Fairfax 2026

[Hsmpanl]

14 minutes ago, bluedevil said:

With the stock lower, and the proceeds from the Poseidon sale in the door, seems like a good time for the company to close out the TRS by buying back the underlying stock held by the banks that are hedging the TRS.  Seems like a natural way/time to unwind the TRS when there is some cash in the door and to capitalize on the drop in the stock price.

I’d just throw on some more TRS and simultaneously buyback stock. YOLO

[TwoCitiesCapital]

There is a feedback loop - the TRS directly flow through to earnings. I.e. stock weakness can beget earnings weakness which can beget more stock weakness. Just depends on how steep the drawdown and if anything else is offsetting it. 

 

I don't think we're at a concerning point yet - from a liquidity  perspective or a major earnings hit given how spread our between quarters the drawdown has been. But the possibility is why I was advocating they reduce before the draw down happened 

 

I dunno if I'd throw on more leverage, but they could certainly keep the TRS position in place now that we're down 25%. Too late to close out advantageously, but wouldn't be upset if they trimmed more next time we're at $2000/USD and just bought back cash shares now 

Edited Tuesday at 01:44 AM by TwoCitiesCapital

[KPO]

47 minutes ago, Viking said:

@KPO, is your concern the amount of cash Fairfax has to come up with at quarter end to cover any decline in the share price? Pre-2020, I might have shared that concern. Today, I am not concerned - Fairfax had many sources of cash (should they need it). 
 

It is normal for a stock to decline 25% to 35% off its highs each year. Fairfax is down ~20% from its 52 week high (at YE) - at the low end of what usually happens with most stocks every year. My guess is Fairfax is well prepared with the FFH-TRS position to handle the volatility we are seeing (and any cash needs).
 

I don’t think the decline in the FFH-TRS position is causing the weakness in the share price (I could be wrong) - i.e. the negative feedback loop you are referencing. 
 

Importantly, the fundamentals of the company are very good - economic/intrinsic value continues to grow each quarter.
 

The stock is approaching a valuation of 1.2x book value - it is very cheap. As a result, my guess is Fairfax will be very aggressive with share buybacks in 2026 (just not sure which months). IMHO, a lower share price will simply result in Fairfax buying back more stock. 

I’ve been at this game a long time. I think Fairfax is a really solid company and I was buying heavily during COVID, but I focus on unforced errors. A signal that they will eventually unwind the TRS through a modest unwind will go a long way in my view. I’m probably starting to fall into the old and conservative bucket like old man Buffett, so maybe I’m out of touch, but I’ve never been down more than 10% in any one year over a long time horizon so I like to think I’m not totally foolish. 

[SafetyinNumbers]

1 hour ago, KPO said:

I’ve been at this game a long time. I think Fairfax is a really solid company and I was buying heavily during COVID, but I focus on unforced errors. A signal that they will eventually unwind the TRS through a modest unwind will go a long way in my view. I’m probably starting to fall into the old and conservative bucket like old man Buffett, so maybe I’m out of touch, but I’ve never been down more than 10% in any one year over a long time horizon so I like to think I’m not totally foolish. 

They did unwind some in Dec 2024 and bought the stock back. I don’t think it has anything to do with why the stock is down. 
 

The TRS are a really useful tool to maintain investments:equity leverage near 3:1 as they can wait to close them out when the stock is expensive while buying in the open market when the stock is cheap. 
 

It’s a big reason why a 20% CAGR in BVPS over the next 5 years is way more achievable than most investors think. 
 

 

[Txvestor]

2 hours ago, TwoCitiesCapital said:

There is a feedback loop - the TRS directly flow through to earnings. I.e. stock weakness can beget earnings weakness which can beget more stock weakness. Just depends on how steep the drawdown and if anything else is offsetting it. 

