Fairfax 2025

[Santayana]

49 minutes ago, TwoCitiesCapital said:

So equity hedges and deflation swaps aren't macro calls that failed?

But rather "keeping their options open for a wide range of unknowable possibilities"? 

 

Or is that only the case when it's fixed income and they lucked into being right? 

Now who's "resulting"?

 

I think we have to look at all the decisions they made during that time period, and IMO the positives of the Allied World purchase outweigh any negative decisions they made.   I just don't think they'd be the same the company today without that acquisition.

Edited October 22, 2025 by Santayana

[TwoCitiesCapital]

3 hours ago, Castanza said:

 

Rates peaked at the end of 2018. Rates started getting cut in summer of 2019 due to pandemic concerns. The pandemic threw a wrench in everything. I'm not saying you're wrong or right, but you seem to be boxing management in to a specific window of time in order to make a decision. If the pandemic never happened isn't it plausible they could have been right? 

 

Just playing devils advocate....

 

Is it plausible? Perhaps.

 

But you're own admission is that rates peaked and started to fall a full ~15 months before the COVID was anyone's concern. 

 

In 2019, forward indicators were negative, the yield curve was inverted, overnight funding markets were breaking, and the manufacturing sector had been contracting for months. Isn't it more plausible that contraction/slowdown was already, coming regardless of COVID, and that they was no economic growth miracle under Trump even if COVID has never happened? 

 

I think it's more likely that the only reason rates ever got to 4+% for them to have been majorly "right" was COVID. And even with that, here we are in Trump's second term, another round of tax cuts, M2 still massively expanded from COVID stimulus, and we have a 3-handle on the 10-year bonds again ...

 

Rates peaked over a year ago, forward indicators  have been negative for a long while, the yield curve is rapidly reinverting after spending a long time inverted, and rates are coming back down. It feels A LOT like 2019 all over again and it's feeling like Fairfax might be missing the opportunity to lock in rates all over again (though 2.5 years is WAY better than like 6-months or whatever duration was back in 2019). 

 

 

It's not like I'm shouting for them to go 2x levered on TLT. I'm simply pointing on t they missed major rates calls in the past, we're lucky with COVID to bail them out, and I kind of want them to stop making major rates called going forward with a neutral duration position of ~4 years. 

 

 

Edited October 22, 2025 by TwoCitiesCapital

[Parsad]

10 hours ago, SafetyinNumbers said:

I think that’s just called analysis. The BMO analyst on the other hand expects higher cat losses than last year and a combined ratio of 97.9.

 

I don't see FFH's CR being any higher than 96% and believe it will be close to 94.5% or so for the 3rd Q.  Cheers!

[SafetyinNumbers]

26 minutes ago, Parsad said:

 

I don't see FFH's CR being any higher than 96% and believe it will be close to 94.5% or so for the 3rd Q.  Cheers!

So pessimistic! I think closer to 90 vs 95 but I am an optimist.

 

 

[TwoCitiesCapital]

6 hours ago, Haryana said:

They prepare to protect from either inflation/deflation and take whatever the market give.

They think like an insurer using expectation/probability to adjust. 

From my humble point of view, judging their calls in the rear view mirror and being narrow focus on macro this or that is being victim of resulting while they were just doing their math. 

 

Technically I judged it before needing the rear view mirror. I sold 100% of my shares in 2018 when it was clear that rates were coming down, Fairfax had missed the boat, and nothing in the foreseeable future could justify the $550/sh it was trading at because earnings weren't going to do it. 

 

I also made posts in 2021 about Fairfax being stupid cheap when rates had nowhere to go but up and that it was clear we were at trough earnings for all insurance/bonds/equities and that it was dumb cheap at $300-400/share. 

 

It's just strange everyone views their bond plays differently than their equity plays - they're all macro bets.

