Fairfax 2026

[Viking]

2 hours ago, Maverick47 said:

Excellent overview, as always, @Viking.  Thank you!
 

Is it “fair” to say that management’s estimates of the Fair Value of their holdings which are recorded at generally lower carrying values in the accounting statements are themselves often just estimates of the actual intrinsic values, and that final values realized if and when they are sold can be higher or lower than these…and that much as with loss reserves, management may have a bit of a tendency not to overstate them?

@Maverick47, if I am understanding you correctly… I think you are referencing another source of hidden value: Fairfax’s fair value marks for their non-market traded consolidated holdings. For these holdings it is the same as their carrying value. This is another bucket of holdings that have increased materially in size over the past 5 years.

 

Fairfax India is another one. It is included in excess of FV over CV. But the FV is comically low (Fairfax India’s share price). We know economic/intrinsic value of this holding is much higher than its share price (with BIAL being the primary reason). 
 

Bottom line, hidden value is growing in all sorts of places. Importantly, it compounds over time. 

Edited May 26 by Viking

[Viking]

On 5/25/2026 at 7:19 AM, gfp said:

Has anyone spent any time looking at what appears to be the absolute worst possible timing of Sokol / Fairfax selling off the crown jewel assets of the old APR Energy business to Fortress Investment Group just before the value of, and demand for, 2nd hand, immediately deployable mobile aero-derivative gas turbine generation assets skyrocketed?

 

I was looking into Anthropic's expansion from xAI's Colossus I to also include part of their Colossus II data center and drilling down on the containerized Caterpillar natural gas gensets xAI is using in Mississippi and it really sounded like APR's 20x GE TM2500 & 10x Pratt & Whitney FT8 would have shot up in value immediately after Sokol decided to divest.  After years of nursing a dud with APR's emerging markets leasing business they threw in the towel at the worst possible moment.

 

(and to add insult to injury, Fairfax made several payments to Atlas / Poseidon to indemnify them for losses on their purchase of APR energy from Fairfax in the first place...)

 

https://www.aprenergy.com/apr-energy-expands-power-generation-capacity-to-over-1-1-gw-as-data-center-power-demand-soars/

@gfp, thanks for brining this forward. Two things come to mind for me:

1. Fairfax is not going to nail every one of their investments. Having said that, their ‘hit’ rate over the past 6 years has been outstanding. Especially with the large investments (Eurobank, Poseidon, FFH-TRS, BIAL, Orla, Stelco etc). Bottom line shareholders have been spoiled. 
2. To evaluate management on a sale, we need to know what the proceeds were used for. If the proceeds were used to buy back stock below book value or to invest in Orla… that matters. 

I do not expect Fairfax to continue to do as well with their investments over the next 5 years as they have over the past 5. I think they will do better than average moving forward, so I am not concerned. Rather, I am trying to keep my expectations reasonable. 

[Viking]

4 hours ago, dartmonkey said:

Thanks for reviewing this.

 

I think the last sentence I quoted is not quite right. The main point, I believe, is that accounting rules require the company to count towards book value only the historical cost of associate and consolidated interests, plus retained earnings and minus dividends and some other adjustments, as you pointed out. This is a good reason to distrust book value as a measure of value.

 

However, earnings of associate and consolidated holdings are fully reflected in Fairfax's total earnings. This means that book value is off, but EPS and ROE are not affected in the same way.

 

To take an example, Eurobank, which is responsible for almost half the difference between carrying value and fair value, is currently carried at $2.790b, whereas Fairfax's stake has a market value of $4.579b, as per your table.  From Dec 31, 2021 to March 31, 2026, Fairfax's stake has gone up 6 times, from $800m to $4.6b, and this understates the rise since Fairfax has been selling shares to keep its stake below 33%. However, in the same time, total Eurobank earnings have gone from €328 to €1.35b, so Fairfax's share has gone from roughly €109m to €445m, a fourfold increase. If you are valuing Fairfax by taking some multiple of earnings (the current price is 8x last year's earnings), then your valuation of Eurobank's contribution has gone up by 4x using earnings, as opposed to 5x using market value or 2.4x using IFRS-mandated carrying value. 

 

Just one more reason to prefer using earnings (appropriately smoothed for underwriting and realized investment gains) rather than putting too much weight on book value. But my main point is that we should not be adding that $873m/year in FV-CV to the earnings of Fairfax, which would be double counting.

