Fairfax stock positions

[MMM20]

2 minutes ago, Gregmal said:

I mean outside of you taking a more in depth conversation completely out of context? 
 

There were several things that I listed, care to list what they were? At the point in time you were referring to the debate was basically Fairfax was trading at ~$425 a share and all you guys were high fiving about a ~50% move off the Covid bottom…to which I merely pointed out how you could’ve done way better throwing darts at lots of stuff from the Covid bottoms and done 100-500% and in many cases even more, during the 12-15 month stretch of time. 

 

Yeah my bad, I shouldn't have called you out for that... edited.

[Gregmal]

1) Prem needed to buyback stock

-a month after this comment Fairfax launched a tender offer

 

2) Prem needed to move on from the shitcos

Shortly thereafter stuff started getting sold, highlighted by the RFP sale

 

3) Prem needed to show consistency just sticking to the strengths and not trying to be the next macro genius

-this has continued 

 

From the day of the tender announcement, you could’ve bought stock around $445(I did), and it’s been smooth sailing. 

[villainx]

I don't have the memory you guys have, but love your long term - and I assume cordial - arguments!  

 

 

 

[Gregmal]

13 minutes ago, villainx said:

I don't have the memory you guys have, but love your long term - and I assume cordial - arguments!  

 

 

 

Yea it was all good. This was at a point where Fairfax was inflecting. This site, not unsurprisingly given the name, has over the years had a lot of cheerleaders and for a long time, Fairfax was not being operated properly which often went unacknowledged. Particularly pre Covid some of the errors began getting corrected but if you owned it pre Covid or bought it too early into Covid it was largely an opportunity cost. Which iirc was a big part of the debate in Q3 2021; like why are you bragging about buying at $275-300 when that’s like some of the worst bottom to top during covid period returns I’m aware of, and going forward, what needs to happen for things to be exceptional? 
 

If you bought at $300/400/500…it really comes down to a timing thing cuz plenty of people owned at those prices for a long time and it was mediocre. If you waited for the fundamental inflection and just paid $600/700/800 it was some of the easiest/highest IRR money ever made. Price and value sometimes have an interesting but complicated relationship. 

[Masterofnone]

For me, the inflection point was the announcement of the $500 tender offer. The stock was so hated that despite the announcement, it traded below $500 for weeks on both sides of the tender date. The catalyst was obvious but ignored. Management screamed out "we're undervalued" and the lack of a response showed the depth of distrust. Every quarter from that point on has worked to gradually change sentiment. It was a billion dollar billboard advertising that the inflection was about to occur.

[Gregmal]

3 minutes ago, Masterofnone said:

For me, the inflection point was the announcement of the $500 tender offer. The stock was so hated that despite the announcement, it traded below $500 for weeks on both sides of the tender date. The catalyst was obvious but ignored. Management screamed out "we're undervalued" and the lack of a response showed the depth of distrust. Every quarter from that point on has worked to gradually change sentiment. It was a billion dollar billboard advertising that the inflection was about to occur.

Yup. Obvious as day

[Hoodlum]

41 minutes ago, Masterofnone said:

For me, the inflection point was the announcement of the $500 tender offer. The stock was so hated that despite the announcement, it traded below $500 for weeks on both sides of the tender date. The catalyst was obvious but ignored. Management screamed out "we're undervalued" and the lack of a response showed the depth of distrust. Every quarter from that point on has worked to gradually change sentiment. It was a billion dollar billboard advertising that the inflection was about to occur.

Yes, this got me to buy in a couple weeks later at $590cdn and it became by far my largest holding.  
 

Another back up the truck moment for me was the q3 2023 call where they announced they had significantly increased their treasury bond duration at the peak in October.  This locked in their earnings for the next few years during a hard market where their peers could not do the same. 

Edited May 2, 2025 by Hoodlum

[villainx]

1 hour ago, Gregmal said:

If you bought at $300/400/500…it really comes down to a timing thing cuz plenty of people owned at those prices for a long time and it was mediocre.

 

Now you made it personal!  I readily admit that was me, uninformed and just following whoever had a good base of cheerleading.  I exited at that time though.  

 

 

[Masterofnone]

And it is not like one didn't have plenty of time to think about it and act. Eight months later, shares traded down to $500. It really was an opportunity of a lifetime for a dullard like me. I have to give huge thanks for the existence of this board and the Fairfax contributors.

