Fairfax 2025

[MMM20]

Looking at the setup in Eurobank, it seems possible if not likely that Fairfax is a triple over a few years. Mid-teens BVPS CAGR driven by profitable underwriting, solid fixed income returns, and/or good performance from chunky investments like Eurobank, Poseidon, Digit, and/or Ki - plus re-rating to ~2-2.5x P/B, which to CIBC's point would just be in line with the group. Then there's more upside to parity with top-class peers with similar track records like WRB or IFC at ~3x+ P/B. Anyway, this is mainly a reminder to myself to just hold the damn stock.

 

Edited May 21, 2025 by MMM20

[nwoodman]

@cwericb Many thanks, looks like they are starting to catch on .  
 

I hope Fairfax don’t have to “crystallise” more than they need to.  Looking forward to reading the same  note in 5 years time informing us that Eurobank are approaching $US6/share

[SafetyinNumbers]

8 hours ago, MMM20 said:

Looking at the setup in Eurobank, it seems possible if not likely that Fairfax is a triple over a few years. Mid-teens BVPS CAGR driven by profitable underwriting, solid fixed income returns, and/or good performance from chunky investments like Eurobank, Poseidon, Digit, and/or Ki - plus re-rating to ~2-2.5x P/B, which to CIBC's point would just be in line with the group. Then there's more upside to parity with top-class peers with similar track records like WRB or IFC at ~3x+ P/B. Anyway, this is mainly a reminder to myself to just hold the damn stock.

 

The multiple expansion might already be getting some help from Berkshire investors that are looking around now that the GOAT is taking a step back. BRK’s market cap is 25x Fairfax so just a few switches can make a mean difference. Since BRK’s AGM, FFH has outperformed BRK by ~10%.

 

 

[Crip1]

The 10-Year US Treasury is above 4.6% and the 30-Year is 5.15% this morning...quite interested to see how, if at all, Fairfax is positioning their fixed income portfolio,

 

-Crip

[Hoodlum]

Credit ratings upgrade from AM Best.  
 

https://news.ambest.com/pr/PressContent.aspx?refnum=36046&altsrc=2

[Tommm50]

The AMBest announces the FSR for Allied is upgraded to A+, it doesn't mention Fairfax's FSR. Am I to assume it's also A+?

[gfp]

8 minutes ago, Tommm50 said:

The AMBest announces the FSR for Allied is upgraded to A+, it doesn't mention Fairfax's FSR. Am I to assume it's also A+?

Fairfax is a holding company so they don’t get a FSR rating. Insurance subsidiaries get FSR ratings 

 

 

 

8 minutes ago, Tommm50 said:

[nwoodman]

7 hours ago, gfp said:

Fairfax is a holding company so they don’t get a FSR rating. Insurance subsidiaries get FSR ratings 

 

 

 

+1 

 

1. Bondholders care about the Issuer Credit Rating (ICR).  This upgrade likely saves 25-50 bps

2. Policyholders and brokers care about the Financial Strength Rating (FSR).  A+ for Allied World has some significant implications:

 

-No collateral needed in certain jurisdictions

-Improved reinsurance pricing

-Access to preferred broker panels and large commercial mandates that demand A+ or better.

 

Great news. In short: cheaper funding, stronger operating reach, and strategic firepower

Edited May 23, 2025 by nwoodman

[Parsad]

5 hours ago, nwoodman said:

+1 

 

1. Bondholders care about the Issuer Credit Rating (ICR).  This upgrade likely saves 25-50 bps

2. Policyholders and brokers care about the Financial Strength Rating (FSR).  A+ for Allied World has some significant implications:

 

-No collateral needed in certain jurisdictions

-Improved reinsurance pricing

-Access to preferred broker panels and large commercial mandates that demand A+ or better.

 

Great news. In short: cheaper funding, stronger operating reach, and strategic firepower

 

 

 

 

 

 

 

 

 

 

+1!  Cheers!

[Hektor]

15 hours ago, nwoodman said:

Great news. In short: cheaper funding, stronger operating reach, and strategic firepower

+1

[mananainvesting]

Ran a DCF on Fairfax FCF, even with an unheroic 8% FCF growth over 10 years , 4% after and a discount rate of 8%. Its almost a 10bagger from here over the next 20 years. I guess this would be the bear case !  

 

Obviously this is not an investment advise. I am just having fun thinking of what could go right, coz my brain usually focuses on the downside first! 