 

Everyone here was banging the table for them to stop making macro bets in equities - and is glad they have seemingly done so... but somehow everyone is ok with them doing it in the bonds, wants more of it, and makes excuses for their past mistakes in doing it while calling it "maintaining optionality"

 

Isn't weird nobody views the equity hedges as 'maintaining optionality' but going to 0 duration on 100% of your fixed income exposure is? Why isn't a duration of 3-4 years to match your liabilities 'maintaining optionality' without betting the whole portfolio on higher OR lower rates? 

 

I don't understand the lack of accountability or the difference in views or why it's so controversial to point it out. 

 

 

 

 

Edited October 23, 2025 by TwoCitiesCapital

[djokovic1]

2 hours ago, SafetyinNumbers said:

So pessimistic! I think closer to 90 vs 95 but I am an optimist.

 

Yes, I think a sub 90 CR is not out of the question for this quarter. 

 

@TwoCitiesCapital I am more in agreement with your point of view than the general view on this forum. But with Fairfax, we have to accept that they will make judgment calls with macro in FI, micro in equities and underwriting volume / pricing mix. And I am invested in Fairfax because I trust their judgment and capital allocation. I am happy they have cut out macro in equities! otherwise it might become un-investable for me

That being said, I dont mind their post 2016 posture as much relative to today. As I said before, the main difference being at 4-5% rates, you don't need to think much at all and you lock in a great ROE. Why take the hassle of forecasting the future....just do the simple thing right.

The risk reward to be shorter duration makes much more sense at 0-2% when you aren't getting an acceptable ROE when investing heavily into FI.

Edited October 23, 2025 by djokovic1

[Parsad]

1 hour ago, TwoCitiesCapital said:

 

Technically I judged it before needing the rear view mirror. I sold 100% of my shares in 2018 when it was clear that rates were coming down, Fairfax had missed the boat, and nothing in the foreseeable future could justify the $550/sh it was trading at because earnings weren't going to do it. 

 

I also made posts in 2021 about Fairfax being stupid cheap when rates had nowhere to go but up and that it was clear we were at trough earnings for all insurance/bonds/equities and that it was dumb cheap at $300-400/share. 

 

It's just strange everyone views their bond plays differently than their equity plays - they're all macro bets.

 

Everyone here was banging the table for them to stop making macro bets in equities - and is glad they have seemingly done so... but somehow everyone is ok with them doing it in the bonds, wants more of it, and makes excuses for their past mistakes in doing it while calling it "maintaining optionality"

 

Isn't weird nobody views the equity hedges as 'maintaining optionality' but going to 0 duration on 100% of your fixed income exposure is? Why isn't a duration of 3-4 years to match your liabilities 'maintaining optionality' without betting the whole portfolio on higher OR lower rates? 

 

I don't understand the lack of accountability or the difference in views or why it's so controversial to point it out. 

 

 

 

 

 

Their big bet batting ratio on bonds is far better than their big bet batting ratio on equities...thanks to Brian!  I'm ok with whatever he thinks makes sense for Fairfax and the insurance liabilities.  Cheers!

[Parsad]

1 hour ago, TwoCitiesCapital said:

 

Technically I judged it before needing the rear view mirror. I sold 100% of my shares in 2018 when it was clear that rates were coming down, Fairfax had missed the boat, and nothing in the foreseeable future could justify the $550/sh it was trading at because earnings weren't going to do it. 

 

I also made posts in 2021 about Fairfax being stupid cheap when rates had nowhere to go but up and that it was clear we were at trough earnings for all insurance/bonds/equities and that it was dumb cheap at $300-400/share. 

 

It's just strange everyone views their bond plays differently than their equity plays - they're all macro bets.

 

Everyone here was banging the table for them to stop making macro bets in equities - and is glad they have seemingly done so... but somehow everyone is ok with them doing it in the bonds, wants more of it, and makes excuses for their past mistakes in doing it while calling it "maintaining optionality"

 

Isn't weird nobody views the equity hedges as 'maintaining optionality' but going to 0 duration on 100% of your fixed income exposure is? Why isn't a duration of 3-4 years to match your liabilities 'maintaining optionality' without betting the whole portfolio on higher OR lower rates? 

