Dazel

For all the bull market enthusiasts...Blackberry may be on the cusp of joining the frenzy. I would not hold a big position directly at these levels but happy to have Fairfax possibly make billions on the frenzy. https://www.reuters.com/article/us-blackberry-software/blackberry-launches-cybersecurity-software-for-self-driving-cars-idUSKBN1F42LX The article missed the Nvidia partnership. Nvidia was the hottest stock in the tech sector last year...stay tuned.

Fairfax has paid around $100 a share out and dividends as well for long term holders these become significant portion of their returns when growth starts to compound again. It would add around 20% to returns over the last decade. While most do not care...big smart money does.

Petec, your point is well taken on the amendment...we know the shares have already been diluted from the Allied acquisition so I am not sure how it works exactly. But I most certainly do not think it is the issue that has been brought up. I see a shareholder group that was very dissatisfied with Prem’s performance in 2015-2016 and they saw it as an undeserved power grab. They of course are entiltled to this opinion and many voted with their feet. They sold most of their shares...the corner of Berkshire Fairfax dinner is likely over...these are all signs of capitulation.The fact is Fairfax is second behind Berkshire for their treatment of shareholders over the last 30 years. To think that Prem set up a family coup like the Tata of the 1800’s is laughable. However, it is important to note there is great disappointment in Fairfax being wrong for awhile. To be fair I am pretty sure that I have stressed how bad the hedges were and what a disaster they were to performance when I said they may be the worst hedges I have ever seen! This rear view look is why we are trading where we are and actually why I am posting. When other Fairfax threads broached the topic of hatred of Fairfax they were real. Biggest bull market in history and Fairfax not only did not profit they lost likely $6b in hedge losses and equities fell apart!!!? Shareholders “deserve” to be pissed. But be pissed for the right reason. Performance sucked! So the shares are in show me mode.... and rightfully so...my point is only to stop thinking about the rear view mirrror and look at what carrried Fairfax through the hedge losses. When they get the investing side right and I think they will....all will be sorry they held a grudge! Petec we understand you are stronger than most and will do better in the long run...you don’t know when Fairfax will have a 50% run in share price. Dutchman, Idont think it will be 5 years! But your point is well taken speculation has taken over and 5 years is an eternity to most! Since everyone is in speculation mode...I will speculate that Longleaf will keep adding here and they will double their money in Fairfax in a couple of years.

$59m fair value on CPI contracts. They have written off almost $600m.

http://www.fairfax.ca/news/press-releases/press-release-details/2015/Fairfax-Announces-Modifications-to-Multiple-Voting-Share-Proposal-and-Postponement-of-Special-Meeting--of-Shareholders-to-August-24-2015/default.aspx .2 from the amendment If Prem is no longer the CEO or the Chairman of Fairfax there has to be a vote among “minority shareholders” to approve the amendments for the multiple voting shares to remain. He has signed on to remain in his positions until 2025 and kept his salary frozen at $600,000 which he has done since 2000. So why would you worry about his son stewarding the ship? He would have to win a minority vote to have the controlling vote if Prem were to leave for “any” reason. Shalab does that sound like an Indian business house from 1800’s?

Waiting Shalab let’s us know what that downside is on the CPI derivatives and please explain your bizarre Tata reference.

Page 14 of the third quarter report Shalab. The hit has been taken as for that Tata family? Really?

Shaleb, Tell the board what the mark to market value of the he CPI derivatives are carried in the book value is please and how much possible downside there is to a value of zero please.

I once again disagree. Dutchman. Can you tell me how Markel got to a $1000 a share? What investment genius decisions did they make? They have very good insurance operations and a decent investment return on the investment portfolio. New Fairfax is an operating company that do not need spectacular macro calls... they do not need a lot to go right to perform well. Will they have a great investment in the next 5 years that will standout and pop the shares probably...5% return and underwriting profits will take pretax earnings to around $3b. That’s this year...not the next 5. The math works.

Petec I disagree. Prem said I am bullish on global markets and growth especially in India and developing markets because the U.S growth is going to pick up and animal spirits will return. -They made the biggest acquisition by far in their history completed in July..taking the investment portfolio to $40b -They sold the majority of their long term bonds and said interest rates will rise...in other words we will wait to buy bonds -They started Fairfax Africa -they added to Fairfax India raised debt and bought more investments They added another $250m in Greece -had record investment returns for 2017 from two big sales -started an Insurance company on their own in India -invested about another billion in convertible preferred shares They have been very busy they just are not buying U.S common stocks at 20x earnings....but have shown bullish moves on global growth which they have been right about so far. To me again the bullishness has kept them away from the bond market which will move the needle more than anything else when they re enter....when others head for the exit....that’s not far away. The 43% of the portfolio in cash will be headed for bonds at the right price.

