Fairfax 2025

[Intelligent_Investor]

Honestly I'm fine with the share price going sideways for a few months or even a year or so...as long as I can keep buying at reasonable prices

[petec]

On 9/24/2025 at 8:57 AM, TwoCitiesCapital said:

+1 these are my thoughts as well. While they may not short again, they're still willing to take large macro bets as demonstrated by the bond portfolio from 2016 to 2023. 

 

I still don't see that as a macro bet.

 

Saying: "we think interest rates will rise so we will keep duration low" is a macro bet.

 

Saying: "the interest we would earn if rates stay low does not compensate us for the duration loss we'd incur if rates rise" is actually macro-agnostic value investing. That's how I have always interpreted Perm's "reach for yield" wording.

 

Not that it matters.

 

 

[petec]

20 hours ago, Viking said:

@Munger_Disciple, thanks for answering my question. 
 

1.) I am more optimistic on the underwriting front. Clearly, the hard market is slowing. But a slowing market is still a pretty good market. Having said that, there also is no one ‘insurance market’ - rather there are many insurance markets (by line of business and geography). Fairfax’s global, diversified footprint will allow them to find profitable niches to grow in. Also importantly, I think there is a good chance reserve releases could surprise to the upside in the coming years. If so, we could see Fairfax’s reported CR not only remain around 95 but actually go lower. 
 

2.) On interest rates, I am in the higher for longer camp. Trump will do everything he can to lower short term rates. But there is a good chance his actions may spook the bond market and send longer term rates higher, giving Fairfax an opportunity to extend their average duration.
 

Regardless, short term rates are coming down because of economic weakness… when the economy picks up my guess is short term rates will move higher again. And if inflation picks up, short term rates could move much higher. 
 

In terms of interest income, two things matter: average interest rate and size of fixed income portfolio. The fixed income portfolio is growing in size by more than 5% per year. At the same time, Fairfax is very conservatively positioned (mostly government bonds). As we learned with the KW/PacWest and Blizzard investments, Fairfax has options to shift part of the portfolio to higher yielding investments. 
 

Bottom line, there will be puts and takes to interest income moving forward. I am not expecting a big move in either direction (down or up) from current levels. 

3.) The non-insurance consolidated bucket of equity holdings is poised to grow in size. Yes, I have been saying this for years. And it is the smallest income stream. But all big things start small.

 

4.) Reinvestment opportunities. There are so many things they can do here to drive incremental earnings/economic value.
 

My guess is they buy out their minority partners in Allied World later in 2025. That will be a significant investment ($1 billion?) at a low price in a great business. Perhaps they take out their minority partner in Odyssey in 2026 ($900 million?). These investments boost the share of net earnings that accrue to Fairfax shareholders. 

5.) Hidden value. I am also of the opinion that Fairfax has been building an enormous amount of hidden value since 2018 in many of their equity holdings. This is a big benefit of all the improvements they have driven into their equity portfolio (dramatically improving its overall quality). Quality equities are compounding machines - but it takes 5 or more years to really notice. We are there (in terms of lots of value already having been created).
 

Excess of FV over CV for non-insurance associate and consolidated holdings is a large and obvious bucket - and it has been growing nicely each year since 2020 and is blowing out in 2025 (due to Eurobank). But there is more examples of hidden value creation at Fairfax than just this bucket of holdings.

 

Fairfax will have a steady flow of large realized gains as it surfaces value from its equity holdings in the coming years. These will boost EPS, BVPS and ROE. When they happen, most investors will be surprised. 
 

Sigma is a good example of this in 2025. My guess is Praktiker will be a small but solid gain - we will find out when Fairfax reports Q3 results. There are many more of these coming in the future… and some really big ones (Eurobank). 

 

6.) Exploiting volatility is in Fairfax’s DNA. My guess is volatility is not dead. And Fairfax will get many opportunities to exploit Mr. Market in the coming years. And now they are all cashed up. Look what they did in 2020/2021/2022 when they were cash poor? 
 

Do I know exactly what they are going to do? No. Do I need to know? No. But when they happen these investments will be needle movers. They are not baked into analysts estimates/expectations of investors. So they are not built into the stock price. Its like getting a really valuable call option for free. 
 

Summary

 

For all the reasons listed above, I do not buy into the ‘cyclically high earnings’ argument. Again, it sounds right/kind of makes sense - and might apply to most P/C insurance companies. I just don’t think it applies to Fairfax today. 

 

The only comment here I disagree with is the one about hard insurance markets. Yes of course there are niches which behave differently, but insurance does definitely go through hard and soft cycles. I have no idea when the next soft market is coming, but it is coming. 

 

Most of the rest I agree with, which is why Fairfax remains a big holding for me. 

[petec]

20 hours ago, Viking said:

I do want to applogize to @petec and @Munger_Disciple for my comment. I like to be edgy… but I think this one crossed the line  

 

I am not sure what you're apologising for but you don't need to!

[petec]

20 hours ago, Munger_Disciple said:

 

I agree there won't be a dramatic reduction in the next couple of quarters but eventually (in roughly 2-3 years) the higher yielding treasuries mature and will be replaced by lower yielding treasuries. 

 

if the insurance market softens and assuming their u/w really improved (which means they will write less business, perhaps significantly so), the float may not grow that much. 

 

+1

[petec]

21 hours ago, TwoCitiesCapital said:

I don't understand what drives the insurance cycle TBH. I was skeptical when people were projecting a multi-year hard market when the world was awash in liquidity - but a few cats and the fastest rate hikes in 50-years blew capital holes in insurer balance sheets and forced prices to rise

 

I think you understand it very well!

 

It's pure capital cycle economics. When capital is abundant and losses are low, rates come down. When capital is less abundant and losses high, rates go up.

 

This is why I think rates drive *both* float income and combined ratios, which has had an outsize impact on FFH's earnings over the last few years.

 

Edited September 25, 2025 by petec

[petec]

21 hours ago, TwoCitiesCapital said:

Fairfax is probably over earnings today, but I don't think it's by a large margin and is at a very reasonable multiple to those earnings that I don't expect much downside even if earnings contract. 

 

+1

[dartmonkey]

17 hours ago, Thrifty3000 said:

If/when FFH reports blowout earnings this year of $175+ thanks to what is looking like a mild year of cat expense, etc (at the end of this week hurricane risk will be about 80% less than it was at the beginning of the season.)

 

AND

 

If FFH aggressively buys back shares at the current price 
 

OR

 

Raises the dividend (unlikely)

 

OR

 

Prem starts going on CNBC at least quarterly to pump FFH (when hell freezes over)

 

THEN 

 

FFH will see an earnings multiple expansion to 12x to 14x.

 

Agree that this seems quite likely, i.e. we might well get $175/share in earnings, and a multiple of 12, putting the USD share price at $2100 (22% up from today) is a reasonably likely outcome. That might be enough to get me to reduce it to 40%of my holdings. 14x might get me down to 30%. 

 

I think aggressive share repurchases are probably helpful; I would argue that some other events might also qualify, like opportunistically selling a gold miner for a huge profit, or finally dumping Blackberry after the recent share price gain, or maybe even more reassuringly, continuing to buy high quality assets (say, Strathcona instead of Lululemon). 

