you the benefit of the doubt. Does Fairfax need to improve its communication with investors? Yes. But they also need to get earnings, BV and the stock price growing again. PS: i like BAM

The 1% position in NSE cost Fairfax India US$27 million. If we see an IPO for NSE this could increase the value of their position to +$200 million. Pretty crazy return on this investment. It is on the books today (fair value estimate) for $99 million. It is looking like many of the investments the Fairfax India team made over the past 5-6-7 years are really starting to deliver which is resulting in another jump in BV in 2021. Privi was monetized for a significant gain. Fairchem stock has skyrocketed this year (up 3X). Chemplast is now up 35% in 2 months post IPO. Pretty much every publicly traded holding of Fairfax India is up well over 50% so far in 2021 (with some up more than 100%). And more is coming. Seven Islands IPO is in process. An Anchorage IPO is coming (i think). Hopefully the run in Indian stocks continues. Fairfax India has been a big winner.

The IPO market in India looks pretty frothy. If Digit decides to go the IPO route at a very high valuation i think Fairfax should cash out a chunk; not all, but a large chunk. And use the proceeds to buy back stock in a company trading at 0.65xBV (Fairfax). A decent example might be Quess. Fairfax got in on the ground floor. The Indian stock market went bonkers in 2018. At one point Quess traded over 1,000 INR. I think Fairfax marked the carrying value of their significant position near the high. Fairfax likely had an opportunity to sell a chunk at very high prices but did not. And when the Indian stock market hit the wall in 2019 Quess came down hard bottoming out at 200 INR in April 2020. And in 2020 Fairfax was forced to significantly drop its carrying value for Quess. The stock is now trading over 900 INR. But i am not sure buy and hold (great company, great prospects) was the right decision. i also wonder if the Quess experience is not one of the reasons Mr Market is largely ignoring the Digit news.

Xerxes, thanks for posting. The second video (21 min) was excellent. The person doing the interview asked great questions. So people watching the video get a solid overview of the company. Bottom line, Digit certainly looks like the real deal. The financial impact for Fairfax could rival the CDS gains back in 2008-09. And just like the CDS position it is being completely missed by most investors. Today. Mr Market eventually ‘got’ the CDS investment and my guess is they will also eventually ‘get’ Digit. And Fairfax shares will respond accordingly. Just another of the many tailwinds / catalysts that should play out over the next 12-24 months.

Spek, shame on you… you sound like a short term trader (not a real investor) with a comment like that But you have likely already sold the Fairfax shares you purchased last Friday. Realizing they will likely only give you a 25 or 30% return over the next year… and replaced them with the shitload of other stocks that are going to give you a 50-60% return. I bet you are happy you dodged that bullet!

Stubble, i think you know i often try and make points with extreme examples (and a little humour ). Kind of as a counter balance to the other extreme perspectives. A way to keep me balanced and smiling There is a lot more to Prem and Fairfax than what investors have seen play out the past 7 or 8 years. So i do think looking a little further back can sometimes help provide a more accurate picture of what we are likely to see in the coming years. And i appreciated your insight into ownership % and multiple voting shares. Something to file away..

