Fairfax 2025

[nwoodman]

12 hours ago, Munger_Disciple said:

 

 

I like your explanation better than mine though both ways of looking at buybacks are valid and provide good insight into the effectiveness of buybacks. 

Cheers.  Certainly makes you wonder what suspending the dividend and redirecting that capital into buybacks might have looked like. I’m sure many of us turned those dividends into a DIY DRIP anyway, but it was tax-inefficient. That said, it all worked out well and the TRS was arguably a clever, quiet proxy for doing just that.

[MMM20]

 

So Fairfax now trades above BRK and MKL on P/B. Who had that on their bingo card back in ~2020-21? Prem and @Viking, I guess? What a run and still ~50% cheap to intrinsic value, IMHO. Still my biggest position.

 

Edited June 24, 2025 by MMM20

[Munger_Disciple]

7 hours ago, nwoodman said:

Cheers.  Certainly makes you wonder what suspending the dividend and redirecting that capital into buybacks might have looked like. I’m sure many of us turned those dividends into a DIY DRIP anyway, but it was tax-inefficient. That said, it all worked out well and the TRS was arguably a clever, quiet proxy for doing just that.

 

As a US taxpayer subject to Canadian tax withholding prior to receiving the dividend, Amen to that! Shareholders should remember that dividends are not free. DIY DRIP is not only tax-inefficient, you are buying DRIP stock at a substantial premium to book value (1.7x). If the company has internal growth opportunities with attractive rates of return, it's best for the company to retain 100% of earnings and reinvest internally. If there are zero reinvestment opportunities, then buyback is way more tax efficient than dividends. But given the peculiarities of the management, we just have to put up with the inefficiency.

 

I view TRS a little differently when compared to buybacks. TRS is similar to a levered buyback with almost 100% margin loan. I wish they close it out at these prices. 

Edited June 24, 2025 by Munger_Disciple

[Hoodlum]

41 minutes ago, Munger_Disciple said:

 

As a US taxpayer subject to Canadian tax withholding prior to receiving the dividend, Amen to that! Shareholders should remember that dividends are not free. DIY DRIP is not only tax-inefficient, you are buying DRIP stock at a substantial premium to book value (1.7x). If the company has internal growth opportunities with attractive rates of return, it's best for the company to retain 100% of earnings and reinvest internally. If there are zero reinvestment opportunities, then buyback is way more tax efficient than dividends. But given the peculiarities of the management, we just have to put up with the inefficiency.

 

I view TRS a little differently when compared to buybacks. TRS is similar to a levered buyback with almost 100% margin loan. I wish they close it out at these prices. 

 

I think we will see a Fairfax close out a larger portion of the TRS this quarter (end of June) then they did at year end.  This is my guess and preference as well.

[SafetyinNumbers]

1 hour ago, MMM20 said:

 

So Fairfax now trades above BRK and MKL on P/B. Who had that on their bingo card back in ~2020-21? Prem and @Viking, I guess? What a run and still ~50% cheap to intrinsic value, IMHO. Still my biggest position.

 

 

I posted this on Twitter yesterday. Still some catch up to do with IFC and WRB.

 

[SafetyinNumbers]

35 minutes ago, Hoodlum said:

 

I think we will see a Fairfax close out a larger portion of the TRS this quarter (end of June) then they did at year end.  This is my guess and preference as well.

I assume they will keep shrinking as the nominal amount grows but I’m not in any hurry. Effectively taking it off is just another way of reducing leverage. I do like that it helps FFH almost always beat the consensus for the quarter since analysts can’t be bothered to model it. 

[MMM20]

6 minutes ago, SafetyinNumbers said:

Still some catch up to do with IFC and WRB.

 

Is there anything structurally superior about IFC and WRB - anything that skews their valuations appropriately higher (eg portfolios with large fair value value in excess of carrying value)? I guess it's time to sharpen pencils on whether FFH should trade in line with those others (though it's justified purely by Buffett's float math).

 

Edited June 24, 2025 by MMM20

[Crip1]

1 hour ago, Munger_Disciple said:

"I wish they close it out at these prices."

I said that several times over the past few years. My net worth has increased by Fairfax NOT following my capital allocation advice. Accordingly, I've given up...

 

-Crip

[SafetyinNumbers]

5 minutes ago, MMM20 said:

 

Is there anything structurally superior about IFC and WRB - anything that skews their valuations appropriately higher (eg portfolios with large fair value value in excess of carrying value)? I guess it's time to sharpen pencils on whether FFH should trade in line with those others (though it's justified purely by Buffett's float math).

 

Arguably IFC has a big moat in Canada for retail P&C and on that basis expected ROE is considered high (~17% at current interest rates) and predictable assisted by reporting adjusted earnings i.e. ignoring gains and losses. Actual ROE hasn’t hit that in years. WRB I’m less familiar with.

