Viking

Now that the Riverstone UK sale has closed it is informative to look back. In 2008 the business had shrunk to 53 employees and $100 million in assets. Instead of winding the business down (the prudent thing for an insurer to do), Fairfax decided to go the other way and aggressively grow the runoff business. 12/13 years later Fairfax is selling the business for $1.3 billion (with the opportunity to earn another +$200 million). Bizarre (only an idiot would grow their runoff business!). Audacious. Very impressive. Riverstone UK is also a great example of hidden value; who at the end of 2019 valued Riverstone UK at $1.3 billion in their build of what FFH was worth at the time? No one i am aware of. Further, having a large runoff operation is usually a big negative when valuing an insurance company (it is not normal). So Fairfax was able to find considerable value in a hidden asset on its balance sheet that was never going to be appreciated by insurance analysts and most investors. There are parallels with the First Capital sale a couple of years ago (another under appreciated and grossly undervalued asset). Makes one wonder what other assets on Fairfax’s balance sheet are currently being undervalued by investors? ——————————- Here are the mentions Riverstone gets in the 2020 AR. They provide a great summary; sorry for the length. Page 6: 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. Page 11: 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. Page 22: 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. Page 107: 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. Page 108: 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.

Having said the above, i do think a change to Fed policy is likely coming in the next 6 months with timing uncertain (driven by strong economic growth, job gains etc). And if the Fed does nothing in the next 6 months it likely means growth is stalling out. Looks to me like the tail risks are growing so perhaps time to pay a little more attention to macro stuff.

I continue to think the key is central bank policy and fiscal policy from governments. And when it changes. And how markets reacts to the change (s). i do not see anything today that would warrant a change today (from their perspective). Markets will be hyper sensitive to any new news so the Fed speaking at Jackson Hole will be must watch TV. My guess is there will be no new news. Why? The Fed does not want financial markets to crater. And the US economy is facing headwinds from Delta/vaccine hesitancy (paranoia?) and this is slowing growth in the near term; in other words, a growth scare. Sept/Oct can be ugly months for shareholders… my guess is the Fed also understands the seasonal workings of financial markets. Things are starting to get quite interesting

Agreed. My point is significant excess cash is building on the balance sheet that is not needed (they are already flush with cash and marketable securities at $1,480 at end of Q2). With more coming. Looking forward to what they do with the excess cash Stock buybacks look like an easy decision. However, they could do other things.

US$700 Riverstone UK + $375 Brit = $1,075 million Repay revolver = $500 million Balance = $575 million Cash on hand at Fairfax at end of Q2 was close to $1.5 billion. We should see solid earnings in Q3. We could also see more monetization of assets. 30% of Eurolife was purchased in July for $142.6 million. Bottom line, Fairfax looks to be entering a phase where cash is building on the balance sheet. The question becomes what will it be used for? Stock buybacks are a very easy decision. For years Prem has talked a out buying back significant stock; i don’t think this is hyperbole. The top priority for excess cash for the past 24 months has been supporting the subs to take maximum advantage of current hard market. With the hard market looking like it is in the later innings perhaps stock buybacks will move up the capital allocation ladder. However, with hurricane season just getting started perhaps Fairfax holds off for a few months (or starts modestly). Stock buybacks look to me to be the most likely near term catalyst for FFH shares. There is not a lot of volume in Fairfax shares. So any buyback will likely push the price higher and perhaps materially. Perhaps we are at the beginning of the next phase of Fairfax’s rebirth: meaningful stock buybacks. ——————- The sizable total return swap giving exposure to 1.95 million FFH shares also will increase Fairfax EPS should FFH shares move higher. This holding creates kind of an interesting incentive for Fairfax management i.e. stock pops $50 = $100 million increase in pre-tax earnings… We also know Fairfax feels their shares are trading a crazy cheap valuation. Lots of very good reasons to start meaningful stock buybacks. And now they have the cash. And the insurance subs don’t need it (their equity holdings have all increased materially over the past 9 months).

Xerxes, thanks for posting. Yes, i did enjoy the lumber/Paul Rivette discussion i had never heard of GreenFirst before; sounds like a pretty crazy (high cost assets)/somewhat messed up transaction (shades of old Fairfax?). Big bet on higher lumber prices.

