Viking

A good question for Prem on the next quarterly call would be what the thinking is behind holding the commodity type equities. Inflation hedge? Long term holds (i.e. commodity super cycle)? Or will Fairfax be opportunistic and monetize over time - perhaps starting in 2022? Fairfax owns a pretty diversified group (by commodity exposure) with a North American geographic focus. Their combined exposure to commodity equities is likely now worth north of US$1.5 billion; pretty decent position size (12-13% ?) when compared to just total equity holdings. - Stelco (steel) - about US $500 million position - Resolute (forestry/lumber) - $350 million - EXCO Resources (energy) - $240 million Dec 2020 - Altius (diversified royalty including potash) - warrants giving 13.4% ownership - Astarta (Agriculture - Ukraine) - $95 million - Foran Mining (metals) - recent $80 million - this investment will likely take years to play out PS: i view Farmers Edge as a technology/start up type company; not a traditional commodity type investment.

With natural gas prices spiking and perhaps going higher into the fall/winter EXCO Resources might be a company to watch. Fairfax owns 44% of EXCO; private holding Valued at US$238 million at Dec 31, 2020 —————————— Based on Francis Chou’s 2H commentary EXCO appears to be levered to natural gas: “EXCO Resources Inc. (“EXCO”) In early July 2019, the company emerged from bankruptcy and the 1.75 lien term loans were converted into 28.38 equity shares for every US$1,000 in par value, after netting out certain adjustments. We received 1,518,570 shares of EXCO in the Fund. The equivalent price was US$9.51 per share of EXCO. Looking back on this investment, we underestimated how long the price of natural gas would stay low for and how low it has been relative to the price of oil. Historically, there had been a strong relationship between the prices of oil and natural gas. Thinking about the two fuels in terms of energy equivalency, 6,000 cubic feet (6 mcf) of natural gas has the same amount of energy content as 1 barrel of oil. In the past, this 6 to 1 ratio guided the relationship between oil and natural gas prices but for the last few years the ratio between prices has gone up to as high as 50 to 1. Long story short, it was not such a great idea to invest in the 1.75 lien term loans of EXCO. - http://choufunds.com/pdf/SEMI-AR 2021 EN.pdf —————- 2020 AR Page 28: Fairfax owns 44% of Exco, a U.S. oil and gas producer. Despite weak energy prices in 2020, Exco generated $128 million in EBITDA and $36 million in free cash flow. Net debt fell to $145 million (1.1 times EBITDA). Led by Chairman John Wilder and CEO Hal Hickey, Exco achieved these results through high field level productivity and company-wide cost control. In December, Exco recorded its 73rd month without a lost time incident. Exco’s Chairman, John Wilder, is a great partner. We are well served by his leadership. Page 70: On June 28, 2019 EXCO Resources Inc. (‘‘EXCO’’) emerged from bankruptcy protection and settled the company’s holdings of EXCO bonds with common shares, resulting in the company recording a net loss on investment of $179.3 (realized losses of $296.3, of which $117.0 was recorded as unrealized losses in prior years).

Glider, i prefer to eat at independent restaurants so i cannot comment specifically about Recipe’s concepts here. My current read is it will be some time before restaurants in Canada see 2019 levels of profitability. However, i do expect the big chains, like those owned by Recipe, to outperform independent restaurants (who have fewer resources). Also, Recipe does not actually own most of the restaurants so the payments Recipe receives may actually rebound nicely as inflation hits the sector. It looks to me like the restaurant business is going to slowly improve (in terms of year ago comps). But the Delta variant is likely to slow any return to 2019 numbers. And labour shortages for the industry will also be a headwind for profitability. It will be interesting to see how Recipe performs in the current environment. Slow improvement (compared to prior year) is my current guess which should benefit Fairfax’s reported results moving forward.