I think we have beat the proverbial Fairfax past to death here. November 2016 they changed course saved billions in hedge losses...took their profits in treasury bills before they tanked and made by far their biggest acquisition ever taking investments up to $40b and they added heavily to their India bet. They told us that the Trump victory would bring animal spirits back and that U.S growth would power global growth they were correct. Investment (capital) Gains in 2017 will be a record despite what people think. Many holders used Fairfax doomsday hedges as their own hedge as did I...that shareholder base has sold out taking the stock down to these levels. The world economic system has found a floor...as deflation is no longer the dibilitating fear. Another couple of trillion came out of negative rates. Governments will not try to slow it down they need the growth to manage debts. The CPI hedges are there if it falls apart they have already been written down to negligible levels. Fairfax new story will be one of growth as they will be able take advantage of rising rates while many large fixed income holders will experience serious losses...expect them to take equity positions that grow over time (Berkshire model) they are in the drivers seat so let’s see what the future holds.

Brian Bradstreets idea.

Longinvestor, It was not 1970-80....it was around 1966-76... Rick Guerin Mungers partner famously asked Warren if the stock would go down anymore...to which he said “I don’t know”...Guerin sold his shares as Berkshire dropped 50% from its top. Geico was bankrupt and Buffett and Salmon bailed them out, the Buffalo news was a disaster in the late 70’s...See’s killed it...and there you have it. Buffett’s aha moment....pay up for great businesses. He said he would never have bought Coke without seeing see’s economics first hand. Fairfax is at an aha moment. The past does not matter the company is primed for the next decade let’s hope they do as well as Berkshire did coming out of a dry spell. Prem’s strength is math...good businesses and big bets on them...they have just been used to picking up dollars for 50 cents. It’s mungers math that works for big insurance companies. And a smaller bets on the eurobank of the world. Incidentally the Credit default swap portfolio was intitiated to hedge against the companies that Fairfax had reinsurance with in 2003. It expanded as the housing bubble grew....$400m was down 90% before it exploded higher. But the insurance was real and brilliant at the time in 2003..as it eased fear that Fairfax would collect its reinsurance receivable which was large relative to equity.

I believe that Prem and the equity side of Fairfax got caught in the proverbial trap of Sir John Templeton (prems mentor and a long time Fairfax shareholder) and Warren Buffett. No one teaches you how to go from running a 10 million dollar business to a $10b company. Buffett missed Prem’s mistakes because of Charlie Munger who knew early that Ben Graham model would not scale into the future and during that transition and the tough 70’s markets Berkshire did not move a dollar for a ten year span. What Prem and his team did do greatly over this time is build very good businesses and their best purchases are home runs and forgotten. Orh, Nb, Zenith (take a look at their comps) and many other smaller insurers were steals and have been tremendous acquisitions and to me the back Bone of what is to come....it’s where the intrinsic value is hidden. Petec, I agree that Fairfax will not make these mistakes again and understand your thinking. Allied will turn out very well and they are morphing into a mini Berkshire...they have to. The old ways do not scale and they have been headed this way for awhile and it has not been noticed. I amrepeating myself...but I am a little giddy I did not think I would get an opportunity to partner with Fairfax again in a big way. Companies like this rarely trade a discount like this especially in this type of market multiple. It may be awhile but that will benefit us all the most...as buy backs are key.

Cigarbutt, 3. The hedges can be viewed many ways but it is the result that matters. They not only dropped like a rock the equity positions they were supposed to hedge were completely uncorelated and also dropped like rocks. 6. As I said it depends on what lines of business, where they are and whether or not they had claims last year Petec You are wise and you will do well holding Fairfax but you already know that...without the disasters last year the shares would be much higher and you would be right Prem et all would 0 to hero. I would argue that they are not even close yet. The share price is the same as it was almost 20 years ago albeit way overvalued then...there are clouds around Fairfax and its past depending who bought when. The reason I am posting is that I think they have turned a corner and are in a position to perform greatly going forward. We will all debate the past but the future is all that matters now.