@dartmonkey, I am not following you. Fairfax’s carrying value captures all the accounting pieces. Fair value captures the change in the share price. The difference is excess of FV over CV… That pre-tax number is not captured in EPS, ROE or BVPS. How is it double counting?

 

I think there are two ways to think about hidden value:

1. Incorporate it into past results.
2. Incorporate it into future results. 

As @SafetyinNumbers has pointed out, what approach you take will impact ROE (past or future).

 

I prefer to incorporate it into future results (will allow Fairfax to generate a higher future ROE). 

My guess is most people ignore it. This approach seems bizarre to me. (Ignoring facts in ones analysis.)

 

—————-

 

5.25 years ago, excess of FV over CV was a minus $660 million. Fairfax was starting in a big hole. Over the past 5.25 years, the accounting returns they have generated on their investments has been stellar. 
 

Fast forward to today. Excess of FV over CV has blown out to $3.9 billion, a swing of $4.56 billion. This is a new source of future earnings for Fairfax - in addition to the usual sources. 

Edited May 26 by Viking

[dartmonkey]

24 minutes ago, Viking said:

@dartmonkey, I am not following you. Fairfax’s carrying value captures all the accounting pieces. Fair value captures the change in the share price. The difference is excess of FV over CV… That pre-tax number is not captured in EPS, ROE or BVPS. How is it double counting?

Because ROE has earnings in the numerator. For example, Eurobank has a ridiculous carrying value, so that its book value is far from intrinsic value, but Eurobank’s earnings are all reported properly, so earnings (whether it is eps or earnings as a percentage of book value) give a fair picture of intrinsic value. 

 

You can’t just add the CV-FV value creation as ‘additional earnings’, because then you would be double counting Eurobank’s earnings (and the earnings of the other associated/consolidated holdings.) I’m not saying you were doing this, just that someone might misunderstand it that way. 

[Viking]

1 hour ago, dartmonkey said:

Because ROE has earnings in the numerator. For example, Eurobank has a ridiculous carrying value, so that its book value is far from intrinsic value, but Eurobank’s earnings are all reported properly, so earnings (whether it is eps or earnings as a percentage of book value) give a fair picture of intrinsic value. 

 

You can’t just add the CV-FV value creation as ‘additional earnings’, because then you would be double counting Eurobank’s earnings (and the earnings of the other associated/consolidated holdings.) I’m not saying you were doing this, just that someone might misunderstand it that way. 

My view is there are two types of earnings:

1. Accounting
2. Economic

To calculate economic you need to start with accounting. And then make adjustments like adding the change in hidden value (adjusted for taxes). 
 

Economic earnings gives a more accurate picture of the growth in economic/intrinsic value for the year. This also provides a better benchmark to evaluate the performance of the management team. 

[Wanderer]

dartmonkey's point is that earnings of consolidated holdings are already in the reported earnings of FFH. So earnings reflect the consolidated businesses in full, but book value understates their market worth.

 

Vice versa, what's in the book at fair value is expressed (more) accurate in the book value, but not in FFHs reported earnings (which understate the earnings of holdings at fair value).

[SafetyinNumbers]

1 hour ago, Wanderer said:

dartmonkey's point is that earnings of consolidated holdings are already in the reported earnings of FFH. So earnings reflect the consolidated businesses in full, but book value understates their market worth.

 

Vice versa, what's in the book at fair value is expressed (more) accurate in the book value, but not in FFHs reported earnings (which understate the earnings of holdings at fair value).

I think there is confusion between capital gains and earnings. The increase in the carrying value to fair value would be capital gains which is separate from  Fairfax’s share of earnings. This only happens on the portion of equity accounted for or consolidated investments that are sold in which case the associated future earnings stream goes with it. 

[thowed]

54 minutes ago, gfp said:

 

Oh yeah!  I forgot that one.  Hang it on the hall of shame next to Buffett building a $4.1 billion TSM position in 2022 and then completely bailing a few months later

 

Ha ha - yes, forgot that one.  Nobody's perfect, hey?  Reminds me of IBM...

[ScottHall]

i eye balled and bought a few shares of this recently.

[thowed]

Low key return of a CoBF legend!

[Hamburg Investor]

14 hours ago, Viking said:

I think there are two ways to think about hidden value:

1. Incorporate it into past results.
2. Incorporate it into future results. 

As @SafetyinNumbers has pointed out, what approach you take will impact ROE (past or future).

 

I prefer to incorporate it into future results (will allow Fairfax to generate a higher future ROE). 