Menu prices have also increased (to cover rising costs including wages). And it looks to me like people are paying the higher prices (not just restaurant meals but pretty much everywhere). Making it possible for businesses to pass through higher costs. Covid seems to have made people ok paying higher prices (for now). Just wonder how this plays out if it continues…

Greg, great question. KJP, patience and focus and Spek - +1 - my guess is your responses are on to something… The virus is causing severe supply chain disruptions pretty much everywhere. Including the labour market in the US (and all countries). If you are an older person or someone with health issues and you do not need to work why would you work in a covid world? Why take the health risk? Especially a retail or food service job where you have to interact lots with the public and the pay is low. Risk does not equal the reward. Or perhaps you have a family member in your house who is at risk. Pre-covid perhaps you were working largely to get out of the house and interact with people socially.

There is no rule of law in China. The CCP needs money and technology from the West today. So they will keep the economy ‘open’ enough to achieve this objective. I view putting money in China today more of a speculation than an investment. Lots of money to be made (similar to all speculations). There is no safety of principal. It is a communist country. CCP runs the show and they really do not give a shit about shareholders or long term shareholder rights. Look at their approach with Hong Kong - brutal and effective. They have learned the West/US is all talk with no bite. South China sea is next. Taiwan will also be brought to heel much quicker than people realize. We are just getting glimpses of the new China flexing its muscle. Nationalism is on the rise. Speculate in China. Invest in Western liberal democratic economies that have property rights, rule of law, free press (better information disclosure) etc.

Cash on the balance sheet at the end of Q2 was $41 million; i thought it was higher given the $165 million in proceeds from the Privi sale —————————- On April 29, 2021 the company completed the sale of its 48.8% equity interest in Privi Speciality for proceeds of $164,812 resulting in a realized gain since inception of $132,303.

Glider, thanks for the updates on Digit. I am surprised by Mr. Markets complete non-reaction the past 2 months to the Digit news (head scratcher for me :-). FFH stock price has gone sideways and is trading today at about the same level (US$445) as when the news on Digit revaluation first came out July 5. The gain from the Digit revaluation of about US$1.8 billion (some realized in Q2 and the remainder likely in Q3) is a large number relative to Fairfax’s total market cap of $12 billion. So why the non-reaction from Mr Market? 1.) market is efficient. And does not believe Digit is worth anything close to new valuation suggested by the capital raise and communicated by Fairfax. 2.) market is not efficient. And simply is ignoring the Digit news. i am not sure there is a middle ground. The size of the transaction is simply too large. Either Digit is worth the higher number or it is not. —————————————- Below is from Fairfax’s Q2 results news release: - https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Financial-Holdings-Limited-Financial-Results-for-the-Second-Quarter/default.aspx Our investments increased significantly with net gains on investments of $1,290.2 million, primarily reflecting net gains on long equity exposures and $425.0 million on Digit compulsorily convertible preference shares. Mark-to-market movements on our non-insurance investments in associates and consolidated investments which are not reflected in our financial statements also increased in the second quarter of 2021 by approximately $338 million. As previously reported, upon closing of the Digit Insurance equity issuance in the third quarter, and upon final approval by the Indian government of its previously announced intention to increase foreign ownership limits, we anticipate recording an additional gain of approximately $1.4 billion or $46 in book value per basic share. We continue to focus on being soundly financed and ended the quarter with approximately $1.5 billion in cash and investments in the holding company," said Prem Watsa, Chairman and Chief Executive Officer.

I like that these previously announced deals are finally getting closed (Riverstone sale by Fairfax was another). It will be interesting to see where Fairfax India takes Anchorage from here. It will also be interesting to see what Fairfax India does with the proceeds of $129 million. Chug, chug, chug…

