Fairfax 2025

[SafetyinNumbers]

26 minutes ago, Parsad said:

 

Yes, correct.  Between book value and say 1.5 times book value...you are getting a ROI of 12-15% annualized if they hit their ROE target of 15% annualized.  I need a little more than that in terms of margin of safety...I'm aiming for closer to 17-20% annualized.  Cheers!

That’s a pretty high hurdle. How have you done so far?

[Parsad]

18% annualized over 25 years.  So far, so good!  Cheers!

[SafetyinNumbers]

1 hour ago, Parsad said:

18% annualized over 25 years.  So far, so good!  Cheers!

Nice. Hoping it continues for the next 25!

[Parsad]

1 hour ago, Haryana said:

Why the difference between if already having a position vs to start a new position, is it about the capital gain has to be paid?

 

Well then, it should be same vs existing position in any tax free account and it can now be sold

 

No issue with starting a position...and nothing to do with capital gains.  It's just not cheap enough to add more for the return I want on the invested capital.  Cheers!

[SafetyinNumbers]

6 minutes ago, Parsad said:

 

No issue with starting a position...and nothing to do with capital gains.  It's just not cheap enough to add more for the return I want on the invested capital.  Cheers!

 

1 hour ago, Haryana said:

Why the difference between if already having a position vs to start a new position, is it about the capital gain has to be paid?

 

Well then, it should be same vs existing position in any tax free account and it can now be sold

I was trying to determine if it was a concentration issue or a hurdle rate issue. Turns out it was the latter. 

I recently presented to a bunch of investors on the top 3 reasons why they didn’t own Fairfax and hurdle rate was #3. My own analysis suggests high teens+ ROE is more likely for the next 5 years so I’m happy to buy at this price. Fairfax has a hurdle rate of 15% themselves and they are buyers a hundred plus dollars higher which is nice confirmation. 
 

 

[Viking]

2 hours ago, SafetyinNumbers said:

 

I was trying to determine if it was a concentration issue or a hurdle rate issue. Turns out it was the latter. 

I recently presented to a bunch of investors on the top 3 reasons why they didn’t own Fairfax and hurdle rate was #3. My own analysis suggests high teens+ ROE is more likely for the next 5 years so I’m happy to buy at this price. Fairfax has a hurdle rate of 15% themselves and they are buyers a hundred plus dollars higher which is nice confirmation. 
 

 

@SafetyinNumbers, your informal pole is interesting. 
 

1.) Haven’t looked. If a 460% total return over 5 years can’t get someone interested what can? 

2.) Don’t like the equity portfolio. My question is do they actually follow/understand each of the large holdings? My guess is no. If you do the deep dive into each of the holdings, get to know management and review their performance over the past 5 years, there is a lot to like. 

3.) Doesn’t meet return hurdle. Fairfax is a compounding machine. It is still small. And it keeps improving itself. It is just entering its prime. If its return potential  isn’t good enough, what hurdle rate are they looking for?

 

Bottom line, for reasons outlined above (and others) I think there is a good chance Fairfax could stay on sale for an extended period of time. I would love it. That would give Fairfax the ability to keep taking out 3% or 4% of shares outstanding every year moving forward. When you include the FFH-TRS, Fairfax has already taken out close to 30% of effective shares outstanding since 2017. This has benefitted long term shareholders enormously. Even with buybacks, Fairfax still has lots of excess capital to use to drive top line growth.  

Edited November 4, 2025 by Viking

[djokovic1]

6 hours ago, Parsad said:

Yes, correct.  Between book value and say 1.5 times book value...you are getting a ROI of 12-15% annualized if they hit their ROE target of 15% annualized

If FFH can continue to compound at 15-20% (which it has done for 40 years), the accurate multiple on it is 2x+ book not 1-1.5 book. So your return expectation should be the 15-20% compounding + multiple expansion. I have closer to 25%- 30% from today as a base case. We don’t know when / if the multiple will re-rate but that provides a margin of safety.

 

And amazing long term track record btw!!

