Fairfax 2025

[SafetyinNumbers]

20 minutes ago, Hoodlum said:

This morning National Bank analyst upgraded Fairfax from $2400 to $2600.  This is the 2nd upgrade in the past week from different analysts, likely anticipating excellent results from Q4 and 2024 as a whole.  

 

I am curious to see what we did for buybacks and extending bond durations over the past couple months.

 

I haven’t seen the National note but CIBC cut it’s earnings estimates so it wasn’t a positive update in my view.

[Hoodlum]

47 minutes ago, SafetyinNumbers said:

I haven’t seen the National note but CIBC cut it’s earnings estimates so it wasn’t a positive update in my view.

 

Do you have the details of the CIBC analysis that you could share.

[Viking]

2 hours ago, Hoodlum said:

Fairfax certainly had good timing with the Stelco sale. 

Lucky. Just like when they sold Resolute at the top of the lumber cycle. Just like when they sold pet insurance when there was a mania in cats and dogs. Just like when the average duration of their bond portfolio was 1.2 years and bond yields spiked. Just like when they did a dutch auction and bought 2 million Fairfax shares at $500/share. I could go on…

 

Maybe they aren’t lucky… maybe its skill…

 

And if it is skill, the question becomes: “is it reflected in the stock price?” My guess is no. As a result, it is like an investor today is getting a free call option on this aspect of Fairfax. 

 

( @Hoodlum , FYI, my comment above is not directed at you   )

Edited February 3 by Viking

[Hoodlum]

17 minutes ago, Viking said:

Lucky. Just like when they sold Resolute at the top of the lumber cycle. Just like when they sold pet insurance when there was a mania in cats and dogs. Just like when the average duration of their bond portfolio was 1.2 years and bond yields spiked. Just like when they did a dutch auction and bought 2 million Fairfax shares at $500/share. I could go on…

 

Maybe they aren’t lucky… maybe its skill…

 

And if it is skill, the question becomes: “is it reflected in the stock price?” My guess is no. As a result, it is like an investor today is getting a free call option on this aspect of Fairfax. 

 

( @Hoodlum , FYI, my comment above is not directed at you   )

 

yes, you definitely need to know when to take advantage of market valuation.  We are a bit fortunate in that in the case of Stelco, steel peaked before Trump became president.  

 

I am just thinking that the AGT Foods Rail sale while not finalized yet, just snuck through before this trade dispute.  The valuation today would be much less.

 

Edited February 3 by Hoodlum

[Parsad]

4 hours ago, Daphne said:

Addressing one dartmonkey point, the US already has 16 banks operating in Canada as well as banks from many other countries. These claims appear to be more smoke not dissimilar to the false assertions around drug and migrant flow from Canada.

 

Not entirely.  The U.S. banks and most foreign banks operating in Canada (outside of HSBC which is now part of Royal Bank) operate as Schedule II banks, not Schedule I.  So there are restrictions on what lines of business and what they can offer Canadian consumers.  Essentially they are only half banks, like Trump is only half human!  Cheers!

[dartmonkey]

14 hours ago, Parsad said:

The U.S. banks and most foreign banks operating in Canada (outside of HSBC which is now part of Royal Bank) operate as Schedule II banks, not Schedule I.  So there are restrictions on what lines of business and what they can offer Canadian consumers. 

 

Yes, it is no coincidence that all the banks you can name in Canada, without googling it, are Canadian. Canadian banks have significant operations in the USA, but American banks do not have significant operations in Canada. The "16 banks with $113b in assets operating in Canada" is a talking point of, guess who?, the Canadian Bankers Association. The same FP article goes on to say that:

 

Because Schedule I banks are true domestic banks and not subsidiaries of a foreign bank, they are the only businesses that are allowed to receive, hold, and enforce security interest as described in the Bank Act. 

 

Ok, I don't fully understand the restrictions placed on schedule II banks (incidentally, the Canadian government abandoned this terminology in 2001, but it is still widely used. But clearly, the restrictions have not allowed US banks to pose any competitive threat to Canadian banks, and I think no one seriously believes that the Canadian government would allow any Canadian bank to be taken over by a US bank. And the impressive sounding $113b in assets number is less than a quarter of the size of the smallest of Canada's big 6, the National Bank of Canada.

