Hoodlum Posted January 19 Posted January 19 29 minutes ago, SafetyinNumbers said: That cross was from Questrade. I’m not sure what it means to be honest. My guess is an international broker using them for direct market access. Alls of these larger block sales have increased the average daily trading volume which allows Fairfax to buy more shares than they would have been able to in the past, when the stock price does drop like the past 2 days. I hope these block trades continue.
Viking Posted January 19 Posted January 19 (edited) 3 hours ago, djokovic1 said: Yeah agree, this random price move doesn't make any sense. All we can do is thank Mr. Market for the opportunity to add and wait. I agree. Higher earning + higher multiple + much lower share count = outstanding investment This is the story that has been playing out with Fairfax for 5 straight years. My guess is it continues for the next 5 (that is a far out as my crystal ball looks). The stock trades today at about 1.4 x YE BV. Cheap. And you get $3 or $4 billion in hidden value for free (excess of FV over CV, BIAL, Poseidon etc). Meaning it is much cheaper than it looks. Like the past 5 years, the key is patience. ---------- A low share price just means Fairfax will be able to continue to vacuum up shares - giving us visibility into the 'much lower share count' part of the equation. Love it! Edited January 19 by Viking
Viking Posted January 21 Posted January 21 (edited) Capital Allocation & Share Buybacks – Warren Buffett (theory) – Fairfax (real world example) The Big Picture Three factors drive stock returns over the long term: Earnings Valuation multiple Shares outstanding The first two get most of the attention. The third – shares outstanding – is often ignored by investors, yet it can be a powerful driver of per-share value creation. Capital Allocation Matters Capital allocation is the most important function of a management team and stock buybacks are one of many options that are available to them. When executed properly — at attractive prices and over many years — buybacks can be extraordinarily beneficial for shareholders. Of all the capital allocation options available to management, share buybacks carry the highest degree of certainty. High certainty = low risk. “When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.” Warren Buffett – Berkshire Hathaway 1984AR Why Buybacks Are So Powerful It is counterintuitive, but for long-term shareholders a low stock price can be a gift - if the company is aggressively repurchasing shares. Especially if this persists for years. Buffett highlights two key benefits: 1. Higher Per-Share Intrinsic Value This is “basic arithmetic.” Repurchasing undervalued shares increases ownership for remaining shareholders and immediately boosts intrinsic value per share. 2. A Higher Valuation Multiple This benefit is more subtle – and often overlooked. When management repurchases shares well below intrinsic value, it sends a powerful signal. It demonstrates rational, shareholder-aligned capital allocation rather than empire building. Buffett explains: “The companies in which we have our largest investments have all engaged in significant stock repurchases at times when wide discrepancies existed between price and value. As shareholders, we find this encouraging and rewarding for two important reasons - one that is obvious, and one that is subtle and not always understood. The obvious point involves basic arithmetic: major repurchases at prices well below per-share intrinsic business value immediately increase, in a highly significant way, that value. When companies purchase their own stock, they often find it easy to get $2 of present value for $1. Corporate acquisition programs almost never do as well and, in a discouragingly large number of cases, fail to get anything close to $1 of value for each $1 expended. “The other benefit of repurchases is less subject to precise measurement but can be fully as important over time. By making repurchases when a company’s market value is well below its business value, management clearly demonstrates that it is given to actions that enhance the wealth of shareholders, rather than to actions that expand management’s domain but that do nothing for (or even harm) shareholders. Seeing this, shareholders and potential shareholders increase their estimates of future returns from the business. “This upward revision, in turn, produces market prices more in line with intrinsic business value. These prices are entirely rational. Investors should pay more for a business that is lodged in the hands of a manager with demonstrated pro-shareholder leanings than for one in the hands of a self-interested manager marching to a different drummer...” Warren Buffett – Berkshire Hathaway 1984AR Fairfax’s Buyback Philosophy Prem Watsa laid out Fairfax’s long-term