Fairfax 2025

[MMM20]

1 hour ago, djokovic1 said:

My view is that for FFH it is not a question of circle of competence.

You dispute that some investors don’t own Fairfax because it’s outside their circle of competence?

[djokovic1]

No I don't dispute that. But my argument is that the assessment that has to be made is that -> do I have the ability to assess if Prem Watsa and team are great investors. 

 

And it's fair enough for an investor to feel, that is outside their circle of competence. 

 

The point I was trying to make is that, I have heard a few investors reject Fairfax because they dont like the underlying equity investments because they are usually different from high quality compounders / because they are not investments they could stomach themselves. And I disagree with the simplistic rejection of Fairfax on that basis.

Edited April 24, 2025 by djokovic1

[[email protected]]

1 hour ago, cwericb said:

I purchased my first shares in 2007 @ $215 CDN and like you, I still have them. We are both probably quite satisfied that we did. While others were in and out of FFH over the years I don't know if they did much better over all, than we did with our original shares. And you are probably quite right about the CDN$ vs U$ as CDN has slipped massively over those years. 

I agree…I bought my first shares in 2003 for mid $80’s. Then some more in the low 100’s. I’ve added but haven’t sold and I believe FFH shares have treated me more than fair. 
 

Even though the lean years, I learned a lot and could see them building a better underlying insurance business so I was content to hold. 
 

I think we faired quite well versus in and out because we now have a solid result and was able to build out the rest of my portfolio without out the distractions. 

[[email protected]]

On 4/22/2025 at 9:49 PM, Parsad said:

 

 

 

A lot of managers missed it...name how many of the Gurus from Guru Focus bought it? 

 

Name how many readers here compared to members bought it?  So why pick on Mohnish?

 

If you were lucky or smart enough to buy it...maybe put your ego aside and thank your stars you did!

 

Cheers!

Many investors take a quick 1000 foot view and see Fairfax as a solid 12-13% compounding return and only above if some of the bets work out…Eurobank, Digit, etc.

 

They don’t take the time to dig much further and if 12-13 isn’t their number, it went on the move on pile.

[MMM20]

1 hour ago, djokovic1 said:

The point I was trying to make is that, I have heard a few investors reject Fairfax because they dont like the underlying equity investments because they are usually different from high quality compounders / because they are not investments they could stomach themselves. And I disagree with the simplistic rejection of Fairfax on that basis.

 

Totally agree. If you're effectively outsourcing some / all of your portfolio, I think it's become underrated to invert - to seek out another investor who shares your north star / framework (let's say a long-term value-oriented approach) but whose expression is very different, who owns things you wouldn't own yourself. Maybe it's hard for many b/c you gotta put your ego aside to some degree. That's what diversification means to me at least!

 

Edited April 24, 2025 by MMM20

[Hamburg Investor]

1 hour ago, MMM20 said:

 

Totally agree. If you're effectively outsourcing some / all of your portfolio, I think it's become underrated to invert - to seek out another investor who shares your north star / framework (let's say a long-term value-oriented approach) but whose expression is very different, who owns things you wouldn't own yourself. Maybe it's hard for many b/c you gotta put your ego aside to some degree. That's what diversification means to me at least!

 

That view resonates a lot with me.

Let me add:

 

I don’t understand, that a lot of people seem not liking FFH, as it‘s not the „original“ and therefore not „safe“ and „credible“ wnough.
 

But what’s wrong starting 20 years later following Buffett (and others), Graham etc.?
 

And now we are 60 years down the road (BRK) and 40 years down the road. As if 40 years of outperformance, being on position 8 of all American stocks over that timeframe, being g better than BRK doesn’t speak for itself. 
 

Of course that view is just meant ooposing the view, FFH being not long enough in the game.

 

there are other reasons I totally find rationale. E. g. finding yourself not comfortable with Prems value investing „cigar butt“ style. I only would say, that the outperformance of BRK was made largely in the early years, when Buffett wasn‘t longing for GARP stocks, but cugar butts too (the original Berkshire Hathaway being a testament itself for that style).

