Viking

Sharper i have also decided to reduce my position in Fairfax to lock in some very nice gains from the past three months. Fairfax is still my largest position. I did redeploy some of the proceeds into starter positions in Atlas, Fairfax India and Stelco - all look cheapish to me with nice tailwinds.

Stelco - STLC.TO

Thanks for posting the presentation; i had not seen it before. The $100 in EPS is not a crazy number if you look at it as a rolling number from Q4 2020 (from when the presentation was made). Q4 came in at $36. We could easily see another $64 from Q1-Q3 2021 = $100 EPS.

Petec, the key assumption i am making is that we see an economic recovery beginning in Q2 (driven by vaccines). If the virus mutates and a more serious variant emerges which throws the recovery into question then i would reduce my expectations for Fairfax accordingly (likely quite a bit). And of course, we could get a big correction in the stock market (20% or more), regardless of what is going on in the larger economy, and this would hit Fairfax hard (as their equity holdings would likely fall by more than 20%). In terms of near term headwinds for Fairfax, interest and dividend income will be weak especially in 1H 2021. And this is usually a key driver for insurance stock valuations (analysts like predictability). Another headwind is legacy run off business. Selling off the good part (Riverstone) is exposing the remaining runoff business and the big reserve additions in Q4 the past 2 years is not encouraging. The good news is problems will likely not show up until Q4, 2021. And the very large cash/short term investment balance, with rates so low, could be problematic if rates stay low for years and Fairfax has problems redeploying. I do not expect this to be a problem in 2021 given all the tailwinds. But this could become a bigger issue in 2022. (On the other hand, if rates rise in 2021 Fairfax will be in good position to benefit.). And Fairfax could shock me and decide to put $500 million of fresh money into some crazy, swing for the fence equity investment that i hate (and call in a deep value investment). I think this is low probability but i need more time to assess what they will do in the future when investing new money. Probably the biggest near term headwind for Fairfax is sentiment. Past investors in Fairfax are very scarred after so many bad years. The ‘narrative’ is not good (the fact it does not accurately reflect the current reality of the company will only be overcome over time). It reminds me of the big US banks in the US after the Great Financial Crisis. So many people lost so much money with the big US banks after the GFC they completely missed the reality of investing in the big US banks in 2016. They were unable to see all the changes that had happened (regulatory and at the banks) for years that made the big US banks solid investment by 2016. My view is Fairfax has been undergoing a similar metamorphosis for a couple of years now. But investors are so stuck in the past they are unable to see what Fairfax is today. The investor who was complaining to Prem on the Q4 conference call is a perfect example of this backwards looking thinking. Shareholders establishing a position today do not carry this baggage. And the good news is future returns for Fairfax with shares trading at US$403 (BV=$478) should be solid to outstanding.

Xerxes, Fairfax is my largest position and i find writing helps to crystallize what is rattling around in my head. There is also much that i do not understand (as i do not have an accounting background) and i appreciate the opportunity to communicate with and learn from other members of this board (there are lots, like yourself :-). I especially like when posters push back/disagree (with rationale/logic) as it provides food for thought. In terms of your question as to how Fairfax may be taking advantage of the current environment (commodities etc), based on the investment results they posted in Q4, i agree they may be active doing something. I was surprised by the very large investment gains in Q4 and do not understand what drove a lot of it (not that i am complaining). When the annual report is released March 5 we will get more information :-)