strategy in the 2018 Annual Report: “I mentioned to you last year that we are focused on buying back our shares over the next ten years as and when we get the opportunity to do so at attractive prices. Henry Singleton from Teledyne was our hero as he reduced shares outstanding from approximately 88 million to 12 million over about 15 years.” Prem Watsa – Fairfax 2018AR Fairfax approaches buybacks exactly like a value investor: Buy shares when they are cheap “Back up the truck” when they are really cheap What Has Fairfax Actually Done? 2015–2017: Share Issuance Fairfax issued shares to fund aggressive international P/C insurance expansion. Effective shares outstanding peaked in 2017 at 27.75 million Fairfax issued 7.2 million shares from 2015–2017 Average issuance price: ~$462 per share 2017–2025: Aggressive Buybacks Once the expansion phase ended, Fairfax shifted to large-scale repurchases. Effective shares outstanding (Dec 31, 2025E): 21.0 million Shares retired since 2017: 6.75 million shares Total reduction: 24.3% Average repurchase price: ~$734 per share Over the past eight years, Fairfax spent $5.0 billion buying back stock – its single largest investment. The result: a massive reduction in share count. Did Fairfax Get Good Value? Absolutely. Book value per share: $1,255 (Dec 31, 2025E) Share price: $1,734 (January 20, 2026) Intrinsic value: well above book value Fairfax reduced shares outstanding by 24.3% at an average price of $734 per share. Repurchases were done at a significant discount to book value. And Fairfax “backed up the truck” – they took out a significant number of shares. Even more impressive: Fairfax aggressively grew its core P/C insurance business at the same time Net premiums written (NPW) 2017: $10B ($353 per share) 2025E: $26.6B ($1,265 per share) Total growth: 166% Per-share growth: 252% Fairfax walked and chewed gum at the same time. Thanks to buybacks, per-share growth massively outpaced total growth. This is elite capital allocation. Is Fairfax Done Buying Back Shares? Current valuation: Share price: $1,734 (Jan 20, 2026) Book value: $1,255 (Dec 31, 2025 estimate) P/BV: ~1.38 ROE: averaging high teens in recent years Fairfax is still cheap. And book value excludes a large amount of hidden value that has accumulated over the past five years. My conservative estimate: Hidden value: ~$4.5B Per share (after tax): ~$150 The hidden value is residing in Eurobank, Fairfax India, Poseidon and other holdings. I have discussed this at length in pervious posts so I won’t go into details again here. I also expect Fairfax to remain cheap — likely for years. The company is still misunderstood and unloved. Most investors and analysts do not understand their business model or grasp the quality of the business or management. That is wonderful for long-term shareholders. It allows Fairfax to continue reducing shares outstanding at very attractive prices. Bottom Line Over the past eight years, Fairfax has executed a textbook, Buffett-style buyback program: Repurchased aggressively when deeply undervalued Created enormous per-share value Maintained strong growth in its core business This is exactly what exceptional capital allocation looks like. Fairfax is putting on a clinic. It is also an important sign to investors that Fairfax is being run in a very shareholder friendly way. One More Thing: Fairfax’s Total Return Swaps Fairfax also holds total return swaps (TRS) on its own stock. Fairfax put on the position in late 2020/early 2021 at an average cost of $373 per share. The initial position was 1.96 million shares, and currently sits at 1.76 million. (Position was reduced by ~200,000 in Q4, 2024 – Fairfax purchased and retired shares from the counterparty.) Over the past 5 years, the TRS-FFH has increased in value by about $2.9 billion (before carrying costs). This has become one of Fairfax’s best investments ever. Some investors view this as a form of synthetic buyback. If we include TRS: Effective shares retired (8 years): 30.7% Average price: ~$660 per share Yes — that is absurdly good. Henry Singleton would approve. Edited January 21 by Viking
LC Posted January 21 Posted January 21 @Viking Could you share your long-term (let's say 2-5 year) expectations for the primary drivers of earnings / BV growth: 1) underwriting profit i.e. combined ratio + growth 2) expected returns on bond/FI portfolio 3) equity investments 4) wholly-owned/consolidated JVs Buying into Fairfax in 2021 was an easy decision because you could look at market cap and compare it to just their fixed income portfolio, and see it was trading at a single digit multiple of just that income stream. Today I think we need to consider all the income streams and our expectations over the next few years. I think Fairfax is still reasonably priced but requires a more thorough look to explain why.
