Fairfax 2025

[villainx]

34 minutes ago, Maverick47 said:

Over 70% of my own retirement account is in the stock currently, and as I begin to sell part of those assets to produce annual income in retirement, I find I’m selling other names (including Berkshire) rather than Fairfax to do so.

 

Should be more dividend increases coming? 

[djokovic1]

I have been quite surprised with FFH’s relative stock underperformance after blowing Q2 numbers out of the park. And looks to be similar for Q3 too give their equity holdings performance and no big cat. Nice to see mgmt taking advantage of that widening recent discrepancy between price and intrinsic value in August 

[backtothebeach]

10 minutes ago, djokovic1 said:

I have been quite surprised with FFH’s relative stock underperformance after blowing Q2 numbers out of the park. And looks to be similar for Q3 too give their equity holdings performance and no big cat. Nice to see mgmt taking advantage of that widening recent discrepancy between price and intrinsic value in August 

 

Just looking at the last 3 years, FFH has had several stretches of up to 5 months where the stock went absolutely nowhere. Nothing unusual.

[Viking]

24 minutes ago, djokovic1 said:

I have been quite surprised with FFH’s relative stock underperformance after blowing Q2 numbers out of the park. And looks to be similar for Q3 too give their equity holdings performance and no big cat. Nice to see mgmt taking advantage of that widening recent discrepancy between price and intrinsic value in August 

In the short term, I don’t think there is a lot of ‘informational’ value in trying understand why Fairfax’s stock is trading at the price it is. After all, we are talking about Mr. Market. And Fairfax - which is misunderstood and under-appreciated by Mr. Market. I look forward to being able to exploit the volatility (like I have been able to do with Fairfax for the past 22 years). Public markets are the gift that keeps on giving. 

Edited September 11, 2025 by Viking

[Viking]

4 minutes ago, backtothebeach said:

 

Just looking at the last 3 years, FFH has had several stretches of up to 5 months where the stock went absolutely nowhere. Nothing unusual.

For the past 5 years, Fairfax’s stock price has been like a goat going straight up a steep hill. So for some people, the stock going sideways for 5 months might look like disappointing performance. It is important to be as rational as possible. And not get anchored with one’s thinking (like thinking what has happened with Fairfax’s stock price the past 5 years is normal). Simple. But difficult to actually do. 

[SafetyinNumbers]

4 hours ago, Viking said:

In the short term, I don’t think there is a lot of ‘informational’ value in trying understand why Fairfax’s stock is trading at the price it is. After all, we are talking about Mr. Market. And Fairfax - which is misunderstood and under-appreciated by Mr. Market. I look forward to being able to exploit the volatility (like I have been able to do with Fairfax for the past 22 years). Public markets are the gift that keeps on giving. 

I still try to understand the flows. I think I have a good idea why we are going sideways recently including the historical underperformance during hurricane season and this year the rotation out of P&C insurers into more economically sensitive financials like banks. FFH has actually outperformed in a pretty big way vs the other P&C insurers. 
 

 

 

[Hamburg Investor]

8 hours ago, SafetyinNumbers said:

I still try to understand the flows. I think I have a good idea why we are going sideways recently including the historical underperformance during hurricane season and this year the rotation out of P&C insurers into more economically sensitive financials like banks. FFH has actually outperformed in a pretty big way vs the other P&C insurers. 
 

 

 

Even though one part of me thinks, that predicting Mr. Market is nonsense, another part finds this interesting. Do you have like the results of the other quarters or monthly performances of the last 5 (or 10) years)?

I am less surprised about the absolute performance of FFH in Q3 over the whole timeframe; but I am surprised about the relative underperformance since 2020 until today against the TSX and the negative performance from 2020 until 2022 (okay, I am less surprised with 2020. I remember, that was a bad performance; but negative in both 2021 and 2022?!). Yes, the TSX is about all financials and insurance obviously should be the underperformer in Q3 within any "financial" index. 

Nonetheless I admit, that I have missed four things, that I learn from your tables, @SafetyinNumbers:
1. My guess would have been a positive performance since 2020. While in reality, if accumulated, It's minus 1% over this 5 year time span. So let's call that flat.

2. And I am even more surprised, that FFH lost 22% (accumulated) against the TSX in those 5 years Q3s. I would have guessed at least a head to head race between the Q3s of FFH and TSX, if not a small win for FFH. Aren't Q4 and Q1 historically the best quarters for financials and Q3/Q2 the worst? So my guess would have been, that Financials outperformed insurance in Q3s by a bit or maybe a bit more (as insurance's q3 should be even worse than Financials Q3). But my guess would have been, that FFHs outperformance against the market would have brought FFH a (maybe small) win. 

