What has been Fairfax's 'best' capital allocation decision made in the past 10 years?

[Viking]

When it comes to capital allocation, the management team at Fairfax has executing exceptionally well over the past 7 or 8 years. I thought it would be interesting to try and identify what their 'best' decision has been. I expanded the time-frame to 10 years.

 

Please let us know what you think. In the comment section, please let us know what your choice was and why (especially if you choose 'other'). 

 

I did not define what I meant by 'best'. You get to decide this for yourself. Please let us know what your definition is:

• Past return delivered?
• Future return potential?
• Made Fairfax an improved/stronger company?
• Some combination of the above?
• Something else entirely?

How will the Corner of Berkshire/Fairfax mob vote? I have no idea. But I look forward to the discussing/debating this critically important topic.

 

What is my choice? It is going to be the 'Other' bucket. I'll provide details in a couple of days - I want other board members to go first.

 

PS: It is instructive to put together a list of some of the items that did not make the list. Here are a few:

• Sale of First Capital in 2018 for $1 billion gain (after tax)
• Sale of pet insurance business in 2022 for $1 billion gain (after tax)
• Sale of Resolute Forest Products in 2022 at top of the lumber cycle
• Sale of Stelco in 2024 to Cleveland Cliffs for nosebleed high price 

Edited May 23, 2025 by Viking

[73 Reds]

13 minutes ago, Viking said:

When it comes to capital allocation, the management team at Fairfax has executing exceptionally well over the past 7 or 8 years. I thought it would be interesting to try and identify what their 'best' decision has been. I expanded the time-frame to 10 years.

 

Please let us know what you think. In the comment section, please let us know what your choice was and why (especially if you choose 'other'). 

 

I did not define what I meant by 'best'. You get to decide this for yourself. Please let us know what your definition is:

• Past return delivered?
• Future return potential?
• Made Fairfax an improved/stronger company?
• Come combination of the above?
• Something else entirely?

How will the Corner of Berkshire/Fairfax mob vote? I have no idea. But I look forward to the discussing/debating this critically important topic.

 

I will let you know what my choice is (and why) in a couple of days. 

 

PS: It is instructive to put together a list of some of the items that did not make the list. Here are a few:

• Sale of First Capital in 2018 for $1 billion gain (after tax)
• Sale of pet insurance business in 2022 for $1 billion gain (after tax)
• Sale of Resolute Forest Products in 2022 at top of the lumber cycle
• Sale of Stelco in 2024 to Cleveland Cliffs for nosebleed high price 

They're all good and it is far too early to choose just one because some are still playing out.  

[nwoodman]

 

What a list. It almost feels disrespectful to choose just one but at the same time, it perfectly captures the journey: where they were then versus where they are now.

 

I chose Allied World. The deal made me uneasy at the time, there was added leverage, and it didn’t appear particularly cheap. But in hindsight, it was a strategic masterstroke. It gave Fairfax a high-quality, global specialty platform with disciplined underwriting, a strong float, and deep talent. Over time, it’s quietly become a pillar of the Fairfax insurance empire, delivering steady profits, expanding global reach, and generating durable float that powers investment returns.

 

It wasn’t flashy like the TRS trade or the short-duration bond pivot but it was foundational and compounding. And competitively, it significantly strengthened Fairfax’s position relative to peers like Markel, elevating it into the top tier of global specialty insurers.

 

They were 100% right to pay up and I was wrong (no surprise there). It took time to play out, and selfishly, that delay was part of why we could buy Fairfax so cheaply in 2020–2021. But acquiring it just ahead of the “golden age” of specialty insurance? Incredibly prescient.

 

Looking forward to doing this again in five years with an even longer list. Maybe we’ll be adding teaming up with Adam Waterous, the rise of Ki at Lloyd’s, food security plays, or real estate bets quietly compounding in the background. Who knows? With Fairfax, the best moves often take time to reveal themselves but when they do, they tend to endure.

Edited May 22, 2025 by nwoodman

[Maverick47]

I chose “Other” which I would define as some combination of the macro bets on deflation, the shorting of stock market indices, and continuing to invest precious time and resources in overseeing the Blackberry investment.

 

Why did I choose this combination, which is seemingly the opposite of what one would expect a “best” capital allocation decision to be?

