Fairfax 2026

[Viking]

Fairfax has consistently said the TRS is an investment. If Fairfax continues to hold the TRS, I think we can assume they view the shares as being undervalued. 
 

My guess is they also apply a nice margin of safety to their calculation of fair value. Meaning as long as they hold the TRS they view their shares as being very undervalued. 
 

This is supported by how aggressive they have been on the share buyback front over the past 5 years (since they put the position on). They were also VERY aggressive in Q1.  
 

Most importantly, Fairfax is an insider - they understand what Fairfax is worth. Much better than the rest of us. 

 

Yes, there are risks (it is leverage). The question is Fairfax being compensated appropriately? 
 

Do you trust management? I do, based on what I have seen from them the past 5 years.

 

With shares trading at $1,600, I like this investment a lot. 

 

For those who think Fairfax should take the TRS off what do you think Fairfax is worth? I think that needs to be part of the analysis.

Edited May 2 by Viking

[Tommm50]

35 minutes ago, KPO said:

Sure, but when things go sideways it’s amazing how correlated everything becomes. At least that was one of my GFC takeaways. Like I said, it was a brilliant move at the time, but it’s less obvious if it’s brilliant to keep the position open. I just think a gradual exit would be prudent. 

Plus it gives a useful tool to short sellers (Morningstar fans?, hedge fund vultures?) If they can create downward momentum the TRS can put EPS in a downward spiral.

[Parsad]

2 hours ago, KPO said:

This is why I’d like to see these wound down. It could create a significant headwind under certain circumstances, which is an unnecessary risk to expose the shareholders to.  

 

Because they are so heavily in short-duration bonds, generating very steady income, and insurance losses/reserves are under control, I wouldn't worry about this.  The TRS will only become a problem if they are operating like they did historically with significant volatility in earnings. 

 

FFH for the next 2-3 years is probably going to be like the last 2-3 years...one of the least volatile companies in the world in terms of earnings.  I would like to see them wind it up before then if earnings quality differentiates into more volatile sources.  Cheers!

[Hamburg Investor]

13 minutes ago, Viking said:

For those who think Fairfax should take the TRS off what do you think Fairfax is worth? I think that needs to be part of the analysis.

 

With shares trading at $1,600, I like this investment a lot. 

Yes, I like the TRS too, while I like buybacks even more; and I like a combination of both more, than just one of them. Buybacks alone would push the price rises more sharply; the TRS does not have this effect; unfortunately, it does, however, cause the company’s overall value to rise more quickly, which necessitates ever-larger investments, and we know, of course, that larger investments often don’t offer the same high returns as smaller do.

 

In any case if Fairfax is trading meaningfully below intrinsic value, an even lower share price is not automatically bad news for a long-term owner. In fact, it can improve the economics of capital allocation.

The key reason are buybacks and the TRS. The lower the price relative to intrinsic value, the more value Fairfax can create per dollar spent on repurchases, and the better the risk reward within the TRS.
 

At cheaper prices, the company can retire more shares (or potentially earn higher returns in case of the TRS), which increases the intrinsic value per remaining share for continuing owners. In that sense, a falling price can actually improve forward returns, provided the underlying business value remains broadly intact.

That is also why I do not regret not having cash on the sidelines. Holding back cash would have required me to assume that a stock already trading well below intrinsic value would become even cheaper. That may happen, of course, but it is not a position I consider especially logical or necessary if the discount is already wide enough.

From a long-term shareholder’s perspective, cheaper buybacks are economically beneficial even if I personally do not add another share. Fairfax can effectively increase my ownership percentage in the business by retiring shares at attractive prices. I get a larger claim on future value creation without deploying additional capital myself. And the TRS potentially rises upwards strobger giving higher earnings.

