Fairfax 2026

[Hamburg Investor]

20 hours ago, 73 Reds said:

I think that is somewhat of a circular argument.

Sorry, I don't understand why and what you are referring to.

 

 

20 hours ago, Viking said:

Prem may "know" Fairfax better than outside investments but that doesn't necessarily make Fairfax a better investment than outside investments. 

 

 

 

Absolutely. But I didn't claim that either. 

 

I'm just saying two things. These are two separate points. They support each other, but I would never say that they are directly dependent on each other:

1. Share price below intrinsic value = +1 opportunity to invest in.
   Share buybacks are just another investment opportunity for FFH, but ONLY if the price is below intrinsic value. So it's like the same opportunities to invest in PLUS buying FFH. If the price is above intrinsic value, this opportunity isn't existing. If you agree, that more opportunities to invest are a good thing, than a share price below IV is helpful from this perspective. The lower the price, the higher are implied returns on the repurchased shares. Do you agree?
2. Circle of Competence and informational edge.
   With any investment, it is important to really understand it. Buffett calls it the circle of competence. And yet, there is no such thing as 100% knowledge/understanding. But you should be close. In addition – and this is very important – it is rare, but very helpful to have an information edge over the market and to know the current dynamics of a company as an investor. Viking is doing an amazing job; and yet we are certainly not overstepping the mark when we assume that Prem knows Fairfax better and sees more details of that mosaic "Fairfax Financial" ( @Viking often refers to parts of Fairfax that we do not see at all. Key words: "hidden value" - e. g. the pet insurance business a few years ago, It was sold for above 1bn dollar and no one was even aware of it - but Prem). This means Prem has a better understanding of the intrinsic value, is able to assess the value more accurately, and repurchases are simply safer than most other (equity) investments.
   
   Am I wrong? Haven't I made my points clearer before?

[John Hjorth]

I added quite materially [for me, personally, modus operandi wise] to FFH.TO today, ref. my post today in the 'What are you buying today?' topic :

 

 

It's now in a category meeting my 'a size that matters' criterion - above a quarter of the estimated value of my households home.

 

I think I'm trying here to do something seriously here about working on my negative anchoring still existing in my brain from experiencing the Fairfax lean years.

Edited February 18 by John Hjorth

[maxthetrade]

Great post Viking! I completely agree; writing and explaining things to others helps immensely to understand them yourself and to identify gaps in your own understanding. In 1999, I wrote my diploma thesis on Berkshire; this deepened and solidified my understanding of the company to such an extent that by early 2000 when it got cheap, I was ready to go all in.

 

[UK]

33 minutes ago, John Hjorth said:

I added quite materially [for me, personally, modus operandi wise] to FFH.TO today, ref. my post today in the 'What are you buying today?' topic :

 

 

It's now in a category meeting my 'a size that matters' criterion - above a quarter of the estimated value of my households home.

 

I think I'm trying here to do something seriously here about working on my negative anchoring still existing in my brain from experiencing the Fairfax lean years.

[73 Reds]

50 minutes ago, Hamburg Investor said:

Sorry, I don't understand why and what you are referring to.

 

 

 

 

 

Absolutely. But I didn't claim that either. 

 

I'm just saying two things. These are two separate points. They support each other, but I would never say that they are directly dependent on each other:

1. Share price below intrinsic value = +1 opportunity to invest in.
   Share buybacks are just another investment opportunity for FFH, but ONLY if the price is below intrinsic value. So it's like the same opportunities to invest in PLUS buying FFH. If the price is above intrinsic value, this opportunity isn't existing. If you agree, that more opportunities to invest are a good thing, than a share price below IV is helpful from this perspective. The lower the price, the higher are implied returns on the repurchased shares. Do you agree?
2. Circle of Competence and informational edge.
   With any investment, it is important to really understand it. Buffett calls it the circle of competence. And yet, there is no such thing as 100% knowledge/understanding. But you should be close. In addition – and this is very important – it is rare, but very helpful to have an information edge over the market and to know the current dynamics of a company as an investor. Viking is doing an amazing job; and yet we are certainly not overstepping the mark when we assume that Prem knows Fairfax better and sees more details of that mosaic "Fairfax Financial" ( @Viking often refers to parts of Fairfax that we do not see at all. Key words: "hidden value" - e. g. the pet insurance business a few years ago, It was sold for above 1bn dollar and no one was even aware of it - but Prem). This means Prem has a better understanding of the intrinsic value, is able to assess the value more accurately, and repurchases are simply safer than most other (equity) investments.
   
