Fairfax 2025

[djokovic1]

On 10/16/2025 at 5:40 PM, 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.

No no… that isn’t the solution. You don’t have 3:1 leverage and negative cost of float/capital (ie underwriting profit) to get to 15%+ ROE. Buying long bonds gets you to 4% on your capital which is pretty awful without leverage. 

Edited October 17, 2025 by djokovic1

[Viking]

36 minutes ago, djokovic1 said:

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

What made the view ‘make sense’ when rates were 0-2%? It was because rates subsequently moved much higher than anyone imagined from 2022 to 2023.
 

Fast forward to today. What if interest rates spike again from current levels in the coming years - much higher than anyone imagines today?

 

Is October 2025 really all that different than December 2021? Is our crystal ball - when it comes to understadning the future path of interest rates - really that much better today?

 

PS: I have no idea where interest rates go from here in the coming years. But I am not ruling out that they might go much higher. 

Edited October 17, 2025 by Viking

[djokovic1]

6 minutes ago, Viking said:

What made the view ‘make sense’ when rates were 0-2%? It was because rates subsequently moved much higher than anyone imagined from 2022 to 2023.

Very simply because at 4% they earn a very healthy ROE for shareholders but at 0-2% they don’t.

 

This takes away the element of trying to predict where future rates will be, which we know is very hard

[TwoCitiesCapital]

13 minutes ago, Viking said:

What made the view ‘make sense’ when rates were 0-2%? It was because rates subsequently moved much higher than anyone imagined from 2022 to 2023.

 

And for entirely different reasons than they imagined in 2016 when the call was made.

 

It wasn't a Trump-led economic blow out. It was Biden led stimulus paired supply chain disruptions that led to a blowout in inflation expectations. 

 

6-years to get lucky on being "right". 

 

13 minutes ago, Viking said:

Fast forward to today. What if interest rates spike again from current levels in the coming years - much higher than anyone imagines today?

 

Then they can roll 1/3 - 1/3 of their exposure to higher rates over the next 12 months as insurance premiums are paid, interest is paid, and bonds mature. 

 

There would be little price impairment as the move from 4% to 6% is quite a bit different from 2% to 4% and 4-years is still hardly taking tons of duration risk. 

 

13 minutes ago, Viking said:

Is October 2025 really all that different than December 2021? Is our crystal ball - when it comes to understadning the future path of interest rates - really that much better today?

 

Yes. The convexity skew is quite a bit less threatening, the potential damage to the bond portfolio likely a lot less, and the potential for a significant rise in rates is tempered by falling inflation (vs rising in 2021) and leading indicators that have suggested a slowing economy for 2+ years vs leading indicators in expansionary territory in 2021.

 

The situation is ENTIRELY different. 

 

13 minutes ago, Viking said:

 

PS: I have no idea where interest rates go from here in the coming years. But I am not ruling out that they might go much higher. 

 

I have no idea either. My bias is down, but they have remained more persistently higher than I previous have thought and am open to being wrong. 

 

But it's not like anybody gets wrecked by matching their liabilities. The risk with insurance/banking/pensions come precisely from having unmatched liabilities where liquidity or returns on the asset side gets you in trouble....

[Crip1]

Others have to be thinking this, so I'll say it. With the recent drop in price, it's getting time to buy more.

 

If it goes much lower between now and the earnings release, despite that Fairfax is still well over 25% of our net worth, we may add to our position.

 

-Crip

[benchmark]

45 minutes ago, Crip1 said:

Others have to be thinking this, so I'll say it. With the recent drop in price, it's getting time to buy more.

 

If it goes much lower between now and the earnings release, despite that Fairfax is still well over 25% of our net worth, we may add to our position.

 

-Crip

Yes, I have been nibbling at the current price.

[gfp]

1 hour ago, Crip1 said:

Others have to be thinking this, so I'll say it. With the recent drop in price, it's getting time to buy more.

 

If it goes much lower between now and the earnings release, despite that Fairfax is still well over 25% of our net worth, we may add to our position.

 

-Crip

 

I'm adding now.  You never know how much lower it will go or if it even will.  I like the current price so I'm not waiting but I guess I will continue to buy if it keeps falling until I run out of stuff to sell to fund the purchases.