SafetyinNumbers Posted January 21 Posted January 21 41 minutes ago, LC said: @Viking Could you share your long-term (let's say 2-5 year) expectations for the primary drivers of earnings / BV growth: 1) underwriting profit i.e. combined ratio + growth 2) expected returns on bond/FI portfolio 3) equity investments 4) wholly-owned/consolidated JVs Buying into Fairfax in 2021 was an easy decision because you could look at market cap and compare it to just their fixed income portfolio, and see it was trading at a single digit multiple of just that income stream. Today I think we need to consider all the income streams and our expectations over the next few years. I think Fairfax is still reasonably priced but requires a more thorough look to explain why. I think it may be useful to come up with a range for expectations using the RBC ROE model. What’s the low vs high end for combined ratio? What is a range of investment returns? If fixed income is 2/3rds of the portfolio and it’s earning 5%, what’s a reasonable range for equities? What possible gains could make their way into BV over the next few years between Eurobank, BIAL, Poseidon, Ki (not in the equity portfolio) etc..
Viking Posted January 22 Posted January 22 (edited) 2 hours ago, LC said: @Viking Could you share your long-term (let's say 2-5 year) expectations for the primary drivers of earnings / BV growth: 1) underwriting profit i.e. combined ratio + growth 2) expected returns on bond/FI portfolio 3) equity investments 4) wholly-owned/consolidated JVs Buying into Fairfax in 2021 was an easy decision because you could look at market cap and compare it to just their fixed income portfolio, and see it was trading at a single digit multiple of just that income stream. Today I think we need to consider all the income streams and our expectations over the next few years. I think Fairfax is still reasonably priced but requires a more thorough look to explain why. @LC, great question. I think it highlights what lots of investors are getting wrong when they look at Fairfax today. My view is the Fairfax that existed in late 2020/early 2021 is fundamentally different from the company that exists today. This is a theoretical thing for me. Because obviously it is the same company. Part of this is because some important things have changed. Interest rates are much higher - interest income is much higher - meaning float is much more valuable today than it was in 2021. This is just one example. Part of this is because we understand the company better today. For example, back in 2021 some of us suspected they were fixing their investment framework. Well, today we know they were (and have largely completed dealing with the long list of problem children). That means the company is worth much more (look at how well the equity portfolio is performing). Another example: Back in 2021, much of us thought Fairfax had an OK P/C insurance business - probably average. Today, I think we can say with confidence they have a better than average business. and it might even be better than this. This means the company is worth much more. Now stack all these things together - and you end up with a company that is worth much, much more (from a valuation perspective) than it was in 2021. Their P/C insurance business is much better. Their collection of equity holdings are much better. Their investment framework is much better. It is not the same company - it looks to me like Fairfax has cracked the code of how to best exploit the P/C insurance model (using Buffett's model - but adapted to fit how they are wired). Changes in the Income Streams Provide a Roadmap for Investors Since 2021, Fairfax keeps morphing in important ways. The best way to understand both what has been happening and the magnitude is to follow the income streams. You nailed it with your question. Underwriting: slow and steady improvement every year. growing NPW and lower CR. Share of profit: spiked in 2022. But the work was done years before. Interest income: spiked higher in 2023. Positioned perfectly. Growing nicely. Non-insurance consolidated companies: in the process of breaking out. Work was done years before. The other emerging income stream is "hidden value". I put it conservatively at $4.5 billion today. This is about how much it has grown over the past 5 years (meaning it was zero back then). This is not captured in my table below. But it is real value that has been created and will be dropping in to earnings in the coming years. This means investment gains are going to be much larger moving forward. But investment gains was already going to be bigger - and that is because the equities in Fairfax's portfolio are higher quality than they have ever been. So they are going to deliver above average returns moving forward. As "hidden value" gets realized, investment gains will be even higher - this will be additive. And on top of this, Fairfax will be generating about $4.5 billion (and growing) in earnings every year. This will get re-invested. Driving each of the income streams even higher. We just don't know exactly what Fairfax will do - so it is hard to know which income streams will increase the most (it will likely be spread out). Capital allocation The primary driver of earnings growth in the coming years will be capital allocation. And today, Fairfax is best-in-class. And it's not close. In my Excel spreadsheet I have a table that tracks all