 

Fairfax will get the multiple eventually because of index flows and Canadian institutions forced to buy it to keep up with their benchmark but the narrative will be about something else.

[gfp]

13 minutes ago, MMM20 said:

 

Is there anything structurally superior about IFC and WRB - anything that skews their valuations appropriately higher (eg portfolios with large fair value value in excess of carrying value)? I guess it's time to sharpen pencils on whether FFH should trade in line with those others (though it's justified purely by Buffett's float math).

 

 

All book values are different distances from economic reality.  Fairfax could do a deal tomorrow that reduces their price to book value figure with little to no economic change in our value (part of what got Muddy Water all worked up).  Some companies should trade at huge multiples of book value because book value is borderline meaningless.  Others should trade at 1x or less.

 

BV is just a historic record of accounting rules being applied to reality periodically.  

 

How long has it been since accounting adjustments have been applied?  

 

If Fairfax buys one of these "peers" at 3x book value it will instantly be called 1x book value once Fairfax owns it.

Edited June 24, 2025 by gfp

[Viking]

19 hours ago, Marco Van Basten said:

@Viking, many of us owe you a debt of gratitude for pushing us into Fairfax.  When you are in NY, I will gladly buy you dinner as a thank you.

 

@Marco Van Basten I appreciate the comment as it does put a smile on my face to hear that other posters have had success with their investment in Fairfax. Here are some thoughts...

 

The run that Fairfax has had over the past 5 years has been epic. No one (including me) expected it. This includes Fairfax (they said so at the 2024 AGM).

 

I got lucky in 2020. Fairfax stayed cheap through Q2 and Q3. Sanjeev and others were pounding the drum all through the summer of 2020. Because of their posting, I re-established a position in Fairfax in October and I 'backed up the truck' in November right after the vaccine news was announced (largely on the assumption Fairfax's equity portfolio would spike). So I owe a big debt of gratitude to those posting back in 2020. 

 

Over the past 5 years, the quality and volume of posts on Fairfax has been outstanding. I am a good aggregator. Much of the material that found its way into my posts over the years came from others on this board. I have said this before... but I feel like the front man of a very successful band. We all owe a big debt of gratitude everyone who has posted on Fairfax over the past 5 years. Including those who pushed back, especially in the early days. That push back resulted in deeper thinking and better analysis - which has paid big dividends over the years (as the Fairfax story continued to improve).

 

I have not been a buy and hold investor, historically speaking. This is the first time I have held a concentrated position in one stock continuously for 5 years. Others on this board have been very good influences on me in this regard. @SafetyinNumbers and @bearprowler6 are two who come immediately to mind. The only reason I kept posting so much was because my position size stayed large. So, once again, thanks to other posters on this forum. 

 

Analysis is useless on its own. It needs to be combined with action to be useful. A person's investing framework and psychological makeup is what determines success when it comes to investing. If you have had success with your investment in Fairfax over the past 5 years, it is primarily because of the person you see in the mirror each morning. Not because of me or any other posters on this board.

 

This is really important. Because the success you have with your investment in Fairfax from today looking forward... will also be primarily determined by that same person you see in the mirror each morning.

 

Anyways, how things have played out with Fairfax over the last 5 years has been nuts. A lot of luck has been involved. And help and support from lots of other first class people. And, yes, some good decisions. The best part? In some important respects, I think Fairfax is just getting started (in terms of its current iteration as a company). And I can't wait to see how the next 5 years plays out. When it comes to understanding Fairfax, I think we still have much to learn. 

Edited June 24, 2025 by Viking

[MMM20]

2 minutes ago, gfp said:

 

All book values are different distances from economic reality.  Fairfax could do a deal tomorrow that reduces their price to book value figure with little to no economic change in our value (part of what got Muddy Water all worked up).  Some companies should trade at huge multiples of book value because book value is borderline meaningless.  Others should trade at 1x or less.

 

BV is just a historic record of accounting rules being applied to reality periodically.  

 

How long has it been since accounting adjustments have been applied?  

 

If Fairfax buys one of these "peers" at 3x book value it will instantly be called 1x book value once Fairfax owns it.

 

I totally hear you and that's exactly what I'm getting at. I probably just need to do the work myself to sort out how apples to apples and meaningful it is for comparison in this case.

[Munger_Disciple]

21 minutes ago, Crip1 said:

I said that several times over the past few years. My net worth has increased by Fairfax NOT following my capital allocation advice. Accordingly, I've given up...

 

-Crip

 

 LOL

[Munger_Disciple]

1 hour ago, Hoodlum said:

 

I think we will see a Fairfax close out a larger portion of the TRS this quarter (end of June) then they did at year end.  This is my guess and preference as well.