   Am I wrong? Haven't I made my points clearer before?

@Hamburg Investor the point is, I'd hate to think that Fairfax is the best investment THEY think they can make.  If that is so, really have to reevaluate my investment in this stock.

[SafetyinNumbers]

4 minutes ago, 73 Reds said:

@Hamburg Investor the point is, I'd hate to think that Fairfax is the best investment THEY think they can make.  If that is so, really have to reevaluate my investment in this stock.

The only alternative to buybacks are buying in the minority interests which can be deferred as the financing cost is fixed or buying other insurance companies. I don’t see other high quality insurance companies trading at FFH’s valuation. 

[73 Reds]

5 minutes ago, SafetyinNumbers said:

The only alternative to buybacks are buying in the minority interests which can be deferred as the financing cost is fixed or buying other insurance companies. I don’t see other high quality insurance companies trading at FFH’s valuation. 

Why are they limited to insurance company interests?

[SafetyinNumbers]

8 minutes ago, 73 Reds said:

Why are they limited to insurance company interests?

Because that what competes for capital at the holdco. This is not Berkshire, this is Fairfax.  I think they want to maintain the investments:equity leverage at 3:1 to help meet their 15% BVPS growth target. If they lose this discipline then our expected returns risk dropping to BRK’s over time. 

[Hamburg Investor]

1 hour ago, 73 Reds said:

@Hamburg Investor the point is, I'd hate to think that Fairfax is the best investment THEY think they can make.  If that is so, really have to reevaluate my investment in this stock.

I'd say it's the other way around: If the FFH price is below IV, theoretical it's hard to find another investment better than buybacks. At least at times. Not only for FFH, but for most enterprises. 

 

Thought experiment: If Fairfax hypothetically achieves a ROE of 15% over long time horizons, then that means nothing other than: It has the ability to generate $15 in profit from $100 in equity.

It does not generate $10 or $20, but precisely $15.

 

So if FFH does everything as it has done in all its activities over the years, i.e. investing in equity and bonds, etc. (sometimes with good results, sometimes less favourable) and with average leverage, etc., then 15% is what it could achieve (... and at FFH, this includes the totality of investments in a wide variety of investment opportunities).

 

Now let's assume that FFH should be worth $3,000 (intrinsic value), but could be bought at $1.500. Than here's the decision to be made:
1. Either investing every $100 of new equity within FFH and getting $15.

2. Or buying back that exactly same business, at 50 cent per dollar.

I would take option 2.

So if FFH buys its own shares for LESS than $3,000, it achieves a return of MORE than 15%, while within FFH the outcome would be strictly 15%. In other words: Buybacks below IV per definition achieve more than the business is capable of achieving on its own.

Of course, again, this is theoretical. It's a thought experiment. Just another perspective.

But it has practical implications. Everytime FFH can buy itself at a discount to IV, that may be the best choice - not always, but sometimes. Depending on the other opportunities at the time.

[dartmonkey]

1 hour ago, Hamburg Investor said:

If Fairfax hypothetically achieves a ROE of 15% over long time horizons, then that means nothing other than: It has the ability to generate $15 in profit from $100 in equity.

It does not generate $10 or $20, but precisely $15.

 

So if FFH does everything as it has done in all its activities over the years, i.e. investing in equity and bonds, etc. (sometimes with good results, sometimes less favourable) and with average leverage, etc., then 15% is what it could achieve (... and at FFH, this includes the totality of investments in a wide variety of investment opportunities).