[LC]

Buying shitcos at the bottom and flipping them - this is difficult business. You need to sell at the right time, you presumably want some reinvestment opportunity for the proceeds, you've got tax considerations....

 

Yeah perhaps the 1-3 year return it superior - but in retrospect, I would rather have Fairfax. It means in 10, 20, 30 years or whatever, we have a miniscule cost basis on a presumably world class capitalism engine.

 

And it removes a ton of brain damage along the way. Let Prem and Co earn us $$ while we sit back and spend it

[MMM20]

1 hour ago, Masterofnone said:

For me, the inflection point was the announcement of the $500 tender offer.

 

~1.5 years before that IMHO, when Prem bought $150mm out of his own pocket at ~$300

 

Ancient history at this point

[Gregmal]

40 minutes ago, LC said:

Buying shitcos at the bottom and flipping them - this is difficult business. You need to sell at the right time, you presumably want some reinvestment opportunity for the proceeds, you've got tax considerations....

In theory sure, but that is a little bit of a revisionist history. This was early 2020 into 2021 and for much of the prior decade, Fairfax nailed many of the qualifications of a shitco. I know it’s heresy here to say that, but it’s true.
 

Meanwhile there was plenty, plenty of no brainer quality that got thrown out with COVID because people thought it was wise to panic first. Whether it was just taking quick 30-50% gains or finding long term value, during this period there were plenty of very low risk ways to make a ton of money. Towards the backend of 2021 is when it started seeming obvious that everything(minus some pockets of value such as with Fairfax) had recovered. Covid was really just an exercise in following the flows of money and hysteria. 

[LC]

8 minutes ago, Gregmal said:

In theory sure, but that is a little bit of a revisionist history. This was early 2020 into 2021 and for much of the prior decade, Fairfax nailed many of the qualifications of a shitco. I know it’s heresy here to say that, but it’s true.

 

Yea that's fair - Looking at FFH in 2016 or so was like "screw this Prem guy" with the totally out-of-pocket hedges and macro calls.

 

I think your memory is better than mine. IIRC March 2020 was like, "screw it - double, triple down on everything. If the ship goes down, I'm going down with it".

 

I think the one thing I should've done differently, so in March 2020 I'm sitting on tons of unrealized losses on what I thought was a relatively stable/blue-chippy portfolio. Berkshire and stuff like that.

 

I wound up buying more, then flipping all the positions to LEAPs. It probably would've been better to sell the positions and take on more speculative positions like you allude to. IDK if I have the stomach for that, but it's probably a better strategy to capture upside.

 

And just checked my old statements - I started buying Fairfax late 2022 around 500.

So the 2020 COVID positions I let play out, and then shifted a lot of funds to Fairfax in 2022/2023.

[Gregmal]

1 minute ago, LC said:

And just checked my old statements - I started buying Fairfax late 2022 around 500.

So the 2020 COVID positions I let play out, and then shifted a lot of funds to Fairfax in 2022/2023.

Yup. How you forget? Pretty sure you were riding the money printer in 2020/21 with us!

 

The reason Fairfax was interesting in late 2021/22/23 is because it didn’t really recover AND it was inflecting. Hardest part early on was not flipping it after the first 50% or so(this was basically the “are we still a shitco or is this now different” part of the equation) but by then I had enough confidence that things were materially different on the fundamental side.

[Viking]

On 5/2/2025 at 11:37 AM, MMM20 said:

 

~1.5 years before that IMHO, when Prem bought $150mm out of his own pocket at ~$300

 

Ancient history at this point

From my perspective, the best time to buy Fairfax was likely Oct 2022 when the shares traded down to US$450. At this time, investors had very good visibility/evidence that the turnaround at Fairfax was happening. 

1. They had just announced the sale of pet insurance - it was like they found $1 billion in gold (after tax) in their backyard. The stock actually sold off after this was announced. 
2. They were fixing their equity holdings. They announced the sale of Resolute Forest Products at the top of the lumber cycle for another big gain (it also improved the company by getting rid of a chronic under-performer). At the same time, share of profit from associates was popping higher (driven by Eurobank and Atlas).
3. And the outlook for interest income was rapidly improving. In Q3 interest rates popped to over 4% across the curve. We knew Fairfax had a very low average duration with their fixed income portfolio - so the earn though from higher rates would likely be fast.

