Fairfax stock positions

[Hoodlum]

I don’t have access to this link but it looks like a hedge fund is shorting Metlen. 
 

https://www.thetimes.com/business-money/companies/article/new-york-hedge-fund-takes-35m-bet-against-ftse-100-metals-firm-jkqzcbv9m

[RockNation]

@Hoodlum 
I happen to have access via Apple News. It is the entire article.

[Hoodlum]

26 minutes ago, RockNation said:

@Hoodlum 
I happen to have access via Apple News. It is the entire article.

 

Thanks.  I wonder what their thesis is for the short.

[SafetyinNumbers]

5 hours ago, Hoodlum said:

 

Thanks.  I wonder what their thesis is for the short.

My guess is that it’s just index arb. Shorting some as it got juiced by the very predictable index add. I’m not sure what the reporting rules are and when we will get an update on their position. 

[Txvestor]

On 10/6/2025 at 12:16 PM, Viking said:

Good news from Orla today. It appears they may have discovered more gold at Musselwhite. Fairfax has exposure to about 102 million shares of Orla. Stock is up US$1.10/share, which is a $110 million gain for Fairfax. 

-----------

Orla Mining Discovers Potential Two-Kilometre Extension at Musselwhite

• https://ca.finance.yahoo.com/news/orla-mining-discovers-potential-two-100000085.html

VANCOUVER, BC, Oct. 6, 2025 /CNW/ - Orla Mining Ltd. (TSX: OLA) (NYSE: ORLA) ("Orla" or the "Company") announces major exploration success at the Musselwhite Mine in northwestern Ontario, with drilling confirming a potential two-kilometre extension of the mine's main gold trend beyond current resources.

 

...Resource Growth: With greater confidence in expansion potential, Musselwhite will be positioned to pursue opportunities that increase throughput, enhance gold production, and extend mine life significantly beyond current projections.

 

Viking, where did you find that they have a 102M exposure. I'm seeing 56M direct ownership and another 26M v convertibles. 

[Viking]

3 hours ago, Txvestor said:

Viking, where did you find that they have a 102M exposure. I'm seeing 56M direct ownership and another 26M v convertibles. 

 

@Txvestor, here is the build I use for Orla. Looks like you aren't including the warrants. YTD, Orla is up $557 million. And it looks like gold is starting to go mainstream (as an investment). Jeff Gundlach (Doubleline) recently said he thought having a weighting for gold in a portfolio of 25% was appropriate. The yellow metal just passed US$4,000 an oz. If retail investors decide to get in on the action we could see a gold rush in 2026.

 

[Hoodlum]

8 minutes ago, Viking said:

 

@Txvestor, here is the build I use for Orla. Looks like you aren't including the warrants. YTD, Orla is up $557 million. And it looks like gold is starting to go mainstream (as an investment). Jeff Gundlach (Doubleline) recently said he thought having a weighting for gold in a portfolio of 25% was appropriate. The yellow metal just passed US$4,000 an oz. If retail investors decide to get in on the action we could see a gold rush in 2026.

 

 

WS in Canada is now offering Fractional trading of actual Gold (not just ETFs).  I haven't looked into the detail as the gold is stored somewhere in Canada.  This would be for someone interested in holding Gold longer term, rather than just a short term trade.

[Viking]

Fairfax's stake in Eurobank now has a market value of $5 billion. This makes it Fairfax's largest equity holding by far. How is it performing? YTD, the stock is up 84%. The MV of Fairfax's stake in Eurobank is up $2.3b. Fairfax has also been paid a dividend of $142 million, which puts the total gain on Eurobank at $2.42 billion.

 

The excess of FV over CV is about $2.3b (accounting for the increase in CV in Q3), or $100 per diluted Fairfax share. This is value that has been building over the past couple of years that has not been captured in Fairfax's accounting results. This means Fairfax's reported EPS, BV and ROE has been understated in each of the past 4 years. (This is not unique to Eurobank). Investors need to keep this in mind when they compare Fairfax's past performance to P/C insurance peers (Fairfax's outperformance versus peers has been even better than what the accounting metrics show).   

 

Fairfax's equity portfolio is having a monster year. My guess is its total return this year is likely up around 25% (increase in intrinsic value). This is after very good years in 2024 and 2023. 