 

Now let's assume that FFH should be worth $3,000 (intrinsic value), but could be bought at $1.500. Than here's the decision to be made:
1. Either investing every $100 of new equity within FFH and getting $15.

2. Or buying back that exactly same business, at 50 cent per dollar.

As an investor, I can't buy Fairfax's equity, I can just buy shares. If FFH is getting 15% ROE, then at 1.5x BV, it is getting a 10% return on my investment. So if they buy their own shares for $1737, like right now, then they are essentially using their cash to give me more of an investment that is making 10%/year.

If the alternative is a fairly valued acquistion that will return 15% a year, I think they should buy it, as it will be better for me as a shareholder AND better for their capital requirements.

 

I just don't think there are many (any?) investments where they can be as sure of a 10% return, so this should be their hurdle. And as we are slowly learning, subsidiaries have a different logic, and probably have to buy something not called Fairfax for their regulatory capital requirements.

[73 Reds]

3 hours ago, SafetyinNumbers said:

Because that what competes for capital at the holdco. This is not Berkshire, this is Fairfax.  I think they want to maintain the investments:equity leverage at 3:1 to help meet their 15% BVPS growth target. If they lose this discipline then our expected returns risk dropping to BRK’s over time. 

So if I'm understanding correctly, this is a self-imposed restriction?  

[73 Reds]

2 hours ago, Hamburg Investor said:

I'd say it's the other way around: If the FFH price is below IV, theoretical it's hard to find another investment better than buybacks. At least at times. Not only for FFH, but for most enterprises. 

 

Thought experiment: If Fairfax hypothetically achieves a ROE of 15% over long time horizons, then that means nothing other than: It has the ability to generate $15 in profit from $100 in equity.

It does not generate $10 or $20, but precisely $15.

 

So if FFH does everything as it has done in all its activities over the years, i.e. investing in equity and bonds, etc. (sometimes with good results, sometimes less favourable) and with average leverage, etc., then 15% is what it could achieve (... and at FFH, this includes the totality of investments in a wide variety of investment opportunities).

 

Now let's assume that FFH should be worth $3,000 (intrinsic value), but could be bought at $1.500. Than here's the decision to be made:
1. Either investing every $100 of new equity within FFH and getting $15.

2. Or buying back that exactly same business, at 50 cent per dollar.

I would take option 2.

So if FFH buys its own shares for LESS than $3,000, it achieves a return of MORE than 15%, while within FFH the outcome would be strictly 15%. In other words: Buybacks below IV per definition achieve more than the business is capable of achieving on its own.

Of course, again, this is theoretical. It's a thought experiment. Just another perspective.

But it has practical implications. Everytime FFH can buy itself at a discount to IV, that may be the best choice - not always, but sometimes. Depending on the other opportunities at the time.

Again, the issue to me is buying back shares reduces available capital for other purchases/acquisitions.  I'm fine with that for a company like Berkshire which [evidently] has very limited investment options and probably more capital than it needs.  Fairfax is small enough that it has lots of options.  Not necessarily right now but what always appealed to me most about Berkshire is Buffett thought well ahead and was patient.  He could have easily repurchased shares when Berkshire was the size of present-day Fairfax but he didn't.  Berkshire shareholders reaped the benefits.

Edited February 18 by 73 Reds
missed line

[73 Reds]

1 hour ago, dartmonkey said:

As an investor, I can't buy Fairfax's equity, I can just buy shares. If FFH is getting 15% ROE, then at 1.5x BV, it is getting a 10% return on my investment. So if they buy their own shares for $1737, like right now, then they are essentially using their cash to give me more of an investment that is making 10%/year.

If the alternative is a fairly valued acquistion that will return 15% a year, I think they should buy it, as it will be better for me as a shareholder AND better for their capital requirements.

 

I just don't think there are many (any?) investments where they can be as sure of a 10% return, so this should be their hurdle. And as we are slowly learning, subsidiaries have a different logic, and probably have to buy something not called Fairfax for their regulatory capital requirements.