3. In fact the Q3 performance, when measured against the TSX Financial, was literally at the same level in the (bad) 5 years timeframe from 2015 until 2019 (25% accumulated losses) than within the "good" years 2020 to 2025 (minus 22%).

4. And even the absolute performance of FFH was only slightly worse in the bad years against the good ones (an accumulated loss of 12% in the five Q3s from 2015 to 2019, while minus 1% accumulated from 2020 until 2024).

I think I would have thought, that FFHs outperformance would have no clear seasonality, other the one to be expected between Insurance and Financial stocks overall over the years since 2020. But it seems, that FFH brought a hefty underperformance in the Q3s, so that the whole outperformance (and the compensation for underperformance in Q3) since 2020 seems to be spread over the other 3 quarters. Looking at 2025 I think the picture hasn't changed.

@SafetyinNumbers: Would be interesting to see, what the other Quarters delivered since 2020. I would guess, that Q4s are the best quarters for FFH since 2020, followed by Q1s and than Q2s (all positive). The outperformance against the TSX might be biggest in Q1s, followed by Q4s and Q2 (all positive). I've never seriously analysed this, so I'm probably wrong.

Edited September 12, 2025 by Hamburg Investor

[SafetyinNumbers]

13 minutes ago, Hamburg Investor said:

Even though one part of me thinks, that predicting Mr. Market is nonsense, another part finds this interesting. Do you have like the results of the other quarters or monthly performances of the last 5 (or 10) years)?

I am less surprised about the absolute performance of FFH in Q3 over the whole timeframe; but I am surprised about the relative underperformance since 2020 until today against the TSX and the negative performance from 2020 until 2022 (okay, I am less surprised with 2020. I remember, that was a bad performance; but negative in both 2021 and 2022?!). Yes, the TSX is about all financials and insurance obviously should be the underperformer in Q3 within any "financial" index. 

Nonetheless I admit, that I have missed four things, that I learn from your tables, @SafetyinNumbers:
1. My guess would have been a positive performance since 2020. While in reality, if accumulated, It's minus 1% over this 5 year time span. So let's call that flat.

2. And I am even more surprised, that FFH lost 22% (accumulated) against the TSX in those 5 years.

3. In fact the Q3 performance, when measured against the TSX Financial, was literally at the same level in the (bad) 5 years timeframe from 2015 until 2019 (25% accumulated losses) than within the "good" years 2020 to 2025 (minus 22%).

4. And even the absolute performance of FFH was only slightly worse in the bad years against the good ones (an accumulated loss of 12% in the five Q3s from 2015 to 2019, while minus 1% accumulated from 2020 until 2024).

Would be interesting to see, what the other Quarters delivered since 2020. I would guess, that Q4s are the best quarters for FFH since 2020, followed by Q1s and than Q2s (all positive). The outperformance against the TSX might be biggest in Q1s, followed by Q4s and Q2 (all positive). I've never seriously analysed this, so I'm probably wrong.

I was trained to always understand why my positions weren’t “working” because I usually had a someone at the bank looking over my shoulder asking me why I was losing money

 

15 minutes ago, Hamburg Investor said:

Even though one part of me thinks, that predicting Mr. Market is nonsense, another part finds this interesting. Do you have like the results of the other quarters or monthly performances of the last 5 (or 10) years)?

I am less surprised about the absolute performance of FFH in Q3 over the whole timeframe; but I am surprised about the relative underperformance since 2020 until today against the TSX and the negative performance from 2020 until 2022 (okay, I am less surprised with 2020. I remember, that was a bad performance; but negative in both 2021 and 2022?!). Yes, the TSX is about all financials and insurance obviously should be the underperformer in Q3 within any "financial" index. 

Nonetheless I admit, that I have missed four things, that I learn from your tables, @SafetyinNumbers:
1. My guess would have been a positive performance since 2020. While in reality, if accumulated, It's minus 1% over this 5 year time span. So let's call that flat.

2. And I am even more surprised, that FFH lost 22% (accumulated) against the TSX in those 5 years.

3. In fact the Q3 performance, when measured against the TSX Financial, was literally at the same level in the (bad) 5 years timeframe from 2015 until 2019 (25% accumulated losses) than within the "good" years 2020 to 2025 (minus 22%).

4. And even the absolute performance of FFH was only slightly worse in the bad years against the good ones (an accumulated loss of 12% in the five Q3s from 2015 to 2019, while minus 1% accumulated from 2020 until 2024).

Would be interesting to see, what the other Quarters delivered since 2020. I would guess, that Q4s are the best quarters for FFH since 2020, followed by Q1s and than Q2s (all positive). The outperformance against the TSX might be biggest in Q1s, followed by Q4s and Q2 (all positive). I've never seriously analysed this, so I'm probably wrong.