It is crazy the number of significant tailwinds that are benefitting Fairfax today; what a difference a year makes! In all the years i have followed Fairfax i do not think i have ever seen a better broad based positive set up for the company and the stock price. The set up pre-Great Financial Crisis with the CDS positions was better but it was a one hit wonder versus today where we have so many significant things working in Fairfax’s favour. Shares are trading at US $403 and BV = $478; P/BV = 0.85. Insurance operations are in ongoing hard market: 1.) this is driving top line revenue growth in excess of 10%. Importantly, the growth is skewed to the more profitable insurance operations. 2.) At the same time, the hard market is well over a year old and we are now seeing an improving underlying CR as written premiums become earned. I wonder if we do not see Fairfax post a quarterly CR of 95% or better (across all its insurance businesses) at some point in 2021. And a 95% CR on a full year basis after catastrophes now looks attainable. - importantly, were are not seeing any red flags with their reserving. Their equity investment have been on fire in Q4 and the first 6 weeks of Q1. 3.) in aggregate, my math says their equity investments are up $1.5 billion the first 6 weeks of 2021 ($59/share pre-tax). Based on what we saw in Q4 this number is likely understated and perhaps meaningfully. 4.) we also should see the non-insurance companies also deliver improving operating results (increased profitability) and this will drive improved financial results for Fairfax; i expect this to accelerate each quarter in 2021 as the economy opens up and GDP growth jumps. 5.) Atlas is their largest single equity holding (at about $1.35 billion, including warrants). The container shipping market is seeing crazy high pricing. Atlas has announced significant growth plans for Seaspan. Atlas shares hardly look expensive at $13.14 (where they closed Feb 8). Every $1 increase in Atlas is about a $110-120 million benefit for Fairfax. It would not surprise me to see Atlas shares trade over $15 in Q2. 6.) Blackberry is Fairfax’s second largest equity position at about $1.3 billion. Will Fairfax monetize all or a part of their position? We may not find out definitively until when they report Q1 results in early May. If they do this will be a game changer as the gains will significantly boost BV and provide the company with a significant amount of cash. 7.) Fairfax Investments in India are on fire: Fairfax India, Quess, IIFL Finance, IIFL Wealth. One of the big macro trades for 2021 is weak US$ and strong emerging markets. This trend may run for years. - US$ weakness should also result in a current benefit for Fairfax given its sizeable holdings outside of the US. 8.) Fairfax commodity investments are on fire: Resolute, Stelco and Astarta. A second big macro trade tied to US$ weakness is strength in commodity pricing. Rising commodity prices may play out for years. We are also seeing merger and aquisitions market heat up and this may benefit Resolute. 9.) Fairfax investments disproportionately hit by pandemic: Eurobank, CIB, Recipe, Dexterra, Thomas Cook India, Kennedy Wilson, John Keells. As the year progresses and vaccinations happen and economies open up these companies will slowly come to benefit. Frothy equity markets are driving hot IPO market, especially technology names. 10.) Fairfax controlled companies with IPO news: - Farmers Edge: early March - Boat Rocker just announced - Prem mentioned on Q4 to watch Fairfax India; this likely references Anchorage (Bangalore airport) which would be a significant development. 11.) More monetizations. Fairfax has many more companies it may chose to monetize as 2021 unfolds: AGT, Performance Sports (Bauer), Toys ‘R Us (real estate). 12.) Digit Insurance (India): it appears another round of financing was completed in January and valuation carried on books is likely low and perhaps meaningfully low. Fairfax will be increasing stake from 49% to 74%. This looks like a gem of a company. Cost? Financed how? Bottom line the value of this business will be increasing materially in 2021. 13.) Investment in associates/consolidated equities and BV: A big part of BV calculation for Fairfax is how the associates and consolidated equities are valued on the balance sheet. In past years it was normal to discount Fairfax reported BV to account for high marks given to consolidated equities. This no longer appears to be necessary. And we may now be in a situation where BV is actually understated with consolidated equities fair value in excess of carrying value. This point deserves a deeper dive given its complexity and importance to understanding Fairfax. Fairfax is also understanding this issue and said they will be providing disclosure in AR to be released in March to help investors. 14.) Total Return Swap on Fairfax shares (communicated with Q4 results): giving Fairfax exposure to 1.4 million of their own shares. Cost base is US$345. With Fairfax shares trading at $403 the TRS are up $88 million since Dec 31. Every US$10 move in Fairfax shares will provide a $14 million benefit to Fairfax.

