Fairfax 2025

[Viking]

4 hours ago, sholland said:

My west coast philosopher friend asked me about my investment thesis in Fairfax. I wrote something up last weekend and it occurred to me that people on this board might possibly be interested.  Huge thanks to @Viking and others for their contributions to this board. Much of this writeup is inspired/plagiarized from them. 

 

https://docs.google.com/document/d/1cFtEu-cW4kVN21Q4_o3Kk-USHgWUpmVBVGwkafcXTz4/edit?usp=drivesdk

 

@sholland, nice summary  Feel free to use any of my material (that goes to others on the board). After all, much of what I post comes from others on the board. 

 

One suggestion is you might want to link readers to the most recent copy of my book/PDF. 

Edited October 14, 2025 by Viking

[Crip1]

49 minutes ago, SafetyinNumbers said:

I don’t think of it as a macro bet because that implies that matching duration is the default. I think they are just applying expected value investing to the fixed income portfolio. There is optionality in staying short duration especially if everyone else is long duration. The foregone interest income is the premium for the option and being in a strong capital position in order to grow fast in hard market is the payoff if long rates do move higher.

I agree with the sentiment that staying on the shorter end is not a macro bet. It’s not quite this simple, but this is the gist of it.

Extending to 7-10 years would offer the upside of an extra 0.5% to 0.6% in annualized yield, would lock in that yield for a much longer time and enables potential price appreciation should interest rates decline appreciably. Keeping in the 2-year duration allows protection against inflation-generated capital loss and allows for redeployment sooner with limited, if any, capital loss. 

Bottom line, is it worth risking the loss to gain an additional 0.5% - 0.6% in yield? The risk/reward analysis says it is not, IMHO.

Going with longer duration would be more of a macro bet that inflation will remain at bay or will decline. It would be riskier than staying short. But, others will disagree, and that’s what makes a market.

-Crip
 

[sholland]

48 minutes ago, Viking said:

 

@sholland, nice summary  Feel free to use any of my material (that goes to others on the board). After all, much of what I post comes from others on the board. 

 

One suggestion is you might want to link readers to the most recent copy of my book/PDF. 

Thanks!  Most recent copy just linked per your suggestion.

[petec]

3 hours ago, dartmonkey said:

Great, thanks. I guess that settles the question about whether the duration changes are a macro bet or not.

 

Possibly, but which way? I think protecting downside because you're not being paid to take the risk of a possible macro outcome is a micro/pricing bet not a macro one. But I am also starting to think the argument I (re)started is rather pointless   

[dartmonkey]

32 minutes ago, petec said:

4 hours ago, dartmonkey said:

Great, thanks. I guess that settles the question about whether the duration changes are a macro bet or not.

 

Possibly, but which way? I think protecting downside because you're not being paid to take the risk of a possible macro outcome is a micro/pricing bet not a macro one. But I am also starting to think the argument I (re)started is rather pointless 

 

I think we probably agree more than we disagree, but we all probably have slightly different definitions of what a 'macro bet' is. To me, it seems fair to think that matching duration with obligations IS the neutral bet, but that if you have good insight into what macro phenomena like inflation or future bond rates might be, then you can develop an argument about whether current rates compensate you for taking that risk or not.

 

For a company whose bond portfolio is largely free of default risk (US, Canadian and European treasury bonds), I guess considering those macro events is most of what an active bond investor should be doing. And part should be also considering scenarios specific to the company (like megacat risk, or when funds are expected to be needed for buying out minority partners, for instance) that are strategic, not macro.

 

Fortunately, Fairfax's managers have outstanding track records of positioning themselves well, so this kind of active investing makes a lot of sense for Fairfax. 

[Viking]

2 hours ago, dartmonkey said:

I think we probably agree more than we disagree, but we all probably have slightly different definitions of what a 'macro bet' is. To me, it seems fair to think that matching duration with obligations IS the neutral bet, but that if you have good insight into what macro phenomena like inflation or future bond rates might be, then you can develop an argument about whether current rates compensate you for taking that risk or not.

 

For a company whose bond portfolio is largely free of default risk (US, Canadian and European treasury bonds), I guess considering those macro events is most of what an active bond investor should be doing. And part should be also considering scenarios specific to the company (like megacat risk, or when funds are expected to be needed for buying out minority partners, for instance) that are strategic, not macro.

 

Fortunately, Fairfax's managers have outstanding track records of positioning themselves well, so this kind of active investing makes a lot of sense for Fairfax. 

 

@dartmonkey, what do you think Fairfax is trying to do when it comes to the average duration of their fixed income portfolio? As you see it, what primarily is the problem they are trying to solve?