 

I don't understand the lack of accountability or the difference in views or why it's so controversial to point it out. 

 

 

 

 

 

Also, they will make mistakes from time to time.  We know that.  I'm not one of those people who will pay anything for Fairfax, but at the same time, my holdings are very long-term and I've put money with them because they aren't going to make it the same way as everyone else. 

 

It's a hedge against the majority (main stream market) making dumb decisions, while still making great shareholder returns long-term.  Every once in a while they will be wrong on their bet, but they will generally make it up when they are right.  C'est la vie!  Cheers!

[Munger_Disciple]

14 minutes ago, Parsad said:

 

Their big bet batting ratio on bonds is far better than their big bet batting ratio on equities...thanks to Brian!  I'm ok with whatever he thinks makes sense for Fairfax and the insurance liabilities.  Cheers!

 

  This quote should be framed by everyone and we should stop arguing about what Fairfax should be doing about bond duration. It's like a club player telling Roger Federer how to hit a forehand. 

 

"In Brian we trust" is my motto on the bond portfolio. Like Sanjeev said, worry about equity portfolio if you have to rather than the bond side. 

Edited October 23, 2025 by Munger_Disciple

[73 Reds]

8 hours ago, Parsad said:

 

Their big bet batting ratio on bonds is far better than their big bet batting ratio on equities...thanks to Brian!  I'm ok with whatever he thinks makes sense for Fairfax and the insurance liabilities.  Cheers!

Yeah, and don't all fixed income products with defined maturity dates involve some degree of macro bets?

[cwericb]

 

 

1) I have been right some of the time

2) Fairfax has been right most of the time

3) No one is right all of the time.

4) This is why I am invested in Fairfax.

 

Those who frequently complain about Fairfax strategies probably would be happier investing in other companies.

 

Personally I trust that the staff at Fairfax are not only much better investors than I, and they know what they are doing - but they also have information that few, if any here, can access.

 

How many times have we seen posts criticizing or questioning the logic of Fairfax purchasing a certain company - only to later admit the purchase was a brilliant move? Do I expect Fairfax to be right all of the time? Of course not, and they will not. But so far, so good.

 

Just my humble two cents worth.

[Hoodlum]

Moody’s has upgraded Fairfax and most of its insurance subs from Stable to Positive.  That would suggest another ratings upgrade could be coming next year. 

 

https://m.investing.com/news/stock-market-news/moodys-changes-fairfax-financial-outlook-to-positive-affirms-ratings-93CH-4305288?ampMode=1

[Thrifty3000]

16 hours ago, TwoCitiesCapital said:

 

Technically I judged it before needing the rear view mirror. I sold 100% of my shares in 2018 when it was clear that rates were coming down, Fairfax had missed the boat, and nothing in the foreseeable future could justify the $550/sh it was trading at because earnings weren't going to do it. 

 

I also made posts in 2021 about Fairfax being stupid cheap when rates had nowhere to go but up and that it was clear we were at trough earnings for all insurance/bonds/equities and that it was dumb cheap at $300-400/share. 

 

It's just strange everyone views their bond plays differently than their equity plays - they're all macro bets.

 

Everyone here was banging the table for them to stop making macro bets in equities - and is glad they have seemingly done so... but somehow everyone is ok with them doing it in the bonds, wants more of it, and makes excuses for their past mistakes in doing it while calling it "maintaining optionality"

 

Isn't weird nobody views the equity hedges as 'maintaining optionality' but going to 0 duration on 100% of your fixed income exposure is? Why isn't a duration of 3-4 years to match your liabilities 'maintaining optionality' without betting the whole portfolio on higher OR lower rates? 

 

I don't understand the lack of accountability or the difference in views or why it's so controversial to point it out. 

 

 

 

 

 

Seems to me like investing in US Bonds blurs the lines a bit between macro and micro...

