Fairfax 2025

[Viking]

As we begin 2025, I think it is appropriate to first close the book on 2024. This is also the perfect time to reflect and be thankful.

 

Fairfax just delivered another exceptional year - its stock increased 51% (US$) in 2024. Over the past 4 years the stock is up 308%, which is a CAGR of 42%. (Not including dividends.) Simply outstanding! Over the same 4-year timeframe, the S&P500 has increased a total of 57%, which is a CAGR of 12%. (Also not including dividends.)

 

In C$ terms, Fairfax's results have been even better - the 4-year total return has been 361%, which is a CAGR of 46%. Over the same time frame, the S&P/TSX index had a total return of 42%, or a CAGR of 9%. Fairfax has also been an excellent hedge for a weak C$, which is very important for Canadian investors (like me ).

 

Thank you to the entire team at FFH. Head office. The insurance subs. Hamblin Watsa. This group likely went through hell from 2010 to 2020. Fairfax's amazing performance the past 4 years is due to their efforts. Nice to see them having some success - they deserve it. All investors owe them all a big debt of gratitude. 

 

And thank you to all the posters on this wonderful forum - you are a 1st class group of investors. The opportunity to write / discuss / debate with other smart and genuinely nice people has been an absolute privilege. @Parsad, thank you for creating this wonderful forum more than 20 years ago - and managing it since then.

 

Over the past 4 years, Fairfax has been on a truly epic run. I hope many people on this board (and in the company) have been able to capitalize and benefit from this run - and materially improve their financial / life situation in the process.

 

What has been happening with Fairfax over the past 4 years is not normal. It is an anomaly. And for the past 4 years everyone on this board has had a front row seat to watch / write / debate the events as they have happened / in real time. Years from now, we are all going to look back and better appreciate how truly special these times are / have been. 

 

Does this mean we are done? Has the 'easy money' been made?

 

No. I think in some respects Fairfax is just getting started. It currently looks to me like a much younger Berkshire Hathaway (small, P/C insurance remains the primary growth engine, generating sizeable earnings, best-in-class capital allocators). And the stock is still cheap (on a P/BV and PE basis), especially when we include excess of FV over CV for associate and consolidated holdings. 

 

I don't expect Fairfax to continue to compound at +40% per year. But I do think Fairfax can compound over the next 3 to 5 years at a CAGR of 15% to 20% per year. Earnings will drive most of the return. I think we will continue to get multiple expansion. And I think Fairfax will continue to be aggressive with share buybacks.

 

Fairfax's insurance and investment management businesses have never been better positioned than they are today. The set-up for the company for 2025 looks outstanding. With others on this board, I look forward to having court side seats.

 

Edited Thursday at 08:06 AM by Viking

[klipbaai]

Viking, thanks to you, too! You do an incredible job.

[MungerWunger]

Appreciate your fairfax posts as usual @Viking

 

I think you made a lot of people a lot of money

[modiva]

Thank you @Viking for generously sharing superb insights and willing to debate.  Thanks to @Parsad for creating this wonderful forum with such a group of intelligent and wise individuals. Looking forward to continued great run for all the Fairfax stakeholders!!  Hoping 2025 to be a break-through year for Fairfax India. 

[SafetyinNumbers]

5 hours ago, Viking said:

 

 

I don't expect Fairfax to continue to compound at +40% per year. But I do think Fairfax can compound over the next 3 to 5 years at a CAGR of 15% to 20% per year. Earnings will drive most of the return. I think we will continue to get multiple expansion. And I think Fairfax will continue to be aggressive with share buybacks.

.

 

Thanks Viking for all of your hard work. It’s very much appreciated.
 

I’m much more optimistic on the total return CAGR. 15% is low end average ROE and with no multiple expansion the stock would return 15% ignoring dividends to make it simple. Given the high level of core earnings I think it’s really hard for ROE to fall below 15%. We know that FFH has high return opportunities for excess capital like buybacks and minority interests in the insurance businesses. The portfolio also has a lot of optionality and I think most would agree a market disclocation is likely over the next four years. That will be an opportunity to accelerate returns. Plus, there are so many insurance (Ki, Digit) and non-insurance (FIH/BIAL, EUROB, TRS) right tails and likely many more that we don’t focus on.
 

Its arguably more likely for ROE to average 20% than 15% over the next 4 years. Maybe 25% is just as possible as 10%. BVPS CAGR is what determines the stock price and buybacks have helped BVPS more than double in 4 years. If it doubles in the next four years again won’t the multiple continue to expand as it has for the past 4 years (albeit unevenly)? If on Jan 1 2029, BVPS is $2200 and the stock price is up 4x, the multiple will be only 2.5x P/B a discount to Intact Financial which trades at ~3x P/B now.

