Fairfax 2025

[djokovic1]

20 minutes ago, 73 Reds said:

The disadvantage of size can be turned into a huge advantage by expanding the circle of competence.  We'll see if that happens under Greg's watch.

 

I think Berkshire is a nice stay rich stock, but it's not going to be a get rich stock. As an interesting analogy, Buffett had a lot more turnover and also used a good amount of leverage (and I am not talking about float) in his younger days. 

There is no right answer and it comes down to individual preference, but Buffett was much less conservative in his younger days and those were the years his returns were the highest.

[Parsad]

6 hours ago, SafetyinNumbers said:

They were buying float cheap using expensive equity which was trading at multiples of book. It looked a lot riskier than it was especially if cutting premiums. The book value gets the benefit on acquisition but then gets hit through the income statement as the losses are recognized through claims.
 

You didn’t answer the question on BRK’s leverage. I haven’t studied it like you clearly have. I only did a few spot checks and was surprised how low the float per share was at various times. 

 

In general, BRK's asset to equity leverage was less than 2-1 over its history.  Float as a percent of liabilities was never above 50%.  There was a time when Fairfax had reinsurance recoverables four times as great as shareholder equity!  That could have killed them and nearly did if it wasn't for a $300M infusion of cash from Markel, Longleaf and Cundill. 

 

The company today is a million miles from that company, and I hope the future Fairfax is another thousand miles from this one.  I want them to be the gold standard!  Cheers!

[SafetyinNumbers]

2 minutes ago, Parsad said:

The company today is a million miles from that company, and I hope the future Fairfax is another thousand miles from this one.  I want them to be the gold standard!  Cheers!

We want different things. I hope they keep investment to equity leverage around 3:1. Anyway, circling around to my original point. That’s what makes it a better mouse trap to me. The debt is structured well, reserves are consistently redundant, CAT risk has reduced as a percentage of total premiums with growth in other lines.

[Munger_Disciple]

32 minutes ago, Parsad said:

 

In general, BRK's asset to equity leverage was less than 2-1 over its history.  Float as a percent of liabilities was never above 50%.  There was a time when Fairfax had reinsurance recoverables four times as great as shareholder equity!  That could have killed them and nearly did if it wasn't for a $300M infusion of cash from Markel, Longleaf and Cundill. 

 

The company today is a million miles from that company, and I hope the future Fairfax is another thousand miles from this one.  I want them to be the gold standard!  Cheers!

 

 

In good times people forget that leverage cuts both ways. Any idiot can pour on leverage but can get his head handed to him when the winds shift. And it's easy to forget that any long sequence of big numbers multiplied by zero is still a zero (just ask Lehman Brothers shareholders). 

 

Edited December 19, 2025 by Munger_Disciple

[valueinvesting101]

11 hours ago, SafetyinNumbers said:

They were buying float cheap using expensive equity which was trading at multiples of book. It looked a lot riskier than it was especially if cutting premiums. The book value gets the benefit on acquisition but then gets hit through the income statement as the losses are recognized through claims.
 

You didn’t answer the question on BRK’s leverage. I haven’t studied it like you clearly have. I only did a few spot checks and was surprised how low the float per share was at various times. 

This blog post from brklyninvestor had good summary about Berkshire float, asset and equity. 
https://brklyninvestor.com/2020/08/20/is-buffett-really-bearish/

[SafetyinNumbers]

1 hour ago, valueinvesting101 said:

This blog post from brklyninvestor had good summary about Berkshire float, asset and equity. 
https://brklyninvestor.com/2020/08/20/is-buffett-really-bearish/

Thanks! I remember seeing this. I’m a big fan of his writing. 

[Viking]

Index investors, the S&P/TSX 60 and Fairfax
 

 Hat tip: This post was inspired by @SafetyinNumbers many thoughtful posts on this topic over the past two years.

 

Index investing: a structural shift in markets

 

Financial markets are constantly evolving. One of the most important changes over the past 30 years has been the rapid adoption of index investing.

 

How exactly is index investing changing how the stock market works?

 

That is where things get interesting. 

 

The short answer is that we do not really know—at least not yet. In many ways, we are in the middle of a large, real-time science experiment. Index investing has grown so large that it is almost certainly influencing stock prices and valuations, but the full effects will only become clear with the benefit of hindsight.

 

We will likely have much better answers in another decade or two. Unfortunately, that does not help us much today.

 

So what does all of this have to do with Fairfax Financial?

---

 

Fairfax and the S&P/TSX 60

 

On December 5, 2025, it was announced that Fairfax Financial would be added to the S&P/TSX 60 Index, Canada’s flagship large-cap index, effective December 22, 2025.