Buybacks is one of a few potential catalyst to get the share price higher. However, for the past couple of years there have been other higher priorities at Fairfax: 1.) support insurance subs growth in hard market 2.) reduce debt 3.) stock buybacks Prem has been very on message on this topic for a couple of years now. 1.) the hard market in insurance pricing looks like it is in the later innings (end 2H 2022?). Given earnings and jump in their investment portfolios the insurance subs should not need much in the way of new money from Fairfax (in aggregate). 2.) $500 million in proceeds from the Riverstone sale used to repay line of credit has likely brought Fairfax’s debt levels down to acceptable levels so i think we can check this box as being done for now. 3.) that now leaves share buybacks as the only ‘unfinished’ bucket outstanding. Regarding timing for large buybacks, as has been pointed out by others, Q3 is not usually the quarter Fairfax does big buybacks. Peak hurricane season. And i think Q3 is also the quarter Fairfax completes its reserve review (not that i am expecting any issues). If we see an uptick in buybacks my guess is it will start to happen after they release Q3 results at the end of October. Fairfax should have a couple hundred million available to get the buyback train going. A buyback in size will really depend on when they are able to monetize holdings. The good news is their equity holdings are up $3 or $4 billion over the past 3 quarters. So at least the valuations of some businesses are getting high enough that the potential is there (to sell at a reasonable valuation). And of course it is pretty much impossible to know what holdings will be sold and when. If we get another leg in the reflation trade later in Q4 Fairfax may get its opportunity. Two dates on the calendar might also come into play. Dec 31. And the date of the AGM. Page 2 of the annual report has the line “closing share price Dec 31’; this is the date from which performance is measured each year. And, as any CEO knows, it is always better to have a higher share price when you hold your annual meeting. People assume Fairfax is a serial issuer of its own stock. And they have been for many years. Why? To fund their growth in insurance. To build their empire. Now Prem has said very clearly those days are over. No more big insurance acquisitions. Ok. So let give Prem the benefit of the doubt. Let’s assume we have seen a peak in total shares outstanding (and let’s ignore growth in shares driven by stock awards as pretty much all companies do this to some degree). Now i have a question for those of you who are still reading. Has Prem ever reduce Fairfax’s share count in a year? I think everyone knows the answer to this question… and it is yes! Good for you if you got it right This next question is a little more difficult. Fairfax has been in operation for 36 years. In how many of those years has the total share count fallen? Answer: 12. Since inception Fairfax has reduced share count 33% of the time. I know, I know, this can’t be true… so just ignore if it messes with your current thinking. Bonus question. This one is going to be multiple choice. What is the largest amount (in percentage terms) Fairfax has reduced its share count in a year? a.) 5%. b.) 8%. c.) 16%. d.) 25% I am going to let someone else post the answer. But remember, we all know beyond a doubt that Prem ONLY knows how to issue more and more shares every year In his 2018 Letter to Shareholders Prem made the following comment: ”I mentioned to you last year that we are focused on buying back our shares over the next ten years as and when we get the opportunity to do so at attractive prices. Henry Singleton from Teledyne was our hero as he reduced shares outstanding from approximately 88 million to 12 million over about 15 years. We began that process by buying back 1.1 million shares since we began in the fourth quarter of 2017 up until early 2019 – about half for cancellation and half for various long term incentive plans we have across our company.” Success is when preparation meets opportunity. I think we are getting closer to Fairfax starting to deliver on the aspiration laid out in the quote above….

Fairfax has recently made two significant strategic changes. 1.) no more shorting 2.) no more big insurance acquisitions (empire building) The shorting losses totalled around $4 billion over 7-8 years. The biggest single cause (by far) of Fairfax’s significant underperformance has been fixed. The Allied World, Brit and International acquisitions also experienced big losses post acquisition. Allied World was year 1. Brits losses have been spread over a couple of years. But Fairfax has a demonstrated track record of being able to successfully integrate insurance businesses but it does take 4 or 5 years (which is about where we are now at with recent acquisition). Allied looks good. Brit needs to get through covid. The international operations are collectively moving in the right direction. The important takeaway for investors today is Fairfax will not be making any new large insurance acquisitions. No share dilution at US$400. And as the recent acquisitions are integrated we can expect improved performance (higher level of profitability) from the group as a whole. In addition to the two changes i highlighted above, there have also been big changes in how it manages its equity holdings. I have posted on that before so i won’t bother doing so again. Fairfax can be viewed as a turn-around. But like all turn arounds we won’t really know for another year or two. Should be worth a beer at the next AGM in April? Any takers

Hobbit, thanks for posting. I saw the 10% move in Chemplast Sanmar shares overnight and was wondering what was up. The stock is now up more than 25% since its recent IPO. After BIAL this is Fairfax India’s largest holding so the move in the stock price is material. chug, chug, chug…

Glider, I established my core position in Fairfax last November. As I have done my deep dive on the company and we have seen Q4, Q1 and Q2 results my view is 'the story' for Fairfax has gotten much better. So I have continued to hold a core position (which I have flexed down and back up a couple of times since March as the share price has jumped around). So this could very well become a position I hold for a couple of years. That is a 'trade' type time horizon for me. When I make a big purchase I normally do so understanding it may take 1-2 years for Mr. Market to figure things out and push the share price higher.

bearprowler6, thanks for the clarity. I think i have said many times before that Fairfax is a trade for me and not a long term hold. So you and i are going to come at this in a very different way Thanks for taking the time for sharing your thoughts.