Here is a little more detail on EXCO. With oil prices trading +$60 they must be making good money these days. Free cash flow was $36 million in 2020; it must be materially higher in 2021. I hope EXCO becomes a good example of some of the purchases made by the old Fairfax: buy chunk of struggling business for cheap price, sink more money in it when things get worse, restructure and/or bankruptcy converting debt to equity, make a return on investment 5 or more years later ————————- Fairfax owns 44% of EXCO; private holding Valued at US$238 million at Dec 31, 2020 EXCO Bankruptcy Illustrates Power of Chapter 11 Restructuring Nov 2019 https://www.kirkland.com/-/media/publications/article/2019/11/new-york-law-journal-exco-bankruptcy-restructuring.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).

Makes sense. What i hope is that this deal removes the liability of the Toys ‘R Us retail business from Fairfax’s balance sheet. It would be interesting to know what the real estate is and what it is worth today

This sale is more good news. A few years ago Fairfax HO seems to have realized that they are not turn around experts. The problem, at that time, was they had a whole bunch of businesses, purchased over the previous 5 years, that needed help of some kind from Fairfax HO (gobs of money, strategy, management); some desperately. Solution? Step 1 was to stop buying these types of businesses. Recent Fairfax purchases, like Atlas and Stelco, have come with strong management teams. Lesson learned. Step 2 was to get each of the struggling businesses into a position where they were able to succeed with minimal financial / management support from Fairfax HO. Sometimes this meant partnering with strong external management teams like Helios (Fairfax Africa) and Atlas (APR). Sometimes it was a complete restructuring of the company, like EXCO Resources. Sometimes it was to bring the company in house, like with AGT. Sometimes it was a merger of Fairfax controlled companies, like Eurobank and Grivalia. Sometimes it was a sale, like Easton baseball (and new ownership stake in Rawlings, the leader in the category). Sometimes it was a reverse takeover, like Dexterra’s takeover of Horizon North. Sometimes it was an IPO, like Farmers Edge and Boat Rocker. My guess is the recent Mosaic transaction is driven by a desire to get that company into a position where it can better succeed moving forward; we will see. For the past 2 to 3 years Fairfax has been on a steady path of getting all the companies in its equity portfolio fixed and positioned to be successful moving forward with solid management teams and business strategies in place and strong financial positions. It is rather impressive when you look at all that has been accomplished and how much better positioned each of these companies are today. Toy’s R Us is just the latest example. Carve out the retail operations, which clearly are not core to Fairfax, and sell to Putnam Investments, a company much better positioned to manage the retail asset moving forward. Any future royalty streams is just a bonus. And what does Fairfax keep? The real estate assets. Smart. Clean. Positions Fairfax very well moving forward. Chug, chug, chug…

Petec, i like to follow what Fairfax is spending new $ on. Here are two purchases in Q1 and one from Q2 and one from Q3. The Mosaic transaction is also interesting; no new money involved here (I have no opinion). I really like the investments in Singapore Re and Eurolife; no brainers with high probability of working out for Fairfax shareholders in the future. Singapore Re will likely allow Fairfax to scale up Its business in Asia. And Eurolife looks like a cash machine and fits with Eurobank (who owns the remaining 20%). I know very little about Helios so have no opinion on that investment. Thomas Cook India is currently a distressed asset (and will be until India gets to the other side of covid). Bottom line, i see no red flags with how the cash is being spent at Fairfax. 1.) Thomas Cook India preferred shares During the first quarter of 2021 the company invested $60.0 in Thomas Cook India preferred shares through a private placement. This intercompany shareholding is eliminated in the company's consolidated financial reporting. 2.) HFP unsecured debentures and warrants On March 31, 2021 the company invested $100.0 in HFP unsecured debentures and warrants as described in note 6. In Q2: 3.) Additional investment in Singapore Reinsurance Corporation Limited On June 17, 2021 the company increased its ownership interest in Singapore Reinsurance Corporation Limited ("Singapore Re") from 28.2% to 94.0% for $102.9 (SGD 138.0) through the completion of a public cash offer and commenced consolidating the assets, liabilities and results of operations of Singapore Re in the Fairfax Asia reporting segment. Singapore Re is a general property and casualty reinsurer that underwrites business primarily in southeast Asia. In Q3 4.) Acquisition of Eurolife FFH Insurance Group Holdings S.A. On July 14, 2021 the company increased its interest in Eurolife FFH Insurance Group Holdings S.A. ("Eurolife") to 80.0% from 50.0% by acquiring the joint venture interest of OMERS, the pension plan for Ontario’s municipal employees, for cash consideration of $142.6 (€120.7). The remaining 20.0% equity interest in Eurolife continues to be owned by the company's associate Eurobank. The company will commence consolidating the assets, liabilities and results of operations of Eurolife in its consolidated financial reporting in the third quarter of 2021. Eurolife is a Greek insurer which distributes its life and non-life insurance products and services through Eurobank’s network. ————————- The Mosaic transaction is material, although does not involve spending new cash: Proposed privatization of Mosaic Capital Corporation On June 25, 2021 Mosaic Capital entered into a privatization arrangement with a third party purchaser pursuant to which the company will exchange its current holdings of Mosaic Capital debentures and warrants, and cash of approximately $11 (Cdn$13.3), for approximately $132 (Cdn$163.3) of newly issued Mosaic Capital 25-year debentures. The company will also acquire a 20.0% interest in the purchaser for approximately $4 (Cdn$5.0). Closing of the transaction is subject to regulatory and shareholder approvals and is expected to occur in the third quarter of 2021. The company anticipates that upon closing it will deconsolidate Mosaic Capital and commence applying the equity method of accounting to its interest in the purchaser in its consolidated financial reporting. Accordingly, at June 30, 2021 Mosaic Capital's assets of $185.5 and liabilities of $109.4, comprised principally of accounts receivable, intangibles, borrowings and accounts payable and accrued liabilities, were presented on the company's consolidated balance sheet in assets held for sale and liabilities associated with assets held for sale respectively.