 

This raises a natural and important question for investors:

 

Does index inclusion impact a company’s stock price and valuation?

 

That is the question explored in this post.

---

 

A different lens: supply and demand

 

To understand the potential impact of index investing, it helps to step outside our usual analytical comfort zone. Instead of focusing on fundamentals, earnings, and valuation, we will look at stock prices through the lens of supply and demand.

 

From Econ 101, we know:

• Supply is the amount of something available for sale
• Demand is the amount people want to buy
• Price is the clearing mechanism between buyers and sellers

 If demand exceeds supply, prices should rise. 

If supply exceeds demand, prices should fall—assuming markets function reasonably well.

 

This relationship is often illustrated with a simple supply-and-demand graph.
 

 

The same logic applies to stocks.

 

At any moment, a stock’s price represents an equilibrium point where buyers and sellers agree.

---

 

Shares outstanding, float, and equilibrium

 

If demand for a company’s shares rises faster than supply, the stock price should increase. If supply rises faster than demand, the price should fall.

 

Index investing affects this balance in two distinct ways:

1. The ongoing impact of being in an index
2. The one-time impact of being added to an index

 Let’s examine each.

---

 

1. What happens when a stock is in a major index?

 

Growing demand for shares

 

ETF and index investing has grown steadily for three decades and is now fully mainstream—particularly in North America. This growth appears structural rather than cyclical.

As assets flow into index funds, those funds must continuously buy shares of companies in major indexes such as the S&P 500 or the S&P/TSX 60. This creates a steady, ongoing source of demand.

 

Declining effective supply (float)

 

Index funds are not market timers. And they are largely buy-and-hold investors.

 

As long as a company remains in the index and maintains its weighting, index funds tend to hold the shares indefinitely. In practical terms, this removes shares from the trading float, reducing the supply available to other investors.

 

Price-insensitive buyers

 

Perhaps most importantly, index funds are largely price agnostic. Valuation does not matter; weighting does.

 

This matters because price is supposed to be the market’s clearing mechanism. But for this growing pool of capital, price plays a limited role.

---

 

2. What happens when a stock is added to an index?

 

Major indexes typically rebalance quarterly. Winners are added; laggards are removed.

 

When a stock is added, index funds must buy shares to reach the appropriate weighting. This creates a one-time surge in demand, again from largely price-insensitive buyers.

---

 

Summary: index effects on supply and demand

 

Short term (index inclusion):

• One-time spike in demand – price insensitive
• Reduction in effective float (supply)

 Long term (index membership):

• Ongoing, steady demand – price insensitive
• Continued reduction in float (supply)

 Index investing is growing rapidly, and its influence on markets continues to increase. All else equal, this setup should act as a tailwind for stock prices over time.

 

How large is the effect?

 

That is the million-dollar question. We do not know. But it is likely larger than many investors appreciate today.

---

Additional accelerants

 

Let’s expand the analysis slightly.

 

Share buybacks

 

What happens when a company is aggressively buying back its own shares at the same time index demand is increasing?

 

Supply shrinks further.

 

All else equal, this should push prices higher.

 

Quantitative and momentum investing

 

Another major market shift over the past 30 years has been the rise of quantitative and momentum strategies.

 

This crowd loves stocks that are already going up—and that keep going up.

 

Not coincidentally, stocks added to major indexes are typically those that have already performed well and grown in market capitalization.

 

Despite being labeled “passive,” index investing has strong momentum-like characteristics:

• Winners are added
• Losers are removed
• New flows disproportionately favor the largest, best-performing stocks

 When index investors and momentum investors are buying simultaneously—and the company itself is buying back stock—the law of supply and demand suggests upward pressure on price. Especially if the company is performing well (improving fundamentals and growing earnings). This is how multiple expansion can occur, sometimes over many years.

 

From value to quality

 

Another powerful shift occurs when a stock transitions from being perceived as a value play to a quality compounder. As new investor cohorts become interested, demand broadens further.

---

 

The “perfect” setup

 

The ideal conditions for sustained stock price appreciation look something like this:

 

High and growing demand from:

• Value investors
• Index investors
• Momentum investors
• Quality-focused investors

 Shrinking supply due to:

• Index fund ownership
• Company share buybacks

 This can create a virtuous circle:

Higher prices → higher market cap → increased index and momentum demand → higher prices.

 

These cycles can take years to fully play out. 

---

 

Bringing it back to Fairfax

 

On December 5, 2025, it was announced that Fairfax Financial would be added to the S&P/TSX 60 Index, effective December 22, 2025.

 

Fairfax was previously the largest Canadian public company not included in the index, despite ranking among the top companies by market capitalization.

 

Are we seeing any impact on Fairfax’s share price?

