Viking Posted June 26, 2025 Author Posted June 26, 2025 How to make the big money? Patience. To state the obvious, outperforming the market averages is very difficult. Especially over a longer timeframe like 10 years. So why manage your own investments? Investors usually do it for the opportunity to make the big money - to materially outperform the market averages. How can an investor do that? That is what we are going to explore in this post. The post has been broken into the following parts: Learning from the master: how did Warren Buffett do it? Time, compounding and exponential growth. What do investors actually do? How to make the big money. Berkshire Hathaway shareholders – the GOAT of retail investors. Fairfax Financial – looks very well positioned. ————— “In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so… Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years. “The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.” Warren Buffett - Berkshire Hathaway 2022AR Part 1: Learning from the master: How did Buffett do it? Warren Buffett has been able to significantly outperform the market averages since 1965. Over the past 59 years (to YE 2024), Berkshire Hathaway stock has delivered a CAGR of 19.9%, which is almost 2 times the CAGR of the S&P 500 of 10.4% (including dividends). Yes, Buffett has delivered the ‘big money’ for Berkshire Hathaway’s shareholders. But here is what is really interesting. Buffett readily admits most of his capital allocation decisions over this 59-year time period were ‘so-so.’ He goes on to explain that his significant outperformance was driven by a small number of ‘truly good decisions.’ Buffett puts the number at 12, or one about every 5 years. This looks like it could be important. Let’s explore this further. What is Warren Buffett’s greatest attribute? Yes, this is kind of a dumb thing to ask. Let’s do it anyway. What is it about Warren Buffett that has allowed him to consistently generate such outstanding results over the past 59 years? Intellect? Work ethic? Thirst for knowledge? Character? Self-awareness? Management skills? Obviously, all of the above attributes are important and will help an investor achieve success. But lots of investors have many of these attributes - and yet they still underperform the market averages over time (let alone outperform to the degree that Buffett did). Is there something else, not listed above, that perhaps explains Buffett’s significant outperformance? I think there is something else… I think Buffett’s greatest strength might be his patience. (And patience is joined at the hip with temperament.) Before you throw your phone/tablet in disgust, let me explain. We need to peel the layers back. Buffett’s holding period is not months. Or years. For his ‘truly good decisions,’ the investments that become needle movers for Berkshire Hathaway, his holding period can be measured in decades. And that is very different from almost any other investor out there. That is something Buffett does that pretty much no one else does. (Please name another successful investor who did it this way… I can’t think of another one.) After patience, I think Buffett’s next greatest strength might be how he sizes his positions, especially his best ideas. And not just at the time of purchase - but also over time. How to size a position is exceptionally difficult to do and is a topic that deserves its own post - so we will not explore it further here. There are a couple of lessons here: Really, really good investment opportunities are very rare. Over his lifetime, Buffett points to 12 that worked out for him - or one about every 5 years. But finding a great investment is not enough on its own. Great patience is also required. It can take a decade or more for some investments to fully bloom. Of the two skills - finding a great investment and having great patience with it - the second is the one that is incredibly rare today. ————— Part 2: Time, compounding and exponential growth What is the greatest advantage of an investor? It is time. Why time? Time is what allows compounding to work its magic. Compounding is simple to explain but wicked difficult for most people to actually understand. I like the description in the drawing below. It is ‘boring’ for years and then it gets very ‘exciting’. Given enough time, compounding inevitably results in exponential growth. Or at least that is what one would think. More on this later. The goal of all investors is to get their portfolio to the ‘exciting’ part of compounding curve (the hockey stick part) - because it is life changing when it happens. Compound Interest drawing by Carl Richards Buffett’s genius? It is understanding that patience and time are two sides of the same coin. Together, they allow an investor to fully maximize the benefits of compounding. This in turn, can lead to exponential growth. Patience: this is how the big money is made. Let’s take a quick trip into the archives One of my all-time favorite books on investing is Reminiscences of a Stock Operator by Edwin Lefebvre. It was first published all the way back in 1923 in The Saturday Evening Post (in serial form over two years). Of all the memorable quotes in this book the following might be my favorite: “And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine - that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money…” Reminiscences of a Stock Operator What is the lesson to be learned? Finding a great investment is hard. Holding a great investment for years, perhaps decades - that is much more difficult. Should we be surprised that Buffett is in a league of his own? ————— Part 3: What do investors actually do? “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.” Peter Lynch Warren Buffett liked this quote so much he contacted Peter Lynch and asked him if he could use it. What is the average holding period for retail investors? I think it is around 5.5 months. And falling over time. Retail investors are like Edward Scissorhands. The flowers in their garden don’t stand a chance. Actually, we probably need to