 

Because these were all self inflicted wounds, none of which were deadly to the company, but all of which happened to turn off a large portion of the investor base.  And because Fairfax turned out to be a learning organization, willing to recognize mistakes, they were able to pivot away from these decisions, allowing many of us to build meaningful positions in the company at significant discounts to intrinsic value.

 

I see echoes of the opportunity Buffett saw in American Express after their salad oil debacle.  There’s nothing better than identifying a company with a solid franchise that is temporarily affected by mistakes that won’t be repeated, and which won’t kill the company.  Buffett made a similar call with his Geico investment in the 1970’s.

 

[dartmonkey]

3 hours ago, Maverick47 said:

And because Fairfax turned out to be a learning organization, willing to recognize mistakes, they were able to pivot away from these decisions, allowing many of us to build meaningful positions in the company at significant discounts to intrinsic value.

 

I too voted for other, and while I love the Irish and Greek bank investments, Allied and the other insurance expansions, including Digit and Ki, the Bangalore airport, and the aggressive total return swaps, the thing I voted for is their willingness to acknowledge mistakes and make major course corrections, particularly with the shorts.

 

It can’t have been easy to close a losing short trade when they were most behind, with huge unrecoverable losses. I think they made the decision after Trump was elected, end of 2016, and the last 10 years would have been far worse if they hadn’t. And mine would have been far better if I had followed their lead. (I have now, mostly, except for a 12% index short on the S&P 50; I’m still clinging to my guns and religion, I guess.)

[Hektor]

I voted other. Switching from investing (capital, resources and time) to turn around so-so businesses to investing in quality businesses is Fairfax's best capital allocation decision in the last 10 years, in my opinion. 

[KFRCanuk]

I didn't vote BUT it got me thinking how many talented individuals are working at FFH to deliver on the above home runs. Congrats Team FFH!

[Malmqky]

Buybacks, because all the other great decisions listed are compounded by buybacks. 

[Xerxes]

Hard vote as many goodies to chose from. But I voted for Allied World as it did a bit to grow the gross premiums and diversified the overall franchise. 
 

Perhaps a different vote would be which of the ones enumerated here have not delivered any major gain thus far but could be substantial 

 

That could be Digit and the airport. 

 

 

[SafetyinNumbers]

1 hour ago, Haryana said:

Allied World

 

Insurance is the core, everything else is secondary.

People were asking for share buybacks over and over again since the depths of 2020.

Prem said over and over again that opportunity of insurance expansion will get priority over buybacks.

Maybe their aggressive allocation to insurance expansion in the latest hard market should also be added to voting options.

 

Insurance provides the foundational cashflow upfront to make any other capital allocations.

A larger deeper foundation provide the ability to add higher and higher floors to your tower.

 

Insurance companies are meant to be there as permanent while other capital allocation choices could be traded in and out.

What’s Allied World worth now? 15x 2024 earnings is 12.75b. I assume it’s paid a lot of dividends too. 

[Santayana]

Allied World was my vote, and I don't think they would have done it had the deflation hedges not been in place.

 

[Fisgard]

The best part is FFH has so many wins it is hard to choose just one without defining it. Most of the choices build on the other investments. Strong cap allocation thru out FFH combined with a low P/B multiple - makes buying back shares and the TRS great investments. 

[vinod1]

Not limiting the answer to "10 years" and "capital allocation", but taking a slightly longer term view. 

 

This is how Fairfax looked in 2011

1.  Underwriting: Fairfax did not even think in terms of underwriting profits at this time. The boast is that they are borrowing money ("float") at a lower cost than Canadian government. So a combined ratio of 101 is a flex for Fairfax! They used to buy crappy insurance companies at 0.5x book value, to get the float and the low cost compensated for the poor underwriting. So FFH has been historically a crappy underwriting up to this point. A CR of 100 is a cause for jubilation at that time! And investors strapped on the seat belts when reading CR's. This is definitely not a source of profits during this time. It also increased the possibility of tail risks.

2. Fixed Income: Zero interest rates decimated a major and reliable source of revenue and it is looking like there is no end in sight. The bond portfolio which at that time if I remember correctly is about 80% of the investment portfolio and investors cannot expect much out of this. To their immense credit, they did not reach out for yield.

3. Stocks: Hedging pretty much wiped out any chance of positive returns on the stock portfolio. The stocks they did hold are as usual pretty crappy and they are playing the odds and most are turning up duds.