 

Since December 5, 2025, Fairfax’s share price has increased by 9%. While many factors influence short-term price movements, it appears index inclusion is having a positive impact.

 

 

Final thought

 

Index investing has quietly become one of the most powerful forces in financial markets. Its effects are subtle, cumulative, and often underestimated.

 

Index inclusion:

• Increases demand for shares
• Reduces effective float (supply)
• Introduces a new, long-term class of price-insensitive buyers

For Fairfax shareholders, inclusion in the S&P/TSX 60 is another structural tailwind for the stock - and one that could persist for years. 

 

 

[yesman182]

On 12/18/2025 at 11:59 AM, SafetyinNumbers said:

Meanwhile, Markel. FFH’s half brother, is trying to be mini-Berkshire. Both seem like a good source of future FFH shareholders. 
 

I went on the Know Your Risk podcast last week and shared my view that FFH has actually built a better mousetrap than Berkshire. 

 

https://podcasts.apple.com/ca/podcast/know-your-risk-podcast/id1121724780?i=1000741063660

Thanks for posting the link. I have enjoyed listening to every show you have been on. 

[Phoenix01]

@Viking - Thank you yet another great post.  Regarding the virtuous circle:

Higher prices → higher market cap → increased index and momentum demand → higher prices.

 

These cycles can take years to fully play out. 

 

FFH also has the TRS that will further amplify this effect.  It will be interesting to watch what FFH does with the TRS over time.

[Viking]

1 hour ago, Phoenix01 said:

@Viking - Thank you yet another great post.  Regarding the virtuous circle:

Higher prices → higher market cap → increased index and momentum demand → higher prices.

 

These cycles can take years to fully play out. 

 

FFH also has the TRS that will further amplify this effect.  It will be interesting to watch what FFH does with the TRS over time.

@Phoenix01 , multiple will be something to watch. If we do see further multiple expansion this will open up interesting opportunities for Fairfax moving forward.
 

For Fairfax, risks and opportunities are often two sides of the same coin - because they have built such a flexible business model/set of capabilities.

[Viking]

On 12/18/2025 at 9:59 AM, SafetyinNumbers said:

Meanwhile, Markel. FFH’s half brother, is trying to be mini-Berkshire. Both seem like a good source of future FFH shareholders. 
 

I went on the Know Your Risk podcast last week and shared my view that FFH has actually built a better mousetrap than Berkshire. 

 

https://podcasts.apple.com/ca/podcast/know-your-risk-podcast/id1121724780?i=1000741063660

@SafetyinNumbers , I have listened to all your podcasts… I think this one was your best. You explain complicated things in a way that is understandable for the listener. And in a concise way. Please keep them coming… I learn lots every time I listen to a new one.

[djokovic1]

53 minutes ago, Viking said:

I think this one was your best

 

@SafetyinNumbers agreed really good stuff and concise. Well done.

 

I would just bring up one point that you mentioned re. David Einhorn. It's not a disagreement but more a reality which I agree with you. That the market is not as efficient as it used to be so its unlikely you can buy something at 10x expecting it to go up to 15x relatively quickly (which maybe you could do in the past).

 

However, where I disagree with Einhorn is there is no point in lamenting about that and you have to adapt and have 2 options. This has a somewhat direct analogy to Fairfax India. a) You either wait patiently with a long term horizon (5 -10 years) for long term compounding to pull up your stock price (l.e you don't rely on a multiple re-rate or the discount closing) or b) and this is somewhat related to point a), you have great managers of those businesses who understand capital allocation who buy back a large amount of stock if their stock price is disconnected from fundamental value to create per share value.

[SafetyinNumbers]

15 hours ago, djokovic1 said:

 

@SafetyinNumbers agreed really good stuff and concise. Well done.

 

I would just bring up one point that you mentioned re. David Einhorn. It's not a disagreement but more a reality which I agree with you. That the market is not as efficient as it used to be so its unlikely you can buy something at 10x expecting it to go up to 15x relatively quickly (which maybe you could do in the past).

 

However, where I disagree with Einhorn is there is no point in lamenting about that and you have to adapt and have 2 options. This has a somewhat direct analogy to Fairfax India. a) You either wait patiently with a long term horizon (5 -10 years) for long term compounding to pull up your stock price (l.e you don't rely on a multiple re-rate or the discount closing) or b) and this is somewhat related to point a), you have great managers of those businesses who understand capital allocation who buy back a large amount of stock if their stock price is disconnected from fundamental value to create per share value.

Thanks @Viking and @djokovic1 for the kind words. 
 

I think Einhorn has pivoted to the second of your options but it took a long time to get there. He has institutional constraints which makes the game even harder. 

