Fairfax 2025

[Viking]

Position size really is a super interesting part of investing. It is one of the most difficult parts. And it might be one of the most mis-understood parts. Probably because it is so situational. Context matters a great deal. As a result, I am not sure position size can be discussed meaningfully without providing at least some basic context. 

 

1.) How are you measuring position size? In terms of total net worth? Or just in terms of total financial assets? 
- Investor A: 80% of net worth is financial assets. And 20% is real estate. 
- Investor B: 80% of net worth is real estate. And 20% is financial assets.

 

2.) What is the problem you are trying to solve for? (What is your objective?)

- Investor A: Focussed on total return.

- Investor B: Focussed on capital preservation.
 

3.) What is your risk tolerance?
- Investor A: Not risk averse.

- Investor B: Risk averse.

 

Does a spouse's risk tolerance matter?
 

4.) What is your age / life stage? 
- Investor A: 35 years old.

- Investor B: 60 years old.

5.) Perhaps most importantly, how good at investing are you? 
- Investor A: Average

- Investor B: Very good.

These are 5 questions that quickly came to mind… there are more. 

Edited September 16, 2025 by Viking

[Hamburg Investor]

I am beginning to wonder what the interest rate cut means for Fairfax Financial. The following seems clear:
1. Profit in Q3 report: Lower interest rates lead to a higher reported value (= profit). 
2. Lower interest rates lead to less income for the float in future (when it is reinvested)

 

For Fairfax (and all other companies), this means that investments in fixed-income securities become less attractive compared to investments in companies (all other things being equal). 

But I also wonder: if the risk-free interest rate falls, then the interest rate claims on risky investments such as the insurance business also fall. So do lower interest rates play into the hands of a return to a soft market?
 

At the same time, I wonder: according to my interpretation, won't the tariffs lead to rising inflation in the foreseeable future? All US imports will become more expensive. Sooner or later, this will be passed on to consumers. In this respect, I tend to assume that the current interest rates (which are not even that low) will remain at their current level, so 1% above where it should be. In recent months, everyone outside the USA has been happy to be able to sell to the US quickly; in case of doubt, they are even willing to forego some margin if it means they can sell a little more to the US. The motto is: There will soon be much less opportunities to sell into the US, so it's better to grab now, what you can while you can. They may even want to clear their stocks outside Europe, if the US is very, very important and no other buyer seems available. 
 

Anyway, wouldn't an interest rate cut indicate a massive weakness of the US overall? I mean: Interest rates are above your goal, and still you lower interest rates? So one has to assume maybe some "help" from another "thing". From the Fed's point of view, maybe one would then have to assume a (massive) weakening labour market in the future; or what else?! In other words, the Fed would then assume that the stimulus the government hopes to achieve with tariffs (more domestic jobs; that would mean more demand of labour, so higher wages, so an additional pressure on inflation) will not materialise; but the opposite. Maybe I am wrong, just trying to find a read for interest rates to come down. At least that's what I remember from studying economics 25 years ago.
 

In any case, doesn't this mean that future investment opportunities for Fairfax now lie primarily outside the insurance (at least outside the US) and outside the bond business and more in equities? Is this directionally the right way to think, or am I making mistakes in my reasoning?

[petec]

On 9/13/2025 at 9:29 AM, wondering said:

I guess my question is how much of a margin of safety does Fairfax apply when buying its own stock?

 

On 9/13/2025 at 9:29 AM, wondering said:

One thing I am confident of this that Fairfax knows its own company better than anyone else.

 

I think you have answered your own question. I am sure there is a margin of safety on buybacks, but it is likely smaller than it is on anything else because the "risk of the unknown" is lower.

[petec]

On 9/13/2025 at 12:22 PM, Viking said:

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. 

 

I know we have had this debate before, but mathematically the majority of the earnings improvement has come from rising rates, which have transformed float income, been a significant factor in improving the combined ratio improvement (via yield-seeking capital exiting insurance), and been a major driver of increased profitability at Eurobank.

 

There are definitely changes for the better - most notably the removal of the hedges - but I think it is hyperbole to say that Fairfax is a much higher quality company than it was 4 years ago when it very largely owns the same assets, run by the same management team, using the same philosophy.