Eurobank today is a misunderstood company. Its management team looks pretty good (if not stellar) to me. It has done a complete transformation over the past 4 or 5 years. Merged with Grivalia creating a large fee generating real estate division. Its has been aggressively dealing with its no-performing loan issue; the Mexico transaction will be done by year end. That Covid was a pothole and did not cause the car (company) to drive off the road speaks volumes for where the company is at. The bank is now moving to its front foot and actually making investments in its business - small acquisitions in Serbia and Cypress and growth in its real estate platform. As the ship turns i think the Eurobank management team will have lots of low hanging fruit to pick to really drive earnings in the coming years. The greek government is very pro business and this is helping. The key now is how fast the Greek economy grows in 2H 2021 and 2022. I think there is a good chance Eurobank shares will do better than 15% per year for the next three years from where they are trading today. But it might take another 9 to 12 months for the stock to really start to move. it is a great example of a company narrative that investors have today that is completely wrong. The Eurobank of today is not the Eurobank of 5 years ago. edit: here is the link to the 1H Presentation the bank did with Q2 earnings: https://www.eurobankholdings.gr/en/investor-relations/presentations

nwoodman, thanks for the info. We should get confirmation when FFH reports Q3. If Fairfax exercises the 25 million warrants would that affect the price they carry the whole position at? (The 99.9 million shares had a carrying value of $10/share at end of Q2).

Atlas closed today over $15 and at new 52 week high and 6 year high. Perhaps more investors are believing their transformation is for real; especially the revenue and earnings projections for the next 4 years. This investment is shaping up to be one of Fairfax’s best non-insurance single company investments ever. Stelco also has been hitting new all time highs. Nice to see a couple of their largest most recent new equity purchases performing so well. ——————————— Fairfax owns 99.9 million shares (incl Riverstone holdings) with a carrying value of $10/share at Dec 31 2020 (and cost of $7.57). They also own 25 million warrants ($8.05 exercise price). With shares trading at $15 this = a gain (from cost) of about $900 million (94%) in about 3 years time. And we are in the early innings with this investment (As part of the Q2 Senior Notes redemption Fairfax also has 1.0 million five-year warrants to purchase an equal number of Atlas common shares at $13.71 per share.). ——————————— 2020AR: Atlas (formerly Seaspan) was purchased by us in July 2018 at $61⁄2 per share through the exercise of warrants which we acquired in February 2018. We exercised additional warrants in January 2019, sold APR Energy to Atlas in exchange for 18 million shares at $11.10 per share, and had our cumulative share of earnings of $209 million less dividends of $81 million, increasing our carrying value to $10 per share at the end of December 2020. At that time, Atlas was trading at $11 per share, resulting in an unrealized gain of $79 million which will only be reflected in our balance sheet at the time of sale, even though it is very much there at the end of 2020. Atlas is currently trading at about $13.75 per share. 2019AR: Including the APR transaction, we have invested $760 million in common shares of Atlas Corp. (cost per share $7.57), and we hold 25 million warrants exercisable at $8.05

