Fairfax 2025

[dealraker]

4 hours ago, Hamburg Investor said:

@Viking Thank you again for another deep dive. What you share to me feels like different parts of a mosaic, together building a rich picture; more than I have with any other investment.

 

Regarding q2 earnings: My guess is, that you have a relatively clear picture yourself about the mininum to expect (and I guess, that this is above consensus… ;-)).

 

My general thinking is: There’s so much hidden value (and growing!!!), that we will have so much upside from time to time, when something is sold, which doesn’t regularly run through the earnings. So there’s something like a minimum, that can be anticipated; but the upside potential is just so much bigger than 1, 2, … years ago, as the „hidden value per asset“ has just grown so much on average. Do you agree?

Viking's deeps dives are part of the equation, the underlying story that he presents to just hold the stock is the major factor of wealth building.  Most can't stop the many factors of over thinking that lead to impulsive trading.

[bluedevil]

Wow, i follow Fairfax pretty closely, but i hadn’t appreciated just how much their stocks have been increasing!  Thanks Viking.  And Kudos to the Fairfax team - that is exceptional performance. 

[SafetyinNumbers]

1 hour ago, bluedevil said:

Wow, i follow Fairfax pretty closely, but i hadn’t appreciated just how much their stocks have been increasing!  Thanks Viking.  And Kudos to the Fairfax team - that is exceptional performance. 

Expectations for equity returns have been going up slightly but I still don’t think analysts or investors appreciate how the inherent leverage on the balance sheet amplifies the equity returns in ROE. 

 

I wrote about it in this substack earlier this year.

 

https://open.substack.com/pub/berczyparkcapital/p/fairfax-financial-a-generational?r=ecc87&utm_medium=ios

[Parsad]

18 hours ago, netcash1 said:

Viking...Thank you for your deep analysis.

 

Excellent as per usual!  Cheers!

[MMM20]

 

I stole this from @hardcorevalue via RayJay. They raised their 2025E EPS from ~$180 to ~$258. I'm guessing 2026E is sandbagged. Looks like we're in a really good spot with earnings set to surprise to the upside, still trading at a discount to peers, and index inclusion still on the horizon. Even if near/mid terms rates come down, maybe spreads widen out they'll get a good chance to recycle capital into higher return assets. This is still borderline uncomfortably big for me, but every day I talk myself out of selling some is a good day.

 

Edited July 25, 2025 by MMM20

[gfp]

53 minutes ago, MMM20 said:

This is still borderline uncomfortably big for me, but every day I talk myself out of selling some is a good day.

 

Don't be afraid of concentration.  If you know what you own inside and out, you should be fine holding 90%+ of your liquid net worth in one security, just like many company founders and employees do.

 

If you don't know what you own and why, 10% is probably too big.

Edited July 25, 2025 by gfp

[Viking]

20 hours ago, Hamburg Investor said:

My general thinking is: There’s so much hidden value (and growing!!!), that we will have so much upside from time to time, when something is sold, which doesn’t regularly run through the earnings. So there’s something like a minimum, that can be anticipated; but the upside potential is just so much bigger than 1, 2, … years ago, as the „hidden value per asset“ has just grown so much on average. Do you agree?

@Hamburg Investor, yes, I agree. My view is an enormous amount of economic value has been building in the equity holdings over the past 5 years that is not being captured in the accounting results. 
1.) Excess of FV over CV is the obvious example. It was -$660 million at Dec 31, 2020. At March 31, 2025, it was $1.4 billion. My guess is it could increase $1 billion in Q2 to $2.4 billion ($110/share), or an increase of $3.06 billion in 4.5 years = an increase of $680 million per year.

2.) Fairfax India is captured at Fairfax India’s stock price. Trading at $20 this has increased quite a bit in recent years. This is still below book value. And book value is way low, IMHO. I think BIAL is worth much more than the value it is currently carried at in Fairfax India’s book value.

3.) The consolidated equity holdings have been ‘under earning’ for years. My guess is they are performing just fine… it is just being masked in the reported results (and carrying value). 
4.) Ki Insurance, while not an equity, is another holding to watch. 
 

The really interesting thing is this is a bunch of value that has already been created. And it will recognized in the coming years - Fairfax has a long history of finding ways to surface/communicate hidden value. It is like Fairfax has an off balance sheet item with $3.5 or $4 billion sitting in it today. It is growing each year. We just don’t know when they will harvest the gains. When they do it will come as a surprise (to most observers). Who could have known? This will boost ROE as it gets harvested (analysts don’t generally build it into their estimates).
 