Agreed, yet coming off of a prolonged hard insurance market I just don't think that share repurchases at current prices are their best bet. 

[Viking]

I think one of the key variables for how Fairfax's invests is volatility. When volatility is high then tend to swing hard - that is usually when they make their big needle mover investments. Think FFH-TRS in late 2020/early 2021. Or taking the average duration of the fixed income portfolio to 1.2 years in late 2021 (and selling all their corporates - yielding 1% at the time).  

 

The problem is we have had limited volatility since 2022 (I am talking about an extended downturn, not a 1 month blip).

 

They did a nice job:

• Capitalizing on the run on small banks in the US (i.e. PacWest) and that has developed into a great investment for them (and KW).
• Selling pet insurance, Resolute forest Products and Stelco at peak (bubble high) pricing 

When volatility is muted, Fairfax will do a lot of 'block' and 'tackle' type investments - solid return type things. While biding their time. Some share buybacks. Continue to buy out minority partners. Continue to build positions in stuff they already own (and really like).

 

The key is to stay patient. And not do something stupid.

 

My guess is volatility will come back at some point. And Fairfax will get out their elephant gun. Until then, my guess is they will continue to do a bunch of smart things that deliver a solid return.

Edited February 18 by Viking

[SafetyinNumbers]

45 minutes ago, 73 Reds said:

He could have easily repurchased shares when Berkshire was the size of present-day Fairfax but he didn't.  Berkshire shareholders reaped the benefits.

This strategy requires very good stock picking to achieve outsized returns as there is less leverage over time. Fairfax’s strategy doesn’t but it might achieve them nonetheless. 

[SafetyinNumbers]

56 minutes ago, 73 Reds said:

So if I'm understanding correctly, this is a self-imposed restriction?  

For the most part yes. They cannot use insurance subsidiaries investment portfolio to buyback stock as some seem to think they can. It sounds like you rather they keep more excess capital at the insurance subs to make equity investments when they already seem to be overweight fixed income and avoid buybacks. 

[Hamburg Investor]

1 hour ago, dartmonkey said:

As an investor, I can't buy Fairfax's equity, I can just buy shares. If FFH is getting 15% ROE, then at 1.5x BV, it is getting a 10% return on my investment. So if they buy their own shares for $1737, like right now, then they are essentially using their cash to give me more of an investment that is making 10%/year.

If the alternative is a fairly valued acquistion that will return 15% a year, I think they should buy it, as it will be better for me as a shareholder AND better for their capital requirements.

 

I just don't think there are many (any?) investments where they can be as sure of a 10% return, so this should be their hurdle. And as we are slowly learning, subsidiaries have a different logic, and probably have to buy something not called Fairfax for their regulatory capital requirements.

 

 

I think you're changing the perspective away from my "price versus intrinsic value" approach (which is fine), but if you do that, you should value buybacks and other opportunities by the same yardstick - AND you should value the full picture.

• CAGR: You forget the reinvestment opportunities here. Yes, 10% is the "static" return of FFH at 1.5 P/B Ratio with 15% ROE. But that is only the yield you get, when buying. But this 10% can grow at around 15% per year over long periods, as long as the business can keep earning 15% on reinvested capital. So the CAGR of this investment into FFH (or any other stock with P/B Ratio 1.5 and ROE 15%) is not 10% - it's 15%, assuming (a) 1.5 P/B is fair value and (b) the market applies the same multiple at the beginning and at the end. You can apply the same logic to higher‑ROE businesses like MSFT. Those are the usual Munger assumptions – stable economics, no multiple crush, no dilution, etc.
• Fair value: Why are you referring to "a fairly valued acquisition" only in relation to the alternative investment, and not to Fairfax stock itself? 

[dartmonkey]

41 minutes ago, Viking said:

The problem is we have had limited volatility since 2022 (I am talking about an extended downturn, not a 1 month blip).