 

I realize that discussing the right tail possibilities is not polite in most value investor company so please be kind when you tell me why I’m wrong and why FFH is too expensive to start a new position. 

[Viking]

2 hours ago, SafetyinNumbers said:

Thanks Viking for all of your hard work. It’s very much appreciated.
 

I’m much more optimistic on the total return CAGR. 15% is low end average ROE and with no multiple expansion the stock would return 15% ignoring dividends to make it simple. Given the high level of core earnings I think it’s really hard for ROE to fall below 15%. We know that FFH has high return opportunities for excess capital like buybacks and minority interests in the insurance businesses. The portfolio also has a lot of optionality and I think most would agree a market disclocation is likely over the next four years. That will be an opportunity to accelerate returns. Plus, there are so many insurance (Ki, Digit) and non-insurance (FIH/BIAL, EUROB, TRS) right tails and likely many more that we don’t focus on.
 

Its arguably more likely for ROE to average 20% than 15% over the next 4 years. Maybe 25% is just as possible as 10%. BVPS CAGR is what determines the stock price and buybacks have helped BVPS more than double in 4 years. If it doubles in the next four years again won’t the multiple continue to expand as it has for the past 4 years (albeit unevenly)? If on Jan 1 2029, BVPS is $2200 and the stock price is up 4x, the multiple will be only 2.5x P/B a discount to Intact Financial which trades at ~3x P/B now.

 

I realize that discussing the right tail possibilities is not polite in most value investor company so please be kind when you tell me why I’m wrong and why FFH is too expensive to start a new position. 

@SafetyinNumbers, I appreciate the comment (like those from others). The board has many great posters - like you - who add a lot of value when it comes to Fairfax. All board members benefit greatly from the information and different perspectives provided by everyone. The mid-point of my estimate = 17.5%, would result in a double in Fairfax’s stock price in a little more than 4 years. i will be very happy if this is what actually happens. 
 

Of interest, 33% of my/my wife’s portfolio is in Fairfax today (we have enough; and for us, given our ages, return of capital is now more important than return on capital). On the other hand, 75% of my kids portfolios are in Fairfax. The weightings in my kids portfolios perhaps provides a better indicator of how I think Fairfax will perform in the coming years. 

 

Bottom line, I don’t disagree with anything you say. Although I do think we could see more volatility in the stock price moving forward. At least I hope so. This will give Fairfax the opportunity to continue to be very aggressive on these are buyback front. 
 

Volatility in financial markets is Fairfax’s secret weapon. Especially now that they are all cashed up. You said: ‘… I think most would agree a market disclocation is likely over the next four years.’ This will likely be one of the keys to future ROE. 
 

The interesting thing is most investors will want to see it before they will believe/invest in it. That was the big mistake that I made with Berkshire Hathaway in the 1990’s and early 2000’s - I was waiting to see what Buffett actually did before I invested. Of course, by the time I saw it, everyone else saw it - and the stock traded higher. As a result, I was always one step behind. I was like a dog chasing its tail. My ignorance caused me to largely miss out on a wonderful multi-decade compounder. 
 

Fairfax has a proven best-in-class management team when it comes to capital allocation. Do we know exactly what they are going to do in the coming years? Nope. But like Berkshire Hathaway when it was in its prime, we don't need to know. And that is what makes Fairfax such a good investment today (especially at its current - cheap - valuation). It is very counter-intuitive.

Edited Thursday at 08:02 AM by Viking

[steph]

Thank you so much Viking for all the amazing work you have done!   Really appreciated that you share all this. 

[Viking]

Estimate of change in value of Fairfax’s equity portfolio in Q4 - 2024

 

Fairfax’s equity portfolio (that I track) increased in value in Q4 2024 by about $260 million (pre-tax). It had a total value of about $21.3 billion at December 31, 2024.

 

In Q4, currency (US$ strength) was a big headwind. How much of a headwind? About $340 million. If we ignore the change in exchange rates, Fairfax's equity portfolio would have been up $600 million in Q4.

 

 

Notes:

• The FFH-TRS position is included in the mark to market bucket and at its notional value. The warrants and debentures captured are also included in the mark to market bucket.

The ‘tracker portfolio’ is not an exact match to Fairfax’s actual holdings. It is useful only as a tool to understand the rough change in Fairfax’s equity portfolio (and not the precise change).

 

The ‘tracker portfolio’ does not include the following:

• Change in value of Digit, Fairfax's publicly traded P/C insurance company in India. 
• Gain on sale of Stelco.
• Any gain on the revaluation of Fairfax’s legacy stake in Peak Achievement.

Split of holdings by accounting treatment

 

About 47% of Fairfax’s equity holdings are mark to market - and will fluctuate each quarter with changes in equity markets. The other 53% are Associates and Consolidated holdings. The Sleep Country and Peak Achievement (Bauer) acquisitions closed in Q4. We have included a guess of the carrying value for these two holdings – it will be updated when Fairfax reports Q4 results. 