My guess is most people ignore it. This approach seems bizarre to me. (Ignoring facts in ones analysis.)

I get the point, but at least I don't think, that's helpful, if we try to get to the ROE of FFH. To me, that's the real question. As nearly all FFHs earnings go back into the business (or in buybacks) and only a tiny bit gets paid out, overall growth and ROE should be relatively near to each other.

As a rule of thumb I better like to think about FFH by comparing BVPS in one year and BVPS a several years later. Than adjust bvps to the big "wrong" numbers in hidden value in both years - starting and end. And than you get to a cagr between those two points and add 1% or a bit more to the CAGR for the dividends. To me that number you get to seems to be reasonable near to the "intrinsic ROE" of the years. And the ROE - getting back to Munger - should mirror the return you get over the years, if you buy FFH at intrinsic value. Normally I don't adjust e g. to deferred taxes etc. "I know, that I don't know" everything. The whole machine is trimmed to safe taxes, build cost free leverage e. g. through deferred taxes and e. g. the pet insurance businesses was a vivid memory, that there are a lot of hidden things we don't even realize there are. So in my mind the number I get to is conservative in a way. 

 

[Milu]

6 hours ago, ScottHall said:

i eye balled and bought a few shares of this recently.

Same, been building up a small position after finally coming around to the company and management. Only took me about 15 years!

[Viking]

1 hour ago, Hamburg Investor said:

I get the point, but at least I don't think, that's helpful, if we try to get to the ROE of FFH. To me, that's the real question. As nearly all FFHs earnings go back into the business (or in buybacks) and only a tiny bit gets paid out, overall growth and ROE should be relatively near to each other.

As a rule of thumb I better like to think about FFH by comparing BVPS in one year and BVPS a several years later. Than adjust bvps to the big "wrong" numbers in hidden value in both years - starting and end. And than you get to a cagr between those two points and add 1% or a bit more to the CAGR for the dividends. To me that number you get to seems to be reasonable near to the "intrinsic ROE" of the years. And the ROE - getting back to Munger - should mirror the return you get over the years, if you buy FFH at intrinsic value. Normally I don't adjust e g. to deferred taxes etc. "I know, that I don't know" everything. The whole machine is trimmed to safe taxes, build cost free leverage e. g. through deferred taxes and e. g. the pet insurance businesses was a vivid memory, that there are a lot of hidden things we don't even realize there are. So in my mind the number I get to is conservative in a way. 

 

I think "hidden value" is important. The question is how to incorporate it into how one analyzes and values the company.

 

I don't think there is a correct answer. It really is a fascinating topic (i.e. Does it really even exist?). 

 

Importantly, the amount of "hidden value" has increased dramatically over the past 5 years. It is growing rapidly in size. I suspect this will continue (and could accelerate) in the coming years. Bottom line, this topic will grow in importance. 

 

The kicker: Unlike Berkshire Hathaway, Fairfax is not "buy and hold forever." Fairfax surfaces hidden value (sometimes creatively). It is like shareholders are being given a "delayed gratification" test. 

 

[hardcorevalue]

If FFH drops below $2000 again do you think they would ever consider a SIB?

 

Or is that not cheap enough still?

 

$1700? That would be below stated BV

[mengan]

52 minutes ago, hardcorevalue said:

 

If FFH drops below $2000 again do you think they would ever consider a SIB?

 

Or is that not cheap enough still?

 

$1700? That would be below stated BV

 

Hopefully at 0.75 book (~1300 CAD / share), then that would equal to 20% return without considering future growth assuming 15% ROE.

Edited May 27 by mengan

[SafetyinNumbers]

57 minutes ago, hardcorevalue said:

 

If FFH drops below $2000 again do you think they would ever consider a SIB?

 

Or is that not cheap enough still?

 

$1700? That would be below stated BV

What size do you think they could do? Personally, I don’t think they will do another SIB b/c it means taking a break from the regular buyback and paying a premium. They have shown they can put over $300m for to work a month (March) and I think they have $2-2.4b to spend without getting creative. Maybe if the stock is a lot lower over the summer, they could defer the Allied World minority interest option that expires in September and buy even more back. 

[Viking]

23 hours ago, Viking said:

Hidden Value

 

Fairfax has been transformed over the past five years.

 

The accounting results clearly show it: record EPS, high-teen ROE, and best-in-class growth in BVPS among P/C insurance peers.

 

But the accounting results tell only part of the story.

