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 yesterday at 10:19 AM 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.

 

 ----------

 

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

 

 

----------

 

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."

 

 

[Txvestor]

12 hours ago, Viking said:

 

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.

 

 ----------

 

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

 

 

----------

 

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."

 

 

Great write up as always Viking. 
You wrote quite extensively recently about the 2017-2025 period during which their execution has been near perfect and now here about their 2002-2008/9 home run with the CDS. I'm looking forward to the one about the intervening period as well, just so it's fair. 
I think it partly also explains the ongoing selling overhang in the stock. So it's an unsavory chapter but worth discussing. It may have also partly been why Prem felt the need to consolidate voting control. 

[Viking]

1 hour ago, Txvestor said:

Great write up as always Viking. 
You wrote quite extensively recently about the 2017-2025 period during which their execution has been near perfect and now here about their 2002-2008/9 home run with the CDS. I'm looking forward to the one about the intervening period as well, just so it's fair. 
I think it partly also explains the ongoing selling overhang in the stock. So it's an unsavory chapter but worth discussing. It may have also partly been why Prem felt the need to consolidate voting control. 

@Txvestor, you make a good point. There are two (updated) posts coming on that topic… should be out shortly  

 

“Those who cannot remember the past are condemned to repeat it." George Santayana

 

Edited 13 hours ago by Viking

[Viking]

Equity Hedges and Shorts: Fairfax’s The Lost Decade (2010 to 2020)

 

This is the sister article to the one I wrote yesterday. Fairfax's Version of The Big Short. Scroll up to read it.

 

When Risk Management Became a Macro Bet

 

 

“Those who cannot remember the past are condemned to repeat it." (George Santayana)

 

 

What was Fairfax’s largest investment mistake?

 

The equity hedge and short positions it maintained for much of the decade following the financial crisis.

 

Between 2010 and 2020, Fairfax lost approximately $5.4 billion on its equity hedge and short strategy—roughly $500 million per year. To put that in perspective, Fairfax's shareholders' equity was about $7.7 billion at the beginning of 2010.

 

 

The losses were significant. The opportunity cost was even greater.

 

Capital remained tied to a bearish thesis while global equity markets enjoyed one of the strongest bull markets in history. Along the way, Fairfax was forced to sell some successful investments, limiting the benefits of long-term compounding. In Peter Lynch's language, some of the flowers were cut while many of the weeds remained.

 

For shareholders, the result was a lost decade.

 

Prem’s comment from Fairfax’s 2017AR

 

 

Why Fairfax Put on the Trade

 

To understand the mistake, it is important to understand why it was made.

 

The roots of the strategy can be traced directly to Fairfax's greatest investment success: its credit default swap (CDS) position during the financial crisis. Between 2005 and 2009, Fairfax generated more than $2 billion in profits by correctly anticipating severe problems in the global financial system.

 

That experience shaped management's outlook.

 

Following the crisis, Fairfax became increasingly concerned that developed economies faced a future of excessive debt, weak growth, and deflation. In Fairfax's 2010 Annual Report, Prem Watsa wrote:

 

"We worry that the North American economy may experience a time period like the U.S. in the 1930s and Japan since 1990."

 

If that scenario unfolded, equity markets could struggle for many years. To protect shareholders, Fairfax steadily increased its equity hedges until much of its common stock portfolio was effectively insulated from a major market decline.

 

Viewed from 2010, the concerns were understandable.

 

The financial crisis was still fresh. Government debt levels were rising. Economic growth remained sluggish. Central banks were experimenting with unprecedented monetary policies. Many thoughtful investors shared similar concerns.

 

The problem was not identifying risk.

 

The problem was what happened next.

 

 

“2010 was a disappointing year for HWIC’s investment results because of the two factors mentioned earlier. Hedging our common stock investment portfolio cost us $936.6 million or $45.61 per share in 2010. Our hedging program masked the excellent common stock returns we earned in 2010, of which a significant amount was realized ($522.1 million). We began 2010 with about 30% of our common stock hedged. In May and June, we decided to increase our hedge to approximately 100%. Our view was twofold: our capital had benefitted greatly from our common stock portfolio and we wanted to protect our gains, and we worried about the unintended consequences of too much debt in the system – worldwide! If the 2008/2009 recession was like any other recession that the U.S. has experienced in the past 50 years, we would not be hedging today. However, we worry, as we have mentioned to you many times in the past, that the North American economy may experience a time period like the U.S. in the 1930s and Japan since 1990, during which nominal GNP remains flat for 10 to 20 years with many bouts of deflation.” Prem Watsa – Fairfax 2010AR

 

 

What Happened

 

The feared outcome never arrived.