My post below is not meant to depress anyone I think Fairfax is getting closer to the point where it will be re-rated by Mr Market; it will likely take another year or even two (assuming no major mis-steps by management). Look how long it took the big US banks and even a company like Apple. It took investors many years to come to understand that the old narrative was no longer valid. ——————————————- So why is Mr Market not giving Fairfax its average price to BV multiple from the past 10 years or so (is it 1.1 or 1.2 x BV)? I am going to steal a few ideas from those who have posted above 1.) capitulation from long standing shareholders. My guess is this is still playing out. Fairfax HAS BEEN a complete dog. Its stock traded at US$440 in April of 2014. That is where shares are trading today. That is 7.5 years of very poor performance. In a big bull market. Since 2014 the stock has traded close to US$600 three different time. And it has traded over US$525 for extended periods of time. LOTS of investors bought shares at much higher prices than where it is trading today. The drop last year to US$250 was likely the final straw for many long standing shareholders. Make the pain stop kind of thing. Permanently scarred (psychologically speaking). This creates supply (as shares are sold). Many of these former investors are never coming back. 2.) lack of BV growth (thank you Glider). 3.) lack of demand. Daily share volume, especially in the US is often pretty light. What new investor is going to buy this dog of an insurance company after looking at its price chart and book value growth over the past 7.5 years? Especially in volume? Fairfax has been the definition of career killing stock. Who else is going to buy the stock? Certainly not the large swath of value investors who have bought the company in the past (see 1. above). The stock is not listed on the NYSE so it is only thinly traded in the US. Canada is a pretty small market on its own. 4.) Fairfax is not a ‘normal’ insurer with its focus on equities and owning companies. (The ‘complexity’ argument - but on steroids because of the kind of equities/companies Fairfax has invested in over the past 10 years.) - thank you Spek. - Investment analysts only want to look at underwriting and interest and dividend income and largely ignore equity investments. I have read RBC’s research reports on Fairfax for years and they refuse to provide any analysis of Fairfax’s non-bond holdings. What really cracked me up is they just called Fairfax stock the best buy in their insurance coverage universe in NA. The reason? The big discount to BV - with little discussion about what was driving the spike in BV - the spike in equity holdings. Both Berkshire and Markel go through periods where their valuations also get penalized by Mr Market. And, yes, Fairfax’s holdings are quite different. 5.) Fairfax has its quirks (thank you Spek) - Prem’s unique communication style - Prem’s control stake; past decisions regarding family members When times are bad (like they were the past 7 years) these quirks are magnified. 6.) low interest rates (thank you Glider) Given how its bond (and ST holdings) portfolio is constructed (1.5 year average duration) lower interest rates push interest income even lower as bonds mature and are reinvested.

Wondering posted the link to Francis Chou’s Q2 report. Given his close relationship with Fairfax (with some identical holdings) it is interesting to read Chou’s commentary. Below are his current thoughts on Resolute and EXCO Resource. Wondering said Chou reduced his position in Resolute and Blackberry. I wonder if Fairfax learnings are similar… http://choufunds.com/pdf/SEMI-AR 2021 EN.pdf Resolute Forest Products Inc. (“RFP”) As of June 30, 2021, the market price of RFP was US$12.20 per share, up 86.5% from the price of US$6.54 at year end 2020. In spite of that, RFP has been a huge disappointment since our initial purchase some eight years ago. It shows how tough it is to turn around a troubled company despite the best efforts of management. Having said that, it is quite comical to experience how a commodity stock can be hammered beyond all logical comprehension. RFP paid a special dividend of US$1.50 a share in 2018, and it was trading as low as US$1.17 per share in April 2020. Back in March 2020, the company announced that it would buy back 15% of its common shares for US$100 million. At the lowest price of US$1.17, the whole market capitalization would be approximately US$99 million. In other words, instead of buying back 15% of the company with US$100 million, it could repurchase 100% of the company. RFP shares have since recovered 942.7% to US$12.20 as at June 30, 2021. Rarely do we see such a depressed valuation but when it occurs, the most important thing is not to capitulate when the relevant facts and the investment rationale are strongly in our favor. Our goal is to buy companies at 60 cents on a dollar but if it falls to 10 cents on a dollar, we get more excited. If we had the room to buy more RFP, we would have ceratainly done so. These declines can really test our fortitude and our conviction on being a value manager but we felt that, in time, RFP would be trading closer to its intrinsic value. That was what happened during the first six months of 2021. One bright spot for the company has been its lumber operations. The high prices for lumber should make up for the declines in its newsprint and specialty papers business segments. The COVID-19 pandemic has shifted management’s focus more towards its lumber/pulp/tissue operations and we believe that should generate greater cash flow in the future. In general, our experience with a commodity business that has virtually no pricing power is to be cautious when management talks about investing in new equipment or upgrades that would significantly lower the cost structure compared to its competitors. That may be true for six months to a couple of years, but in time, competitors will have a new cost structure that is as competitive if not superior to the company. It is the same treadmill where hardly anyone in the industry can make a decent return on the assets invested in the company. The same story can be seen repeatedly in various commoditized industries. There is no sustainable long-term advantage in a mediocre business with no pricing power. It is important not to get seduced by discount to book value. If the company cannot generate a decent return on book value over a long period of time, that book value is not worth much. EXCO Resources Inc. (“EXCO”) In early July 2019, the company emerged from bankruptcy and the 1.75 lien term loans were converted into 28.38 equity shares for every US$1,000 in par value, after netting out certain adjustments. We received 1,518,570 shares of EXCO in the Fund. The equivalent price was US$9.51 per share of EXCO. Looking back on this investment, we underestimated how long the price of natural gas would stay low for and how low it has been relative to the price of oil. Historically, there had been a strong relationship between the prices of oil and natural gas. Thinking about the two fuels in terms of energy equivalency, 6,000 cubic feet (6 mcf) of natural gas has the same amount of energy content as 1 barrel of oil. In the past, this 6 to 1 ratio guided the relationship between oil and natural gas prices but for the last few years the ratio between prices has gone up to as high as 50 to 1. Long story short, it was not such a great idea to invest in the 1.75 lien term loans of EXCO.

