Fairfax 2026

[yesman182]

5 minutes ago, SafetyinNumbers said:

BRK keeps duration close to zero by rule, MKL keeps it matching claims duration by rule and FFH does whatever makes the most sense at the time. More optionality should be worth more but not how the market looks at things.

What do you mean BRK keeps duration to zero by rule? In the current environment they are, but I am aware of no much spoken rule, other than always wanting 30-50bn cash (not sure what the limit was up to). That money I suspect will always be in tbills. The rest is just sitting ready to be invested. Fairfax and Markel have invested their money, Berkshire is looking for something. So I think Berkshire has the most optionality with 300+ billion of dry powder, you think Fairfax? 

[SafetyinNumbers]

5 minutes ago, yesman182 said:

What do you mean BRK keeps duration to zero by rule? In the current environment they are, but I am aware of no much spoken rule, other than always wanting 30-50bn cash (not sure what the limit was up to). That money I suspect will always be in tbills. The rest is just sitting ready to be invested. Fairfax and Markel have invested their money, Berkshire is looking for something. So I think Berkshire has the most optionality with 300+ billion of dry powder, you think Fairfax? 

I think BRK keep the float in cash or near cash by rule. I haven’t studied it that closely but when is the last time they extended duration? The excess cash presumably have ready for equity investments including their own stock. The excess cash as a percentage of shareholder’s equity is probably not that different from Fairfax which owns more bonds than its float so presumably could reallocate up to $6b more to equities if the opportunity presented itself. 

[Crip1]

10 hours ago, Maverick47 said:

She did treat me to a great dinner or two over the years!
 

 But to be fair, she also had the temperament to leave her portfolio alone even when things may not always have looked as though they were trending steadily upwards and to the right.

 

For the first couple of years before Valeant imploded, her spouse second guessed the decision to dispose of Valeant, as it continued to outperform the replacements.  And even her Fairfax investment was underwater about seven years after it was first purchased (right around the time that Prem signaled how undervalued he thought it was by purchasing $150 million for his own account).  She didn’t give me any grief when we sold some other names and purchased more Fairfax around the same time.

 

I am glad I never got involved with short selling, as I would have discovered with regard to Valeant the truism that “ the market can remain irrational longer than you can remain solvent.”

First, I've not said this but I (and likely many others) really appreciate your contributions to the forum. The insurance-industry experience gives a very useful perspective to the discussion. Thank you for that.

 

Second, you point out temperament above, and it really is hugely important. When I first heard Buffett talk about it, I really did not comprehend HOW important it is. My son, 26, started his investment journey a couple years ago. Technically, he's not a brilliant stock-picker, but his decision process is rational and long-term oriented. He's not going to break records with his returns, but he's gonna do better than most, solely because of his temperament.

 

-Crip

[Jaygo]

Sleep Country is one step closer to Sleep Continent. They have made an offer for Sleep number USA who is in bankruptcy.

[Maverick47]

3 hours ago, Crip1 said:

First, I've not said this but I (and likely many others) really appreciate your contributions to the forum. The insurance-industry experience gives a very useful perspective to the discussion. Thank you for that.

 

Second, you point out temperament above, and it really is hugely important. When I first heard Buffett talk about it, I really did not comprehend HOW important it is. My son, 26, started his investment journey a couple years ago. Technically, he's not a brilliant stock-picker, but his decision process is rational and long-term oriented. He's not going to break records with his returns, but he's gonna do better than most, solely because of his temperament.

 

-Crip

Kind words Crip — thank you!
 

In my corner of the world, I just haven’t found many folks, either among family or friends, who seem to enjoy investing as much as I do.  I do come across a good number of folks who enjoy speculation, but that’s a whole different kind of person I refuse to “learn” from….

 

I’d been a longtime lurker on this forum, but joining it shortly after I retired has been one of the best decisions I’ve ever made.   Some of the most powerful lessons I glean here are those that reinforce the appropriate, measured response a value investor ought to have after viewing seemingly irrational market pricing of the businesses we own part of.

 

This online community helps me maintain a steady approach in the face of market volatility.  Glad to hear your son is approaching things the same way…it’s an impressive lesson to learn at such an age!

[Hamburg Investor]

15 hours ago, Maverick47 said:

In my corner of the world, I just haven’t found many folks, either among family or friends, who seem to enjoy investing as much as I do.  I do come across a good number of folks who enjoy speculation, but that’s a whole different kind of person I refuse to “learn” from….