 

BTW, what do you mean by hurricane risk 80% less than at the beginning of the season? Grok says 80% of the risk would be behind us by September 30 (78% of named storms, 80% of hurricanes, 83% of accumulated cyclone energy...) Is this what you mean? 

[petec]

On 9/24/2025 at 12:35 PM, Viking said:

 

@petec, I love it when others disagree with me. I have moved more in your general direction. But I continue to think that Fairfax is a very different company today than it was in 2018. All three parts of the business/organization are making better decisions and as a result the performance of the company is much better:

• Senior management
• P/C insurance
• Investment management

On the investment management front, here is a post that I wrote a while back reviewing many of their large investments from 2014-2017. Boat Rocker could be added to this list. (I didn't discuss large legacy investments like Blackberry and Resolute Forest Products).

 

This list is how Fairfax was thinking and executing on the capital allocation front from 2014 to 2017. It is a shit show. Many of these companies had terrible management. Many had terrible balance sheets (they needed bailouts from Fairfax to keep the lights on). Other large shitty investments like Blackberry and Resolute Forest Products I did not include on my list because they were legacy investments.

 

Now look at Fairfax's collection of equity holdings today. Most of these companies have good/great management. And they have strong balance sheets (the exceptions in recent years were Farmers Edge and Boat Rocker... investments from the 2014 to 2017 vintage). Fairfax has spent the past 7 years fixing all of the problem children. And the new investments made since 2018 have been good to outstanding. 

 

Their hit rate from 2014 to 2017 was terrible (Fairfax India being a notable exception). And Eurobank has transformed into a wonderful investment. Their hit rate on investments made from 2018 to today has been stellar.

 

My view is something changed at around late 2017/early 2018 at Fairfax. They recognized they were not staffed to be a turn around shop. They changed their investment framework. They put a premium on:

• Management quality
• Fiscal responsibility (Fairfax would no longer be a piggy bank for bad businesses).

It has taken Fairfax 7 years of hard work to clean up all of the messes (the Boat Rocker clean-up just happened).

 

My view is there has also been changes in the P/C insurance business. Not as much as what has happened in investment management. A big part of run-off was sold (the good part). Fairfax has reduced its exposure to catastrophes. Reading the book Once and Future C&F I was struck by how long it takes to change an insurance business (more than 5 years). My thesis is Fairfax's insurance business is better today than it was in 2017... I just don't know how to explain it (yet). (And I don't know how much better...)

 

This is really important because - if I am right - we have not seen this version of Fairfax before. 

 

===========

 

 

A Review of 2014 to 2017: Old Fairfax – too many ‘chronically-leaking boats’

 

April 14, 2023

 

 

“My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Some years ago I wrote: “When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” Nothing has since changed my point of view on that matter. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” Warren Buffett – Berkshire Hathaway 1985AR

 

 

Fairfax’s equity portfolio looks very well positioned today. Most of the equity holdings purchased since 2018 have been performing well. And, after years of hard work, the poor performing equity holdings (many purchased from 2014-2017) have largely been fixed and are now performing well. In fact, the equity portfolio looks better positioned today than at any other time in Fairfax’s recent history. We are increasingly seeing the benefits in improved reported results. A good recent example is ‘share of profit of associates,’ which spiked to more than $1 billion in 2022; the previous high was $402 million in 2021.

 

What happened?

 

Three things:

 

1.) Fairfax learned a few important lessons from the poor purchases they made from 2014-2017. It looks me like Fairfax has tweaked the methodologies used when allocating capital.

 

·       They are putting a premium on management. Hamblin Watsa has decided it is not a turn-around shop - looking to actively run poorly lead/challenged businesses. 

·       They are also looking to invest in better balance sheets. Fairfax is no longer a piggy bank for poorly run companies in search of cash. Others on this board have pointed this out.

 

2.) The Fed and the ending of easy money (zero interest rates/QE) is likely a driver of the stronger performance the past two years of Fairfax’s equity holdings. Value investing is back.

 

3.) The timing of the cycle is finally working in Fairfax’s favour and is driving stronger performance of the equity holdings. Value, resource, and commodity stocks appear to be in a secular bull market.

 

At the end of the day, all the above is likely partly responsible for the improvement we have seen in Fairfax's equity holdings in recent years.

 

—————

It can be instructive to look into the past so we can learn. This helps us understand what has been baked into past results. In turn, this can help us understand what might happen in the future.

 

What happened with the purchases from 2014-2017?

 

A total of 10 investments are reviewed below. Fairfax invested a total of about $3.5 billion in these investments over the years. Over the past 8 years my math says Fairfax booked losses of about $1.5 billion on these holdings. That is almost $200 million, on average, each year. For example, in 2022, Fairfax wrote down its investment in Farmers Edge by $133 million. Stuff like that.

 

The bigger cost to shareholders has been the opportunity cost. Prem tells us that Fairfax expects its equity investments to deliver returns of 15% per year. Applying a more modest 10% target, the $3.5 billion in investments (made 2014-2017) should have doubled in value by now to $7 billion. The opportunity cost of the poor investments made from 2014-2017 is likely an additional $2 billion.

 

This is actually a good news post. The good news is:

 

1.     The equity purchases made from 2018 to April 2023, as a group, look very good and are performing well. 

2.     As I will review below, the problem investments from 2014-2017 look like they are not only fixed - they are also poised to deliver solid returns for Fairfax shareholders moving forward. An 8 year-long headwind has now become a tailwind. 

 

As a result, I expect Fairfax’s $16 billion equity portfolio to generate a higher total return (percent and absolute) in the coming years than it has delivered over the last decade. Given its current construction, it could well compound at 12% over the next couple of years = $1.9 billion/year:

• dividends = $120 million
• share of profit of associates = $900 million
• consolidated earnings = $240 million
• mark-to-market investment gains = $650 million (not including fixed income)

—————-

 

Below is a short review of 10 large investments made over the 4 years from 2014-2017.

 

1.) EXCO Resources (2015): Fairfax’s initial investment was $300 million in 2015. We have since learned that shale was a bubble and it eviscerated something like $5 billion in capital up until 2020. Fairfax reported cumulative realized losses of $296 million on EXCO in 2019 (as per the AR).

• Learning: the old economic model for shale was a sham.
• The good news: energy looks like it is in a structural bull market; the new economic model for shale looks good - focussed on shareholder return.

2.) APR (2016): Fairfax invested a total of $462 million in APR in 2016 and 2017. In 2018 they sold it to Atlas for $200 million (in Atlas stock). The first thing Atlas did was replace the CEO.

• Learning: Terrible business. Poorly managed.
• The good news: APR is now Atlas’ problem.

3.) Fairfax Africa (2017): launched with much fanfare in 2017, Fairfax invested a total $476 million. Two short years later Fairfax exited its management of the business and moved the assets to a fund managed by Helios. The value of the Helios fund today is about $100 million. I am not sure what the total financial loss was for Fairfax on this investment, but it was significant. The damage to Fairfax’s reputation was also significant.

• Learning: Hubris on steroids? Terrible idea. Worse execution.
• The good news: Fairfax is partnered with Helios and looks well positioned moving forward in Africa. This is now a small investment for Fairfax.