 

Much more has been happening under the hood at Fairfax that has not been captured in reported earnings or book value. As a result, the increase in Fairfax’s economic/intrinsic value over the past five years has been far greater than the accounting results suggest.

 

We refer to this growing gap between economic value and accounting value as hidden value. That is the focus of this post.

 

Hidden Value

 

Hidden value exists throughout Fairfax — across both its insurance operations and investment holdings.

 

This leads to two important questions:

1. How big is it?
2. What is the trend? Is it growing?

The answers help investors better understand Fairfax’s past performance, current positioning, and future prospects.

 

The challenge is that hidden value is a broad and complicated topic. Some sources are relatively easy to identify and measure; others are much more nuanced.

 

So, it makes sense to break the analysis into smaller pieces and begin with the easier ones.

---

 

Today, we will focus on one important component of hidden value:

 

Excess of FV over CV

 

Fairfax provides investors with valuable disclosure regarding one of its most important sources of hidden value: the excess of fair value (FV) over carrying value (CV) for non-insurance associates and market-traded consolidated holdings.

 

Associate Holdings

 

These are investments where Fairfax typically owns 20%–50% and exercises significant influence, but not control.

 

Examples include:

• Eurobank
• Poseidon (Atlas/Seaspan)
• EXCO Resources
• Waterous Energy Fund III

 Market Traded Consolidated Holdings

 

These are holdings where Fairfax owns more than 50% and controls the business.

 

Examples include:

• Fairfax India
• Thomas Cook India
• Dexterra
• AGT Food & Ingredients

---

 

How the Accounting Works

 

Associate Holdings

 

Associate investments are generally accounted for using the equity method under IFRS (IAS 28). This differs significantly from ordinary public equity holdings.

 

At acquisition — or when ownership rises above 20% — the investment is initially recorded at purchase price.

 

After that, carrying value changes based on:

• Share of earnings → increases carrying value
• Dividends received → reduce carrying value
• OCI adjustments → FX, pensions, etc.
• Impairments → permanent write-downs

Importantly, associates are not marked to market each quarter.

 

As a result, carrying value largely reflects:

• Original cost
• Plus retained earnings over time
• Minus dividends

This differs sharply from ordinary public equities, where balance sheet values are regularly adjusted to current market prices.

 

For public equities:

• Fair value ≈ carrying value

For associates:

• Fair value can become materially higher than carrying value

Especially when:

• Earnings quality improves
• Valuation multiples expand
• Businesses compound over long periods of time

This is one reason companies like Fairfax Financial Holdings and Berkshire Hathaway can develop substantial hidden value over time.

 

Market-Traded Consolidated Holdings

 

Market-traded consolidated holdings create similar economic dynamics, although the accounting treatment differs.

 

When Fairfax controls a business, it consolidates 100% of the subsidiary’s assets, liabilities, revenue, and expenses onto its financial statements.

 

At acquisition:

• Assets and liabilities are recorded at fair value
• Excess purchase price becomes goodwill 

Over time, carrying value changes through:

• Retained earnings
• Dividends
• OCI adjustments
• FX movements
• Impairments

Like associates, these businesses are not marked to market each quarter simply because they are publicly traded.

 

As a result:

• Accounting values remain largely historical
• Internally generated intangible value is often not recognized
• Goodwill generally remains static unless impaired

Over time, market value can diverge materially from carrying value.

 

Calculating Hidden Value

 

For associate and market-traded consolidated holdings, hidden value can be estimated by comparing fair value to carrying value.

 

Importantly, Fairfax does this work for investors each quarter.

---

 

Excess of FV over CV: Size and Growth

 

At March 31, 2026, Fairfax’s associate and market-traded consolidated holdings had a fair value of approximately $12.8 billion. This represented about 45% of Fairfax’s total equity portfolio of ~$29 billion — a very significant portion of the company’s equity investments.

 

Here is where the story gets interesting.

 

The carrying value of these holdings was only $8.9 billion — the amount reflected in shareholders’ equity.

The difference was approximately:

• $3.9 billion
• Or about $176 per diluted share (pre-tax)

That is hidden value.

 

Growth

 

This bucket of holdings has grown dramatically over the past 5.25 years.

• Carrying value increased 79%
• Fair value increased 197%

As a result, the excess of FV over CV surged:

• From negative $663 million at December 31, 2020
• To positive $3.9 billion at March 31, 2026

That is an increase of approximately $4.6 billion, or an average of $873 million per year.