Two good recent examples are Sigma (in Q1) and Prakiter (in July). With Sigma, Fairfax booked a $179 million gain. My guess is Praktiker might deliver a realized gain in the $100 million range in Q3… and I am not sure it was very profitable (from an accounting perspective) while Fairfax owed it. I think it was focussed on market position/growth not reported profits. But this is just a guess on my part (I don’t want to sound like I have gone off the deep end to the accountants on the board). Almost nobody was expecting these kinds of gains from Sigma and Praktiker - including me (although I suspect @glider3834 was on to Sigma).

The 800 pound gorilla is Eurobank. The excess of FV over CV is going to balloon in size in Q2. It could easily keep growing by $500 to $750 million each of the next couple of years. My guess is Fairfax is going to sit tight with this holdings for at least the next year or two. There is likely too much torque to the upside (fundamentals) to sell a big chunk now. 

Edited July 26, 2025 by Viking

[MMM20]

15 hours ago, gfp said:

 

Don't be afraid of concentration.  If you know what you own inside and out, you should be fine holding 90%+ of your liquid net worth in one security, just like many company founders and employees do.

 

If you don't know what you own and why, 10% is probably too big.

I’m with you and it’s probably a longer discussion on another thread, but I’ve said before that I started this out at ~10% in Jan ‘21 and let it run up to ~40% before cutting it back maybe a year ago after failing the sleep at night test. It probably says more about some of my other picks that I’m back at 30%+ and that’s still concentrated in my situation. I’ve gotten there through trial and error and generally fine with 10-20 positions and top 5 about 50% of net worth. IMHO good portfolio management is a constant tension between conviction and epistemic humility (some food for thought here = “The only time you're really diversified is when you have assets you don't want to own." -Peter Bernstein), between getting rich and staying rich. The fact is that no matter how deep you get, some things are unknowable to outsiders (and even insiders!). I’ve tinkered my way over time into bias for inertia in core positions in great businesses like Fairfax, Berkshire, Philip Morris, Exor/Ferrari and Prosus/Tencent unless they’re trading at absurd prices (Ferrari these days but still basically free within Exor) or I start failing the sleep at night test. I guess my point is it’s not some willy nilly itchy trigger finger but a rough regret minimization framework that works for me. “Never sell” is back en vogue again these days, and I’ve learned a lot from guys like Munger and Akre, but from guys like Prem too. Still learning but I’ve taken what resonates from all of them and ended up with a mix that seems to fit / suit me. And Fairfax still by far my biggest position right now like for the past 4.5 years. Lucky or good? Still unclear!
 

Edited July 26, 2025 by MMM20

[73 Reds]

1 hour ago, MMM20 said:

I’m with you and it’s probably a longer discussion on another thread, but I’ve said before that I started this out at ~10% in Jan ‘21 and let it run up to ~40% before cutting it back maybe a year ago after failing the sleep at night test. It probably says more about some of my other picks that I’m back at 30%+ and that’s still concentrated in my situation. I’ve gotten there through trial and error and generally fine with 10-20 positions and top 5 about 50% of net worth. IMHO good portfolio management is a constant tension between conviction and epistemic humility (some food for thought here = “The only time you're really diversified is when you have assets you don't want to own." -Peter Bernstein), between getting rich and staying rich. The fact is that no matter how deep you get, some things are unknowable to outsiders (and even insiders!). I’ve tinkered my way over time into bias for inertia in core positions in great businesses like Fairfax, Berkshire, Philip Morris, Exor/Ferrari and Prosus/Tencent unless they’re trading at absurd prices (Ferrari these days but still basically free within Exor) or I start failing the sleep at night test. I guess my point is it’s not some willy nilly itchy trigger finger but a rough regret minimization framework that works for me. “Never sell” is back en vogue again these days, and I’ve learned a lot from guys like Munger and Akre, but from guys like Prem too. Still learning but I’ve taken what resonates from all of them and ended up with a mix that seems to work for me. And Fairfax still by far my biggest position right now like for the past 4.5 years. Lucky or good? Still unclear!
 

"Never sell" never went out of vogue as long as there was no reason to sell.  Folks who listen to so-called experts are destined for the same results as those experts.  Thanks but not thanks.  