More broadly, a lower share price also raises the bar for alternative uses of capital. If Fairfax can repurchase its own shares at a very attractive implied return, then any outside investment should have to clear that hurdle. That does not mean buybacks are “risk-free,” and it does not mean the company should repurchase stock without limit. Intrinsic value is only an estimate, buybacks can move the market price, and management still has to compare repurchases against other available opportunities.

 

But the logic remains: the deeper the discount to intrinsic value, the more compelling repurchases become at the margin.

So, stated a bit more sharply: the further the stock trades below intrinsic value, the stronger the built-in tailwind for long-term per-share value creation both by buybacks and by the TRS, of course assuming the intrinsic value estimate is roughly right and management remains disciplined in allocating capital.

[giulio]

Director Lauren Templeton speaking at Guy Spier's events during Brk weekend.

starts at 5.05.00

[NnnnotSoSmart]

Revisiting Fairfax Financial 

 

Charles Frischer and Asheef Lalani stop by The Business Brew to update the listeners on Fairfax Financial. They originally came on the program on 7/20/2023 when the stock was quite unloved. Bill asked them to return to the program after almost 3 years of ownership and fresh off the annual meeting. We hope the episode provides a good update to the first.

 

Asheef Lalani as an independent director to the board of Sailfish Royalty Corp. Mr. Lalani graduated from the University of Waterloo with a Bachelor of Mathematics and Masters of Accounting, earned the CA/CPA designation in 2002 and is a CFA charterholder since 2003. Asheef first started his career with Pricewaterhouse Coopers in 1998 and went on to become a portfolio manager at UBS Securities. Currently, Mr. Lalani is the Chief Investment Officer at Berczy Park Capital – a private family office in Toronto, Canada.

 

Charles Frischer is General Partner of LFF Partners, a family office based in Seattle. Mr. Frischer was a multi-family loan underwriter and originator at Capri Capital for 10 years. As a Principal at Zephyr for 4 years, he was responsible for the asset management of more than 5,000 multi-family units and all related financings of the portfolio. Frischer sits on the Board of Kingsway Financial and Altisource Asset Management. He attended his first Berkshire annual meeting in 1998, his first Market annual meeting in 1999 and his first Fairfax annual meeting in 2010. He holds an B.A. in Government from the College of Arts and Sciences from Cornell University.

 

https://t.co/TaBCwRlqYz

Edited May 3 by NnnnotSoSmart

[This2ShallPass]

3 hours ago, Viking said:

Fairfax has consistently said the TRS is an investment. If Fairfax continues to hold the TRS, I think we can assume they view the shares as being undervalued. 

Yes, it's clear TRS is an investment. I was also thinking of TRS vs. buybacks, but since they pay tax on TRS it's clear they don't view it as buyback equivalent (or they would unwound it when cash started flowing in). As long as they keep it on we can say they view Fairfax shares as materially undervalued.

That said, it most certainly can create the negative feedback loop if someone with big enough pockets want to create the selling pressure. One of the few times I'm glad it's not listed in US and no options trading..

[RichardGibbons]

5 hours ago, mengan said:

Are you sure? I have not seen any clear cash movement tied to the open TRS positions in Fairfax’s financial statements so far. My understanding is that mark-to-market runs through earnings each quarter, while the gain or loss is only actually realized in cash when FFH or the counterparty closes, resets, or terminates the position.

 

No, I'm not sure. I'm just going based on what's been discussed on this board in the past (which is typically reliable), and what Gemini says about it (which could conceivably be based on typical swaps.)

 

I don't think I've heard anything directly about it from Fairfax, which would be sufficient for my confidence to pass a "sure" threshold. (But I just might not remember. If Fairfax had mentioned something, and what they said aligned with my beliefs, it might not be memorable.) 

[SafetyinNumbers]

4 hours ago, Parsad said:

 

FFH for the next 2-3 years is probably going to be like the last 2-3 years...one of the least volatile companies in the world in terms of earnings.  I would like to see them wind it up before then if earnings quality differentiates into more volatile sources. 