[Parsad]

18 minutes ago, Haryana said:

Confusing because above you answered Yes to this question 

"if you didn’t own any, you would not start a new position" 

Also, it looks there is a concentration issue here as well not just hurdle rate.

 

No, I never said any such thing...re-read the posts above.  

 

At the current price, I would not start a new position...regardless of capital gains or anything else.  The reason being valuation.  I don't want to pay above book value since that is what I have pegged as the right valuation with a margin of safety to get the return I desire.

 

Concentration is not an issue at all if it is valued appropriately.  The cheaper it is, the greater concentration I will hold.  At present valuation and going forward from here, I am comfortable allocating a third of my net worth.  If it gets cheaper, then I have no problem increasing concentration.  

 

If you concentrate in an asset simply because you think it is fairly priced or a little bit cheap, you might be exposing yourself to significant volatility or possible loss if you are wrong in your assumptions.  If it meets the target you have for yourself, then by all means go 100% into it, as long as you are comfortable with any volatility or potential loss.  Cheers!

 

 

[Parsad]

2 minutes ago, Haryana said:

Acting out devil's advocate, they are explicitly modeling a particularly bad catastrophe over the next few years which might be rational / reasonable considering the expected rise in severity of climate change. 

 

I remember just a few years ago we all used to expect big impact from the hurricanes but an extraordinary streak of mild weather years maybe naturally has caused us be complacent.

 

How the hell would they know?  Also, in the last 15 years, Fairfax tends to reserve better for catastrophes far better than 90% of its peers.  The culture and underwriting practices have changed dramatically under Andy, and the quality of the insurance subs is far better than anything they were acquiring in the period pre-2010.  Cheers!

[Parsad]

1 hour ago, djokovic1 said:

If FFH can continue to compound at 15-20% (which it has done for 40 years), the accurate multiple on it is 2x+ book not 1-1.5 book. So your return expectation should be the 15-20% compounding + multiple expansion. I have closer to 25%- 30% from today as a base case. We don’t know when / if the multiple will re-rate but that provides a margin of safety.

 

And amazing long term track record btw!!

 

No, that doesn't provide a margin of safety at all.  Your return is based on the assumption that the P/E will move up...that may or may not happen.  

 

If Fairfax stock is going to do what you think it is going to do above, Prem would be buying back stock above 1.5 X book.  Brian Bradstreet would be buying up stock above 1.5 X book.  Neither is doing that.  

 

Fairfax is buying back stock at 1.2-1.3 X book or less.  Brian is not buying above 1-1.1 X book.  Prem himself loaded up at 0.6 times book and was out by 1.3-1.4 X book.  The Total Return Swaps were bought when the stock was at 0.6 times book...while they held the TRS...I would imagine they would be complete out if it hit 2 X book value...probably closer to 1.8 X book value. 

 

The insurance and investment industries are inherently volatile at times...high expectations tends to lead to lower returns...low expectations tends to lead to higher returns.  At the same time, you tend to avoid as much volatility or risk of permanent loss.  And avoiding permanent loss is Rule #1!  Cheers!

[Parsad]

6 minutes ago, Haryana said:

I am confused which maybe because I misinterpret what it means by a "new position". Is nobody else confused by this? 

 

 

The question by SafetyinNumbers was:  Would I start a position (new or otherwise) at this valuation.

 

My answer was:  No, the current valuation is too high...it would have to be around book value or less...for me to add any sort of position (new or otherwise).

 

Not really confusing...I'm not willing to pay the current market price since from my estimates and calculations, I won't achieve the return on investment I'm targeting long-term with a margin of safety.

 

Cheers!

[This2ShallPass]

1 hour ago, Parsad said:

Prem himself loaded up at 0.6 times book and was out by 1.3-1.4 X book. 

Did Prem exit his big position ($150M buy in 2020 if I remember correctly)? I missed that.

[mananainvesting]

39 minutes ago, This2ShallPass said:

Did Prem exit his big position ($150M buy in 2020 if I remember correctly)? I missed that.

 

only a portion of his $150M position. 