[MMM20]

35 minutes ago, 73 Reds said:

"Never sell" never went out of vogue as long as there was no reason to sell.  Folks who listen to so-called experts are destined for the same results as those experts.  Thanks but not thanks.  

Again, probably better on another thread, but it's about price relative to a disciplined long-term view of intrinsic value, and even Buffett would tell you there is a price at which we should exit even the best business in the world. (And to bring it back to Fairfax, that price would be something like US$5,000 or so these days in my view.) I hope that’s obvious - I’m not trying to be controversial. My takeaway from guys like Akre (ignoring tax for a minute) is not that he’d literally never sell something like Mastercard, but that intrinsic value to a truly permanent owner of a quality durable business like that is still higher in his view. Maybe there’s some nuance there that tends to get lost. Anyway, my point is that you see stretched valuations from time to time and that seems to coincide with peak “never sell” chatter when it would be better to hear everywhere in times like 2009. That’s Mr Market!

 

Edited July 26, 2025 by MMM20

[73 Reds]

22 minutes ago, MMM20 said:

Again, probably better on another thread, but it's about price relative to a disciplined long-term view of intrinsic value, and even Buffett would tell you there is a price at which we should sell even the best business in the world. I hope that’s obvious - I’m not trying to be controversial. My takeaway from guys like Akre (ignoring tax for a minute) is not that he’d literally never sell something like Mastercard, but that intrinsic value to a truly permanent owner of a quality durable business like that is still higher in his view. Maybe there’s some nuance there that tends to get lost. Anyway, my point is that you see stretched valuations from time to time and that seems to coincide with peak “never sell” chatter when it would be better to hear everywhere in times like 2009. That’s Mr. Market!
 

In a practical world where nothing goes up in price a lot and forever, there are indeed businesses that I'd argue should never be sold - unless or until the" buy and own" thesis no longer exists.  Most private business owners understand this concept better than passive equity investors.

[nwoodman]

The question of concentration is always a juggle. But if you believe in capital allocation machines like FFH, you’re getting more than adequate diversification. I’m more than comfortable holding large positions and copping the conglomerate discount which, in my view, is the margin of safety.

 

We know Bradstreet is a 3–4 sigma event in fixed income. The equity positions, which I think are just as,  but perhaps more important, over the long term,  are finally getting some recognition in the market. But scorekeeping on a quarterly basis is no reflection of true IV. Anyone following the undelying IV evolution of the equity book knows there’s a lot more upside ahead.

 

This is perhaps slightly at odds with my view that the TRS position should be wound down, but that view is more about risk management. In a deleveraging event, there’s nowhere to hide, and you’d hate to see cash drained to shore up the TRS just as the market is offering up gems. It’s an optionality issue,  no doubt the asymmetry has worked to date but an outlier event could undo a lot of this good even if the IV of Fairfax remains constant. 

 

 

Edited July 26, 2025 by nwoodman

[73 Reds]

2 minutes ago, nwoodman said:

The question of concentration is always a juggle. But if you believe in capital allocation machines like FFH, you’re getting more than adequate diversification. I’m more than comfortable holding large positions and copping the conglomerate discount which, in my view, is the margin of safety.

 

We know Bradstreet is a 3–4 sigma event in fixed income. The equity positions, which I think are just as,  but perhaps more important, over the long term,  are finally getting some recognition in the market. But scorekeeping on a quarterly basis is no reflection of true IV. Anyone following the undelying IV evolution of the equity book knows there’s a lot more upside ahead.

 

This is perhaps slightly at odds with my view that the TRS position should be wound down, but that view is more about risk management. In a deleveraging event, there’s nowhere to hide, and you’d hate to see cash drained to shore up the TRS just as the market is offering up gems.

 

 

No matter what happens from here on out, the TRS was ingenious.  When you consider that it has been far better than simply repurchasing shares, had the company repurchased shares in lieu of the gains thus far achieved through the TRS, any capital used to have repurchased additional shares would also not be available for allocation in the event of an overall market downdraft.  As for the issue of concentration, it obviously only makes sense for folks of a similar mindset.  One of my heroes, Jack Bogle, would argue for widespread diversification in the form of a broad based, low cost ETF like SPY, which is in fact perfect for those who haven't the time, interest or ability to manage investments.  But like anything else, when you, a private investor, have one or more advantages in the form of knowledge, willingness to learn, or innate ability, why not use these advantages to outperform diversification?  The "experts" tell you to diversify, rebalance, sell your winners LOL, etc... but for those with an advantage, does this really make sense?  