Glider, not to worry. Getting answers to specific questions can take some time and as better sources are found more accurate answers emerge. Thanks again for figuring this one out One of the things i am very happy with is Fairfax appears to want its various equity holdings to stand on their own two feet (financially speaking) moving forward. If the equity holdings need cash, get it from somewhere other than Fairfax - the debt markets or via iPO (Farmers Edge and Boat Rocker) not Fairfax. So the equity holdings need to be profitable (generate needed cash internally); this is, of course, the best way to get needed cash . I might be off base, but it appears to me Fairfax has been weaning its equity holdings off of the Fairfax teat for a few years now. I think this was also part of the rational for fixing / merging problem children like Farifax Africa with Helios and APR with Atlas - find a good solution to a problem that also turns off the cash tap running back to Fairfax. Of course Fairfax will need to sink $ into some of the equity holdings; Thomas Cook being a recent example (although the $ came with a benefit for Fairfax). i think we are getting closer to the point where the equity holdings collectively will become solid sources of cash for Fairfax versus significant users of cash (as was often the case in past years). PS: another small example of this is Recipe’s recent sale of Milestone’s restaurants. And their closing of 100 poorly performing locations (various banners). There appears to be a heightened focus on ‘optimization’ and profitability. Recipe wants to grow certain banners and it now needs internally generated profits/money to do so… Not getting bigger via acquisitions to realize nonexistent synergies. It is a common theme listening to the quarterly calls of the various equity holdings. Optimization/profitability/free cash flow generation. And it is music to my ears

Glider, thanks for the details on Farmers Edge. Hopefully Farmers Edge figures things out. Early days. And Fairfax is not going to hit on every investment they make. Was it Peter Lynch who said hitting on 6 out of 10 investments should do the trick? We will see…

Until i see hospitalizations rates spike for vaccinated people i will remain optimistic. The key all along has been to implement measures to ensure the virus does not overwhelm your health care system (and cause a spike in deaths). Vaccination appears to be the most effective tool. Here in Canada my guess is we will see vaccination rates hit 75% of total population in the next month or so. i am now in the ‘how to live with covid and have a quality life’ camp. Let’s go! What would it take to get me concerned? A variant that current vaccine’s are not effective against. From an investment perspective, i wonder if all the current hand wringing about Delta is not a big head fake (nothing burger). If so, once the market figures it out in another month or so, perhaps the value/reflation trade gets turned back on and we are off to the races again. The other thing i wonder about is where economic growth in the globe goes from here. You almost have a bifurcation: countries who vaccinate and countries who do not. Lots of countries appear slow out of the gate regarding vaccinations; my guess is as more time progresses they will see the value of vaccinations and get with the program. This should lead to a slow staggered increase in global economic growth well into 2022.

bearprowler, yes, the size of the decline in Farmers Edge has been pretty crazy (share price % and market cap). I just listened to the Q2 conference call. It appears they missed expectations in Q1 and followed that up with another miss in Q2. Sounds to me like they are still in their infancy / trying to figure things out. Like a start up. And selling to farmers, who tend to be a pretty conservative, slow moving group (good luck forecasting technology adoption / carbon capture innovations with that group). And the business is very seasonal and tied to the weather. And if you miss a season (like with a delayed or late new product launch), it can be another 12 months before you get another shot. And it sounds like the competition is heating up. Bottom line, it will likely be another year before we have an idea what kind of a business Farmers Edge is (product lines, sales, profitability). Bottom line, they might connect on one or more of their products and hit a home run. They certainly have a lot of irons in the fire. Makes sense to me that consolidation will also come in to play at some point. ——————————- Does anyone know what Farmers Edge is carried at by Fairfax? I looked in the Q2 report and it is captured in ‘Other’ with a few other companies like Boat Rocker; the ‘Other’ bucket has a total value of US$375 million.