 

Instead, the U.S. economy recovered. Interest rates remained exceptionally low. Central banks injected massive liquidity into financial markets through quantitative easing. Governments ran large fiscal deficits. Corporate profits expanded. Technology companies flourished.

 

The result was one of the longest and strongest bull markets in modern history.

 

Fairfax, however, remained largely committed to its bearish positioning.

 

Over time, what began as a risk-management tool gradually evolved into a large macroeconomic bet.

 

That distinction matters.

 

Risk management seeks to protect against adverse outcomes. A macro bet depends on a specific economic forecast being correct. As the years passed, the line between the two became increasingly blurred.

 

What Went Wrong?

 

Many of Fairfax's concerns proved reasonable.

 

Debt levels were high. Economic growth was sluggish. Central-bank policies were unprecedented. The world did face meaningful risks.

 

The mistake was not recognizing those risks.

 

The mistake was position size, duration, and flexibility.

 

The hedges eventually became so large that they dominated Fairfax's investment results. The positions were maintained for more than a decade despite mounting evidence that the original thesis was not playing out. Most importantly, Fairfax underestimated the willingness and ability of governments and central banks to support economic activity and financial asset prices.

 

The result was a decade of disappointing investment performance.

 

The direct losses totaled approximately $5.4 billion between 2010 and 2020.

 

The indirect costs were equally significant:

• Missing much of a historic bull market.
• Prematurely selling successful investments.
• Slower growth in earnings and book value.
• Significant damage to Fairfax's reputation.
• The loss of many long-term shareholders.

The impact on shareholder returns was dramatic.

 

Book value per share increased from $376 in 2010 to $478 in 2020. Including dividends, Fairfax delivered a total return of approximately 51%, or 3.8% annually.

 

Over the same period, the S&P 500 generated a total return of roughly 332%, or 14.2% annually.

 

 

Exiting the Trade

 

Fairfax exited the strategy in stages.

 

The broad equity hedge program was removed near the end of 2016 following the U.S. presidential election. In Fairfax's 2016 Annual Report, Watsa explained:

 

"Unfortunately, the presidential election on November 8, 2016 changed the world for us, so we reacted quickly by removing all our index hedges and some of our individual short positions..."

 

Several individual short positions remained, however, and continued to lose money.

 

By 2019, Watsa publicly acknowledged the mistake:

 

"Shorting is dangerous, very short term in nature and anathema to long term value investing."

 

After another $529 million loss in 2020, Fairfax finally closed its remaining short exposure.

 

The decade-long experiment was over.

 

A Turning Point

 

The removal of the hedges and shorts eliminated a significant drag on Fairfax's earnings power.

 

For more than a decade, the strategy had cost shareholders roughly $500 million per year. Once the positions were closed, that headwind disappeared.

 

The improvement in Fairfax's results after 2020 was driven by many factors, but the elimination of the hedge program was undoubtedly one of them.

 

Investors evaluating Fairfax after 2020 were looking at a different company—one no longer burdened by a large and persistent negative carry.

 

Why Did It Persist?

 

No outsider can know with certainty.

 

My best explanation is that Fairfax's extraordinary success with credit default swaps reinforced management's confidence in its broader macroeconomic outlook.

 

Ironically, the same mindset that produced one of the company's greatest investment successes may also have contributed to one of its largest mistakes.

 

That pattern is common in investing.

 

Success builds confidence. Sometimes it builds too much confidence.

 

Lessons for Investors

 

The equity hedge and short strategy offers several important lessons. In many ways, they are the mirror image of the lessons from Fairfax's highly successful CDS trade.

 

First, risk management can become dangerous when it evolves into a macroeconomic forecast. What began as a hedge gradually became a large bet on a specific economic outcome.