update Peter Lynch’s quote. These days, retail investors are so active buying and selling stocks in their portfolio - it’s like they completely raze their garden at least one time every year or two. What’s the chance the flowers are getting cut? Probably close to 100%. Should we be surprised that most retail investors achieve such poor results over time? What about the professional/smart money? The performance of professional/smart money is measured by investors quarterly… so they can’t be patient with their holdings. Deliver sub-par results over a couple of quarters and retail investors start to pull the plug. The professional/smart money has to chase short-term performance if they want to stay in business (or get paid their bonus) - which usually means owning whatever are the most popular stocks at a given time (the list of which is always changing). The bottom line, ‘patience’ is not a word that is in the vocabulary of retail and professional investors or in their toolboxes. Patience is primarily the stomach part of investing. Not the brain part. This probably tells us something… Ben Carlson has a good article on the subject of holding period. Buy & Hold is Dead, Long Live Buy & Hold (Feb 2023) - https://awealthofcommonsense.com/2023/02/buy-hold-is-dead-long-live-buy-hold/ (As an aside, ‘The Compound’ has become one of my favorite podcasts to listen to. Josh, Michael, Ben and guests are great. They have a bunch of different formats depending on what you are interested in. https://podcasts.thecompoundnews.com) Taking profits Why do retail investors turn their portfolio over so much? Lots of reasons. To buy something they think is better. To get rid of a mistake. To try and time the market. Macro call. Hot tip. I could list another 10 ‘good’ reasons. Let’s be optimistic. We are told taking profits is a sensible thing to do. Yes? But remember, in this post, we are trying to learn how to make the big money. Here is another great quote from the book ‘Reminiscences of a Stock Operator’: “They say you never grow poor taking profits. No. you don’t. But neither do you grow rich taking a four-point profit in a bull market.” Reminiscences of a Stock Operator When investors sell their best ideas, they are cutting the flowers in their portfolio. And because the really good ideas (that actually work out) are exceptionally rare (Buffett found one about every 5 years), the proceeds are recycled back into inferior ideas - investors water their weeds. Of course, at the time investors don’t think they are doing this (they think they are doing the opposite). This is like throwing sand in the gears of the compounding machine we discussed earlier. And hurts investment results. Investors get stuck in the ‘boring’ stage (from the napkin drawing above). As a result, many investors never actually get to the ‘exciting’ stage in their lifetime - the hockey stick part of compounding that becomes life changing. What does the investment industry have to say on this topic? I find it is helpful to follow the money. Incentives matter. A lot. How does everyone in the industry get paid? Fees. And fees generally come from activity. Action. Churn. Chasing short term performance. Yes, the exact opposite of patience. ————— Part 4: How to make the big money Buffett’s very simple model: · Step 1: Identify a ‘truly good’ investment and size the position appropriately. · Step 2: Exercise great patience and let it grow undisturbed, sometimes for decades. Truly great investments (the needle movers) are exceedingly rare. When you discover one, you need to size it appropriately. And then you hang on to it. For a long, long time. Do we have any real-life examples of ‘patience’ actually working out for a retail investor? Yes. A company named Berkshire Hathaway. ————— Part 5: Berkshire Hathaway Shareholders – The GOAT of Retail Investors Investors have known for decades that Berkshire Hathaway was run by one of the best capital allocators of all time. All an investor had to do was buy shares and watch the Buffett flower bloom every year… bigger, brighter and more beautiful. Importantly, investors had years to watch (learn) and get their position sized right. How many investors followed Berkshire Hathaway over the decades? Lots. How many investors never bought shares? Lots. How many investors bought shares and then sold them after a small gain? Lots. How many investors bought shares and then held them for a decade or longer? Very few. But the few who did were able to build great wealth over time. These investors exercised great patience - and were richly rewarded. These investors had a ‘truly great idea’ - buy Berkshire Hathaway stock. But their real genius - what separated them (and their returns) from all other investors - was their patience. Like Buffett, they held the stock for the long-term. Why didn’t these investors sell out? That is a great question. I don’t know. Because I sold my Berkshire Hathaway stock each time I owned it - after what I thought was a nice gain. With hindsight, I was a dummy. I was happy making a small profit. And I completely missed the big move - when it was staring me right in the face. So, what does all of this have to do with Fairfax? Maybe nothing. Maybe everything. ————— Part 6: Fairfax Financial – Looks Very Well Positioned Similar to Berkshire Hathaway, Fairfax has an outstanding long-term track record. Fairfax was founded in 1985. Over the past 39 years the company has delivered a compound return of 17.9% (not including dividends). Over the same time-frame, the S&P500 has delivered a compound return of 8.9% (not including dividends). Fairfax has significantly outperformed the S&P 500 over the past 39 years. However, unlike Berkshire Hathaway, Fairfax had a pretty big stumble from about 2010-2017. The investing side of the business messed up (the insurance side of the business continued to perform well). Business results suffered. However, from about 2016 to 2020 the company got to work correcting its past mistakes. By 2021, the turnaround was largely complete. Operating income increased