It makes sense when one considers how money is managed and who the marginal buyers and sellers are. No high turnover PM wants to look stupid owning a company that insures against hurricanes during hurricane season. If they lose money, they should have known better. From November through to Q1 earnings there is a lot of good news with three earnings reports, the shareholder letter and the AGM.
 

I think @kodiak calling FFH a fat pitch on the Business Brew podcast helped defeat seasonality in 2023 or it was just that investment income and float were growing so fast that long term investors offset the marginal sellers.

[Jaygo]

1 hour ago, SafetyinNumbers said:

I was trained to always understand why my positions weren’t “working” because I usually had a someone at the bank looking over my shoulder asking me why I was losing money

 

That sounds very stressful, but probably a good stress since it forces you to improve. Do you have any book reco's that were helpful for this understanding?

 

I really like your contributions because it has so much to do with psychology and the actual brass tacks of why a security may be bought higher or sold lower. 

 

I think a lot of people forget that a sale is also a purchase. Its just a matter of if the buyers are willing to pay a higher price or are the sellers willing to accept a lower price.

 

Long term fundamentals are king but in the short and medium turn even the largest companies have wild fluctuations and you can really benefit from that by understanding why something may move higher or lower. 

 

I have a few investments that are doing poorly and going completely against my expectations. Had I focused a bit more on the who is going to buy this VS this is a great company at a great price eventually it will work out I may have had the opportunity to buy lower and save a 25% drawdown. 

 

On the other hand a careful observer could have looked at Aecon over the past few weeks and thought, hey the Canadian Government is about try and take credit (announce) a whole bunch of mega projects and Canada's leading infrastructure companies will likely be in the spotlight for a while. Maybe these companies may see some inflows for a while.

[KFRCanuk]

19 hours ago, KFRCanuk said:

https://www.cbc.ca/news/politics/carney-major-projects-list-1.7630470

 

 

• The McIlvenna Bay Foran Copper Mine Project in Saskatchewan. 

 

From this years FFH Annual Report

 

 

I would have expected more movement on the Foran stock price today. MR Market has different priorities.

 

Edited September 12, 2025 by KFRCanuk

[SafetyinNumbers]

1 hour ago, Jaygo said:

 

That sounds very stressful, but probably a good stress since it forces you to improve. Do you have any book reco's that were helpful for this understanding?

 

I really like your contributions because it has so much to do with psychology and the actual brass tacks of why a security may be bought higher or sold lower. 

 

I think a lot of people forget that a sale is also a purchase. Its just a matter of if the buyers are willing to pay a higher price or are the sellers willing to accept a lower price.

 

Long term fundamentals are king but in the short and medium turn even the largest companies have wild fluctuations and you can really benefit from that by understanding why something may move higher or lower. 

 

I have a few investments that are doing poorly and going completely against my expectations. Had I focused a bit more on the who is going to buy this VS this is a great company at a great price eventually it will work out I may have had the opportunity to buy lower and save a 25% drawdown. 

 

On the other hand a careful observer could have looked at Aecon over the past few weeks and thought, hey the Canadian Government is about try and take credit (announce) a whole bunch of mega projects and Canada's leading infrastructure companies will likely be in the spotlight for a while. Maybe these companies may see some inflows for a while.

If we lost money we wouldn’t get paid. If we were wrong on a big position we would get shown the door. Definitely stressful but understandable as a prop desk is all leverage on the bank’s capital. I don’t have any book recommendations with respect to that.

 

I think my market structure thesis allows me to supersize my position in FFH and to use leverage generally. Really I’m just trying to understand if there are any factors that I’m missing that impact my intrinsic value estimate. Ultimately though share prices are just supply and demand. Most investors think the market is efficient so a lower price makes people assume someone knows something of course sometimes they do. That’s what makes the game hard.

[Pellom]

I'm still buying. Just can't find anything more intriguing at 9x PE. 

[Txvestor]

I'm right at around 20% in FRFHF with Fairfax India representing another 3% position. 
I actually invested about 12% over the years  but the steep relative run up in the past 2yrs or so has got it up to 20%. I think I'm comfortable at this level but would consider either flipping my Fairfax India position into this if it nears full valuation or adding a bit more getting me up to 25% if there's a pullback. Beyond that it will have to be on the merits of the Fairfax management team. I admire some of you going much higher but I'd just sleep better more diversified. 

[Pellom]

1 hour ago, Txvestor said:

I'm right at around 20% in FRFHF with Fairfax India representing another 3% position. 
I actually invested about 12% over the years  but the steep relative run up in the past 2yrs or so has got it up to 20%. I think I'm comfortable at this level but would consider either flipping my Fairfax India position into this if it nears full valuation or adding a bit more getting me up to 25% if there's a pullback. Beyond that it will have to be on the merits of the Fairfax management team. I admire some of you going much higher but I'd just sleep better more diversified. 