 

They did a nice job:

• Capitalizing on the run on small banks in the US (i.e. PacWest) and that has developed into a great investment for them (and KW).
• Selling pet insurance, Resolute forest Products and Stelco at peak (bubble high) pricing 

You could add ORLA to that list. Buying shares at $5.20 from 2022 to 2024, then selling 25m at $17.60 at the end of 2025 for a C$310m gain, is almost as much of a gain as Stelco (US$344m), and for a much shorter holding period and much higher annual return. And hopefully lots more to come, as they still own 31.8m Orla shares and 17.5m warrants.

And while Resolute was indeed a wonderful sale, with great timing, it only bailed them out of a bad situation:

 

"Our journey with Resolute began in a significant way in April 2008 with the purchase of approximately $350 million of an 8% AbitibiBowater convertible bond (at $10 per share)– almost 14 years ago! We added to our investment in Resolute in common shares and bonds over the years with a net investment after dividends of $715 million. With the interest income received on our bonds, sale proceeds of $622 million and with a little bit of good fortune on our remaining holdings in the contingent value rights, we may end up breaking even over this long holding period– although clearly a very poor long-term return." (2023 AR)

[dartmonkey]

15 minutes ago, Hamburg Investor said:

CAGR: You forget the reinvestment opportunities here. Yes, 10% is the "static" return of FFH at 1.5 P/B Ratio with 15% ROE. But that is only the yield you get, when buying. But this 10% can grow at around 15% per year over long periods, as long as the business can keep earning 15% on reinvested capital. So the CAGR of this investment into FFH (or any other stock with P/B Ratio 1.5 and ROE 15%) is not 10% - it's 15%, assuming (a) 1.5 P/B is fair value and (b) the market applies the same multiple at the beginning and at the end.

I think you are right.

 

Say I buy Fairfax at 1.5x book and it is earning 15% ROE. And assume, as you suggest, that that 1.5 multiple stays the same for a long time.

 

I buy Fairfax at $3000 with its $2000 book value per share and it makes $300 next year, 15% return on equity or 10% earnings yield. Now its book is $2300 and with the same ratio its shares will trade at 1.5*$2300=$3450, so I have my $450 return on $3000 which is 15%. You have convinced me.

[TwoCitiesCapital]

2 hours ago, 73 Reds said:

Again, the issue to me is buying back shares reduces available capital for other purchases/acquisitions.  I'm fine with that for a company like Berkshire which [evidently] has very limited investment options and probably more capital than it needs.  Fairfax is small enough that it has lots of options.  Not necessarily right now but what always appealed to me most about Berkshire is Buffett thought well ahead and was patient.  He could have easily repurchased shares when Berkshire was the size of present-day Fairfax but he didn't.  Berkshire shareholders reaped the benefits.

 

Investors only reaped the benefits of the company's acquired outperformed BRK's stock. 

 

Knowing that BRK has outperform most companies when taking a 20-30 year type view, perhaps it should've been repurchasing it's on shares in 2000 instead of buying others'. 

 

I actually think you have this backwards - Buffett would be better suited today buying others' today when their forward looking returns are higher - and was better off repurchasing shares back in the day at the opportue times. 

Edited February 19 by TwoCitiesCapital

[SafetyinNumbers]

57 minutes ago, dartmonkey said:

I think you are right.

 

Say I buy Fairfax at 1.5x book and it is earning 15% ROE. And assume, as you suggest, that that 1.5 multiple stays the same for a long time.

 

I buy Fairfax at $3000 with its $2000 book value per share and it makes $300 next year, 15% return on equity or 10% earnings yield. Now its book is $2300 and with the same ratio its shares will trade at 1.5*$2300=$3450, so I have my $450 return on $3000 which is 15%. You have convinced me.

It also boosts future ROE all else being equal as the earnings power is unchanged when current earnings are used for buybacks. Further, I think it’s better to think of ROE as a range as opposed to static. 15-25% average ROE over the next 5 years has a 90% confidence inferval in my mind given what we know about the leverage and gains that will make their way into income over the next 5 years. 

[SafetyinNumbers]

2 hours ago, 73 Reds said:

Agreed, yet coming off of a prolonged hard insurance market I just don't think that share repurchases at current prices are their best bet. 

