Fairfax stock positions

[tnathan]

3 minutes ago, roundball100 said:

Does the 3:1 leverage give us 3 times that?

What is your point?

[mananainvesting]

This is a small position for Fairfax, but Ensign Energy services is up ~72% YTD! 

Fairfax owns ~20% of $ESI.TO. Current Mcap of $ESI.TO is ~$800M CAD.  


 

[Parsad]

8 minutes ago, tnathan said:

What is your point?

 

Point is they don't need the same return on the total investment portfolio as MKL or BRK.  FFH's higher leverage multiplies their investment return significantly.  That being said, it also increases their risk on the downside...thus the higher historical volatility for FFH and lower p/b value relative to MKL and BRK.  

 

If your presumption is that things could or will go wrong, then you have to minimize your position size to a level that let's you live with that risk.  Otherwise don't hold the stock if that is a concern.  You have the option of holding MKL...which is small like FFH, so has a ton of room to grow; uses less leverage and carries less debt; essentially emulates Berkshire's three-legged stool of income; has respectable and reliable management like FFH or BRK; and is relatively cheap still.  

 

I own all three, but I own more FFH than anything.  I'm totally comfortable with the models, and I like all three companies for the long-term!  Cheers!

[MMM20]

13 minutes ago, tnathan said:

What is your point?

Do you count buying insurance companies on the cheap as part of their investing track record or not?

[tnathan]

13 minutes ago, Parsad said:

 

Point is they don't need the same return on the total investment portfolio as MKL or BRK.  FFH's higher leverage multiplies their investment return significantly.  That being said, it also increases their risk on the downside...thus the higher historical volatility for FFH and lower p/b value relative to MKL and BRK.  

 

If your presumption is that things could or will go wrong, then you have to minimize your position size to a level that let's you live with that risk.  Otherwise don't hold the stock if that is a concern.  You have the option of holding MKL...which is small like FFH, so has a ton of room to grow; uses less leverage and carries less debt; essentially emulates Berkshire's three-legged stool of income; has respectable and reliable management like FFH or BRK; and is relatively cheap still.  

 

I own all three, but I own more FFH than anything.  I'm totally comfortable with the models, and I like all three companies for the long-term!  Cheers!

I 100% understand everything you wrote, but everyone is hand-waiving the mediocre returns in RISKY investments by saying "well they don't need to be good for it to work for shareholders" ... I think we're talking past each other a bit. You are correct it doesn't need to work given the leverage on the float. But WHAT IF IT DID?? Like imagine if the equity returns had been 12% not 7.7%. My point is that clearly the equity arm has floundered even before risk adjustment. After risk adjustment I would argue its worse. Doesn't stop me from being a shareholder! Just think everyone should be more honest about how the math with an eye towards continuous improvement

[Maverick47]

59 minutes ago, tnathan said:

Like imagine if the equity returns had been 12% not 7.7%. My point is that clearly the equity arm has floundered even before risk adjustment. After risk adjustment I would argue its worse. Doesn't stop me from being a shareholder! Just think everyone should be more honest about how the math with an eye towards continuous improvement

7.7% is the return on the total portfolio, both equity and fixed income combined, isn’t it?

 

I don’t know the respective  breakdowns of returns on the fixed income and equity components separately, but if we assume that two thirds is fixed income with a long term return of 5%, then the return on the equity third of the investment portfolio would have to have been roughly 13% to end up at 7.7% overall.

 

I don’t think we have to imagine if equity returns had been 12%…I think they actually have been there over the last 40 years, including the lost years when hedging erased any of the positive equity returns that the equity market index would have produced…

Edited May 12 by Maverick47

[tnathan]

4 minutes ago, Maverick47 said:

7.7% is the return on the total portfolio, both equity and fixed income combined, isn’t it?

 

I don’t know the respective  breakdowns of returns o. The fixed income and equity components separately, but if we assume that two thirds is fixed income with a long term return of 5%, then the return on the equity third of the investment portfolio would have to have been roughly 13% to end up at 7.7% overall.

 

I don’t think we have to imagine if equity returns had been 12%…I think they actually have been there over the last 40 years, including the lost years when hedging erased any of the positive equity returns that the equity market index would have produced…

If this is true I'm happy to be wrong about my previous question. 

[dartmonkey]

1 hour ago, tnathan said:

Two things can be true at the same time. the underlying business can be fantastic and the investing can be subpar, especially vs. the risk taken. I would argue 7.7% given the positions they are taking is subpar. How could that not be true?

The ‚investment returns of 7.7% are only ‘subpar‘ because 2/3 of them are fixed income, mostly treasuries.

[SafetyinNumbers]

I read somewhere the long term returns on the equity book was high teens. It’s been better the last 3 years but not all of this has hit book value yet because of accounting rules. It’s a big part of why I think the margin of safety is so high right now. 
 

[Parsad]

3 hours ago, Maverick47 said:

7.7% is the return on the total portfolio, both equity and fixed income combined, isn’t it?