from an average of $1 billion per year from 2016-2020, to $1.8 billion in 2021, to $3.1 billion in 2022, to $4.4 billion in 2023 and $5.3 billion in 2024. Since around 2018, Fairfax’s capital allocation decisions have been very good - best-in-class among P/C insurers. I have written about this extensively in other posts so I am not going to rehash things here. Bottom line, the set-up at Fairfax today - with both insurance and investment businesses - has never looked better. Now I generally hate comparing Fairfax with Berkshire Hathaway because they are such different companies. But I am going to break my rule in this post. Here is what I am wondering… Does Fairfax today look like a much younger Berkshire Hathaway? Here are some of the similarities I see between Fairfax today and a Berkshire Hathaway from 30 years ago: Business model: Built squarely on the P/C insurance / float model (Berkshire Hathaway has more of a conglomerate business model today). Capital allocation: Master capital allocator (Fairfax has been hitting the ball out of the park in this regard since 2018 - that is a pretty good timeframe to use to evaluate the current management team). Significant, sustainable earnings: Fairfax earned $3.9 billion in 2024 (amount attributable to Fairfax shareholders). And this level of earnings looks sustainable moving forward. Size: Fairfax is still small in size - good capital allocation decisions move the needle in terms of financial results (earnings and book value growth). All of the above + the power of compounding = opportunity for exponential growth over the next decade. To quote Warren Buffett: ‘Time is the friend of the wonderful business.’ Valuation: Fairfax’s stock is trading today at a low valuation - both compared to P/C insurance peers and the overall stock market. The set up today for Fairfax looks - to me - an awful lot like a much younger Berkshire Hathaway. Fairfax is poised to become a compounding machine in the coming years. If that happens, Fairfax will become what Buffett calls a ‘truly good decision’ for investors.
SafetyinNumbers Posted June 26, 2025 Posted June 26, 2025 Attaching the article I wrote last year explaining why I thought FFH’s next 30 years will look better than BRK’s last 30 since this topic is getting some discussion. Probably more relevant than ever as some holders are thinking of reducing their position in BRK now that Warren is taking a step back. BRK won mainly because Warren was really good at picking stocks and less so because of the float leverage. In this inefficient market, if FFH can pick stocks well and enjoy the float leverage, the returns can exceed expectations. Based on the current multiple expectations are low. FFH G&M 5.1.24.pdf
Munger_Disciple Posted June 26, 2025 Posted June 26, 2025 (edited) 1 hour ago, gfp said: Yes, definitely! And there are important differences in the duration and structure of the float as well. Berkshire is very focused on long lived float even if they expect it to be approximately break-even. But Fairfax has been a much bigger investor in fixed income and fixed-income-adjacent securities, helping to balance out the risks of higher leverage. But you definitely need to trust that they aren't going to incinerate money on the investment side. edit: I should add that my comparison to Berkshire in 1996 wasn't meant to be some huge endorsement of either - Berkshire shares have only appreciated by 11 or 12% percent a year from '96 I believe. Just fine, but not the returns people assume when they hear "the next Berkshire Hathaway!" lol Fair enough. I would also point out that FFH has much higher insurance operating leverage defined as Annual Premiums written/Net worth of > 100% when compared BRK. As with investment leverage, this operating leverage could also cut both ways. BTW Berkshire was very significantly overvalued on a P/B metric in 1996 which is why Buffett issued so much stock for GenRe and other acquisitions at that point. He also famously pointed out that neither he nor Charlie would buy stock at those prices when B shares were first issued. Even so If FFH just matches BRK performance in the next stage of its corporate life, I would be a happy camper. Edited June 26, 2025 by Munger_Disciple
73 Reds Posted June 26, 2025 Posted June 26, 2025 2 hours ago, dealraker said: I often think back to when I was considering Fairfax as an investment, actually I sort of jumped in quite fast with a bit more than just normal excitement. But in this era I had joined the Lexington Investors Club which was sort of a legendary small town thing where some noteworthy men had started it in 1954 - and the club had done very-very well as to performance. You had to wait for a death to get in and a lot of people wanted in. So I'm all excited and whatnot trying to get these guys to buy things like Brown and Brown (Poe and Brown back then) and Fairfax --- and the members are both not comprehending and even further absolutely not wanting to comprehend anything of the odd-ball stuff that Iittle me is obsessed with. So of course over the years I remind them of their decisions to ignore me and... ...one by one all these guys who could have cared less what the young whipper-snapper (that was me being by far the youngest in the club) was saying are intermittently dying (most lived very long and happy lives) and all producing estates of many-many millions ----- because they owned the Pfizer's and Merck's, GE's... and such ---- on-and-on there were a bunch of those successful companies. And the guy I most tried to convince GE was a terrible investment in the late 1990's has the best record and biggest net worth from investing of all - and he still lives today never selling a share of GE! He probably now doesn't even remember the god-awful "short" 20 plus years. Long live Prem Watsa and businesses like Fairfax. I owned in in the 1990's when it got to 4 times book...and never sold a share. Not a good decision but in the end not a bad one either. GE and its prodigy have been a pretty good bet for that past few years. Just saying.