Glider, great list. Where the Fairfax story gets more interesting for current investors is identifying where the new home runs are going to come from. 1.) at the top of the list is Digit. Both in terms of size and timing. The bizarre thing about this gain is the market is ignoring it (for now). It reminds me of when Fairfax was sitting on their CDS gains at the beginning of the GFC and the stock was going nowhere and we were all scratching our heads as to why. “When the new equity issuances by Digit Insurance close, the increased valuation of Digit Insurance will result in Fairfax recording a net unrealized gain on investments of approximately $1.4 billion on its investment in Digit compulsorily convertible preference shares (an increase of approximately $47 in book value per basic share). In addition at that time, the pre-tax excess of fair value over carrying value of Fairfax’s equity accounted interest in Digit will increase by approximately $0.4 billion (an increase of a further approximately $14 in book value per basic share), which will not be reflected in Fairfax’s consolidated net earnings or in the calculation of book value per share until the Indian government gives final approval of its announced intention to increase foreign ownership limits in the insurance sector from 49.0% to 74.0% and Fairfax obtains regulatory approval specific to its holdings in Digit.” - https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Potential-Gains-on-Its-Investment-in-Digit/default.aspx 2.) Atlas should be another +$1 perhaps even $2 billion dollar win for Fairfax. They own 99.9 million shares and 25 million warrants = 125 million. Shares are carried on the books at $10/share (at Dec 31). My guess is Atlas shares will hit $20 in the next 24 months. And it has a long growth runway. And if i had to chose a single sleeper pick it would be Eurobank. They have methodically been repairing their balance sheet for three years. Another tranche of non-performing loans will be carved out later this year. The pro-business government is very supportive. And my guess is Eurobank is not done with its transformation. Fairfax owns 1,130 million shares. Shares are trading at 0.80 Euro today. A move to 1.20 Euro in the next 24 months looks pretty doable. A second sleeper pick would be their collection of assets in India. Lots to like about the current holdings. Anchorage will be something to watch. Fairfax has a pretty good track record with its investments in the country. If emerging markets do well moving forward this bucket of assets could continue to surprise to the upside. Fairfax also what i would call ‘layup’ type investments in their portfolio. I put the 1.95 million TRS on Fairfax shares in this bucket. Stelco as well. Buying back 1 million (or more) Fairfax shares is another no brainer (at 0.70 x BV). Cost today would be US $450 million - very doable. And it is funny to talk about home runs for Fairfax and not mention their how their insurance businesses are performing today (top line growth and underwriting). With their significant growth it is like they are adding a business about the size of Northbridge every year (this is how Fairfax has tried to explain the significance of their growth). Is Northbridge worth $1 billlion? We have been in a hard market for about 2.5 years and it is not over yet… —————————— Should inflation NOT be transitory Fairfax has positioned their bond portfolio perfectly. If interest rates ever start to move higher Fairfax is well positioned.