 

Second, position size matters. The hedges eventually became so large that they drove Fairfax's investment results.

 

Third, duration matters. Even a sound thesis can become extraordinarily costly if maintained for too long.

 

Fourth, investors must adapt when facts change. Fairfax was slow to adjust as markets, economies, and policy responses evolved.

 

Finally, trust matters.

 

The strategy did more than cost shareholders billions of dollars. It damaged confidence in management's judgment and led many long-term investors to leave. Financial losses can eventually be recovered. Trust usually takes much longer.

 

As Buffett has observed, companies tend to get the shareholders they deserve. Fairfax has long said it wants long-term shareholders. If that is the case, management must uphold its side of the relationship. From 2010 to 2020, it failed to do so.

 

To management's credit, the mistake was eventually acknowledged, the positions were closed, and the company moved forward.

 

Fairfax's performance since 2020 suggests the lessons were learned.

 

That may be the most important takeaway.

 

Every great investor makes mistakes. What separates the best from the rest is their ability to recognize them, learn from them, and avoid repeating them.

 

------------

 

Comments from Prem and other notes from Fairfax’s 2016AR. 

 

Prem discusses the reasons for exiting the equity hedges.

 

He also provides a summary: from 2010 to 2016, total losses from equity hedges were $4.4B. These were offset by net gains on stocks of $2.7B and bonds of $2.2B. Fairfax’s investment portfolio had been performing very well.  

 

 

"Unfortunately, the presidential election on November 8, 2016 changed the world for us, so we reacted quickly by removing all our index hedges and some of our individual short positions and reducing the duration of our fixed income portfolios to approximately one year – all of which resulted in a $1.2 billion net loss on our investments in 2016 which, in turn, resulted in a loss in 2016 of $512 million or $24.18 per share."

 

"When we removed our hedges near the end of 2016, we realized a loss of $2.6 billion in 2016, but that included $1.6 billion which had gone through our statements in prior years. As discussed earlier, since 2010 we have had $4.4 billion of cumulative net hedging losses and $0.5 billion of unrealized losses on deflation swaps (which we still hold), offset entirely by net gains on stocks of $2.7 billion and net gains on bonds of $2.2 billion. The volatility of our earnings caused by our hedges and long bond portfolios is over – and as I said earlier, we are focused on once again producing excellent investment returns." Prem Watsa – Fairfax 2016AR

 

 

 

Equity contracts: “Throughout 2015 and most of 2016, the company had economically hedged its equity and equity-related holdings (comprised of common stocks, convertible preferred stocks, convertible bonds, non-insurance investments in associates and equity-related derivatives) against a potential significant decline in equity markets by way of short positions effected through equity and equity index total return swaps (including short positions in certain equity indexes and individual equities) and equity index put options (S&P 500) as set out in the table below. The company’s equity hedges were structured to provide a return that was inverse to changes in the fair values of the indexes and certain individual equities.”

 

“As a result of fundamental changes in the U.S. that may bolster economic growth and business development in the future, the company discontinued its economic equity hedging strategy during the fourth quarter of 2016. Accordingly, the company closed out $6,350.6 notional amount of short positions effected through equity index total return swaps (comprised of Russell 2000, S&P 500 and S&P/TSX 60 short equity index total return swaps). The short equity index total return swaps closed out in 2016 produced a realized loss of $2,665.4 (of which $1,710.2 had been recorded as unrealized losses in prior years). The company continues to maintain short equity and equity index total return swaps for investment purposes, and no longer considers them to be hedges of the company’s equity and equity-related holdings. During 2016 the company paid net cash of $915.8 (2015 – received net cash of $303.3) in connection with the closures and reset provisions of its short equity and equity index total return swaps (excluding the impact of collateral requirements).” Fairfax 2016AR

 

 

[Maverick47]

1 hour ago, Viking said:

 

Equity Hedges and Shorts: Fairfax’s The Lost Decade (2010 to 2020)

 

This is the sister article to the one I wrote yesterday. Fairfax's Version of The Big Short. Scroll up to read it.

 

When Risk Management Became a Macro Bet

 

 

“Those who cannot remember the past are condemned to repeat it." (George Santayana)

 

 

What was Fairfax’s largest investment mistake?