the capital allocation decisions for each year (it goes back to 2010). It is called 'Moves'. I built this model back in 2021 because I wanted to understand how good Fairfax was at capital allocation. (The file is attached below.) To try and predict what they are going to do is impossible. Go back a year. Look at what Fairfax did in 2025. Was it predictable? No. Was it good? Yes. Very. Do the same for 2024. Look at what they did. Was it predictable? No. Was it good? Yes. Very. Do the same for 2023.... and 2022. The mistake investors make is they want to know in advance what is going to happen. Of course that is not possible. But the insight is... you don't need to know. If you can wrap your head around that you will be on the right track. PS: Looking at income streams can be very helpful. But it is not enough. Why? It ignores share buybacks. And that has been a critically important part of the Fairfax story. And my guess is it will continue to be. Is Fairfax a better buy today than in 2021? It was cheaper in 2021. A better buy? The answer is not as obvious as many might think. Fairfax Jan 2026.xlsx Edited January 22 by Viking
Hoodlum Posted January 22 Posted January 22 (edited) BMO Capital downgraded Fairfax Financial (FRFHF) to Market Perform from Outperform with a Price Target of C$2,500, down from C$2,600. The firm cited a “muted go-forward operating income outlook” for the downgrade, adding that with softening global insurance/reinsurance markets, declining underwriting income, moderating investment income growth/muted investment gains outlook, the firm sees “limited growth/multiple expansion.” Edited January 22 by Hoodlum
Parsad Posted January 22 Posted January 22 28 minutes ago, Hoodlum said: BMO Capital downgraded Fairfax Financial (FRFHF) to Market Perform from Outperform with a Price Target of C$2,500, down from C$2,600. The firm cited a “muted go-forward operating income outlook” for the downgrade, adding that with softening global insurance/reinsurance markets, declining underwriting income, moderating investment income growth/muted investment gains outlook, the firm sees “limited growth/multiple expansion.” Wow, they were correct on the target...these guys are geniuses, I tell ya...geniuses! Cheers!
UK Posted January 22 Posted January 22 1 hour ago, Parsad said: Wow, they were correct on the target...these guys are geniuses, I tell ya...geniuses! Cheers! I do not get it, could you please elaborate what you mean here:)?
UK Posted January 22 Posted January 22 4 hours ago, Viking said: @LC, great question. I think it highlights what lots of investors are getting wrong when they look at Fairfax today. My view is the Fairfax that existed in late 2020/early 2021 is fundamentally different from the company that exists today. This is a theoretical thing for me. Because obviously it is the same company. Part of this is because some important things have changed. Interest rates are much higher - interest income is much higher - meaning float is much more valuable today than it was in 2021. This is just one example. Part of this is because we understand the company better today. For example, back in 2021 some of us suspected they were fixing their investment framework. Well, today we know they were (and have largely completed dealing with the long list of problem children). That means the company is worth much more (look at how well the equity portfolio is performing). Another example: Back in 2021, much of us thought Fairfax had an OK P/C insurance business - probably average. Today, I think we can say with confidence they have a better than average business. and it might even be better than this. This means the company is worth much more. Now stack all these things together - and you end up with a company that is worth much, much more (from a valuation perspective) than it was in 2021. Their P/C insurance business is much better. Their collection of equity holdings are much better. Their investment framework is much better. It is not the same company - it looks to me like Fairfax has cracked the code of how to best exploit the P/C insurance model (using Buffett's model - but adapted to fit how they are wired). Changes in the Income Streams Provide a Roadmap for Investors Since 2021, Fairfax keeps morphing in important ways. The best way to understand both what has been happening and the magnitude is to follow the income streams. You nailed it with your question. Underwriting: slow and steady improvement every year. growing NPW and lower CR. Share of profit: spiked in 2022. But the work was done years before. Interest income: spiked higher in 2023. Positioned perfectly. Growing nicely. Non-insurance consolidated companies: in the process of breaking out. Work was done years before. The other emerging income stream is "hidden value". I put it conservatively at $4.5 billion today. This is about how much it has grown over the past 5 years (meaning it was zero back then). This is not captured in my table below. But it is real value that has been created and will be dropping in to earnings in the coming years. This means investment gains are going to be much larger moving forward. But investment gains was already going to be bigger - and that is because the equities in Fairfax's portfolio are higher quality than they have ever been. So they are going to deliver above average returns moving forward. As "hidden value" gets realized, investment