I appreciate what you are trying to say but I think it mischaracterizes the earnings stream. It’s very volatile but with a high floor. That’s why it’s so cheap, The variability of the earnings and low expected equity returns to reflect it without consideration for what’s actually in the portfolio. 20x earnings for sure is way better than 7-10x earnings for a quant. 

[Parsad]

1 minute ago, SafetyinNumbers said:

I appreciate what you are trying to say but I think it mischaracterizes the earnings stream. It’s very volatile but with a high floor. That’s why it’s so cheap, The variability of the earnings and low expected equity returns to reflect it without consideration for what’s actually in the portfolio. 20x earnings for sure is way better than 7-10x earnings for a quant. 

 

You guys all give this way too much thought!  When things are flying high...buy, buy, buy regardless of the simplest, easiest way to value the company...price to book.  But then when someone questions why pay so much more on a price to book multiple, everyone always tells me I'm undervaluing intrinsic value. 

 

Then when prices start to fall, everyone starts worrying about the investments (TRS, Atlas, etc) or what might happen down the road with insurance, management, etc...even though the easiest metric on valuation (price to book) is decreasing!  

 

No one was worried about the TRS when the stock was at 1.5 times book...but at 1.1 times book people are now concerned about the risks of the TRS.  Prem is not just buying hamburgers...he's buying his own hamburgers!  If hamburgers are getting cheaper...it makes sense for him to buy more and more...correct?  So why the heck would he sell the TRS (hamburgers) today, tomorrow or in the future unless those hamburgers are very close to full value.

 

Anyway, now I'm hungry...and my niece and nephew who are staying over tonight want me to order their dinner...we're having hamburgers from McDonalds!    Cheers!

 

 

[mananainvesting]

44 minutes ago, Parsad said:

 

You guys all give this way too much thought!  When things are flying high...buy, buy, buy regardless of the simplest, easiest way to value the company...price to book.  But then when someone questions why pay so much more on a price to book multiple, everyone always tells me I'm undervaluing intrinsic value. 

 

Then when prices start to fall, everyone starts worrying about the investments (TRS, Atlas, etc) or what might happen down the road with insurance, management, etc...even though the easiest metric on valuation (price to book) is decreasing!  

 

No one was worried about the TRS when the stock was at 1.5 times book...but at 1.1 times book people are now concerned about the risks of the TRS.  Prem is not just buying hamburgers...he's buying his own hamburgers!  If hamburgers are getting cheaper...it makes sense for him to buy more and more...correct?  So why the heck would he sell the TRS (hamburgers) today, tomorrow or in the future unless those hamburgers are very close to full value.

 

Anyway, now I'm hungry...and my niece and nephew who are staying over tonight want me to order their dinner...we're having hamburgers from McDonalds!    Cheers!

 

 

 

 

[Parsad]

31 minutes ago, mananainvesting said:

 

 

 

They ended up having nuggets and fries.  I'm the only one who ate a burger...a Big Mac!  Cheers!

[SafetyinNumbers]

1 hour ago, Parsad said:

 

You guys all give this way too much thought!  When things are flying high...buy, buy, buy regardless of the simplest, easiest way to value the company...price to book.  But then when someone questions why pay so much more on a price to book multiple, everyone always tells me I'm undervaluing intrinsic value. 

 

Then when prices start to fall, everyone starts worrying about the investments (TRS, Atlas, etc) or what might happen down the road with insurance, management, etc...even though the easiest metric on valuation (price to book) is decreasing!  

 

No one was worried about the TRS when the stock was at 1.5 times book...but at 1.1 times book people are now concerned about the risks of the TRS.  Prem is not just buying hamburgers...he's buying his own hamburgers!  If hamburgers are getting cheaper...it makes sense for him to buy more and more...correct?  So why the heck would he sell the TRS (hamburgers) today, tomorrow or in the future unless those hamburgers are very close to full value.