[djokovic1]

3 hours ago, Parsad said:

No, that doesn't provide a margin of safety at all.  Your return is based on the assumption that the P/E will move up...that may or may not happen.  

 

It's not an assumption. It's a simple understanding of what multiple would I be happy to pay/hold for something that I believe can compound at 15-20% over the long term (albeit volatile). And my answer to that is ~2x book. If a company is compounding at close to its cost of capital lets call it 8-10%, it should trade around book. If it's doing double of that, 2x.
 

3 hours ago, Parsad said:

high expectations tends to lead to lower returns...low expectations tends to lead to higher returns. 

 

I would prefer to say, accurate expectations lead to better returns but I know what you mean

[dealraker]

5 hours ago, Parsad said:

 

How the hell would they know?  Also, in the last 15 years, Fairfax tends to reserve better for catastrophes far better than 90% of its peers.  The culture and underwriting practices have changed dramatically under Andy, and the quality of the insurance subs is far better than anything they were acquiring in the period pre-2010.  Cheers!

I had worked and been 'around' (that's the best word I can come up with) the insurance business long enough that when I invested in Fairfax (over 30 years ago) I was going with people.  At some point along the way I became overwhelmed with the complexities of insurance particularly plugging in all the variables as to most likely investment outcome.

 

I do of course consider the stats mentioned by all decently aware investors but in the end it is my belief that the only thing that's going to make Fairfax or anyone else successful in both underwriting and brokerage is management skill level.  Yes I do believe that with a logical starting point you can do very well if you know that one thing- who is better than who else.  That's as deep as I go with insurance investing which is (if you count Berkshire as 'insurance') 85% of my stuff.

 

I don't go for Parsad's returns, I'm delighted to get above the Treasury bond rate investing in equities which has led to a much-much higher long term 14% return.  Lordy I don't know how to describe how much accumulates over time at 14%...it is simply an outrageous outcome.

 

Long-long ago I got out of investments in the banking business except one, that was Bank of North Carolina.  I (we) stayed with this bank because family was both management and on the board.  While it was a small investment for me relative to other things, we did experience turmoil that was literally off-the-charts bizarre through the years with this investment.  But in the end we merged with Pinnacle Financial and we've gotten a whopping (whopping for the bank business) 12% 30 year return!  THAT is incredible for this business of land mines.

 

The only thing that differentiated Bank of North Carolina was management.  This management team had some very unique models to get there, the most different one was in each town opening one, just one, office.  From there they paid up dearly hiring the very best banking professionals in the area.  It was a very costly model, our efficiency ratio was never low at all.  But in the end the style this skilled management team used worked incredibly well.  

 

Management-management-management.  In my view that's all that counts in these insurance investments.

 

 

[SafetyinNumbers]

7 hours ago, Viking said:

@SafetyinNumbers, your informal pole is interesting. 
 

1.) Haven’t looked. If a 460% total return over 5 years can’t get someone interested what can? 

2.) Don’t like the equity portfolio. My question is do they actually follow/understand each of the large holdings? My guess is no. If you do the deep dive into each of the holdings, get to know management and review their performance over the past 5 years, there is a lot to like. 

3.) Doesn’t meet return hurdle. Fairfax is a compounding machine. It is still small. And it keeps improving itself. It is just entering its prime. If its return potential  isn’t good enough, what hurdle rate are they looking for?

 

Bottom line, for reasons outlined above (and others) I think there is a good chance Fairfax could stay on sale for an extended period of time. I would love it. That would give Fairfax the ability to keep taking out 3% or 4% of shares outstanding every year moving forward. When you include the FFH-TRS, Fairfax has already taken out close to 30% of effective shares outstanding since 2017. This has benefitted long term shareholders enormously. Even with buybacks, Fairfax still has lots of excess capital to use to drive top line growth.  

The short answers are 1) The stock doesn’t pass their checklists (heuristics) and if it does 2) the portfolio doesn’t pass their checklists and if they get to 3) they use very conservative instead of realistic estimates and have such high hurdles that they still can’t get there. Mostly though the hurdle is finding room for a new investment as avoiding taxes on something already in the portfolio is paramount. 