4.) Farmers Edge (2017): Fairfax invested $159 million in Farmers Edge in 2017. Farmers Edge completed its IPO in 2021 and in the 2021 AR Fairfax said their total investment in Farmers Edge to that point was $376 million. The CEO ‘stepped down’ in April of 2022. In the 2022 AR, Fairfax said Farmer’s Edge had a carrying value of $71 million, after taking a $133 million write down in 2022. The market value of Fairfax stake was $5 million at Dec 31, 2022. My guess is this investment, because it performed so terribly post-IPO, has caused Fairfax some damage to its reputation (given Fairfax was the majority shareholder).

• Learning: Yup, SPAC’s were a bubble.
• The good news: carrying value is $71 million. This is now a small investment for Fairfax.

5.) Eurobank (2014): Fairfax invested $444 million in Eurobank in 2014. This initial investment went to close to zero later that year when the ECB mandated a 1-for-100 reverse share split. What was the problem? Greece was in the midst of a depression. What did Fairfax do? It doubled down and invested another $389 million in Eurobank in 2015. In 2019, Eurobank did a capital raise/merger with Grivalia. Greece elected a pro-business government in 2018. Eurobank fixed its balance sheet.

• Learning: Because the strategy worked in Ireland doesn’t mean it would work in Greece.
• The good news: Greece’s economy is well positioned. Eurobank, always well managed, is executing well and earnings are spiking. Share of profit of associates was $263 million in 2022, up from $162 million in 2021. Prem estimated Eurobank could earn €0.20/share in 2023; if so, Fairfax’s share of profits for Eurobank could be +$300 million in 2023. This investment is turning into a home run for Fairfax - a Greek tragedy turns to a triumph!

6.) AGT (2017): Fairfax invested $148 million in AGT in 2017. In 2019, as AGT was experiencing financial difficulties, Fairfax took AGT private, spending another $227 million (I think).

• Learning: It takes much more than a dynamic Canadian founder to succeed.
• The good news: from 2022 Fairfax AR: “AGT, run by founder and CEO Murad Al-Katib, had a record year in 2022, with EBITDA of over Cdn$150 million. This is a dramatic improvement from the time of the take-private transaction almost four years ago when the business was generating slightly over Cdn$60 million in EBITDA… Fairfax has an approximate 60% stake in AGT.”

7.) Commercial Industrial Bank (CIB) Egypt (2014): Fairfax invested $330 million in CIB in 2014. Today the position is worth about $240 million. Great company. Solid management. What is the problem? Egypt’s economy has been a slow-moving train wreck for decades - with constant currency devaluations.

• Learning: Constant currency devaluations (like 50% in the last year) hurt equity values.
• The good news: the bank is well managed.

8.) Mosaic Capital (2017): Fairfax invested $116 million in Mosaic in 2017. In 2021, Mosaic was taken private (not by Fairfax) with Fairfax owning 20% of the new investment. This investment went sideways for many years (that opportunity cost thing).

• Learning: not every investment you make is going to work out.
• The good news: Fairfax found a partner where Mosaic will hopefully be a better fit. 

9.) Recipe/CARA (2014 & 2016): Fairfax made a couple of restaurant investments from 2014-2017: $77 million in the Keg in 2014 (merged with CARA in 2018) and $100 million in the CARA capital raise in $2016. Recipe/CARA was a poor investment for minority shareholders over its lifetime.

• Learning: the restaurant business in Canada is a tough business. Consolidating it proved to be even tougher.
• The good news: In the take private deal in 2022, Fairfax purchased Recipe at a Covid-low price. Recipe has a solid collection of assets that should be able to produce a solid amount of free cash flow for Fairfax moving forward.

10.) Astarta (2017): Fairfax invested $104 million in Astarta in 2017. Today that investment is worth around $45 million. I know very little about this investment. I wonder if it is not a similar situation to CIB, with opportunity cost being the big issue.

 

Honorable mention: Torstar was initiated as a position before 2014 so I did not include it. However, Fairfax added to its position in 2014, 2016 and 2017 (yes, small amounts). In 2020 it sold the business and booked a $52 million loss.

 

I see lots of self-inflicted wounds in the investments listed above – reading the list reminds me of the Monty Python skit “tis but a scratch".

 

 

 

 

Viking, I think this proves my point as much as it does yours. Of the 10 investments you review Fairfax has got rid of two (APR and Mosaic). One is a star performer today (Eurobank). Two more are performing reasonably well (Recipe, AGT). Two more are significant but rapidly becoming smaller as the portfolio grows (EXCO, CIB). Two may yet come good (Helios and Astarta, which I too know little about).

 

Have recent investments produced much higher IRRs than the ones made in 2014-17? Yes. Is that because Fairfax have completely revamped their approach? I doubt it. I am sure they have refined it, but it is not transformed. I think there is a degree of randomness here. They've had great patches before, and are in one now. They've had soft patches before, and I suspect they'll have them in the future too.

[TwoCitiesCapital]

26 minutes ago, petec said:

 

I still don't see that as a macro bet.

 

Saying: "we think interest rates will rise so we will keep duration low" is a macro bet.

 

Saying: "the interest we would earn if rates stay low does not compensate us for the duration loss we'd incur if rates rise" is actually macro-agnostic value investing. That's how I have always interpreted Perm's "reach for yield" wording.

 

Not that it matters.

 

 

 

If this was purely cash in the bank, I'd agree with you. But having liabilities against it that have a certain inflation/growth premium inherent within them means that default positioning isn't zero rate exposure but matching your liabilities'.

 

They were intentionally well under their liability duration for years and shareholders carried those implicit and explicit costs for years. It ended up working out for them... because macro conditions forced the fastest rate hiking cycle in 50-years six whole years after they made the bet. Had it not been for that 2021 explosion in inflation expectations, they'd still be far behind the ball having under earned for most of the last 10-years. This further supports it was a macro bet since it took a macro event for it to work. 

 

 

14 minutes ago, petec said:

 

I think you understand it very well!

 

It's pure capital cycle economics. When capital is abundant and losses are low, rates come down. When capital is less abundant and losses high, rates go up.

 

This is why I think rates drive *both* float income and combined ratios, which has had an outsize impact on FFH's earnings over the last few years.

 

 

It seems that simple, and yet people were calling for an extended hard market long before rates blew up so maybe they/Fairfax just got lucky? 

 

I was skeptical until year 2-3 of it and still don't have any confidence in my ability to predict the turn. I'd have expected all sorts of capital abundance pouring in from insurance linked notes/securities at this point with how much money is flowing to everything else on the planet....and yet pricing is still strong and projected to remain so...

[Hamburg Investor]

That’s a fascinating discussion here within the last days about normal earnings, cyclical adjusted earnings etc. Thank you, I learned a lot again! I would have to add something to that discussion too, but when writing I came out with another related topic.

I would like to add a different perspective to the question and widen it to how Fairfax might perform in the further future. So please let me highlight a rather simple and even simplified analyses regarding:

"What can Fairfax deliver as a return over the next 20 years?"

