Fairfax 2025

[steph]

12 hours ago, Parsad said:

 

I don't think that is possible.  They would have to retire 6M shares at say $2,500 per share, which would come to $15B over three years.  Essentially 90% of their earnings would go just to buybacks.  Not likely as they are still going to be buying back companies they don't own 100% of.

 

What would be feasible is probably getting it down to 18M shares and that 2% dividend.  That would be 3M shares at $2,500 which would be $7.5B.  

 

And I would only want them to buy back shares if it is fully accretive to intrinsic value, revenues and earnings.  I don't want them overpaying for buybacks.  They are better off using that capital for dividends or investments elsewhere.  Cheers!

No dividends is much better.  As long as they aspire to compound at 15% no dividend should be paid.  Just the way Warren and Charlie have always done. 

[Parsad]

48 minutes ago, steph said:

No dividends is much better.  As long as they aspire to compound at 15% no dividend should be paid.  Just the way Warren and Charlie have always done. 

 

You mean keep the dividend roughly where it is...correct?  Cheers!

[steph]

Haha...I prefer no dividend at all...but understand that Prem likes to have some cash coming in every year.  

[giulio]

Given the recent discussion I thought other members might like a couple of slides from the HHH recent annual meeting. It was an interesting event, always good to hear from (arguably) one the best!

https://www.youtube.com/watch?v=DwkXOeDGSxY&list=WL&index=10&t=1164s

 

 

I applied this framework to FFH as a double check on my assumptions. I still prefer a look-through earnings approach. You can plug in your estimates! Just a couple of quick notes: 1) Mr. Watsa aim is 95 CR and 7% return on total investments (close to model), 2) tax rate might seem too low, but this is a cash tax rate, for the past 12 years FFH paid close to 18%.

 

Best,

G

[SafetyinNumbers]

45 minutes ago, giulio said:

Given the recent discussion I thought other members might like a couple of slides from the HHH recent annual meeting. It was an interesting event, always good to hear from (arguably) one the best!

https://www.youtube.com/watch?v=DwkXOeDGSxY&list=WL&index=10&t=1164s

 

 

I applied this framework to FFH as a double check on my assumptions. I still prefer a look-through earnings approach. You can plug in your estimates! Just a couple of quick notes: 1) Mr. Watsa aim is 95 CR and 7% return on total investments (close to model), 2) tax rate might seem too low, but this is a cash tax rate, for the past 12 years FFH paid close to 18%.

 

Best,

G

This is terrific. Pre 2011, investments made up for underwriting losses and post 2011 underwriting made up for poor investments (hedges) and low rates. Now that both are clicking, 20% ROE seems more likely than 15% ROE. 

[73 Reds]

9 hours ago, Viking said:

No, I don’t think they are the same. But they are complementary/synergistic. But I might not have explained it well. 
 

2.) Reinvestment is key for a company like Fairfax today. They are generating an enormous amount of excess capital. They can reinvest in a way that delivers below average, average or above average rates of return (in aggregate). 
 

My guess is most investors are not thinking deeply about reinvestment at Fairfax. Let alone how good Fairfax is at it. 
 

Reinvestment at Fairfax deserves its own long post. Suffice to say, Fairfax has many good options, they are skilled and they are generating above average returns (in aggregate).
 

3.) So what? This is where compounding comes in to play. My view is people can define compounding but they don’t really get it. Human brains can think linearly but not exponentially. This is probably what leads them to sell compounding machines when they own them - they simply underestimate the power of compounding and time. 
 

So some investors who understand #2 (the importance of reinvestment at above average rates of return) will still not invest (or sell a position prematurely) because they don’t really understand #3 (compounding).

 

Smart people have said Buffett’s greatest strength is his patience. He understands compounding/exponential growth. Patience ensures you do not interrupt exponential growth. 
 

Getting both #2 and #3 right is really hard. 
 

This is perhaps part of the reason why Philip Fisher said you NEVER sell a compounding machine when they when you have found one - regardless of what the valuation is. 

 

<<Getting both #2 and #3 right is really hard. 
 

This is perhaps part of the reason why Philip Fisher said you NEVER sell a compounding machine when they when you have found one - regardless of what the valuation is.>>

 

Yup.  The way to make it easy is to hold long-term compounders and the stocks you like most in taxable accounts.    

[djokovic1]

2 hours ago, giulio said:

I applied this framework to FFH as a double check on my assumptions.

 

Hi @giulio

 

I find this lens of looking at an insurers compounding engine very useful. I did the same exercise you did  a couple of weeks back and came to the conclusion that Fairfax has the better setup than the other insurers i) due to higher investment leverage and ii) a significant proportion of equity investments compared to the average insurer. The situation where the Ackman model may be better is if rates are between 0-2%.

 

A minor comment: The stylized Ackman model doesn't have any holding or interest costs, so true realised ROE will be lower than calculated there.

Also Ackman needs a 20% return on his equity investments to make his model work. Thats a very high hurdle and I would much rather have a high investment leverage with a lower hurdle to clear on equity investments.

[glider3834]

18 hours ago, Hoodlum said:

I don’t believe Prem has publicly stated it before. 

see below

 

[Hoodlum]

12 minutes ago, glider3834 said:

see below

 

 

Thanks @glider3834

[Spooky]

11 hours ago, giulio said:

Given the recent discussion I thought other members might like a couple of slides from the HHH recent annual meeting. It was an interesting event, always good to hear from (arguably) one the best!

https://www.youtube.com/watch?v=DwkXOeDGSxY&list=WL&index=10&t=1164s

 

 

I applied this framework to FFH as a double check on my assumptions. I still prefer a look-through earnings approach. You can plug in your estimates! Just a couple of quick notes: 1) Mr. Watsa aim is 95 CR and 7% return on total investments (close to model), 2) tax rate might seem too low, but this is a cash tax rate, for the past 12 years FFH paid close to 18%.