 

Over the past couple of years, the share of the mark to market holdings has been shrinking. This means Fairfax's quarterly reported results will be less impacted by volatility in equity markets.

 

 

Split of total gains by accounting treatment

• The total change is an increase of about $260 million = $12/share (pre-tax)
• The mark to market change is an increase of about $253 million = $11.50/share. 

 

What were the big movers in the equity portfolio Q1-YTD?

• The FFH-TRS is up $261 million and is Fairfax’s second largest holding at $2.7 billion.
• Orla Mining – a gold miner – is up $86 million.
• Quess is down $77 million. It is still up solidly on the year. 

 

Excess of fair value over carrying value (not captured in book value)

 

For Associate and Consolidated holdings, the excess of fair value to carrying value is about $1.4 billion pre-tax ($63/share). The 'excess of FV to CV’ has been materially increasing in recent years. This is a good example of how book value at Fairfax is understated.

 

Excess of FV over CV:

• Associates:           $685 million
• Consolidated:       $708 million

Equity Tracker Spreadsheet explained:

 

We have separated holdings by accounting treatment: 

• Mark to market
• Associates – equity accounted 
• Consolidated
• Other Holdings – total return swaps and warrants/debentures

The value of each holding is calculated by multiplying the share price by the number of shares. All holdings are tracked in US$, so non-US holdings have their values adjusted for currency.

 

I have attempted to estimate the new carrying value for Sleep Country and Peak Achievements (both transaction closed in Q4). These numbers are a guess - so they will be wrong. But hopefully, directionally, they are close. Given their size, I just wanted to get them on the spreadsheet. When Fairfax reports YE results we will get the right numbers. 

 

This spreadsheet contains errors. It is updated as new and better information becomes available.

 

 

 

Edited Thursday at 06:59 PM by Viking

[Hoodlum]

Thanks Viking for the great updates.  Not surprising that the TRS was the driver for the Equity Portfolio gains in Q4.

 

 

[Hoodlum]

It looks like Fairfax helped Vacatia with the acquisition of Berkley Group (owner of 50 times share resorts).  There are no details of the acquisition cost or what Fairfax's involvement is.  

 

https://www.prnewswire.com/news-releases/vacatia-acquires-the-berkley-group-and-daily-management-302341393.html

 

MILL VALLEY, Calif. and FORT LAUDERDALE, Fla., Jan. 2, 2025 /PRNewswire/ -- Vacatia, Inc., a provider of innovative, customer-centric solutions for timeshare resorts, announced today that it has acquired The Berkley Group, Inc., one of the largest resort developers in the United States, and Daily Management, Inc., a full-service property management company of vacation ownership resorts.

 

 

The transaction was financed in partnership with certain affiliates of Fairfax Financial Holdings Limited.

"We are delighted to partner with Vacatia in its acquisition of Berkley and Daily Management," said Wade Burton, President and Chief Investment Officer at Hamblin Watsa Investment Counsel Ltd., the investment manager on behalf of Fairfax. "The Vacatia team, led by Caroline Shin, has a long track record of success in property acquisition, management and development, and we think they will be terrific stewards of the Berkley business in the future."

[73 Reds]

56 minutes ago, Hoodlum said:

Thanks Viking for the great updates.  Not surprising that the TRS was the driver for the Equity Portfolio gains in Q4.

 

 

I second a "thanks" to Viking for his exceptional work.  My only "criticism" is I've become lazy to read anything about Fairfax other than Viking's posts here.  No one analyzes Fairfax, or any company for that matter, any better.     

[Parsad]

5 hours ago, 73 Reds said:

I second a "thanks" to Viking for his exceptional work.  My only "criticism" is I've become lazy to read anything about Fairfax other than Viking's posts here.  No one analyzes Fairfax, or any company for that matter, any better.     

 

+1!  Pretty much!  About as close as you can get to real-time analysis of Fairfax.  Cheers!

[Dazel]

Viking wonderful job!

Do you have their current bond duration? (Yes lazy) At $39b it is and has been the backbone of the company.

Brian Bradstreet is the best bond investor of all time and it is not even close! 
 

Cheers to the Fairfax team and all of you.

 

Dazel

[Hoodlum]

Expected Personnel changes announced.

 

https://www.fairfax.ca/press-releases/personnel-announcements-01-03-2025/

 

TORONTO, Jan. 03, 2025 – Fairfax Financial Holdings Limited (“Fairfax”) (TSX: FFH and FFH.U) is pleased to announce that, effective January 1, 2025, Brian Young has become the President of Fairfax Insurance Group and Andrew Barnard, who has held this position since 2011, has moved to the role of Chairman of Fairfax Insurance Group.