 

But of course I understand everybody feeling more safe with the portfolio of BRK of the last decade. And if one is fine with less but safe performance - well, why not? 
 

But as you said here; in my eyes FFH is an easy choice and I never sold it through the bad years. I knew Prem is able, I trust him and his abilities. I know he understood the power of Float combined with equity investment. He clearly is from Graham and Doddsville, FFH is smaller (so outperformance is easier to achieve) and so why shouldn’t he outperform the market over the long run? Why shouldn‘t he achieve his goal of 15% per year? That’s a double every 5 years, so 16 fold over 20 years and 64 fold over 30 years. And if he wouldn’t reach his goal? If he would only e.g. manage a 12% CAGR over 30 years? Well, than that’s „only“ a 32 folder. That’s still enough for me; and it felt safe, as FFH was cheap in 2012 and 2013 on top of that.
 

So for me, that was enough when investing in 2012. I outperformed the marked more in the years before, investing in micro caps in Europe before (I had looked to Greece too and to Mytileneos and Eurobank too, but haven’t invested back than); but living in Germany there’s no place to hide from taxes - as long as you don’t go Buy and Hold (over 20 to 30 years, tax gets more and more irrelevant…). So that was a lot of effort and a lot of the outperformance was taxed away.

 

Anyway, that’s been my investment thesis and it still holds true: FFH should outperform the market by a few percent and that extra percent brings a lot of extra compounding over the years; more than enough at least for me. And to me it feels like a safe bet. And it should at least double one time more often than BRK, which I hold too, but less. 

 

 

[value_hunter]

What happened? Someone dumped 15K shares in last 10 minutes and pushed down price by 2%.

[mananainvesting]

Fairfax mentioned on BNN today. Timestamp: 33:04

 

 

[djokovic1]

 

6 hours ago, MMM20 said:

 

Totally agree. If you're effectively outsourcing some / all of your portfolio, I think it's become underrated to invert - to seek out another investor who shares your north star / framework (let's say a long-term value-oriented approach) but whose expression is very different, who owns things you wouldn't own yourself. Maybe it's hard for many b/c you gotta put your ego aside to some degree. That's what diversification means to me at least!

 

 

Completely agree! And to be honest, I struggled with this same problem i.e I likely would not invest in Orla mining or Eurobank directly. But also to be honest, partly for the wrong reasons -> a) I don't know the people running it at all and b) I deem it outside my circle of competence without doing more work. But arguably, solvable problems.

 

I think one of the big elements that explains FFH's success is partnering with driven aligned great capital allocators across different industries. This strategy is very similar to Berkshire and works perfectly in the decentralised approach.

[cwericb]

3 hours ago, value_hunter said:

What happened? Someone dumped 15K shares in last 10 minutes and pushed down price by 2%.

 

Yeah, I was watching that too. Pretty consistently moving up most of the day , looked like we might see a new high and then tanked minutes before close. There was a flurry of trades just before close.

[Parsad]

18 minutes ago, cwericb said:

 

Yeah, I was watching that too. Pretty consistently moving up most of the day , looked like we might see a new high and then tanked minutes before close. There was a flurry of trades just before close.

 

Probably some of the mo-mo's on here taking their 10% gain over the last three weeks when it hit the low 1900's!   

 

The drop happened so fast that Yahoo and a couple of other sites couldn't update the close quote properly.  Cheers!

[SafetyinNumbers]

8 hours ago, Hamburg Investor said:

That view resonates a lot with me.

 

there are other reasons I totally find rationale. E. g. finding yourself not comfortable with Prems value investing „cigar butt“ style. I only would say, that the outperformance of BRK was made largely in the early years, when Buffett wasn‘t longing for GARP stocks, but cugar butts too (the original Berkshire Hathaway being a testament itself for that style).