Yes, i saw the steep sell off today. CFO resigning after 1 year with company? (Former CFO is returning out of retirement). They also made a smallish US acquisition? Strategy issues? Growth issues? Of all of Fairfax’s current equity investments this is the one that i have the least visibility on; to be fair i have also spent very little time on it. I’ll give the Q2 call a listen this weekend As a reminder, here is what Fairfax had to say about the Farmers Edge IPO in the Q2 report: “During March 2021, Farmers Edge completed an initial public offering for Cdn$143.8 ($113.8). Prior to the initial public offering the company exercised its warrants and converted its convertible debentures for common shares of Farmers Edge and another third party converted its convertible debentures for common shares of Farmers Edge, resulting in the company's controlling equity interest in Farmers Edge increasing to 59.9% on completion of the initial public offering and capital transactions.

Thanks for posting Fairfax owns 47.6 million shares of Quess. At sale price of 900 rupee i think this would put total position in Quess worth about US $575 million (before sale). This is a very large position for Fairfax. 3 million shares were sold by Fairfax = 6.3% of total position for proceeds of about US $36 million. It will be interesting to see if this transaction is a one off or if it is the start of Fairfax perhaps getting more aggressive in monetizing the significant increases we have seen the past 10 months in most of their equity holdings. And equally interesting to see is what they do with any proceeds. PS: Quess shares were trading at 400 rupee in Nov of 2020; most of the Indian investments are up +100% as well. Pretty amazing rebound. What is especially encouraging is the business results being delivered by the various Indian investments; Quess had 25% growth in top and bottom lines this past quarter.

When the pandemic hit in early 2020 it hit Fairfax’s equity / consolidated holdings especially hard - lots of cyclical, smaller cap and emerging market companies. Earnings at these companies dropped substantially and this flowed through to Fairfax - resulting in lower earnings. In Q2 we are starting to see top line and earnings results at Fairfax equity / consolidated holdings bounce back. And this benefit is starting to flow through to Fairfax earnings (in various ways). Poor results with the equity / consolidated holdings was a modest headwind (Q2 2020 to Q1 2021) and is now a modest tailwind that should pick up speed in 2H 2021 and into 2022. Stelco: Dividend increased from C$0.10/ share to $0.20. Fairfax owns 13 million shares = C$2.6 million per quarter (increase of $1.3 million). Leon’s Furniture: Special dividend announced of C$1.25/share. Fairfax owns 7.2 million shares = C$9 million Dexterra: dividend increased 16.7% to C$0.875. Fairfax owns 31.8 million shares = $2.8 million (+C$500 thousand) Early June Resolute announced C$1 special dividend. Fairfax owns 24.8 million shares = C$24.8 million. Now Resolute is an Associate holding and Dexterra is a Consolidated holding so i am not sure how the dividend is treated from an accounting perspective by Fairfax. Bottom line, the dividend increase announcements are another positive indicator.