Here is an update on Fairfax's equity holdings two months into Q3. It looks to me like their various holdings are up about US$130 million = $5/share (pre-tax) as of Aug 27. Let me know if you find any errors with my Excel file attached below Up: Stelco +$127 million; Atlas (shares + debs) +$63; basket of India investments +$60; CIB +$49; Resolute +$25; Dexterra +$23 Down: Farmers Edge -$124 million; Blackberry (shares+debs) - $94; Eurobank -$88 I updated share counts for all holdings to match Q2 13F. - Mastercraft, Booking Holdings and Graftech positions were reduced - Liberty Trip Advisor position was increased (small position) I added Farmers Edge, Boat Rocker and Atlas to my spreadsheet (consolidated equities?) I added new purchase Foran Mining shares (associates - equity accounted ?) and debentures Commercial Industrial Bank (CIB) completed a 4 for 3 stock split Aug 24 (so share count increased by 33%). Other transactions closing in Q3 (not impacting my spreadsheet): 1.) Mosaic Capital taken private (with MCC Holdings/Mark Yushishen) 2.) Toys 'R Us: sold retail brand to Putnam Investments; now only own real estate 3.) Eurolife ownership increased to 80% - 30% purchased from OMERS for $142.6 million 4.) Riverstone Europe sold to CVC for $700 million 5.) 14% Brit sold to OMERS for $375 million 6.) Digit revaluation (upon approval from regulators) Fairfax Equity Holdings Aug 27 2021.xlsx

The investment thesis for Fairfax today is actually pretty simply: has Fairfax management learned from their mistakes of the past 7 or 8 years? 1.) shorting individual stocks and indices cost them billions (was it as much as $3 or $4 billion?). Today: Fairfax has closed out all short positions. And they have stated repeatedly and written it into their investment policy that they will not short individual stocks and indices moving forward. 2.) large insurance acquisitions - Brit and Allied - also cost billions at the time. These purchases were funded largely through equity raises which diluted existing shareholders. In addition Allied had one terrible year of underwriting (largely out of its control but it happened). And Brit has had multiple poor years of underwriting. Today: Fairfax has repeatedly stated that they are done with large insurance acquisitions. They have a global platform they are happy with. Growth in insurance moving forward will be primarily organic with smaller bold on acquisitions. Allied World is performing very well (fixed). Brit is a work in progress. I think Fairfax has also learned some other important lessons when it comes to how they invest. They are partnering more with what look to be strong management teams that have good long term track records. We see this with recent investments they have made and also with some of the fixes they are executing. My view is i think Fairfax HAS learned some valuable lessons. I come to this view from listening to what the management team has to say and reading what they write (the past couple of years). Fairfax has been under-earning for 7-8 years. Once they stop making the big mistakes (and a few of the smaller ones as well) i expect earnings to improve and perhaps dramatically. And if this happens, sentiment will also improve and the PE multiple will improve (likely 1xBV). We will see. Now if investors think nothing has changed at Fairfax (over the past 7-8 years) and think Fairfax will continue to have $1 billion blunders every year or two then, yes, it would be pretty dumb to put any money in the stock. Fairfax stock today is priced for this outcome today (more billion $ losses continuing into the future). Fairfax made billions with their CDS bet back in 2007-09. Was it repeatable? No. Fairfax lost billions with their short bet in 2003-2020. Is it repeatable? No. The past is useful only in how it informs you about what may happen in future. ———————————- Another important part of the investing decision is fit. Between investor and company. Fairfax has its own unique style when it comes to how it choses its equity investments. With some positions it likes to swing for the fence so volatility will be extreme. And there will be very visible strike outs (with the pitches apparently way out of the strike zone.) Fairfax also has a controlling shareholder and CEO who is not the best communicator. Prepare yourself accordingly