SafetyinNumbers Posted June 26, 2025 Posted June 26, 2025 3 hours ago, Munger_Disciple said: Fair enough. I would also point out that FFH has much higher insurance operating leverage defined as Annual Premiums written/Net worth of > 100% when compared BRK. As with investment leverage, this operating leverage could also cut both ways. BTW Berkshire was very significantly overvalued on a P/B metric in 1996 which is why Buffett issued so much stock for GenRe and other acquisitions at that point. He also famously pointed out that neither he nor Charlie would buy stock at those prices when B shares were first issued. Even so If FFH just matches BRK performance in the next stage of its corporate life, I would be a happy camper. BRK is a tough comparison because of how successful they have been on the equity side of the book and how few insurance acquisitions they have done compared to Fairfax. Vs the other Canadian P&C’s Fairfax is at the low end of the range.
dealraker Posted June 27, 2025 Posted June 27, 2025 5 hours ago, 73 Reds said: GE and its prodigy have been a pretty good bet for that past few years. Just saying. I do belive you can find my post about buying GE some months pre split LOL. I had no clue it would do this well.
nwoodman Posted June 27, 2025 Posted June 27, 2025 10 hours ago, SafetyinNumbers said: BRK is a tough comparison because of how successful they have been on the equity side of the book and how few insurance acquisitions they have done compared to Fairfax. Vs the other Canadian P&C’s Fairfax is at the low end of the range. That table should be framed and hanging on the wall of every Fairfax investor
Cod Liver Oil Posted June 27, 2025 Posted June 27, 2025 15 hours ago, Viking said: How to make the big money? Patience. To state the obvious, outperforming the market averages is very difficult. Especially over a longer timeframe like 10 years. So why manage your own investments? Investors usually do it for the opportunity to make the big money - to materially outperform the market averages. How can an investor do that? That is what we are going to explore in this post. The post has been broken into the following parts: Learning from the master: how did Warren Buffett do it? Time, compounding and exponential growth. What do investors actually do? How to make the big money. Berkshire Hathaway shareholders – the GOAT of retail investors. Fairfax Financial – looks very well positioned. ————— “In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so… Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years. “The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.” Warren Buffett - Berkshire Hathaway 2022AR Part 1: Learning from the master: How did Buffett do it? Warren Buffett has been able to significantly outperform the market averages since 1965. Over the past 59 years (to YE 2024), Berkshire Hathaway stock has delivered a CAGR of 19.9%, which is almost 2 times the CAGR of the S&P 500 of 10.4% (including dividends). Yes, Buffett has delivered the ‘big money’ for Berkshire Hathaway’s shareholders. But here is what is really interesting. Buffett readily admits most of his capital allocation decisions over this 59-year time period were ‘so-so.’ He goes on to explain that his significant outperformance was driven by a small number of ‘truly good decisions.’ Buffett puts the number at 12, or one about every 5 years. This looks like it could be important. Let’s explore this further. What is Warren Buffett’s greatest attribute? Yes, this is kind of a dumb thing to ask. Let’s do it anyway. What is it about Warren Buffett that has allowed him to consistently generate such outstanding results over the past 59 years? Intellect? Work ethic? Thirst for knowledge? Character? Self-awareness? Management skills? Obviously, all of the above attributes are important and will help an investor achieve success. But lots of investors have many of these attributes - and yet they still underperform the market averages over time (let alone outperform to the degree that Buffett did). Is there something else, not listed above, that perhaps explains Buffett’s significant outperformance? I think there is something else… I think Buffett’s greatest strength might be his patience. (And patience is joined at the hip with temperament.) Before you throw your phone/tablet in disgust, let me explain. We need to peel the layers back. Buffett’s holding period is not months. Or years. For his ‘truly good decisions,’ the investments that become needle movers for Berkshire Hathaway, his holding period can be measured in decades. And that is very different from almost any other investor out there. That is something Buffett does that pretty much no one else does. (Please name another successful investor who did it this way… I can’t think of another one.) After patience, I think Buffett’s next greatest strength might be how he sizes his positions, especially his best ideas. And not just at the time of purchase - but also over time. How to size a position is exceptionally difficult to do and is a topic that deserves its own post - so we will not explore it further here. There are a couple of lessons here: Really, really good investment opportunities are very rare. Over his lifetime, Buffett points to 12 that worked out for him - or one about every 5 years. But finding a great investment