 

To me, I find that question easier to answer, than the question of how we got there. Will it start with a bad insurance market, or will that happen in the middle or only at the end of such a 20 year timeframe? I just don’t know. Will we experience a spectacular stock market crash in the next five years or only in 20 years? I have no clue. Will we see a collapse or rise in bond returns, or will they remain relatively stable for 25 years („stable“ would be totally ahistoric)? How many hard markets are there to come within the next 20 years? Wild things happen all the time, and hardly anyone sees them coming. But they happen, and suddenly you (at least: me) are completely off track. In any case, I know what I don't know: Exactly that!

 

So, what’s the bigger picture? Is there anything else, how we could get an idea, where Fairfax might stand in 20 years?
 

First, we could ask: Will Fairfax Financial outperform the market? Are there arguments for such a scenario and which?

To get to an answer, we could first have a look to the structure of Fairfax. And we even widen it, as the same structure could be found at some other companies. If the structure is good, it should not only have helped Fairfax, right? So we widen that view and ask, which structure helped Berkshire, Markel and Fairfax to beat the market? Let’s call them Berkalikes even though the original is included, but I don’t have any better idea. What are the ingredients, that give an edge to them beating the market historically?

 

In - I think - a lot of peoples eyes, the Berkalikes are having structural advantages over all other companies. There are more, but within the framing of this ongoing discussion here about the future performance of Fairfax, the following points might stand out:

1. They are value investors from Graham and Doddsville.
2. They always try to find new investment opportunities and don’t limit themselves. So they are not bound to any industry, but are able to invest into other areas. 
3. They focus on the long-term results, backed by their shareholders (as opposed to quarterly focus; Markel may have a disadvantage in this regard) 
4. They are focussing on low combined ratios (instead of focus on growth; that perspective is rather „new“ to Fairfax, as they weren’t focussing that topic before 2011; and it‘s combined with argument 3 – you need a longterm focus; at least, that helps reaching this goal)
5. They achieve higher returns from float by investing a more significant portion of assets into equity than other insurers.
6. (plus culture …)

 

So these are more or less the main ingredients helping the Berkalikes to beat the market. But by how much have they beaten the market on average?

 

Maybe we find something helpful, if we look back? Together Berkshire, Markel and Fairfax have a combined stock market history of around 140 years: Markel and Fairfax have "only" 40 years, Berkshire 60 years (now the "youngsters" ar e two thirds of the original btw). What were the ROEs of these companies when viewed individually? Over a 40/60-year period, the CAGR of ROEs all range between 15% (Markel) and 20% (Berkshire), with Fairfax around 19%. So the average ROE of the Berkalikes over this time period should be around 18% and Fairfax is slightly above that.

 

As a group it stands out, that although very different in terms of the concrete ingredients (e. g. Fairfax focussing on a Greek bank, Indian Airports and a TRS on itself; while BRK invests into Apple and Railway and Energy and Markel into BRK etc.), the outcome is big and fantastic in each case.

 

They are all within the best percent of all stocks in their country over their own history (I think BRK and Fairfax are even in the absolute Top 10 of the thousands of stocks within American/ Canadian stock markets and BRK made even the best?). Each on its own and combined over 140 years. Mathematically this can’t be a coincidence. So we found out: The structure laid out above gives an edge to companies (Okay, I haven't proven, that the structure led to the outperformance, but there is an edge).

 

Okay, but what can be expected for the future? If history is any guide, than the 15% to 20% CAGR they performed would be a good starting point to think of.

 

But maybe we could narrow that? Yes, there’s more: Prem himself addresses this topic when he puts a return of 15% in the shop window; at the same time building in a margin of safety to what has been achieved (namely the 19% CAGR). Would Prem put 15% in the shop window if he assumed that 15% would be really hard to achieve? Everyone has to answer that for themselves. But I don't think so. Will it be easy to outperform the market by the same percentage (so 19%) with a larger company than historically and even larger in the future? I don't think so either, even though there are many positive developments. 

 

What is the bottom line? I find few arguments in favour of Fairfax achieving an average CAGR of less than 15% over 20 years in terms of ROE; Prem would be really crushed. An average share price return below a CAGR of 15% (dividends reinvested, calculated without taxes) is even less likely counting in the low valuation: after all, there is currently a significant undervaluation with a P/E ratio of less than 10 and it could go up significantly. The historical 19% is certainly unlikely to be achieved; in any case, that would be too little margin of safety for me. What remains? A CAGR of 16% including dividends can hardly be considered wildly ambitious, and 17% or even 18% if things go really well.

 

According to the rule of 72, 15% would be a doubling every 5 years and 18% every 4 years. Anything in between would therefore be reasonable. In other words, a multiple of 16 or 32 over 20 years on the capital invested today. 

 

From the perspective of a private investor, that's enough of a forecast for me. And I'll be happy even if it's only a factor of 8. Especially since Fairfax is extremely secure and not dependent on any one industry. I see Fairfax more as a holding company that is diversified across a wide range of businesses, industries and geographies, with "relatively secure" leverage. A Greek bank. Shipping containers. A cat insurer (oh no, not that anymore... ;-)). An Indian airport. A company that is paid to hold float (as long as the CR is below 100) and a company that is paid to invest other peoples money in India.

 

[73 Reds]

6 minutes ago, Hamburg Investor said:

That’s a fascinating discussion here within the last days about normal earnings, cyclical adjusted earnings etc. Thank you, I learned a lot again! I would have to add something to that discussion too, but when writing I came out with another related topic.

I would like to add a different perspective to the question and widen it to how Fairfax might perform in the further future. So please let me highlight a rather simple and even simplified analyses regarding:

"What can Fairfax deliver as a return over the next 20 years?"

 

To me, I find that question easier to answer, than the question of how we got there. Will it start with a bad insurance market, or will that happen in the middle or only at the end of such a 20 year timeframe? I just don’t know. Will we experience a spectacular stock market crash in the next five years or only in 20 years? I have no clue. Will we see a collapse or rise in bond returns, or will they remain relatively stable for 25 years („stable“ would be totally ahistoric)? How many hard markets are there to come within the next 20 years? Wild things happen all the time, and hardly anyone sees them coming. But they happen, and suddenly you (at least: me) are completely off track. In any case, I know what I don't know: Exactly that!

 

So, what’s the bigger picture? Is there anything else, how we could get an idea, where Fairfax might stand in 20 years?
 

First, we could ask: Will Fairfax Financial outperform the market? Are there arguments for such a scenario and which?

To get to an answer, we could first have a look to the structure of Fairfax. And we even widen it, as the same structure could be found at some other companies. If the structure is good, it should not only have helped Fairfax, right? So we widen that view and ask, which structure helped Berkshire, Markel and Fairfax to beat the market? Let’s call them Berkalikes even though the original is included, but I don’t have any better idea. What are the ingredients, that give an edge to them beating the market historically?

 

In - I think - a lot of peoples eyes, the Berkalikes are having structural advantages over all other companies. There are more, but within the framing of this ongoing discussion here about the future performance of Fairfax, the following points might stand out:

1. They are value investors from Graham and Doddsville.
2. They always try to find new investment opportunities and don’t limit themselves. So they are not bound to any industry, but are able to invest into other areas. 
3. They focus on the long-term results, backed by their shareholders (as opposed to quarterly focus; Markel may have a disadvantage in this regard) 
4. They are focussing on low combined ratios (instead of focus on growth; that perspective is rather „new“ to Fairfax, as they weren’t focussing that topic before 2011; and it‘s combined with argument 3 – you need a longterm focus; at least, that helps reaching this goal)
5. They achieve higher returns from float by investing a more significant portion of assets into equity than other insurers.
6. (plus culture …)

 

So these are more or less the main ingredients helping the Berkalikes to beat the market. But by how much have they beaten the market on average?