 

A more accurate statement would be: 4 years ago Fairfax was earning well below its potential for mostly cyclical reasons, and now it is not. In fact there is a chance that it is at a cyclical earnings peak, although that peak seems likely to last a while. 

 

I agree that the $500 buyback was a masterful piece of capital allocation. But I find myself a rare countercyclical voice on this thread: having added to FFH through the dark years I am slowly reducing it now, although it remains my biggest position by some distance (18%). I was wrong for 10 years the first time; I hope the same is true again!

 

 

[petec]

29 minutes ago, Hamburg Investor said:

But I also wonder: if the risk-free interest rate falls, then the interest rate claims on risky investments such as the insurance business also fall. So do lower interest rates play into the hands of a return to a soft market?

 

I think there is a direct correlation between rates and combined ratios. When rates fall, yield-seeking capital floods into insurance, making it less profitable. Obviously this often happens in a recession, which also impacts demand for insurance, and the combined effect can drive a very soft market.

 

I am not sure a single cut will make a lot of difference, but if rates were to fall substantially I would expect a soft market.

[thowed]

Thank you @petec I now have a double digit allocation, but if you have a low-turnover portfolio, you have more time to think/worry about what could go wrong!

 

Viking's work has been amazing, but always really helpful to have pushback too.

[73 Reds]

9 hours ago, Maverick47 said:

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).

 

 

Like Berkshire, Fairfax itself is highly diversified.  it is not like owning one company that does one thing in a single sector.  

[Masterofnone]

12 minutes ago, 73 Reds said:

Like Berkshire, Fairfax itself is highly diversified.  it is not like owning one company that does one thing in a single sector.  

I would have worded it, Fairfax is becoming somewhat diversified and is moving toward the Berkshire model. It was easy to justify holding intense concentrations in Berkshire. Fairfax is more leveraged in and of insurance.

[73 Reds]

35 minutes ago, Masterofnone said:

I would have worded it, Fairfax is becoming somewhat diversified and is moving toward the Berkshire model. It was easy to justify holding intense concentrations in Berkshire. Fairfax is more leveraged in and of insurance.

True, and the issue is, would shareholders prefer a Fairfax without the insurance element and without leverage?  Personally, I wouldn't own the stock if that was the case.

[villainx]

11 hours ago, Maverick47 said:

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.

 

If this was the 1950s investment, he sold out of the position in about a year's time.  Not that your point isn't valid, but I think @Marco Van Basten meant keeping it at that elevated portfolio level over long term.

 

And regarding Buffett and Berkshire ownership, many folks - through their job - have probably an extremely high % of net worth tied to their job, perhaps to a degree that they aren't fully aware of - good or bad.

 

[Pellom]

26 minutes ago, villainx said:

 

If this was the 1950s investment, he sold out of the position in about a year's time.  Not that your point isn't valid, but I think @Marco Van Basten meant keeping it at that elevated portfolio level over long term.

 

And regarding Buffett and Berkshire ownership, many folks - through their job - have probably an extremely high % of net worth tied to their job, perhaps to a degree that they aren't fully aware of - good or bad.

 

 

It's also *slightly* different given Buffett (maybe not in the 1950s, but you'll get my point) had the ability to affect outcomes directly via a larger capital base and needling of management. In a lot of those instances, he was telling people "throw money into this company" because he could be sure management would do the right things one way or another. 

[Maverick47]

1 hour ago, villainx said:

And regarding Buffett and Berkshire ownership, many folks - through their job - have probably an extremely high % of net worth tied to their job, perhaps to a degree that they aren't fully aware of - good or bad.

Case in point would be Enron, when employees could put their entire 401k in company stock, and then lost both their jobs and their retirement accounts when the company imploded!  
 

I think Munger once said that if you can’t face with equanimity a 50% drawdown in the market value of your assets, you shouldn’t be invested in individual stocks…and that he himself faced such an event three times in his own history of owning Berkshire.

 

Everyone needs their own margin of safety, and diversification is an excellent way to help create this.  
 

As far as investor psychology goes, I think it was the comic strip Pogo where the characters once said “We have met the enemy and they is us!”