is not enough on its own. Great patience is also required. It can take a decade or more for some investments to fully bloom. Of the two skills - finding a great investment and having great patience with it - the second is the one that is incredibly rare today. ————— Part 2: Time, compounding and exponential growth What is the greatest advantage of an investor? It is time. Why time? Time is what allows compounding to work its magic. Compounding is simple to explain but wicked difficult for most people to actually understand. I like the description in the drawing below. It is ‘boring’ for years and then it gets very ‘exciting’. Given enough time, compounding inevitably results in exponential growth. Or at least that is what one would think. More on this later. The goal of all investors is to get their portfolio to the ‘exciting’ part of compounding curve (the hockey stick part) - because it is life changing when it happens. Compound Interest drawing by Carl Richards Buffett’s genius? It is understanding that patience and time are two sides of the same coin. Together, they allow an investor to fully maximize the benefits of compounding. This in turn, can lead to exponential growth. Patience: this is how the big money is made. Let’s take a quick trip into the archives One of my all-time favorite books on investing is Reminiscences of a Stock Operator by Edwin Lefebvre. It was first published all the way back in 1923 in The Saturday Evening Post (in serial form over two years). Of all the memorable quotes in this book the following might be my favorite: “And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine - that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money…” Reminiscences of a Stock Operator What is the lesson to be learned? Finding a great investment is hard. Holding a great investment for years, perhaps decades - that is much more difficult. Should we be surprised that Buffett is in a league of his own? ————— Part 3: What do investors actually do? “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.” Peter Lynch Warren Buffett liked this quote so much he contacted Peter Lynch and asked him if he could use it. What is the average holding period for retail investors? I think it is around 5.5 months. And falling over time. Retail investors are like Edward Scissorhands. The flowers in their garden don’t stand a chance. Actually, we probably need to update Peter Lynch’s quote. These days, retail investors are so active buying and selling stocks in their portfolio - it’s like they completely raze their garden at least one time every year or two. What’s the chance the flowers are getting cut? Probably close to 100%. Should we be surprised that most retail investors achieve such poor results over time? What about the professional/smart money? The performance of professional/smart money is measured by investors quarterly… so they can’t be patient with their holdings. Deliver sub-par results over a couple of quarters and retail investors start to pull the plug. The professional/smart money has to chase short-term performance if they want to stay in business (or get paid their bonus) - which usually means owning whatever are the most popular stocks at a given time (the list of which is always changing). The bottom line, ‘patience’ is not a word that is in the vocabulary of retail and professional investors or in their toolboxes. Patience is primarily the stomach part of investing. Not the brain part. This probably tells us something… Ben Carlson has a good article on the subject of holding period. Buy & Hold is Dead, Long Live Buy & Hold (Feb 2023) - https://awealthofcommonsense.com/2023/02/buy-hold-is-dead-long-live-buy-hold/ (As an aside, ‘The Compound’ has become one of my favorite podcasts to listen to. Josh, Michael, Ben and guests are great. They have a bunch of different formats depending on what you are interested in. https://podcasts.thecompoundnews.com) Taking profits Why do retail investors turn their portfolio over so much? Lots of reasons. To buy something they think is better. To get rid of a mistake. To try and time the market. Macro call. Hot tip. I could list another 10 ‘good’ reasons. Let’s be optimistic. We are told taking profits is a sensible thing to do. Yes? But remember, in this post, we are trying to learn how to make the big money. Here is another great quote from the book ‘Reminiscences of a Stock Operator’: “They say you never grow poor taking profits. No. you don’t. But neither do you grow rich taking a four-point profit in a bull market.” Reminiscences of a Stock Operator When investors sell their best ideas, they are cutting the flowers in their portfolio. And because the really good ideas (that actually work out) are exceptionally rare (Buffett found one about every 5 years), the proceeds are recycled back into inferior ideas - investors water their weeds. Of course, at the time investors don’t think they are doing this (they think they are doing the opposite). This is like throwing sand in the gears of the compounding machine we discussed earlier. And hurts investment results. Investors get stuck in the ‘boring’ stage (from the napkin drawing above). As a result, many investors never actually get to the ‘exciting’ stage in their lifetime - the hockey stick part of compounding that becomes life changing. What does the