 

 

 

The narrative that Prem is a “cigar butt” style investor is incorrect in my opinion, I think he and Fairfax are expected value investors. EV investors can do anything precisely because they don’t have a style. The narrative will change over time as it’s clear they are now focused on quality. 

[mananainvesting]

$PEP looks interesting at current prices, 4% dividend yield and somewhere between 2-4% growth per year (conservatively)! I hope Fairfax picks up some shares. $BRK can have coke and us some Pepsi & Lays  

[Parsad]

1 hour ago, mananainvesting said:

$PEP looks interesting at current prices, 4% dividend yield and somewhere between 2-4% growth per year (conservatively)! I hope Fairfax picks up some shares. $BRK can have coke and us some Pepsi & Lays  

 

There are almost zero 5-year periods in the last 20 years where you would want to own PEP or KO over the S&P500.  I love both businesses, but is it worth buying them or just buy the S&P500?  You would have to buy both of them at a P/E of 12 or less to really outperform the index.  Cheers!

[Hamburg Investor]

2 hours ago, SafetyinNumbers said:

The narrative that Prem is a “cigar butt” style investor is incorrect in my opinion, I think he and Fairfax are expected value investors. EV investors can do anything precisely because they don’t have a style. The narrative will change over time as it’s clear they are now focused on quality. 

I totally agree with you. But it was different. Today is a different game than 10 years ago.

 

But I was referring to the „why“ people don’t buy FFH today. And if one recognized FFHs portfolio a while back, than that’s still relevant. You might expect that to cone back and if you like buying garp stocks and no turnarounds, cigar butts, cyclical investements etc. than you might not trust Prem.

 

Than you might feel more comfortable investing alongside Buffett, who clearly is focusswd on quality, garp style investments over decades.

 

In my opinion even the investments of the 2010s weren’t that bad; they just weren’t seen as for the hedges and it was bad timing with low interest rates, that supported disruption and strong growth.

[mananainvesting]

1 hour ago, Parsad said:

 

There are almost zero 5-year periods in the last 20 years where you would want to own PEP or KO over the S&P500.  I love both businesses, but is it worth buying them or just buy the S&P500?  You would have to buy both of them at a P/E of 12 or less to really outperform the index.  Cheers!

 

Sure, I was thinking more on the lines of Fairfax investing in $PEP instead of maybe Corporate bonds/bonds. My guess is $PEP probably has lower drawdowns vs S&P500 during downturns. (Anyways to check this? Any free tools?)

 

 

Also, does anyone know if $FFH.TO has specific restrictions on what they can invest the float in?

 

 

 

[Charlie]

19 hours ago, Hamburg Investor said:

but living in Germany there’s no place to hide from taxes - as long as you don’t go Buy and Hold (over 20 to 30 years, tax gets more and more irrelevant…). So that was a lot of effort and a lot of the outperformance was taxed away.

@Hamburg Investor

There are approximately three places to hide from taxes if you live in Germany :

1. Freistellungsauftrag

2. Nichtveranlagungsbescheinigung (this is the biggest one if you have no other income (around €14000 free)

3. Kids and wife (where you use 1 and 2).

 

There could also be a fourth and a little bit more imiganative solution to the tax problem:

- Open an Interactive Brokers Account in Ireland.

-.Sell the equities (you don´t pay any taxes directly at IB) take the money and

hide and retire outside Germany at a nice place like Thailand. 

 

Edited April 25, 2025 by Charlie

[Parsad]

49 minutes ago, mananainvesting said:

 

Also, does anyone know if $FFH.TO has specific restrictions on what they can invest the float in?

 

 

 

 

Not really.  They have to keep a certain amount in bonds to match their insurance liabilities long-term, but outside of that, they have enormous flexibility in what they can invest in. 

 

They also run models on what would happen to them if there were two major catastrophes in a given year (I believe they use a 9.0 earthquake in Los Angeles and a F5 hurricane hitting Florida combined with a 50% drop in the U.S. market).   

 

So as long as their models stay intact with the investment ideas they use, and possible outcomes with those ideas, they can invest in almost anything.  