 

I hated seeing a coworker get scared out of equities in the wake of the 2008 Great Financial Crisis.  A good part of his retirement account was in a diversified mutual stock fund, but with the entire market dropping, he get scared enough to sell at a low point and moved the proceeds, which had fallen by about 50% from a high point, into what he considered a safer bond fund….just in time to retire a few years later and lock in both the market value loss and a guarantee of subpar future investment results given the succeeding decade of extremely low interest rates.

[Viking]

6 hours ago, petec said:

There are definitely changes for the better - most notably the removal of the hedges - but I think it is hyperbole to say that Fairfax is a much higher quality company than it was 4 years ago when it very largely owns the same assets, run by the same management team, using the same philosophy.

 

A more accurate statement would be: 4 years ago Fairfax was earning well below its potential for mostly cyclical reasons, and now it is not. In fact there is a chance that it is at a cyclical earnings peak, although that peak seems likely to last a while. 

 

@petec, 4 years ago (Sept of 2021) Fairfax was still (largely) a hated company. The stock was trading under US$450/share. It was trading below where it was trading pre-covid. Its price reflected investors views of the company at the time:

• Below average P/C insurance business.
• Below average at investment management.
• Below average management team.

Looking back, of course this view was wrong.

 

What changed? Everything.

 

Is this a company with largely the same assets and management team using the same philosophy? Yes. And no.

 

Anyways, I do really appreciate our debates.   

 

Edited September 16, 2025 by Viking

[MMM20]

13 hours ago, Viking said:

Position size really is a super interesting part of investing. It is one of the most difficult parts. And it might be one of the most mis-understood parts. Probably because it is so situational. Context matters a great deal. As a result, I am not sure position size can be discussed meaningfully without providing at least some basic context. 

 

1.) How are you measuring position size? In terms of total net worth? Or just in terms of total financial assets? 
- Investor A: 80% of net worth is financial assets. And 20% is real estate. 
- Investor B: 80% of net worth is real estate. And 20% is financial assets.

 

2.) What is the problem you are trying to solve for? (What is your objective?)

- Investor A: Focussed on total return.

- Investor B: Focussed on capital preservation.
 

3.) What is your risk tolerance?
- Investor A: Not risk averse.

- Investor B: Risk averse.

 

Does a spouse's risk tolerance matter?
 

4.) What is your age / life stage? 
- Investor A: 35 years old.

- Investor B: 60 years old.

5.) Perhaps most importantly, how good at investing are you? 
- Investor A: Average

- Investor B: Very good.

These are 5 questions that quickly came to mind… there are more. 

I just read a great post on this topic:

 https://open.substack.com/pub/harveysawikin/p/ive-always-been-paranoid-about-size

 

Most market sages recommend prudent diversification: Bernard Baruch advised selling a position to the “sleeping point,” where you don’t have to worry at night. Joel Greenblatt — who’s a member of my golf club but whom I’ve never gotten to play with, maybe because he heard I’m bad — modified that, saying he’d let a great stock be a large weighting if he believed there was an extremely low risk of a permanent loss of capital.

 

Exhibiting a bolder attitude, Charlie Munger once said, “When you know you have an edge, you should bet heavily. They don’t teach most people that in business school. It’s insane.” Of course, permanent capital allows Berkshire Hathaway to bet “heavily” without fear of looking greedy, reckless, or just plain bananas, and thereby risking redemptions as fund managers do.

 

Edited September 16, 2025 by MMM20

[dartmonkey]

13 minutes ago, MMM20 said:

Exhibiting a bolder attitude, Charlie Munger once said, “When you know you have an edge, you should bet heavily. They don’t teach most people that in business school. It’s insane.” Of course, permanent capital allows Berkshire Hathaway to bet “heavily” without fear of looking greedy, reckless, or just plain bananas, and thereby risking redemptions as fund managers do.

Munger also said this: 

 

"The Mungers have three stocks. We have a block of Berkshire, we have a block of Costco, we have a block of Li Lu's Fund, and the rest is dribs and drabs," Munger said at the 2017 Daily Journal Corp. annual meeting. "So am I comfortable? Am I securely rich? You're damn right I am."

