Hoodlum Posted June 17, 2025 Posted June 17, 2025 (edited) Is this a normal procedure for securing Notes offerings? I don't remember seeing this mentioned previously. Fairfax Financial Adds Brit as Co-Obligor to Strengthen Financial Structure - TipRanks.com On June 17, 2025, Fairfax Financial Holdings Limited announced the addition of Brit Group Holdings Limited as a co-obligor to its outstanding senior notes due in 2034 and 2054. This strategic move, formalized through a seventh supplemental indenture, ensures that Brit will assume joint responsibility for the obligations under these notes, thereby strengthening Fairfax’s financial structure without relieving the original issuer of its commitments. This development is expected to enhance the company’s operational flexibility and potentially improve its market positioning by leveraging Brit’s strong presence in the global insurance market. Edited June 17, 2025 by Hoodlum
villainx Posted June 17, 2025 Posted June 17, 2025 That suggests Brit needs to build credit history, that's what folks do when adding authorized users to credit cards.
Hoodlum Posted June 18, 2025 Posted June 18, 2025 RBC Capital has initiated coverage in the US. https://www.gurufocus.com/news/2932873/fairfax-financial-frfhf-garners-outperform-rating-from-rbc-capital-frfhf-stock-news RBC Capital has initiated coverage on Fairfax Financial (FRFHF, Financial) with an Outperform rating, assigning a price target of $2,050. The firm considers the stock its top value pick, highlighting that Fairfax's current valuation discount compared to its peers will likely decrease. This optimism is based on Fairfax's strong and consistent underwriting and investment outcomes. Additionally, RBC Capital notes that Fairfax's investment portfolio has been strategically adjusted to benefit from the present interest rate situation, which is expected to enhance investment performance further.
SafetyinNumbers Posted June 18, 2025 Posted June 18, 2025 8 hours ago, Hoodlum said: RBC Capital has initiated coverage in the US. https://www.gurufocus.com/news/2932873/fairfax-financial-frfhf-garners-outperform-rating-from-rbc-capital-frfhf-stock-news RBC Capital has initiated coverage on Fairfax Financial (FRFHF, Financial) with an Outperform rating, assigning a price target of $2,050. The firm considers the stock its top value pick, highlighting that Fairfax's current valuation discount compared to its peers will likely decrease. This optimism is based on Fairfax's strong and consistent underwriting and investment outcomes. Additionally, RBC Capital notes that Fairfax's investment portfolio has been strategically adjusted to benefit from the present interest rate situation, which is expected to enhance investment performance further. Actually they moved coverage back to Canada after their US analyst left a few months ago. They also initiated on IFC with a neutral. It’s possible we see some switching out of IFC into FFH on the margin as Canadian institutions are way overweight the former vs the latter.
Hoodlum Posted June 18, 2025 Posted June 18, 2025 (edited) 39 minutes ago, SafetyinNumbers said: Actually they moved coverage back to Canada after their US analyst left a few months ago. They also initiated on IFC with a neutral. It’s possible we see some switching out of IFC into FFH on the margin as Canadian institutions are way overweight the former vs the latter. Thanks @SafetyinNumbers I was trying to make sense of what changed at RBC. I don’t have access to the report but it sounds like they highlighted future growth at Ki Insurance. Edited June 18, 2025 by Hoodlum
petec Posted June 18, 2025 Posted June 18, 2025 23 hours ago, Hoodlum said: Is this a normal procedure for securing Notes offerings? I don't remember seeing this mentioned previously. Fairfax Financial Adds Brit as Co-Obligor to Strengthen Financial Structure - TipRanks.com On June 17, 2025, Fairfax Financial Holdings Limited announced the addition of Brit Group Holdings Limited as a co-obligor to its outstanding senior notes due in 2034 and 2054. This strategic move, formalized through a seventh supplemental indenture, ensures that Brit will assume joint responsibility for the obligations under these notes, thereby strengthening Fairfax’s financial structure without relieving the original issuer of its commitments. This development is expected to enhance the company’s operational flexibility and potentially improve its market positioning by leveraging Brit’s strong presence in the global insurance market. Fairfax have done this at least once before - they added Allied as a co-obligor on the 2055 notes in 2024. I'm not sure of the reason.