 

Best,

G

 

This is really interesting, thanks for sharing. Something seems quite ambitious with HHIC's proposed figures ... out of the gate they will have a 94% combined ratio and 20% ROE, higher than BRK with less invested in common stocks...

[gfp]

1 hour ago, Spooky said:

 

This is really interesting, thanks for sharing. Something seems quite ambitious with HHIC's proposed figures ... out of the gate they will have a 94% combined ratio and 20% ROE, higher than BRK with less invested in common stocks...

 

"out of the gate they will have..."  

 

They don't even own an insurance company yet!  It's pretty easy to pencil something in on a powerpoint.  Assuming 20% on the stock portfolio of the mystery insurer going forward is similarly nutty.  I'm sure Warren, Ajit and Prem wished it was as easy as putting your target combined ratio in the powerpoint.  Right next to your forward equity market returns

[Spooky]

25 minutes ago, gfp said:

 

"out of the gate they will have..."  

 

They don't even own an insurance company yet!  It's pretty easy to pencil something in on a powerpoint.  Assuming 20% on the stock portfolio of the mystery insurer going forward is similarly nutty.  I'm sure Warren, Ajit and Prem wished it was as easy as putting your target combined ratio in the powerpoint.  Right next to your forward equity market returns

 

Sounds like we should get into this insurance game! How hard can it be?

[SafetyinNumbers]

15 hours ago, giulio said:

Given the recent discussion I thought other members might like a couple of slides from the HHH recent annual meeting. It was an interesting event, always good to hear from (arguably) one the best!

https://www.youtube.com/watch?v=DwkXOeDGSxY&list=WL&index=10&t=1164s

 

 

I applied this framework to FFH as a double check on my assumptions. I still prefer a look-through earnings approach. You can plug in your estimates! Just a couple of quick notes: 1) Mr. Watsa aim is 95 CR and 7% return on total investments (close to model), 2) tax rate might seem too low, but this is a cash tax rate, for the past 12 years FFH paid close to 18%.

 

Best,

G

 

I think this one from RBC is better because it has financing costs and head office expenses built in. I like breaking out returns on each asset class but that can easily be incorporated below. 

 

[bluedevil]

This presentation is a great advertisement for the Fairfax model .  Just 40 years of work later. 
 

this makes me think of a similar effort by David Einhorn.  They tried and came to the realization that underwriting is really damn hard. 

[gfp]

Fairfax 13F for Q3.  Gradually selling down Blackberry

 

https://www.dataroma.com/m/holdings.php?m=FFH

[73 Reds]

8 minutes ago, gfp said:

Fairfax 13F for Q3.  Gradually selling down Blackberry

 

https://www.dataroma.com/m/holdings.php?m=FFH

For my $, the equity portfolio remains very much a mixed bag and the weakest of their various income streams.  In any event, I don't understand the tiny positions.

[gfp]

3 minutes ago, 73 Reds said:

For my $, the equity portfolio remains very much a mixed bag and the weakest of their various income streams.  In any event, I don't understand the tiny positions.

 

Someone should ask them about it on a call but I have always assumed they have some younger managers at Hamblin Watsa that manage small pools of capital and those are their positions.

[Hoodlum]

I see that Fairfax has started a small position in Yoga Pants. 

[Junior R]

@Parsad did you convince FFH to buy LULU lol

[dartmonkey]

51 minutes ago, gfp said:

 

Someone should ask them about it on a call but I have always assumed they have some younger managers at Hamblin Watsa that manage small pools of capital and those are their positions.

Yes, the whole North American equity portfolio reported in the 13F, at about $2b, is worth less than half the Eurobank position. And 3/4 of that $2b is in longstanding positions we know about like Orla (30%), OXY (14%), Cleveland Cliffs (9%), Blackberry (8%), KraftHeinz (6%) and Kennedy Wilson (5%), whether we like them or not.

 

New investments like a bit more KraftHeinz or a new stake in LULU represent about $5m, so for a $36b company like Fairfax, with a lot of little investment portfolios buried deep down, like in a pension plan somewhere, they’re not worth worrying about. 

[KFRCanuk]

1 hour ago, Hoodlum said:

I see that Fairfax has started a small position in Yoga Pants. 

I squeelled inside when I read that. You made my day!

[gfp]

Odyssey Re's Q3 NAIC filing is attached for the nerds

FFH_Q3_2025_23680.2025.P.Q3.P.O.3.5042652.pdf

[gfp]

18 minutes ago, gfp said:

Odyssey Re's Q3 NAIC filing is attached for the nerds

FFH_Q3_2025_23680.2025.P.Q3.P.O.3.5042652.pdf 1.98 MB · 4 downloads

 

 

They bought the tiny LULU position on 9/3 for $200.44 per share!  Not the best timing buddy

[Castanza]

Hopefully not the next BlackBerry

[Parsad]

1 hour ago, Junior R said:

@Parsad did you convince FFH to buy LULU lol

 

Not at all.  They allocate small portfolios to their junior analysts and senior analysts to manage, and that is likely one of their buys.  Now if they buy $500M worth, then it would be a HW committee decision.  Cheers!