[djokovic1]

14 minutes ago, SafetyinNumbers said:

The short answers are 1) The stock doesn’t pass their checklists (heuristics) and if it does 2) the portfolio doesn’t pass their checklists and if they get to 3) they use very conservative instead of realistic estimates and have such high hurdles that they still can’t get there. Mostly though the hurdle is finding room for a new investment as avoiding taxes on something already in the portfolio is paramount. 

 

I think a lot of investors aren't aware of Fairfax (apart from a cursory look) or have permanently put it on the pass list because of the lost decade 2010-2020 and their investment portfolio which is very unlike a traditional 'quality' investor portfolio. (i.e your points 1 and 2 in the survey)

This is based on my anecdotal experience of talking to other investors about Fairfax. Very few know of it, let alone know of it deeply which is quite surprising given its market cap. Markel on the other hand, for example, is much better know in the investing circles. 

Edited November 4, 2025 by djokovic1

[73 Reds]

11 hours ago, SafetyinNumbers said:

 

I was trying to determine if it was a concentration issue or a hurdle rate issue. Turns out it was the latter. 

I recently presented to a bunch of investors on the top 3 reasons why they didn’t own Fairfax and hurdle rate was #3. My own analysis suggests high teens+ ROE is more likely for the next 5 years so I’m happy to buy at this price. Fairfax has a hurdle rate of 15% themselves and they are buyers a hundred plus dollars higher which is nice confirmation. 
 

 

Hurdle rate is much more than just a number.  It provides an assured return and helps minimize the risk you have to take to achieve an objective.  When I was young and stupid, came across the concept of a real hurdle rate and it changed my investment philosophy (before it was more of a gambling mentality).  I concluded that it was important to have a hurdle rate significantly higher than the long term rate of inflation but not so high as to be unrealistic.  For me, this took me outside the realm of traditional investing and into private businesses where my hurdle rate is low teens/year but with the opportunity to deploy nearly as much capital as available at nearly all times.  This completely eliminates the need or desire to look at low-return fixed income products and allows for fewer swings with a higher probability of success.  It also allows for long term capital gains tax deferral with existing equity investments and a focus on companies with long runways, essential products/services and superior management.         

[dartmonkey]

6 hours ago, Parsad said:

 

The question by SafetyinNumbers was:  Would I start a position (new or otherwise) at this valuation.

 

My answer was:  No, the current valuation is too high...it would have to be around book value or less...for me to add any sort of position (new or otherwise).

 

Not really confusing...I'm not willing to pay the current market price since from my estimates and calculations, I won't achieve the return on investment I'm targeting long-term with a margin of safety.

 

Cheers!

 

Although obviously no one has to justify what they do, count me confused as well. If it's too expensive to start a new position of any size, because of a hurdle rate of 15-20% that you're aiming for, then I could see the sense in holdiing a small position at the current if it's to avoid capital gains, but if it's just a matter of a hurdle rate, how to justify holding a position, especially if it's a huge position like 30%? In other words, apart from taxes, is there any reason to treat an existing position differently from a new position?

 

Thanks for pointing out that Watsa reduced his share position, I missed that. To recap, he bought 486,000 shares for his personal account at around $310, or 0.7x book, in 2020. I seem to have missed the fact that he sold about 275,000 of these to the company in 2024, at around $1000, a pretty nice return on that investment (about 35% annualized). It is true that in addition to the 209,000 of these shares that he kept, he also already had 520,000 other subordinate voting shares and 1,548,000 multiple voting shares. And of course, unlike most of us, he is the founder and CEO of the company, and doesn't really need the money. 

 

 

[Junior R]

heads up sale right now $2200 went down to $2175

[Junior R]

13 minutes ago, dartmonkey said:

 

Although obviously no one has to justify what they do, count me confused as well. If it's too expensive to start a new position of any size, because of a hurdle rate of 15-20% that you're aiming for, then I could see the sense in holdiing a small position at the current if it's to avoid capital gains, but if it's just a matter of a hurdle rate, how to justify holding a position, especially if it's a huge position like 30%? In other words, apart from taxes, is there any reason to treat an existing position differently from a new position?