 

Brian joined Odyssey Group in 1996 and has served as its Chief Executive Officer since 2011. Odyssey has thrived under Brian’s leadership, generating an underwriting profit for 13 consecutive years and nearly tripling in size during his tenure.

 

Effective January 1, 2025, Carl Overy has become the Chief Executive Officer of Odyssey, leading its three operating platforms: OdysseyRe, Hudson, and Newline. Carl has served as the Chief Executive Officer of OdysseyRe since April 2023 and previously served as the Chief Executive Officer of Newline and the London branch of OdysseyRe for 15 years.

 

Prem Watsa, Chairman and Chief Executive Officer of Fairfax, commented: “Brian and Andy have worked together for nearly 35 years, the last 28 at Fairfax. Our expansive global (re)insurance operations will benefit greatly from their collective oversight. Carl is a proven leader who has devoted more than two decades of his life to Odyssey. We have no doubt that Odyssey will scale new heights under his leadership in the years to come.”

 

[Hamburg Investor]

A big thank you @Viking, @Parsad and all the others here and to the Fairfax team of course. 
 

I‘ve never been as sure in an investment as in Fairfax over the last years and I am still sure about it, being around 43% of my stock portfolio at yearend (and I am always fully invested, only long). My portfolio gave a return of 42% (after tax and cost) in 2024 and although not everything from the outperformance came from Fairfax, the majority of it came from it.
 

Looking out over the next 5 years I expect a return of no less than a double, and if not in share price, than at least in intrinsic value (and that’s with a big margin of safety). My best guess is a threefold in intrinsic value and more in price (including dividends). Any stock market crash in the meantime would dampen return in price of FFH and pushing its CAGR of intrinsic value up, as I am sure FFH would find very good use for its cash than. 

 

But better than that: I expect Fairfax to be an outperformer not only over the next 5 years, but over the (very) longterm. And that’s what really matters at least to me, having no place to hide from tax (in Germany we don’t have tax free accounts - including spread, cost and tax you pay nearly a third jumping from one investment to the next one). 
 

All the best to everyone here and to your families! Have a good start to 2025 - greetings from Hamburg, Germany

[Viking]

3 hours ago, Dazel said:

Viking wonderful job!

Do you have their current bond duration? (Yes lazy) At $39b it is and has been the backbone of the company.

Brian Bradstreet is the best bond investor of all time and it is not even close! 
 

Cheers to the Fairfax team and all of you.

 

Dazel

 

On the Q3 conference call, Wade Burton said the average maturity was 3.7 years. And Peter Clarke said the average duration was 3.5 years.
 

Wade Burton

 

Thank you Peter, and good morning everyone. 
 

The investment results in the quarter were strong with interest and dividend income of $610 million, profits of associates of $260 million, and net gains on investments of $1.3 billion. With that said, there was not a lot of activity in the quarter on the investment side.

Fairfax total investment portfolio now stands at $69 billion to end the quarter, with $49 million in fixed income and $20 billion in equities. Of the $49 billion in fixed income, $35 billion are in U.S. treasuries, other government bonds and cash. There is another $5 billion in mortgages and $9 billion in short dated investment-grade corporates. Including cash, average maturity is 3.7 years and the yield is 4.7%.

 

With inflation steadying at or around the Fed’s target, the Fed cut rates 50 basis points in September with an eye to getting to a neutral stance. So many variables, including a very close U.S. election with widely differing policies between the two candidates, we are studying it all and watching it closely. For now, we continue to have a defensively positioned fixed income portfolio while still making very healthy, very robust interest income. 

 

For the $20 billion in equities, not much changed. Our core holdings and investments continued to perform well, all making good income against invested capital. Our experienced investment team is constantly searching for new opportunities, but as managers of insurance float, we have the very great benefit of taking a long term approach to investing. It means we can wait for prices to come to us, and we won’t invest unless we see a margin of safety. 

 

We did make one significant announcement in the quarter. We bought out our main partners in Peak Achievement, an athletic wear and equipment company focused on hockey and lacrosse. It is an outstanding business operating in a highly consolidated industry, well run by Ed Kinnaly and his team, incredible track record, and we paid a fair price. We think we will make a very good return over the long run for our shareholders, and importantly, Ed runs the company very much in tune with the Fairfax culture.

 

Looking back over the last two years, we’ve made three significant long term equity investments, one in Meadow Dairy, a dominant milk ingredients company in the U.K. that is doing very well; another in Sleep Country, a dominant mattress distributor and retailer in Canada; and now a third, Peak, a dominant sporting goods company focused on hockey and lacrosse. All immediately are or will contribute to our earnings, and we believe all will continue to contribute more and more as their businesses progress.

 

I will now pass it to Jen Allen, our CFO.

 

—————

During the Q&A portion of the conference call.
 