 

What we are seeing play out is the strength of Fairfax's business model. One that most other P/C companies refuse to copy. That is called a moat.

 

 

Edited October 11, 2025 by Viking

[nwoodman]

Eurobank has entered into a term sheet with Fairfax (as of October 13, 2025) to buy back 80% of Eurolife FFH Life Insurance for €813 million, implying a ~1.45× price-to-book multiple, with Fairfax retaining a minority interest via other structures. Fairfax will increase its involvement in Cyprus by acquiring 45% of Eurobank’s ERB Asfalistiki for €59 million, again at ~1.45× P/B

 

https://www.eurobank.gr/en/group/grafeio-tupou/etairiki-anakoinosi-13-10-2025-i

 

is it correct that they bought this 80% stake in Eurolife for approximately €316 million (about CAD 481.6 million) in late 2015? There were a bunch of decent divs along the way too.  
 

A decent chunk of change, are we getting set for an acquisition?

Edited October 13, 2025 by nwoodman

[Hoodlum]

2 hours ago, nwoodman said:

Eurobank has entered into a term sheet with Fairfax (as of October 13, 2025) to buy back 80% of Eurolife FFH Life Insurance for €813 million, implying a ~1.45× price-to-book multiple, with Fairfax retaining a minority interest via other structures. Fairfax will increase its involvement in Cyprus by acquiring 45% of Eurobank’s ERB Asfalistiki for €59 million, again at ~1.45× P/B

 

https://www.eurobank.gr/en/group/grafeio-tupou/etairiki-anakoinosi-13-10-2025-i

 

is it correct that they bought this 80% stake in Eurolife for approximately €316 million (about CAD 481.6 million) in late 2015? There were a bunch of decent divs along the way too.  
 

A decent chunk of change, are we getting set for an acquisition?

 

Thanks for post this.  Fairfax is still maintaining their 80% interest in EuroLife's P&C business, Eurobank is acquiring the Life Insurance business which would be the bulk of EuroLife. 

 

When I looked through the 2024 financial report I could not determine what book value was assigned to EuroLife.  I wonder how this will impact earnings and book value when it closes in Q1.

Below is from the Fairfax press release.

 

https://www.fairfax.ca/press-releases/fairfax-sells-interest-in-eurolife-life-insurance-operations-to-eurobank-2025-10-13/

 

Prem Watsa, Chairman and Chief Executive Officer of Fairfax, commented: “We are very pleased to be able to maintain the focus of our insurance operations on property and casualty insurance and reinsurance, while still benefitting from the continued success of the Eurolife life insurance business through our ownership stake in Eurobank. Eurolife’s life insurance business has done incredibly well under the leadership of Alexandros Sarrigeorgiou, and we expect that it will continue to perform very well under the ownership of Eurobank and its leader, Fokion Karavias.”

[Hoodlum]

2 hours ago, nwoodman said:

Eurobank has entered into a term sheet with Fairfax (as of October 13, 2025) to buy back 80% of Eurolife FFH Life Insurance for €813 million, implying a ~1.45× price-to-book multiple, with Fairfax retaining a minority interest via other structures. Fairfax will increase its involvement in Cyprus by acquiring 45% of Eurobank’s ERB Asfalistiki for €59 million, again at ~1.45× P/B

 

https://www.eurobank.gr/en/group/grafeio-tupou/etairiki-anakoinosi-13-10-2025-i

 

is it correct that they bought this 80% stake in Eurolife for approximately €316 million (about CAD 481.6 million) in late 2015? There were a bunch of decent divs along the way too.  
 

A decent chunk of change, are we getting set for an acquisition?

I wonder how much of an impact this would be be on Eurobank's ability to grow.

Furthermore, Eurobank intends to apply for classification as a Financial Conglomerate (FICO) and to request the application of the supervisory mechanism of Article 49 of the CRR (commonly referred to as the Danish Compromise). If approved, it is expected to provide material capital relief.

[Hoodlum]

During Q2 2021, Fairfax increased their position in Eurolife from 50% to 80% and commenced consolidated reporting of EuroLife. In the 2021 year end report Fairfax mentioned Shareholder equity of 450M Euro but I am not sure if we need to add dividends since then.  It looks like we could have a 350M Euro ($450M US ) gain.  I am sure we will hear from others on a more accurate number. 