Valueinvestor, i know this is a play on words but i think regrets is too strong (and negative) a word to use when evaluating ones investment process over time. I think of it more in terms of ‘lessons’. That then lead to tweaks to ones investment process. I love Buffett’s baseball analogy... about how investors are like baseball players... waiting for the perfect pitch... except there is no three strike rule. In this context not swinging at a fat pitch right down the middle is not a mistake. Because another will be coming, and likely quickly. Preparation and patience is key. The reason i refuse to think in terms of ‘mistakes’ is so i do not develop a negative mindset. That then starts to pollute my investing mental model. My goal is simply to be ready for the next fat pitch right down the middle (which can present itself at any time). And be in a good place mentally to be able to properly capitalize. This is not meant as a criticism of your post or what you are doing. Everyone is wired differently and they needs to find an investing process that fits their intellect and more importantly their emotional makeup. ——————— 1.) what happened? All insurance stocks sold off and got ridiculously cheap in May. 2.) why it happened? Unknown covid losses was likely big driver. Even though it was pretty clear losses in US would not be catastrophic (UK was where the big problem was because of policy wording). 3.) what did i do? Bought a small amount of WRB and CB and sold for nice, quick single digit gain 4.) rectify in future? Less thumb sucking. Be more aggressive (larger position size; hold for longer). 5.) Apply lesson learned: When Fairfax (again) got wickedly cheap in late October i took advantage and bought a decent sized position. And got very aggressive with position size once vaccine news came out mid November. Still hold very large position (as the news just keeps getting better).

Perhaps part of the challenge with the ownership numbers might also be where the shares are held? i.e. Riverstone and Brit? And what happens to the stockholdings held in Riverstone once it is sold in its entirety? Fairfax appears to have an agreement to transfer the equity holdings to Fairfax and until end of 2022 to execute fully.

Petec, for Resolute thanks for pointing out the discrepancy. I was using the Fairfax Q3 report where it states they own 28.8% of Resolute (up from 27.7% at Dec 31). Doing a quick google search the Nasdaq site says FFH owns 30.548 million shares. This is the number i am using in my spreadsheet. With 81.53 million Resolute shares outstanding at Dec 31 that would put their ownership at 37% - https://www.nasdaq.com/market-activity/stocks/rfp/institutional-holdings March 5 we will get the AR from Fairfax and they said on the Q3 call they will be providing an easier to understand summary of all their various consolidated equity holdings which will be great to see :-) ———————— I think the last time we saw a spike in lumber prices (a couple of years ago) Resolute paid a large special dividend. We may see the same thing later in 2021. Growing dividend income in 2H 2021 may be another tailwind for Fairfax.

Every dog has its day and Resolute Forest Products is barking very loudly right now. The shares traded at US $6.54 Dec 31 and are now up to $10.45 at Feb 8 = +60%. Fairfax’s position is up $119 million the past 6 weeks (to $319 million); they own 28.3% of Resolute. The position is carried in the books at $US for $166 (i think the position was written down in Q2). This is an example of where BV for Fairfax is understated. Why the sharp run up in Resolute shares? Primarily their lumber operations (my guess). And there is now speculation that we could see a big round of consolidation in lumber, pulp and paper verticals (Resolute plays in all 3). This is just another of many tailwinds for Fairfax. What an absolute carzy 3 months it has been for Fairfax and their equity holdings. Of note, Resolute bought 3 US lumber mills from Conifer in Dec 2019. That purchase could be an absolute steal given how high lumber prices are and how long this pricing cycle may last (given the under building that went on in the US for years). ——————————— Forestry companies are takeover targets as lumber prices soar - https://www.theglobeandmail.com/business/article-forestry-companies-are-takeover-targets-as-lumber-prices-soar/ Canada’s lumber and paper-products companies are expected to make significant acquisitions this year, or become takeover targets, as surging commodity prices drive industry consolidation. In the wake of West Fraser Timber Co. Ltd.’s well-received $4-billion acquisition of Norbord Inc. which closed in January, analysts and bankers predict domestic players such as Canfor Corp. will buy rivals, while familiar names such as 173-year-old Domtar Corp. may be snapped up. “Given that most wood product companies now carry strong balance sheets and surplus cash, we expect that management teams have been actively looking for areas in which to invest,” said analyst Paul Quinn at RBC Capital Markets in a recent report. The cyclical North American forest products industry is currently on an upswing, driven by increasing home construction and strong demand for pulp and paper products. ...In a sign that forest products is now a global business, in listing potential bidders for Domtar, Mr. Quinn said “a dark-horse buyer could be Nine Dragons Paper, given the company’s history of converting paper machines to containerboard and need for fiber to supply its Chinese paper manufactures.” Mr. Quinn said Nine Dragons could also bid for the paper division of Resolute Forest Products, a deal that would be worth &about $350-million for the Montreal-based company. Hong Kong-based Nine Dragons has a $10-billion market capitalization and has snapped up paper mills in Wisconsin, Maine and West Virginia over the past three years.