[LC]

I don't think it's a 'macro bet' per se, I just think they take a defensive risk-reward view to their portfolio. 

 

3 hours ago, Crip1 said:

Extending to 7-10 years would offer the upside of an extra 0.5% to 0.6% in annualized yield, would lock in that yield for a much longer time and enables potential price appreciation should interest rates decline appreciably. Keeping in the 2-year duration allows protection against inflation-generated capital loss and allows for redeployment sooner with limited, if any, capital loss. 

Bottom line, is it worth risking the loss to gain an additional 0.5% - 0.6% in yield? The risk/reward analysis says it is not, IMHO.

 

I think the price appreciation from dropping rates is what people are after. They want to make that leveraged bet, with Fairfax's operations and equity portfolio hedging their downside. 

 

Thinking about it more I agree with Fairfax's decision, it's a defensive choice that they are getting paid pretty well to maintain. 

Edited October 14, 2025 by LC

[dartmonkey]

1 minute ago, Viking said:

 

@dartmonkey, what do you think Fairfax is trying to do when it comes to the average duration of their fixed income portfolio? As you see it, what primarily is the problem they are trying to solve?

I don't know, but they have said that if duration matches the timing of liabilities, that is just a coincidence, and Ben Watsa has said their positioning is because they see inflation coming, so I guess they think that current long duration bonds don't compensate them adequately for what they perceive as a higher risk of inflation than what the market has priced in.

 

If I had to speculate, I might also say that current earnings are fantastic anyways, so strategically they can afford to miss out on some interest income in the short term in order to increase their chances of not taking a big capital loss on their bond portfolio, if interest rates increase (bond prices drop), and to lock in higher rates whenever that happens. In other words, taking the long view over the short view, which is what they always try to do. An insurance company with smaller underwriting gains or less income from fully owned subs (Recipe, etc.) might feel more pressure to maximize current interest returns. But that is just speculation.

[TwoCitiesCapital]

6 hours ago, bluedevil said:

I think the caution on inflation is prudent.  As Dalio explains, the US government spends 7 trillion each year; and brings in only five.  $ 1 trillion goes to interest expense, and that is pushing up relentlessly as the government keeps spending more than it brings in.

Only realistic path out seems to be to debase the dollar; which will feed inflation.

I suspect that in a nutshell is why Fairfax is shy about taking duration risk, especially when they are getting paid ok to remain short.

 

 

I don't disagree but is the case with basically every developed economy in the world and HAs been for decades. 

 

Why is it that suddenly in 2021 - 2025 it started to matter? 

 

I tend to agree that inflation is higher this decade than the last 1-2, but that is largely because of the low water mark of the last two decades with financial crisis and globalisation - not necessarily because I expect inflation to be huge. 

 

 

7 hours ago, dartmonkey said:

Great, thanks. I guess that settles the question about whether the duration changes are a macro bet or not.

 

The really amazing thing is that long rates are not already higher. With signs of lingering inflation, record deficit spending in North America and Europe, and a US president pushing for lower rates despite this, it seems like a reasonable bet, unless one thinks we are heading for a recession. But it is hard to argue that it is not a macro bet.

 

Plenty of signs one is coming - but they've been signaling for a bit. Hard to know if ALL prior indicators are just entirely broken OR if it's just been delayed by the massive amounts of excess liquidity injected during COVID. I'm thinking the latter. 

 

4 hours ago, Crip1 said:

Bottom line, is it worth risking the loss to gain an additional 0.5% - 0.6% in yield? The risk/reward analysis says it is not, IMHO.

 

I don't think anyone is suggesting that they increase the duration for the extra 0.5%. it's for the extra 1-2% they'll be getting for years afterwards if rates do come back down - which they've already started to do. I'd rather the risk being 1-2% below prevailing rates if inflation remains - and still getting par back - versus riding rates down to get 0% even while inflation remains (as to always does). 

 

People can disagree about the path of inflation and rates - but that is exactly why matching your liabilities is the neutral stance. 

Edited October 14, 2025 by TwoCitiesCapital

[djokovic1]

I would have to disagree with most here and say it clearly is a macro view that they are reflecting through their positioning.

 

I think most are having a negative reaction due to the term ‘macro bet’. The reality is Fairfax is not matching asset and duration liabilities which is the neutral stance (and important to say not necessarily the correct stance). They always have to take a forward looking macro view as they always have done in the past (just like they do in micro with specific equities). There is nothing wrong with that and they will continue taking a stance, that’s their job both on the fixed income and equities side.