 

 

[Viking]

54 minutes ago, Haryana said:

AI:"The company originally invested approximately €316 million for its majority stake in Eurolife." 

 

May add $25 to eps next year. 

 

I would have expected a whole lot more excitement/discussion around this but Canadians are on Thanksgiving holiday today.

 

Fairfax's stock is down 1% on the news (sale of Eurolife's life insurance business). Yes, Fairfax is not being traded in Canada today (Canadian Thanksgiving). And volume in the US is anemic. But still... does this make any sense? I don't think it does. It just kinds of demonstrates how under-followed/misunderstood Fairfax still is. And I love it. 

 

There are many really interesting angles/learnings from this transaction. It will take me a day or two to get my (many) thoughts together. But here is one... 

 

The surprises we are getting from Fairfax these days continue to be skewed heavily to the good/very good variety. Welcome to ‘new Fairfax.’ This is what happens when you own a quality business. Fairfax is a quality business - and they own a growing number of quality businesses. There is a significant amount of embedded leverage there that investors/analysts (still) do not understand/appreciate.  

 

This might not sound like a big deal today. For long term Fairfax shareholders/followers, it is a big deal. This was not the case with the 2010-2020 version of Fairfax (what I like to call ‘old Fairfax.’) Many of the surprises back then were of the negative variety.

 

More to come on this transaction over the next couple of days.

 

To set the table a little bit, here is what Prem had to say about the purchase of Eurobank in Fairfax's 2015AR.

 

"Late in 2015 we agreed to acquire 80% of Eurolife, a life and property and casualty insurance company which is the third largest insurer in Greece and which distributes its products through Eurobank’s network, for $347 million (€316 million) – at about its underlying book value. We got to know Alex Sarrigeorgiou in the last few years and were very impressed with him, his management team and their track record. The company writes €306 million in premiums – €248 million in life insurance and €58 million in property and casualty. Over the past ten years, the property and casualty operations have had a combined ratio of 60.0% while the life insurance operations produce stable earnings with plain vanilla products. Eurolife had net income in 2015 of €48.4 million, 45% from life and 55% from P&C. We welcome Alex Sarrigeorgiou and the over 300 employees of Eurolife to the Fairfax family. As we did with Brit, where OMERS purchased 30% from us to help us finance the acquisition, we expect OMERS to buy 40% of Eurolife’s shares at close to help us finance the acquisition. In the case of both Brit and Eurolife, we expect to be able to acquire the interests back within the five years after closing, after providing OMERS with an acceptable return. The team at OMERS has been a pleasure to deal with."

Edited October 13, 2025 by Viking

[dartmonkey]

9 hours ago, nwoodman said:

Eurobank has entered into a term sheet with Fairfax (as of October 13, 2025) to buy back 80% of Eurolife FFH Life Insurance for €813 million, implying a ~1.45× price-to-book multiple, with Fairfax retaining a minority interest via other structures. Fairfax will increase its involvement in Cyprus by acquiring 45% of Eurobank’s ERB Asfalistiki for €59 million, again at ~1.45× P/B

 

https://www.eurobank.gr/en/group/grafeio-tupou/etairiki-anakoinosi-13-10-2025-i

 

is it correct that they bought this 80% stake in Eurolife for approximately €316 million (about CAD 481.6 million) in late 2015? There were a bunch of decent divs along the way too.  
 

 

Yes, this seems to be the purchase price, but FFH has kept the P&C part of the business, responsible for about 15% of the net premiums written but probably a higher proportion of profits (about half, back in 2016 when Watsa described the business.) 

 

So with the simplifying assumption that the P&C portion of Eurolife is worth 15% of Eurolife FFH (knowing that it is probably worth more), the selling price of €813 million is only for 85% of the 80% stake that FFH owned. In other words, this indicates that the full value of the stake would currently be 813/.85= €956.5 million, for a pre-tax gain of €640 million. Additionally, Grok estimates that Eurolife FFH has delivered US$132m in dividends since the purchase in Q3 of 2016 (announced in December 2015). By my calculation, this would give them a pre-tax annualized return of 15.8%, or about 12% post-tax, although this is surely an underestimate because of the additional value of the P&C business retained and the value of the float over this time.