 

More generally, I think if Canadians look honestly at the situation, the USA has plenty of beefs against Canada's protectionism (which in addition to banking - and maybe to insurance - also applies to telecoms, air transportation, poultry, eggs, dairy products, construction, etc. We want access to US markets, but we are not so happy about the US having access to our markets. The irony is that allowing better US access to Canadian markets would also be very beneficial to competition in Canada and could save Canadian citizens a lot of money. For instance the extra cost of dairy/poultry/egg because of supply management represents 2.3% of poor Canadians' incomes, according to one estimate: https://financialpost.com/opinion/supply-management-is-literally-driving-tens-of-thousands-of-canadians-into-poverty

[SafetyinNumbers]

3 hours ago, dartmonkey said:

 

Yes, it is no coincidence that all the banks you can name in Canada, without googling it, are Canadian. Canadian banks have significant operations in the USA, but American banks do not have significant operations in Canada. The "16 banks with $113b in assets operating in Canada" is a talking point of, guess who?, the Canadian Bankers Association. The same FP article goes on to say that:

 

Because Schedule I banks are true domestic banks and not subsidiaries of a foreign bank, they are the only businesses that are allowed to receive, hold, and enforce security interest as described in the Bank Act. 

 

Ok, I don't fully understand the restrictions placed on schedule II banks (incidentally, the Canadian government abandoned this terminology in 2001, but it is still widely used. But clearly, the restrictions have not allowed US banks to pose any competitive threat to Canadian banks, and I think no one seriously believes that the Canadian government would allow any Canadian bank to be taken over by a US bank. And the impressive sounding $113b in assets number is less than a quarter of the size of the smallest of Canada's big 6, the National Bank of Canada.

 

More generally, I think if Canadians look honestly at the situation, the USA has plenty of beefs against Canada's protectionism (which in addition to banking - and maybe to insurance - also applies to telecoms, air transportation, poultry, eggs, dairy products, construction, etc. We want access to US markets, but we are not so happy about the US having access to our markets. The irony is that allowing better US access to Canadian markets would also be very beneficial to competition in Canada and could save Canadian citizens a lot of money. For instance the extra cost of dairy/poultry/egg because of supply management represents 2.3% of poor Canadians' incomes, according to one estimate: https://financialpost.com/opinion/supply-management-is-literally-driving-tens-of-thousands-of-canadians-into-poverty

I’m not sure it’s wise to turn over poultry, eggs and dairy to an unreliable partner. I didn’t used to think that but I think that now.

[Parsad]

3 hours ago, dartmonkey said:

 

Yes, it is no coincidence that all the banks you can name in Canada, without googling it, are Canadian. Canadian banks have significant operations in the USA, but American banks do not have significant operations in Canada. The "16 banks with $113b in assets operating in Canada" is a talking point of, guess who?, the Canadian Bankers Association. The same FP article goes on to say that:

 

Because Schedule I banks are true domestic banks and not subsidiaries of a foreign bank, they are the only businesses that are allowed to receive, hold, and enforce security interest as described in the Bank Act. 

 

Ok, I don't fully understand the restrictions placed on schedule II banks (incidentally, the Canadian government abandoned this terminology in 2001, but it is still widely used. But clearly, the restrictions have not allowed US banks to pose any competitive threat to Canadian banks, and I think no one seriously believes that the Canadian government would allow any Canadian bank to be taken over by a US bank. And the impressive sounding $113b in assets number is less than a quarter of the size of the smallest of Canada's big 6, the National Bank of Canada.

 

More generally, I think if Canadians look honestly at the situation, the USA has plenty of beefs against Canada's protectionism (which in addition to banking - and maybe to insurance - also applies to telecoms, air transportation, poultry, eggs, dairy products, construction, etc. We want access to US markets, but we are not so happy about the US having access to our markets. The irony is that allowing better US access to Canadian markets would also be very beneficial to competition in Canada and could save Canadian citizens a lot of money. For instance the extra cost of dairy/poultry/egg because of supply management represents 2.3% of poor Canadians' incomes, according to one estimate: https://financialpost.com/opinion/supply-management-is-literally-driving-tens-of-thousands-of-canadians-into-poverty

 

Even in the U.S., Canadian banks don't have complete universal opportunities like U.S. large banks.  There are restrictions.  I think we could allow U.S. banks to compete on certain areas where pricing is just stupid in Canada, such as wealth management, brokerage fees, auto insurance, etc.  Just like I wouldn't mind some telecom competition by U.S./European companies in Canada as well.  But our banks stick to banking and avoided things like mortgage back securities, JUMBO/ARM loans, etc.  It's why when the U.S. financial system was collapsing, Canada's was fine.  Cheers!

[cwericb]

49 minutes ago, Parsad said:

 

 It's why when the U.S. financial system was collapsing, Canada's was fine.  Cheers!