Greg, Cleveland Cliffs stock price was trading at $93 in May of 2011. Today it is trading at $19.66. What does the $93 share price from 2011 tell a Cleveland Cliffs investor today? Absolutely nothing of value. Is Fairfax not the same? Their share price from 10 years ago tells us nothing about whether the stock is a good buy today. Cleveland Cliffs stock was trading over $18.50 in January. Today it is trading at $19.66. What does this tell an investor today? Fairfax was trading in the US$370 range in January and today it is trading in the $390 range. What does this price move tell an investor today? Very little. Are you suggesting that if someone purchased Fairfax in November of last year or January of this year or on Friday, like Spek, that it ‘doesn’t count’? Because it is ‘very short term trading’? I am sorry but that is bizarre. ‘30% year over year from where things were last fall is pretty awful’ Terrible decision to buy Fairfax a year ago because it has only returned 30%? Hello? And yes, the catalyst question has been discussed pretty extensively previously so i won’t rehash it here.

bearprowler6, i think most on this board would agree with your assessment that Fairfax shares have performed very poorly over the last 2 year and longer time frames. Over the past year, however, the stock is up 30% which is a solid return. And the question investors really want answered is where is the stock going to go from here (US$397)? Do you really think people post on this board to to drive a short term pop in the stock price of Fairfax? Of any company? What i see are many people spending a great deal of time laying out their thinking (sometimes in great detail) and hoping to engage in debate of the facts. When i post i am hoping someone takes the other side. I want to engage in healthy debate. I want to know what i am missing or where there are flaws in my analysis. Why i am i wrong? I think we all understand that Fairfax has its flaws as all companies do. As investors we need to digest and synthesize the various inputs and come to a decision: what do do? There is no right and wrong. The ‘decision’ will be different for every investor. And that is what makes markets. And that difference of opinion is a very cool thing, not something to be despised or ridiculed. Yes, Fairfax’s stock price is trading well below where it was trading before the pandemic. In early 2020 the stock was trading in the US$450 range and today the stock is trading at US$397. The natural question to ask is ‘why?’ Personally, i think Mr Market mis prices lots of stocks. I agree, in general, the term ‘intrinsic value’ is a much overused phrase. Lot’s of the posts on Fairfax and the discussion that follows are pretty detailed. Fairfax is the most studied and debated company on the board. As a result people have lots of useful very information to draw whatever conclusions they like regarding Fairfax as an investment. Here some other thoughts: 1.) OMERS: yes, the various OMERS deals certainly warrant further study. Yes, the cost looks high. However, there is value for Fairfax with the relationship. For me, the relationship with OMERS is a ‘monitor’. I agree the need to tap OMERS over the years suggests Fairfax has been cash poor. However, i do see Fairfax’s ability to generate cash internally is improving (lower CR, improved earnings from associates, potential to harvest equity gains). We will see. 2.) International insurance operations: yes, AIG and others have been selling their international insurance operations, some to Fairfax. As i outlined in more detail in my post to spek yesterday these operations posted an underwriting profit (in aggregate) in 2020. If they can do this moving forward then i am ok. Another in the ‘monitor’ bucket. 3.) executive transition plan: yes, it would be good to know if a replacement for Paul will be chosen or not. And given Prem’s age succession planning is important. We do have Andy running insurance. And we also know more of the equity portfolio is transitioning to younger managers. 4.) TRS: given that i think Fairfax shares are very undervalued i like this holding. And, as i have said many times before, it is weird. How will they exit the position? No idea. Does it concern me? No. But i am not an options expert. 5.) the stock portfolio last 12-18 months. You state ‘nothing really remarkable from the Fairfax team here!’ I could not disagree more. Over the past 18 months how much has the stock portfolio increased in value? $3 or $4 billion? Wow! And the holdings are positioned to continue performing well. 6.) interest rates: Higher interest rates would benefit Fairfax given the positioning of their bond portfolio. You see stagflation? We will see 7.) Mr Market: what i love about investing, as i stated above, is we all have access to pretty much the same information. As investors we make decisions. And hopefully we make some money along the way. What is Fairfax really worth?

I agree. My guess is they view GIG as an insurance sub. I put my summary of the company in the ‘Fairfax Stock Positions’ thread as the holding is similar to some of the equity holdings from an accounting perspective (if i understand things correctly). The ‘Other Insurance - Equity Accounted’ bucket has seen significant developments the past couple of months: - Gulf Insurance Group: 40% larger with closing of AXA - Eurolife: Fairfax increased ownership from 50 to 80% - Digit: recent capital raise boosting valuation of company to $3.5 billion Bottom line, Fairfax has a great collection of assets that are growing nicely in value. But it is hard to see… because their results are not reported in the same way / level of detail by Fairfax (like the wholly owned insurance subs). Moving forward, it will be very interesting to see if Digit does move forward with an IPO in 2022. That has the potential to be a needle mover for Fairfax given the amount of $ that would be involved.