investment industry have to say on this topic? I find it is helpful to follow the money. Incentives matter. A lot. How does everyone in the industry get paid? Fees. And fees generally come from activity. Action. Churn. Chasing short term performance. Yes, the exact opposite of patience. ————— Part 4: How to make the big money Buffett’s very simple model: · Step 1: Identify a ‘truly good’ investment and size the position appropriately. · Step 2: Exercise great patience and let it grow undisturbed, sometimes for decades. Truly great investments (the needle movers) are exceedingly rare. When you discover one, you need to size it appropriately. And then you hang on to it. For a long, long time. Do we have any real-life examples of ‘patience’ actually working out for a retail investor? Yes. A company named Berkshire Hathaway. ————— Part 5: Berkshire Hathaway Shareholders – The GOAT of Retail Investors Investors have known for decades that Berkshire Hathaway was run by one of the best capital allocators of all time. All an investor had to do was buy shares and watch the Buffett flower bloom every year… bigger, brighter and more beautiful. Importantly, investors had years to watch (learn) and get their position sized right. How many investors followed Berkshire Hathaway over the decades? Lots. How many investors never bought shares? Lots. How many investors bought shares and then sold them after a small gain? Lots. How many investors bought shares and then held them for a decade or longer? Very few. But the few who did were able to build great wealth over time. These investors exercised great patience - and were richly rewarded. These investors had a ‘truly great idea’ - buy Berkshire Hathaway stock. But their real genius - what separated them (and their returns) from all other investors - was their patience. Like Buffett, they held the stock for the long-term. Why didn’t these investors sell out? That is a great question. I don’t know. Because I sold my Berkshire Hathaway stock each time I owned it - after what I thought was a nice gain. With hindsight, I was a dummy. I was happy making a small profit. And I completely missed the big move - when it was staring me right in the face. So, what does all of this have to do with Fairfax? Maybe nothing. Maybe everything. ————— Part 6: Fairfax Financial – Looks Very Well Positioned Similar to Berkshire Hathaway, Fairfax has an outstanding long-term track record. Fairfax was founded in 1985. Over the past 39 years the company has delivered a compound return of 17.9% (not including dividends). Over the same time-frame, the S&P500 has delivered a compound return of 8.9% (not including dividends). Fairfax has significantly outperformed the S&P 500 over the past 39 years. However, unlike Berkshire Hathaway, Fairfax had a pretty big stumble from about 2010-2017. The investing side of the business messed up (the insurance side of the business continued to perform well). Business results suffered. However, from about 2016 to 2020 the company got to work correcting its past mistakes. By 2021, the turnaround was largely complete. Operating income increased from an average of $1 billion per year from 2016-2020, to $1.8 billion in 2021, to $3.1 billion in 2022, to $4.4 billion in 2023 and $5.3 billion in 2024. Since around 2018, Fairfax’s capital allocation decisions have been very good - best-in-class among P/C insurers. I have written about this extensively in other posts so I am not going to rehash things here. Bottom line, the set-up at Fairfax today - with both insurance and investment businesses - has never looked better. Now I generally hate comparing Fairfax with Berkshire Hathaway because they are such different companies. But I am going to break my rule in this post. Here is what I am wondering… Does Fairfax today look like a much younger Berkshire Hathaway? Here are some of the similarities I see between Fairfax today and a Berkshire Hathaway from 30 years ago: Business model: Built squarely on the P/C insurance / float model (Berkshire Hathaway has more of a conglomerate business model today). Capital allocation: Master capital allocator (Fairfax has been hitting the ball out of the park in this regard since 2018 - that is a pretty good timeframe to use to evaluate the current management team). Significant, sustainable earnings: Fairfax earned $3.9 billion in 2024 (amount attributable to Fairfax shareholders). And this level of earnings looks sustainable moving forward. Size: Fairfax is still small in size - good capital allocation decisions move the needle in terms of financial results (earnings and book value growth). All of the above + the power of compounding = opportunity for exponential growth over the next decade. To quote Warren Buffett: ‘Time is the friend of the wonderful business.’ Valuation: Fairfax’s stock is trading today at a low valuation - both compared to P/C insurance peers and the overall stock market. The set up today for Fairfax looks - to me - an awful lot like a much younger Berkshire Hathaway. Fairfax is poised to become a compounding machine in the coming years. If that happens, Fairfax will become what Buffett calls a ‘truly good decision’ for investors. @viking that is a goatish post. I think about it in regard to TPL. The sheer excellence of the asset will outlive the clowns running it. I’ll wait.