 

I don't think we're at a concerning point yet - from a liquidity  perspective or a major earnings hit given how spread our between quarters the drawdown has been. But the possibility is why I was advocating they reduce before the draw down happened 

 

I dunno if I'd throw on more leverage, but they could certainly keep the TRS position in place now that we're down 25%. Too late to close out advantageously, but wouldn't be upset if they trimmed more next time we're at $2000/USD and just bought back cash shares now 

Yes, but bear in mind two things. The first quarter of this year, the TRS position had a paper loss of 342M or about $16 a share and they had an interest rate going up headwind still ended with a quarterly eps of $32. 
This quarter the mark to market equities have done fairly well, and then there is the Poseidon sale to add to the other earning streams. The TRS loss looks to be about half that of Q1. So even against that headwind and the 0.2% or so bump in interest rates, we are likely to see a fairly strong eps print. They're not cash poor at this time. 
Finally leverage works both ways. And when market sentiment turns or if interest rates drop, the same headwinds will turn into tailwinds.

At a price earnings of 7-8, I think they should use the excess cash that they have to just buy back stock. Rinse and repeat. And eventually, when the stock reaches closer to their assessment of intrinsic value, they can unwind the TRS position and delever more. 

[LC]

The TRS does provide some incentive to repurchase, in an attempt to buoy the share price so TRS losses don’t flow thru earnings. Practically I think it gives mgmt a hurdle rate, to compare other competing investment ideas. 

[Txvestor]

Even as they start H1 2026 with EPS probably under $100 a share. Maybe at about $90 or so. It wouldn't surprise me one bit if mark to market security values and interest rates and TRS move-in a good direction they still end up at eps of $200+ at the end of the year. The number of options management have to allocate the streams of cash that they get is one of the most distinguishing features of this security. Each allocation option has an expected rate of return and I think they know each one with a reasonable clarity. 

Edited Tuesday at 04:46 AM by Txvestor

[gokou3]

I am one who wants management to use up their NCIB limit ASAP at this share price.  Do I understand correctly that TSX rules limit annual NCIB purchases to 10% of float?  Any way to do more repurchases aside from SIB?

[djokovic1]

@KPO Frankly, I am not worried about the TRS w.r.t negative feedback loop.

 

In a downside scenario if Fairfax stock fell an additional 30% from here over the next 4 quarters, the PnL hit will be ~USD $900m or around $50/share or around $12.5/quarter. The magnitude of that is ~ an extreme CAT year. While it will be manageable that $900m will be an opportunity cost loss, profits they could have been re-invested to keep compounding.

 

So I don't think the size and magnitude is big enough to create a negative feedback loop.

 

I also think they shouldn't be adding to the TRS but instead buy back as much stock as they can right now which is what I think they will do. And also start closing the TRS at higher prices.

I believe the price when the TRS was first struck was ~$400. It has been a home run so far and shareholders have reaped the benefits. No one can time exits precisely and consistently, but I trust them to do the wise thing at the right time.

[Parsad]

1 hour ago, gokou3 said:

I am one who wants management to use up their NCIB limit ASAP at this share price.  Do I understand correctly that TSX rules limit annual NCIB purchases to 10% of float?  Any way to do more repurchases aside from SIB?

 

If things continue to drag out in the Middle East, it is highly likely that stock prices will continue to be volatile.  Using up the whole NCIB now is like using up your firepower all at once.  They've been very good about buying back shares over the last six years...let's trust them to do the right thing over time on buybacks.  Cheers!

[Gamecock-YT]

3 hours ago, gokou3 said:

I am one who wants management to use up their NCIB limit ASAP at this share price.  Do I understand correctly that TSX rules limit annual NCIB purchases to 10% of float?  Any way to do more repurchases aside from SIB?

 

Prepaid Equity Forwards to fund share-based compensation plans or some other type of hedge

[73 Reds]

5 hours ago, djokovic1 said:

@KPO Frankly, I am not worried about the TRS w.r.t negative feedback loop.

 

In a downside scenario if Fairfax stock fell an additional 30% from here over the next 4 quarters, the PnL hit will be ~USD $900m or around $50/share or around $12.5/quarter. The magnitude of that is ~ an extreme CAT year. While it will be manageable that $900m will be an opportunity cost loss, profits they could have been re-invested to keep compounding.

 

So I don't think the size and magnitude is big enough to create a negative feedback loop.

 

I also think they shouldn't be adding to the TRS but instead buy back as much stock as they can right now which is what I think they will do. And also start closing the TRS at higher prices.

I believe the price when the TRS was first struck was ~$400. It has been a home run so far and shareholders have reaped the benefits. No one can time exits precisely and consistently, but I trust them to do the wise thing at the right time.