Hoodlum Posted June 18, 2025 Posted June 18, 2025 (edited) 1 hour ago, petec said: Fairfax have done this at least once before - they added Allied as a co-obligor on the 2055 notes in 2024. I'm not sure of the reason. Interesting. Maybe they always do this but I never noticed, as this is not mentioned in their press release. The 2055 notes in 2024 were used to pay off Allied debt, so for that one I could maybe understand why Allied was a co-obligor. But that does bring up a question I had in the past. What benefit did Fairfax receive for paying off the Allied Debt? According to the 2024 Q4 report it would seems that adding Allied as the co-obligor provided some financial benefit to Fairfax. Does anyone understand how this benefit could be worth $596M? On June 24, 2024 the company completed an offering of $600.0 million principal amount of 6.10% unsecured senior notes due 2055 (the "2055 notes") and an additional $150.0 million principal amount of its 6.00% unsecured senior notes due 2033. Subsequent to June 30, 2024, on July 19, 2024 Allied World became the primary co-obligor of the 2055 notes in exchange for cash received from the company of $596.6. On July 24, 2024 Allied World used the majority of those proceeds to redeem all of its outstanding $500.0 million principal amount of 4.35% senior notes due 2025. Edited June 18, 2025 by Hoodlum
Hoodlum Posted June 19, 2025 Posted June 19, 2025 (edited) After thinking the above through further, I remembered that the Fairfax option to purchase the OMER minority ownership of Allied expires next September, so Fairfax would own 100% of Allied by then and at that time it would not matter who owns the debt. The potential interest savings to Allied over likely the 2 years from mid-2024 to mid-2026 would be ~$72M. But OMERS is paid at a fixed dividend based on prime, so I don't think they would benefit from this savings at Allied. Unless I missed something I think this helps answer why it would not matter that Fairfax took over the debt now, and there may have been a benefit to Fairfax for doing it this way. Edited June 19, 2025 by Hoodlum
petec Posted June 20, 2025 Posted June 20, 2025 On 6/18/2025 at 6:02 PM, Hoodlum said: Interesting. Maybe they always do this but I never noticed, as this is not mentioned in their press release. The 2055 notes in 2024 were used to pay off Allied debt, so for that one I could maybe understand why Allied was a co-obligor. But that does bring up a question I had in the past. What benefit did Fairfax receive for paying off the Allied Debt? According to the 2024 Q4 report it would seems that adding Allied as the co-obligor provided some financial benefit to Fairfax. Does anyone understand how this benefit could be worth $596M? On June 24, 2024 the company completed an offering of $600.0 million principal amount of 6.10% unsecured senior notes due 2055 (the "2055 notes") and an additional $150.0 million principal amount of its 6.00% unsecured senior notes due 2033. Subsequent to June 30, 2024, on July 19, 2024 Allied World became the primary co-obligor of the 2055 notes in exchange for cash received from the company of $596.6. On July 24, 2024 Allied World used the majority of those proceeds to redeem all of its outstanding $500.0 million principal amount of 4.35% senior notes due 2025. I think what happened here is: - Allied had debt expiring in 2025. - To repay this, Fairfax issued debt at the holdco and then gave the proceeds to Allied, in return for making Allied the primary co-obligor. - Allied used the proceeds to repay the expiring debt. In other words, making Allied the co-obligor was not worth $596m. That number just represents the holdco passing the proceeds of the debt issuance to Allied. End result: the liability now sits with both Allied and the holdco, not just Allied. This reduces risk to the lender, and so probably results in cheaper debt, but increases the risk that any financial trouble at Allied could spread to the holdco. I think!
Hoodlum Posted June 20, 2025 Posted June 20, 2025 7 hours ago, petec said: I think what happened here is: - Allied had debt expiring in 2025. - To repay this, Fairfax issued debt at the holdco and then gave the proceeds to Allied, in return for making Allied the primary co-obligor. - Allied used the proceeds to repay the expiring debt. In other words, making Allied the co-obligor was not worth $596m. That number just represents the holdco passing the proceeds of the debt issuance to Allied. End result: the liability now sits with both Allied and the holdco, not just Allied. This reduces risk to the lender, and so probably results in cheaper debt, but increases the risk that any financial trouble at Allied could spread to the holdco. I think! Thanks. Yes, that makes sense now.
gfp Posted June 21, 2025 Posted June 21, 2025 39 minutes ago, Junior R said: FFH Insiders are still buying few shares is that actual insider buying or is that compensation? I’m suspicious of them being actual open market purchases when the price per share is identical for multiple people
Viking Posted June 22, 2025 Author Posted June 22, 2025 (edited) I am trying to quantify the value to long term shareholders of share buybacks. I am trying to come up with an actual number. I find the concept of the value of share buybacks is pretty easy to understand. Attaching a specific value is much more difficult. Is one way to simply treat the buyback like it was an investment in another company? We know what the average price paid was for the buybacks. And we know at what price the stock is trading at today. Does that give us one way to place an actual value on the buybacks? Yes it is very crude. But we are not looking to be precise. We are trying to understand magnitude: Is it a big number? If so, about how big? We also have a wrinkle... The Fairfax total return swap position. This is looking like it might be a stealth buyback (we will see if Fairfax continues to buy the shares from the counterparties and cancel them as it exits the position like it did in Q4, 2024). It is very easy to value the FFH-TRS position (before carrying costs). Let me know what you think. Is there another way to do this that is better? Bottom line, between buybacks and the FFH-TRS, what Fairfax has accomplished over the past 5 years has been epic in terms of the size of the benefit it has delivered to shareholders. Using my logic above, the 'value creation' for long term shareholders from these two 'investments' has been more than $8 billion. And growing every year (as the stock motors higher). Basically, Fairfax has been able to take out 25.8% of its effective shares outstanding at an average price of $589/share. At the same time (over the past 5 years) total earnings at Fairfax have exploded higher. Of course, this means per share numbers are up much more. Here is a little more detail on share buybacks. Edited June 22, 2025 by Viking