Jaeme Gloyne

 

Yes, thanks. Since we’re on round two, maybe I can sneak a couple in here.

First one is just around the duration of the fixed income portfolio - I don’t think it was disclosed in the results or the report. If you could just give us an update on how that duration sits and compared to the liabilities. Maybe thinking about the strategy here around fixed income, is it a little bit of wait and see on the election, or do you have some strategies, maybe you’re thinking about deploying more capital into longer dated maturities, shifting more into corporate bonds. Maybe you can sort of talk through how you’re thinking about the world on fixed income.

 

Peter Clarke

 

Sure. The duration on our bond liabilities are around 3.5 years, so it’s a little longer than it was last quarter, and if you look at our liabilities, it’s relatively close. We don’t match on purpose, but where we sit today, our liability duration is close to our asset duration. You can sort of see that in the IFRS 17 numbers, that we had a big loss on the discounting, about $750 million, $760 million that was offset almost--very closely with the $800 million-plus of gains on our bond portfolio, so we’re pretty much matched where we are today.

 

As far as going forward, I think all that we could say on that is we’re very happy that the fixed income portfolio is very liquid and with a duration of 3.5 years. It gives us lots of flexibility for opportunities in the future. We don’t have any significant exposure on the corporate side - our corporate bonds are one to two years, very short dated, so that is an opportunity if credit spreads should widen in the future.

 

Next question?

 

Edited Friday at 04:28 PM by Viking

[MMM20]

Should do 50% returns again this year and that assumes we exit around 10x P/E. Of course, 1stdev around that is probably 40%. Made this a 10% position nearly 4 years ago and now a ~25% position. Posting less b/c I think the thesis is a lot more straightforward and I don’t have much to add anymore. Nowadays IMHO it’s more a question of personal asset allocation / risk management and a waiting game for ~2x rerating to a fairer multiple. I’m also somewhat burnt out b/c I’m just one guy working in my attic trying to run a little investment partnership while also raising little kids (don’t try that at home) so very happy to have found this old school oddball community (when the internet is mostly turning to shit elsewhere - but that’s another story). Happy new year everyone. Onward!
 

Edited Friday at 05:53 PM by MMM20

[Junior R]

Brian B hasn't bought FFH shares in a long time...He has bought 3 shares Dec/31/2024 ..

[TwoCitiesCapital]

59 minutes ago, MMM20 said:

Should do 50% returns again this year and that assumes we exit around 10x P/E. Of course, 1stdev around that is probably 40%. Made this a 10% position nearly 4 years ago and now a ~25% position. Posting less b/c I think the thesis is a lot more straightforward and I don’t have much to add anymore. Nowadays IMHO it’s more a question of personal asset allocation / risk management and a waiting game for ~2x rerating to a fairer multiple. I’m also somewhat burnt out b/c I’m just one guy working in my attic trying to run a little investment partnership while also raising little kids (don’t try that at home) so very happy to have found this old school oddball community (when the internet is mostly turning to shit elsewhere - but that’s another story). Happy new year everyone. Onward!
 

 

Same. 

 

With Bitcoin's performance this year, I've actually been able to modestly add to my position where I had been forced to trim in prior years to keep at ~10%. That was definitely an issue after Fairfax's blockbuster 2022 when everything else I owned was dropping as it rose. 

 

34 minutes ago, Junior R said:

Brian B hasn't bought FFH shares in a long time...He has bought 3 shares Dec/31/2024 ..

 

[Crip1]

1 hour ago, MMM20 said:

...so very happy to have found this old school oddball community...
 

Love that.

[Dazel]

Viking you are the best! You put a tremendous effort in here!

 

thanks again 

 

Dazel

[Parsad]

5 hours ago, MMM20 said:

Should do 50% returns again this year and that assumes we exit around 10x P/E. Of course, 1stdev around that is probably 40%. Made this a 10% position nearly 4 years ago and now a ~25% position. Posting less b/c I think the thesis is a lot more straightforward and I don’t have much to add anymore. Nowadays IMHO it’s more a question of personal asset allocation / risk management and a waiting game for ~2x rerating to a fairer multiple. I’m also somewhat burnt out b/c I’m just one guy working in my attic trying to run a little investment partnership while also raising little kids (don’t try that at home) so very happy to have found this old school oddball community (when the internet is mostly turning to shit elsewhere - but that’s another story). Happy new year everyone. Onward!
 

 

Who you calling "oddball?!" 

 

Congratulations on the great returns and have fun with your kids!

 

Cheers!

[Hamburg Investor]

On 1/3/2025 at 6:34 PM, MMM20 said:

Should do 50% returns again this year and that assumes we exit around 10x P/E.
 

Why do you think 50% being reasonable this year?
 