 

I don’t know the respective  breakdowns of returns on the fixed income and equity components separately, but if we assume that two thirds is fixed income with a long term return of 5%, then the return on the equity third of the investment portfolio would have to have been roughly 13% to end up at 7.7% overall.

 

I don’t think we have to imagine if equity returns had been 12%…I think they actually have been there over the last 40 years, including the lost years when hedging erased any of the positive equity returns that the equity market index would have produced…

 

Yes, they haven't put up their equity returns as much in the last few years, because there has been significant investment in associates which sort of occludes the easy comparison with the S&P500.  In past years, the investment slides showed that Fairfax's investment team just demolished comparative indices on bonds (Brian Bradstreet)...I mean just creamed them over 35-40 years...probably the best performance of any bond manager I've ever seen or heard of. 

 

On the equities side, they were on par or outperformed the comparative equity indices.  The last one I had was from 2012's AGM.  So it's been a long time since they've shown this.  The equity hedging hurt their equity performance not long after and it was a lost 6-7 years until the massive turnaround the last 6-7 years. 

 

With Wade and Lawrence handling more of the work load going forward, you'll probably see the equity portfolio behave more like it did under Peter Cundill, albeit it still has to work in association and tandem with how the insurance business operates, and the duration of contracts written there.  Cheers!

 

[vinod1]

I did an analysis of Fairfax performance in 2015. I analyzed their results from 1986 to year end 2014. It is not as impressive as they make it sound. What the chart Parsad's slide above does not show is impact of portfolio allocation.

 

Say if you have $100 portfolio and invested $10 of portfolio in stocks and they returned 15% but you reduced the stocks from $30 of total portfolio, the above chart fails to capture that impact. That is a very significant drag.

 

Second, their bond performance is not really bond performance. It includes a whole lot of non stock non bond like securities.

 

I compared their performance with what it would have been if they just indexed their portfolio. They added a whole lot less value than most people seem to attribute to them.

 

What is really powerful is their business model. The weak underwriting used to be like a huge hole in their ship, but with that part fixed, just the way they structured the business would lead to good to great returns with just indexing of their portfolio. 

 

Vinod

 

 

Fairfax Returns.pdf

[steph]

Interesting.  But when you look at shareholder’s equity today of 30,5 billion and you add the dividend of 10 USD and then 15 USD and you take into account slightly less shares….and the huge rise in fair value over accounting value….you get 15% per year since your 2015 analysis.  

No deflation and no huge correction since then. 

[vinod1]

1 hour ago, steph said:

Interesting.  But when you look at shareholder’s equity today of 30,5 billion and you add the dividend of 10 USD and then 15 USD and you take into account slightly less shares….and the huge rise in fair value over accounting value….you get 15% per year since your 2015 analysis.  

No deflation and no huge correction since then. 

 

I was talking more about Fairfax portfolio returns in the above post. My post above is trying to assess their portfolio performance relative to indexing.

 

I first got into Fairfax (#1 position) sometime in 2005 and exited in 2011 ($418) Nov/Dec timeframe and bought again in size in 2022 (#1 position). In 2011, it had a snowball chance in hell of returning 15% with the assets/structure they had, now it is the other way around.

 

Vinod

 

 

 

 

[MMM20]

9 hours ago, vinod1 said:

What is really powerful is their business model. The weak underwriting used to be like a huge hole in their ship, but with that part fixed, just the way they structured the business would lead to good to great returns with just indexing of their portfolio.

The key thing has been the cheap mid 2010s insurance acquisitions. Skeptics tend to want to exclude those from their analysis of capital allocation performance. A lot of money has been made taking a holistic view and noticing how those great acquisitions (and great management of them) totally transformed the structural earnings power of the company. Guess what, most good investors’ returns follow a power law type distribution with a few outsized winners driving the bus. In this case, it’s mostly those acquisitions. IMHO the poor framing and analysis even shows up here in how “stock positions” is separate from the general conversation. Probably the biggest single variant perception has been to fading those who insist on analyzing the various buckets in isolation. It’s a smarter-sounding version of the same mistake made by the people who fixate on particular investments like BB, which plenty of guys told me 5 years ago was disqualifying and made FFH uninvestable. Unless the stock basically doubles overnight I’ll keep betting that those people are wrong. 
 

Edited May 13 by MMM20

[vinod1]

4 minutes ago, MMM20 said:

The key thing has been the cheap mid 2010s insurance acquisitions. Skeptics tend to want to exclude those from their analysis of capital allocation performance. A lot of money has been made taking a holistic view of those great acquisitions and how good management of them totally transformed the structural earnings power of the company. 

 

Absolutely. It is unbelievable how much the insurance operations transformed. Before earnings releases way back in 2010, I would be praying for 102% CR. Even Prem used to brag about how the 102% CR was borrowing cheaper than the Canadian Govt! There is not even a glimmer of hope that underwriting would ever be profitable. It is all on investment results. Look at it now. I have to pinch myself to make sure it is not a dream.