Stubble, i agree wholeheartedly to your comment above :-) Petec, i also agree with you. Fairfax will have lumpier results than other insurance companies. However, my view is the ‘non insurance companies’ bucket is now large and diverse enough that is should be able to generate a positive return for Fairfax (in aggregate) even in a down year like 2020. Instead it delivered -$179 million in 2020 (drags were Fairfax Africa, Recipe, other retail, Thomas Cook). My guess is this bucket will continue to underperform in Q1 and perhaps Q2. However, if the economy continues to improve we should see a big rebound in results in this segment in 2H. Could we see $100 million in earnings in a quarter from ‘non insurance companies’? The reason i am harping on the ‘non insurance companies’ bucket is because it will be one of the key drivers for Fairfax’s valuation moving forward as it will be a nice counter to falling interest and dividends. Especially if shareholders want to see Fairfax trade a multiple to BV (like anything close to 1.2xBV). - underwriting: should improve in 2021 (driven by hard market as written premiums become earned) - interest and dividends: will be lower in 2021 - share of profit of associates: insurance and reinsurance: looking good (especially with Digit now profitable) - runoff: do we get meaningful asbestos reserve additions each year ($150 million)? - non-insurance companies: should increase dramatically as recovery takes hold - interest expense: flat to slight reduction; higher balances offset by lower rates? - corporate overhead: ? - net gains on investments: wild card; looks very promising as recovery takes hold

Thanks for posting. Great summary. Hopefully the FE IPO is successful. Technology companies need $ to scale and the IPO should help in the near term. It looks like it will take a few years for FE to become profitable. Fairfax needs an exit strategy on these types of investments (the ones that do not play out as they expected at acquisition and this one clearly has not). There needs to be a limit of how much $ they commit. The big reason is Fairfax is, at its core, an insurance company. And if it wants to be valued at BV or (dare we hope) a premium to BV it needs to have earnings that are somewhat predictable. The non-insurance operations cannot keep driving $100 or $200 million write offs every year (as assets are written down). These write offs happen far too much. The good news is i think we can see a trend. In the past 12 months, APR was sold to Atlas. Fairfax Africa was merged into Helios. Farmers Edge IPO. And it appears Fairfax is not done. 2021 is certainly shaping up to be a busy year for Fairfax. Nice to see Fairfax motivated to act and take advantage of current market conditions. I am looking forward to the day when the non-insurance companies generate large and consistent free cash flows for Fairfax each and every quarter... when analysts are able to model that in their estimates we should see a nice increase in multiple to BV with target prices. PS: it is not surprising that Fairfax keeps saying that Digit is now profitable. Another headwind will become a tailwind as results are reported in the future. Of course, Digit looks like a home run. But still, it is nice to see more and more operations becoming profitable. Couldn’t disagree more. Prem has never managed the firm for consistent earnings and has repeatedly said he never will. If that means the stock trades below the multiple it could, good: more buybacks. What matters to me is how fast BVPS compounds over 5 and 10 year time periods, and that’s all. My point is not that Fairfax needs to become another Chubb or WR Berkley in terms of how it runs its investment portfolio. But Fairfax’s return on its investment portfolio has been abysmal for the past 8 years. And the issue is not value investing is ‘out of favour’. They have made too many very poor decisions. And many of the very big variety. Ben Graham defined investing as ‘safety of principal and adequate return’. Not that complicated. Prem keeps quoting Graham as an important influence. So many of their decisions completely miss both the safety of principal part AND the adequate return part. This needs to stop (and i think it is). The derivative bets (notice i did not say investments) have been a complete mess for years (yes, they might have worked out in Q4). They appear to be modifying this behaviour. Too many non-insurance businesses in their portfolio suck money out of Fairfax; they should be supplying money to Fairfax. So what happens? Fairfax is FORCED in bad times to sell off pieces of their quality insurance operations to raise cash to get the non-insurance companies through the hard times. Selling 14% of Brit is the most recent example. Before that Riverstone UK (part 2). Before that, Riverstone UK (part 1). This makes no sense. Their investment strategy needs to continue to improve so this stops happening. And the pandemic simply amplified the flaws with their investing strategy (too many low quality companies); they are VERY lucky central banks and governments came to their rescue (and everyone else too). Imagine where Fairfax would be today if the pandemic had morphed into a world wide depression. Relying on easy money from governments is not a smart strategy. The problem is they dug such a large hole (over many years) it will take more time for them to dig out; probably another year assuming the virus, the economy and financial markets cooperate. Their current investing formula does not work in recessions; this lesson needs to be learned and a pivot needs to be made. Just like the recent derivatives lesson/learned/pivot. So my hope is not that Fairfax becomes Berkshire, or Chubb or WR Berkley from an investment perspective. The problem right now is no one knows what Fairfax’s investment strategy is. It has been a complete mess for so many years. So my hope is, over time, they decide to own/invest in businesses that (in aggregate) will grow BV of Fairfax over a reasonable amount of time. Businesses that, in aggregate, do not severely stress the company’s balance sheet when recessions hit (like what just happened). I am ok with lumpy. But not 8 year cycles; that is nuts. So i hope they continue to punt the poor performers off their balance sheet and replace them with companies that are higher quality. So that when the next recession hits they are not put in a massive hole and forced to sell their good assets to get through. I do believe that super tanker is turning; Fairfax has some amazing/solid investments. But more work needs to be done.