Maverick47 Posted June 22, 2025 Posted June 22, 2025 (edited) 1 hour ago, Viking said: I am trying to quantify the value to long term shareholders of share buybacks. I am trying to come up with an actual number. I find the concept of the value of share buybacks is pretty easy to understand. Attaching a specific value is much more difficult. Is one way to simply treat the buyback like it was an investment in another company? We know what the average price paid was for the buybacks. And we know at what price the stock is trading at today. Does that give us one way to place an actual value on the buybacks? Yes it is very crude. But we are not looking to be precise. We are trying to understand magnitude: Is it a big number? If so, about how big? We also have a wrinkle... The Fairfax total return swap position. This is looking like it might be a stealth buyback (we will see if Fairfax continues to buy the shares from the counterparties and cancel them as it exits the position like it did in Q4, 2024). It is very easy to value the FFH-TRS position. Let me know what you think. Is there another way to do this that is better? Bottom line, between buybacks and the FFH-TRS, what Fairfax has accomplished over the past 5 years has been epic in terms of the size of the benefit it has delivered to shareholders. Using my logic above, the 'value creation' for long term shareholders from these two 'investments' has been more than $8 billion. And growing every year (as the stock motors higher). Basically, Fairfax has been able to take out 25.8% of its effective shares outstanding at an average price of $589/share. At the same time (over the past 5 years) total earnings at Fairfax have exploded higher. Of course, this means per share numbers are up much more. Here is a little more detail on share buybacks. @Viking What a great idea to look at things this way! I like the 5 year look back timeframe to avoid volatility in the estimate. I think we can also use some thought experiments to help us also understand possible situations where this sort of metric might be misleading. Qualitatively, when we have reasonable expectations that the management of a company will pursue buybacks only when, in their estimation, for all remaining shareholders, such an investment is at least as good as, if not better than, the many alternatives available to them, then I think we should judge the various decisions to do so by the information that was available to management at the time. But this is not something we could ever know, so your method of viewing the actual market results on a longer term basis is about the next best thing to consider. (A counter example to be aware of is the case where the marketplace is severely deluded about the future prospects of a company over time and while a five year track record shows steadily increasing and perhaps even accelerating market prices over time, producing similar results as what you show for Fairfax, the remaining shareholders might be severely disappointed later when reality hits home, and the future market price tanks). I think all of us would agree that Fairfax hit the ball out of the park when the historical buybacks were made substantially below book value. As the market to book ratio has improved, this validates the historical decisions, but buybacks at more recent values might appear to be less obviously home runs. It’s the ongoing need to assess market versus intrinsic value where we as shareholders need to decide whether to trust management’s thought process. Using your data though, we can take a look at what they’ve done in the last five years to see whether that might help us decide whether to have faith in their future decisions as well. Crude back of the envelope method: Take the current price of $1765 compared to the average 5 year buyback price of $589 and we get a cumulative return of 199.6%. Let’s then try to approximate how long ago the typical market price was the $589 value. (I’m estimating the entire five year history as if it was instead a single massive buyback at a single point in time). To make the math easy, let’s assume that on Dec. 22, 2022, the entire 5 year buyback could have been transacted at an average market price of $589. That means that essentially the entire return of 199.6% took an average of only 2.5 years to be achieved. What’s the annualized rate of return? [(2.996^(1/2.5)] - 1 = 55.1% Is this better than their target of 15%? Yes, by a country mile! Looking at the historical results this way, you won’t hear any complaints from me about when and at what market prices management decides to buy back their shares. They are proving that they are quite skilled at making these decisions on our behalf. And knowing that there is a system in place to encourage share ownership by both current and future employees gives me reason to believe that a similar shareholder friendly and rational approach will be followed even in the post-Prem period, whenever that occurs. Edited June 22, 2025 by Maverick47