spek, it is possible that the Fairfax stock price may carry a permanent hold co discount moving forward given the reasons you state above. We will see. What i do know is Fairfax’s stock is very volatile. Wicked drops and wicked moves higher. I think you are going to earn an easy 10 or 15% over the next 4-6 months on your purchase of shares below US$400 on Friday. I backed up the truck last fall and have sold and bought shares (around a core position) a couple of times since then. I have been adding to my position during this recent decline. And i will lighten up when we get the next spike higher. So i am happy to hold a core position given i like how the company is positioned today. And i am also happy to take advantage of the volatility in the stock by flexing my position up and then back down. On complexity: Yes, Fairfax is a complex animal. I do think they have made some moves in recent years that have helped. One significant example is selling Riverstone/runoff. Was anyone able to value this part of Fairfax? Or build it into their valuation of the company? Other recent examples: selling APR to Atlas, IPO of Boat Rocker, IPO of Farmers Edge, reverse takeover of Horizon North by Dexterra. Publicly traded positions are much easier to follow and value for outside investors. But, i completely agree, Fairfax is very complex and this does make it very difficult to do a ‘sum of the parts’ kind of valuation. ‘Questionable execution’ will always be a watch-out for me. While i remain encouraged by what i have seen from Fairfax management over the past couple of years (in aggregate) i also have my eyes wide open. I think the core driver of the current very low valuation of the stock is very poor past performance. Fairfax’s performance (BV, stock price) has been terrible for 7 or 8 years. It will take more than 9 months of outperformance to win back support from the investment community. What is it going to take to get Fairfax shares more fully valued? Improved performance. Over a couple of years (not one or two quarters). If Fairfax is able to string together 2 or 3 years where they increase BV by 12-15% my guess is the stock price will pop. Earnings growth and multiple expansion is a beautiful thing for investors. So while the performance at Fairfax the past 3 quarters has been stellar we need to see this performance sustained. The other factor that will help the share price are stock buybacks. Fairfax has been ‘cash poor’ the past few years. And during the pandemic rising debt levels jumped further. The Riverstone / Brit sales have helped Fairfax bring debt levels down. The insurance subs look pretty well capitalized given their earnings and the performance of their equity holdings. And as we come out of the pandemic (improving US and global economies) this should lead to improving cash earnings at Fairfax. Higher equity markets will also allow Fairfax to start to harvest some equity positions. And what will they use growing free cash flow for? Stock buybacks look like a pretty easy decision. Here are some other thoughts: 1.) RFP: what you do with Resolute really depends on what your view is of lumber. And this depends on where you think new home construction is going in the US over the next 5 years. Another factor is what the opportunity is for Resolute to sell some of their non-lumber operations. Bottom line, i understand why Fairfax may want to wait a little longer and see how things play out. (i.e. are we in the early days of a commodity super cycle?) 2.) Stelco: same as RFP 3.) Africa / CIB (Egypt) / International insurance operations - I think John Templeton was a mentor to Prem and the Fairfax team in the earlier days. This influence may partly explain what we see at Fairfax with some of their international insurance and equity holdings. Lauren Templeton (great niece of John) is on Fairfax’s board. Sanjeev might be able to provide a little more insight here. - Fairfax Africa WAS an absolute train-wreck for shareholders. We will see how the partnership with Helios works out. I am neutral on Helios (not a concern nor do i expect big things…). I don’t view it today as an issue. - CIB: although the bank has performed well over the years, it has been a poor investment for Fairfax (driven by currency devaluation driven by political situation). And it is a big position (US$280 million Sept 30). Continued ownership of this position is a head scratcher for me. 4.) in terms of the core insurance businesses Brit is the watch-out for me (even before the CEO going on leave). Fairfax has owned it long enough that i am not expecting and big negative surprises. I am just not sure how profitable the platform can ever become. The good news is Fairfax has done a good job over the years of winding down businesses that do not meet their underwriting standards. I think we also need a few more years of results to see what kind of a business Allied will become. No concerns; just not sure. 5.) in terms of the international insurance businesses, Fairfax has had outstanding success in Asia (First Capital was sold for $1.6 billion). What i like is they appear to be implementing pretty good underwriting discipline into each of the various international operations. The operations in aggregate were writing at a CR under 100 in 2020. Hopefully this continues moving forward. Bottom line, this collection of assets has moved from ‘red flag’ to ‘monitor closely’ for me. These are clearly long term plays for Fairfax.