gains will be even higher - this will be additive. And on top of this, Fairfax will be generating about $4.5 billion (and growing) in earnings every year. This will get re-invested. Driving each of the income streams even higher. We just don't know exactly what Fairfax will do - so it is hard to know which income streams will increase the most (it will likely be spread out). Capital allocation The primary driver of earnings growth in the coming years will be capital allocation. And today, Fairfax is best-in-class. And it's not close. In my Excel spreadsheet I have a table that tracks all the capital allocation decisions for each year (it goes back to 2010). It is called 'Moves'. I built this model back in 2021 because I wanted to understand how good Fairfax was at capital allocation. (The file is attached below.) To try and predict what they are going to do is impossible. Go back a year. Look at what Fairfax did in 2025. Was it predictable? No. Was it good? Yes. Very. Do the same for 2024. Look at what they did. Was it predictable? No. Was it good? Yes. Very. Do the same for 2023.... and 2022. The mistake investors make is they want to know in advance what is going to happen. Of course that is not possible. But the insight is... you don't need to know. If you can wrap your head around that you will be on the right track. PS: Looking at income streams can be very helpful. But it is not enough. Why? It ignores share buybacks. And that has been a critically important part of the Fairfax story. And my guess is it will continue to be. Is Fairfax a better buy today than in 2021? It was cheaper in 2021. A better buy? The answer is not as obvious as many might think. Fairfax Jan 2026.xlsx 354.44 kB · 3 downloads Great post! Thanks:)
Txvestor Posted January 22 Posted January 22 Something that illustrates this point about share buybacks quite vividly is if you look at the dividend paid by Fairfax in 2017 it was $10, in 2026 it's $15. Yet the total amount paid will be similar. ~277M in 2017, and ~288M in 2026.
Viking Posted January 22 Posted January 22 (edited) 3 hours ago, Hoodlum said: BMO Capital downgraded Fairfax Financial (FRFHF) to Market Perform from Outperform with a Price Target of C$2,500, down from C$2,600. The firm cited a “muted go-forward operating income outlook” for the downgrade, adding that with softening global insurance/reinsurance markets, declining underwriting income, moderating investment income growth/muted investment gains outlook, the firm sees “limited growth/multiple expansion.” This type of analysis is totally to be expected. My guess is will we get more of the same from other analysts. It fits their narrative on Fairfax: low quality P/C insurance business, low quality investments, low quality capital allocation = ROE of 11 moving forward. Analysts struggle with Fairfax’s business model. And now with the onset of the soft market they have their excuse to throw in the towel (give up trying). I think Fairfax is going to able to continue to be very aggressive with share buybacks moving forward. That was why I did my long-form post on share buybacks today - to point out how a persistently low share price can be a good thing for a company like Fairfax (and for long term shareholders). Edited January 22 by Viking
Parsad Posted January 22 Posted January 22 6 hours ago, UK said: I do not get it, could you please elaborate what you mean here:)? Hi UK...every time the stock moves up or down, these guys move their target prices...they are reactive with their analysis, rather than proactive. The latter would serve the customer better! Cheers!
CharlesMunger Posted January 22 Posted January 22 (edited) Another 4% down. Added a bit Edit: now 8% lol. Buying more. Hope Prem is smashing that buying button. Edited January 22 by CharlesMunger
hardcorevalue Posted January 22 Author Posted January 22 Down over 9% what a move. I'dd add more but its maxed out. New buyers are essentially getting a Muddy Waters move off of just a random downgrade.
jbwent63 Posted January 22 Posted January 22 Get in there and start buying, Prem. (Hopefully not in a blackout period)
Santayana Posted January 22 Posted January 22 I blame it all on Parsad's US Treasury risk thread! I had trimmed a little at $1900, adding some of that back now.
UK Posted January 22 Posted January 22 3 hours ago, Parsad said: Hi UK...every time the stock moves up or down, these guys move their target prices...they are reactive with their analysis, rather than proactive. The latter would serve the customer better! Cheers! Aa, I see, yes:)
Buckeye Posted January 22 Posted January 22 I believe today is the divvy payday. Great timing for the DRIP!
thowed Posted January 22 Posted January 22 I have too much, but failed to resist adding at 2200... Is this unreasonable?
UK Posted January 22 Posted January 22 (edited) This is nuts, MW moment without MW? Reach for the bucket!:) Can not be that downgrade though? Some kind of flash crash? Edited January 22 by UK
djokovic1 Posted January 22 Posted January 22 (edited) What a gift! Imagine the stock went down 12% on a short report but goes down 9%! on the BMO analyst report that we know is (pardon my language)...shitty. I have always been surprised by how much their shitty reports can move Fairfax. Well its to our long term benefit + hopefully aggressive buyback today! Edited January 22 by djokovic1
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