[Maverick47]

32 minutes ago, djokovic1 said:

The reality is Fairfax is not matching asset and duration liabilities which is the neutral stance (and important to say not necessarily the correct stance)

Interesting point.  I came across the linked review of ALM practices for P&C companies as compared with Life Insurers, for which the practice is de rigueur:

 

https://www.neamgroup.com/insights/exploring-the-relevance-of-asset-liability-duration-matching-in-pc-companies-myth-or-must

 

It seems that a small minority of US P&C insurers engage in this practice, while most do not.  And of course. New England Asset Management, which is part of Gen Re, and a sub of Berkshire Hathaway, and which authored this study, adds a foot note that they had to exclude Berkshire from the review as its own assets would have dramatically skewed the analysis given that so much of the fixed income investments held by Berkshire are of extremely short duration.

 

 

 

[jjsto]

What if there was a general rule of thumb that stated: "when the 3 month to 10 year yield curve is relatively flat and berkshire hathaway holds 30% of its market value in cash, then it is probably a good idea to have a shorter duration on your own fixed income portfolio."  I much prefer the conservative current scenario (even if it doesn't exactly match the duration of liabilities) to the opposite of having longer duration in the current environment.  Trying not to over think things.

[nwoodman]

36 minutes ago, jjsto said:

What if there was a general rule of thumb that stated: "when the 3 month to 10 year yield curve is relatively flat and berkshire hathaway holds 30% of its market value in cash, then it is probably a good idea to have a shorter duration on your own fixed income portfolio."  I much prefer the conservative current scenario (even if it doesn't exactly match the duration of liabilities) to the opposite of having longer duration in the current environment.  Trying not to over think things.

That’s gold .  
 

I don’t quite follow why some people discuss Fairfax’s bond book in isolation rather than looking at capital allocation holistically, within regulatory constraints. It’s been mentioned before that the decision to extend duration came from one of their equity people, not a siloed bond manager. Fairfax’s specialists aren’t operating independently, there are a lot of IQ points allocated to capital allocation, regardless of the instrument.

 

If you think of some of their equity positions as permanent holdings (until fully valued), then the true economic duration of the portfolio is far longer than what you’d calculate just from their U.S. Treasuries. The current bond book provides flexibility and optionality, not a statement of risk appetite. Management has said repeatedly that Treasuries are the default parking spot while waiting for a meaningful credit dislocation. They’d prefer to own corporate credit, but only at the right spread.

 

The beauty of Fairfax is that they’ll still take directional bets when they make sense, without being dogmatic about whether the idea is “macro” or “micro.” What’s changed over the past 15 years is how they execute, far less hubris, far more calibration. As has already been discussed, it’s now a far better capital-allocation machine these days. Even when if underlying thematics drive the positioning, there’s a clear emphasis on backing exceptional operators in each chosen space.  
 

If you want duration matching, there is plenty of of that available elsewhere, but don’t expect the sort of lumpy outperformance you get with Fairfax.

[Txvestor]

On 10/14/2025 at 10:01 AM, dartmonkey said:

Great, thanks. I guess that settles the question about whether the duration changes are a macro bet or not.

 

The really amazing thing is that long rates are not already higher. With signs of lingering inflation, record deficit spending in North America and Europe, and a US president pushing for lower rates despite this, it seems like a reasonable bet, unless one thinks we are heading for a recession. But it is hard to argue that it is not a macro bet.

It's clearly a macro bet and one I wish they wouldn't indulge in given their track record in that area. 
Even if we entered a recession I think it's the rates on the short end of the curve that will collapse first. The long end will be lower, but calling 4.5 or whatever they sold at low seems premature to me. The odds of a spike to 6-7% seem remote to me. 
With the US $37.6T in debt and continuing to run a $2T+ annual deficit, even if the fundamentals support it, there is no guarantee we won't see the Fed doing rate suppression even to sub inflationary levels. Desperate governments do desperate things in the name of national emergency. 
I just prefer if they focussed on the underwriting, the investing and the share buybacks etc. But alas it's an aspect of their management approach we have to live with. It certainly discounts my valuation of them by a certain percentage. 

Edited October 16, 2025 by Txvestor

[Santayana]

I guess technically any bond position they take is a macro bet in some way.    For people concerned they have gone too short in duration, just buying some long bonds yourself seems like a great way to address that assuming you're happy with everything else they are doing.

[Haryana]

https://www.theglobeandmail.com/investing/markets/stocks/FFH-T/pressreleases/35502473/canadian-analyst-coverage-oct-16th-2025/  

Raymond James raised its target to $3,050 from $2,900, maintaining an Outperform rating due to strong insurance underwriting performance and investment gains.

[Viking]

P/C insurance stocks have been aggressively selling off the past couple of days. What is the problem? I think it is muted top line growth - concerns the hard market is ending (has ended?). 
 