 

It is a company you bought at a discount to BV and sold it after significant gains are not reflected in the stock price. Rinse and repeat.

 

So looking at it in 2011, all three engines are sputtering and it looked like the best you can get is about 5% growth in BV for a crappy underwriter exposed to tail risks. Meanwhile, the CEO is talking about 15% annual growth in BV, which has a snowball chance in hell. It was nuts!

 

Turn to 2023, 2024, 2025

1. Underwriting: Call it PTSD, but I never thought a CR of 96 or below is possible for Fairfax. They bought quality underwriters and existing businesses seems to have been completely transformed. It is now a quality underwriter, which means it has lower tail risks. This means it is quality company. 

2. Bonds: The person who deserves the most credit - Jerome Powell! Almost $80 pre-tax per share increase can be attributable to the increase in yields. FFH does get credit for not reaching for yield. This is a reliable source of earnings.

3. Stocks: They definitely shown less propensity to take risks and improved the quality of investments. 

 

All three are firing well and it tough to see how they would not be able to get 10% returns. I think the most important is the underwriting because now you can hold it for the long term. 

 

It is "Other" and the change in underwriting and buying quality insurance companies is the best "capital allocation/change" IMO.

 

Rambling ends!

 

Vinod

Edited May 24, 2025 by vinod1

[Jaygo]

I voted the buybacks.

 

I know my best capital allocation decision. Moving my Smith Maneuver (heloc) over to Fairfax from XIU, making a great return and having the fortitude to average up along the way. 

 

After todays bump I am officially up 100% on my average cost from the first 40 shares at $ 845 CAD I now have 197 at an average of $1154.00. Just wish it was in my TFSA lol

 

Thank you so much to this board and all of its contributors. This is pretty meaningful money to me even though that may seem trivial to others here so I do really need to stress my gratitude to the incredible content available here on COBF

 

 

[wondering]

I voted for Other.  My view looks at this question from another angle.  Mistakes they admitted and move on from.  Stopping the index shorts and switching Fairfax Africa to Helios showed a lot of humility and clear thinking.  When Trump got first elected they stop the index shorts.  Prem had been touting how the market was overvalued from several years before.  One could say that he was married to that thesis.  But at the risk of looking a bit stupid, he switched.  (thank God).   

 

Also when Helios took over Fairfax Africa, in a very polite way, the new managers basically said the Fairfax investments in Africa were crap, and they would be disposing of them all.  If Prem and Hamblin Watsa team had big egos they would have told Helios to take a hike.  Instead, they admitted that probably Helios will do a better job of managing an African portfolio than they would.

 

I can't remember if it was Graham/Buffet/Francis Chou that said it - but your mental attitude and framework are more important than smarts in investing in the long run.

 

The above examples demonstrate that Prem and his team have right mental attitude and framework.

[Buffett_Groupie]

The best investment is BlackBerry because it's the best lesson learned not to repeat such investment.

[SafetyinNumbers]

6 hours ago, Buffett_Groupie said:

The best investment is BlackBerry because it's the best lesson learned not to repeat such investment.

They are going to make more mistakes.

[Hamburg Investor]

On 5/31/2025 at 12:12 AM, SafetyinNumbers said:

They are going to make more mistakes.

The best decision was to still hold Blackberry, when it became meaningless in terms of size, as seeing Prem still having this in the portfolio held a lot of people back from buying Fairfax (again). So sticking to meaningless Blackberry investment helped holding the stock price (very, very) low, so that Prem could buy back a lot of stock at a fraction of its intrinsic value. 
 

Disclaimer: This post is not meant totally serious (but maybe a bit). 

[Hamburg Investor]

I voted for going short term in 2021. It looks just obviously right from todays perspective. It seems totally easy to with todays view. Why not going very short, if you‘re not getting paid for longterm? But nobody did, except FFH. So maybe it was ‚t that obvious., not that easy, than it seems today?
 

And what difference that decision made in terms of income. That was briliiant and brought billions and billions of dollars over the years (and still brings) through higher interest rates.
 

And the tineframe helped the more: The decision brought a lot of cash, when others just didn’t have that (so even pushing returns more, as this held prices down).

 

But not only that: It‘s been a motor for better ratings (so that decision saved a lot of the cost of debt). 
 

But I understand a lot of other perspectives here just as well. There’s no right or wrong when discussing that question.