[ValueNation]

4 hours ago, Crip1 said:

Others have to be thinking this, so I'll say it. With the recent drop in price, it's getting time to buy more.

 

If it goes much lower between now and the earnings release, despite that Fairfax is still well over 25% of our net worth, we may add to our position.

 

-Crip

 

My position in FFH is over 30% of the assets I manage and have been adding here.

Will continue to add before Q3 earnings if it continues to drop.

 

[Viking]

My guess is Fairfax is on track to earn about US$185/share in 2025 (accounting earnings). The change in excess of FV over CV for associate and consolidated holdings is on track to be about another $40/share in 2025 (after tax). And then there is the stuff we don’t see that is also increasing in value… let’s conservatively assume another $15/share. That puts the economic EPS at about $240/share in 2025. Book value at Jan 1, 2025 was $1,060.
 

That puts economic ROE at 23% (off beginning equity). And economic P/E at under 7x. 
 

Yes, economic earnings in 2025 are elevated. My guess is a ‘normalized’ economic EPS is probably about $190 to $200/share. That puts ROE at 18%. And PE at 8.7x. 
 

In late Nov/Dec of 2024 (and over the first quarter of 2025) Fairfax traded at about $1,400/share. Today it trades at $1,660. As I outlined above, intrinsic value has probably increased about $240/share over the past year. What that means to me is Fairfax is trading at a similar valuation today to what it was trading at a year ago (when it was $1,400/share).

Edited October 18, 2025 by Viking

[gfp]

30k share block traded this morning in Toronto.  

[SafetyinNumbers]

3 minutes ago, gfp said:

30k share block traded this morning in Toronto.  

Did you see the broker?

[gfp]

Just now, SafetyinNumbers said:

Did you see the broker?

 

Nope

[Santayana]

On 10/17/2025 at 3:04 PM, djokovic1 said:

No no… that isn’t the solution. You don’t have 3:1 leverage and negative cost of float/capital (ie underwriting profit) to get to 15%+ ROE. Buying long bonds gets you to 4% on your capital which is pretty awful without leverage. 

The presumption is that those worried about Fairfax's "macro bet" are worried because they think rates will fall significantly, at which time one could sell those long bonds for a gain, not just hold them for the 4%.

[A_Hamilton]

On 10/17/2025 at 5:39 PM, djokovic1 said:

Very simply because at 4% they earn a very healthy ROE for shareholders but at 0-2% they don’t.

 

This takes away the element of trying to predict where future rates will be, which we know is very hard

Also at 3-4% as rates rise the income generated offset the unrealized losses from bond price declines very rapidly. At 0-2% they don't.

[djokovic1]

1 hour ago, Santayana said:

The presumption is that those worried about Fairfax's "macro bet" are worried because they think rates will fall significantly, at which time one could sell those long bonds for a gain, not just hold them for the 4%.

But that presumption is wrong. I am not arguing against the “macro bet” due to fear of lower interest rates. My argument is independent of future direction of interest rates. 

[Santayana]

28 minutes ago, djokovic1 said:

But that presumption is wrong. I am not arguing against the “macro bet” due to fear of lower interest rates. My argument is independent of future direction of interest rates. 

The difference in yield between the 2 year and 5 year is pretty much negligible right now.  If it's not a concern about future rate changes, I don't understand why you would prefer longer duration at this point.

[TwoCitiesCapital]

2 hours ago, Santayana said:

The presumption is that those worried about Fairfax's "macro bet" are worried because they think rates will fall significantly, at which time one could sell those long bonds for a gain, not just hold them for the 4%

 

 

It's both. 

 

There is more capital appreciation potential in long bonds, but my reasoning for wanting a minimum duration of their liabilities is to lock-in income for the foreseeable future without taking TOO much duration/price risk. 

 

A 4-year bond will appreciate slightly more than a 3-year bond as rates fall - all else equal. Fairfax COULD sell those bonds for more in a recession-like scenario.

 

But it's the extra 12-months of income certainty and the elimination of roll-risk is more of where my mind is at. I'd rather 4-years at 3.8% then 3-years at 3.5% and the 4th year at 2% when they roll (using treasuries as a proxy - FFH portfolio yields more). Even if the fourth year eventually rolls at 5%, i'd prefer the stability and certainty rather than banking on rates being higher 3-years from now.