SafetyinNumbers Posted June 27, 2025 Posted June 27, 2025 3 hours ago, nwoodman said: That table should be framed and hanging on the wall of every Fairfax investor Kudos to Bart (the RBC analyst) for creating it. It shows how much leverage there is to investment returns in a very concise way. The next step is to breakdown where the returns on investments come from (fixed income vs other), see if those expectations are also reasonable and determine a range of potential returns.
petec Posted June 27, 2025 Posted June 27, 2025 On 6/25/2025 at 12:28 AM, Parsad said: Also, I would add that for the next two years, they don't have to do anything and will still add about $140-160 USD a year to book. So if book is somewhere around $1,500 USD at the end of 2027...at current price to book and exchange rate, it would be trading around $3,200 - 3,300 CDN. That's 14-15% annualized without them doing anything! If they make historical returns on the investment portfolio, the return would be closer to 18-20% annualized. I'm eyeballing it so take my analysis with a grain of salt...Viking can give you an estimate down to the dollar! Cheers! The problem with this analysis is that the p/b ratio is forward looking. If rates drop hard, the market will bake in lower earnings in the future, and the YE27 p/bv might well not be what it is today. Not saying this will happen, but we shouldn't fall into the trap of thinking that stock returns are baked in because earnings look to be (obviously earnings aren't either, for various reasons, of which cat losses might be top of the list).
Junior R Posted June 27, 2025 Posted June 27, 2025 10 hours ago, dealraker said: I do belive you can find my post about buying GE some months pre split LOL. I had no clue it would do this well. the next runner up in HON split in 2026
nwoodman Posted June 27, 2025 Posted June 27, 2025 (edited) 1 hour ago, SafetyinNumbers said: Kudos to Bart (the RBC analyst) for creating it. It shows how much leverage there is to investment returns in a very concise way. The next step is to breakdown where the returns on investments come from (fixed income vs other), see if those expectations are also reasonable and determine a range of potential returns. Yep, it certainly widens the tolerance bands on IV. Edited June 27, 2025 by nwoodman
TwoCitiesCapital Posted June 27, 2025 Posted June 27, 2025 11 hours ago, petec said: The problem with this analysis is that the p/b ratio is forward looking. If rates drop hard, the market will bake in lower earnings in the future, and the YE27 p/bv might well not be what it is today. Not saying this will happen, but we shouldn't fall into the trap of thinking that stock returns are baked in because earnings look to be (obviously earnings aren't either, for various reasons, of which cat losses might be top of the list). If rates drop hard, there will likely be opportunities in equities and credit that make up the difference. That would be the lumpy outcome for returns instead of just consistently clipping 5% coupons whole their equity portfolio cruises. I kind of want the lumpy though - I don't expect that Fairfax will pull another 2022 and go up while markets go down when interest rates reverse. Would be nice to pick up more on the cheap whole they're picking up cheap assets and the fixed income is locked in for 2-3 years and the longer-term picture is still in tact.
SafetyinNumbers Posted June 30, 2025 Posted June 30, 2025 Andrew Bary of Barron’s was on Fox Business and pitched Fairfax. Can jump to the 2:15 mark to get to Andrew. https://www.foxbusiness.com/video/6374971426112
dartmonkey Posted June 30, 2025 Posted June 30, 2025 8 hours ago, SafetyinNumbers said: Andrew Bary of Barron’s was on Fox Business and pitched Fairfax. Can jump to the 2:15 mark to get to Andrew. https://www.foxbusiness.com/video/6374971426112 It’s hard to summarize why Fairfax is a good investment when you’ve only got one minute. $40b market cap, 1.6 times book and 11 times earnings, excellent investment record with investments in India and in shipping as well as insurance… Not a bad summary, when there’s not enough time to talk about float (on a program where a guest has to explain that Kinder Morgan doesn’t make candy eggs), or Greek banking, or Canadian restaurants and mattress companies or hockey equipment maker. At least there was no mention of Blackberry. A good challenge for the board here: to write the ideal elevator pitch, one minute or less, touching on the most important points.
73 Reds Posted June 30, 2025 Posted June 30, 2025 12 minutes ago, dartmonkey said: It’s hard to summarize why Fairfax is a good investment when you’ve only got one minute. $40b market cap, 1.6 times book and 11 times earnings, excellent investment record with investments in India and in shipping as well as insurance… Not a bad summary, when there’s not enough time to talk about float (on a program where a guest has to explain that Kinder Morgan doesn’t make candy eggs), or Greek banking, or Canadian restaurants and mattress companies or hockey equipment maker. At least there was no mention of Blackberry. A good challenge for the board here: to write the ideal elevator pitch, one minute or less, touching on the most important points. Easy! 18%+ annual BV growth for its entire existence.