In Feb 2018 Fairfax purchased Carillion Canada out of bankruptcy; actually its UK parent went bankrupt and the Canadian division was collateral damage. 2018 was also the year Fairfax purchased Its Stelco shares. I remember thinking at the time… why are they buying shitty businesses like Stelco and Carillion? ok. 3 years later were these good purchases? Yes. Actually both of these purchases are looking like home runs for Fairfax. (Both also just released Q2 results in the past 24 hours.) I think most board members understand that Stelco is looking like a home run investment for Fairfax. On the conference call today Stelco management said they will be announcing something in the next couple of weeks that will be driving the share price higher (as it is undervalued at C$42). Fairfax owns 13 million shares of Stelco (i think their cost - after dividends - is a little under C$20). Fairfax is currently sitting on C$300 million gain in under 3 years (more than 100%). Not too shabby. But what about that other dog of a purchase… Carillion Canada? In March 2020 Fairfax executed a reverse takeover of Horizon North folding in the Carillion Canada assets. At the time Prem threw out: C$1 billion in revenue and $100 million in EBITDA anually as medium term targets for the combined company… just another example of irrational exuberance on the part of the CEO. At the time i wondered if this reverse takeover was yet another example of Fairfax doubling down on another shitty business (Horizon North) . And then of course the pandemic hit and all i saw was a bug hitting a windshield. All of Dexterra’s businesses (the company was renamed from Horizon North) were impacted mightily and revenue cratered. So what has happened since March of 2020? Dexterra got through the worst of the pandemic, focussed on free cash flow generation, actually paid down debt and fine tuned and executed on its strategic plan. Their performance the past 12 months has been remarkable. As a result its financial performance is taking off. And that C$1 billion in revenue and $100 million EBITDA pipe dream? My guess is they will hit it in the next 24 months if not sooner. Their revenue run rate is currently about C$800 million. To be completed in Q3, they are reworking their credit facility; cost will be coming down and it will be upsized to fund M&A. Growth moving forward will come from return to more normal operations (at businesses still adversely impacted by pandemic), significant organic growth (with wins already in the pipeline) and targeted M&A. - https://dexterra.com/investor-presentations-events/ Fairfax has a carrying value of US$115 million for Dexterra (about C$150 $4.72/share). They own 49% of the company (31.8 million shares). Shares are trading today at C$7.27 = $230million. My guess is when Dexterra hits $100 million in EBITDA shares will be trading much higher. Let’s assume conservative 7 X EBITDA multiple = market cap = $700 million = $11/ share. The key with both Stelco and Dexterra is they are both run by what look to me to be very good management teams. Years of hard work finally paying dividends for Fairfax (and investors in Fairfax). The list of stellar equity decisions/investments made by the Fairfax team in recent years is growing with each passing quarter… PS: 2018 was also the year Fairfax dropped $1.1 billion into a small shipping company called Seaspan. I know, i know, another terrible investment in another shitty company in a shitty industry

Why do you call Fairfax, as it is comprised today, a ‘cigar butt’? Fairfax is trading today at about the same price in US$ it was trading at in 2014. So looking at past returns, yes, it has been a complete dog with fleas. And based solely on its performance the past 10 years an investor would have to be an idiot to put money into FFH shares. I am focussed on where the shares are trading today, how the company is positioned today, what its earnings will be moving forward and where the share price is likely to go in the future. As i have stated in many different ways i like the current risk/reward US $450/share set up for Fairfax. Would it be better for investors to put their $ in other insurers? That is certainly an option investors need to carefully consider. If i had to buy one insurer and hold it for 20 years i probably would not buy Fairfax. Fortunately, i do not have to hold any of my investments for 20 years. There is no right decision for everyone. Rather, each of us does our homework, makes a decision, lays out some $ and hopefully does well / makes some money. Best of luck to everyone

Greg, i am not sure i understand your reference to ‘externally influenced’. The reason Fairfax is able to grow its top line so much the past couple of years (take advantage of the hard market) is because it has been a disciplined underwriter in the past and therefore is now able to grow net written premiums 25%. This is a sign of solid management behaviour. Now is Fairfax best in class when it comes to underwriting? No they are not. And that is a very different discussion. And has the overall equity market been going up? Yes. Does that negate what is going on at Fairfax? No. It was their decision a couple of years ago to pivot from ICICI (monetize) to Digit. And it is working out exceptionally well. Putting $1.1 billion into Atlas is looking more and more like a very good decision. I also like their decision to get exposure to 1.95 million FFH shares via the TRS. And as i said before, there are lots more examples of what look to me to be solid decisions by management. Now is Prem a watchout for me? Yes. But i will judge him be what he says and does. (When my kids mess up they pay the consequences and we all move on. I do not keep harping at them afterwards.) Prem messed up. He has admitted some errors and corporate strategy has been modified. I am open mined to what will come next. If i see more big errors i will move on. Not complicated. The reason i like Fairfax right now is i like the risk / reward with the shares are trading at US $450. I think i understand the company. And i have owned it on and off for 20 years and done very well in the past when my analysis has identified a similar set up. We will see what the future holds