Thanks for posting. Great summary. Hopefully the FE IPO is successful. Technology companies need $ to scale and the IPO should help in the near term. It looks like it will take a few years for FE to become profitable. Fairfax needs an exit strategy on these types of investments (the ones that do not play out as they expected at acquisition and this one clearly has not). There needs to be a limit of how much $ they commit. The big reason is Fairfax is, at its core, an insurance company. And if it wants to be valued at BV or (dare we hope) a premium to BV it needs to have earnings that are somewhat predictable. The non-insurance operations cannot keep driving $100 or $200 million write offs every year (as assets are written down). These write offs happen far too much. The good news is i think we can see a trend. In the past 12 months, APR was sold to Atlas. Fairfax Africa was merged into Helios. Farmers Edge IPO. And it appears Fairfax is not done. 2021 is certainly shaping up to be a busy year for Fairfax. Nice to see Fairfax motivated to act and take advantage of current market conditions. I am looking forward to the day when the non-insurance companies generate large and consistent free cash flows for Fairfax each and every quarter... when analysts are able to model that in their estimates we should see a nice increase in multiple to BV with target prices. PS: it is not surprising that Fairfax keeps saying that Digit is now profitable. Another headwind will become a tailwind as results are reported in the future. Of course, Digit looks like a home run. But still, it is nice to see more and more operations becoming profitable.

The driver of the very large beat from Fairfax in Q4 was ‘net gains on investments’ of $1,235.8 billion. Of this total $1,181.2 was ‘net gains on long equity exposures’. I don’t think anyone was expecting a number this big from this bucket. Can someone explain to me the likely drivers for this massive number? Is it composed of the following: 1.) appreciation of owned stocks (largely found in 13F) - $350 million? 2.) appreciation of remaining assets held in ‘common stocks’ bucket on balance sheet - like partnerships etc ? 3.) appreciation in Atlas warrants and BB debs - $100 million? 4.) foreign currency net gains - due to substantial weakness of US$ in Q4 ? 5.) derivatives: common stock and equity long positions ? I am trying to understand what the key drivers were in Q4 to better understand what might carry forward into Q1 given the continued strength in equity markets.