Munger_Disciple Posted June 22, 2025 Posted June 22, 2025 (edited) 1 hour ago, Viking said: I am trying to quantify the value to long term shareholders of share buybacks. I am trying to come up with an actual number. I find the concept of the value of share buybacks is pretty easy to understand. Attaching a specific value is much more difficult. Is one way to simply treat the buyback like it was an investment in another company? We know what the average price paid was for the buybacks. And we know at what price the stock is trading at today. Does that give us one way to place an actual value on the buybacks? Yes it is very crude. But we are not looking to be precise. We are trying to understand magnitude: Is it a big number? If so, about how big? We also have a wrinkle... The Fairfax total return swap position. This is looking like it might be a stealth buyback (we will see if Fairfax continues to buy the shares from the counterparties and cancel them as it exits the position like it did in Q4, 2024). It is very easy to value the FFH-TRS position (before carrying costs). Let me know what you think. Is there another way to do this that is better? Bottom line, between buybacks and the FFH-TRS, what Fairfax has accomplished over the past 5 years has been epic in terms of the size of the benefit it has delivered to shareholders. Using my logic above, the 'value creation' for long term shareholders from these two 'investments' has been more than $8 billion. And growing every year (as the stock motors higher). Basically, Fairfax has been able to take out 25.8% of its effective shares outstanding at an average price of $589/share. At the same time (over the past 5 years) total earnings at Fairfax have exploded higher. Of course, this means per share numbers are up much more. Here is a little more detail on share buybacks. No matter how you look at it, buybacks have been an outstanding allocation of capital. I did a rough calculation the following way; assuming a 10% discount rate, total cost of capital outlay in present dollars is roughly $3.9 billion for the 5.163 million shares bought back. And the retired shares created $9 billion of market value in today's dollars. So a huge success!! Created more than $2 of market value for $1 spent on buybacks. Edited June 22, 2025 by Munger_Disciple
SharperDingaan Posted June 22, 2025 Posted June 22, 2025 (edited) Buyback tidbit .... There are many ways by which to view a buyback, but one of the immediate measures is whether the buyback is being done at below the BV of the day; a buyback at $900/share, when the BV is $1,000/share, results in a gain on cancellation of $100/share. Fewer shares, and a gain for doing it! All good. Whether the money goes into buybacks depends upon the ROI, buyback if this is the highest return on the funds available. Very occasionally the stars align, and the company has both the means and opportunity to buy back at less than 50% of the BV of the day. Sometimes the stars really align, and a company also has the ability to exchange holding company shares for its own shares at market rate, to achieve a material reduction in the share count. Take a look at one of our favourites, OBE ..... it might buy you a very nice European vacation. Not an investment recommendation, and do your own DD SD Edited June 23, 2025 by SharperDingaan
nwoodman Posted June 22, 2025 Posted June 22, 2025 (edited) 5 hours ago, Viking said: I am trying to quantify the value to long term shareholders of share buybacks. I am trying to come up with an actual number. I find the concept of the value of share buybacks is pretty easy to understand. Attaching a specific value is much more difficult. Is one way to simply treat the buyback like it was an investment in another company? We know what the average price paid was for the buybacks. And we know at what price the stock is trading at today. Does that give us one way to place an actual value on the buybacks? Yes it is very crude. But we are not looking to be precise. We are trying to understand magnitude: Is it a big number? If so, about how big? We also have a wrinkle... The Fairfax total return swap position. This is looking like it might be a stealth buyback (we will see if Fairfax continues to buy the shares from the counterparties and cancel them as it exits the position like it did in Q4, 2024). It is very easy to value the FFH-TRS position (before carrying costs). Let me know what you think. Is there another way to do this that is better? Bottom line, between buybacks and the FFH-TRS, what Fairfax has accomplished over the past 5 years has been epic in terms of the size of the benefit it has delivered to shareholders. Using my logic above, the 'value creation' for long term shareholders from these two 'investments' has been more than $8 billion. And growing every year (as the stock motors higher). Basically, Fairfax has been able to take out 25.8% of its effective shares outstanding at an average price of $589/share. At the same time (over the past 5 years) total earnings at Fairfax have exploded higher. Of course, this means per share numbers are up much more. Here is a little more detail on share buybacks. Isn’t it as simple as an IRR on the share repurchases? When I plug in your numbers I get an average weighted IRR of 45.7% for buybacks Applying similar logic plus the cost of financing for the TRS it might look something like this All quite remarkable and consistent with most of our returns from those purchase in 2021. Good times Edited June 22, 2025 by nwoodman
LC Posted June 22, 2025 Posted June 22, 2025 4 hours ago, Viking said: Is one way to simply treat the buyback like it was an investment in another company? We know what the average price paid was for the buybacks. And we know at what price the stock is trading at today. I don't think this accounts for the compounding-esque returns we get from buybacks, because each incremental share repurchased increases EPS. If Prem buys shares of Berkshire, Berkshire's EPS doesn't go up. When Fairfax buys and retires its own shares, EPS increases. So you get some nice long-term benefits when retiring shares below intrinsic value...in theory the discount to IV closes and EPS permanently increases (all else equal).
kobesystem Posted June 23, 2025 Posted June 23, 2025 @SharperDingaan taking your advice and looking into OBE quite seriously. Where do you see the most upside there? I like their recent divestment to pay off debt and understand their focus on heavy oil and the good economics there. What, though, sets this apart enough for you to view it as one of your favorites?