 

Cheers!

[Dinar]

7 hours ago, Parsad said:

 

Not really.  They have to keep a certain amount in bonds to match their insurance liabilities long-term, but outside of that, they have enormous flexibility in what they can invest in. 

 

They also run models on what would happen to them if there were two major catastrophes in a given year (I believe they use a 9.0 earthquake in Los Angeles and a F5 hurricane hitting Florida combined with a 50% drop in the U.S. market).   

 

So as long as their models stay intact with the investment ideas they use, and possible outcomes with those ideas, they can invest in almost anything.  

 

Cheers!

I think the bigger threat to Fairfax is a CAT 5 hitting Long Island and NYC suburbs.  

[SafetyinNumbers]

1 hour ago, Dinar said:

I think the bigger threat to Fairfax is a CAT 5 hitting Long Island and NYC suburbs.  

They have dollar limits on exposure so it’s not open ended as many investors think. If it happens with their excess capital, they will be able to take advantage of the resulting hard market better than most and earn back their losses. 

[Hamburg Investor]

13 hours ago, Charlie said:

@Hamburg Investor

There are approximately three places to hide from taxes if you live in Germany :

1. Freistellungsauftrag

2. Nichtveranlagungsbescheinigung (this is the biggest one if you have no other income (around €14000 free)

3. Kids and wife (where you use 1 and 2).

 

There could also be a fourth and a little bit more imiganative solution to the tax problem:

- Open an Interactive Brokers Account in Ireland.

-.Sell the equities (you don´t pay any taxes directly at IB) take the money and

hide and retire outside Germany at a nice place like Thailand. 

 

… so that is what you do?

 

I wanna live here. It’s my home. I was born here and I belong to northern Germany; so that’s not my way. And I have to work, so can‘t use the Freistellungsauftrag etc. in a major way…

[Cigarbutt]

9 hours ago, Dinar said:

I think the bigger threat to Fairfax is a CAT 5 hitting Long Island and NYC suburbs.  

As you likely know, even a category 1 or 2 hurricane reaching New York City would result in high insured damages (due to flooding, sea levels have been rising, with real implications for "coastal" areas).

But the risk of a Cat5 hurricane actually reaching the NY City area remains very (very) low.

From some credible sources:

An occurence expected every 10k to 100k years..

On a statistical basis, there may be other "threats" to consider. At least, from a shorter term perspective. 

[Dinar]

2 hours ago, Cigarbutt said:

As you likely know, even a category 1 or 2 hurricane reaching New York City would result in high insured damages (due to flooding, sea levels have been rising, with real implications for "coastal" areas).

But the risk of a Cat5 hurricane actually reaching the NY City area remains very (very) low.

From some credible sources:

An occurence expected every 10k to 100k years..

On a statistical basis, there may be other "threats" to consider. At least, from a shorter term perspective. 

Yes, but, catastrophe models have been underestimating risk for years, and 1938 Long Island hurricane if it happened would qualify.  As an fyi, Travelers essentially stopped writing policies in NJ because of wind threats, and Chubb is not writing new business in NJ as far as I know.  

[cwericb]

12 hours ago, Cigarbutt said:

As you likely know, even a category 1 or 2 hurricane reaching New York City would result in high insured damages (due to flooding, sea levels have been rising, with real implications for "coastal" areas).

But the risk of a Cat5 hurricane actually reaching the NY City area remains very (very) low.

From some credible sources:

An occurence expected every 10k to 100k years..

On a statistical basis, there may be other "threats" to consider. At least, from a shorter term perspective. 

 

Wondering when that graph was made as things have changed drastically in that respect in the last few years..

[Cigarbutt]

9 hours ago, Dinar said:

...

 

9 hours ago, Dinar said:

Yes, but, catastrophe models have been underestimating risk for years...  