I don't always stick to this, but I really try to repeat the Munger "buy as much of it as you can" when you find a good, underpriced opportunity. 

 

Much like Berkshire today, there's no guarantee Fairfax is cheap forever. 

[dartmonkey]

56 minutes ago, Pellom said:

I really try to repeat the Munger "buy as much of it as you can" when you find a good, underpriced opportunity. 

 

Much like Berkshire today, there's no guarantee Fairfax is cheap forever. 

While I agree that Fairfax is a big opportunity and worth a big bet, just in case anyone takes this too literally, Munger would also have said that (a) never use leverage, i.e. don't invest more than 100% of your capital, and (b) you don't need more diversification than 3 solid companies with a predictably great outcome.

 

Many of us think FFH constitutes such an opportunity, but I doubt Munger would have ever advised going over 50%. I am at 46% and I think that's enough. Even an almost sure bet like FFH is not 100% guaranteed not to get into trouble, not least because of its heavy exposure to supercats and the possibility that a lot of things could go wrong at the same moment (soft insurance markets, lower interest rates, a few investments going south, and a couple of supercats all in the same short timespan.)

[Hamburg Investor]

2 hours ago, SafetyinNumbers said:

If we lost money we wouldn’t get paid. If we were wrong on a big position we would get shown the door. Definitely stressful but understandable as a prop desk is all leverage on the bank’s capital. I don’t have any book recommendations with respect to that.

 

I think my market structure thesis allows me to supersize my position in FFH and to use leverage generally. Really I’m just trying to understand if there are any factors that I’m missing that impact my intrinsic value estimate. Ultimately though share prices are just supply and demand. Most investors think the market is efficient so a lower price makes people assume someone knows something of course sometimes they do. That’s what makes the game hard.

Thank you for the inside. I am just an amateur investor, reading everything I could from e. g. Buffett, Munger, O‘Shaugnessy, Fisher, Pabrai, Hill, Antonscci, Graham, Mihaljevic, Loomis, Clark, Risso-Gill, Otte, Kommer, Browne, Sheran, Diz, Schwager, Lynch, Greenblatt, Spier.

 

What you write from experience (having to win shortterm) is something a lot of people (not only Buffett) think being the reason, that longterm (amateur) investors having an edge over the professionals. If you have to win every quarter and all professionals do have that problem, than there’s so much focus on that, and so less on the longterm. So finding longterm winners is a sport, that not so many people are doing, than one would think. Like Buffett said, there are so many people trying to rich fast, but they don’t know how to do that. I think, there are some ways (like searching for cheap growth stocks with momentum), but rhan yoj have to move in out, paying taxes (26% in Germany), spreads, the bank. So I decided to focus ob the longterm winners and sticking to them most of the time with a forever holding period in mind. That‘s why my biggest holdings are FFH, Fairfax India, Berkshire, Markel, Danaher, Brookfield, Protector Forsikring, Rational AG, Hermle (two German stocks; very good in their small niches).

 

Just as a sitenote: There are not a lot of games, where amateurs have an edge over professionals of course. You want win a prof in table tennis, nor basketball, nor a musician or an it nerd.
 

I just found one other example recently: Archeology. Archeologist have so much to do with looking under the ground, whenever there’s something being build (streets, buildings…) and to safe what lies there, that there’s nearly no time for them to look at all the interesting spots. So an amateur with time is able to check different old maps etc., while the archeologists have to run from one spot, where the ground is opened, to the next. 

[Pellom]

45 minutes ago, dartmonkey said:

While I agree that Fairfax is a big opportunity and worth a big bet, just in case anyone takes this too literally, Munger would also have said that (a) never use leverage, i.e. don't invest more than 100% of your capital, and (b) you don't need more diversification than 3 solid companies with a predictably great outcome.

 

Many of us think FFH constitutes such an opportunity, but I doubt Munger would have ever advised going over 50%. I am at 46% and I think that's enough. Even an almost sure bet like FFH is not 100% guaranteed not to get into trouble, not least because of its heavy exposure to supercats and the possibility that a lot of things could go wrong at the same moment (soft insurance markets, lower interest rates, a few investments going south, and a couple of supercats all in the same short timespan.)

 

Munger has always said three companies is probably the minimum diversification he was comfortable with. I'm at about 22% FFH in the accounts I manage, the biggest of seven holdings. This has happened not intentionally, but because we add new money each month and there hasn't been much opportunity elsewhere. Our newer/smaller accounts are probably 50% FFH right now. (I've been splitting new money between FFH and SGOV.) 

[wondering]

To return to the recent news of the August share buybacks....

 

Obviously Fairfax are value investors with the concept of margin of safety built in their DNA.  One can probably suppose that they vary their margin of safety depending on the quality etc of the investment (example: investments with a high ROE will need less margin of safety than those investments with a few warts on them).