The Mosaic Capital take private transaction closed Aug 6. Fairfax is partnering with Mark Yusishen. Here is a little more information on the new jockey pulled from the Endeavours Group web site. Bottom line, Fairfax is making yet another move to better position an underperforming holding by taking it private and partnering with what looks to be external management. Encouraging. ---------------------------------------- Endeavours Group is a family-held private equity firm directed by Mark Yusishen. Since 1996 Endeavours Group has been engaged in acquisitions, now with operations across most of Canada and in parts of the USA. Our deep knowledge across markets, with decades of combined experience, along with our diversified portfolio, provides for superior results. We enable growth through strategic initiatives focused on efficiency and optimization enhancing our performance. Mark Yusishen - Managing partner | P.Eng | MBA Mark Yusishen is the Managing Partner of Endeavours Group. Beginning in 1996, Mark has purchased several operating companies, many directly managed by him. He demonstrates a proven track record, moving companies toward higher achievements and growth potential. He has extensive experience in managing multiple plant companies with cross border operations. Mark is responsible for leading the group’s acquisition focus, while maintaining strategic growth initiatives for the existing Endeavours Group entities. Mark has a wealth of knowledge in operations, including metal fabrication, woodworking and distribution, retail, commercial and industrial. By appointing a General Manager and Controller, typically from the original company, Mark maintains existing company relations while providing new opportunities for growth. His extensive operating knowledge provides a sound basis in assisting each General Manager to move the company forward. Mark is highly experienced with a reputation for conducting business with integrity and efficiency. He holds an Engineering degree and a Masters of Business Administration. https://www.endeavoursgroup.ca ------------------------------------ CPE News (6/28/2021) – Mosaic Capital Corporation (TSX–V: M) has entered into an arrangement agreement with 2356340 Alberta Inc. pursuant to which the 2356340 Alberta has agreed to acquire all of the outstanding common shares of Mosaic for $5.50 per share in cash for a consolidated enterprise value (inclusive of debt) of approximately $277.3 million. 2356340 Alberta is a newly formed private company owned by an entity controlled by Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) and MCC Holdings Ltd., a company controlled by Mark Yusishen.

Xerxes, i actually followed Fairfax into Blackberry (RIM) when they made their initial purchase. By the third RIM conference call i could tell the two people running RIM were in over their heads. I sold my position at a loss (about 15% if i remember correctly). RIM turned out to be one of my best investment decisions ever i mean this seriously). Because it taught me about the cell phone industry. I think it was 12 months later that Apple got dirt cheap and i backed up the truck. Apple became by biggest winner ever with currency tailwinds also helping (Can was mid to low $0.90’s when i bought). From Apple (in terms of concentrated position) i toggled to the big US banks, initially JPM and then BAC. If you read the old BAC threads (2016/17?) i was beating the drum back then for BAC just like i am now for Fairfax today. To answer your question directly, yes, i would have been much better off holding my Apple position and pulling a Rip Van Winkle However, i do not look at things that way. When i make investment decisions i try and learn and flush. And move on. I don’t spend much time thinking about what could have been. When i sell out of positions i tend to move on (can’t remember the last time i posted on BAC). My portfolio has done very well over the years (average return has been about 15%) so my returns after selling my Apple position has still been solid. That is all i care about. The big move in Apple shares the past 2 years is primarily multiple explosion. So when i hear people talk about Fairfax and how its crazy low multiple today is permanent i am not so sure Definitely one of a few learnings taken from my experience with Apple shares.

A crazy part of the Blackberry purchase was through it Fairfax must have learned about the cell phone industry. And where the puck was going. And then Apple got wicked cheap in 2013 (Apple was almost hated as much by investors back then as Fairfax is now - Steve Jobs/innovation was dead; Tim Cook was a logistics guy not a CEO; hardware only company; Samsung was going to eat its lunch). Instead of pivoting into Apple, which had become a great value investment, Fairfax kept doubling down on BB. How did they miss that? Talk about opportunity cost.