 

The equity hedge and short positions it maintained for much of the decade following the financial crisis.

 

Between 2010 and 2020, Fairfax lost approximately $5.4 billion on its equity hedge and short strategy—roughly $500 million per year. To put that in perspective, Fairfax's shareholders' equity was about $7.7 billion at the beginning of 2010.

 

 

The losses were significant. The opportunity cost was even greater.

 

Capital remained tied to a bearish thesis while global equity markets enjoyed one of the strongest bull markets in history. Along the way, Fairfax was forced to sell some successful investments, limiting the benefits of long-term compounding. In Peter Lynch's language, some of the flowers were cut while many of the weeds remained.

 

For shareholders, the result was a lost decade.

 

Prem’s comment from Fairfax’s 2017AR

 

 

Why Fairfax Put on the Trade

 

To understand the mistake, it is important to understand why it was made.

 

The roots of the strategy can be traced directly to Fairfax's greatest investment success: its credit default swap (CDS) position during the financial crisis. Between 2005 and 2009, Fairfax generated more than $2 billion in profits by correctly anticipating severe problems in the global financial system.

 

That experience shaped management's outlook.

 

Following the crisis, Fairfax became increasingly concerned that developed economies faced a future of excessive debt, weak growth, and deflation. In Fairfax's 2010 Annual Report, Prem Watsa wrote:

 

"We worry that the North American economy may experience a time period like the U.S. in the 1930s and Japan since 1990."

 

If that scenario unfolded, equity markets could struggle for many years. To protect shareholders, Fairfax steadily increased its equity hedges until much of its common stock portfolio was effectively insulated from a major market decline.

 

Viewed from 2010, the concerns were understandable.

 

The financial crisis was still fresh. Government debt levels were rising. Economic growth remained sluggish. Central banks were experimenting with unprecedented monetary policies. Many thoughtful investors shared similar concerns.

 

The problem was not identifying risk.

 

The problem was what happened next.

 

 

“2010 was a disappointing year for HWIC’s investment results because of the two factors mentioned earlier. Hedging our common stock investment portfolio cost us $936.6 million or $45.61 per share in 2010. Our hedging program masked the excellent common stock returns we earned in 2010, of which a significant amount was realized ($522.1 million). We began 2010 with about 30% of our common stock hedged. In May and June, we decided to increase our hedge to approximately 100%. Our view was twofold: our capital had benefitted greatly from our common stock portfolio and we wanted to protect our gains, and we worried about the unintended consequences of too much debt in the system – worldwide! If the 2008/2009 recession was like any other recession that the U.S. has experienced in the past 50 years, we would not be hedging today. However, we worry, as we have mentioned to you many times in the past, that the North American economy may experience a time period like the U.S. in the 1930s and Japan since 1990, during which nominal GNP remains flat for 10 to 20 years with many bouts of deflation.” Prem Watsa – Fairfax 2010AR

 

 

What Happened

 

The feared outcome never arrived.

 

Instead, the U.S. economy recovered. Interest rates remained exceptionally low. Central banks injected massive liquidity into financial markets through quantitative easing. Governments ran large fiscal deficits. Corporate profits expanded. Technology companies flourished.

 

The result was one of the longest and strongest bull markets in modern history.

 

Fairfax, however, remained largely committed to its bearish positioning.

 

Over time, what began as a risk-management tool gradually evolved into a large macroeconomic bet.

 

That distinction matters.

 

Risk management seeks to protect against adverse outcomes. A macro bet depends on a specific economic forecast being correct. As the years passed, the line between the two became increasingly blurred.

 

What Went Wrong?

 

Many of Fairfax's concerns proved reasonable.

 

Debt levels were high. Economic growth was sluggish. Central-bank policies were unprecedented. The world did face meaningful risks.

 

The mistake was not recognizing those risks.

 

The mistake was position size, duration, and flexibility.

 

The hedges eventually became so large that they dominated Fairfax's investment results. The positions were maintained for more than a decade despite mounting evidence that the original thesis was not playing out. Most importantly, Fairfax underestimated the willingness and ability of governments and central banks to support economic activity and financial asset prices.

 

The result was a decade of disappointing investment performance.