SharperDingaan Posted June 23, 2025 Posted June 23, 2025 (edited) On 6/23/2025 at 8:18 AM, kobesystem said: @SharperDingaan taking your advice and looking into OBE quite seriously. Where do you see the most upside there? I like their recent divestment to pay off debt and understand their focus on heavy oil and the good economics there. What, though, sets this apart enough for you to view it as one of your favorites? As we do not wish to derail the FFH thread; some brief comment ... then back to FFH discussion only. We have been in and out of OBE for years; ever since it was cents in the dollar, and universally cursed by all as devil turd incarnate! Over time, the swing trades have bought us a fully paid off house in London (UK), and a good chunk of UBS shortly after it took over CS. Today it is very well run, and with Canada's new focus on o/g infrastructure, will very likely get bought out at multiples of today's price within the next 5 years. OBE will have burned through this years current NCIB (10% of outstanding shares) by August. The lock-up on the IPO shares received expires mid August, following which an IPO for OBE share swap becomes possible for an additional 10% of outstanding shares. Should the current ME war premium come off, there may well also be a material gain on cancellation. All positives. All goes well, there are materially fewer shares outstanding, and primarily consolidated in very strong hands. Insiders have been heavy buyers for a while, and ain't nobody doing a stink bid to buy out the company cheap. The already low PR depletion rate will go lower still as water flood comes into play, further reducing maintenance capex. Smart. OBE has had some very good wells of late, and ceased drilling at around USD 60-65. Three rigs have resumed, almost certainly because some existing production was hedged at today's high prices. Smart. OBE isn't for everyone, but if you have both the risk tolerance and the time horizon, one could do very well. Back-of-the-envelope calculations around potential IPO/OBE conversion are illuminating. One would get the IPO at the same 14%+ dividend yield that OBE is currently receiving. Wouldn't be a buyer of OBE at present as WTI is likely to fall quite a bit if Iran doesn't do the expected retaliation. Do your own DD, reach your own conclusions, and if opportunity knocks .... SD Edited June 26, 2025 by SharperDingaan
SafetyinNumbers Posted June 23, 2025 Posted June 23, 2025 5 minutes ago, Viking said: What kind of a value investor is Fairfax? Graham, Buffett, Templeton, Singleton or Lynch? To the question “What kind of an investor is Fairfax?” most people would answer “value investor.” That is the right answer but it doesn’t really tell us much. What kind of a value investor? To answer this question, we are going to look at what Fairfax has been doing for the past three years. What have they actually been buying? What can we learn? But first, let’s set the table. 1.) "The single most important thing (when investing in the stock market)… is to know what you own." Peter Lynch The problem with Peter Lynch is he says so many smart (and funny) things that his ‘most important thing’ gets lost in the shuffle. This is the ‘north star’ of everything else he writes. From this naturally flows another of Peter Lynch’s nuggets of gold. 2.) "The best stock to buy is the one you already own." Peter Lynch This makes intuitive sense. You have already done the research on the stocks you own. You know ‘the story’ and you like it (that’s why you own it). Assuming the fundamentals are still solid, then buying more should be a no brainer. Buffett takes this idea a little further with the following quote: 3.) "Diversification may preserve wealth, but concentration builds wealth." Warren Buffett The idea is to invest with conviction around your best ideas. Especially if the stock is on sale. This leads us to our next point. 4.)"‘The three most important words in investing are margin of safety." Warren Buffett Ben Graham introduced ‘margin of safety’ as the central concept of investing in Chapter 20 of his book, The Intelligent Investor. The idea is to only purchase stocks when they are trading at a big discount to their intrinsic value (buy something for $0.50 that is worth $1.00). This approach limits your downside if you are wrong and it provides significant upside if you are right. What do we get when we combine these four points? Often, your best investment is to simply buy more of something you already own - especially when it is on sale. One added twist: 5.) "If you search world-wide, you will find more bargains and better bargains than by studying only one nation." John Templeton Invest wherever in the world the best opportunities are. What does all of this have to do with Fairfax? Well, guess what Fairfax has been doing for the past 5 years? It has invested close to $8.1 billion in stuff it already owns. Yes, Fairfax has been investing in new ventures but the amount spent is much smaller. In short, Fairfax has been feasting at the buffet of businesses it already owns. High certainty/low risk investing Investing in what you already own is an example of high certainty investing. High certainty means low risk. This is a highly rational way to invest. Let’s review the actual investments that Fairfax has been making the past 5 years (2020 to 2024) that fit this theme to see what we can learn. ————— 1.) Buy Fairfax stock: NCIB/Dutch Auction and Fairfax Total Return Swaps Buybacks: NCIB/Dutch Auction Over the past 5 years, Fairfax has been very aggressive with share buybacks. Both with its NCIB and with its Dutch auction (taking out 2 million shares at $500/share in December 2021). From 2020 to 2024, Fairfax reduced effective shares outstanding from 26.8 million to 21.7 million, a reduction of 5.2 million or 19.2%. To do this, the total cost to Fairfax was $3.4 billion, or an average of $663/share. But the ‘buy Fairfax stock’ story is even better than this. We will discuss why next. Fairfax Total Return Swaps Fairfax also made an investment. In late 2020 and early 2021 they purchased total return swaps that gave them exposure to 1.96 million Fairfax shares at an average price of $373/share. This gave them exposure to another 7.3% of total shares outstanding at Fairfax. Fairfax reduced their exposure to 1.76 million shares in Q4, 2024. Let’s put the 2 together: Stock Buybacks + FFH TRS Can we come up with a rough estimate of the total value creation from these two activities over the past 5 years? We are not looking for a precision. We are looking to understand magnitude – about how big was the benefit to Fairfax? Let’s treat the stock buybacks (the reduction in effective shares outstanding) as an investment. Fairfax ‘paid’ $663/share for 5.16 million Fairfax shares. With Fairfax shares trading