Fairfax has also been selling off. It is back below US$1,700. And I love it. My guess is Fairfax is going to report strong earnings in Q3. They are going to be all cashed up. And hurricane season is almost over. What will Fairfax do with all the excess capital they are generating? I hope they buy back a bunch more stock. They were buying aggressively in Q3 (at about $1,700/share). 
 

We also just got news from Fairfax of the sale of Eurolife’s life insurance business. That will provide a nice realized gain in Q1-2026 when it closes. Proceeds will be US$944.7 million (less $69 million for P/C insurance business in Cyprus).. 
 

Long term shareholders of Fairfax should welcome a low share price. It allows management to buy back a meaningful amount of stock at a low price. This is very accretive for long term shareholders. Capital allocation 101. 
 

With the stock at US$1,700, I prefer stock buybacks to taking out minority partners in Allied World and Odyssey. I think the stock is cheap - so prioritizing buybacks makes sense. The minority partners can be taken out down the road when the stock is more fully valued. 
 

Fairfax has a large number of excellent reinvestment opportunities - to compound its capital at above average rates of return. Its opportunity set is much, much larger than most P/C insurance companies. This gives them a big advantage as the hard market comes to an end. Fairfax is not a one trick pony. 

Edited October 16, 2025 by Viking

[mengan]

2 hours ago, Santayana said:

I guess technically any bond position they take is a macro bet in some way.    For people concerned they have gone too short in duration, just buying some long bonds yourself seems like a great way to address that assuming you're happy with everything else they are doing.

This. Buying government bond is by default a macro bet.

[mengan]

https://www.theguardian.com/business/2025/oct/16/us-regional-bank-stocks-fall

 

Financials in free fall today.

[LC]

25 minutes ago, Viking said:

With the stock at US$1,700, I prefer stock buybacks to taking out minority partners in Allied World and Odyssey. I think the stock is cheap - so prioritizing buybacks makes sense. The minority partners can be taken out down the road when the stock is more fully valued. 

 

Agreed - but even moreso than buybacks, I would like to see Fairfax expand the equity portfolio to true champions. Not Orla mining, not Sleep mattress, not OXY and CVS...I think if they get a chance to put a large chunk of cash to work in real high-quality equities, that would be the best outcome. Second best I agree with you would be continued repurchases.

[Parsad]

21 minutes ago, mengan said:

https://www.theguardian.com/business/2025/oct/16/us-regional-bank-stocks-fall

 

Financials in free fall today.

 

You usually see this happening at the end of a cycle.  With so much capital flowing, especially in just the last 9-10 months since the new administration came in and the system got so excited, you knew that the financial sector was being juiced due to future expectations.  The big banks have more than enough to absorb huge losses in the system, but it is the regional banks that are far more vulnerable due to the concentrated commercial loans they take on.  I hope we see a bit of a slow down here...maybe a 20% correction would help valuations as well.  But so much investment and capital is coming into the U.S., I don't see any long-term contraction happening any time soon.  Cheers!

[value_hunter]

Is it Fairfax in silent period now and can't buy back shares today?

[Hoodlum]

3 minutes ago, value_hunter said:

Is it Fairfax in silent period now and can't buy back shares today?

 

They are still able to buy back shares during a blackout.

 

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

 

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.

Edited October 16, 2025 by Hoodlum

[A_Hamilton]

22 hours ago, Txvestor said:

It's clearly a macro bet and one I wish they wouldn't indulge in given their track record in that area. 
Even if we entered a recession I think it's the rates on the short end of the curve that will collapse first. The long end will be lower, but calling 4.5 or whatever they sold at low seems premature to me. The odds of a spike to 6-7% seem remote to me. 
With the US $37.6T in debt and continuing to run a $2T+ annual deficit, even if the fundamentals support it, there is no guarantee we won't see the Fed doing rate suppression even to sub inflationary levels. Desperate governments do desperate things in the name of national emergency. 
I just prefer if they focussed on the underwriting, the investing and the share buybacks etc. But alas it's an aspect of their management approach we have to live with. It certainly discounts my valuation of them by a certain percentage. 

I agree entirely. The effective duration of the insurance book ex runoff is around 4 years, there is no reason now that we are in the 3-4% range for 4 year money to not just duration match. We don't need the extra juice by being cute on this.

[djokovic1]

6 hours ago, A_Hamilton said:

I agree entirely. The effective duration of the insurance book ex runoff is around 4 years, there is no reason now that we are in the 3-4% range for 4 year money to not just duration match. We don't need the extra juice by being cute on this.

Yes this is my view too. It makes sense to take a strong view when rates are 0-2%, not right now