 

It also stands to reason that Fairfax also applies the margin of safety when buying their own stock.

 

I guess my question is how much of a margin of safety does Fairfax apply when buying its own stock? 20% discount? 30% discount? 50% discount?  I doubt they will be explicit in terms of their estimation of FMV of FFH, so we will never know for sure.

 

One thing I am confident of this that Fairfax knows its own company better than anyone else.  They are probably the premier evaluators of insurance companies.  In terms of their portfolio investments, the last 5 years they have clean up a lot of the crappy investments, and what crappy investments remain are a small percentage of the portfolio.  Currently, the equity portfolio is dominated quality names.  All to say is that I think they can truthfully evaluate their current portfolio. 

 

In sum, the fact that they are buying back shares so aggressively, without risk of diminishing the capital structure of the company (they make this qualification each quarterly conference call), makes me sleep well at night even though my percentage of FFH in my portfolio is crazy-high.

[Viking]

2 hours ago, wondering said:

To return to the recent news of the August share buybacks....

 

Obviously Fairfax are value investors with the concept of margin of safety built in their DNA.  One can probably suppose that they vary their margin of safety depending on the quality etc of the investment (example: investments with a high ROE will need less margin of safety than those investments with a few warts on them).

 

It also stands to reason that Fairfax also applies the margin of safety when buying their own stock.

 

I guess my question is how much of a margin of safety does Fairfax apply when buying its own stock? 20% discount? 30% discount? 50% discount?  I doubt they will be explicit in terms of their estimation of FMV of FFH, so we will never know for sure.

 

One thing I am confident of this that Fairfax knows its own company better than anyone else.  They are probably the premier evaluators of insurance companies.  In terms of their portfolio investments, the last 5 years they have clean up a lot of the crappy investments, and what crappy investments remain are a small percentage of the portfolio.  Currently, the equity portfolio is dominated quality names.  All to say is that I think they can truthfully evaluate their current portfolio. 

 

In sum, the fact that they are buying back shares so aggressively, without risk of diminishing the capital structure of the company (they make this qualification each quarterly conference call), makes me sleep well at night even though my percentage of FFH in my portfolio is crazy-high.

@wondering, Fairfax has bought back an enormous amount of their own stock over the past 5 years. What is interesting is each year when they were doing this it was not obvious (at that time) that it was a good decision - let alone an outstanding decision. 
 

A good example is the dutch auction in late 2021 when Fairfax took out 2 million shares at US$500/share. How many board members were happy to sell their shares to Fairfax at the time?
 

What is the learning?

1.) Fairfax got a steal of a deal. Today my guess is book value (as of today) is about US$1,200/share. Excess of FV over CV is about $100/share (pre-tax). So ‘adjusted’ BV today is about $1,300/share. And we know intrinsic value per share is higher than this. 
 

2.) Fairfax is a much higher quality company today than it was in late 2021 - its earnings power today (size and potential) is much, much higher today than it was in late 2021. That is because of internal and external developments. Below are just a few:

- Fairfax has fixed the problems in its equity portfolio (and improved their investment framework).

- The equity portfolio has been improving in quality - it never been better positioned.

- Bond yields have moved much higher - spiking interest income.

- Their P/C insurance business has been improving in quality - it has never been better positioned. 
- Fairfax’s capital allocation over the past 5 years has been exceptional - best in class when compared to P/C insurance peers. 

This means Fairfax’s stock deserves to trade at a much higher multiple today (compared to the multiple it had in late 2021). 
 

What is my point?

 

One way to evaluate Fairfax’s buyback in August at US$1,700/share is to telescope ahead 4 or 5 years. What will book value be? What will ‘adjusted’ book value be? What will Fairfax’s intrinsic value be? And how will that compare to US$1,700?
 

The keys will likely be free cash flow, capital allocation and compounding. My guess is most investors do not grasp what Fairfax has built. And what is going to happen in the coming years. They are underestimating Fairfax (just like they did in late 2021). They think they are being conservative. 
 

I think the core problem is most investors do not understand how compounding works. They can define it. But they don’t get it. Fairfax is entering another ‘exponential growth’ phase. My guess is buybacks at US$1,700 today are going to look like a great purchase in another 4 or 5 years time. 

 

Edited September 13, 2025 by Viking

[Marco Van Basten]

Bloomberg reported today that European regulators are going to ban catastrophe bonds from going into regular mutual funds.  That should result in much lower demand, and hence higher pricing for catastrophe bonds, and an upward pressure on reinsurance rates ceteris paribus.  Clearly a plus for Fairfax.  

 

The title is: Catastrophe bonds worth $17.5bn land in EU crosshairs.  By Gautam Naik.  At issue is the $17.5bn of catastrophe bonds sitting in funds sold under the UCITS label, an EU designation intended to protect retail investors. 