 

I’d been a longtime lurker on this forum, but joining it shortly after I retired has been one of the best decisions I’ve ever made.   Some of the most powerful lessons I glean here are those that reinforce the appropriate, measured response a value investor ought to have after viewing seemingly irrational market pricing of the businesses we own part of.

Those words of you resonate a much with me. It mirrors my situation a lot; being located in Germany I never (!) met someone live being interested in Value Investing. We have a lot of speculators here, and all the more, when the markets are up and when daily news writes about it. I got asked two weeks ago about SpaceX and if I would invest into it. I didn't even know about it and said that frankly... People know I am interested in stocks, and if it gets to stocks (which is not very often as no-one is taking time to read about; you just don't learn about stock investing in school, not from your grandparents or fathers... It's just no-one is invested longtime) always ask me for Bitcoin and Tech. That's so typical for Germany. Investing is on noones radar; speculation is. They all want to get rich quickly and when they ask for Tech, I tell them "I don't know about that stock. Only thing I know is, that Tech is not among the best sectors to invest, if history is any guide; the last 20 years are an exception from the rule".

I really like reading your stuff too, @Maverick47. Thanks! Where are you from?  

 

 

[Hamburg Investor]

On 6/11/2026 at 7:56 PM, Viking said:

Thorndike's framework was designed to identify exceptional capital allocators.

Thank you, @Viking! Great post!

I was aware about a lot of the aspects, but I wasn't aware, that Thorndike put that into such a nice book; I will read it! Thanks!

With FFH, BRK, MKL, BN, BAM being at the core of my portfolio, I am heavily invested into longterm compounders where the CEOs have aspects of that way of thinking.

Your article was a starting point for me regarding checking my own investments and lookin for new and smaller ones. This was not done systematically - but maybe someone is interested in the results, that Perplexity found in that process. Please find attached!

Some companies just don't fit really and a lot of criticism could be done, but I think it works as a starting point for further investments; at least for me.

Would be interesting to learn, in which of those others here in the forum are invested.

I am invested into Protektor (10% of my portfolio; I sold some FFH shares two years ago as it just became over 50% of my portfolio and that felt too big for me; and invested the proceeds into Protektor, which doubled since than), FFH, MKL, BRK, BN, BAM, DHR and Rational (just a small fraction; they build cooking systems for a la card and Franchise restaurants; world leader in that sentiment; too expensive for me to invest big). 

outsider_investments_table_en_colored.html

[Maverick47]

1 hour ago, Hamburg Investor said:

Those words of you resonate a much with me. It mirrors my situation a lot; being located in Germany I never (!) met someone live being interested in Value Investing. We have a lot of speculators here, and all the more, when the markets are up and when daily news writes about it. I got asked two weeks ago about SpaceX and if I would invest into it. I didn't even know about it and said that frankly... People know I am interested in stocks, and if it gets to stocks (which is not very often as no-one is taking time to read about; you just don't learn about stock investing in school, not from your grandparents or fathers... It's just no-one is invested longtime) always ask me for Bitcoin and Tech. That's so typical for Germany. Investing is on noones radar; speculation is. They all want to get rich quickly and when they ask for Tech, I tell them "I don't know about that stock. Only thing I know is, that Tech is not among the best sectors to invest, if history is any guide; the last 20 years are an exception from the rule".

I really like reading your stuff too, @Maverick47. Thanks! Where are you from?  

 

 

Where am I from?  Currently I live in Seattle in the US.  However, originally my ancestors came from your part of the world, in Northwestern Germany, arriving in the US sometime in the late 1800’s.  
 

Grandparents on both sides of my family could still speak German, but my own parents could not, nor can I.

 

Here in Seattle, the folks I encounter who are interested in talking about investing are focused almost exclusively on Tesla, or Nvidia, or Bitcoin, or electric plane manufacturers or small pharmaceutical companies that may win the lottery with the next blockbuster drug, none of which I know anything about.   They may have heard of Warren Buffett and know a bit about Berkshire Hathaway, but even when I worked in the insurance industry, it was rare to come across someone who had even heard of Fairfax or Markel or Charlie Munger and Benjamin Graham.

 

And my experience here in the US was the same as yours, with no opportunity to learn about investing in school.  I presume the same is likely true in much of the world, and I admire the efforts of folks like @Viking for his work in setting up an educational website on investing, targeted at young folks in Canada.

 

Edited 8 hours ago by Maverick47

[Viking]

Credit Default Swaps (2005-2009): Fairfax's Version of The Big Short

 

I am finally getting around to updating parts of my book. This is a fun one. 