 

 

 

 

[Marco Van Basten]

1 hour ago, mananainvesting said:

Ran a DCF on Fairfax FCF, even with an unheroic 8% FCF growth over 10 years , 4% after and a discount rate of 8%. Its almost a 10bagger from here over the next 20 years. I guess this would be the bear case !  

 

Obviously this is not an investment advise. I am just having fun thinking of what could go right, coz my brain usually focuses on the downside first! 

 

 

 

 

I vehemently disagree.  I think the cost of equity capital for Fairfax has to be at least 10%.  Given the risk in the insurance business of tremendous losses and chances of a massive investments losses at the same time + leverage, it is certainly a risky investment.  I own Fairfax in size, it is a 10% position for me, probably was a 6% position at cost.  

[Parsad]

2 hours ago, mananainvesting said:

Ran a DCF on Fairfax FCF, even with an unheroic 8% FCF growth over 10 years , 4% after and a discount rate of 8%. Its almost a 10bagger from here over the next 20 years. I guess this would be the bear case !  

 

Obviously this is not an investment advise. I am just having fun thinking of what could go right, coz my brain usually focuses on the downside first! 

 

 

 

 

 

You have to include the $2.5B in cash they have in the holding company, as well as the roughly $9B in debt owed by the holding company and insurance subs.  Cheers!

[mananainvesting]

21 minutes ago, Parsad said:

 

You have to include the $2.5B in cash they have in the holding company, as well as the roughly $9B in debt owed by the holding company and insurance subs.  Cheers!

 

Hardly makes a dent on the 20 year price. 

 

 

Edited May 27, 2025 by mananainvesting
Error

[mananainvesting]

I created this DCF calculated with Gemini, if anyone wants to play with it with their own rates/fcf/other inputs feel free. 

 

I think it is a fun exercise. 

 

https://gemini.google.com/share/56a6083a6c0a

[mananainvesting]

2 hours ago, Marco Van Basten said:

I vehemently disagree.  I think the cost of equity capital for Fairfax has to be at least 10%.  Given the risk in the insurance business of tremendous losses and chances of a massive investments losses at the same time + leverage, it is certainly a risky investment.  I own Fairfax in size, it is a 10% position for me, probably was a 6% position at cost.  

 

Personally, I find 10% cost of capital for Fairfax is too high. A 20 year treasury is trading at 5%, I adding another 3% is fair. Keep in mind the culture at Fairfax, multiple lines, geographies and multiple subsidiaries are there exactly to reduce the risk of massive losses. 

 

But I can understand why one might have 10% as WACC. I can also make the argument 8% FCF growth over the next 10 years might be quite conservative. 

 

All I am saying is I think there is a good chance of Fairfax being materially higher than where the price is currently. 

 

[nwoodman]

1 hour ago, mananainvesting said:

All I am saying is I think there is a good chance of Fairfax being materially higher than where the price is currently. 

 

Very high probability IMHO

[nwoodman]

Same, same but different.  I keep circling back to this slide from the AGM.   Although I have no real insights, it's a pleasure to watch the next generation of capital allocators start to shape the company.  I don't think it is lost on a lot us that follow the company that PE seems to feature prominently. Prem, Roger, Brian et al, the super coaches.

Edited May 29, 2025 by nwoodman

[SafetyinNumbers]

2 hours ago, nwoodman said:

Same, same but different.  I keep circling back to this slide from the AGM.   Although I have no real insights, it's a pleasure to watch the next generation of capital allocators start to shape the company.  I don't think it is lost on a lot us that follow the company that PE seems to feature prominently. Prem, Roger, Brian et al, the super coaches.

I had the chance to sit next to Nav at a dinner recently and was thoroughly impressed. I also went on the Fairfax trip to India with Gopal and felt the same way. I don’t think I have met anyone at Fairfax that hasn’t been impressive to be honest.

[gfp]

5 minutes ago, SafetyinNumbers said:

I had the chance to sit next to Nav at a dinner recently and was thoroughly impressed. I also went on the Fairfax trip to India with Gopal and felt the same way. I don’t think I have met anyone at Fairfax that hasn’t been impressive to be honest.

 

That was my main takeaway from this year's annual meeting - I was impressed with every single executive that spoke.  Even that nepo-hire over at FIH was very impressive! 