 

Maybe we find something helpful, if we look back? Together Berkshire, Markel and Fairfax have a combined stock market history of around 140 years: Markel and Fairfax have "only" 40 years, Berkshire 60 years (now the "youngsters" ar e two thirds of the original btw). What were the ROEs of these companies when viewed individually? Over a 40/60-year period, the CAGR of ROEs all range between 15% (Markel) and 20% (Berkshire), with Fairfax around 19%. So the average ROE of the Berkalikes over this time period should be around 18% and Fairfax is slightly above that.

 

As a group it stands out, that although very different in terms of the concrete ingredients (e. g. Fairfax focussing on a Greek bank, Indian Airports and a TRS on itself; while BRK invests into Apple and Railway and Energy and Markel into BRK etc.), the outcome is big and fantastic in each case.

 

They are all within the best percent of all stocks in their country over their own history (I think BRK and Fairfax are even in the absolute Top 10 of the thousands of stocks within American/ Canadian stock markets and BRK made even the best?). Each on its own and combined over 140 years. Mathematically this can’t be a coincidence. So we found out: The structure laid out above gives an edge to companies (Okay, I haven't proven, that the structure led to the outperformance, but there is an edge).

 

Okay, but what can be expected for the future? If history is any guide, than the 15% to 20% CAGR they performed would be a good starting point to think of.

 

But maybe we could narrow that? Yes, there’s more: Prem himself addresses this topic when he puts a return of 15% in the shop window; at the same time building in a margin of safety to what has been achieved (namely the 19% CAGR). Would Prem put 15% in the shop window if he assumed that 15% would be really hard to achieve? Everyone has to answer that for themselves. But I don't think so. Will it be easy to outperform the market by the same percentage (so 19%) with a larger company than historically and even larger in the future? I don't think so either, even though there are many positive developments. 

 

What is the bottom line? I find few arguments in favour of Fairfax achieving an average CAGR of less than 15% over 20 years in terms of ROE; Prem would be really crushed. An average share price return below a CAGR of 15% (dividends reinvested, calculated without taxes) is even less likely counting in the low valuation: after all, there is currently a significant undervaluation with a P/E ratio of less than 10 and it could go up significantly. The historical 19% is certainly unlikely to be achieved; in any case, that would be too little margin of safety for me. What remains? A CAGR of 16% including dividends can hardly be considered wildly ambitious, and 17% or even 18% if things go really well.

 

According to the rule of 72, 15% would be a doubling every 5 years and 18% every 4 years. Anything in between would therefore be reasonable. In other words, a multiple of 16 or 32 over 20 years on the capital invested today. 

 

From the perspective of a private investor, that's enough of a forecast for me. And I'll be happy even if it's only a factor of 8. Especially since Fairfax is extremely secure and not dependent on any one industry. I see Fairfax more as a holding company that is diversified across a wide range of businesses, industries and geographies, with "relatively secure" leverage. A Greek bank. Shipping containers. A cat insurer (oh no, not that anymore... ;-)). An Indian airport. A company that is paid to hold float (as long as the CR is below 100) and a company that is paid to invest other peoples money in India.

 

@Hamburg Investor excellent post!  For my $ it is far more important to be directionally correct over the long run than precisely correct about any single investment or cycle in the short term.

[mananainvesting]

7 hours ago, Hamburg Investor said:

That’s a fascinating discussion here within the last days about normal earnings, cyclical adjusted earnings etc. Thank you, I learned a lot again! I would have to add something to that discussion too, but when writing I came out with another related topic.

I would like to add a different perspective to the question and widen it to how Fairfax might perform in the further future. So please let me highlight a rather simple and even simplified analyses regarding:

"What can Fairfax deliver as a return over the next 20 years?"

 

To me, I find that question easier to answer, than the question of how we got there. Will it start with a bad insurance market, or will that happen in the middle or only at the end of such a 20 year timeframe? I just don’t know. Will we experience a spectacular stock market crash in the next five years or only in 20 years? I have no clue. Will we see a collapse or rise in bond returns, or will they remain relatively stable for 25 years („stable“ would be totally ahistoric)? How many hard markets are there to come within the next 20 years? Wild things happen all the time, and hardly anyone sees them coming. But they happen, and suddenly you (at least: me) are completely off track. In any case, I know what I don't know: Exactly that!

 

So, what’s the bigger picture? Is there anything else, how we could get an idea, where Fairfax might stand in 20 years?
 

First, we could ask: Will Fairfax Financial outperform the market? Are there arguments for such a scenario and which?

To get to an answer, we could first have a look to the structure of Fairfax. And we even widen it, as the same structure could be found at some other companies. If the structure is good, it should not only have helped Fairfax, right? So we widen that view and ask, which structure helped Berkshire, Markel and Fairfax to beat the market? Let’s call them Berkalikes even though the original is included, but I don’t have any better idea. What are the ingredients, that give an edge to them beating the market historically?

 

In - I think - a lot of peoples eyes, the Berkalikes are having structural advantages over all other companies. There are more, but within the framing of this ongoing discussion here about the future performance of Fairfax, the following points might stand out:

1. They are value investors from Graham and Doddsville.
2. They always try to find new investment opportunities and don’t limit themselves. So they are not bound to any industry, but are able to invest into other areas. 
3. They focus on the long-term results, backed by their shareholders (as opposed to quarterly focus; Markel may have a disadvantage in this regard) 
4. They are focussing on low combined ratios (instead of focus on growth; that perspective is rather „new“ to Fairfax, as they weren’t focussing that topic before 2011; and it‘s combined with argument 3 – you need a longterm focus; at least, that helps reaching this goal)
5. They achieve higher returns from float by investing a more significant portion of assets into equity than other insurers.
6. (plus culture …)

 

So these are more or less the main ingredients helping the Berkalikes to beat the market. But by how much have they beaten the market on average?

 

Maybe we find something helpful, if we look back? Together Berkshire, Markel and Fairfax have a combined stock market history of around 140 years: Markel and Fairfax have "only" 40 years, Berkshire 60 years (now the "youngsters" ar e two thirds of the original btw). What were the ROEs of these companies when viewed individually? Over a 40/60-year period, the CAGR of ROEs all range between 15% (Markel) and 20% (Berkshire), with Fairfax around 19%. So the average ROE of the Berkalikes over this time period should be around 18% and Fairfax is slightly above that.

 

As a group it stands out, that although very different in terms of the concrete ingredients (e. g. Fairfax focussing on a Greek bank, Indian Airports and a TRS on itself; while BRK invests into Apple and Railway and Energy and Markel into BRK etc.), the outcome is big and fantastic in each case.

 

They are all within the best percent of all stocks in their country over their own history (I think BRK and Fairfax are even in the absolute Top 10 of the thousands of stocks within American/ Canadian stock markets and BRK made even the best?). Each on its own and combined over 140 years. Mathematically this can’t be a coincidence. So we found out: The structure laid out above gives an edge to companies (Okay, I haven't proven, that the structure led to the outperformance, but there is an edge).