 

 

“Sizing is 70% to 80% of the equation. It’s not whether you’re right or wrong, it’s how much you make when you’re right and how much you lose when you’re wrong.”  Stanley Druckenmiller

 

 

In The Big Short, Michael Lewis tells the story of a small group of investors who recognized the risks building in the U.S. housing market and positioned themselves to profit when the system eventually broke.

 

The best-known participants were Michael Burry at Scion Capital, Steve Eisman at FrontPoint Partners, and Charlie Geller and Jamie Shipley at Brownfield Capital.

 

A small Canadian property and casualty insurer could easily have been added to that list.

 

Fairfax Financial.

 

While the investors featured in The Big Short purchased credit default swaps tied directly to subprime mortgages, Fairfax built a broader portfolio of protection against systemic financial risk. The objective, however, was similar: profit from — and protect against — a severe disruption in the financial system.

 

The trade would become one of the most successful investments in Fairfax's history.

 

Insurance Against a Financial Crisis

 

A credit default swap (CDS) is essentially insurance against default. The buyer pays a premium, and in return the seller agrees to compensate the buyer if a specified company or security experiences a credit event such as bankruptcy or default.

 

The attraction of a CDS is its asymmetry. If nothing happens, the buyer loses only the premium paid. If credit conditions deteriorate, the value of the CDS can increase many times over.

 

In The Big Short movie, a large investor in Burry's fund summed up the trade perfectly: “In other words, we lose millions until something that has never happened before happens?” Burry replied: “That's right.”

 

That was essentially Fairfax's position.

 

Management believed the global financial system was becoming increasingly fragile. Credit standards were deteriorating, leverage was rising, and financial institutions were taking risks that were poorly understood by both regulators and investors.

 

As Fairfax explained in its 2005 Annual Report:

 

 

“The company has invested approximately $250 in 5-year to 10-year credit default swaps on a number of companies, primarily financial institutions, to provide protection against systemic financial risk arising from financial difficulties these entities could experience in a more difficult financial environment.” Fairfax 2005AR

 

 

The original concern centered on Fairfax's reinsurance counterparties. If a severe financial crisis occurred, would the institutions Fairfax relied upon remain financially sound?

 

As management dug deeper, they discovered that many of these firms had significant exposure to mortgage-related assets and other risky securities.

 

The more they researched, the more protection they purchased.

 

Fairfax began building its CDS position in 2002 and continued adding through early 2007.

 

Looking Wrong Before Being Right

 

Initially, the trade appeared to be a mistake.

 

The position was expensive to carry and Fairfax recorded losses of approximately $102 million in 2005 and another $76 million in 2006 as credit spreads tightened and financial markets continued to strengthen.

 

Like Michael Burry, Fairfax looked wrong for several years before it was ultimately proven right.

By 2006, however, cracks were beginning to appear in the U.S. housing market. Early in 2007, conditions deteriorated rapidly. Fairfax responded by increasing its CDS exposure.

 

Then the financial system began to unravel.

 

The Payoff

 

As credit spreads widened and financial institutions came under increasing pressure, the value of Fairfax's CDS positions surged.

 

By the end of 2007, Fairfax had recorded approximately $1 billion in gains. Another $1 billion followed in 2008 as the financial crisis intensified. Most of the positions were sold during 2008 and early 2009, locking in extraordinary profits.

 

In total, Fairfax invested approximately $433 million and realized gains of roughly $2.1 billion.

For perspective, Fairfax's common shareholders' equity at the end of 2008 was approximately $4.9 billion. The CDS trade materially strengthened the company's balance sheet at one of the most difficult periods in modern financial history.

 

How did Fairfax compare with some of the investors featured in The Big Short?

• Scion Capital: approximately $2.7 billion
• FrontPoint Partners: approximately $1 billion
• Brownfield Capital: approximately $50 million
• Fairfax Financial: approximately $2.1 billion

 Fairfax sized the position exceptionally well.

 

The Impact on Shareholders

 

Shareholders were major beneficiaries.

 

From 2005 to 2009, Fairfax shares increased approximately 174%, while the S&P 500 declined 11%.

During one of the most challenging periods in modern financial history, Fairfax dramatically outperformed the broader market.

 

 

Lessons for Investors

 

The CDS trade highlights several characteristics that have long defined Fairfax.

 

First, Fairfax excelled at risk management. The original purpose of the CDS position was not speculation. It was protection against a financial crisis that management believed was becoming increasingly likely.