 

They can still make plenty of alpha on equity and credit calls and without predicting interest rates which they've mixed success on doing. 

Edited October 20, 2025 by TwoCitiesCapital

[SafetyinNumbers]

46 minutes ago, TwoCitiesCapital said:

 

 

It's both. 

 

There is more capital appreciation potential in long bonds, but my reasoning for wanting a minimum duration of their liabilities is to lock-in income for the foreseeable future without taking TOO much duration/price risk. 

 

A 4-year bond will appreciate slightly more than a 3-year bond as rates fall - all else equal. Fairfax COULD sell those bonds for more in a recession-like scenario.

 

But it's the extra 12-months of income certainty and the elimination of roll-risk is more of where my mind is at. I'd rather 4-years at 3.8% then 3-years at 3.5% and the 4th year at 2% when they roll (using treasuries as a proxy - FFH portfolio yields more). Even if the fourth year eventually rolls at 5%, i'd prefer the stability and certainty rather than banking on rates being higher 3-years from now.

 

They can still make plenty of alpha on equity and credit calls and without predicting interest rates which they've mixed success on doing. 

Have you done a study on what their positioning was from 2016-2025 and what the benefit/cost was? If so can you please share?

 

I like the optionality of being shorter duration. If long rates do go up then it might create a hard market which they can take advantage of. If not, the lower interest income potential doesn’t stop them from still reaching a 15% ROE given all of the embedded gains in the equity portfolio. 

[djokovic1]

2 hours ago, Santayana said:

The difference in yield between the 2 year and 5 year is pretty much negligible right now.  If it's not a concern about future rate changes, I don't understand why you would prefer longer duration at this point.

 

Because at 4% interest rates,  I get a pretty much guaranteed 15%+ ROE. I want to lock that in for as long a duration as I can (in this case close to 4 years). Would you rather be guaranteed a 15-20% ROE for 2 years or for 4 years?

 

As I said before, when rates are 0-2%, the risk reward is very different. Then your fixed income book is not earning a healthy ROE for shareholders.

[SafetyinNumbers]

4 hours ago, gfp said:

 

Nope

A friend confirmed it was Scotia so it’s probably a good guess that it’s the buyback. We should see it by November 10 if that’s the case.

[gfp]

4 minutes ago, SafetyinNumbers said:

A friend confirmed it was Scotia so it’s probably a good guess that it’s the buyback. We should see it by November 10 if that’s the case.

well my 10 at a time sure ain't propping up the price!

[Santayana]

31 minutes ago, djokovic1 said:

Because at 4% interest rates,  I get a pretty much guaranteed 15%+ ROE. I want to lock that in for as long a duration as I can (in this case close to 4 years). Would you rather be guaranteed a 15-20% ROE for 2 years or for 4 years?

 

As I said before, when rates are 0-2%, the risk reward is very different. Then your fixed income book is not earning a healthy ROE for shareholders.

It sounds to me like you *are* concerned rates could fall, otherwise why worry about locking in the current rates when you could just roll the current bonds at maturity.

[petec]

On 10/18/2025 at 5:56 PM, Viking said:

And then there is the stuff we don’t see that is also increasing in value… let’s conservatively assume another $15/share.

 

What are you putting in this bucket?

[value_hunter]

I noticed this happened several times. When Fairfax stock price reached all time high, it quickly reverse, followed by a few days big drop. See last Aug and this April.  What's mentality of the seller for this kinds of behavior? I understand the first two days maybe profit taking. But why keep selling in day 3 and 4? Are they changed their view to pessimistic right after reach ATH?

[djokovic1]

2 hours ago, Santayana said:

It sounds to me like you *are* concerned rates could fall, otherwise why worry about locking in the current rates when you could just roll the current bonds at maturity.

No that’s incorrect. I don’t know where rates will go next.

 

You lock in current rates because you can and they are so good for shareholders, you don’t need to worry about where they go next. 
 

Again a simple question to you, would you prefer a guaranteed 15-20% return for 2 years or 4 years?