 

This represents a significant amount of value creation that has not been captured in reported EPS, ROE, or BVPS.

 

The key takeaway: Fairfax’s economic performance over the past five years has been materially better than the accounting results indicate. Book value today understates economic value by a meaningful amount.

 

---

 

Summary

 

Excess of FV over CV for associate and market-traded consolidated holdings is an important and rapidly growing source of hidden value at Fairfax.

 

How big is it?

• Approximately $3.9 billion

What is the trend?

• Growing at roughly $873 million per year over the past 5.25 years

Fairfax itself highlights the importance of this metric. From the company’s quarterly disclosure:

 

“Excess (deficiency) of fair value over carrying value – These pre-tax amounts, while not included in the calculation of book value per basic share, are regularly reviewed by management as an indicator of investment performance for the company's non-insurance associates and market traded consolidated non-insurance subsidiaries that are considered to be portfolio investments…”

 

Fairfax effectively provides investors with a roadmap.

 

The message is clear: book value and reported earnings alone are no longer sufficient to fully understand Fairfax’s economic performance.

 

And this is only one example of hidden value.

 

Additional sources remain embedded throughout Fairfax’s insurance operations, investment holdings, and capital allocation activities.

 

Investors who ignore them risk materially understating the company’s intrinsic value.

---

 

Future topics to explore include:

• What is driving the rapid growth in hidden value?
• Will this value eventually be realized? Or will it remain hidden?
• How should investors think about hidden value when valuing Fairfax?

 

 

Hidden Value – A Real Life Example: Eurobank 

 

Eurobank is one of the best real-world examples of the hidden value problem we discussed in yesterday’s article. It shows how accounting value and economic value can diverge dramatically over time when a high-quality associate holding compounds for many years. 

 

Eurobank: A Case Study in Hidden Value

 

Eurobank is such an interesting investment for a number of reasons:

• It is Fairfax’s largest holding by far.
• It is Fairfax’s best-ever performing equity investment.
• It has become an enormous — and growing — store of hidden value.

This third point is what matters most for investors trying to understand Fairfax today.

 

Accounting Treatment Matters

 

Fairfax first invested in Eurobank in 2014. Initially, the holding was accounted for as a mark-to-market investment. That changed at the end of 2019 when regulatory restrictions on Fairfax’s voting rights were removed. Beginning in 2020, Eurobank was classified as an associate holding. 

 

And for associate holdings, the starting point matters enormously.

 

At the end of 2019:

• Greece was still recovering from a deep economic depression.
• Eurobank was still cleaning up non-performing loans.
• Central banks were pursuing zero interest rate policies.
• Investor sentiment toward Greek banks remained extremely poor.

As a result, Eurobank traded at a depressed valuation (€0.92/share). Fairfax’s carrying value for its investment was established at just $1.164 billion. 

 

That low starting valuation became critically important.

 

Fundamentals Improved Dramatically

 

Over the next six years, the fundamentals changed completely:

• Greece elected a pro-business government.
• The economy improved materially.
• Interest rates moved sharply higher, boosting bank profitability.
• Eurobank repaired its balance sheet.
• The acquisition of Hellenic Bank strengthened its competitive position.
• Management executed exceptionally well. 

At the same time, the stock price compounded higher year after year.

• Earnings increased.
• The valuation multiple increased.
• Time and compounding worked their magic.

Eurobank’s share price rose from €0.92 at December 31, 2019 to €3.97 at May 27, 2026 — an increase of 528%. 

 

Investors might assume this created a massive gain in Fairfax’s reported accounting results.

 

Not really.

 

Carrying Value vs. Market Value

 

Because Eurobank is an associate holding, Fairfax uses equity accounting.

 

The carrying value changes primarily through:

• Fairfax’s share of Eurobank’s earnings
• Dividends received
• Currency adjustments

Importantly, changes in Eurobank’s stock price do not flow through Fairfax’s accounting results. 

 

As a result, Eurobank’s carrying value increased from $1.164 billion at year-end 2019 to an estimated $2.9 billion at May 27, 2026 — an increase of about $1.7 billion, or 149%. 

 

Solid.

 

But it badly understates what actually happened economically.

 

Over the same period, the market value of Fairfax’s stake increased from $1.164 billion to approximately $5.4 billion — an increase of $4.23 billion, or 530%. 

 

That difference is hidden value.