 

and this:

 

"What are the chances that Costco's going to fail? What are the chances that Berkshire Hathaway's going to fail? What are the chances that Li Lu's portfolio in China is going to fail?" he said. "The chances that any one of those things happening is almost zero. The chances that all three of them are going to fail..."

 

However, I think one should add that although there is a very low chance that all 3 would fail, if one were to fail, you might lose a third of your portfolio. For Munger and his family, this would just mean a different number in their brokerage account, not a different lifestyle, but this might not be the case if you have $1 million that needs to last for the rest of your life. So I think you can take more chances of having a significant loss once your savings are well above what you need to be comfortable, but a little more diversification probably makes sense when your savings are small or when you aren't able to make them back by working harder or retiring later.

[Munger_Disciple]

18 minutes ago, dartmonkey said:

Munger also said this: 

 

"The Mungers have three stocks. We have a block of Berkshire, we have a block of Costco, we have a block of Li Lu's Fund, and the rest is dribs and drabs," Munger said at the 2017 Daily Journal Corp. annual meeting. "So am I comfortable? Am I securely rich? You're damn right I am."

 

and this:

 

"What are the chances that Costco's going to fail? What are the chances that Berkshire Hathaway's going to fail? What are the chances that Li Lu's portfolio in China is going to fail?" he said. "The chances that any one of those things happening is almost zero. The chances that all three of them are going to fail..."

 

However, I think one should add that although there is a very low chance that all 3 would fail, if one were to fail, you might lose a third of your portfolio. For Munger and his family, this would just mean a different number in their brokerage account, not a different lifestyle, but this might not be the case if you have $1 million that needs to last for the rest of your life. So I think you can take more chances of having a significant loss once your savings are well above what you need to be comfortable, but a little more diversification probably makes sense when your savings are small or when you aren't able to make them back by working harder or retiring later.

 

 

Another problem is that no one on this board has the investing abilities & mental fortitude of Munger. BTW Munger family also has close to $400-500mm of multi family real estate in the suburban LA area. 

[MMM20]

If you read the post, Harvey gets into a lot of the nuances around it. Trust me, I am well aware I am not 1/100th of the investor he was, and I’m not in the 3 stocks camp. I had my entire retirement accounts in FFH for about a week into the Dutch auction and could barely sleep. 
 

Edited September 16, 2025 by MMM20

[Viking]

This quote from Buffett has really resonated with me in recent years. So much so, it might have warped my thinking a little. He was talking about leverage... but I think it also can be applied in a more general way.

 

“It’s insane to risk what you have and need for something you don’t really need. ... You will not be way happier if you double your net worth.”

 

I have enough. I am 60 years old. My wife is very risk averse (meaning if I blow up our portfolio it would hit her much harder than me). We live a simple life (we don't have expensive tastes). We only have financial assets (no real estate). And we have no company pensions (other than CPP). All of this feeds into how I have structured our investment portfolio (including weightings).

 

The key is to be as rational as possible. To keep learning (lots to learn when it comes to retirement/estate planning). To be open minded. To make course corrections as required - it is a marathon not a sprint (these days for me anyways).

 

My big problem is how I am wired. Not an issue right now. But definitely a risk and something that needs to be closely monitored.

[73 Reds]

7 minutes ago, Viking said:

This quote from Buffett has really resonated with me in recent years. So much so, it might have warped my thinking a little. He was talking about leverage... but I think it also can be applied in a more general way.

 

“It’s insane to risk what you have and need for something you don’t really need. ... You will not be way happier if you double your net worth.”

 

I have enough. I am 60 years old. My wife is very risk averse (meaning if I blow up our portfolio it would hit her much harder than me). We live a simple life (we don't have expensive tastes). We only have financial assets (no real estate). And we have no company pensions (other than CPP). All of this feeds into how I have structured our investment portfolio (including weightings).

 

The key is to be as rational as possible. To keep learning (lots to learn when it comes to retirement/estate planning). To be open minded. To make course corrections as required - it is a marathon not a sprint (these days for me anyways).

 

My big problem is how I am wired. Not an issue right now. But definitely a risk and something that needs to be closely monitored.