[Viking]

Find the cannibals - companies that are devouring themselves

 

This post has been broken into the following 5 parts:

• Part 1: Introduction - What is a financial cannibal?
• Part 2: Fairfax - Record earnings and capital allocation
• Part 3: Examples of Fairfax being a cannibal investor (2021 to 2024)
  • Stock buybacks
  • Take out partners in P/C insurance (minority and majority)
  • Take out partners in equity holdings (public and private)
• Part 4: Summary
• Part 5: Capital allocation - The big picture

 

FYI, this is a sister post to the one I did on May 19, 2024 called: Warren Buffett on Capital Allocation – Circle of Competence, Margin of Safety and Concentration. Click the link below if you want to start with this post.

• https://thecobf.com/forum/topic/20517-fairfax-2024/page/53/#findComment-564812 

—————

 

Part 1: Introduction - What is a financial cannibal?

 

One of Charlie Munger’s investing strategies was to look for ‘financial cannibals.’ This referred to companies that were buying back a large amount of their own stock over long periods of time. Of course, the price paid for the stock was important. Buying back large amounts of stock at cheap prices creates extraordinary value for shareholders.

 

The math:

• Assuming net earnings remain the same, a lower share count will increase EPS.

 

This strategy can work so well because it checks all three boxes of a successful capital allocator:

• Circle of competence - The management team has a big edge here. It understands the business better than anyone else (management, fundamentals and prospects).
• Margin of safety - The management team also has a big edge here. It is able to calculate the intrinsic value of the company better than anyone else and understand how it compares to the current market value.
• Concentration - When shares get wicked cheap (intrinsic value is much higher than the market value) management can buy back shares in volume.

Buying back stock is a high certainty capital allocation decision (versus the other options available to a management team). When executed properly, this strategy is very low risk and can deliver a high rate of return. It is a great way to grow per share value for long term shareholders.

 

“…what those (prosperous) companies had in common was they bought huge amounts of their own stock and that contributed enormously to the ending record. Lou, Warren, and I would always think the average manager diversifying his company with surplus cash that’s been earned more than half the time they’ll screw it up. They’ll pay too high a price and so on. In many cases they’ll buy things where an idiot could see they would have been better to buy their own stock than buy this diversifying investment. And so somebody with that mind-set would be naturally drawn to what Jim Gibson used to call “financial cannibals,” people that were eating themselves.” Charlie Munger (Janet Lowe - Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger)

 

Broadening out the definition of a financial cannibal - Buying more of something that you already own

 

We are going to broaden out our definition of what a financial cannibal is. And that is because Munger’s original idea has been expanded and improved upon.

 

We define a financial cannibal as a company that is aggressively buying more of something that it already owns.

 

This definition includes stock buybacks, which lowers total shares outstanding (lowers the denominator when calculating EPS). But this definition also includes activities that increase net earnings attributable to common shareholders (increases the numerator when calculating EPS).

 

What are we talking about?

 

We will get into some examples of this later in the post.

 

—————

 

Part 2: Fairfax - Record earnings and capital allocation

 

Today Fairfax is generating a record amount of earnings. And given their sources (high quality), very high earnings are expected to continue for the next 3 or 4 years (which is as far as my crystal ball attempts to see). This means Fairfax will be allocating a record amount of capital over the next 4 years.

 

Like all companies, Fairfax has three basic options when it comes to capital allocation:

• Buy back stock
• Re-invest in the business (organic growth or acquisitions)
• Pay a dividend

What exactly will Fairfax do? 

 

Of course, this is the rub. The answer is we don’t know exactly what Fairfax will do. What Fairfax does will depend on a number of factors (internal and external). So, when it comes to future capital allocation decisions, investors will need to trust the management team at Fairfax.

 

Should we trust the management team at Fairfax?

 

Will they be rational? Will they allocate capital in a way that builds per share value for shareholders over the long term?

 

To help answer these questions we need to look into the past.

 

But how far back do we need to go?

 

Given Fairfax’s colourful history, this is a really interesting question.

 

My view is investors should focus primarily on recent history. Let’s look at what Fairfax has been doing over the past 4 years.

 

——————

 

Part 3: Examples of Fairfax being a cannibal investor (2021 to 2024)

 

When we look at the 4 year period from 2021 to 2024, we see numerous examples of Fairfax engaging in ‘cannibal investing.’

 

1.) Fairfax has been buying back its stock.

 

But it has also been doing much more. It has also been aggressively investing in its businesses.

 

2.) It has also been growing its P/C insurance businesses by taking out its partners (minority and majority).

3.) And it has been growing its non-insurance businesses by taking out its partners (public and private) in its consolidated equity holdings.