[MMM20]

6 hours ago, 73 Reds said:

In a practical world where nothing goes up in price a lot and forever, there are indeed businesses that I'd argue should never be sold - unless or until the" buy and own" thesis no longer exists.  Most private business owners understand this concept better than passive equity investors.

Let me put it this way. Do you disagree that there’s some price at which Prem would sell Fairfax to Berkshire?

[73 Reds]

7 minutes ago, MMM20 said:

Let me put it this way. Do you disagree that there’s some price at which Prem would sell Fairfax to Berkshire?

That's like asking successful private business owners whether they want to sell.  I think the price is less important than whether they are ready to retire or move onto something else.  I think if Prem and family are happy and productive managing Fairfax there really isn't a price.  In any event you know Berkshire is not going to overpay so the issue is moot.

Edited July 26, 2025 by 73 Reds
missed line

[Viking]

2 hours ago, MMM20 said:

Let me put it this way. Do you disagree that there’s some price at which Prem would sell Fairfax to Berkshire?

I don’t think there is a price (where Prem would sell to BRK).
1.) When you already have more money than you (or your future generations) will ever need what does more money get you? Nothing.

2.) Control. Prem is an entrepreneur - control is EVERYTHING. And he certainly could not want to tie Ben’s hands in the future (by giving up control of the company).

3.) Where each company is in their life cycle. In important respects, it can be argued that Fairfax is just entering its prime. It is the perfect size (not too small amd certainly not too big). The next 10 years could be magic - in terms of compounding. Selling now would be idiotic. BRK, on the other hand, is an aging elephant (managed like a giant trust on behalf of the many families who have built fortunes being invested in BRK the past 60 years).

4.) Patriotism. Prem is a proud Canadian. He would not be interested in selling out to an American company - especially in today’s environment. 

 

Fairfax and BRK are vastly different companies today, at very different stages in their life cycles and on very different trajectories. 

Edited July 26, 2025 by Viking

[villainx]

On 7/25/2025 at 4:20 PM, MMM20 said:

This is still borderline uncomfortably big for me

 

Humblebrag!   

 

 

 

Edited July 26, 2025 by villainx

[SafetyinNumbers]

49 minutes ago, Viking said:

I don’t think there is a price (where Prem would sell to BRK).
1.) When you already have more money than you (or your future generations) will ever need what does more money get you? Nothing.

2.) Control. Prem is an entrepreneur - control is EVERYTHING. And he certainly could not want to tie Ben’s hands in the future (by giving up control of the company).

3.) Where each company is in their life cycle. In important respects, it can be argued that Fairfax is just entering its prime. It is the perfect size (not too small amd certainly not too big). The next 10 years could be magic - in terms of compounding. Selling now would be idiotic. BRK, on the other hand, is an aging elephant (managed like a giant trust on behalf of the many families who have built fortunes being invested in BRK the past 60 years).

4.) Patriotism. Prem is a proud Canadian. He would not be interested in selling out to an American company - especially in today’s environment. 

 

Fairfax and BRK are vastly different companies today, at very different stages in their life cycles and on very different trajectories. 

Agree 100%.

 

I also think they may not issue more shares so they can avoid being put into play. The more employees and the family own the better. 

[nwoodman]

10 hours ago, 73 Reds said:

No matter what happens from here on out, the TRS was ingenious.  When you consider that it has been far better than simply repurchasing shares, had the company repurchased shares in lieu of the gains thus far achieved through the TRS, any capital used to have repurchased additional shares would also not be available for allocation in the event of an overall market downdraft.  As for the issue of concentration, it obviously only makes sense for folks of a similar mindset.  One of my heroes, Jack Bogle, would argue for widespread diversification in the form of a broad based, low cost ETF like SPY, which is in fact perfect for those who haven't the time, interest or ability to manage investments.  But like anything else, when you, a private investor, have one or more advantages in the form of knowledge, willingness to learn, or innate ability, why not use these advantages to outperform diversification?  The "experts" tell you to diversify, rebalance, sell your winners LOL, etc... but for those with an advantage, does this really make sense?  

No question, the TRS was genius.  I have only had a cursory look (a while back) and couldn’t find any examples of companies employing the strategy so I think it is also unique.