Edited May 13, 2025 by Viking

[MMM20]

32 minutes ago, Viking said:

From my perspective, the best time to buy Fairfax was likely Oct 2022 when the shares traded down to US$450. At this time, investors had very good visibility/evidence that the turnaround at Fairfax was happening

You’re probably right and I guess the point is the fundamental improvements (and still cheap valuation) have made it easier to hold on over the years.

[LC]

2 hours ago, Gregmal said:

Yup. How you forget? Pretty sure you were riding the money printer in 2020/21 with us!

 

I can't believe its already been 5 years since the Mar 2020 COVID woes.

 

But yes you're absolutely right - the reason Fairfax was interesting is because everything else kind of bounced back with the post-March 2020 recovery, but Fairfax didn't. 

 

And @Viking as we all know did an amazing job of evangelizing the turnaround. To me it felt like low hanging fruit, I couldn't believe it. 

 

I think I had a 20 or 25% position originally, then I messaged Lars, who was like "well I'm at a 30 or 40 or something percent position here" and I said to myself: Screw it, if we're going to put  the "F" in "COBF", then we YOLO and we don't look back

 

In retrospect it was a turning point in my investing process - taking big bets I had a ton of confidence in - rather than plinking  around as if I were a multi-billion dollar public fund with a ton of  2-5% positions and a totally different mandate, when in reality I'm just a dude investing the money of family and friends with unrecognizable surnames.

[John Hjorth]

1 hour ago, LC said:

I can't believe its already been 5 years since the Mar 2020 COVID woes.

 

But yes you're absolutely right - the reason Fairfax was interesting is because everything else kind of bounced back with the post-March 2020 recovery, but Fairfax didn't. 

 

And @Viking as we all know did an amazing job of evangelizing the turnaround. To me it felt like low hanging fruit, I couldn't believe it. 

 

I think I had a 20 or 25% position originally, then I messaged Lars, who was like "well I'm at a 30 or 40 or something percent position here" and I said to myself: Screw it, if we're going to put  the "F" in "COBF", then we YOLO and we don't look back

 

In retrospect it was a turning point in my investing process - taking big bets I had a ton of confidence in - rather than plinking  around as if I were a multi-billion dollar public fund with a ton of  2-5% positions and a totally different mandate, when in reality I'm just a dude investing the money of family and friends with unrecognizable surnames.

 

Welcome to fast-lane, @LC.

[Viking]

2 hours ago, LC said:

 

I can't believe its already been 5 years since the Mar 2020 COVID woes.

 

But yes you're absolutely right - the reason Fairfax was interesting is because everything else kind of bounced back with the post-March 2020 recovery, but Fairfax didn't. 

 

And @Viking as we all know did an amazing job of evangelizing the turnaround. To me it felt like low hanging fruit, I couldn't believe it. 

 

I think I had a 20 or 25% position originally, then I messaged Lars, who was like "well I'm at a 30 or 40 or something percent position here" and I said to myself: Screw it, if we're going to put  the "F" in "COBF", then we YOLO and we don't look back

 

In retrospect it was a turning point in my investing process - taking big bets I had a ton of confidence in - rather than plinking  around as if I were a multi-billion dollar public fund with a ton of  2-5% positions and a totally different mandate, when in reality I'm just a dude investing the money of family and friends with unrecognizable surnames.

@LC , your post put a smile on my face (“Screw it, if we're going to put  the "F" in "COBF", then we YOLO and we don't look back.”) I am happy to hear that things worked out for you. 

[Viking]

Sigma Companies International Corp - Value Investing 101

 

In 2017, Fairfax invested $41.4 million in a private company - Sigma Companies International Corp. Fairfax held an 81.2% equity interest.

 

On March 28, 2025, Fairfax sold its equity interest in Sigma for $327.1 million. Fairfax received:

• Cash consideration = $284.1 million
• Retained ownership interest in Sigma of 16.1% with a fair value of $43 million

Fairfax booked a realized gain of $178.7 million. Yes, we have incomplete information. But since making their initial investment 7 years ago, it appears Fairfax has earned an exceptional return on Sigma.