My best guess for your performence guess is that you add Momentum + undervaluation + good business numbers from quarter to quarter + an add to the TSX60 altogether. Am I right or wrong?

 

But what, if the market crashes or interest would go down (to be clear: which I am NOT saying will happen; what I am saying is just, that I don’t believe anybody being able to predict if interest goes up or down or stays where it is)? I think everything is possible from minus 40% (if the market crashes 50% - why not?) to a double in price (e. g. if stock markets go up 50% and the market falling in love with insurance stocks in general or everything of the above happening). So why do you think it „should“ go up 50%?
 

How do you get to a pe ratio of 10 after that? I assume you mean a pe ratio on the basis of normalized earnings and take 20% roe? At 1,4 pb ratio that‘s a pe ratio of 7 today, 50% growth in price in 12 months would be a pe ratio of 10 than (without counting in the returns / growth in business value over that time frame). 

Edited Sunday at 05:11 PM by Hamburg Investor

[Txvestor]

14 hours ago, Hamburg Investor said:

Why do you think 50% being reasonable this year?
 

My best guess for your performence guess is that you add Momentum + undervaluation + good business numbers from quarter to quarter + an add to the TSX60 altogether. Am I right or wrong?

 

But what, if the market crashes or interest would go down (to be clear: which I am NOT saying will happen; what I am saying is just, that I don’t believe anybody being able to predict if interest goes up or down or stays where it is)? I think everything is possible from minus 40% (if the market crashes 50% - why not?) to a double in price (e. g. if stock markets go up 50% and the market falling in love with insurance stocks in general or everything of the above happening). So why do you think it „should“ go up 50%?
 

How do you get to a pe ratio of 10 after that? I assume you mean a pe ratio on the basis of normalized earnings and take 20% roe? At 1,4 pb ratio that‘s a pe ratio of 7 today, 50% growth in price in 12 months would be a pe ratio of 10 than (without counting in the returns / growth in business value over that time frame). 

Short term predictions are inherently fraught with risk. That said if the markets do turn lower and interest rates drop as you mention in the downside scenario, I think there's actually some upside built into Fairfax's portfolio.
 

Firstly they have gone out about as long dated on the bond portfolio as I've seen them at any time in the last decade plus. I think it's very likely they are locked in to a mean duration of 4+ yrs by now. If rates do crash to say 2.5%, that's a significant unrealized gains to their income report, which they do have to report mark to market. Adding to BV. 
 

On the other hand their equity portfolio is pretty small relative to the size of their total investments and skewed to their equity swaps and other conservatively positioned investments. Additionally the Indian market seems resilient and there's ample domestic investor demand and ongoing world leading growth in that economy as well. 

 

Their private equity holdings such as Poseidon and others are in fixed rate sales contracts mostly and some in recession resistant industries. Plus they won't need to take immediate write downs. Still generating cash while preserving BV. 
 

Insurance subs. operations performance is mostly uncorrelated to the stock market. And their underwriting has been well, pretty damn terrific of late.
 

All this said if the markets tanked 50% as you said, Fairfax would perhaps also be down but by perhaps 25% would be my guess. And with the amount of cash they would continue to generate from the bond portfolio, insurance ops and equity holdings etc. They could make meaningful and opportunistic investments over the ensuing 2-3yrs. Not the least of which is to buy back their own shares if they are trading say anything around $1000US.
So whereas that may be short term painful for us, it would accrue to longer term relative value creation.
So they are positioned well either way to relatively outperform, arguably moreso in a downside scenario. Thats the key thing to remember I think. 

Edited 22 hours ago by Txvestor

[Viking]

Equity Holdings – Size Ranking at December 31, 2024

 

Fairfax has a total investment portfolio of about $70 billion. Fixed income is about 70% of the portfolio and equities are about 30%. Fairfax is currently generating a total return of about 7.5% to 8% on its total investment portfolio. That is much better than P/C insurance peers who choose to invest primarily in fixed income. Of interest, Fairfax’s fixed income portfolio is positioned much more conservatively than peers - it is invested primarily in treasuries/government bonds. The significant outperformance of Fairfax’s investment portfolio versus peers is driven in large part by its equity portfolio (although Brian Bradstreet and the fixed income team at Fairfax might not totally agree with this).

 

 

Over the past 7 years, Fairfax’s equity portfolio has experienced a dramatic transformation. What happened?

• Poorly performing holdings were dealt with - fixed, restructured, sold, taken private, merged or wound down.
• New money was invested wisely.

Fairfax’s equity holdings today are:

• Very well managed.
• Profitable.
• Have solid balance sheets.

As a result, the ‘quality’ of Fairfax’s collection of equity holdings has never been higher (in terms of management, fundamentals and prospects). And we are seeing this quality now shine through in terms of the performance and the increase in the value of these holdings. As a result, the return Fairfax is earnings from its investment portfolio has popped higher. The holdings are well positioned. This bodes well for future returns.