 

All three are examples of cannibal investing. Fairfax has been buying much more of stuff they already own.

 

Let’s review each of these three examples in more detail:

 

—————

 

1.) Stock buybacks

 

Over the 4-year period from 2021 to 2024, Fairfax spent $3.2 billion to repurchase 4.5 million shares at an average cost of $716/share. This reduced effective shares outstanding by 17.2% or an average of 4.3% per year.

 

This was a massive stock buyback by Fairfax. But more important than the size was the average price paid of $716/share. At June 30, 2025, Fairfax’s book value was $1,158/share. Fairfax’s intrinsic value is much higher than its book value. Over the past 4 years, Fairfax was able to buy back a significant number of shares at an average price that was well below its intrinsic value.

 

 

But the buyback story gets even better…

 

FFH-Total Return Swaps

 

In late 2020/early 2021, Fairfax made another significant investment - the company purchased total return swaps giving it exposure to 1.96 million Fairfax shares.

 

The total return swap position can be viewed as a share buyback of sorts. (Fairfax reduced the size of the investment to 1.76 million shares in Q4,2024 by buying back 203,800 shares.)

 

For fun, let’s combine the total return swaps and share buyback investments.

 

Over the 4-year period from 2021 to 2024, Fairfax got exposure to 6.27 million (or 23.9%) of its effective shares outstanding at an average cost of $620/share.

 

 

—————

 

2.) Take out partners in P/C insurance (minority and majority)

 

When Fairfax went on its aggressive P/C insurance expansion from 2015 to 2017 they were short on cash. What to do? Bring on minority equity partners. Bringing on minority partners allowed Fairfax to buy more (control positions) when P/C insurance companies were on sale.

 

Now that Fairfax is flush with cash, what has it been doing? Yes, it has been taking out the minority partners in its P/C insurance businesses. In some cases it has also been taking out the majority partners.

 

Importantly, when the deals were put in place with the minority P/C insurance partners each of them included a call option feature. The call option gave Fairfax the right - but not the obligation - to buy out their minority partner at a specified price and by a specified date. Fairfax profits if the underlying asset increases in value (which is what has happened).

 

These are all quality P/C insurance companies. Because of the call option feature, Fairfax is able to buy out its minority partners at a very low (favourable) price.

 

Over the 4-year period from 2021 to 2024, Fairfax has spent $2.26 billion to take out its partners and increase its ownership stake in its existing P/C insurance businesses.

 

This use of capital is shrinking the amount of Fairfax’s net earnings are going to minority shareholders. And it is increasing the amount of net earnings attributable to Fairfax’s common shareholders.

 

 

—————

 

3.) Take out partners in equity holdings (public and private)

 

In recent years, Fairfax has materially increased the size (and earnings power) of its collection of consolidated equity holdings.

 

Over the 4-year period from 2021 to 2024, Fairfax spent $1.06 billion to increase its ownership in many of its existing equity holdings.

 

With the Recipe take-private in 2022, Fairfax took out their public partners (at a depressed price due to Covid). With the other holdings they took out their private partners.

 

Importantly, much of the cash for these purchases did not come from Fairfax. It came from borrowings from the equity holdings themselves. These borrowings are non-recourse to Fairfax. (I describe it as an ‘LBO-light’ kind of strategy on the part of Fairfax.)

 

This use of capital is eliminating the amount of net earnings from these equity holdings that was going to Fairfax’s public and private partners. And it is increasing the amount of net earnings from these equity holdings that will be attributable to Fairfax’s common shareholders.

 

 

——————

 

Part 4: Summary

 

So what have we learned in this post?

 

In recent years, Fairfax has been gorging on itself.

 

Over the 4-year period from 2021 to 2024, Fairfax has spent (loosely speaking) a total of about $6.55 billion executing three different capital allocation activities:

• Share buybacks = $3.23 billion
• Take out partners in P/C insurance = $2.26 billion
• Take out partners in equity holdings = $1.06 billion

With each strategy, Fairfax was simply buying much more of things they already owned. As a result, these three strategies can be collectively described as ‘cannibal investing.’

 

The benefits of ‘cannibal investing’ are as follows:

• Low risk - Fairfax invested in things they understood exceptionally well.
• Low price - They got much of it on sale.
• Purchased a large amount - A significant amount of capital was invested.

The math is pretty straight forward. Taking out partners (in P/C insurance and equities) increases earnings (the numerator). And buybacks lowers the share count (the denominator). Doing one is powerful. Doing both at the same time - well that is magic - it spikes EPS.

 

Cannibal investing is incredibly simple. And effective. Fairfax has taken Munger’s original idea and expanded and improved on it. It is just another example of how good Fairfax is at capital allocation.