Perhaps because Fairfax needs to increase its ownership position to 74%. Bangalore Airport was only revalued to a ‘proper’ valuation AFTER Fairfax had built its position to what it wanted :-)

nwoodman; just feeding the ocd monster :-) nice to hear others find it helpful. PS: also, I found a couple of errors with my original file attached (currency got messed up for 2 positions); the file posted now is better :-)

OK, with Q4 results out (and 13F) I thought it would be good to update my spreadsheet to reflect new news. Also, from the Dec 31st 13F, I added any holdings over $10 million in size (resulting in 12 additions to my speadsheet). Reminder: the purpose of the spreadsheet is to provide a snapshot of what is going on 'under the hood' at Fairfax during the quarter. Please let me know you see any errors. On the conference call today Prem said we would see more detailed/easier to understand disclosure from Fairfax of their various business/equity holdings in the AR (March 5 release); this should help with accuracy moving forward. Bottom line, from Dec 31-Feb 12, my math says the various equity investments (including 'Other') are up $1.540 billion = about +$59/share (pre tax). Their equity investments are up about 19% in 6 weeks (not including 'other' bucket. New item: FFH TRSwap: +$88 million. Looks like Fitbit and Gildan positions have been sold (no longer on 13F). I also decided to modify the spreadsheet to 3 groupings (with equities in A and B groupings now ranked by size): A - equities - mark to market: +$353 million = + $13.48/FFH share (pre tax) B - equties - associates & consolidated; equity accounted: +$686 million = $26.19/share C - other: FFH total return swap, BB debs, Atlas warrants, Altius warrants: + $501 million = $19.16/share It is informative to see that the bottom 18 equity holdings now total more than $400 million. The types of holdings are similar to what we discuss every day on the board. Many on the board (including me) have been calling for Fairfax to move up the 'quality' scale and perhaps this is slowly happening. PS: I found an error with my original file; the corrected file is now attached below :-) and I updated the information in my post above to reflect the new numbers. Fairfax_Equity_Holdings_Feb_12_2021.xlsx

After listening to the call here are a few thoughts/comments: - float is up 11% (over past year) to $927/ share - Ki - ‘doing very well’ - Digit - i need to re-listen to this... did he say they HAD or will be taking ownership up? - last short position was finally closed at year end. ‘Never short stock indices or individual names again.’ - investment returns ended 2020 +2.7% - called out Fairfax India and Atlas as being very undervalued at current prices - AR will be available March 15. They will be providing better disclosure of equity holdings and bucket them by type of holding. - investment in associates: + $712 million fair value in excess of carrying value at YE. Implying BV is understated. Q&A - FFH TRSwap is investment. For one year. Can be extended if they want. - why not instead just but shares? Need to be careful with cash. - Brit: why sell 14% in hard market vs tap debt markets? For flexibility. - IPO’s: more coming... i think he said watch Fairfax India? - BB: he basically kept saying ‘no comment’. But did he not say at the very end of the call something along the lines of ‘we will make disclosures only when we are done’? ———————— It will be VERY interesting to see what analysts have to say when they issue their Fairfax reports later today. So many moving parts. As Bearprowler noted, the steep decline in dividend and interest income may be a red flag (as it is one of the few things analysts can model somewhat accurately). The thesis for Fairfax revolves around their investment portfolio and insurance analysts typically struggle with incorporating this in their models... Bottom line, i don’t see how analysts do not raise their price target for FF given the significant jump in BV (and price targets are a multiple of BV). They could lower the multiple they apply to BV... but how do you do that when Fairfax’s investment portfolio is on fire 6 weeks into Q1 and we are in a hard market with net written premiums growing at double digits and CR improving?

RBC was forecasting Q4 earnings for Fairfax of $5/share... (yes, investment gains are pretty much impossible to accurately estimate for Fairfax). We should see large target price increases tomorrow from all the analysts given: 1.) much larger than expected increase in BV 2.) larger than expected increase in net premiums written 3.) better CR 4.) significant Q1 tailwinds: - equity holdings up about another $1.4 billion since Jan 1 (yes, a big bunch of this equity accounted) - upside from Farmers Edge IPO - Digit revaluation ——————————— Globe and Mail news article on results. Fairfax should get lots of positive press with these results in the coming days and weeks. - https://www.theglobeandmail.com/business/article-fairfax-bounces-back-from-early-covid-19-pandemic-losses/

Because they didn’t have the cash to buy the stock. Instead they locked in the price for when they have cash later. Which perhaps explains the 15% sale of Brit to OMERS (source of cash for buyback)

It looks pretty much exactly what we all expected... NOT (but in a very good way this time :-) $1.2 billion net gain on investments? WTF?