 

With a sale price of $327.1 million, Sigma was Fairfax’s 17th largest equity holding. This is a reasonably large asset sale for Fairfax.

 

—————

 

What are some of the lessons to be learned from Fairfax’s investment in Sigma?

 

1.) The senior management team at Fairfax has been executing exceptionally well in recent years. Their capital allocation has been best-in-class among P/C insurance companies.

 

2.) Value investing is alive and well. Buy low (quality businesses). Sell high. Rinse and repeat.

Sigma is just the latest example for Fairfax confirming the two statements above. In 2024 it was Stelco. In 2023 it was Ambridge Partners. In 2022 it was pet insurance and Resolute Forest Products. (These are other recent examples of Fairfax making well timed sales.)

 

“All intelligent investing is value investing — acquiring more that you are paying for. You must value the business in order to value the stock.” Charlie Munger

 

"We don’t discern companies between growth and value. Our definition of value investing is to figure out what a business is worth and pay a lot less. It’s not low-price to book or low-price to sales." Joel Greenblatt

 

3.) Analyst’s earnings estimates for Fairfax are too low.

 

Why? Because they largely ignore investment gains.

 

Investment gains are an important income stream for Fairfax. It represents about 20 to 25% of the total income streams at Fairfax each year (on average). This makes it a material income stream for Fairfax.

 

Yes, this income stream is very lumpy from quarter to quarter and even from year to year. But here is the interesting thing… when averaged out over a 2 or 3 year time-frame, investment gains are not nearly as volatile. Using a 2 or 3 year average allows investment gains at Fairfax to be estimated for future years with a fair bit of accuracy (and much less volatility).

 

And of course what matters when valuing a business is the total amount of cash it will generate in the future. Lumpy doesn’t matter. The certainty of the total number is what matters.

 

Are analysts simply being conservative?

 

Ignoring something that is likely to happen is not being conservative. That is bad analysis. Underestimating future earnings (on purpose) is going to cause you to underestimate the value of the business today. That is going to result in a sub-optimal investment decision. That is not rational.

 

4.) Book value at Fairfax is understated.

 

Sigma was a private holding. From an accounting perspective, it was equity accounted. Over the past 7 years, the fair value of Sigma was growing much more quickly than its carrying value. Carrying value is what is captured in book value. Sigma is a great example of economic value that was being created at Fairfax that was not being captured in accounting value (EPS and book value).

 

Other P/C insurance companies do not have this ‘problem.’ Other P/C insurance companies invest primarily in bonds. And bonds are generally very easy to value. So economic value and accounting value tends to run in tandem over time for other P/C insurance companies.

 

Excess of fair value over carrying value

 

At March 31, 2025, the excess of FV over CV for Fairfax’s associate and consolidated holdings was $1.4 billion. This is economic value that has been created that is not captured in Fairfax’s earnings or book value. This ‘bucket’ will be a significant source of investment gains for Fairfax in the coming years - like with Sigma, when Fairfax monetizes or revalues the assets.

 

Importantly, when it comes to holding assets, Fairfax is not like Berkshire Hathaway - Fairfax is not a buy and hold forever type of investor. Fairfax sells investments when it makes sense. Fairfax’s focus instead is driving per share value for Fairfax shareholders over the long term - they are not constrained by a buy and hold forever ideology.

 

——————

 

Fairfax’s 2017AR

 

“On August 2, 2017 the company acquired an 81.2% non-voting equity interest in Sigma Companies International Corp. (‘‘Sigma’’) for cash consideration of $41.4. Sigma, through its subsidiary, is engaged in global water and wastewater infrastructure projects.”

 

Fairfax’s Q1 Interim Earnings Report

 

“On March 28, 2025 the company sold its equity interest in Sigma Companies International Corp. ("Sigma") for total consideration of $327.1, comprised of cash consideration of $284.1 and a retained ownership interest in Sigma of 16.1% (through a new limited partnership interest) with a fair value of $43.0 at closing of the transaction, which is classified as FVTPL. As a result, the company recorded a realized gain of $178.7 in the consolidated statement of earnings.” Fairfax Q1 Earnings Report

 

—————

 

From Sigma's corporate web site:

 

“SIGMA Companies International provides a wide range of water infrastructure products, OEM services, HDPE products, and plumbing and fire protection products to customers throughout North America.”