 

Hidden Value

 

Hidden value = market value – carrying value

• Market value: approximately $5.4 billion
• Carrying value: approximately $2.9 billion
• Hidden value: approximately $2.5 billion, or about $112 per diluted Fairfax share (pre-tax) 

And this is only one investment.

 

That is the key point investors need to understand.

 

Why This Matters

 

Eurobank demonstrates why book value and reported earnings are becoming less useful as stand-alone valuation tools for Fairfax.

 

The investment performed extraordinarily well economically. But because the holding is classified as an associate, much of the value creation never flowed through EPS or BVPS.

 

Instead, the value accumulated quietly as hidden value.

 

Importantly, the gap between market value and carrying value could continue to widen over time if:

• Eurobank continues compounding earnings,
• Greece continues improving economically,
• Interest rates remain structurally higher than the prior decade, and
• Fairfax continues to hold the investment long term. 

This is exactly the dynamic we discussed in yesterday’s article.

 

For traditional P/C insurers, accounting value and economic value are usually reasonably close. But for companies like Fairfax — with large associate and consolidated holdings that compound over long periods — the gap between the two can become enormous.

 

 

 

[Milu]

11 minutes ago, Viking said:

 

 

Hidden Value – A Real Life Example: Eurobank 

 

Eurobank is one of the best real-world examples of the hidden value problem we discussed in yesterday’s article. It shows how accounting value and economic value can diverge dramatically over time when a high-quality associate holding compounds for many years. 

 

Eurobank: A Case Study in Hidden Value

 

Eurobank is such an interesting investment for a number of reasons:

• It is Fairfax’s largest holding by far.
• It is Fairfax’s best-ever performing equity investment.
• It has become an enormous — and growing — store of hidden value.

This third point is what matters most for investors trying to understand Fairfax today.

 

Accounting Treatment Matters

 

Fairfax first invested in Eurobank in 2014. Initially, the holding was accounted for as a mark-to-market investment. That changed at the end of 2019 when regulatory restrictions on Fairfax’s voting rights were removed. Beginning in 2020, Eurobank was classified as an associate holding. 

 

And for associate holdings, the starting point matters enormously.

 

At the end of 2019:

• Greece was still recovering from a deep economic depression.
• Eurobank was still cleaning up non-performing loans.
• Central banks were pursuing zero interest rate policies.
• Investor sentiment toward Greek banks remained extremely poor.

As a result, Eurobank traded at a depressed valuation (€0.92/share). Fairfax’s carrying value for its investment was established at just $1.164 billion. 

 

That low starting valuation became critically important.

 

Fundamentals Improved Dramatically

 

Over the next six years, the fundamentals changed completely:

• Greece elected a pro-business government.
• The economy improved materially.
• Interest rates moved sharply higher, boosting bank profitability.
• Eurobank repaired its balance sheet.
• The acquisition of Hellenic Bank strengthened its competitive position.
• Management executed exceptionally well. 

At the same time, the stock price compounded higher year after year.

• Earnings increased.
• The valuation multiple increased.
• Time and compounding worked their magic.

Eurobank’s share price rose from €0.92 at December 31, 2019 to €3.97 at May 27, 2026 — an increase of 528%. 

 

Investors might assume this created a massive gain in Fairfax’s reported accounting results.

 

Not really.

 

Carrying Value vs. Market Value

 

Because Eurobank is an associate holding, Fairfax uses equity accounting.

 

The carrying value changes primarily through:

• Fairfax’s share of Eurobank’s earnings
• Dividends received
• Currency adjustments

Importantly, changes in Eurobank’s stock price do not flow through Fairfax’s accounting results. 

 

As a result, Eurobank’s carrying value increased from $1.164 billion at year-end 2019 to an estimated $2.9 billion at May 27, 2026 — an increase of about $1.7 billion, or 149%. 

 

Solid.

 

But it badly understates what actually happened economically.

 

Over the same period, the market value of Fairfax’s stake increased from $1.164 billion to approximately $5.4 billion — an increase of $4.23 billion, or 530%. 

 

That difference is hidden value.

 

Hidden Value

 

Hidden value = market value – carrying value

• Market value: approximately $5.4 billion
• Carrying value: approximately $2.9 billion
• Hidden value: approximately $2.5 billion, or about $112 per diluted Fairfax share (pre-tax) 

And this is only one investment.

 

That is the key point investors need to understand.

 

Why This Matters

 

Eurobank demonstrates why book value and reported earnings are becoming less useful as stand-alone valuation tools for Fairfax.