 

Okay, but what can be expected for the future? If history is any guide, than the 15% to 20% CAGR they performed would be a good starting point to think of.

 

But maybe we could narrow that? Yes, there’s more: Prem himself addresses this topic when he puts a return of 15% in the shop window; at the same time building in a margin of safety to what has been achieved (namely the 19% CAGR). Would Prem put 15% in the shop window if he assumed that 15% would be really hard to achieve? Everyone has to answer that for themselves. But I don't think so. Will it be easy to outperform the market by the same percentage (so 19%) with a larger company than historically and even larger in the future? I don't think so either, even though there are many positive developments. 

 

What is the bottom line? I find few arguments in favour of Fairfax achieving an average CAGR of less than 15% over 20 years in terms of ROE; Prem would be really crushed. An average share price return below a CAGR of 15% (dividends reinvested, calculated without taxes) is even less likely counting in the low valuation: after all, there is currently a significant undervaluation with a P/E ratio of less than 10 and it could go up significantly. The historical 19% is certainly unlikely to be achieved; in any case, that would be too little margin of safety for me. What remains? A CAGR of 16% including dividends can hardly be considered wildly ambitious, and 17% or even 18% if things go really well.

 

According to the rule of 72, 15% would be a doubling every 5 years and 18% every 4 years. Anything in between would therefore be reasonable. In other words, a multiple of 16 or 32 over 20 years on the capital invested today. 

 

From the perspective of a private investor, that's enough of a forecast for me. And I'll be happy even if it's only a factor of 8. Especially since Fairfax is extremely secure and not dependent on any one industry. I see Fairfax more as a holding company that is diversified across a wide range of businesses, industries and geographies, with "relatively secure" leverage. A Greek bank. Shipping containers. A cat insurer (oh no, not that anymore... ;-)). An Indian airport. A company that is paid to hold float (as long as the CR is below 100) and a company that is paid to invest other peoples money in India.

 

 

 

Good discussion and I agree. 

 

The company's structure is such a huge advantage, that in itself should command a premium. Long Term thinking, Merit based, no hire during boom and fire during downturn!, Patience and every employee knows the company will never be for sale, so they can truly do good work and leave a legacy! how many such places in the world ? 
 

[Txvestor]

11 hours ago, Hamburg Investor said:

That’s a fascinating discussion here within the last days about normal earnings, cyclical adjusted earnings etc. Thank you, I learned a lot again! I would have to add something to that discussion too, but when writing I came out with another related topic.

I would like to add a different perspective to the question and widen it to how Fairfax might perform in the further future. So please let me highlight a rather simple and even simplified analyses regarding:

"What can Fairfax deliver as a return over the next 20 years?"

 

To me, I find that question easier to answer, than the question of how we got there. Will it start with a bad insurance market, or will that happen in the middle or only at the end of such a 20 year timeframe? I just don’t know. Will we experience a spectacular stock market crash in the next five years or only in 20 years? I have no clue. Will we see a collapse or rise in bond returns, or will they remain relatively stable for 25 years („stable“ would be totally ahistoric)? How many hard markets are there to come within the next 20 years? Wild things happen all the time, and hardly anyone sees them coming. But they happen, and suddenly you (at least: me) are completely off track. In any case, I know what I don't know: Exactly that!

 

So, what’s the bigger picture? Is there anything else, how we could get an idea, where Fairfax might stand in 20 years?
 

First, we could ask: Will Fairfax Financial outperform the market? Are there arguments for such a scenario and which?

To get to an answer, we could first have a look to the structure of Fairfax. And we even widen it, as the same structure could be found at some other companies. If the structure is good, it should not only have helped Fairfax, right? So we widen that view and ask, which structure helped Berkshire, Markel and Fairfax to beat the market? Let’s call them Berkalikes even though the original is included, but I don’t have any better idea. What are the ingredients, that give an edge to them beating the market historically?

 

In - I think - a lot of peoples eyes, the Berkalikes are having structural advantages over all other companies. There are more, but within the framing of this ongoing discussion here about the future performance of Fairfax, the following points might stand out:

1. They are value investors from Graham and Doddsville.
2. They always try to find new investment opportunities and don’t limit themselves. So they are not bound to any industry, but are able to invest into other areas. 
3. They focus on the long-term results, backed by their shareholders (as opposed to quarterly focus; Markel may have a disadvantage in this regard) 
4. They are focussing on low combined ratios (instead of focus on growth; that perspective is rather „new“ to Fairfax, as they weren’t focussing that topic before 2011; and it‘s combined with argument 3 – you need a longterm focus; at least, that helps reaching this goal)
5. They achieve higher returns from float by investing a more significant portion of assets into equity than other insurers.
6. (plus culture …)

 

So these are more or less the main ingredients helping the Berkalikes to beat the market. But by how much have they beaten the market on average?

 

Maybe we find something helpful, if we look back? Together Berkshire, Markel and Fairfax have a combined stock market history of around 140 years: Markel and Fairfax have "only" 40 years, Berkshire 60 years (now the "youngsters" ar e two thirds of the original btw). What were the ROEs of these companies when viewed individually? Over a 40/60-year period, the CAGR of ROEs all range between 15% (Markel) and 20% (Berkshire), with Fairfax around 19%. So the average ROE of the Berkalikes over this time period should be around 18% and Fairfax is slightly above that.

 

As a group it stands out, that although very different in terms of the concrete ingredients (e. g. Fairfax focussing on a Greek bank, Indian Airports and a TRS on itself; while BRK invests into Apple and Railway and Energy and Markel into BRK etc.), the outcome is big and fantastic in each case.

 

They are all within the best percent of all stocks in their country over their own history (I think BRK and Fairfax are even in the absolute Top 10 of the thousands of stocks within American/ Canadian stock markets and BRK made even the best?). Each on its own and combined over 140 years. Mathematically this can’t be a coincidence. So we found out: The structure laid out above gives an edge to companies (Okay, I haven't proven, that the structure led to the outperformance, but there is an edge).

 

Okay, but what can be expected for the future? If history is any guide, than the 15% to 20% CAGR they performed would be a good starting point to think of.

 

But maybe we could narrow that? Yes, there’s more: Prem himself addresses this topic when he puts a return of 15% in the shop window; at the same time building in a margin of safety to what has been achieved (namely the 19% CAGR). Would Prem put 15% in the shop window if he assumed that 15% would be really hard to achieve? Everyone has to answer that for themselves. But I don't think so. Will it be easy to outperform the market by the same percentage (so 19%) with a larger company than historically and even larger in the future? I don't think so either, even though there are many positive developments. 

 

What is the bottom line? I find few arguments in favour of Fairfax achieving an average CAGR of less than 15% over 20 years in terms of ROE; Prem would be really crushed. An average share price return below a CAGR of 15% (dividends reinvested, calculated without taxes) is even less likely counting in the low valuation: after all, there is currently a significant undervaluation with a P/E ratio of less than 10 and it could go up significantly. The historical 19% is certainly unlikely to be achieved; in any case, that would be too little margin of safety for me. What remains? A CAGR of 16% including dividends can hardly be considered wildly ambitious, and 17% or even 18% if things go really well.