at $1,765/share, the ‘return’ to Fairfax from this investment has been $5.69 billion. The FFH-TRS position has delivered a return of $2.45 billion (before carrying costs). Together, these two investments have delivered a ‘gain’ of $8.14 billion to Fairfax and its shareholders over the past 5 years. To provide perspective of the size of this ‘gain’, common shareholders’ equity at Fairfax was $13.0 billion at December 31, 2019 (the start of this ‘investment’). Share buybacks should be done when shares are trading below intrinsic value. Fairfax bought back shares - and in significant quantities – when they were trading well below intrinsic value. Value investing at its best. And exceptional capital allocation. Who does this string of purchases remind you of? Not Lynch, Buffet or Graham. Who then? Henry Singleton. Who is this guy? “I mentioned to you last year that we are focused on buying back our shares over the next ten years as and when we get the opportunity to do so at attractive prices. Henry Singleton from Teledyne was our hero as he reduced shares outstanding from approximately 88 million to 12 million over about 15 years.” Prem Watsa – Fairfax 2018AR At the time, many people laughed at Prem for making this comment. I don’t think these same people are laughing at Prem today. ————— 2.) Increase Ownership of Insurance Businesses - Buy Out Partners = $2.26 billion Insurance is Fairfax’s most important economic engine. Growth in the insurance business over time will support sustainable profit growth at the company. And higher profits lead to higher intrinsic value (and a higher share price). All other P/C insurance companies have two general ways to grow their insurance business: Organic growth – capitalize on the hard market in P/C insurance Acquisitions Fairfax has a third way to grow its insurance business. Buy out partners Fairfax is flush with cash today. It has been generating record earnings in recent years. And earnings are expected to be very robust in the coming years. What to do? This is a great time to take out its P/C insurance partners. And that is what Fairfax has been doing. Over the past 4 years, Fairfax has spent $2.26 billion on 7 different transactions. In some transactions Fairfax took out the majority partner (Singapore Re and Gulf Insurance group). In others, they took out the minority partner (Eurolife, Allied World, Brit). Fairfax (and its shareholders) now own a greater share of the earnings of all of these high-quality P/C insurance companies. ————— 3.) Increase in Ownership of Equity Investments: Let’s now look at what Fairfax has been doing in its equity portfolio over the past 5 years. We are only going to look at what Fairfax has been doing with equity holdings that it already owned at December 31, 2019. To help with our analysis, we are going to split the equity holdings into two buckets: Consolidated equity holdings (where Fairfax owns more than 50% or exercises control Equity holdings – excluding consolidated holdings Consolidated Equities = $1.34 billion These are the equity investments that Fairfax exerts a great deal of control over. They invested $666 million the past three years. The big purchase was taking Recipe private – Fairfax was able to buy the stock when it was trading at a pandemic discount. Fairfax has invested $1.34 billion over the past 4.5 years in its consolidated equity holdings. The biggest purchases were Recipe and Peak Achievement. These are well managed companies with strong franchises and solid prospects. By materially increasing the number and size of companies in this bucket of holdings, Fairfax is growing an important 5thincome stream. One that is not correlated to the P/C insurance cycle. Equity Holdings (excluding consolidated holdings) = $1.1 billion Fairfax has invested $1.1 billion over the past 4.5 years in its other equity holdings (excluding consolidated holdings). Fairfax expanded the size of its partnership with Kennedy Wilson and the purchase of the PacWest construction loan portfolio in 2023 has become a home run investment for both companies. Metlen (formerly known as Mytilineos), Poseidon (Seaspan) and Altius have all been good to very good investments. ————— Summary Over the past five years, Fairfax has invested a total of $8.1 billion to increase its stakes in businesses that it already owns. As a result, Fairfax (and its shareholders) now own a greater proportion of the future earnings streams of these many quality businesses. The FFH-TRS investment has also been delivering an exceptional return. With these activities, Fairfax is growing the numerator of the EPS formula. At the same time, Fairfax has also been aggressively reducing the share count. With this activity, Fairfax is shrinking the denominator of the EPS formula. The combination of these two activities is spiking EPS at Fairfax. Conclusion: What did we learn? How Fairfax is investing right now is incredibly simple: Invest in what you know (high certainty/low risk). Be opportunistic (buy at a discount). Act with conviction (size bets appropriately… i.e. ‘back up the truck’ when appropriate) Cast a wide net (go global). What Fairfax has been doing over the past 5 years is exceptionally rational. Simple. Boring. And in aggregate, it has been delivering an exceptional return to Fairfax and long-term shareholders. I think the masters would approve of what Fairfax has been doing. In short, Fairfax has been putting on a master-class in value investing and capital allocation over the past five years. So, after all that, let’s get back to our initial question. What kind of an investor is Fairfax? Fairfax is a value investor. Their approach is a hybrid of 5 masters: Graham, Buffett, Templeton, Singleton and Lynch. I think of Fairfax as expected value investors meaning they can do any kind of investment as long as it makes sense on a risk/reward basis which includes value, quality, venture capital, distressed etc… I consider myself to be an expected value investor too so I feel very simpatico with their style and it’s probably why it’s so easy for me to forgive them for their mistakes as I make them all of the time too. “Even the best investment analyst is going to be right just two out of three times.” - John Templeton
Munger_Disciple Posted June 23, 2025 Posted June 23, 2025 22 hours ago, nwoodman said: Isn’t it as simple as an IRR on the share repurchases? When I plug in your numbers I get an average weighted IRR of 45.7% for buybacks Applying similar logic plus the cost of financing for the TRS it might look something like this All quite remarkable and consistent with most of our returns from those purchase in 2021. Good times I like your explanation better than mine though both ways of looking at buybacks are valid and provide good insight into the effectiveness of buybacks.