 

As a Fiduciary the Fairfax team has an obligation to assess the financial strength and behavior of the borrower. In the case of lending to the US gov I don't think Brian B. has to look too hard to see government actions and circumstances that make shorter duration a perfectly rational choice. (See Japanese bonds for reference.)

 

 

[Hoodlum]

3 minutes ago, Thrifty3000 said:

 

Seems to me like investing in US Bonds blurs the lines a bit between macro and micro...

 

As a Fiduciary the Fairfax team has an obligation to assess the financial strength and behavior of the borrower. In the case of lending to the US gov I don't think Brian B. has to look too hard to see government actions and circumstances that make shorter duration a perfectly rational choice. (See Japanese bonds for reference.)

 

 

 

This does bring up a good point.  Are the US$ bonds protected in any way from $US fluctuations?  And are we required to have US$ bonds for the US insurance subs, or could the bonds be in other currencies as long as they meet the high quality requirements?

[Viking]

1 hour ago, Haryana said:

Got about 104 earnings in the first half, likely over 60 in Q3. Why you think only $185 for the whole year? 

@Haryana, when I think about earnings for Fairfax, I tend to look at the big picture - the annual increase in ‘economic EPS’. In my post back on Oct 18, I put out an estimated for 2025 of about $240/share. The build comes from three items (see below). The actual amount for each item will slosh around from quarter to quarter. We will see how Q4 finishes. 
 

I try to be conservative with my estimates. And I only update them a couple of times over the year. Yes, Q3 is shaping up to be a stronger quarter than I have built into my current estimates. Perhaps I will do an update in November. 
 

The more important number to me than what Fairfax might earn in 2025 is determining what is a ‘normalized’ level of ‘economic EPS’ is for the company today. For 2025, pretty much everything has been a tailwind for Fairfax - so I think $240/share is too high to use as a normalized economic EPS. My guess is normalized economic earnings for Fairfax are (conservatively valued) likely running around $200/share. And this amount should continue to grow nicely in the coming years. Bottom line, I prefer to be conservative with my estimates. 
 

With Fairfax’s stock trading at $1,650, it looks pretty cheap to me. I hope management vacuums up a bunch of shares at these prices.
 

—————-

 

From my post on Oct 18: “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.”

Edited October 25, 2025 by Viking

[Viking]

What is Berkshire Hathaway’s biggest problem today?

 

‘Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.' Otto von Bismarck

 

Berkshire Hathaway served as the inspiration for Fairfax’s creation way back in 1985 (when Hamblin Watsa purchased Markel’s insurance operations in Canada). Today, Berkshire Hathaway is at a much different life stage as a company than Fairfax. Being a much younger and smaller company, Fairfax has the opportunity to learn a great deal more from Berkshire Hathaway.

 

Berkshire Hathaway is almost 60 years old as a company (in its present form). If Buffett could do it all over again, would he do anything differently? Of course he would. But let’s try and focus our discussion a little more.

 

Today, we are going to ask a simple question:

 

What is Berkshire Hathaway’s biggest problem today?

 

Berkshire Hathaway’s biggest problem today is its size - it has grow into a massive company. Berkshire Hathaway has a market cap of over $1 trillion, making it the 9th largest publicly traded company in the US.

 

I don’t think this is a controversial thing to say. And that is because Warren Buffett has been warning investors about this problem for decades. It has been getting worse every year. And it will continue to get worse every year moving forward.

 

Why is size a problem?

 

Berkshire Hathaway generates an enormous amount of excess capital every year. But because of its size, it now has a very limited opportunity set. This makes reinvestment of its excess capital very difficult. This lowers the rate of return the company is able to earn.

 

As a result, the growing size of Berkshire Hathaway has been slowing the CAGR of the stock for decades. From a well above average rate of 29.2% for the first 30 years (1965 to 1994). To an above average rate of 15.7% for the next 10 years (1994 to 2004). To an average rate of 10.8% for the past 20 years (2004 to 2024). The rate of return being generated today is not a terrible thing. But clearly it is not what it once was.

 

 

What is the root cause of the problem?