ok. So “what’s changed?” 1.) record top line net premiums written; +25% most recent quarter and poised to continue 2.) record underwriting profit (Q2 and 1H?) - given lag between written and earned premiums should see strong top and bottom line growth for at least next 18 months 3.) record total investment results past 9 months (were CDS gains higher?) 4.) record 9 month EPS 5.) record book value of US$540 with another $40 coming (Digit) shortly 6.) lowest cost of capital in history (lowered significantly over past 12 months): debt has been extended at lower rates 7.) Digit poised to be next grand slam investment win (+ $2.5 billion) 8.) Atlas is poised to be a home run investment win (+$1 billion) 9.) Initiated TRS for 1.95 million FFH shares 10.) strategy change with insurance companies: no more large acquisitions - resulted in significant share issuance in past 11.) strategy change with investing: no more shorting - resulted in billions of losses in past Greg, do you disagree with anything written above? There are another 10 or 15 smaller but significant developments from the past 24 months that i could list that all have built value for Fairfax shareholders. Bottom line, much has changed at Fairfax over the past few years. Now one thing has not changed at Fairfax: Prem is still CEO PS: i am pretty sure about all the ‘record’ comments above… please correct me if i am wrong

Central governments are running a grand experiment on a massive scale that has never been tried before. I have largely given up trying to understand how it is all going to work out (and i normally love macro stuff). Negative interest rates? Massive amounts of debt? Japan the past 30 years? Wicked crazy From an investing perspective my big learning from the past 10 years is when the Fed opens the QE taps and drops interest rates financial assets boom. Especially stocks. And with interest rates so low US housing is now joining the party and pounding the drinks back (Canadian housing never left the party). My guess is this will become a permanent feature (QE and low interest rates). The Fed cannot end any of the various (larger) measures they currently have in place. As soon as they try financial markets will throw a fit. And because of the wealth effect the Fed will quickly reverse course (if they try) - they will have no choice. Deflation is coming (looking out about 2 years). I think Lacy Hunt of Hoisington has the best model to explain what is going on right now (lots of recent you-tube videos). We are going to get lots of head fakes (imflation etc) the next 12-18 months as global economies move to the post-covid new normal. But all the secular trends that were driving deflationary forces pre 2000 are still in place: technology, too much debt, slowing in population growth etc. The Fed will fold its tent at the first sign of trouble as they are deathly afraid of deflationary forces reasserting their grip. What to do? I am watching the Fed. I want to have a nice cash balance when they start to TRY to change course. For now I am happy to remain largely invested. I think there are some nice opportunities out there: Fairfax, Fairfax India, Seaspan, Suncor to name a few that look especially cheap right now. As Druckenmiller says: be inquisitive and be open minded… good luck

From my limited research on Fairfax India, Sanmar was the only large holding that looked concerning. If it is able to raise $500 million next week and pay down high cost debt then that looks like a significant win (compared to the $ coming from Fairfax… which perhaps would have been what happened a few years ago). We will see where the shares trade post IPO. I do like the added visibility with the shares soon to be publicly traded. ———————— From the article: The NCDs of ₹1,270 crore were issued by the company in multiple tranches in December 2019 at a coupon of 17.50% per annum payable monthly and have a scheduled tenor of up to seven years from the deemed date of allotment. "The early redemption of the NCDs in full will help reduce our outstanding indebtedness and debt servicing costs, assist us in maintaining a favorable debt to equity ratio and enable utilisation of our internal accruals for further investment in business growth and expansion", the company said in a DRHP. "In addition, we believe that our improved leverage ratio, consequent to such redemption of NCDs, will improve our ability to raise debt in the future to fund potential business development opportunities and plans", the company added.

candyman1, thanks for the trip down memory lane. Yes, the CDS position was a $1,000 bill (not a $20 bill) lying on the ground for investors willing to pick it up. Most walked right by thinking it was not real. it is a great case study in how investors ignore the facts in front of their face. Especially when there is a change in the facts (new news). Instead they cling to the old narrative. It is very comforting. The good news is the narrative does get updated eventually… as we learned with the CDS experience it just sometimes takes a little time. And then the shares all of a sudden pop for no reason at all. Like who could have known?

here is what RBC wrote in their Q2 report; they did not provide any further details in the report: “Other items of note: Buybacks in the quarter were about $63 million. The excess of estimated fair value over carrying value of the company’s non-insurance affiliates increased to $754m from a deficit of $458m at 12/31/20. Details of the calculation are included on page 73 of the interim report. The excess of estimated fair value over carrying value of all Fairfax non-insurance associates including Fairfax India associates is about $1.9B or more than $57/share after-tax (not included in book value). During the quarter, the company recognized unrealized gains related to its holdings in Blackberry debt and equity; they did not monetize any of this position in the quarter.”