THIS! 

[nwoodman]

I have attached a couple of notes on book + float valuation. It's something I have been pondering lately, and I guess it all comes down to what you can and ultimately do with the float.

 

The prompts were (1) a valuation range of Fairfax based on Book+Float and (2) the circumstances under which you would ascribe 100% valuation to float.  It is nothing particularly startling and has been covered before, but it may still be of interest. (It also tested the Deepseek R1 model via Perplexity, which is not bad given my minimal prompting).

Fairfax Book + Float.pdf 100% Float Valuation.pdf

[wondering]

Thanks for the analysis 

[sholland]

      As long as an underwriting profit is achieved, float is more valuable than an equivalent amount of equity (book value)

             

[RockNation]

Thanks for posting the valuation theories .. Prem discusses this enough to understand their thinking in the 1995 shareholder letter when they repurchased common shares at about 1.5 times bvps. 

Something along the lines of “When we can achieve our 20% ROE goal for the foreseeable future, we are less sensitive to the price we pay for our stock” ..(I assume without twisting themselves into a pretzel about what hundredths of a decimal place exactly to the bvps they paid) higher ROE means higher valuation can be justified. Having consistent retained earnings is a game changer, with more profits AKA more money; they figure they’ll use it to be able to grow more.. 

[KFRCanuk]

Valentine's day greeting from FFH!  

 

 

 

[SafetyinNumbers]

My nephew, Ryan and I wrote about our variant perceptions on Fairfax’s underwriting and investment  returns on Berczy Park Capital’s first ever substack.

 

Thanks to @Vikingas we borrowed from his book and model. 
 

Please subscribe, share, read and comment.

 

https://open.substack.com/pub/berczyparkcapital/p/fairfax-financial-a-generational?r=ecc87&utm_medium=ios

[nwoodman]

50 minutes ago, SafetyinNumbers said:

My nephew, Ryan and I wrote about our variant perceptions on Fairfax’s underwriting and investment  returns on Berczy Park Capital’s first ever substack.

 

Thanks to @Vikingas we borrowed from his book and model. 
 

Please subscribe, share, read and comment.

 

https://open.substack.com/pub/berczyparkcapital/p/fairfax-financial-a-generational?r=ecc87&utm_medium=ios

Good stuff, pass on my congrats to Ryan.  It certainly touches on all the relevant points and reinforces the margin of safety even after some impressive gains.  A rarity in this market.  

 

While $6bn for BIAL would be at the top of my range, $4bn is roughly my lower bound.  Hopefully we find out what the market thinks relatively shortly.  

 

I also appreciated the %contribution of each sub to the ROA calc, again it just reinforces the low bar required to achieve an ROE of 15% now that they are paid to sit in the safety of treasuries.  It also did a nice job highlighting the optionality that Bradstreet’s positioning offers….they will make out like bandits in a credit dislocation.

 

The numbers tell a great story but coupled with the management mix of old wise heads and protégé's it should provide a very long runway indeed.  Prem in the role as super coach, is where he adds the most value IMHO.

 

 

[SafetyinNumbers]

29 minutes ago, nwoodman said:

Good stuff, pass on my congrats to Ryan.  It certainly touches on all the relevant points and reinforces the margin of safety even after some impressive gains.  A rarity in this market.  

 

While $6bn for BIAL would be at the top of my range, $4bn is roughly my lower bound.  Hopefully we find out what the market thinks relatively shortly.  

 

I also appreciated the %contribution of each sub to the ROA calc, again it just reinforces the low bar required to achieve an ROE of 15% now that they are paid to sit in the safety of treasuries.  It also did a nice job highlighting the optionality that Bradstreet’s positioning offers….they will make out like bandits in a credit dislocation.

 

The numbers tell a great story but coupled with the management mix of old wise heads and protégé's it should provide a very long runway indeed.  Prem in the role as super coach, is where he adds the most value IMHO.

 

 

Thanks @nwoodman. I really value your opinion. 

[MMM20]

12 hours ago, SafetyinNumbers said:

My nephew, Ryan and I wrote about our variant perceptions on Fairfax’s underwriting and investment  returns on Berczy Park Capital’s first ever substack.

 

Thanks to @Vikingas we borrowed from his book and model. 
 

Please subscribe, share, read and comment.

 

https://open.substack.com/pub/berczyparkcapital/p/fairfax-financial-a-generational?r=ecc87&utm_medium=ios

This guy gets it  

[SafetyinNumbers]

2 hours ago, MMM20 said:

This guy gets it  

We’ll check back in 5 years!