 

Anyway, now I'm hungry...and my niece and nephew who are staying over tonight want me to order their dinner...we're having hamburgers from McDonalds!    Cheers!

 

 

What trailing P/B range do you think Fairfax will trade within to the end of the next hard market? Are there levels you start trimming aggressively with or without taxes? 
 

 

 

Edited May 3 by SafetyinNumbers

[Parsad]

27 minutes ago, SafetyinNumbers said:

What trailing P/B range do you think Fairfax will trade within to the end of the next hard market? Are there levels you start trimming aggressively with or without taxes? 
 

 

 

 

They know better than me...but I would certainly start trimming around 1.5 times book and would be completely out by 1.9-2 times book.  Sorry that's just me!  

 

In my non-trading accounts, I have added Fairfax exactly three times in the last 6 years...when it was below $500 CAD in 2020, when it was below $750 CAD in 2022 and finally again yesterday below $2,200 CAD.  Granted it was a small bite, not a massive bite like 2020 or a big bite like 2022...but it's the first time I've added FFH to the non-trading accounts in a while.

 

So I definitely would not be selling TRS any time right now.  I would start trimming when it hits $3,000 CAD by the end of the year.  Book value should be about $1,400-1,450 CAD by year-end...x1.38 currency multiple...x1.5 book multiple...gets you to around $3,000 CAD.

 

Cheers!

[mengan]

6 hours ago, SafetyinNumbers said:

I appreciate what you are trying to say but I think it mischaracterizes the earnings stream. It’s very volatile but with a high floor. That’s why it’s so cheap, The variability of the earnings and low expected equity returns to reflect it without consideration for what’s actually in the portfolio. 20x earnings for sure is way better than 7-10x earnings for a quant. 

 

I look at cash flow, not accounting earnings as my main method of valuating companies. It's great to find companies like Fairfax where accounting earnings are highly volatile whereas cash flow is much more steady.

 

Edited May 3 by mengan

[dartmonkey]

8 hours ago, Parsad said:

now.  I would start trimming when it hits $3,000 CAD by the end of the year.  Book value should be about $1,400-1,450 CAD by year-end...x1.38 currency multiple...x1.5 book multiple...gets you to around $3,000 CAD.

I’m sure you meant book value will be $1,400-1,450 USD by the end of the year, not CAD. $1,450 USD *1.38 CAD/USD * 1.5 = C$3001.5

[SafetyinNumbers]

8 hours ago, Parsad said:

 

They know better than me...but I would certainly start trimming around 1.5 times book and would be completely out by 1.9-2 times book.  Sorry that's just me!  

 

In my non-trading accounts, I have added Fairfax exactly three times in the last 6 years...when it was below $500 CAD in 2020, when it was below $750 CAD in 2022 and finally again yesterday below $2,200 CAD.  Granted it was a small bite, not a massive bite like 2020 or a big bite like 2022...but it's the first time I've added FFH to the non-trading accounts in a while.

 

So I definitely would not be selling TRS any time right now.  I would start trimming when it hits $3,000 CAD by the end of the year.  Book value should be about $1,400-1,450 CAD by year-end...x1.38 currency multiple...x1.5 book multiple...gets you to around $3,000 CAD.

 

Cheers!

Are you at max size right now or more room to add?

[TwoCitiesCapital]

19 hours ago, SafetyinNumbers said:

Super helpful when buying back stock

 

Until the stock goes down and the TRS eats up the available liquidity for repurchases. 

 

19 hours ago, KPO said:

This is why I’d like to see these wound down. It could create a significant headwind under certain circumstances, which is an unnecessary risk to expose the shareholders to.  

 

I generally agree - was glad to see they've already reduced it once. I tend to agree that the current share price probably isn't appropriate for another reduction, but perhaps at $2000-2,250 USD I would look for them to trim more. 

 

18 hours ago, ourkid8 said:

Unnecessary risk or opportunity? I look at it as an opportunity!
 