 

Vinod

[Junior R]

Quote

VANCOUVER, BC, May 13, 2026 /CNW/ - Equinox Gold Corp. (TSX: EQX) (NYSE American: EQX) ("Equinox") and Orla Mining Ltd. (TSX: OLA) (NYSE American: ORLA) ("Orla", and together with Equinox, the "Companies") are pleased to announce that the Companies have entered into a definitive arrangement agreement (the "Agreement") for an at-market combination to create a new North American senior gold producer with approximately 1.1 million ounces[i] of expected annual gold production and an $18.5 billion implied market capitalization. The combined company will be anchored by three long-life Canadian gold mines, with a clear path to more than 1.9 million ounces[ii] of annual gold production from an internally funded North American growth pipeline. Pursuant to the Agreement, Equinox will acquire all of the issued and outstanding common shares of Orla pursuant to a court-approved plan of arrangement (the "Transaction"). The combined company will continue under the name "Equinox Gold Corp." ("Equinox Gold"). All dollar amounts are in United States dollars unless otherwise indicated.

 

Quote

Officers and directors of Orla, Pierre Lassonde, and certain affiliates of Fairfax Financial Holdings Limited, who collectively hold approximately 20% of the outstanding Orla common shares, have entered into voting support agreements pursuant to which they have agreed, among other things, to vote their Orla common shares in favour of the Transaction, including any Orla common shares acquired prior to the record date on exercise of convertible securities or in the market. If Pierre Lassonde and certain affiliates of Fairfax Financial Holdings Limited exercise their convertible notes, they will hold approximately 9.3% and 15.6%, respectively, on a partially diluted basis, and those shares, if issued on or before the record date, would be required to be voted at the Orla shareholder meeting in favour of the Transaction. Officers and directors of Equinox who hold approximately 4% of the outstanding Equinox common shares have entered into voting support agreements pursuant to which they have agreed, among other things, to vote their Equinox common shares in favour of the Transaction, including any Equinox common shares acquired prior to the record date on exercise of convertible securities or in the market.

 

Edited May 13 by Junior R

[NnnnotSoSmart]

2 hours ago, Junior R said:

VANCOUVER, BC, May 13, 2026 /CNW/ - Equinox Gold Corp. (TSX: EQX) (NYSE American: EQX) ("Equinox") and Orla Mining Ltd. (TSX: OLA) (NYSE American: ORLA) ("Orla", and together with Equinox, the "Companies") are pleased to announce that the Companies have entered into a definitive arrangement agreement (the "Agreement") for an at-market combination to create a new North American senior gold producer with approximately 1.1 million ounces[i] of expected annual gold production

I'm reminded of the saying, often attributed to Mark Twain, that "A gold mine is a hole in the ground with a liar on top.".

[Duke In Shadows]

1 hour ago, NnnnotSoSmart said:

I'm reminded of the saying, often attributed to Mark Twain, that "A gold mine is a hole in the ground with a liar on top.".

Pretty ignorant take

[Spooky]

Market reaction to the Orla / Equinox announcement pretty muted. Wonder what Fairfax as one of the major shareholders thinks.

[Hoodlum]

5 minutes ago, Spooky said:

Market reaction to the Orla / Equinox announcement pretty muted. Wonder what Fairfax as one of the major shareholders thinks.

 

Fairfax has already agreed to vote in favour of this acquisition.

[SonOfKen_IV]

Ensign Energy and Garret Motion are small position but they are performing quite well  

[Spooky]

7 minutes ago, Hoodlum said:

 

Fairfax has already agreed to vote in favour of this acquisition.

Oh interesting. Guess it makes sense they would lock up Fairfax before making the announcement.

[roundball100]

21 hours ago, tnathan said:

What is your point?

If we are trying to compare FFH to other companies, and FFH is able to average n% investment return reliably with 3:1 leverage (without undue risks), then should you not give them credit for how much this return increases their book value per year?

[Parsad]

11 hours ago, vinod1 said:

 

I was talking more about Fairfax portfolio returns in the above post. My post above is trying to assess their portfolio performance relative to indexing.

 

I first got into Fairfax (#1 position) sometime in 2005 and exited in 2011 ($418) Nov/Dec timeframe and bought again in size in 2022 (#1 position). In 2011, it had a snowball chance in hell of returning 15% with the assets/structure they had, now it is the other way around.

 

Vinod

 

 

 

 

 

Actually, you are not correct here.  The only reason they didn't achieve 15% or better annualized was because of the equity hedging and short positions.  They no longer do that since 2019.  The macro bets at times were massive winners or in terms of the equities they hedged and short positions they bought after the GFC were massive losers...eliminated the upside of the equity investments they made in 2008-2009. 

 

Part of their new found glory is related to no longer making such significant macro bets and looking more for guaranteed income from bonds, interest, dividends, etc.  With their leverage, they've realized they don't need homeruns to hit their goal...singles and doubles with the leverage will get them there and reduce their risk profile.  Cheers!

[Parsad]

6 hours ago, Duke In Shadows said:

Pretty ignorant take

 

Not entirely.  Anyone involved with the mining industry knows that is the rule, not the exception.  It's cleaned up in many areas over the decades, but every time there is a boom, the scumbags crawl out from under their rocks too!  Cheers!