Viking Posted June 23, 2025 Author Posted June 23, 2025 What kind of a value investor is Fairfax? Graham, Buffett, Templeton, Singleton or Lynch? To the question “What kind of an investor is Fairfax?” most people would answer “value investor.” That is the right answer but it doesn’t really tell us much. What kind of a value investor? To answer this question, we are going to look at what Fairfax has been doing for the past three years. What have they actually been buying? What can we learn? But first, let’s set the table. 1.) "The single most important thing (when investing in the stock market)… is to know what you own." Peter Lynch The problem with Peter Lynch is he says so many smart (and funny) things that his ‘most important thing’ gets lost in the shuffle. This is the ‘north star’ of everything else he writes. From this naturally flows another of Peter Lynch’s nuggets of gold. 2.) "The best stock to buy is the one you already own." Peter Lynch This makes intuitive sense. You have already done the research on the stocks you own. You know ‘the story’ and you like it (that’s why you own it). Assuming the fundamentals are still solid, then buying more should be a no brainer. Buffett takes this idea a little further with the following quote: 3.) "Diversification may preserve wealth, but concentration builds wealth." Warren Buffett The idea is to invest with conviction around your best ideas. Especially if the stock is on sale. This leads us to our next point. 4.)"‘The three most important words in investing are margin of safety." Warren Buffett Ben Graham introduced ‘margin of safety’ as the central concept of investing in Chapter 20 of his book, The Intelligent Investor. The idea is to only purchase stocks when they are trading at a big discount to their intrinsic value (buy something for $0.50 that is worth $1.00). This approach limits your downside if you are wrong and it provides significant upside if you are right. What do we get when we combine these four points? Often, your best investment is to simply buy more of something you already own - especially when it is on sale. One added twist: 5.) "If you search world-wide, you will find more bargains and better bargains than by studying only one nation." John Templeton Invest wherever in the world the best opportunities are. What does all of this have to do with Fairfax? Well, guess what Fairfax has been doing for the past 5 years? It has invested close to $8.1 billion in stuff it already owns. Yes, Fairfax has been investing in new ventures but the amount spent is much smaller. In short, Fairfax has been feasting at the buffet of businesses it already owns. High certainty/low risk investing Investing in what you already own is an example of high certainty investing. High certainty means low risk. This is a highly rational way to invest. Let’s review the actual investments that Fairfax has been making the past 5 years (2020 to 2024) that fit this theme to see what we can learn. ————— 1.) Buy Fairfax stock: NCIB/Dutch Auction and Fairfax Total Return Swaps Buybacks: NCIB/Dutch Auction Over the past 5 years, Fairfax has been very aggressive with share buybacks. Both with its NCIB and with its Dutch auction (taking out 2 million shares at $500/share in December 2021). From 2020 to 2024, Fairfax reduced effective shares outstanding from 26.8 million to 21.7 million, a reduction of 5.2 million or 19.2%. To do this, the total cost to Fairfax was $3.4 billion, or an average of $663/share. But the ‘buy Fairfax stock’ story is even better than this. We will discuss why next. Fairfax Total Return Swaps Fairfax also made an investment. In late 2020 and early 2021 they purchased total return swaps that gave them exposure to 1.96 million Fairfax shares at an average price of $373/share. This gave them exposure to another 7.3% of total shares outstanding at Fairfax. Fairfax reduced their exposure to 1.76 million shares in Q4, 2024. Let’s put the 2 together: Stock Buybacks + FFH TRS Can we come up with a rough estimate of the total value creation from these two activities over the past 5 years? We are not looking for a precision. We are looking to understand magnitude – about how big was the benefit to Fairfax? Let’s treat the stock buybacks (the reduction in effective shares outstanding) as an investment. Fairfax ‘paid’ $663/share for 5.16 million Fairfax shares. With Fairfax shares trading at $1,765/share, the ‘return’ to Fairfax from this investment has been $5.69 billion. The FFH-TRS position has delivered a return of $2.45 billion (before carrying costs). Together, these two investments have delivered a ‘gain’ of $8.14 billion to Fairfax and its shareholders over the past 5 years. To provide perspective of the size of this ‘gain’, common shareholders’ equity at Fairfax was $13.0 billion at December 31, 2019 (the start of this ‘investment’). Share buybacks should be done when shares are trading below intrinsic value. Fairfax bought back shares - and in significant quantities – when they were trading well below intrinsic value. Value investing at its best. And exceptional capital allocation. Who does this string of purchases remind you of? Not Lynch, Buffet or Graham. Who then? Henry Singleton. Who is this guy? “I mentioned to you last year that we are focused on buying back our shares over the next ten years as and when we get the opportunity to do so at attractive prices. Henry Singleton from Teledyne was our hero as he reduced shares outstanding