 

BTW, does anyone have any ideas about what might be meant by " with Fairfax retaining a minority interest via other structures"? Fairfax will sell to Eurobank the 80% of the Eurolife FFH business that Eurobank didn't already own, so in principle, Eurobank will now own 100%. Of course, FFH owns about 33% of Eurobank, is that all they mean by 'other structures'?

[nwoodman]

5 hours ago, dartmonkey said:

BTW, does anyone have any ideas about what might be meant by " with Fairfax retaining a minority interest via other structures"? Fairfax will sell to Eurobank the 80% of the Eurolife FFH business that Eurobank didn't already own, so in principle, Eurobank will now own 100%. Of course, FFH owns about 33% of Eurobank, is that all they mean by 'other structures'?

I think that’s the right take — the Eurolife “other structures” reference points mainly to Fairfax’s indirect exposure to Eurolife Life via its ~33 % Eurobank stake, plus its direct holdings in the remaining Eurolife P&C operations and the new 45 % interest in ERB Asfalistiki (Cyprus P&C).

 

As for the current adjusted book value, does anyone hazard a guess?

 

I’m getting roughly US $1,400 per share, which lines up with the incremental pieces since Q2: fair-value surplus on associates, Eurobank’s move to €3.66, the Eurolife gain, and Q3 earnings plus a month of Q4 run-rate.

 

At the current US $1,738 share price, that’s about 1.25–1.26× adjusted book — roughly 75–80¢ on the dollar. It also supports the running thesis that management views buybacks below 1.3× (adjusted book value) as comfortably accretive, implying a nominal 12%+ IRR unlevered. They benefit from float leverage, so without labouring the maths, it meets their hurdle.

 

Hardly an exact science on my part - and they likely have visibility into more embedded value than I’m crediting them for (Ki and others). Still, $1,400 appears to be a reasonable lower bound.  Another way to frame it: if the stock eventually re-rates toward 1.5 times (adjusted book), you pick up a couple of extra points of CAGR on top of that base 12%.  Probably back to the point where this isn't a "rocket surgery" idea, not that it has felt stretched by any means.  Its just every time they do one of these "alchemy" (realisation of hidden value) moves, it's always fun to do some back-of-the-envelope numbers.  

[Hoodlum]

ORLA jumped to a new high today (+17%) after a positive production update, along with the increase in the gold price. 
 

Edited October 14, 2025 by Hoodlum

[Viking]

Orla Mining's stock is having a big move today. Fairfax's investment in Orla is up US$270 million since Sept 30 (+25%). YTD-2025, the investment is up $806 million, or 143%, or $34/FFH diluted share (pre-tax). Orla is quickly becoming one of Fairfax's best equity investments ever.

 

Fairfax started building their position in Orla in Q3 2022. They slowly built it up with open market purchases over the next 2 years (to Q3, 2024). They got more aggressive with the position with the convertible and warrant deal in Nov 2024. Bottom line, this is a new investment for Fairfax.  

 

Fairfax's equity portfolio is having a banner year in 2025. 

 

Why did Orla's stock spike higher today? The company announced gold production for 2025 is expected to come in at the high end of their (revised) forecast. Earlier this year, Orla experienced a big issue at its Camino Rojo mine. It appears the plan the company put in place is working. 

 

From Orla's press release: "With pit stabilization at Camino Rojo progressing well and integration at Musselwhite advancing smoothly, both operations are performing well. We are now on track to achieve the high end of our revised production guidance."

• https://orlamining.com/news/orla-mining-reports-strong-gold-production-from-musselwhite-in-third-quarter/

Edited October 14, 2025 by Viking

[petec]

On 10/13/2025 at 7:42 AM, Hoodlum said:

I wonder how much of an impact this would be be on Eurobank's ability to grow.

Furthermore, Eurobank intends to apply for classification as a Financial Conglomerate (FICO) and to request the application of the supervisory mechanism of Article 49 of the CRR (commonly referred to as the Danish Compromise). If approved, it is expected to provide material capital relief.

 

Or dividends. This might be well be the main motive for doing the deal. Nice bit of reg arb.

[Viking]

Below are some of my key take-aways from Fairfax’s recently announced sale of its 80% stake in Eurolife’s life insurance business to Eurobank (who owns the other 20%) for proceeds of US$944.7 million. Fairfax will also buy 45% of Eurobank’s P/C insurance business in Cyprus for $69 million. Both transactions are expected to close in Q1 2025.