Junior R Posted June 30, 2025 Posted June 30, 2025 one thing FFH should probably do eventually is a stock split
Castanza Posted June 30, 2025 Posted June 30, 2025 28 minutes ago, Junior R said: one thing FFH should probably do eventually is a stock split No thanks
dartmonkey Posted June 30, 2025 Posted June 30, 2025 36 minutes ago, Junior R said: one thing FFH should probably do eventually is a stock split The high share price probably does serve as a barrier preventing some people from considering Fairfax as an investment. The fact that there is no listing in the USA or Europe is probably the other major barrier. The first would be easier to address, hopefully with a large split like 20:1 or 50:1. The second does involve costs and regulatory requirements which a frugal company might want to avoid. I guess the counterargument is that maintaining these 2 fairly trivial barriers improves the investor base, in that they tend to exclude people who know very little about investing principles or Americans or Europeans who would not consider investing in a foreign country. Is the company better off not to have such investors? Perhaps, and if it means the share price is a bit lower, this only makes share repurchases more profitable. But in the long run, a high share price also has advantages, for a company that is willing to not only repurchase shares when they are cheap, but also to issue new shares when they are dear, à la Henry Singleton.
thowed Posted June 30, 2025 Posted June 30, 2025 11 minutes ago, dartmonkey said: maintaining these 2 fairly trivial barriers improves the investor base
Santayana Posted June 30, 2025 Posted June 30, 2025 1 hour ago, dartmonkey said: The fact that there is no listing in the USA or Europe is probably the other major barrier. FRFHF is the US listing ever since they delisted the FFH ticker from the NYSE.
dartmonkey Posted June 30, 2025 Posted June 30, 2025 2 hours ago, 73 Reds said: Easy! 18%+ annual BV growth for its entire existence. That's the 5 second version! I think Eurobank has to be in the one-minute version. It is 10% of Fairfax's market cap, bigger than Apple as a proportion of Berkshire's market cap (about 7%, now.) Fairfax India and the other Indian holdings (Digit, Thomas Cook, ICICI Bank, etc.) are a similar size, and Atlas (shipping) is a bit smaller, but close to another 10%. A variety of fully-owned private companies, mostly Canadian, is also maybe roughly 10%, if you include Recipe, Sleep Country, AGT, Bauer, ... what else am I missing? And then there are the minority public equity stakes in the USA, worth about 5% of Fairfax's market cap: Orla, Occidental Petroleum, CVS, the dreaded BB, Cleveland Cliffs, Kennedy Wilson and Kraft-Heinz being the big ones. So, a stab at the 60-second version: A $40b insurance conglomerate with some similarities to Berkshire, growing BV at 18% for the last 40 years, trading at 1.6 times understated book value and 10 times earnings, with diversified income streams from insurance underwriting, a $39b bond portfolio, $4b stakes in Eurobank (Greek banker), $2b in Poseidon (shipping), $4b (?) in Indian investments (Fairfax India, Digit) and several billion in a portfolio of fully owned Canadian companies (restaurants, mattress retailing, agricultural products, etc.). Investment returns heavily levered by ability to invest $37b (end of 2024) of other people's money (insurance float) in addition to its own $23b in equity. 1
SafetyinNumbers Posted June 30, 2025 Posted June 30, 2025 3 hours ago, dartmonkey said: The high share price probably does serve as a barrier preventing some people from considering Fairfax as an investment. The fact that there is no listing in the USA or Europe is probably the other major barrier. The first would be easier to address, hopefully with a large split like 20:1 or 50:1. The second does involve costs and regulatory requirements which a frugal company might want to avoid. I guess the counterargument is that maintaining these 2 fairly trivial barriers improves the investor base, in that they tend to exclude people who know very little about investing principles or Americans or Europeans who would not consider investing in a foreign country. Is the company better off not to have such investors? Perhaps, and if it means the share price is a bit lower, this only makes share repurchases more profitable. But in the long run, a high share price also has advantages, for a company that is willing to not only repurchase shares when they are cheap, but also to issue new shares when they are dear, à la Henry Singleton. I think the biggest impact from the high share price is no listed options which keeps it out of all of the covered call ETFs and dealers don’t have to hold inventory to hedge their option positions.
MMM20 Posted June 30, 2025 Posted June 30, 2025 (edited) Here's my version: borrow a bunch of money at negative interest rates without margin call risk and invest it like a long-term value investor with a broad and flexible mandate. Sounds good when you have a CEO with 40 year track record of doing it through cycles, takes a relatively minimal salary, and will do things like buy $150mm out of his own pocket when it's stupid cheap, right? You have a world class operation that has become stronger with scale, experience, and lessons learned. You have a strong and deep team. If you value the float as an asset like Buffett tells you to do, intrinsic value is ~US$3,000-4000. We're trading at about half that value, which BTW is growing at a somewhere in the teens per share, and possibly major slow motion catalysts in index inclusion, ongoing sentiment shift, and, sure, some flows from BRK shareholders. Talk fast and that's 30 seconds! Edited June 30, 2025 by MMM20
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