 

Second, management was willing to follow the evidence wherever it led, even when that meant taking a highly contrarian position.

 

Third, Fairfax demonstrated patience and temperament. The trade generated losses for years before producing extraordinary gains.

 

Finally, Fairfax sized the opportunity aggressively. Identifying a great investment is important, but as Druckenmiller observed, returns are often driven as much by position size as by being right. Fairfax continued adding to the position as the evidence strengthened and the opportunity improved.

 

The CDS trade ultimately delivered both protection and enormous profits.

 

More importantly, it revealed the core strengths of Fairfax's investment culture: independent thinking, deep research, patience, conviction, and a willingness to act when risk and opportunity are mispriced.

 

Those qualities helped Fairfax execute one of the greatest investments in its history.

 

---------- 

 

COBF and the Trade of a Lifetime

 

The period was also memorable for members of the Corner of Berkshire & Fairfax (COBF) investing forum.

 

At the time, Fairfax was the target of a high-profile short attack and its shares traded at what many forum members believed was a deeply discounted valuation.

 

Many investors on the forum understood Fairfax's CDS position and recognized its potential value. As conditions in the U.S. housing market deteriorated, they believed Fairfax was likely to generate enormous gains if a financial crisis unfolded. Yet the stock price appeared to reflect little of that possibility.

 

As a result, a number of forum members made concentrated investments in Fairfax shares during 2005 and 2006.

 

A few went even further, purchasing long-dated call options (LEAPS) on Fairfax stock, which traded on the NYSE at the time.

 

For some, it became the investment of a lifetime.

 

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Brian Bradstreet Explains the CDS Trade

 

The following excerpt is from Fair and Friendly: The First 25 Years of Fairfax (2010). Bradstreet explains how Fairfax's concern about reinsurance counterparties eventually led to one of the most successful investments in the company's history.

 

 

When I looked at that, I got scared. The more I looked into those reinsurance companies, the more scared I got. The investment markets were bubbly. There was a lot of crazy risk-taking. We ourselves on the fixed-income side were being offered Ponzi-type stuff that came with an AA or AAA rating. So I began to fear that the reinsurance companies we were relying on to pay us might buy this junk and get into trouble and we wouldn't get paid. That would blow us right out of the water. And so I asked, How can we protect ourselves?

 

With the help of our analysts, I started researching all these reinsurance companies to see how many treasury bonds they did or didn't own. If they owned a lot, I could rest easy. If they didn't own a lot, that meant they might not be able to pay us. What we found was that pretty well all of them, including the best of them like AIG, were taking enormous risks. That was our initial screening. Then we started to dig more, company by company, and we realized they owned all these asset-backed, mortgage-backed, high-yield bonds, which were pronounced as safe as treasury bonds but were in fact pure risk.

 

One way to protect ourselves was to buy credit default swaps (CDSs), which were just appearing on the market around this time. They were basically bankruptcy insurance on the reinsurers. But I soon realized that we couldn't buy enough contracts on enough reinsurance companies to be diversified and fully protected. Then it occurred to me, Why don't we buy protection on the companies that are standing behind what the reinsurance companies are buying? If I was worried about the high-risk mortgage business, for example, why not buy insurance on the mortgage insurers in the United States? So we did. The next step was to buy insurance on the mortgage-lending companies like Fannie Mae and Freddie Mac, which were supposed to be government-backed but weren't in legal terms. Fannie Mae, for example, had $80 of exposure for every $1 of common equity, so it was a very good bet to fail.

 

We bought our first contracts in 2003 and our last ones in December 2007. We just kept buying more and more, first five-year, then seven-year, because they were so cheap. By the end of 2006 we had invested $276 million in CDSs that the market valued at $72 million. At any other place I would have been kicked out on the street. Not here though. I remember going into an investment committee meeting where Prem asked, "What's the best idea we've got?" Francis Chou, who's a pretty shy guy, piped up, "Buy more credit default insurance." I didn't have the guts to say it.

 

Brian Bradstreet – Source: Fair and Friendly: The First 25 Years of Fairfax

 

 

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In Fairfax's 2009 Annual Report, Prem Watsa closed the chapter on the company's credit default swap strategy.

 

Fairfax had invested approximately $433 million and generated cumulative gains of roughly $2.1 billion, making it one of the most successful investments in the company's history. The trade protected Fairfax during the financial crisis, materially strengthened its balance sheet, and helped position the company for the years that followed. As Prem noted, it would remain "one of the more significant events in our history."