 

1.) This is a very large transaction. Proceeds to Fairfax will be $876 million ($944.7m less $69m).

2.) This is a strategic transaction.

• Financial services in SE Europe is moving to an integrated model - banking, wealth management and insurance. Life insurance is a core business for Eurobank (buyer). Not for Fairfax (seller).
• Fairfax continues to own 80% of Eurolife’s P/C insurance business in Greece/Bulgaria. And expands into Cyprus (buying 45% of Eurobank’s P/C insurance business in Cyprus for $69 million).

3.) The price being paid is fair for both parties (P/BV = 1.45 x at Aug 31, 2025).

• This makes sense given Fairfax owns about 32.3% of Eurobank.

4.) This deal demonstrates that Fairfax is a good long term partner. When it needed cash back in 2016, Eurobank sold 80% of Eurolife to Fairfax. Now that it is flush with cash, the life insurance asset is being returned to Eurobank - where it has always belonged. This should help Fairfax with future deal flow.

5.) Fairfax’s use of minority partners has been brilliant. When Fairfax bought 80% of Eurolife in 2016 (for $361 million) they were also short on cash. They brought on OMERS as a short term partner, with each paying $180 million for 40% of Eurolife. Fairfax took out OMERS in 2021.

6.) This transaction allows Fairfax to successfully monetize another investment. Fairfax should book a large investment gain when the deal closes in Q1-2026.

• In very rough terms, Fairfax paid about $361 million in two instalments (2016 to 2021) for 80% of Eurolife. Fairfax has also received significant dividends from Eurolife. When the deal closes, Fairfax will be paid $944.7 million and will continue to own the legacy P/C insurance business of Eurolife.
• We will likely get more of the financial details when Fairfax reports Q3 results in a few weeks.

7.) This transaction will come as a surprise to investors/analysts. It shouldn’t. This is the third asset monetization of 2025 for Fairfax (after Sigma in Q1 and Praktiker in Q3). Each year Fairfax monetizes/revalues a number of assets - it is an important part of their business model.

• For 8 years Fairfax has been improving the quality of the assets (insurance and equities) on its balance sheet. With transactions like Eurolife, we are seeing the results. With much more to come.

8.) Over the past 5 years, Fairfax has been delivering a masterclass in capital allocation. This transaction is just the latest in a long list of accomplishments for the company. Welcome to ‘new Fairfax.’

Edited October 16, 2025 by Viking

[Parsad]

3 hours ago, Viking said:

 

Below are some of my key take-aways from Fairfax’s recently announced sale of its 80% stake in Eurolife’s life insurance business to Eurobank (who owns the other 20%) for proceeds of US$944.7 million. Fairfax will also buy 45% of Eurobank’s P/C insurance business in Cypress for $69 million. Both transactions are expected to close in Q1 2025.

 

1.) This is a very large transaction. Proceeds to Fairfax will be $876 million ($944.7m less $69m).

2.) This is a strategic transaction.

• Financial services in SE Europe is moving to an integrated model - banking, wealth management and insurance. Life insurance is a core business for Eurobank (buyer). Not for Fairfax (seller).
• Fairfax continues to own 80% of Eurolife’s P/C insurance business in Greece/Bulgaria. And expands into Cypress (buying 45% of Eurobank’s P/C insurance business in Cypress for $69 million).

3.) The price being paid is fair for both parties (P/BV = 1.45 x at Aug 31, 2025).

• This makes sense given Fairfax owns about 32.3% of Eurobank.

4.) This deal demonstrates that Fairfax is a good long term partner. When it needed cash back in 2016, Eurobank sold 80% of Eurolife to Fairfax. Now that it is flush with cash, the life insurance asset is being returned to Eurobank - where it has always belonged. This should help Fairfax with future deal flow.

5.) Fairfax’s use of minority partners has been brilliant. When Fairfax bought 80% of Eurolife in 2016 (for $361 million) they were also short on cash. They brought on OMERS as a short term partner, with each paying $180 million for 40% of Eurolife. Fairfax took out OMERS in 2021.

6.) This transaction allows Fairfax to successfully monetize another investment. Fairfax should book a large investment gain when the deal closes in Q1-2026.