Agreed.  Winding down the TRS should be done when the stock is overvalued or at least trading at fair value.  This is precisely the time to add to the TRS, if anything at all.   

[Hektor]

11 hours ago, Viking said:

@KPO, is your concern the amount of cash Fairfax has to come up with at quarter end to cover any decline in the share price? Pre-2020, I might have shared that concern. Today, I am not concerned - Fairfax had many sources of cash (should they need it). 
 

It is normal for a stock to decline 25% to 35% off its highs each year. Fairfax is down ~20% from its 52 week high (at YE) - at the low end of what usually happens with most stocks every year. My guess is Fairfax is well prepared with the FFH-TRS position to handle the volatility we are seeing (and any cash needs).
 

I don’t think the decline in the FFH-TRS position is causing the weakness in the share price (I could be wrong) - i.e. the negative feedback loop you are referencing. 
 

Importantly, the fundamentals of the company are very good - economic/intrinsic value continues to grow each quarter.
 

The stock is approaching a valuation of 1.2x book value - it is very cheap. As a result, my guess is Fairfax will be very aggressive with share buybacks in 2026 (just not sure which months). IMHO, a lower share price will simply result in Fairfax buying back more stock. 

@Viking I think Prem mentioned that they could exit the TRS quickly. So, I feel this will not be a "run away train" like the previous hedging episode. Any thoughts?

[dartmonkey]

11 hours ago, bluedevil said:

Seems like a natural way/time to unwind the TRS when there is some cash in the door and to capitalize on the drop in the stock price.

They certainly could do this. They have the cash to do whatever makes most sense, and getting rid of the TRS, while perhaps repurchasing an equivalent number of shares, would lessen the amplitude of swings in their earnings, which might meet with more market favour. 

 

On the other hand, bigger swings in share prices does have some advantages, for a company that wants and is able to repurchase a lot of its own shares, so maybe leaving the TRS alone makes sense, in a perverse way? If the TRS are contributing in any way to a negative feedback loop, then it’s more shares repurchased for the same dollar outlay, so we will end up in a better place. 

 

For a company with Henry Singleton-like ambitions, maybe they should have more TRS, not less?

[Crip1]

Every month I get with my wife to review our financial situation. This month the of Crip-Family net worth was not impressive, and when returns are compared against the S&P, it looks even worse. I gave her the low down, specifically, that Fairfax really killed our returns YTD and in May especially. She asked "What happened with Fairfax?"...response was "Not a damn thing, literally no bad news". This is instructive...company moves notably lower with, from what I can see, zero reason. Yes, it is frustrating to see the impact on the net worth, this is the kind of thing we live for...company getting better and price getting cheaper. We have been buying on the way down, but hindsight says we should have waited a little longer.

 

-Crip

[Viking]

1 hour ago, Hektor said:

@Viking I think Prem mentioned that they could exit the TRS quickly. So, I feel this will not be a "run away train" like the previous hedging episode. Any thoughts?

@Hektor, from my perspective the FFH-TRS is a completely different animal than the equity hedge/short positions. I don’t think they are comparable. 

[Intelligent_Investor]

While idk if the stock price is yet at "back up the truck" levels of repurchases, the truck should be in reverse gear right now at current prices.

[Viking]

2 hours ago, Crip1 said:

Every month I get with my wife to review our financial situation. This month the of Crip-Family net worth was not impressive, and when returns are compared against the S&P, it looks even worse. I gave her the low down, specifically, that Fairfax really killed our returns YTD and in May especially. She asked "What happened with Fairfax?"...response was "Not a damn thing, literally no bad news". This is instructive...company moves notably lower with, from what I can see, zero reason. Yes, it is frustrating to see the impact on the net worth, this is the kind of thing we live for...company getting better and price getting cheaper. We have been buying on the way down, but hindsight says we should have waited a little longer.

 

-Crip

 

@Crip1, I agree... fundamentals continue to improve (on balance) and the stock is getting cheaper = significant multiple contraction. 

 

One example of the fundamentals improving is what is happening with the fixed income portfolio and the increase in bond yields over the past 3 months.