Resolute Forest Products jumps out to me as a serious candidate. However, management at Resolute has done a very good job the past 2 or so years. The pivot to lumber was brilliant. And if new home construction in the US hits +1.6 million starts earnings could surprise to the upside. Bottom line, i actually like this holding at US$12. Fairfax has an interesting and diverse stable of commodity based holdings: Stelco (steel), Resolute (lumber, pulp, paper, tissue), Altius Minerals (fertilizer, mining royalties), AGT (grains), Astarta (Ukraine sugar, grains), and most recently Foran Mining (exploration, venture). ———————————————- 2018 AR: Resolute. 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! 2019 AR: Last year I stated that Resolute has been a poor investment to date. I should have said, very poor!! Brad Martin chairs the Board at Resolute and he continues to work with management to find a path to increase shareholder value in a very tough environment for paper, pulp and lumber. Our net investment in Resolute is $745 million while the carrying value of our shares is approximately $200 million. 2020 AR: carrying value reduced to $134 million after non cash impairment charge taken of $56 million. Resolute Forest Products purchased three sawmills in the southeastern United States in early 2020, which turned out to be very good timing. During the pandemic demand for lumber has been strong, causing the price to spike to historic highs. Resolute’s share price rose from a low of $1.15 in March to recently trading above $9.50. In 2020 Resolute allocated capital to shareholders by repurchasing 6.9 million shares, or 8% of outstanding, at an average price of $4.28 per share. 2021 looks like a promising year for Resolute as lumber prices remain high, pulp prices show signs of strengthening and Resolute’s tissue business continues to develop.

I agree. I don’t think you can put together a list of ‘losing investments’ and not at lease mention the losses from the massive short positions from the past 7-8 years. All other losses are dwarfed by this slow motion train wreck. The loss was $2 billion net of gains in common stocks (at Dec 31, 2018) with more losses to come as recently as 2020. The good news for current shareholders is they will not be repeating this mistake as all short positions have been removed and will not be used in the future. And the damage done to the investor community over the past 7-8 years has created a wonderful buying opportunity today in the stock for new investors. Here is what Prem had to say in the 2018 AR letter: “In the past, to protect our equity exposures in uncertain times, we shorted indices (mainly the S&P500 and Russell 2000) and a few common stocks. After much thought and discussion, it became clear to me that shorting is dangerous, very short term in nature and anathema to long term value investing. As I mentioned to you in last year’s annual report, shorting has cost us, cumulatively, net of our gains on common stock, approximately $2 billion! This will not be repeated! In the future, we may use options with a potential finite loss to hedge our equity exposure, but we will never again indulge anew in shorting with uncapped exposure. Your Chairman continues to learn – slowly!!”

Is cybersecurity a big deal? Are we in the late innings? Blackberry is in the sweet spot with a few of its core businesses. And it looks to me like we are still in the early innings with lots of runway ahead. And as been mentioned already, Fairfax likely has a pretty good view of the company / industry and where the business is going over the next 12 to 24 months. So i do understand why Fairfax is not in a panic to unload. However, i also understand why shareholders are banging the table for a sale (especially those who have owned shares for years). There is simply too much emotional baggage with this holding… SELL and make the pain go away Emotionally, investors simply want to move on. personally, i hope Blackberry gets bought out

It looks like Fairfax’s next big swing could be infrastructure in India. This swing will include partners like OMERS. What is the conversion of 15,000 crore? US $2 billion?

The other aspect of the sale of Riverstone UK that deserves mention is fit. Riverstone UK is looking to grow dramatically and this would have been difficult for Fairfax one two fronts: 1.) funding the growth 2.) optics imagine the outcry from investors (and downgrades from analysts) if Fairfax put hundreds of millions in new money and brought significant new runoff liabilities onto its balance sheet? Clearly a bridge too far. So instead Fairfax found its runoff operation a home where it can realize its potential. This is no different than what Fairfax has been doing with its vast number of equity holdings (re-positioning them or finding them a new home where they can be more successful). Probably provides a little insight into why lots of people who know and work for Prem like him so much.