 

According to the rule of 72, 15% would be a doubling every 5 years and 18% every 4 years. Anything in between would therefore be reasonable. In other words, a multiple of 16 or 32 over 20 years on the capital invested today. 

 

From the perspective of a private investor, that's enough of a forecast for me. And I'll be happy even if it's only a factor of 8. Especially since Fairfax is extremely secure and not dependent on any one industry. I see Fairfax more as a holding company that is diversified across a wide range of businesses, industries and geographies, with "relatively secure" leverage. A Greek bank. Shipping containers. A cat insurer (oh no, not that anymore... ;-)). An Indian airport. A company that is paid to hold float (as long as the CR is below 100) and a company that is paid to invest other peoples money in India.

 

While true using the 140yrs combined average. An intriguing part is when viewed in the last 15yrs or more or less post GFC, that's a combined 45 of those 140yrs and the average across all 3 has been a much more modest 8-10% number, still decent but not spectacular. I don't think that's attributable to any of them specifically but a number of other factors contributing to that. A couple I can think of are depressed yields on fixed income(compared to historic norms), a market that hasn't rewarded value based investing but more focussed on growth, some poor macro bets in Fairfax's case, and poor insurance growth at MKL etc. Either way my point is some of this maybe structural and I would not say 16-17% PA is likely over the next 20yrs. Although I would be thrilled if so were wrong. 

[Hamburg Investor]

1 hour ago, Txvestor said:

While true using the 140yrs combined average. An intriguing part is when viewed in the last 15yrs or more or less post GFC, that's a combined 45 of those 140yrs and the average across all 3 has been a much more modest 8-10% number, still decent but not spectacular. I don't think that's attributable to any of them specifically but a number of other factors contributing to that. A couple I can think of are depressed yields on fixed income(compared to historic norms), a market that hasn't rewarded value based investing but more focussed on growth, some poor macro bets in Fairfax's case, and poor insurance growth at MKL etc. Either way my point is some of this maybe structural and I would not say 16-17% PA is likely over the next 20yrs. Although I would be thrilled if so were wrong. 

I completely agree with you. Growth rates were weaker, and for the reasons you mentioned.
 

In my view, the fact that all three performed poorly shows that it was due to these external factors. The insurance business was extremely negative: there was a soft market for a long time. And yields were lower than almost ever before. This combination is, of course, a nightmare scenario for insurers.
 

Has there been anything similarly bad for insurers in the last 100 years as a basis and starting point? I don't think so. For insurers, these were extreme years, and on top of that for value investors from Graham and Doddsville too. Moats were easier to attack because of cheap money.

 

I agree with you: 16% seems like a lot. But my (and your?) feeling is certainly based on the experience of the last 15 years.

 

You can also approach the topic differently: by comparing the multiple of the insurance business in relation to equity.
 

In the case of Fairfax in particular, this reveals enormous potential. This is certainly different (lower potential!) at Berkshire and, to some extent, at Markel.

I also agree with @Viking in that Fairfax's combined ratio will be better in the long term lookibg ahead than it was historically in the very good years. That is a major lever! Fairfax was able to deliver a CAGR of 19% although it had mediocre Combined ratios.

 

And here’s another argument: Begore the very bad years with low yields etc. The track record of the Berkalikes was way better and in the 20ies percentages. I am not sure, but wasn‘t it lile 25% for Fairfax before the Voldemort years? In light of this comparison 16% looks not really ambitious. I mean: Isn‘t 11% Roe the average  of all Americsn Companies over the very longterm? 26% was 15% sbove that, while 16% is just a third of that.

 

Anyway: Together with "normal" treasury yields, predominantly good equity decisions and the value approach (which will not deliver significantly worse results than the growth approach in the long term; there are always ups and downs), I consider 16% to be possible. Less if conditions remain poor for Fairfax and Co; but also better if historically particularly good conditions arise.

 

For me, the opposite of the 2010s would be the period of high inflation in the 1970s and 1980s: back then, you could get a high return on both premiums. But stock market valuations were also many times lower than they are today. In other words, purchase prices. That were Berkshires best years; and those are underrepresented in the 140 years analogy, as Gairfax and Markels track record just start at the end of the good years.

 

I think the potential of the structure gets visible in the fact, where those Berkalikes stand in comparison to all other stocks. It just doesn’t feel like this could could shrink to an outperformence of e. g. 2% over the market (so 13%).

 

[73 Reds]

12 minutes ago, Hamburg Investor said:

I completely agree with you. Growth rates were weaker, and for the reasons you mentioned.
 

In my view, the fact that all three performed poorly shows that it was due to these external factors. The insurance business was extremely negative: there was a soft market for a long time. And yields were lower than almost ever before. This combination is, of course, a nightmare scenario for insurers.
 

Has there been anything similarly bad for insurers in the last 100 years as a basis and starting point? I don't think so. For insurers, these were extreme years, and on top of that for value investors from Graham and Doddsville too. Moats were easier to attack because of cheap money.

 

I agree with you: 16% seems like a lot. But my (and your?) feeling is certainly based on the experience of the last 15 years.

 

You can also approach the topic differently: by comparing the multiple of the insurance business in relation to equity.
 

In the case of Fairfax in particular, this reveals enormous potential. This is certainly different (lower potential!) at Berkshire and, to some extent, at Markel.

I also agree with @Viking in that Fairfax's combined ratio will be better in the long term lookibg ahead than it was historically in the very good years. That is a major lever! Fairfax was able to deliver a CAGR of 19% although it had mediocre Combined ratios.

 

And here’s another argument: Begore the very bad years with low yields etc. The track record of the Berkalikes was way better and in the 20ies percentages. I am not sure, but wasn‘t it lile 25% for Fairfax before the Voldemort years? In light of this comparison 16% looks not really ambitious. I mean: Isn‘t 11% Roe the average  of all Americsn Companies over the very longterm? 26% was 15% sbove that, while 16% is just a third of that.

 

Anyway: Together with "normal" treasury yields, predominantly good equity decisions and the value approach (which will not deliver significantly worse results than the growth approach in the long term; there are always ups and downs), I consider 16% to be possible. Less if conditions remain poor for Fairfax and Co; but also better if historically particularly good conditions arise.

 

For me, the opposite of the 2010s would be the period of high inflation in the 1970s and 1980s: back then, you could get a high return on both premiums. But stock market valuations were also many times lower than they are today. In other words, purchase prices. That were Berkshires best years; and those are underrepresented in the 140 years analogy, as Gairfax and Markels track record just start at the end of the good years.

 

I think the potential of the structure gets visible in the fact, where those Berkalikes stand in comparison to all other stocks. It just doesn’t feel like this could could shrink to an outperformence of e. g. 2% over the market (so 13%).

 

In the 2010s BRK did just fine even while its universe of investments was shrinking and folks were complaining that Buffett had lost it.  In any event who wouldn't be happy with 13%/year over 20 years with almost no tax consequences?  Or is everyone now an investment genius?

[Hoodlum]

Fairfax is now taking out the Preferred Series I, J and K.  