 

—————

 

In this post we provide a list of Fairfax’s 30 largest equity holdings. To value a holding, we normally use current market value, which is the stock price at December 31, 2024, multiplied by the number of shares that Fairfax owns. For private holdings we use Fairfax’s latest reported market/carrying value, which was September 30, 2024. The FFH-TRS position is included at its notional value.

 

Additional notes:

1. Mytilineos *: includes exchangeable bonds
2. John Keells *: includes convertible debentures
3. Sleep Country - this purchase closed in Q4, 2024. My carrying/market value of $575 million is a guess. 
4. Peak Achievements - Fairfax doubled its position in Q4, 2024. My carrying/market value of $525 million is a guess. 
   • The carrying/market values of both Sleep Country and Peak will be updated when we get actual numbers from Fairfax when they report year-end results. 

What holdings are missing from my list below? Private holdings, AGT Food Ingredients and Meadow Foods, are two that come to mind.

 

Ok, let’s get to the fun part of this post.

 

What can we learn from looking at a list of Fairfax’s largest equity holdings?

 

1.) Fairfax has a pretty concentrated portfolio

• The top 3 holdings make up 36% of the total.
• The top 10 holdings make up 58% of the total.

2.) Mr. Market probably dislikes (hates?) lots of the stocks that are on this list

• A Greek bank?
• What is a P/C insurance company doing buying a total return swap on its own shares?
• A container shipping company?
• Significant investments in an emerging market like India? Greece?
• Significant investments in resource / commodity producers?

I could go on. But here is the key point. Ask Mr. Market (the detractors) if they actually follow any of Fairfax’s 10 largest holdings. My guess is they don’t. I love it when people have strong opinions about something they know nothing about.

• That Greek bank has increased in market value by $650 million in 2024 and $2 billion over the past 4 years.
• That TRS has increased in market value by $900 million in 2024 and $2 billion over the past 4 years.
• That shipping container company just completed a massive new-built expansion program - cost to build today has shot up 30% (from what they recently paid).
• Through Fairfax India, they now own 69% of Bangalore International Airport (BIAL) the 3rd largest and fastest growing airport in India.
• One of their commodity holdings, Stelco, was sold in Q4. Over its 6 year holding period, this investment delivered a total return of $568 million (CAGR of 25.5%).

Bottom line, Fairfax’s equity holdings have been performing exceptionally well in recent years. 

 

3.) Fairfax is not Berkshire Hathaway

 

Over the past 58 years, Warren Buffett / Berkshire Hathaway has been the GOAT. As a result, all P/C insurance companies today are evaluated by how much they clone Warren Buffett. Of course, there will only ever be one Warren Buffett - and he can’t be cloned (no matter how hard Tom Gaynor at Markel might try).

 

Here is the really interesting point. Warren Buffett/Berkshire Hathaway is not the only person/company to build great wealth by exploiting the P/C insurance business model. I know this might sound like heresy to all of those investors who worship at the alter of Warren Buffett.

 

Here are a few other individuals/companies that have built great wealth for themselves and their shareholders over decades (my list is not comprehensive… there are more):

• Shelby Davis
• Peter B Lewis / Progressive
• Hank Greenberg / AIG
• Tisch family / Lowes
• Bill Berkley / WR Berkley
• Markel family / Markel
• Prem Watsa / Fairfax Financial

The important point is they all did it in very different ways - there is no one/right way.

 

Buffett has been so successful for so many years that today lots of investors now think Buffett’s methods are the only way - his methods have become the accepted orthodoxy. And companies like Fairfax are evaluated and measured primarily by how much they emulate Warren Buffett’s style and approach - they are not measured and evaluated primarily on their own merits (management, fundamentals, results and prospects).

 

Using Warren Buffett / Berkshire Hathaway today as the filter to screen/evaluate all other P/C insurance companies (especially those who invest in equities) is stupid. But it sounds smart. So it will likely continue.

 

As a result, lots of investors are missing out on investing in other wonderful opportunities in P/C insurance.

 

So if you look at Fairfax’s top equity holdings and you hear yourself saying ‘Warren Buffett wouldn’t do that’… well, good luck with that type of ‘analysis’.

 

Of course, bad analysis by Mr. Market creates enormous opportunity for those able to think for themselves - and that is what we have seen play out at Fairfax and its share price over the past 4 years.

 

4.) Shift to private/associate holdings

 

A seismic change has been happening with the composition of Fairfax’s equity holdings over the past 7 or 8 years. There has been a massive shift from publicly traded stocks to private/associate holdings. Today almost all of Fairfax’s largest equity holdings fall into the private bucket. And those that don’t fall into the associate bucket (which means Fairfax exerts significant influence).