Evidence please if the sentence suggests a persistent and significant underestimation of past catastrophe costs in the insurance industry.

i come to a different conclusion, here's some evidence:

Primary insurers have suffered from relative poor underwriting results linked to catastrophe losses in the last few years but not as a result of poor inputs from models, more from higher (and adequate, adequate in the sense of making a reasonable underwriting profit from that specific line of business) price from reinsurers and alternative capital providers forcing primary insurers (price discipline) to retain relatively more catastrophe risks. How primary insurers react to that is covered below.

As relevant evidence of adequate catastrophe model output over time (last 20 years or so), look at the return from catastrophe bonds from the alternative market that relies on the primary insurers' models and, especially, their own "models":

So, catastrophe models have consistently resulted, across the industry and over time, in the ability of capital providers to obtain a reasonable profit spread. It's even interesting to note that typical cat bond indices outperformed (with lower volatility) most other indices including the S&P from 2002 to 2017. What happened to the S&P since 2017 is referred to below concerning present forward-lookinng risks. But "models", so far, have not underestimated cat risk. Note also that policies are renewed essentially on a yearly basis.

 

9 hours ago, Dinar said:

...and 1938 Long Island hurricane if it happened would qualify...  

The 1938 Hurricane was a category 3 hurricane, not a category 5. So, the last category 3 hurricane happened 87 years ago. Note that the likelihood of a cat4 or cat5 is not linearly associated with odds of happeneing, it's an inverse exponential association (refer to graph in previous post). So, a cat5 hurricane reaching the NY or New Jersey area is not impossible but the odds are amazingly low.

If you imply that climate changes (warmer ocean water, rising sea levels) combined with faster than inflation growth of value of structures in at-risk areas) have been introducing higher financial risks for insurers in certain exposed areas then i agree. For example, Hurricane Sandy in 2012 was a category 1 hurricane and caused 19B of damage to the NY area in 2012.

For New Jersey, look at what happened (now is 2019 in the pictures below) in terms of risk:

So, the catastrophe risk has been rising but, so far, the insurance industry has been adapting (typical reflexes: price hikes, tighter contract terms, even pulling out of state etc, more on that below). As a result, homeowners are discovering the true intrinsic value of their own catastrophe exposures.

9 hours ago, Dinar said:

. ..As an fyi, Travelers essentially stopped writing policies in NJ because of wind threats, and Chubb is not writing new business in NJ as far as I know.  

What has been happening in New Jersey is small compared to the scale of change observed in other coastal states. California and Florida have had to deal with this issue for a while in a significant way but, more recently, states such as Louisiana, Mississipi and the Carolinas have been impacted. As a relevant example, look a the non-renewal rates as a reliable and meaningful indicator of the phenomenon:

 

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BTW, for fun, look at the imaginary and "arbitrary" line (border) up North, above that, there is actually a country with which 'you' still have exchange of goods, services, and goodwill. There must be some value in that?

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So, insurers seem to be reacting in a rational way (even pulling out of states) when they see that their demands with regulators are refused and when the present 'environment' does no match their return criteria based on their most recent wind, flood and other related climate risks underwriting results and the output of their models for the next year(s).

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What about Fairfax here?

A few days ago, FFH released their annual "ESG" report and the report includes an updated historical catastrophe exposure curve, the results of which have been based, to some degree, on external and internal 'models':

Since 2018 and 2019, FFH has voluntarily and explicitly decided to reduce cat exposure risk even if they likely have been able to extract a cat underwrting profit over time. There will be bad years and FFH does not have Fort-Knox-BRK type of financial strength but the cat risk appears (very very likely) to be manageable.

It's interesting to note (gfp included a post here recently about that) that Fitch has recently upgraded FFH, in small part because of the improved underwriting profile, including lower relative cat exposure. Writing this, i remember the days (2005) when FFH's cat exposure (and other exposures...) was uncomfortably high and when Fitch had downgraded FFH to B+ ("highly speculative"). Times have changed, not only the climate.

 

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TLDR version:

All that to say that a more relevant risk (from an odds point of view) is the passage of an equivalent financial storm (cat5) on the asset side of their balance sheet. How does one insure against that?