 

The root cause of the problem is the power of compounding and time. As any investor knows (especially Buffett) compounding is an amazing and unstoppable force. Especially when given enough time. The result is magic.

 

Decades ago, Berkshire Hathaway’s share price got to the exciting part of compounding curve (the hockey stick part).

 

 

Ok… Yes, Buffett is the GOAT.

 

Are we done?

 

No, not so fast.

 

Let’s ask another question:

 

Was there anything Buffett could have done to stop the problem from happening?

 

No, I don’t think there was anything Buffett could have done to stop Berkshire Hathaway from becoming such a large company.

 

Ok. Dead end. Let’s reframe the question:

 

Was there anything Buffett could have done to slow the problem from happening?

 

Yes, I think there likely were some things Buffett could have done to slow Berkshire Hathaway from becoming such a large company.

 

Like what?

 

I can think of two things:

1. Stock buybacks
2. Buy and hold forever (steep aversion to selling anything)

Both of these are big topics. Today, I am going to focus only on buybacks.

 

How does buying back stock shrink the size of a company?

 

Share buybacks are paid for using cash. This shrinks both assets and shareholders’ equity. Lower shareholders equity shrinks the size of the company. 

 

Stock Buybacks

 

One of the reason’s Berkshire Hathaway got so big was Buffett refused to do any stock buybacks for many years. Even during extended periods when the company’s stock was cheap.

 

Yes, Buffett had a good reason for not doing buybacks - he could usually earn a better return by allocating excess capital in other ways. This was clearly the right short term decision. And, with hindsight, arguably the wrong long term decision for the company and shareholders.

 

Quality at a fair price

 

“A great business at a fair price is superior to a fair business at a great price.” Charlie Munger

 

Price/valuation might have been part of the problem. Perhaps Buffett was simply being too cheap - only wanting to buy back Berkshire Hathaway stock when it was wicked cheap (not just cheap). This would have severely restricted the opportunity for Buffett to buy back stock.

 

This also makes no sense. Munger (supposedly) taught Buffett that it was preferable to buy “a great business at a fair price.” Why would this logic not apply to Berkshire Hathaway itself?

 

Berkshire Hathaway was not just a great business… it was the best business in the world. And at many times in the past its shares were available at a fair price.

 

A double standard?

 

What is puzzling is Buffett loves it when companies he owns do big share buybacks (when their stock is trading at a low valuation). Apple is the best recent example. Buffett has been a big cheerleader of Apple’s buybacks for years. (Interestingly, massive buybacks have helped slow Apple’s own ‘too big’ size problem.) When it came to buybacks, Buffett seemed to have two standards - one for Berkshire Hathaway and another for the publicly traded stocks it owned.

 

Buffett finally capitulates

 

In 2011, Buffett finally relented and issued an official buyback policy for Berkshire Hathaway. But he set a buyback valuation threshold of 1.2 x BV. Really? That cheap? The result was Berkshire Hathaway repurchased few shares in the subsequent years.

 

In 2018, Buffett ended the buyback valuation threshold of 1.2 x BV and gave management more discretion with when doing buybacks. As a result, the pace of buybacks increased quite a bit.

 

But Buffett was decades too late - Berkshire Hathaway had already become a monster in size. The window of opportunity to use buybacks as a way to keep Berkshire Hathaway small was long gone.

 

The Berkshire Hathaway multiverse

 

Now imagine an alternate universe - imagine a past where Buffett was more open minded to share buybacks - actually did them in size at the appropriate times. Perhaps up to valuation threshold of 1.5 x BV - hardly a stretch for a company of Berkshire Hathaway’s quality.

 

Would that have perhaps lowered past returns a little for investors?

 

Probably a little. But it would have kept the size of the company smaller, perhaps much smaller. And this would have likely allowed the company to continue to compound at a much higher rate of return for a longer period of time - perhaps much longer.

 

Summary

 

Buffett has known for decades that Berkshire Hathaway was becoming too large of a company. After all, if anyone understands the power of compounding and time it is Buffett.