Regarding Farmers Edge, here is share count information provided by Private Capital Journal: “As at September 30, 2020, Farmers Edge had 69,141,225 common shares outstanding and 160,554,295 potential dilutive common shares: 5,880,592 related to stock options, 27,746,874 related to warrants and 126,926,828 related to the equity conversion option of the convertible debentures. Fairfax Financial Holdings will continue to own majority of Farmers Edge following the offering.” - https://privatecapitaljournal.com/fairfax-controlled-farmers-edge-files-for-100m-ipo-on-tsx/

My vote was 50-75% (but closer to the 50% than 75%). If Fairfax gets its investing mojo back i could see it trading at a 1.1 or 1.2 x BV multiple (so lets say 1.15). For stock to trade at US $750 = $650 BV (1.15 multiple) BV Sept 30, 2020 was US $442. If they hit on BB, Farmers Edge, AGT in 2021 then BV could easily be north of $500 by end of 2021. Over next 5 years: - Digit should drive $1 billion increase in BV all by itself (perhaps $400 million in Q1?). This is close to $40/share pre-tax. - Atlas should drive $1 billion increase in BV. - remaining equity holdings should drive + $1 billion increase in BV - operating earnings (underwriting + interest and dividend income) at insurance units should drive BV growth each year of +$20/share ————————— The challenge with modelling Fairfax today is we are viewing it currently through the pandemic lense. So we are likely too pessimistic (too anchored on Fairfax’s most recent, depressed, 12 month results). What will its many businesses look like post pandemic? What will they earn? How much cash will get dividended up to Fairfax? How does the current hard market play out? Monetizations?

One key for Fairfax moving forward is how do they take advantage of the current market situation to improve the balance sheet and right size and rebalance the investment portfolio. Do they lock in some gains for Blackberry? Or do they continue to simply ride the roller coaster (likely back to US$7)? What happens with Farmers Edge pricing in early March? Just as important, what is the exit strategy / how do they lock in some gains while the market is so irrational. My fear is we get a bunch of talk about how it is a value investment and a long term hold and Fairfax shareholders just need to trust management and be patient. (With Fairfax management then talking about the ‘obvious’ bubble in some tech stocks which they do not own...) What is the plan with Digit? That company is in the sweet spot of the current euphoria. Yes, Fairfax likely views Digit as a long term hold. If you can get a year 10 return in year 3 why not do it? Time value of money. What is the plan with AGT? This could be another very large transaction. Atlas is another one to watch given its massive position size (especially once it gets to $15/share or even $20 if container stocks take off). What is the exit strategy for at least part of the position. Fairfax has said the word ‘monetize’ so much over the past year they now need to deliver. Because the market is finally cooperating. We could see a large number of announcements coming from Fairfax in the coming months. If they are able to exit some positions at high prices they will mint $. And Fairfax stock will jump (25-30% from current levels is not crazy... that kind of move would take the stock to Jan/Feb 2020 levels) PS: a watch-out for me is how much cash actually flows to Fairfax in these ‘monetizations’. Or, horrors of horrors, does Fairfax actually spend more to facilitate these deal (buying out other partners) so the ‘monetizations’ end up being a use of cash instead of a source of cash.

A bunch of Fairfax’s holdings in India are on fire to start 2021. IIFL Finance is up 80% in the last 8 days. The three IIFL triplets are held both directly by Fairfax and also in Fairfax India (larger position is held in Fairfax India). Fairfax also holds a very big stake in Quess. Dec 31 2020. Sept 30. Dec 31 2021 Feb 9 IIFL Finance $139.50. $79.55. $113.75. $244.75. (All prices are INR) IIFL Wealth. $1,128. $962 $1,022. $1,211. (All prices are INR) Quess. $483. $413. $546. $707. (All prices are INR) Increase in value of Fairfax direct holdings from Dec 31-Feb 9 (US$): IIFL Finance. +$51 million IIFL Wealth +$11 Quess +$107 Fairfax India +$146 Bottom line, Fairfax has quite a large number of tailwinds right now. It is significant seeing the large direct Indian holdings now even much higher in price than Dec 31, 2020 prices. A little bizarre how the stars appear to be aligning for Fairfax right now...