 

Fairfax is very short duration. This positioning limits the hit to book value from rising bond yields (and falling prices). It allows them to reinvest maturing bonds at high rates of return. And it also gives them the opportunity to extend duration. Lots to like about how Fairfax's $50B fixed income portfolio is positioned in today's rising inflation environment.

 

A second example is the sale of Poseidon. It surfaced $1.7B in value (including a $837M investment gain in Q2). That is a significant development.

 

A third example is the opportunity to repurchase a significant amount of stock at prices under $1,600. Very accretive and shareholder friendly. 

 

Yes, the hard market is slowing. As a result top line growth is slowing. However, margins are still quite good, meaning underwriting profit is still solid. 

 

Chug, chug, chug...

Edited Tuesday at 04:16 PM by Viking

[cwericb]

12 hours ago, Crip1 said:

Every month I get with my wife to review our financial situation. This month the of Crip-Family net worth was not impressive, and when returns are compared against the S&P, it looks even worse. I gave her the low down, specifically, that Fairfax really killed our returns YTD and in May especially. She asked "What happened with Fairfax?"...response was "Not a damn thing, literally no bad news". This is instructive...company moves notably lower with, from what I can see, zero reason. Yes, it is frustrating to see the impact on the net worth, this is the kind of thing we live for...company getting better and price getting cheaper. We have been buying on the way down, but hindsight says we should have waited a little longer.

 

-Crip

 

Had the exact conversation with my better half Saturday morning and she asked the exact same question. I also had no real answer other than to say these things tend to happen to Fairfax from time to time for no real reason. Kinda felt like a moron because I could not explain the situation, and yeah, there is the net worth roller coaster. I told her that I have every confidence that share price will get back on track, my only concern is when as I am not getting any younger. With Fairfax at around 50% of my portfolio I have not been adding, but I have no intention of selling either. There have been days that tend to make me reach for the Rolaids though.

 

By the way Crip, I'm the guy that stumbled onto this board 20 years ago and paid close attention to every one of your posts at the time because you always seemed to ask or answer ask the same questions that I had and you were one of the posters that influenced me jump into Fairfax. I thank you for that. There has been a lot of ups and downs with Fairfax over those 20 years but I'm still here.

[Hoodlum]

Even the credit rating agencies are catching up with what has been happening at Fairfax.

 

https://news.ambest.com/pr/PressContent.aspx?refnum=37371&altsrc=2

 

Fairfax’s ratings reflect the group’s continued favorable earnings trend, which includes record underwriting profits in 2025, even with significant catastrophe activity impacting some of its affiliates in the year. Fairfax’s investments continue to accrue significant capital gains and earn steady and increasing interest and dividends, allowing it to repurchase its own shares while keeping its risk-adjusted capitalization at the strongest level. Fairfax’s returns have allowed the group to compound its book value per share at an 18.3% rate annually, on average, since 1985.

 

Edited 7 hours ago by Hoodlum

[Maverick47]

https://www.fairfax.ca/press-releases/fairfax-announces-pricing-of-senior-notes-offering/?utm_source=press-release&utm_medium=email&utm_term=Wed+Jun+03+2026&utm_campaign=Fairfax+Announces+Pricing+of+Senior+Notes+Offering
 

$750M of 30 year bonds issued at 6.2%.  Attractive long term financing.  Fairfax is showing a great ability to generate funds for a multitude of attractive opportunities.

[Hoodlum]

23 minutes ago, Maverick47 said:

https://www.fairfax.ca/press-releases/fairfax-announces-pricing-of-senior-notes-offering/?utm_source=press-release&utm_medium=email&utm_term=Wed+Jun+03+2026&utm_campaign=Fairfax+Announces+Pricing+of+Senior+Notes+Offering
 

$750M of 30 year bonds issued at 6.2%.  Attractive long term financing.  Fairfax is showing a great ability to generate funds for a multitude of attractive opportunities.

 

Nice pricing for these 30 year corporate bonds.   It will be interesting to see how this is used.   The Series K Preferred shares will not reset until March 2027, which is when Fairfax can close out this last series. 

 

So I see this for either the Allied minority interest or share buybacks, until the EuroLife sale closes.  This gives them some buffer as the Eurolife sale is taking longer than initially expected, likely due to the slow pace of Greece's government approvals.