 

I think it can be convincingly argued that Buffett did not do enough to manage that specific problem, especially 20 or even 30 years ago (when it was becoming apparent). Like being more open minded with stock buybacks (the concept and the price at which they made sense).

 

Is this perhaps an example of where Buffett was not thinking long term enough?

 

Yes, that question is a bit of a mind-bender. But it appears ‘long term’ to Buffett might have meant ‘during his lifetime’ (in terms of Berkshire Hathaway being an above average compounding machine). Of course, Berkshire Hathaway is a wonderful company. But it is no longer an above average compounding machine. And the risk for the company moving forward is it shifts from an ‘average’ to ‘below average’ rate of return for long term shareholders.

 

Is there a lesson here for Fairfax?

 

Yes, I think there is. An important one that is not on the radar today of long term investors.

 

Buybacks are good because of all the usual reasons:

• When done at favourable prices (i.e. below intrinsic value), they deliver significant value. They increase the ownership stake of long term shareholders.
• They are a high certainty capital allocation activity.
• They are a sign management is rational and working in the best interests of long term shareholders.

For compounding machines like Fairfax, we now have one more good reason to do buybacks. Especially when looking 10 or 20 years into the future.

• By meaningfully shrinking the size of the company (with aggressive buybacks over a long period of time), it allows compounding to continue at above average rates of return for a much longer period of time - it extends the runway of a compounding machine.

 

Another important lesson: Don’t cheap out on the price you pay. As Charlie Munger taught investors, pay a fair price for a quality business - this will allow you to buy back many more shares than would otherwise be the case.

 

What has Fairfax been doing?

 

Fairfax has been aggressively buying back its stock since 2017. From 2017 to 2024, it has reduced effective shares outstanding by 6.1 million, or 21.9%, at an average cost of $637/share.

 

The shares were repurchased at a crazy low price. And a significant number of shares have been repurchased.

 

And if we include the FFH-total return swaps, Fairfax got exposure to 7.8 million of its shares, or 28.3%, at an average cost of $577/share. A very good news story is even better.

 

 

In 2025, Fairfax has continued to buyback shares. YTD (to September 30, 2025), my guess is they have taken out around 400,000 more shares. In August and September, shares were likely repurchased at around $1,700/share. We will get details when Fairfax reports Q3 results on November 6, 2025.

 

It appears Fairfax is comfortable paying ‘a fair price for a great business.’ This is another example of Fairfax moving up the quality ladder when deploying their excess capital.

 

Bottom line, it looks like Fairfax has gotten the memo - they appear to understand Berkshire Hathaway’s size problem. And the management team at Fairfax appears to be doing something about it - in a pretty aggressive way.

 

With buybacks it looks like Fairfax is thinking long term - the benefits of the buybacks being done today will flow to shareholders for decades into the future.

 

This discussion leads us to another really important and related topic.

 

Is having a chronically low share price (valuation) a good or a bad thing for Fairfax?

 

Having a chronically low share price (valuation) has been a gift for Fairfax and its shareholders. It has allowed the company to buy back an enormous amount of stock over the past 7 years - to get exposure to 28.3% of its effective shares outstanding at a very low average price ($577/share). This was also a high certainty/low risk use of capital for Fairfax.

 

The interesting thing is aggressive share buybacks have not impaired the company’s ability to grow its top line (the NPW of its P/C insurance business have increased in size by about 150% from 2017 to 2024). As a result, the per share value creation for long term Fairfax shareholders has been enormous.

 

Bottom line, a low share price - especially if it persists for years - is a big benefit for long term Fairfax shareholders. Remember this when you look at Fairfax’s stock price each day.

Edited October 28, 2025 by Viking

[villainx]

Would it even be a stretch that reasonable/strategic buyback is generally good?  

 

I guess at issue is when companies get carried away and keep buying back when reasonably they shouldn't?  How hard is that line.