 

This shift at Fairfax reflects what has also been happening in financial markets in general in recent years - more and more capital is shifting from public to private markets, especially with large institutional investors. This is trend looks like it is just getting started.

 

Today, Fairfax is generating an enormous amount of earnings. As the hard market in insurance slows, more of its excess cash will be allocated to equities.   Many of the recent equity investments have been private:

• 2022: Purchase/take private of Recipe and significantly increase stake in Grivalia Hospitality.
• 2023: Purchase of Meadow Foods.
• 2024: Purchase/take private of Sleep Country and significantly increase stake in Peak Achievements.

Fairfax is now of a size (earnings) where it has the ability to buy entire companies.

 

The shift to private/associate holdings will have important implications for investors in how it impacts reported results (the income statement and balance sheet).

• Another meaningful income stream is being created: ‘Non-insurance consolidated holdings’ income stream will be spiking higher in the coming years.
• Less volatility in another income stream: As ‘mark to market’ equity holdings shrink in size as a percent of the total equity portfolio, we should see less volatility in the ‘unrealized investment gains (losses)’ income stream. In the coming years, the reported results of ‘new Fairfax’ will be much less volatile than what was experienced with ‘old Fairfax’.

Will the shift to private/associate holdings create a Berkshire Hathaway type of problem for Fairfax?

 

Will book value become a poor tool to use to value Fairfax?

 

For Fairfax’s ‘consolidated’ and ‘associate’ equity holdings, over time, it is likely the increase in economic value will exceed the increase in accounting value. We can already see this happening. One example is at September 30, 2024, the excess of fair value over carrying value for consolidated and associate equity holdings was $1.9 billion. This will be something for investors to monitor and factor into their assessment of performance/valuation of the company in the coming years.

 

5.) Fairfax has fixed its ‘problem’ equity holdings from pre-2018

 

Back in 2018, Fairfax’s equity portfolio was littered with underperforming equity holdings. But around that time its like the senior team at Fairfax decided enough was enough. It looks to me like they ‘tweaked’ their investment framework and put more of a premium on:

• Partnering with strong management teams.
• Profitability.
• Financial strength.

This new framework helped with new equity purchases. But what to do with poorly performing ‘legacy’ holdings? Fairfax rolled up their sleeves and got to work:

• AGT Food and Ingredients was taken private.
• APR Energy was sold to Atlas (for shares).
• Fairfax Africa was placed into runoff / merged with Helios.
• Resolute Forest Products was sold (at the peak of the lumber market).
• Farmers Edge went bankrupt.
• Blackberry debentures were exited.

It took 7 years, but Fairfax has largely ‘fixed’ all of its poorly performing legacy equity holdings. These holdings were a significant and recurring drain of financial and management resources - they were a steady ‘use of cash’ of +$200 million per year for many years (cash infusions, write downs etc). It is like a $200 million annual expense has been eliminated.

 

Fixing legacy holdings carries a double benefit for Fairfax:

• It removes a large annual expense.
• It has shifted a significant amount of capital to better performing companies/opportunities that are now delivering solid results/earnings - which are beginning to compound in value.

Every equity portfolio will have a few poor performers. Fairfax’s problem back in 2018 was they had too many poorly performing holdings and they were large in size (many were top 10 holdings).

 

6.) The overall quality of Fairfax’s collection of equity holdings has never been better

 

With regard to its large equity portfolio, the team at Fairfax and Hamblin Watsa has been on a 7 year journey of continuous improvement. As we reviewed in point 5.) above, legacy problem children were dealt with. And new purchases have been performing exceptionally well:

• Fairfax total return swap
• Stelco (sold this year, locking in an exceptional return)
• Seaspan/Altas/Poseidon
• BIAL

Some of Fairfax’s equity holdings were also helped by external factors.

• Eurobank - election of pro-business government and return of strong economic growth in Greece.
• Fairfax India, Thomas Cook India and Quess - election of pro-business government and strong economic growth in India

As a result, today, the quality of Fairfax’s collection of equity holdings has never been/looked better, in terms of:

• Management
• Fundamentals
• Profitability/earnings power
• Prospects

This is doubly important, because the size of Fairfax’s equity portfolio at $21 billion - has never been bigger. Fairfax is delivering exceptional performance at the perfect time. 

 

It looks like the team at Fairfax / Hamblin Watsa / Fairbridge has the right investment framework in place and they are executing against it very well.

 

Summary

 

For the past 7 years, the overall quality of Fairfax’s collection of equity holdings has been slowly and steadily improving. The impact on earnings lagged initially. But after years of effort, the improvements made are now showing up in earnings. Importantly, Fairfax’s equity portfolio looks very well positioned to continue its strong performance in the coming years.

 

This is a wonderful set-up for Fairfax shareholders.

 

Edited 10 hours ago by Viking