 

The investment performed extraordinarily well economically. But because the holding is classified as an associate, much of the value creation never flowed through EPS or BVPS.

 

Instead, the value accumulated quietly as hidden value.

 

Importantly, the gap between market value and carrying value could continue to widen over time if:

• Eurobank continues compounding earnings,
• Greece continues improving economically,
• Interest rates remain structurally higher than the prior decade, and
• Fairfax continues to hold the investment long term. 

This is exactly the dynamic we discussed in yesterday’s article.

 

For traditional P/C insurers, accounting value and economic value are usually reasonably close. But for companies like Fairfax — with large associate and consolidated holdings that compound over long periods — the gap between the two can become enormous.

 

 

 

Just wondering has this difference between carrying value and market value always been a thing throughout Fairfax history or has there been some change in accounting that makes it more important recently?

[mengan]

23 minutes ago, Milu said:

Just wondering has this difference between carrying value and market value always been a thing throughout Fairfax history or has there been some change in accounting that makes it more important recently?

This has nothing to do specifically with Fairfax. It's an accounting standard (IFRS 13). Similar rules exist for US GAAP and also for German HGB.

[Viking]

44 minutes ago, Milu said:

Just wondering has this difference between carrying value and market value always been a thing throughout Fairfax history or has there been some change in accounting that makes it more important recently?

@Milu, that is a great question. This is a largely a new development for Fairfax. This is important… it is largely not baked in to historical results. And its impact on future results will largely be new/incremental. 
 

A couple of important things are happening at the same time:

• In its equity portfolio, Fairfax is shifting from mark to market holdings to associate and consolidated. That is new (since about 2018… which I consider ‘new’).
• The quality of the holdings has dramatically improved since 2018. It got started in 2018 and has been slowly playing out. This means the equity holdings will deliver a higher return (as a group). This higher return has been compounding over time.

The net result of these two points is hidden value has been growing rapidly since 2018. And this will continue moving forward. The sale of 50% of Poseidon provides a great recent example - confirmation of my thesis. 
 

The really interesting thing is it is not well understood or appreciated. But that doesn’t mean it doesn’t exist  

Edited May 27 by Viking

[SafetyinNumbers]

1 hour ago, Milu said:

Just wondering has this difference between carrying value and market value always been a thing throughout Fairfax history or has there been some change in accounting that makes it more important recently?

Equitg accounted for investments have grown significantly as a percentage of total equity investments. Essentially, as their balance sheet got bigger it allowed them to take bigger stakes and truly partner with management teams. 

 

[Milu]

1 hour ago, Viking said:

@Milu, that is a great question. This is a largely a new development for Fairfax. This is important… it is largely not baked in to historical results. And its impact on future results will largely be new/incremental. 
 

A couple of important things are happening at the same time:

• In its equity portfolio, Fairfax is shifting from mark to market holdings to associate and consolidated. That is new (since about 2018… which I consider ‘new’).
• The quality of the holdings has dramatically improved since 2018. It got started in 2018 and has been slowly playing out. This means the equity holdings will deliver a higher return (as a group). This higher return has been compounding over time.

The net result of these two points is hidden value has been growing rapidly since 2018. And this will continue moving forward. The sale of 50% of Poseidon provides a great recent example - confirmation of my thesis. 
 

The really interesting thing is it is not well understood or appreciated. But that doesn’t mean it doesn’t exist  

Ok thanks. Makes sense now and yes looks like the growing percentage of assets falling under this accounting standard is undervaluing book value by increasingly larger amounts each year as the value of these investments grow.

 

Do you feel that book value as a metric is no longer relevant for Fairfax or that it is relevant as long as you adjust shareholders equity to reflect the current best guess of intrinsic value of these ‘held at cost’ holdings? 

[Milu]

1 hour ago, SafetyinNumbers said:

Equitg accounted for investments have grown significantly as a percentage of total equity investments. Essentially, as their balance sheet got bigger it allowed them to take bigger stakes and truly partner with management teams. 

 

I’d be more curious to see this shown as percentage of the total holdings bucket rather just seeing an independent number. As the company grows you’d expect this number to generally go up and to the right, but the thing that is useful to this discussion is whether the percentage of equity accounted holdings relative to the rest has grown or not. 

[dartmonkey]

3 hours ago, Viking said:

Eurobank’s share price rose from €0.92 at December 31, 2019 to €3.97 at May 27, 2026 — an increase of 528%. 