[Marco Van Basten]

@Viking, with all due respect, in my opinion, BRK's problems are not due to size.  They are due to:

a) mismanagement of GEICO & UNP

b) Warren completely missing the great home-runs of the past decade or two: MSFT/META/GOOG/VMC/MLM/WM/RSG and GE in the past five years.

 

 

[Maverick47]

26 minutes ago, villainx said:

Would it even be a stretch that reasonable/strategic buyback is generally good?  

 

I guess at issue is when companies get carried away and keep buying back when reasonably they shouldn't?  How hard is that line.

Thanks for broaching the stock buyback subject @Viking.  Given Prem’s invocation of Singleton’s adept usage of this capital allocation option at Teledyne as an example he’d like to follow, and seeing just how much stock Fairfax has been buying back, I really think you’re on the right track in seeing this as a way that Fairfax may be able to avoid the size problem that has restricted Berkshire’s rates of return for the last few decades.

 

And your question, @villainx is an apt one.  Rational capital allocators do need to pay attention to price when they engage in buying back their own stock.  Thus far, I am completely in favor of Fairfax buying back their own stock along a spectrum of value from crazy cheap, all the way to “paying fair value for a wonderful business”.  So far, they seem to have done just that, which is beneficial for the remaining shareholders.

It’s also a good thing that Fairfax is a Canadian company rather than US, given that the current US tax code penalizes stock buybacks by levying a 1% excise tax on companies that buy back their own stock.

 

The only time stock buybacks are harmful to existing shareholders is when they are done to prop up or perhaps even increase an already overvalued stock price, possibly by a management whose incentives are not fully aligned with those of continuing shareholders.  Here I’m thinking of examples when top management receives stock options and has an incentive to try to boost share prices in the short rather than the long term, even if they might already be above a rational estimate of intrinsic value.

 

From what I can tell, Fairfax issues shares of stock to upper management as part of their incentive plans, not options.  And they encourage all employees to own shares.  Both of these indicate to me that they have thought through the potential ill effects that stock options can have on rational stock buyback decisions.

 

 

[Viking]

1 hour ago, Maverick47 said:

Thanks for broaching the stock buyback subject @Viking.  Given Prem’s invocation of Singleton’s adept usage of this capital allocation option at Teledyne as an example he’d like to follow, and seeing just how much stock Fairfax has been buying back, I really think you’re on the right track in seeing this as a way that Fairfax may be able to avoid the size problem that has restricted Berkshire’s rates of return for the last few decades.

 

And your question, @villainx is an apt one.  Rational capital allocators do need to pay attention to price when they engage in buying back their own stock.  Thus far, I am completely in favor of Fairfax buying back their own stock along a spectrum of value from crazy cheap, all the way to “paying fair value for a wonderful business”.  So far, they seem to have done just that, which is beneficial for the remaining shareholders.

It’s also a good thing that Fairfax is a Canadian company rather than US, given that the current US tax code penalizes stock buybacks by levying a 1% excise tax on companies that buy back their own stock.

 

The only time stock buybacks are harmful to existing shareholders is when they are done to prop up or perhaps even increase an already overvalued stock price, possibly by a management whose incentives are not fully aligned with those of continuing shareholders.  Here I’m thinking of examples when top management receives stock options and has an incentive to try to boost share prices in the short rather than the long term, even if they might already be above a rational estimate of intrinsic value.

 

From what I can tell, Fairfax issues shares of stock to upper management as part of their incentive plans, not options.  And they encourage all employees to own shares.  Both of these indicate to me that they have thought through the potential ill effects that stock options can have on rational stock buyback decisions.

@Maverick47, I appreciate the comment. More than anything, the purpose of my post was to serve as a thought exercise - at a very high level - to stimulate thinking on an important topic (buying back stock). My original post was going to be “Is a persistently low stock price a good thing for Fairfax?” As you can see, it changed quite a bit (got turned on its head). Another reason buybacks are such an important topic for Fairfax is I think there is a good chance the shares could remain on sale for years (for a whole bunch of reasons). By on sale, I mean trade below intrinsic value (and well below at times). If this happens, its not crazy to think they could continue to take out 4 to 5% of shares outstanding each year over the next couple of years. IMHO, that would be a great thing for the company (and long term shareholders).
 