Viking, I think that quote can be re-phrased as "Don't take unnecessary risks".    Doesn't mean to take no risks at all but only those worth taking.

[MMM20]

25 minutes ago, Viking said:

I am 60 years old.

I always imagined you as about 40 and looking like Hafthor Bjornsson.

 

[Munger_Disciple]

46 minutes ago, Viking said:

This quote from Buffett has really resonated with me in recent years. So much so, it might have warped my thinking a little. He was talking about leverage... but I think it also can be applied in a more general way.

 

“It’s insane to risk what you have and need for something you don’t really need. ... You will not be way happier if you double your net worth.”

 

I have enough. I am 60 years old. My wife is very risk averse (meaning if I blow up our portfolio it would hit her much harder than me). We live a simple life (we don't have expensive tastes). We only have financial assets (no real estate). And we have no company pensions (other than CPP). All of this feeds into how I have structured our investment portfolio (including weightings).

 

The key is to be as rational as possible. To keep learning (lots to learn when it comes to retirement/estate planning). To be open minded. To make course corrections as required - it is a marathon not a sprint (these days for me anyways).

 

My big problem is how I am wired. Not an issue right now. But definitely a risk and something that needs to be closely monitored.

 

Good post! It's clear that you are self-aware & that's a good thing. 

[yqsun]

That was a very helpful discussion about diversification, concentration, position sizing, and risk management. Here’s another recent article to ponder ...

Intelligent Concentration: A Synopsis of Warren Buffett and Diversification

[Munger_Disciple]

19 hours ago, yqsun said:

That was a very helpful discussion about diversification, concentration, position sizing, and risk management. Here’s another recent article to ponder ...

Intelligent Concentration: A Synopsis of Warren Buffett and Diversification

 

Thanks for this article. This is pure gold from Warren, the!

 

"The question always is, “How much do I put in number one (ranked by expectation of relative performance) and how much do I put in number eight?” This depends to a great degree on the wideness of the spread between the mathematical expectation of number one versus number eight.” It also depends upon the probability that number one could turn in a really poor relative performance. Two securities could have equal mathematical expectations, but one might have .05 chance of performing fifteen percentage points or more worse than the Dow, and the second might have only .01 chance of such performance. The wider range of expectation in the first case reduces the desirability of heavy concentration in it.”

 

How can anyone say it better? Warren is saying that concentration depends not just on how much one expects the security to out-perform the broader market (mean of all potential outcomes) but also on the probability distribution of potential returns, most importantly on the left tail probability. He is basically saying it's an art form, not pure mathematics because the estimated prob distribution of outcomes is inherently subjective. It's almost like how Ajit writes big insurance policies like super-cat & reinsurance deals. 

Edited September 17, 2025 by Munger_Disciple

[Jaygo]

Just curious if the lack of Hurricanes is good or bad for business? 

 

A simple idea is no major cats is good since there are less payouts but does that have a negative effect on premiums moving forward?

 

Maybe this question is less important for Fairfax vs other insurers.

[Hamburg Investor]

35 minutes ago, Jaygo said:

Just curious if the lack of Hurricanes is good or bad for business? 

 

A simple idea is no major cats is good since there are less payouts but does that have a negative effect on premiums moving forward?

 

Maybe this question is less important for Fairfax vs other insurers.

No Hurricanes over a long time should lower premiums; so the combined ratio is expected to increase within the sector in such a scenario. 
"Lumpy" is better than "smooth" if it gets to results, if measured over the years.
I think it's important, that the probability of Hurricanes can be included into pricing plus a nice margin. No big hurricanes over a long time could bring in easy money underestimating real risk.
So I would say it's important, that outside investors/money are getting the impression, that bad results are a real possibility.  In a game, you are naturally not happy when the odds in a game are 5 to 1 in your favour, but you lose every time. So it would be equally bad if the 20 worst hurricane seasons of the next 100 years all occurred within the next 20 years. I don't think pricing would mirror such an unlikely scenario. But a random distribution of three very bad seasons in a row would certainly be good for the following years.

So I would think a (very) bad year from time to time is good, but you need the good years in between too.