 

Thanks for pointing out that Watsa reduced his share position, I missed that. To recap, he bought 486,000 shares for his personal account at around $310, or 0.7x book, in 2020. I seem to have missed the fact that he sold about 275,000 of these to the company in 2024, at around $1000, a pretty nice return on that investment (about 35% annualized). It is true that in addition to the 209,000 of these shares that he kept, he also already had 520,000 other subordinate voting shares and 1,548,000 multiple voting shares. And of course, unlike most of us, he is the founder and CEO of the company, and doesn't really need the money. 

 

 

I think he sold as Canada was proposing to increase capital gains from 1/2 to 2/3 which was canceled later on ...if that didn't happen he might have not sold

[SafetyinNumbers]

5 minutes ago, Junior R said:

I think he sold as Canada was proposing to increase capital gains from 1/2 to 2/3 which was canceled later on ...if that didn't happen he might have not sold

I think he made the purchase on margin too which likely influenced the decision. 

[gfp]

40 minutes ago, dartmonkey said:

 

Although obviously no one has to justify what they do, count me confused as well. If it's too expensive to start a new position of any size, because of a hurdle rate of 15-20% that you're aiming for, then I could see the sense in holdiing a small position at the current if it's to avoid capital gains, but if it's just a matter of a hurdle rate, how to justify holding a position, especially if it's a huge position like 30%? In other words, apart from taxes, is there any reason to treat an existing position differently from a new position?

 

Thanks for pointing out that Watsa reduced his share position, I missed that. To recap, he bought 486,000 shares for his personal account at around $310, or 0.7x book, in 2020. I seem to have missed the fact that he sold about 275,000 of these to the company in 2024, at around $1000, a pretty nice return on that investment (about 35% annualized). It is true that in addition to the 209,000 of these shares that he kept, he also already had 520,000 other subordinate voting shares and 1,548,000 multiple voting shares. And of course, unlike most of us, he is the founder and CEO of the company, and doesn't really need the money. 

 

 

 

Just as a small nitpick, Prem controls the 1,548,000 multiple voting shares but only economically owns 748,770 of them.  The other 799,230 multiple voting shares are economically owned by Fairfax indirectly.

[Hoodlum]

1 hour ago, SafetyinNumbers said:

I think he made the purchase on margin too which likely influenced the decision. 

 

Also, I suspect the timing of the sale of these share were in large part due to the Capital Gains tax increase that was announced to be coming a month later.   Eventually this tax increase was cancelled.   

 

Without the coming tax increase I suspect Prem may not have sold those share then, but surely would have done so in the fall of last year at a higher book multiple.  

 

Edited November 4, 2025 by Hoodlum

[dartmonkey]

36 minutes ago, gfp said:

 

Just as a small nitpick, Prem controls the 1,548,000 multiple voting shares but only economically owns 748,770 of them.  The other 799,230 multiple voting shares are economically owned by Fairfax indirectly.

Thanks for that. Now I understand better the 799,230 subtraction in the Equity table in every report, this one from Q2:

In other words, Watsa would own 748,700 of the 1,548,000 multiple voting shares, whereas the others are held by another company that Watsa controls. If it is the Sixty Two Investment Company, my understanding is that Watsa owns 100% of that company, but perhaps the 799,230 are owned by some other company that Watsa controls? If that is so, I don't really understand why these would not be part of Fairfax's equity, does anyone know?

 

In total then, Watsa would then own 748,700 subordinate voting shares, plus the 520,000 subordinate voting shares he already owned before 2020, plus 209,000 of the shares he bought in 2020, for a total of 1,477,700 shares, or about 6.8% of the company, US$2.3b at today's US$1570 price. But it would appear that he also indirectly owns the other 729,230 shares, which would put him at 2.3m shares, or US$3.5b.