Their share count (effective) is back to where it was before they went on their big P/C insurance global expansion (2015-2017). 
 

The other interesting thing is they are currently generating so much excess capital they still have lots left over after buybacks to continue to drive the top line growth (including taking out their minority partners in P/C insurance).

Edited October 28, 2025 by Viking

[villainx]

2 hours ago, Marco Van Basten said:

b) Warren completely missing the great home-runs of the past decade or two: MSFT/META/GOOG/VMC/MLM/WM/RSG and GE in the past five years.

 

Seems like BRK arguably could be part of this list ...

 

 

[Viking]

3 hours ago, Marco Van Basten said:

@Viking, with all due respect, in my opinion, BRK's problems are not due to size.  They are due to:

a) mismanagement of GEICO & UNP

b) Warren completely missing the great home-runs of the past decade or two: MSFT/META/GOOG/VMC/MLM/WM/RSG and GE in the past five years.

@Marco Van Basten, Buffett nailed Apple. It still didn’t matter to CAGR (even with Apple they have remained at average). The reason? The size of BRK. 
 

Yes, there are other important reasons for Berkshire’s slowing CAGR. But I continue to believe size is the main problem. It likely isn’t going to get any easier. 
 

Edited October 28, 2025 by Viking

[Xerxes]

4 hours ago, Marco Van Basten said:

@Viking, with all due respect, in my opinion, BRK's problems are not due to size.  They are due to:

a) mismanagement of GEICO & UNP

b) Warren completely missing the great home-runs of the past decade or two: MSFT/META/GOOG/VMC/MLM/WM/RSG and GE in the past five years.

 

 

I agree specifically on General Electric. It had scale, was industrial asset, had a known outsider CEO with a track record. … and more importantly the GE turn around was never at aerospace but on the wrapper around the crown jewel 
 

Me missing out is one thing … but him 

 

[Parsad]

8 hours ago, Marco Van Basten said:

@Viking, with all due respect, in my opinion, BRK's problems are not due to size.  They are due to:

a) mismanagement of GEICO & UNP

b) Warren completely missing the great home-runs of the past decade or two: MSFT/META/GOOG/VMC/MLM/WM/RSG and GE in the past five years.

 

 

 

Absolutely has to do with size.  Sure, they missed out on a few opportunities, but size has definitely reduced the number of opportunities.  Competition with P/E, hedge funds is another issue.  

 

If your universe was 2000 companies and now it's 500 companies and your are competing with the Brookfields of the world...that's going to cut into your opportunities.  And that universe will continue to get smaller.  Eventually BRK will track the index at some point when ideas and existing businesses will no longer move the needle any more than the average.  That's still probably 20-30 years away.  Where Berkshire has an advantage and may be able to prolong such an era is by acting boldly when the shit hits the fan.  They will probably be more liquid than 99% of others.  It's probably where Fairfax will hit the ball out of the park as well!  Cheers!  

[73 Reds]

8 hours ago, Parsad said:

 

Absolutely has to do with size.  Sure, they missed out on a few opportunities, but size has definitely reduced the number of opportunities.  Competition with P/E, hedge funds is another issue.  

 

If your universe was 2000 companies and now it's 500 companies and your are competing with the Brookfields of the world...that's going to cut into your opportunities.  And that universe will continue to get smaller.  Eventually BRK will track the index at some point when ideas and existing businesses will no longer move the needle any more than the average.  That's still probably 20-30 years away.  Where Berkshire has an advantage and may be able to prolong such an era is by acting boldly when the shit hits the fan.  They will probably be more liquid than 99% of others.  It's probably where Fairfax will hit the ball out of the park as well!  Cheers!  

Perhaps for now, but that is short-term thinking.  One day size will turn into a huge advantage.