 

 

—————-

 

Part 5: Capital allocation - The big picture

 

Of course, over the 4 years from 2021 to 2024, Fairfax was doing much more on the capital allocation front than just ‘cannibal investing’. Among other things, the company has also been:

• Aggressively growing its P/C insurance business - Taking full advantage of the hard market that started in late 2019.
• Selling assets at premium valuations - Pet insurance and Resolute Forest Products (2022), Ambridge Parners (2023) and Stelco (2024).
• The fixed income team navigated the greatest bond bull/bear market in history. Protected balance sheet. Now earning record interest income.
• The equity team has dramatically improved the overall quality of the equity portfolio. Exited many poor investments. Merged others with stronger companies. New investments have been performing well. Some legacy investments have turned around.
• Dividend - Currently = $15/share.

When it comes to capital allocation, Fairfax’s track record in recent years has been outstanding. The team at Fairfax has been hitting the ball like Ted Williams. As a result, earnings at Fairfax have spiked higher. At the same time, the share count has come down meaningfully. Earnings per share has spiked higher. The narrative/sentiment is improving and this is driving multiple expansion. And this is driving Fairfax’s stock price higher.

 

Capital allocation is hard. As a result, most companies mess it up. One of the best strategies that can be used is to buy more of stuff you already own (and like). Fairfax has been doing a lot of this type of capital allocation over the past 4 years. That is a sign of a very good management team. Through their actions, Fairfax continues to earn the trust of shareholders.

Edited September 15, 2025 by Viking

[Txvestor]

On 9/12/2025 at 12:58 PM, dartmonkey said:

While I agree that Fairfax is a big opportunity and worth a big bet, just in case anyone takes this too literally, Munger would also have said that (a) never use leverage, i.e. don't invest more than 100% of your capital, and (b) you don't need more diversification than 3 solid companies with a predictably great outcome.

 

Many of us think FFH constitutes such an opportunity, but I doubt Munger would have ever advised going over 50%. I am at 46% and I think that's enough. Even an almost sure bet like FFH is not 100% guaranteed not to get into trouble, not least because of its heavy exposure to supercats and the possibility that a lot of things could go wrong at the same moment (soft insurance markets, lower interest rates, a few investments going south, and a couple of supercats all in the same short timespan.)

So my Q to you is what would you do if it does well and in 5-6yrs that 46% becomes 70%? Thats a pleasant question that plagues many a Berkshire holder over the decades. Some did absolutely nothing and were handsomely rewarded and others kept taking off the table and seldom found anything close. 

[villainx]

1 hour ago, Txvestor said:

So my Q to you is what would you do if it does well and in 5-6yrs that 46% becomes 70%? Thats a pleasant question that plagues many a Berkshire holder over the decades. Some did absolutely nothing and were handsomely rewarded and others kept taking off the table and seldom found anything close. 

 

My guess is the question to the matter is what would one do with new investing money.  All else equal, I assume at 70%, most would either go to the next best idea(s) or even diversify to some general index.  But it's also dependent on how did that 70% happened, Fairfax went up higher?  or other high conviction bests shrunk?  Right?  46% -> 70% means either something went really well or really bad, or there's a temporary market turmoil.

 

   

 

 

[SafetyinNumbers]

On 9/12/2025 at 1:58 PM, dartmonkey said:

While I agree that Fairfax is a big opportunity and worth a big bet, just in case anyone takes this too literally, Munger would also have said that (a) never use leverage, i.e. don't invest more than 100% of your capital, and (b) you don't need more diversification than 3 solid companies with a predictably great outcome.

 

Many of us think FFH constitutes such an opportunity, but I doubt Munger would have ever advised going over 50%. I am at 46% and I think that's enough. Even an almost sure bet like FFH is not 100% guaranteed not to get into trouble, not least because of its heavy exposure to supercats and the possibility that a lot of things could go wrong at the same moment (soft insurance markets, lower interest rates, a few investments going south, and a couple of supercats all in the same short timespan.)

How do you define heavy exposure to supercats? How do you think softer insurance markets impact near term results? 

[Maverick47]

2 hours ago, Txvestor said:

So my Q to you is what would you do if it does well and in 5-6yrs that 46% becomes 70%? Thats a pleasant question that plagues many a Berkshire holder over the decades. Some did absolutely nothing and were handsomely rewarded and others kept taking off the table and seldom found anything close. 

I think it also matters where one is in their investing lifespan and how much a certain percentage represents of what one needs to live on.  As an example, when Buffett was in his early 20’s and had a net worth of a little over $20,000, he had 66% of his net worth in Geico common stock, and was telling all his friends, relatives and clients at Buffett-Falk that he recommended putting everything they could find to invest, in that single stock.

 

Later in life when his fortune grew huge, he was comfortable with 99% of his net worth in Berkshire (though that other 1% represented roughly $300 million).