[Maverick47]

45 minutes ago, Hamburg Investor said:

But I understand a lot of other perspectives here just as well. There’s no right or wrong when discussing that question

Thanks for your comments @Hamburg Investor!  You know, I think you are right.  Maybe the best answer would be “all of the above”.  
 

It’s the rare company that could have such an embarrassment of riches to choose from in responding to @Viking’s poll.  A lot of these allocation decisions interacted so synergistically with others:  growing the company in a hard market because the positioning of the bond portfolio saved billions of surplus when so many competitors did the opposite and were capital constrained, shrinking the share count in creative ways, such as with the TRS, hiding some of the results “in plain sight” with investees carried on the books at less than market value, retaining some prior poor investments on the books such as BlackBerry with the result that folks who had a sour taste in their mouth because of it stayed away too long.  And then having a CEO who voted his belief in the company with a $150 million purchase of shares on the open market for his own account.  I was blockheaded enough that it took me until that last example of Prem putting his money where his mouth was before I started adding to my own Fairfax positions again….

 

The word “lollapalooza” comes to mind…

[Viking]

My vote was ‘Other.’ The choice to maximize the growth of the P/C insurance business in the hard market since 2019. As a result Fairfax has been able to almost double the size of their insurance business over the past 5 years. This has significantly increased float and the size of the investment portfolio. At the same time, the quality of the insurance business has also improved (measured in terms of underwriting). This will be the gift that keeps on giving. 

[Viking]

49 minutes ago, Maverick47 said:

Thanks for your comments @Hamburg Investor!  You know, I think you are right.  Maybe the best answer would be “all of the above”.  
 

It’s the rare company that could have such an embarrassment of riches to choose from in responding to @Viking’s poll.  A lot of these allocation decisions interacted so synergistically with others:  growing the company in a hard market because the positioning of the bond portfolio saved billions of surplus when so many competitors did the opposite and were capital constrained, shrinking the share count in creative ways, such as with the TRS, hiding some of the results “in plain sight” with investees carried on the books at less than market value, retaining some prior poor investments on the books such as BlackBerry with the result that folks who had a sour taste in their mouth because of it stayed away too long.  And then having a CEO who voted his belief in the company with a $150 million purchase of shares on the open market for his own account.  I was blockheaded enough that it took me until that last example of Prem putting his money where his mouth was before I started adding to my own Fairfax positions again….

 

The word “lollapalooza” comes to mind…

@Maverick47 , your comment really hits the nail on the head. My goal with the poll was to highlight just how many significant exceptional capital allocation decisions the management team at Fairfax has made over the past 10 years. To your point, many were synergistic with others. It is telling that my list was missing a couple of big items - this was pointed out by other posters. Thanks to everyone on the board for voting and especially for taking the time to comment. There is lots of wisdom in the comments. 

 

But here is where things get a little crazy… Fairfax accomplished all of this when they were capital constrained. What can this company deliver/accomplish when they are all cashed up? With record operating earnings locked and loaded for the next 4 years? 
 

Their insurance business has never been better positioned. Their investment management business has never been better positioned. The quality of their portfolio of equity holdings has never been better (in terms of management, cash flow, prospects). Their capabilities as capital allocators (and as a company) appear ideally suited for the current economic environment (lots of volatility).
 

As fun (and profitable) as the past 4.5 years have been, I can’t wait to see what they do the next 5 years. ‘Time is the friend of the wonderful company.’

 

-----------

 

Below is a summary of the results with 73 people having voted.

 

Edited June 2, 2025 by Viking

[Hektor]

2 hours ago, Hamburg Investor said:

The best decision was to still hold Blackberry, when it became meaningless in terms of size, as seeing Prem still having this in the portfolio held a lot of people back from buying Fairfax (again). So sticking to meaningless Blackberry investment helped holding the stock price (very, very) low, so that Prem could buy back a lot of stock at a fraction of its intrinsic value. 
 

Disclaimer: This post is not meant totally serious (but maybe a bit). 

[Haryana]

On 5/23/2025 at 3:46 PM, Haryana said:

...

Maybe their aggressive allocation to insurance expansion in the latest hard market should also be added to voting options.

...

21 hours ago, Viking said:

My vote was ‘Other.’ The choice to maximize the growth of the P/C insurance business in the hard market since 2019. ...

[Viking]

1 hour ago, Haryana said:

 

@Haryana, we are of the same mind. +1