I was able to increase my already very large position and management can repurchase shares - Win/win for long term shareholders! 

 

Closing the TRS doesn't stop them from repurchasing the shares. It just lowers the uncertainty around cash draws tied to a declining share price which could prevent repurchases. 

 

17 hours ago, 73 Reds said:

As another poster alluded to previously, doesn't some of the risk depend on when, and how often payments must be made?  If the stock price drops precipitously and Fairfax has available cash for buybacks, wouldn't that stem the tide of the TRS while also providing a good investment opportunity?

 

It's been ~10 years since I worked regularly with TRS, but most bespoke contracts we traded settled monthly or quarterly.  I don't feel strongly about it, but I think Fairfax is probably on a monthly cadence. For our purposes, what primarily matters is the quarter to quarter impact on cash levels and earnings. 

[SafetyinNumbers]

45 minutes ago, TwoCitiesCapital said:

Until the stock goes down and the TRS eats up the available liquidity for repurchases. 

What are the odds that happens? 

 

48 minutes ago, TwoCitiesCapital said:

Closing the TRS doesn't stop them from repurchasing the shares. It just lowers the uncertainty around cash draws tied to a declining share price which could prevent repurchases. 

Closing TRS instead of open market purchases does defer buybacks at good prices. The TRS prices were locked in 5 years ago. 

[73 Reds]

2 hours ago, TwoCitiesCapital said:

 

Until the stock goes down and the TRS eats up the available liquidity for repurchases. 

 

 

I generally agree - was glad to see they've already reduced it once. I tend to agree that the current share price probably isn't appropriate for another reduction, but perhaps at $2000-2,250 USD I would look for them to trim more. 

 

 

Closing the TRS doesn't stop them from repurchasing the shares. It just lowers the uncertainty around cash draws tied to a declining share price which could prevent repurchases. 

 

 

It's been ~10 years since I worked regularly with TRS, but most bespoke contracts we traded settled monthly or quarterly.  I don't feel strongly about it, but I think Fairfax is probably on a monthly cadence. For our purposes, what primarily matters is the quarter to quarter impact on cash levels and earnings. 

Kind of surprising that no one (i.e., at the AGM) has asked them about the specific details of the TRS, including when payments are, or must be made.  

[Maverick47]

2 hours ago, TwoCitiesCapital said:

 

Until the stock goes down and the TRS eats up the available liquidity for repurchases. 

 

 

I generally agree - was glad to see they've already reduced it once. I tend to agree that the current share price probably isn't appropriate for another reduction, but perhaps at $2000-2,250 USD I would look for them to trim more. 

 

 

Closing the TRS doesn't stop them from repurchasing the shares. It just lowers the uncertainty around cash draws tied to a declining share price which could prevent repurchases. 

 

 

It's been ~10 years since I worked regularly with TRS, but most bespoke contracts we traded settled monthly or quarterly.  I don't feel strongly about it, but I think Fairfax is probably on a monthly cadence. For our purposes, what primarily matters is the quarter to quarter impact on cash levels and earnings. 

They have plenty of cash, but I wonder whether they might be using their revolving bank lines of credit as a shock absorber for times when cash might be required for the TRS.  I noticed that $300 million was drawn at the end of the first quarter.

[Crip1]

Regarding the TRS position. Seeing as I was a proponent of selling those back when the share price was below $1,000, one should take anything I say with a grain of salt (If one can't admit errors in one's judgement, one hinders their ability to learn)  There is one major concern I have with the TRSs, specifically, the black swan event. Example, a rapid increase in inflation that reduces the value of the bond portfolio concurrent with a Cat 5 hurricane or some such thing. Both of those would cause the stock price of all insurers to decline, perhaps significantly. Should that happen to Fairfax, it would be a "triple whammy" as, in addition to the first two, one of their biggest investments, the TRSs, would fall sharply in value, and then it could spiral. Market sentiment may not give a crap if the intrinsic value is north of $2,500 and could continue to sell off with the stock price below $1,200, or $1,100 or... 