 

Amen to that!

[Buckeye]

15 minutes ago, Viking said:

If you have had success with your investment in Fairfax over the past 5 years, it is primarily because of the person you see in the mirror each morning.

This may be true, but if so, then we all owe you @Viking a big thank you for making sure that we’ve all had a very large, squeaky clean mirror to gaze into. Thanks for all of your posts Viking! 

[Hoodlum]

I wonder if we are now seeing the impact of the additional US analyst coverage of Fairfax over the past couple of months (Raymond James, Value Line, possibly others).  I know many including myself were waiting for the TSX60 index to provide more visibility, but Fairfax may be getting that now through the US.  The timing of Buffett stepping down from his role at Berkshire likely contributed to this as well.

Edited June 24, 2025 by Hoodlum

[Libs]

49 minutes ago, Buckeye said:

This may be true, but if so, then we all owe you @Viking a big thank you for making sure that we’ve all had a very large, squeaky clean mirror to gaze into. Thanks for all of your posts Viking! 

 

Hear hear. I took too long to believe this story- I had written Prem off as an erratic kook, frankly - but as we speak this is now my largest position, a ludicrous outcome considering how I felt back then.

 

Thanks from me too.

[TwoCitiesCapital]

1 hour ago, Crip1 said:

I said that several times over the past few years. My net worth has increased by Fairfax NOT following my capital allocation advice. Accordingly, I've given up...

 

-Crip

 

We can only say that definitively once it's closed. Any given quarter could contain a March 2020 where Fairfax goes down 40% in a month. And a single month of it doing that probably takes us back to prices below where you were asking for that

 

That's my concern. I'm not terribly concerned about FFH's underlying value going down by 40%, but stock prices are fickle and it's based on the stock price and not the intrinsic value.

 

And have pro-cyclical liquidity where you have to provide billions of liquidity in a down market instead of receiving it as the opposite of anti-fragile which is more of what I want from Fairfax. 

Edited June 24, 2025 by TwoCitiesCapital

[SafetyinNumbers]

1 hour ago, MMM20 said:

 

I totally hear you and that's exactly what I'm getting at. I probably just need to do the work myself to sort out how apples to apples and meaningful it is for comparison in this case.

The relationship between ROE and BV is relevant for balance sheet based financials like insurance companies and banks. I think the focus on quality from institutions and quants alike has herded investors into companies that have the most predictable growing earnings based on analyst expectations so that’s part of why they keep their multiples despite not living up to expectations. 
 

Analysts at BMO for example use operating ROE alone and ignore the equity portfolio which seems overly punitive. The multiple goes up a lot if trailing 3-5 year average ROE is used instead. Alternatively could think about 1.6x BV as below plus the value of the $20b equity portfolio which seems like a reasonable estimate of fair value.
 

[SafetyinNumbers]

1 hour ago, Viking said:

 

@Marco Van Basten I appreciate the comment as it does put a smile on my face to hear that other posters have had success with their investment in Fairfax. Here are some thoughts...

 

The run that Fairfax has had over the past 5 years has been epic. No one (including me) expected it. This includes Fairfax (they said so at the 2024 AGM).

 

I got lucky in 2020. Fairfax stayed cheap through Q2 and Q3. Sanjeev and others were pounding the drum all through the summer of 2020. Because of their posting, I re-established a position in Fairfax in October and I 'backed up the truck' in November right after the vaccine news was announced (largely on the assumption Fairfax's equity portfolio would spike). So I owe a big debt of gratitude to those posting back in 2020. 

 

Over the past 5 years, the quality and volume of posts on Fairfax has been outstanding. I am a good aggregator. Much of the material that found its way into my posts over the years came from others on this board. I have said this before... but I feel like the front man of a very successful band. We all owe a big debt of gratitude everyone who has posted on Fairfax over the past 5 years. Including those who pushed back, especially in the early days. That push back resulted in deeper thinking and better analysis - which has paid big dividends over the years (as the Fairfax story continued to improve).

 

I have not been a buy and hold investor, historically speaking. This is the first time I have held a concentrated position in one stock continuously for 5 years. Others on this board have been very good influences on me in this regard. @SafetyinNumbers and @bearprowler6 are two who come immediately to mind. The only reason I kept posting so much was because my position size stayed large. So, once again, thanks to other posters on this forum. 

 

Analysis is useless on its own. It needs to be combined with action to be useful. A person's investing framework and psychological makeup is what determines success when it comes to investing. If you have had success with your investment in Fairfax over the past 5 years, it is primarily because of the person you see in the mirror each morning. Not because of me or any other posters on this board.