[Viking]

17 hours ago, SafetyinNumbers said:

My nephew, Ryan and I wrote about our variant perceptions on Fairfax’s underwriting and investment  returns on Berczy Park Capital’s first ever substack.

 

Thanks to @Vikingas we borrowed from his book and model. 
 

Please subscribe, share, read and comment.

 

ea

 

@SafetyinNumbers , I finally had a chance to read yours and Ryan's article... well done! I thought your article summarized the opportunity that exists with Fairfax today very well. I have subscribed to your sub stack and I look forward to reading future articles. Writing is a great way refine one's investment process and thesis for specific investments.

 

As I have said before, feel free to use any of the material in my PDF/book in future articles (same with other posters on CofBF). At the end of the day, we are all trying to better understand Fairfax (and improve our own investment framework). The more people who write/participate in the dialogue the better  

 

Hopefully Ryan gets bit by the investing bug... He has a great mentor in you, which gives him a big advantage. 

Edited February 8 by Viking

[SafetyinNumbers]

46 minutes ago, Viking said:

 

@SafetyinNumbers , I finally had a chance to read yours and Ryan's article... well done! I thought your article summarized the opportunity that exists with Fairfax today very well. I have subscribed to your sub stack and I look forward to reading future articles. Writing is a great way refine one's investment process and thesis for specific investments.

 

As I have said before, feel free to use any of the material in my PDF/book in future articles (same with other posters on CofBF). At the end of the day, we are all trying to better understand Fairfax (and improve our own investment framework). The more people who write/participate in the dialogue the better  

 

Hopefully Ryan gets bit by the investing bug... He has a great mentor in you, which gives him a big advantage. 

Thanks @Viking. Your writing and analysis is a tremendous resource to all Fairfax shareholders. We very much appreciate it!

[gfp]

Thanks to both of y'all for all the Fairfax analysis over the years @Viking @SafetyinNumbers

[Viking]

10 hours ago, gfp said:

Thanks to both of y'all for all the Fairfax analysis over the years @Viking @SafetyinNumbers

 

@gfp , thank you for the comment. (You know your stuff...)

[Viking]

With all the discussion around Markel lately, time for a trip down memory lane. Do you know what Fairfax Financial was actually called in 1985 (year 1)? Markel Financial. The name didn't change to Fairfax Financial until 1987.   

 

Of interest, the Markel family was responsible for Fairfax’s entry into the P/C insurance business 40 years ago. Fairfax actually started out as Hamblin Watsa, an investment counselling company, which was established in 1984. Prem teamed up with Tony Hamblin, who was his boss when he was working in the investments department at Confederation Life.

 

In 1985, Hamblin Watsa (via The Sixty Two Investment Company), made their first P/C insurance purchase - a control stake in Markel Financial (Canada). Steven Markel (from Richmond, Virginia) was instrumental in getting this deal done and he agreed to help run the company until a new president could be found. It was only in 1987 that Markel Financial (Canada) changed its name to Fairfax Financial. (Source: Fair and Friendly - The First 25 Years of Fairfax Financial)

 

And as they say, the rest is history. Below is Prem's first letter to shareholders. The really interesting thing to me is it reads like he could have written this letter today - I think that says something about the character of the man. 

 

Edited February 9 by Viking

[dealraker]

6 hours ago, Viking said:

With all the discussion around Markel lately, time for a trip down memory lane. Do you know what Fairfax Financial was actually called in 1985 (year 1)? Markel Financial. The name didn't change to Fairfax Financial until 1987.   

 

Of interest, the Markel family was responsible for Fairfax’s entry into the P/C insurance business 40 years ago. Fairfax actually started out as Hamblin Watsa, an investment counselling company, which was established in 1984. Prem teamed up with Tony Hamblin, who was his boss when he was working in the investments department at Confederation Life.

 

In 1985, Hamblin Watsa (via The Sixty Two Investment Company), made their first P/C insurance purchase - a control stake in Markel Financial (Canada). Steven Markel (from Richmond, Virginia) was instrumental in getting this deal done and he agreed to help run the company until a new president could be found. It was only in 1987 that Markel Financial (Canada) changed its name to Fairfax Financial. (Source: Fair and Friendly - The First 25 Years of Fairfax Financial)

 

And as they say, the rest is history. Below is Prem's first letter to shareholders. The really interesting thing to me is it reads like he could have written this letter today - I think that says something about the character of the man. 

 

Fairfax...short for "Fair Friendly Acquisitions."