Edited May 29, 2025 by gfp

[Viking]

4 hours ago, nwoodman said:

Same, same but different.  I keep circling back to this slide from the AGM.   Although I have no real insights, it's a pleasure to watch the next generation of capital allocators start to shape the company.  I don't think it is lost on a lot us that follow the company that PE seems to feature prominently. Prem, Roger, Brian et al, the super coaches.

@nwoodman, I agree. Fairfax has alignment on the investment management side of the business today. They have ‘tweaked’ their investment framework over the past 8 years. And the people they have in their investment team today are a great fit for that improved investing framework. Of course, I am speculating when I say this. But the turnaround in the investment management side of the business has been too pronounced to just be happenstance. 
 

But there is much more to this story. 
 

Fairfax is loaded with exceptional talent in its P/C insurance business. Of course, Andy Barnard is the GOAT. But the next level of executives are also exceptional. Like @gfp said, this also really stood out to me attending the last two AGM’s and having the opportunity to listen to the different leaders talk. 
 

But there is much more to this story.
 

Fairfax has completely reimagined its equity portfolio over the past 8 years. They are now partnered with an amazing collection of outstanding capital allocators:

- Fokion Karavias - Eurobank

- David Sokol - Poseidon

- Hari Marar - Bangalore International Airport

- Pierre Lassonde - Orla Mining (gold) and Foran Mining (copper)

- Byron Trott - BDT Capital Partners

- Alan Waterous - Waterous/Strathcona

- Christine Magee - Sleep Country

- Alan Kestenbaum - Stelco (yes, this position was sold late in 2024 for a massive gain)

 

There are many more names I could have put on this list. 
 

At Fairfax today we have a wicked confluence of events that have all come together at the same time - it is like magic. The business model for insurance. The business model for investment management. How the two businesses are staffed. The people Fairfax is now partnered with in their equity holdings. Fairfax - as a company - is now running like a high performance racing car. 
 

But there is even more to the story.
 

And that is the external environment. Fairfax’s business model/capabilities/partnerships today are perfectly matched to the current business/investment environment (elevated volatility, higher inflation, extreme focus on short term). 
 

And there is one more thing…

 

Fairfax trades at a valuation that is lower than peers (P/BV and PE). And when you include the value that is ‘hiding’ today on its balance sheet (one example is excess of FV over CV for non-insurance associate and consolidated holdings), it is trading at a valuation that is much lower than peers. 
 

So an investor can get everything discussed above when it is (still) trading at a large margin of safety. Except Fairfax has just taken their improved race car on the track - they have only run a couple of laps. The race has just gotten started. For Fairfax. 
 

This is a similar set up to Berkshire Hathaway in the 1990’s. How many investors missed out on investing in Berkshire Hathaway back then? Fairfax is being similarly underestimated today. (And I love it.) The company is much higher quality (for the reasons discussed above) than most investors think. You don’t make money by thinking (and doing) what everyone else is thinking (and doing). 

Edited May 29, 2025 by Viking

[Santayana]

I know it's not just luck, but how lucky are we to have Andy Barnard and Brian Bradstreet working for us?!   Basically no one who isn't a deep follower of Fairfax has ever heard of these guys, and they are both among the best in the world at what they do.

[SafetyinNumbers]

8 minutes ago, Viking said:

@nwoodman, I agree. Fairfax has alignment. They have ‘tweaked’ their investment framework over the past 8 years. And the people they have in their investment team today are a great fit for that improved investing framework. Of course, I am speculating when I say this. But the turnaround in the investment management side of the business has been too pronounced to just be happenstance. 
 

But there is much more to this story. 
 

Fairfax is loaded with exceptional talent in its P/C insurance business. Of course, Andy Barnard is the GOAT. But the next level of executives are also exceptional. Like @gfp said, this also really stood out to me attending the last two AGM’s and having the opportunity to listen to the different leaders talk. 
 

But there is much more to this story.
 

Fairfax has completely reimagined its equity portfolio over the past 8 years. They are now partnered with an amazing collection of outstanding capital allocators:

- Fokion Karavias - Eurobank

- David Sokol - Poseidon

- Hari Marar - Bangalore International Airport

- Pierre Lassonde - Orla Mining (gold) and Foran Mining (copper)

- Byron Trott - BDT Capital Partners

- Alan Waterous - Waterous/Strathcona

- Christine Magee - Sleep Country

- Alan Kestenbaum - Stelco (yes, this position was sold late in 2024 for a massive gain)

 

There are many more names I could have put on this list. 
 