 

This is really important. Because the success you have with your investment in Fairfax from today looking forward... will also be primarily determined by that same person you see in the mirror each morning.

 

Anyways, how things have played out with Fairfax over the last 5 years has been nuts. A lot of luck has been involved. And help and support from lots of other first class people. And, yes, some good decisions. The best part? In some important respects, I think Fairfax is just getting started (in terms of its current iteration as a company). And I can't wait to see how the next 5 years plays out. When it comes to understanding Fairfax, I think we still have much to learn. 

Thanks Viking. You have done amazing work and we all appreciate it. @kodiak got me into Fairfax originally and then I started to read the board!
 

Every one in the eco system has helped me gain conviction. While I find the negative feedback exasperating sometimes it does help increase confidence that I’m not missing anything as it’s usually some heuristic that has nothing to do with intrinsic value that is the basis for their objections.

[Hoodlum]

1 minute ago, SafetyinNumbers said:

Every one in the eco system has helped me gain conviction. While I find the negative feedback exasperating sometimes it does help increase confidence that I’m not missing anything as it’s usually some heuristic that has nothing to do with intrinsic value that is the basis for their objections.

 

Maybe it is time for an update from Mr Horn.

[SafetyinNumbers]

1 minute ago, Hoodlum said:

 

Maybe it is time for an update from Mr Horn.

He’s a quant. They are never going to like Fairfax. Unfortunately a lot of brokers won’t buy anything not Morningstar approved because quants keep their jobs.

[Viking]

3 hours ago, gfp said:

 

All book values are different distances from economic reality.  Fairfax could do a deal tomorrow that reduces their price to book value figure with little to no economic change in our value (part of what got Muddy Water all worked up).  Some companies should trade at huge multiples of book value because book value is borderline meaningless.  Others should trade at 1x or less.

 

BV is just a historic record of accounting rules being applied to reality periodically.  

 

How long has it been since accounting adjustments have been applied?  

 

If Fairfax buys one of these "peers" at 3x book value it will instantly be called 1x book value once Fairfax owns it.

 

@gfp , this is wonderful, thought provoking post. It leads to the following questions:

 

1.) What is the 'true' book value of Fairfax? 
2.) What is the appropriate multiple to apply to BV for Fairfax as the company exists today?

If an investor gets the answer to one of these questions wrong they will probably value the company incorrectly. If they get both answers wrong... well their resulting valuation of the company will be quite off.

 

My guess is using simple historical numbers (BV and multiple) to value Fairfax has led many investors astray over the past 5 years. And it is probably still happening today. 

 

Of course, we know BV for Fairfax is understated. But by how much? 
 

The multiple question is also very interesting. Clearly, Fairfax deserves a higher multiple than it has received in the recent past. But how much higher? 
 

My guess is:

1.) Economic BV at Fairfax today is quite a bit higher than most investors think.

2.) The multiple(to reported BV) to use to properly value Fairfax today is higher than most investors think. 
 

—————

 

Now the benefit of having an understated book value is it should lead to a higher ROE. 
 

So the relationship between BV, ROE, multiple and stock price should make sense over time. 

Edited June 24, 2025 by Viking

[SafetyinNumbers]

58 minutes ago, Viking said:

 

 

Now the benefit of having an understated book value is it should lead to a higher ROE. 
 

So the relationship between BV, ROE, multiple and stock price should make sense over time. 

I think investors that cite that book value is not relevant (especially true of BRK holders) forget that if BV is understated then it should show up in a higher ROE as you highlighted Viking. I’m not sure if the relationship between BV multiple and ROE has to make sense over time but it does provide for high margin of safety entry.

[Viking]

9 minutes ago, SafetyinNumbers said:

I think investors that cite that book value is not relevant (especially true of BRK holders) forget that if BV is understated then it should show up in a higher ROE as you highlighted Viking. I’m not sure if the relationship between BV multiple and ROE has to make sense over time but it does provide for high margin of safety entry.

 

This is a really interesting and important topic. My guess is if Fairfax's BV is understated it should make it easier for the company to deliver higher than expected ROE in the coming years. 

 

Part of the challenge with Fairfax is they only have a few years of +15% ROE under their belt. Lots of investors likely expect reversion to the mean (at a minimum, for it to come back down to its historic average).

 

If Fairfax continues to deliver a +15% ROE for 6 or 7 or 8 straight years (on average)... well, at some point my guess is it will be recognized/rewarded in the multiple and, therefore, in the price of the stock. I think some of this is what we have been seeing play out over the past year. 

 

The question is 'How high a quality company is Fairfax?' We will only know with certainly after the fact (we will only be able to connect the dots looking back). We won't know prospectively (before the fact). And, of course, that is what makes investing such an interesting exercise/discipline.