 

Slightly off topic and hopefully the timestamp works, but I think those of us here that concentrate definitely share a similar philosophy to Druckenmiller where he was paraphrasing Andrew Carnegie:

 

 

[Hektor]

7 hours ago, MMM20 said:

Let me put it this way. Do you disagree that there’s some price at which Prem would sell Fairfax to Berkshire?

I doubt BRK (particularly with WEB around) would want all of Fairfax. They might go for some of the insurance subs, if offered.

[villainx]

13 hours ago, 73 Reds said:

No matter what happens from here on out, the TRS was ingenious. 

 

Is it?  I mean is it for other fairly well run companies?  Fairfax entered into TRS in 2020, at that time, there was definitely at discount, but could be argued not outrageously discounted?  Since then, Fairfax has had a meteoric rise, but ... in another timeline, stock price could stay irrationally discounted longer and might have led to more issues?  

 

I guess my gist is that other companies could have adopted same strategy and things could have played out differently?

 

 

[SafetyinNumbers]

6 hours ago, villainx said:

 

Is it?  I mean is it for other fairly well run companies?  Fairfax entered into TRS in 2020, at that time, there was definitely at discount, but could be argued not outrageously discounted?  Since then, Fairfax has had a meteoric rise, but ... in another timeline, stock price could stay irrationally discounted longer and might have led to more issues?  

 

I guess my gist is that other companies could have adopted same strategy and things could have played out differently?

 

 

All investment decisions are probabilistic. The odds were very good here and it worked out but it really was just cheap form of leverage when other capital was needed to grow premiums. I think if using the Buffett method of book value + float it was outrageously discounted. 

[MMM20]

16 hours ago, 73 Reds said:

That's like asking successful private business owners whether they want to sell.  I think the price is less important than whether they are ready to retire or move onto something else.  I think if Prem and family are happy and productive managing Fairfax there really isn't a price.  In any event you know Berkshire is not going to overpay so the issue is moot.

Fair enough, take the Berkshire piece out of it. Let’s say OMERS, CPPIB, IFC… pick your Canadians @Viking. I have a hard time believing Prem wouldn’t give up control for ~4-5x book, but maybe it gets back to a mentality difference (related to the fact that I don’t sleep well with 30-40%+ in one investment, even one as lookthrough diversified as BRK or FFH) that I’ll never understand and one of about a hundred reasons he’s a billionaire and I’ll never be. The point I was trying to make is that with purely economic considerations there’s a price at which I’d sell any business, and I don’t want to lose sight of that. I would’ve been the guy to sell CSCO in 1997-98 and I’m ok with it. I’d fully exit FFH at ~3-3.5x book now, FWIW, and all else equal I’d expect them to issues a whole bunch of shares around there (agreed @SafetyinNumbers?)

 

Edited July 27, 2025 by MMM20

[73 Reds]

57 minutes ago, MMM20 said:

Fair enough, take the Berkshire piece out of it. Let’s say OMERS, CPPIB, IFC… pick your Canadians @Viking. I have a hard time believing Prem wouldn’t give up control for ~4-5x book, but maybe it gets back to a mentality difference (related to the fact that I don’t sleep well with 30-40%+ in one investment, even one as lookthrough diversified as BRK or FFH) that I’ll never understand and one of about a hundred reasons he’s a billionaire and I’ll never be. The point I was trying to make is that with purely economic considerations there’s a price at which I’d sell any business, and I don’t want to lose sight of that. I would’ve been the guy to sell CSCO in 1997-98 and I’m ok with it. I’d fully exit FFH at ~3-3.5x book now, FWIW, and all else equal I’d expect them to issues a whole bunch of shares around there (agreed @SafetyinNumbers?)

 

My answer echoes that of Viking.  As a private business owner I have no interest in selling any business because they generate good returns and the work is enjoyable.  

[73 Reds]

8 hours ago, villainx said:

 

Is it?  I mean is it for other fairly well run companies?  Fairfax entered into TRS in 2020, at that time, there was definitely at discount, but could be argued not outrageously discounted?  Since then, Fairfax has had a meteoric rise, but ... in another timeline, stock price could stay irrationally discounted longer and might have led to more issues?  

 

I guess my gist is that other companies could have adopted same strategy and things could have played out differently?

 

 

The genius of the TRS was that Prem & Co. were simply betting on themselves and they completely controlled the outcome.  Far different than placing a bet on, or as a third party.