 

https://www.fairfax.ca/press-releases/intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-2025-09-26/

[Hoodlum]

10 minutes ago, Hoodlum said:

Fairfax is now taking out the Preferred Series I, J and K.  

 

https://www.fairfax.ca/press-releases/intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-2025-09-26/

 

I just noticed the following additional announcement at the end of this press release.

 

Fairfax also announces that it has entered into an automatic share purchase plan (the “ASPP”) with a designated broker to allow for the purchase of its Subordinate Voting Shares and each series of its Preferred Shares under the NCIB at times when Fairfax normally would not be active in the market due to applicable regulatory restrictions or internal trading black-out periods. Before the commencement of any particular internal trading black-out period, Fairfax may, but is not required to, instruct its designated broker to make purchases of Subordinate Voting Shares and/or Preferred Shares under the NCIB during the ensuing black-out period in accordance with the terms of the ASPP. Such purchases will be determined by the broker in its sole discretion based on parameters established by Fairfax prior to commencement of the applicable black-out period in accordance with the terms of the ASPP and applicable TSX rules. Outside of these black-out periods, Subordinate Voting Shares and Preferred Shares will be purchasable by Fairfax at its discretion under its NCIB.

 

The ASPP is effective as of September 30, 2025 and will terminate on the earliest of the date on which: (a) the maximum annual purchase limit in respect of the Subordinate Voting Shares and each series of Preferred Shares under the NCIB has been reached; (b) the NCIB expires; or (c) Fairfax terminates the ASPP in accordance with its terms. The ASPP constitutes an “automatic securities purchase plan” under applicable Canadian securities laws.

[djokovic1]

I think the announcement of the NCIB is pretty big news on how undervalued FFH management thinks their share price is relative to their earnings power. This allows them to be in the market daily as it's managed externally even if they are in blackout etc. To me it shows they feel their shares are very undervalued and they want to get their hands on as many as they can at these prices.

 

Good debate / discussion with @petec and @Viking, it makes for a better board discussion! I personally see the current price as extremely cheap relative to earnings power (similar to Viking) and similar to FFH management. I think the capital allocation is structurally different today, the main change being the move away from hedging (amongst other things as Viking has pointed out). Structurally low interest rates would be my biggest concern (although I doubt we see a repeat of zero rates), which is why I would love to see them extend the duration of their book at current rates. Also @Hamburg Investor point of zooming out to a 20 year view is very useful, and then the macro considerations matter much less. They key question becomes do you trust their capital allocation and alignment.

 

"Fairfax is making this NCIB because it believes that in appropriate circumstances its Subordinate Voting Shares and Preferred Shares represent an attractive investment opportunity and that, with respect to the Subordinate Voting Shares, purchases under the bid will enhance the value of the Subordinate Voting Shares held by the remaining shareholders."

 

They other aspect that doesn't get talked about enough is that with the earnings they have locked in (the fixed income side) for the next 3 years, they will continue to grow sustainable EPS by buying more businesses (public and private), growing insurance premium and reducing share count. Which will compensate for lower interest rates if it does happen. So in my view the downside of earnings power going down meaningfully is low.

Edited September 26, 2025 by djokovic1

[Junior R]

6 minutes ago, Hoodlum said:

 

I just noticed the following additional announcement at the end of this press release.

 

Fairfax also announces that it has entered into an automatic share purchase plan (the “ASPP”) with a designated broker to allow for the purchase of its Subordinate Voting Shares and each series of its Preferred Shares under the NCIB at times when Fairfax normally would not be active in the market due to applicable regulatory restrictions or internal trading black-out periods. Before the commencement of any particular internal trading black-out period, Fairfax may, but is not required to, instruct its designated broker to make purchases of Subordinate Voting Shares and/or Preferred Shares under the NCIB during the ensuing black-out period in accordance with the terms of the ASPP. Such purchases will be determined by the broker in its sole discretion based on parameters established by Fairfax prior to commencement of the applicable black-out period in accordance with the terms of the ASPP and applicable TSX rules. Outside of these black-out periods, Subordinate Voting Shares and Preferred Shares will be purchasable by Fairfax at its discretion under its NCIB.

 

The ASPP is effective as of September 30, 2025 and will terminate on the earliest of the date on which: (a) the maximum annual purchase limit in respect of the Subordinate Voting Shares and each series of Preferred Shares under the NCIB has been reached; (b) the NCIB expires; or (c) Fairfax terminates the ASPP in accordance with its terms. The ASPP constitutes an “automatic securities purchase plan” under applicable Canadian securities laws.

They always do this to have a plan to buyback during blackout periods

[djokovic1]

Ahh thanks @Junior R I get overexcited when I see buybacks announced. Sounds like it is re-instating the annual NCIB that was already in place. But my general points still stand

[Hoodlum]

28 minutes ago, Junior R said:

They always do this to have a plan to buyback during blackout periods

My mistake.  I had missed that from prior years.  Also, the Preferred shares are not being redeemed yet.  So, still waiting on that to get closed out. 

[dartmonkey]

3 hours ago, djokovic1 said:

They other aspect that doesn't get talked about enough is that with the earnings they have locked in (the fixed income side) for the next 3 years, they will continue to grow sustainable EPS by buying more businesses (public and private), growing insurance premium and reducing share count.

Yes. I think when Watsa says this:

"In 2024, we had record operating income from our insurance and reinsurance operations of $4.8 billion because of record underwriting profit of $1.8 billion, interest and dividend income of $2.2 billion and share of profits from associates of $745 million. As we suggested earlier, there is no certainty in life, but we feel this level of operating income may be repeatable in the next few years",

e

I believe what he means is that CURRENT ASSETS are likely to produce these earnings. End of 2024 equity was $26.8b, but if there are $5b in pre-tax earnings in each of the next few years, it would be logical to expect additional upside, earnings on these earnings, so to speak. Watsa is (probably) not including these earnings on new assets in his conservative projection of foreseeable earnings in the next few years. 

[TwoCitiesCapital]

2 hours ago, dartmonkey said:

Yes. I think when Watsa says this:

"In 2024, we had record operating income from our insurance and reinsurance operations of $4.8 billion because of record underwriting profit of $1.8 billion, interest and dividend income of $2.2 billion and share of profits from associates of $745 million. As we suggested earlier, there is no certainty in life, but we feel this level of operating income may be repeatable in the next few years",

e

I believe what he means is that CURRENT ASSETS are likely to produce these earnings. End of 2024 equity was $26.8b, but if there are $5b in pre-tax earnings in each of the next few years, it would be logical to expect additional upside, earnings on these earnings, so to speak. Watsa is (probably) not including these earnings on new assets in his conservative projection of foreseeable earnings in the next few years. 

 

 

Maybe is just my conservative nature with these sorts of things, but I don't think Watsa overlooked reinvestment/compounding. 

 

My guess is that is what gives him the confidence that they can hit $4-5B per year and not necessarily that he's expecting every year to be a 2024-plus some. Especially with interest and dividends largely being capped/slow decline at this point which was the largest component of earnings. 

 

[ValueNation]

On 9/18/2025 at 7:57 AM, 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.

 

https://www.msn.com/en-ca/weather/topstories/major-hurricane-threat-grows-as-two-systems-brew-in-the-atlantic/ar-AA1Nk07g?ocid=socialshare