Gulf Insurance Group (GIG) is an under the radar asset for Fairfax. Fairfax owns 43.6% stake - that is what is currently posted on the Fairfax web site - paid $209 million in 2010. Fairfax is in partnership with KIPCO (they own more of GIG than Fairfax does). Sept 7, GIG closed its significant US$475 million acquisition of AXA’s/Kanoo’s MENA operations; i think they paid < 10PE. GIG certainly looks well positioned in the region after this acquisition. GIG is traded on Kuwait stock exchange (not very liquid given significant size of Fairfax and KIPCO positions): - share price = 0.888KWD = US$2.94 - shares outstanding = 284.57 million - market cap = US $837 million - Fairfax position value (43.6%) = $365 million ——————————-## Gulf Insurance Group CEO Khaled Saud Al-Hassan said in an interview with “Al Arabiya” today, Tuesday, that the acquisition of the entire stake in “AXA Gulf” by Gulf Insurance is part of the group’s strategy to increase revenue and its presence in the Arab region. He added that Gulf Insurance is currently present in 11 countries and its revenues totaled $ 1.5 billion in 2020, and the acquisition is part of the board’s policy for regional expansion and leadership in Arab insurance markets. operations and net profit. Gulf Insurance Group CEO explained that Gulf Insurance Group is present in countries including Egypt, Algeria and Turkey, as well as other Arab markets, and these countries account for 50% of the group’s total revenues and Kuwait accounts for the remaining percentage. Khaled Saud Al-Hassan indicated that the acquisition of AXA Gulf will increase the group’s revenues to $ 2.5 billion, making it the largest player in the Arab insurance market and is present in 13 countries, adding Qatar, Oman and Abu Dhabi after the acquisition, in in order to serve customers and shareholders. - https://asumetech.com/gulf-insurance-in-al-arabiya-the-acquisition-of-axa-brings-revenues-to-2-5-billion-dollars/ ——————————- Overview of GIG before the acquisition: http://www.gulfinsgroup.com/Home/Investor-Relations/Investor-Presentations

Just came across this news story. Perhaps partially explains the weakness in Fairfax shares today. Brit certainly has had a tough couple of years. Hopefully the CEO is ok. https://www.insurancebusinessmag.com/uk/news/breaking-news/brit-ceo-takes-leave-of-absence-interim-ceo-appointed-311531.aspx

I have updated my spreadsheet that captures Fairfax India's publicly traded equity holdings. In Q3 the publicly traded holdings were up nicely... about $150 million. With 142 million shares outstanding this will add increase BV by $1.00/share. At end of Q2 BV for Fairfax India was $19.26. At the end of the dutch auction the reduction in share count increased Q2 BV to $20. So my guess is Q3 BV for Fairfax India will be north of $21/share. With shares trading at $13.10 today my guess is P/BV is approaching 0.60 I do not capture the impact from the completed Chemplast Sanmar IPO. I am going to wait and get the details when Fairfax India reports Q3 results. My guess is the IPO should increase BV higher. Chemplast Sanmar went public at about INR 536 and shares increased 14% to 612 on Sept 30. Proceeds from the IPO were already used to reduce leverage at Chemplast Sanmar which is nice to see. We also with the completion of the partial sale of Anchorage to OMERS we will see how it flows through results. And we will likely get a little more information on Fairfax India's newest acquisition Maxop Engineering Corp. Bottom line, the management team at Fairfax India has built a pretty nice collection of assets that are performing very well. PS: tab 1 in the spreadsheet also captures Fairfax's octopus of assets for those who did not see my post on the Fairfax thread Fairfax Equity Holdings Sept 30 2021.xlsx

Attached below is an estimate of the changes in Fairfax's stock portfolio for Q3 (to Sept 30). The goal of the spreadsheet is to get a general estimate of what is going on under the hood. Not all of Fairfax's holdings are captured in the spreadsheet so reported results will be different. After two blow out quarters, in Q3 the mark to market holdings are down in value about $270 million = $10/share (about 26 million shares outstanding). The Associate & Consolidated equities are down about $110 million = $4/share (not captured in earnings). So in total all the positions captured in the spreadsheet are down about $380 million = $14/share. This is about a - 3.3% change in the portfolio I track. One item not captured in my spreadsheet is Digit; when it is approved the revaluation will result in an increase of $46/share for Fairfax. Not sure if we will see this in Q3. Big movers: Blackberry - $250 million Farmers Edge - $140 Eurobank - $80 FFH TRS - $65 Atlas + $120 Quess + $65 Foran Mining and Ensign Energy have been added. As per usual, please let me know if you see any big errors Fairfax Equity Holdings Sept 30 2021.xlsx