 

One has to think that management has modeled scenarios like this and others as well. In doing so, they either made the determination that the damage was absorbable or they have some counter-measures. After all, insurance is all about risk-assessment and risk-management, so one has to assume that they've accounted for this and still deem the risk-reward of the TRSs to be favorable...that's why we allow them to be stewards for our hard-earned capital.

 

So...if the question is whether to keep or close out, there are many others who have far better insight into that than I do, so there's limited reason to offer an opinion. If the question is whether or not you trust management to make the right decision, the buy order that was filled for me increasing the position of my biggest holding by over 10% shows that I do trust management.

 

-Crip

[Munger_Disciple]

1 hour ago, Crip1 said:

Regarding the TRS position. Seeing as I was a proponent of selling those back when the share price was below $1,000, one should take anything I say with a grain of salt (If one can't admit errors in one's judgement, one hinders their ability to learn)  There is one major concern I have with the TRSs, specifically, the black swan event. Example, a rapid increase in inflation that reduces the value of the bond portfolio concurrent with a Cat 5 hurricane or some such thing. Both of those would cause the stock price of all insurers to decline, perhaps significantly. Should that happen to Fairfax, it would be a "triple whammy" as, in addition to the first two, one of their biggest investments, the TRSs, would fall sharply in value, and then it could spiral. Market sentiment may not give a crap if the intrinsic value is north of $2,500 and could continue to sell off with the stock price below $1,200, or $1,100 or... 

 

 

Yeah basically they might be required to post collateral at the worst possible time which is why they should have closed it out in Q4 last year at higher prices. I agree with others it might not be the right time do so now. 

 

That's also why I think TRS position is very different from a share buyback which is done with excess cash on hand. 

[TwoCitiesCapital]

4 hours ago, SafetyinNumbers said:

What are the odds that happens? 

 

Closing TRS instead of open market purchases does defer buybacks at good prices. The TRS prices were locked in 5 years ago. 

 

I don't necessarily know the odds, but the TRS are pro-cyclical instead of counter-cyclical (like a traditional buyback) which is what bothers me about them. 

 

Closing them requires no capital. So closing them doesn't do anything to 'defer' buybacks. It doesn't matter that they "locked in the price" from 5-years ago - they've already collected on that cash and all that matters is the price from the last reset/settlement (last month or last quarter) in determining what they make/lose on cash in any given time period. 

 

Fairfax stock is down ~20% from it's peak. The cash flows aren't measured from the peak, but we were close to it at year-end. If we close the next settlement period near these prices, that would imply something close to a $900 million CAD outflow from the parent since year end. $900 million CAD that is no longer available for repurchases and used just to maintain the TRS...

 

At some point it makes sense to close the TRS and move from away from the pro-cyclical allocation to more traditional counter-cyclical buybacks (buying back more when the price is down, not less). 

  

2 hours ago, Maverick47 said:

They have plenty of cash, but I wonder whether they might be using their revolving bank lines of credit as a shock absorber for times when cash might be required for the TRS.  I noticed that $300 million was drawn at the end of the first quarter.

 

I wasn't considering the revolver and is a good point on the flexibility. 

Edited May 3 by TwoCitiesCapital

[Spekulatius]

18 hours ago, RichardGibbons said:

 

No, I'm not sure. I'm just going based on what's been discussed on this board in the past (which is typically reliable), and what Gemini says about it (which could conceivably be based on typical swaps.)

 

I don't think I've heard anything directly about it from Fairfax, which would be sufficient for my confidence to pass a "sure" threshold. (But I just might not remember. If Fairfax had mentioned something, and what they said aligned with my beliefs, it might not be memorable.) 

The TRS is basically a swap agreement and those typically have cash collateral requirements.

Edited May 3 by Spekulatius