I think this is another generalization that is providing an opportunity to buy back stock cheap.
 

First, the street is selling the stock on lower GWP but they are using less reinsurance so NWP is growing faster. That’s important for returns which is what Fairfax is focused on as long term investors. It’s ironic that guys like Bloomstran don’t like Fairfax because they use reinsurance but now it allows them to grow NWP/share in a soft market without writing bad business. Fairfax’s diversification and decentralization helps with this. Asia is uncorrelated to other insurance markets and Fairfax has traditionally passed through a lot of the risk to reinsurers. Lately they have been ceding less.

 

Second, they are very conservative on reserving so underwriting profit should be buffeted by strong reserve releases for years to come. Excess reserves are just future equity masquerading as a liability. 

 

Third, they can buy in minority interests at very low valuations which is very accretive and has the same effect as growing net premiums/share. Consolidating Digit starting in Q1 will also help with this, 

[Viking]

3 minutes ago, SafetyinNumbers said:

It also boosts future ROE all else being equal as the earnings power is unchanged when current earnings are used for buybacks. Further, I think it’s better to think of ROE as a range as opposed to static. 15-25% average ROE over the next 5 years has a 90% confidence inferval in my mind given what we know about the leverage and gains that will make their way into income over the next 5 years. 

The hidden value piece is really interesting piece. It’s not really hidden - it just doesn’t show in accounting results - so we call it “hidden”. Even though a bunch of it can be precisely calculated. And a bunch more can be roughly calculated. And more that Fairfax will announce that will surprise us (like when they sold Eurolife).
 

It is like a 6th income stream that will flow through to future earnings (via investment gains) - we just don’t know the timing. This should add a couple of points to future ROE (on average). Of course, it will be lumpy. 

 

As hidden value keeps blowing out (getting larger) it has the effect of increasing future ROE. The more hidden value continues grows the higher future ROE will be. 

—————

Fairfax’s investment portfolio is performing very well - Fairfax has amassed/curated a wonderful collection of holdings. More and more are falling in to the associate and consolidated buckets (I include the private equity holdings here like BDT, ShawKwei and Waterous III). This suggests the amount of hidden value will be increasing in future years. 

 

[SafetyinNumbers]

3 minutes ago, Viking said:

The hidden value piece is really interesting piece. It’s not really hidden - it just doesn’t show in accounting results - so we call it “hidden”. Even though a bunch of it can be precisely calculated. And a bunch more can be roughly calculated. And more that Fairfax will announce that will surprise us (like when they sold Eurolife).
 

It is like a 6th income stream that will flow through to future earnings (via investment gains) - we just don’t know the timing. This should add a couple of points to future ROE (on average). Of course, it will be lumpy. 

 

As hidden value keeps blowing out (getting larger) it has the effect of increasing future ROE. The more hidden value continues grows the higher future ROE will be. 

—————

Fairfax’s investment portfolio is performing very well - Fairfax has amassed/curated a wonderful collection of holdings. More and more are falling in to the associate and consolidated buckets (I include the private equity holdings here like BDT, ShawKwei and Waterous III). This suggests the amount of hidden value will be increasing in future years. 

 

Exactly right and it’s all explained by the IFRS accounting rules and Fairfax’s own conservatism. Fairfax didn’t start buying 20%+ positions until 2012 from what I can tell. The nature of the accounting is that mistakes are written off quickly. If they ultimately recover the returns look outstanding on a lower cost base. For the successes, we only get to accrete the net earnings in the book value. We don’t get the benefit of the multiple of those earnings or expansion in the multiple in book value until it’s sold but once again the returns look great. The accounting suppressed this flywheel until the last few years but now it’s in swing. Combine this with 3:1 leverage and you can see why I’m so bullish on forward ROE. 

[Txvestor]

9 hours ago, 73 Reds said:

Why are they limited to insurance company interests?

Stock market is trading at a historically high market valuations too. That might be one reason they have been buying more companies out of the stock market at cyclically convenient times.