 

Investors might assume this created a massive gain in Fairfax’s reported accounting results.

 

Not really.

 

Carrying Value vs. Market Value

 

Because Eurobank is an associate holding, Fairfax uses equity accounting.

 

The carrying value changes primarily through:

• Fairfax’s share of Eurobank’s earnings
• Dividends received
• Currency adjustments

Importantly, changes in Eurobank’s stock price do not flow through Fairfax’s accounting results. 

 

As a result, Eurobank’s carrying value increased from $1.164 billion at year-end 2019 to an estimated $2.9 billion at May 27, 2026 — an increase of about $1.7 billion, or 149%. 

 

Solid.

 

But it badly understates what actually happened economically.

 

Over the same period, the market value of Fairfax’s stake increased from $1.164 billion to approximately $5.4 billion — an increase of $4.23 billion, or 530%. 

 

That difference is hidden value.

 

Hidden Value

 

Hidden value = market value – carrying value

• Market value: approximately $5.4 billion
• Carrying value: approximately $2.9 billion
• Hidden value: approximately $2.5 billion, or about $112 per diluted Fairfax share (pre-tax) 

And this is only one investment.

 

That is the key point investors need to understand.

 

Why This Matters

 

Eurobank demonstrates why book value and reported earnings are becoming less useful as stand-alone valuation tools for Fairfax.

 

The investment performed extraordinarily well economically. But because the holding is classified as an associate, much of the value creation never flowed through EPS or BVPS.

 

OK, let me make one last attempt to clear up where I disagree with the above, and then I will probably shut up.

 

First, a quibble: the share price increase from €0.92  to €3.97 is about 330%, not 530%; I think you have a +1 in your table where it should be a -1.

 

More importantly, when you say that Eurobank's demonstrates why book value and reported earnings are becoming less useful, and that much of the value creation never flowed through EPS or BVPS, I am agreeing with you about book value and book value per share, but not about reported earnings and earnings per share. This is because IFRS allows Fairfax to count its share of all the Eurobank profits, on its earnings statement, even if it doesn't get to count all that new value as book value on its balance sheet.

 

Eurobank has increased in value by 330% largely because its earnings have gone from €15m in 2020 (9 months -shortened year) to €469m in 2021, €1388 in 2022, €794m in 2023, €1458m in 2024, and €1362m in 2025. Dividends paid out in those almost 6 years were 0, 0, 0, €410m, €240m and €556m, so assuming Fairfax's share was about 33% throughout this period, that means carrying value got marked up by about €5m, €156m, €496m, €184m, and €289m in those 6 years, or €1130m, which is roughly what happened to the carrying value of its Eurobank stake, plus or minus some forex adjustments.

 

But the important point is that all those €1130m in earnings did get reported by Fairfax as they arrived, so if you are looking at reported earnings, or earnings per share (EPS), in other words the earnings statement, and if you are valuing Fairfax at some multiple of earnings (as I am, principally; currently at 8x last year's earnings, and now less than 9x this year's pessimistically assessed earnings, assuming average underwriting gains but only a 6% return on the non-fixed income portfolio, half their 6-year average), then there is really no distortion at all, and no hidden value. The distortion only happens with book value, where you have to take account of this extra hidden value that is not being counted on the balance sheet.

 

Edited May 27 by dartmonkey

[Viking]

4 minutes ago, Milu said:

Ok thanks. Makes sense now and yes looks like the growing percentage of assets falling under this accounting standard is undervaluing book value by increasingly larger amounts each year as the value of these investments grow.

 

Do you feel that book value as a metric is no longer relevant for Fairfax or that it is relevant as long as you adjust shareholders equity to reflect the current best guess of intrinsic value of these ‘held at cost’ holdings? 

@Milu, you ask another great question. 
 

Fairfax is pretty aggressive surfacing hidden value. This makes hidden value another income stream for Fairfax. Poseidon is a great recent example.
 

I view hidden value like a funnel (perhaps a dam is better mental model?). Each year a bunch is ‘poured’ into the top. When Fairfax surfaces hidden value (boosting investment gains) some of it ‘flows’ out of the bottom. Over the past 5 years, much more has been poured into the top than has been flowing out of the bottom. 

Importantly, Fairfax controls how much flows out of the bottom (when they monetize an asset). 
 

As a result, hidden economic value will be converted to accounting value. This will boost BVPS. This will help keep BVPS more relevant  than it would otherwise be.