• In very rough terms, Fairfax paid about $361 million in two instalments (2016 to 2021) for 80% of Eurolife. Fairfax has also received significant dividends from Eurolife. When the deal closes, Fairfax will be paid $944.7 million and will continue to own the legacy P/C insurance business of Eurolife.
• We will likely get more of the financial details when Fairfax reports Q3 results in a few weeks.

7.) This transaction will come as a surprise to investors/analysts. It shouldn’t. This is the third asset monetization of 2025 for Fairfax (after Sigma in Q1 and Praktiker in Q3). Each year Fairfax monetizes/revalues a number of assets - it is an important part of their business model.

• For 8 years Fairfax has been improving the quality of the assets (insurance and equities) on its balance sheet. With transactions like Eurolife, we are seeing the results. With much more to come.

8.) Over the past 5 years, Fairfax has been delivering a masterclass in capital allocation. This transaction is just the latest in a long list of accomplishments for the company. Welcome to ‘new Fairfax.’

 

Nice post!  Cheers!

[nwoodman]

3 hours ago, Viking said:

 

Below are some of my key take-aways from Fairfax’s recently announced sale of its 80% stake in Eurolife’s life insurance business to Eurobank (who owns the other 20%) for proceeds of US$944.7 million. Fairfax will also buy 45% of Eurobank’s P/C insurance business in Cypress for $69 million. Both transactions are expected to close in Q1 2025.

 

1.) This is a very large transaction. Proceeds to Fairfax will be $876 million ($944.7m less $69m).

2.) This is a strategic transaction.

• Financial services in SE Europe is moving to an integrated model - banking, wealth management and insurance. Life insurance is a core business for Eurobank (buyer). Not for Fairfax (seller).
• Fairfax continues to own 80% of Eurolife’s P/C insurance business in Greece/Bulgaria. And expands into Cypress (buying 45% of Eurobank’s P/C insurance business in Cypress for $69 million).

3.) The price being paid is fair for both parties (P/BV = 1.45 x at Aug 31, 2025).

• This makes sense given Fairfax owns about 32.3% of Eurobank.

4.) This deal demonstrates that Fairfax is a good long term partner. When it needed cash back in 2016, Eurobank sold 80% of Eurolife to Fairfax. Now that it is flush with cash, the life insurance asset is being returned to Eurobank - where it has always belonged. This should help Fairfax with future deal flow.

5.) Fairfax’s use of minority partners has been brilliant. When Fairfax bought 80% of Eurolife in 2016 (for $361 million) they were also short on cash. They brought on OMERS as a short term partner, with each paying $180 million for 40% of Eurolife. Fairfax took out OMERS in 2021.

6.) This transaction allows Fairfax to successfully monetize another investment. Fairfax should book a large investment gain when the deal closes in Q1-2026.

• In very rough terms, Fairfax paid about $361 million in two instalments (2016 to 2021) for 80% of Eurolife. Fairfax has also received significant dividends from Eurolife. When the deal closes, Fairfax will be paid $944.7 million and will continue to own the legacy P/C insurance business of Eurolife.
• We will likely get more of the financial details when Fairfax reports Q3 results in a few weeks.

7.) This transaction will come as a surprise to investors/analysts. It shouldn’t. This is the third asset monetization of 2025 for Fairfax (after Sigma in Q1 and Praktiker in Q3). Each year Fairfax monetizes/revalues a number of assets - it is an important part of their business model.

• For 8 years Fairfax has been improving the quality of the assets (insurance and equities) on its balance sheet. With transactions like Eurolife, we are seeing the results. With much more to come.

8.) Over the past 5 years, Fairfax has been delivering a masterclass in capital allocation. This transaction is just the latest in a long list of accomplishments for the company. Welcome to ‘new Fairfax.’

While smaller in quantum, I really like the call option Fairfax picked up on the Cyprus P&C subsidiary (ERB Asfalistiki). They’ve taken a 45% stake today for €59 million and, importantly, have the right to acquire the remaining 55% over time. That gives them a low-cost seat at the table in a growing regional franchise while freeing most of the Eurolife-Life proceeds for buybacks or redeployment elsewhere. This is part of their evolution too:  realise mature value, keep some upside, and create embedded optionality. If the Cyprus business compounds well, they can step in for control; if not, they’ve risk-capped the exposure.