from approximately 88 million to 12 million over about 15 years.” Prem Watsa – Fairfax 2018AR At the time, many people laughed at Prem for making this comment. I don’t think these same people are laughing at Prem today. ————— 2.) Increase Ownership of Insurance Businesses - Buy Out Partners = $2.26 billion Insurance is Fairfax’s most important economic engine. Growth in the insurance business over time will support sustainable profit growth at the company. And higher profits lead to higher intrinsic value (and a higher share price). All other P/C insurance companies have two general ways to grow their insurance business: Organic growth – capitalize on the hard market in P/C insurance Acquisitions Fairfax has a third way to grow its insurance business. Buy out partners Fairfax is flush with cash today. It has been generating record earnings in recent years. And earnings are expected to be very robust in the coming years. What to do? This is a great time to take out its P/C insurance partners. And that is what Fairfax has been doing. Over the past 4 years, Fairfax has spent $2.26 billion on 7 different transactions. In some transactions Fairfax took out the majority partner (Singapore Re and Gulf Insurance group). In others, they took out the minority partner (Eurolife, Allied World, Brit). Fairfax (and its shareholders) now own a greater share of the earnings of all of these high-quality P/C insurance companies. ————— 3.) Increase in Ownership of Equity Investments: Let’s now look at what Fairfax has been doing in its equity portfolio over the past 5 years. We are only going to look at what Fairfax has been doing with equity holdings that it already owned at December 31, 2019. To help with our analysis, we are going to split the equity holdings into two buckets: Consolidated equity holdings (where Fairfax owns more than 50% or exercises control) Equity holdings – excluding consolidated holdings Consolidated Equities = $1.34 billion Fairfax has invested $1.34 billion over the past 4.5 years in its consolidated equity holdings. The biggest purchases were Recipe and Peak Achievement. These are well managed companies with strong franchises and solid prospects. By materially increasing the number and size of companies in this bucket of holdings, Fairfax is growing an important 5thincome stream. One that is not correlated to the P/C insurance cycle. Equity Holdings (excluding consolidated holdings) = $1.1 billion Fairfax has invested $1.1 billion over the past 4.5 years in its other equity holdings (excluding consolidated holdings). Fairfax expanded the size of its partnership with Kennedy Wilson and the purchase of the PacWest construction loan portfolio in 2023 has become a home run investment for both companies. Metlen (formerly known as Mytilineos), Poseidon (Seaspan) and Altius have all been good to very good investments. ————— Summary Over the past five years, Fairfax has invested a total of $8.1 billion to increase its stakes in businesses that it already owns. As a result, Fairfax (and its shareholders) now own a greater proportion of the future earnings streams of these many quality businesses. The FFH-TRS investment has also been delivering an exceptional return. With these activities, Fairfax is growing the numerator of the EPS formula. At the same time, Fairfax has also been aggressively reducing the share count. With this activity, Fairfax is shrinking the denominator of the EPS formula. The combination of these two activities is spiking EPS at Fairfax. Conclusion: What did we learn? How Fairfax is investing right now is incredibly simple: Invest in what you know (high certainty/low risk). Be opportunistic (buy at a discount). Act with conviction (size bets appropriately… i.e. ‘back up the truck’ when appropriate) Cast a wide net (go global). What Fairfax has been doing over the past 5 years is exceptionally rational. Simple. Boring. And in aggregate, it has been delivering an exceptional return to Fairfax and long-term shareholders. I think the masters would approve of what Fairfax has been doing. In short, Fairfax has been putting on a master-class in value investing and capital allocation over the past five years. So, after all that, let’s get back to our initial question. What kind of an investor is Fairfax? Fairfax is a value investor. Their approach is a hybrid of 5 masters: Graham, Buffett, Templeton, Singleton and Lynch.
Viking Posted June 23, 2025 Author Posted June 23, 2025 (edited) I apologize for re-posting some articles multiple times. I am encountering a few issues: My longer posts generally can't be edit after they are posted. And they don't load the charts the first time they are posted. So I have to post the article and then edit it (adding charts) and then copy/repost it. And then delete the original post. Sometimes my quality control messes up. I normally ignore small errors. But if I see a bigger error and want to edit - my only option is to re-post the entire article. Because, as I said, I can't edit my longer posts. Bottom line, it is not a big deal (to me). I just thought some of you might be wondering what is going on when some posts appear and then disappear... and then re-appear. Edited June 23, 2025 by Viking
Marco Van Basten Posted June 23, 2025 Posted June 23, 2025 @Viking, many of us owe you a debt of gratitude for pushing us into Fairfax. When you are in NY, I will gladly buy you dinner as a thank you.
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