Those are great posts....really dead on....I agree with what you are saying. A couple of quick points of why I am back heavy... 1. Value investing was left for dead in 2015 2. Fairfax were wrong on Greece and their large individual positions on the worst hedges in history.....truly got killed making* the 2007-2008 win a disaster...they did not change their mind and were stuck in that state of mind....absolutely terrible performance...maybe the worst hedging program I have ever seen. They were a man with a hammer and every short position was a nail! 3. With the massive investment losses of those years the true operating strength of Fairfax was masked and missed...humility sucks but it was Prem and his equity side that were terribly wrong. I believe they will right the ship. It was a big and bold move to eat S...t and remove the hedges and I applaud them for the strength they showed doing it. 4. Brian Bradstreet continued to absolutely kill it compared to his peers in a low interest rate environment 5.2017 would have been a record transformational year without the huge insurance losses...that is their business but the year was record losses for industry 6. Insurance market is not hard but prices are rising 10-30% depending on the line and where 7.Fairfax is now a $15b a year premium company at just the right time...expect the new India insurance company to create huge value as well 8.$2.5b in cash at the holding company means an upgrade from the ratings agencies bringing down debt costs, and expect very large buybacks 9.$40b investments are set up for rising rates , the dead beat equity investments are rising sharply, expect Greece to the same 10. Prem told us all in April that the insurance companies were greatly undervalued and book values did not properly value Fairfax...he went out and proved it with $2.6b in gains from two “Small” insurance operation sales...First Capital may be the best deal Fairfax has ever made. What do you think Odyssey is worth if he sold it? A lot...he is not going to of course. The last time I took a chance believing in Prem and his Fairfax teams redemption it was a euphoric outcome. I expect the same this time around. P.S stop buying the damn shares...lots of bitcoin and pot stocks out there!

This is what Prem is taking about by the company being as cheap as it has ever been looking at intrinsic value. We will do best if Fairfax stays or falls from here and we get to purchase-shares until Fairfax becomes fully invested. When that happens the market will realize what is there...they have been swimming with one arm for awhile.

You can forget book value for Fairfax right now it underappreciates their insurance operations....and the power of the$40b portfolio (that is 43% cash). First Capital was an example of this....was sold for 3xbook....without the benefit of the investments.

Viking You are. It’s math....size matters....Bradstreet will be in charge of the bulk of the $40b....he called a Treasury top in 2016...he was right. No offence to Mr.Gundlach (I like him) and he manages more money than Bradstreet but his record is NOT even close to Brads. Check the numbers they will blow you away and that has Bradstreet holding cash for sometimes for long periods of time. Prem and his team will do well but they will not be allocating the amount of capital Bradstreet has and will. This is what Longleaf refers to with Fairfax earnings power being under appreciated because of their large cash reserves. While most refer to Prem as he is the captain of the Fairfax ship...Bradstreet is the key to moving the portfolio needle.

I am going to share Bradstreet’s secret strategy that makes him maybe the best bond guy maybe ever. Wait for it....patience....and he has math on his side he misses the bond losses and buys higher rates... I have seen him do this 4 or 5 times...albeit with smaller sums of money...but he has made billions doing it. You note he sold saving billions in cap losses in 2016 a week or two before yields spiked.... For the financial industry everyone cheers higher rates but they don’t realize is tHat the immediate effect of higher rates are very large bond losses. The interest rate effect takes time as short maturities Need to run off and they purchase longer dated higher yield bonds as they do. Bradstreet when he feels he is right sells bonds usually at a profit and goes to cash and short term maturities (where we r now) so when rates spike higher Fairfax experiences small to 0 losses and he reallocates to longer dates high interest bonds. His market timing in this regard is unmatched...he ran into temporary trouble in late 1999...2000 with unrealized losses...these turned into massive gains that likely saved Fairfax from the shorts in 2003. And made me a small fortune(thank you Brad!). He did it again in2008 selling treasuries at the top Andy buying 7% Berkshire guaranteed tax free Muni’s...crazy good. Now with almost $40b I get gitty thinking about what he can do in a rising rate environment. It is not just the cash flow....he has taken shorter term big profits on treasury moves...many times. He is the key to Fairfax $1000.

Gary yes it is. I thought people were averaging down in bitcoin not paying attention... Disclosure:I have bought fairly large everyday this week.

And just like that...Fairfax is brilliant. The key to Fairfax is the $40b investment portfolio...and the secret to the math and future earnings as I have stated many times is Brian Bradstreet and the bond portfolio. He is the best bond manager in history I challenge anyone to refute that with his record. No one other than Mr. Buffett has held massive amounts of cash in their portfolios. They have reached for yield and they are about to get smoked. Fairfax will make a killing on the interest rate spike. As we will be able to secure years and years of cash flow. It’s just the beginning of the bond bear market. As usual Brian and Fairfax are ready. Guns Gold And Fairfax

Not great investments for sure but Resolute, Blackberry, and Eurobank were all left for dead...very possible to recoup a couple of Billion in book value from their bottoms and possibly more depending on how we go from here.

They will write books about what Moynihan did and is doing at Bank of America.

Buy the shares Prem Buy them hand over fist lets see Fairfax get aggressive......show us how undervalued you think Fairfax is. It’s the only deal in the market.