At Fairfax today we have a wicked confluence of events that have all come together at the same time - it is like magic. The business model for insurance. The business model for investment management. How the two businesses are staffed. The people Fairfax is now partnered with in their equity holdings. Fairfax - as a company - is now running like a high performance racing car. 
 

But there is even more to the story.
 

And that is the external environment. Fairfax’s business model/capabilities/partnerships today are perfectly matched to the current business/investment environment (elevated volatility, higher inflation, extreme focus on short term). 
 

And there is one more thing…

 

Fairfax trades at a valuation that is lower than peers (P/BV and PE). And when you include the value that is ‘hiding’ today on its balance sheet (one example is excess of FV over CV for non-insurance associate and consolidated holdings), it is trading at a valuation that is much lower than peers. 
 

So an investor can get everything discussed above when it is trading at a large margin of safety. This is a similar set up to Berkshire Hathaway in the 1990’s. How many investors missed out on investing in Berkshire Hathaway back then? 

 

 

 

BRK is an interesting comp because the model is the same but it had a lot less float to equity back then than FFH has now. BRK returns came mostly because Buffett picked stocks so well. If FFH picks stocks that well, the returns could be much better. Like you pointed out Viking, one of the benefits is not having to pay up for the potential while BRK was well above 2x BV back then. 

[Viking]

1 hour ago, SafetyinNumbers said:

BRK is an interesting comp because the model is the same but it had a lot less float to equity back then than FFH has now. BRK returns came mostly because Buffett picked stocks so well. If FFH picks stocks that well, the returns could be much better. Like you pointed out Viking, one of the benefits is not having to pay up for the potential while BRK was well above 2x BV back then. 

 

@SafetyinNumbers, you bring up a great topic: leverage. As you point out, Fairfax has an enormous amount of leverage to float. More than most P/C insurance companies. But they also have other kinds of leverage:

- Debt - at holding company

 

With their insurance business:

- Minority interests

 

With their investment management business:

- FFH total return swaps

- Debt - at operating company (Recipe is a good example)

 

They also have significant non-financial leverage today:

- Relationships - with other external capital allocators.

 

This positively impacts deal flow (which @nwoodman has commented on in the past). 
 

A good recent recent example of this is the PacWest real estate portfolio (and team) that Kennedy Wilson purchased. Fairfax and KW were very opportunistic - the deal closed in something like a month. Pac West was forced to sell one of its best assets. Fairfax now has $5 billion earning a yield of something like 8% on average. KW is a stronger company (they have added another business/income stream to their business). This deal happened because of KW and their relationship with PacWest. 

 

Bottom line, Fairfax uses a lot of different kinds of leverage today. Most importantly, they use it responsibly. It will help Fairfax deliver higher results moving forward (compared to if they did not use it). This is not well understood by most investors/analysts. This is leading them to underestimate Fairfax’s future results. This in turn leads many of them to undervalue the company (still).

Edited May 29, 2025 by Viking

[Viking]

1 hour ago, SafetyinNumbers said:

BRK is an interesting comp because the model is the same but it had a lot less float to equity back then than FFH has now. BRK returns came mostly because Buffett picked stocks so well. If FFH picks stocks that well, the returns could be much better. Like you pointed out Viking, one of the benefits is not having to pay up for the potential while BRK was well above 2x BV back then. 

@SafetyinNumbers , regarding the comparison to BRK, you highlight the differences in the two companies (correctly so). Fairfax today is not a clone of 1990’s Berkshire Hathaway. The comparison is the fact they both exploit the P/C insurance model to deliver exceptional results for shareholders over an extended period of time. Exactly how Fairfax will do it will be very different from how Berkshire Hathaway did it. I know you understand this. 
 

Fairfax and Berkshire Hathaway are like two kids. As a parent, you want both of your kids to be successful. Do they need to get there by doing exactly the same thing? No, expecting that would be stupid (for you and the kids). They need to find their own way. Just like successful companies.
 

Fairfax, like many kids, has made its share of mistakes over the years (with both insurance and investment management). But each time, it has also learned from these mistakes. As a result it is now a more mature, stronger company. This makes it more valuable (IMHO). It means it is a learning organization. 

Edited May 29, 2025 by Viking