[dartmonkey]

… or b) and this is somewhat related to point a), you have great managers of those businesses who understand capital allocation who buy back a large amount of stock if their stock price is disconnected from fundamental value to create per share value.

…

I think Einhorn has pivoted to the second of your options but it took a long time to get there. He has institutional constraints which makes the game even harder. 

 

I don’t understand - if Einhorn wants to avoid the problem of undervalued stocks not rerating because of the market structure changes you have described (so much money in index funds and quantitative easing funds that avoid such stocks), how can share repurchases solve the problem? Do you mean that Einhorn would only purchase shares in companies that are themselves repurchasing their own shares? 

[TwoCitiesCapital]

20 hours ago, djokovic1 said:

That the market is not as efficient as it used to be so its unlikely you can buy something at 10x expecting it to go up to 15x relatively quickly (which maybe you could do in the past).

 

However, where I disagree with Einhorn is there is no point in lamenting about that and you have to adapt and have 2 options. This has a somewhat direct analogy to Fairfax India. a) You either wait patiently with a long term horizon (5 -10 years) for long term compounding to pull up your stock price (l.e you don't rely on a multiple re-rate or the discount closing) or b) and this is somewhat related to point a), you have great managers of those businesses who understand capital allocation who buy back a large amount of stock if their stock price is disconnected from fundamental value to create per share value.

 

Or, option 3), there's an activist who does something about it. 

 

I agree with the premise the mass passivity in investing and most flows being passive ETFs that allocate agnostic of value are a problem for market efficiency in terms of getting capital to the right companies at the right price. But I don't think "time" necessarily fixes that - it compounds the effect. 

 

The way value will be realizid going forward is through some sort of activity/activism - someone takes the company private, the company regularly bids for its own shares at a discount, an activist comes in and replaces the board to push for visible changes likes dividends, spin-offs occur to simplify business structure, etc. 

 

None of those are guaranteed to work - but I don't really believe in return to the mean in an index/passive world. The return to the mean has to be catalyzed by some value creating action. And there's still space for hedge fund managers like Einhorn in that paradigm - just gonna have to blend in some activism and private equity chops. 

Edited December 21, 2025 by TwoCitiesCapital

[djokovic1]

22 minutes ago, TwoCitiesCapital said:

Or, option 3), there's an activist who does something about it. 

Yes agreed or it gets taken out.

 

However option 3) is something out of your control, unless you are an activist your self. Option 2) i.e great capital allocation and understanding of intrinsic value is something you can screen for Edit: Though unfortunately it's rare.

 

I would add, I usually have seen aggressive buybacks solve this problem, i.e if you truly are trading at 5x multiple and buy back 10-20% of the company each year, the share price goes up, sometimes aggressively, to reflect the value creation.

Edited December 21, 2025 by djokovic1

[SafetyinNumbers]

3 hours ago, dartmonkey said:

don’t understand - if Einhorn wants to avoid the problem of undervalued stocks not rerating because of the market structure changes you have described (so much money in index funds and quantitative easing funds that avoid such stocks), how can share repurchases solve the problem? Do you mean that Einhorn would only purchase shares in companies that are themselves repurchasing their own shares? 

Someone needs to buy the stock for it to go up. Buybacks are exactly that. If buying something at 5x earnings which is then buying back stock, it should go up even without multiple expansion. 

[wondering]

A good summary of where Fairfax stands at the moment. Although for regular readers of this board, not much new. The podcast sort of summarizes @SafetyinNumbers arguments. In fact I think they mention his holding company.

 

https://youtu.be/ICdgMUKMmas?si=F-iOne-gxa9gFJA2

[SafetyinNumbers]

1 hour ago, wondering said:

A good summary of where Fairfax stands at the moment. Although for regular readers of this board, not much new. The podcast sort of summarizes @SafetyinNumbers arguments. In fact I think they mention his holding company.

 

https://youtu.be/ICdgMUKMmas?si=F-iOne-gxa9gFJA2

Thanks for sharing. Is this an AI podcast? 

[wondering]

I don't know. I thought the interaction between the two speakers sounded fake 

[KFRCanuk]

2 hours ago, wondering said:

I don't know. I thought the interaction between the two speakers sounded fake 

There were no ums and ahhh... No real pauses. It sure seems like this message board was the source of the convo.

[hardcorevalue]

Lollllllllllllllllllllllllll

[gary17]

I was reading an article that says if BC has a M9 earthquake, all insurers in Canada could become insolvent.  I suppose Fairfax would be severely affected too

[yqsun]

14 hours ago, wondering said:

I don't know. I thought the interaction between the two speakers sounded fake 

It's generated by Google's NotebookLM, most probably based on contents from this forum.

Edited December 28, 2025 by yqsun

[Duke In Shadows]

AI podcasts are TRASH