• https://www.sigmacointernational.com

"Where we began… Over the next four decades, SIGMA pioneered sourcing in China and India with strict quality protocols, introduced proprietary designs for a variety of products, made multiple strategic acquisitions, and set the industry standard for customer service.

 

"SIGMA has grown into a $500 million dollar global corporation with a major presence in North America and Asia, and thousands of loyal customers around the world. SIGMA Corporation offers a wide range of water and wastewater infrastructure products, original equipment manufacturing products and services (OEM), precision castings, and HDPE products. We are a market leader distinguished by innovative quality and supply chain processes, and we offer both domestic and global sourcing options. Our engineers are constantly developing new products and services to meet the changing needs of our customers every day."

• https://www.sigmaco.com/about

—————

 

Acquisition (April 10, 2025)

 

Wind Point Partners

• https://www.wppartners.com/wind-point-partners-acquires-sigma/

Edited May 6, 2025 by Viking

[nwoodman]

I dare say they are in a pretty good position to value this one:

 

https://www.bnnbloomberg.ca/business/company-news/2025/05/05/fairfax-financial-signs-letter-of-intent-to-buy-keg-royalties-income-fund/

 

VANCOUVER — The Keg Royalties Income Fund has signed a letter of intent to be acquired by Fairfax Financial Holdings Ltd., its largest unitholder.

The proposal for $18.60 per unit in cash values the steak house fund at about $211 million.

 

[SafetyinNumbers]

2 hours ago, nwoodman said:

I dare say they are in a pretty good position to value this one:

 

https://www.bnnbloomberg.ca/business/company-news/2025/05/05/fairfax-financial-signs-letter-of-intent-to-buy-keg-royalties-income-fund/

 

VANCOUVER — The Keg Royalties Income Fund has signed a letter of intent to be acquired by Fairfax Financial Holdings Ltd., its largest unitholder.

The proposal for $18.60 per unit in cash values the steak house fund at about $211 million.

 

Chance of a bump?

 

I like how they are adding leverage at Recipe after paying down debt for 3 years. Maybe they even take a dividend to relever it to 4x debt to EBITDA. All very accretive.

Edited May 6, 2025 by SafetyinNumbers

[nwoodman]

6 minutes ago, SafetyinNumbers said:

Chance of a bump?

In terms of the offer?  Potentially, sounds like they have left the door open

 

‘The Letter of Intent is not a definitive agreement with respect to the Proposed Transaction, and the execution of a definitive agreement in respect of the Proposed Transaction, if any, remains subject to, among other things, (i) the negotiation and execution of a definitive agreement on terms satisfactory to the Fund and Fairfax, (ii) final approval of the Proposed Transaction by the Trustees, and (iii) receipt of the Formal Valuation and Fairness Opinion satisfactory to the Trustees. The consummation of the Proposed Transaction would be subject to various conditions customary for transactions of this nature, including, among others, (i) receipt of any required regulatory, court and stock exchange approvals, and (ii) the approval of the Proposed Transaction at a special meeting of the holders of Units entitled to vote on the Proposed Transaction, including “minority approval” as defined under MI 61-101.”

[SafetyinNumbers]

58 minutes ago, nwoodman said:

In terms of the offer?  Potentially, sounds like they have left the door open

 

‘The Letter of Intent is not a definitive agreement with respect to the Proposed Transaction, and the execution of a definitive agreement in respect of the Proposed Transaction, if any, remains subject to, among other things, (i) the negotiation and execution of a definitive agreement on terms satisfactory to the Fund and Fairfax, (ii) final approval of the Proposed Transaction by the Trustees, and (iii) receipt of the Formal Valuation and Fairness Opinion satisfactory to the Trustees. The consummation of the Proposed Transaction would be subject to various conditions customary for transactions of this nature, including, among others, (i) receipt of any required regulatory, court and stock exchange approvals, and (ii) the approval of the Proposed Transaction at a special meeting of the holders of Units entitled to vote on the Proposed Transaction, including “minority approval” as defined under MI 61-101.”

They locked up the biggest minority shareholder so that makes it harder. 

[KFRCanuk]

I'm wondering which one of their subs/investments is next now that they are taking over The Keg.