 

They probably have more of these calls out there than at any time I can remember.  Even if they are only 10-12% IRR ideas, they can pick them off at their choosing.  So, even if they suffer from dislocated markets (or a high FFH share price), they have ideas that they can reach for that will make sense. 

[SafetyinNumbers]

17 minutes ago, nwoodman said:

 

They probably have more of these calls out there than at any time I can remember.  Even if they are only 10-12% IRR ideas, they can pick them off at their choosing.  So, even if they suffer from dislocated markets (or a high FFH share price), they have ideas that they can reach for that will make sense. 

Great point. The portfolio seems full of right tail options with high margin of safety. Plus 10-12% IRR ideas when levered 3:1 are 30%+ pre-tax ROE. It helps pull up the total ROE such that 15% seems much more than likely over a 5 year period. I think return expectations are pretty high and the types of investors that look at Fairfax use conservative assumptions so it’s easy to miss the opportunity.

[petec]

14 hours ago, Viking said:

Each year Fairfax monetizes/revalues a number of assets - it is an important part of their business model.

 

I think this is one of the biggest changes from the bad old days - they've realised that IV has to be reflected in BV or the market won't pay for it. 

 

However, for all the reasons we have discussed, they also have a lot more value to realise these days than they did. It's much easier to monetise investments when they've gone up!

[Hamburg Investor]

11 hours ago, SafetyinNumbers said:

Great point. The portfolio seems full of right tail options with high margin of safety. Plus 10-12% IRR ideas when levered 3:1 are 30%+ pre-tax ROE. It helps pull up the total ROE such that 15% seems much more than likely over a 5 year period. I think return expectations are pretty high and the types of investors that look at Fairfax use conservative assumptions so it’s easy to miss the opportunity.

+1

I read again and again about the 3:1 lever they seem to use and would like to learn more about it.

Is this always done by debt incurred by the acquired company? I don't imagine it's easy to get affordable financing for such a lever, unless the acquiring parent company secures the financing. I would very much appreciate someone sharing more information on this strategy and how it's done.

I wonder whether Fairfax should not be able to achieve even more than 20% ROE over time. I am finding more and more arguments in favour of this.

One, back of the envelope: the insurance business generates around 10% (4% interest on bonds plus 6% through a combined ratio of 94%; you can say more like 8% or 9% and that's fine). I think float to equity is around 160% (or 170%?); this would allow us to assume a rough current ROE (pre-tax) of 16% from the insurance business alone.

And the equity is very roughly invested in companies (... TRS ... FV to CV ... and much of the value is still invisible even within that...) and much of it is then also leveraged, so that some investments do not yield 10-12% IRR, but possibly over 30%. Is it presumptuous to assume 12% to 15% on overall equity of Fairfax alone? Why not?

That would then be a 16% return from the insurance business plus, for illustrative purposes 14% = 30% pre-tax (and pre-overhead cost) ROE.  

Of course, the holding company also produces internal costs (as with Berkshire), but these seem to be manageable (how big are those?) and are growing less rapidly than the company itself (as with Berkshire). And it is becoming increasingly apparent that Fairfax benefits from huge tax deferrals (as does Buffett) and that there is a lot of compounding going on within the company.

In other words, the profit itself is concealed or hidden. It is not the entire profit that is taxed, but only a small portion of it that is visible. So if, for example, we assume a tax rate of 20%, this is not based on the gain in intrinsic value, but only on the nominal profit. So the "real" tax rate may only be 10% on the "intrinsic gain" (please do not take the 20% and 10% at face value; this is only to illustrate the point). If "real tax" on intrinsic value would be more like 15%, than we'd end at a bit over 25% ROE and would only have to subtract the overhead cost from this. 

I just wanted to express the structural idea of whether one could also look at the whole from this perspective with such a framework. The figures are, of course, questionable. Is 10% return permanently possible in the insurance business? Where is the margin of safety factored in here especially into the equity part of Fairfax (it isn't!)? 

[gfp]

3 minutes ago, Hamburg Investor said:

I read again and again about the 3:1 lever they seem to use and would like to learn more about it.

Is this always done by debt incurred by the acquired company? I don't imagine it's easy to get affordable financing for such a lever, unless the acquiring parent company secures the financing. I would very much appreciate someone sharing more information on this strategy and how it's done.

 

Aren't they just referring to the 3:1 leverage the quantity of investable float provides vs net worth?