 

The direct losses totaled approximately $5.4 billion between 2010 and 2020.

 

The indirect costs were equally significant:

• Missing much of a historic bull market.
• Prematurely selling successful investments.
• Slower growth in earnings and book value.
• Significant damage to Fairfax's reputation.
• The loss of many long-term shareholders.

The impact on shareholder returns was dramatic.

 

Book value per share increased from $376 in 2010 to $478 in 2020. Including dividends, Fairfax delivered a total return of approximately 51%, or 3.8% annually.

 

Over the same period, the S&P 500 generated a total return of roughly 332%, or 14.2% annually.

 

 

Exiting the Trade

 

Fairfax exited the strategy in stages.

 

The broad equity hedge program was removed near the end of 2016 following the U.S. presidential election. In Fairfax's 2016 Annual Report, Watsa explained:

 

"Unfortunately, the presidential election on November 8, 2016 changed the world for us, so we reacted quickly by removing all our index hedges and some of our individual short positions..."

 

Several individual short positions remained, however, and continued to lose money.

 

By 2019, Watsa publicly acknowledged the mistake:

 

"Shorting is dangerous, very short term in nature and anathema to long term value investing."

 

After another $529 million loss in 2020, Fairfax finally closed its remaining short exposure.

 

The decade-long experiment was over.

 

A Turning Point

 

The removal of the hedges and shorts eliminated a significant drag on Fairfax's earnings power.

 

For more than a decade, the strategy had cost shareholders roughly $500 million per year. Once the positions were closed, that headwind disappeared.

 

The improvement in Fairfax's results after 2020 was driven by many factors, but the elimination of the hedge program was undoubtedly one of them.

 

Investors evaluating Fairfax after 2020 were looking at a different company—one no longer burdened by a large and persistent negative carry.

 

Why Did It Persist?

 

No outsider can know with certainty.

 

My best explanation is that Fairfax's extraordinary success with credit default swaps reinforced management's confidence in its broader macroeconomic outlook.

 

Ironically, the same mindset that produced one of the company's greatest investment successes may also have contributed to one of its largest mistakes.

 

That pattern is common in investing.

 

Success builds confidence. Sometimes it builds too much confidence.

 

Lessons for Investors

 

The equity hedge and short strategy offers several important lessons. In many ways, they are the mirror image of the lessons from Fairfax's highly successful CDS trade.

 

First, risk management can become dangerous when it evolves into a macroeconomic forecast. What began as a hedge gradually became a large bet on a specific economic outcome.

 

Second, position size matters. The hedges eventually became so large that they drove Fairfax's investment results.

 

Third, duration matters. Even a sound thesis can become extraordinarily costly if maintained for too long.

 

Fourth, investors must adapt when facts change. Fairfax was slow to adjust as markets, economies, and policy responses evolved.

 

Finally, trust matters.

 

The strategy did more than cost shareholders billions of dollars. It damaged confidence in management's judgment and led many long-term investors to leave. Financial losses can eventually be recovered. Trust usually takes much longer.

 

As Buffett has observed, companies tend to get the shareholders they deserve. Fairfax has long said it wants long-term shareholders. If that is the case, management must uphold its side of the relationship. From 2010 to 2020, it failed to do so.

 

To management's credit, the mistake was eventually acknowledged, the positions were closed, and the company moved forward.

 

Fairfax's performance since 2020 suggests the lessons were learned.

 

That may be the most important takeaway.

 

Every great investor makes mistakes. What separates the best from the rest is their ability to recognize them, learn from them, and avoid repeating them.

 

------------

 

Comments from Prem and other notes from Fairfax’s 2016AR. 

 

Prem discusses the reasons for exiting the equity hedges.

 

He also provides a summary: from 2010 to 2016, total losses from equity hedges were $4.4B. These were offset by net gains on stocks of $2.7B and bonds of $2.2B. Fairfax’s investment portfolio had been performing very well.  

 

 

"Unfortunately, the presidential election on November 8, 2016 changed the world for us, so we reacted quickly by removing all our index hedges and some of our individual short positions and reducing the duration of our fixed income portfolios to approximately one year – all of which resulted in a $1.2 billion net loss on our investments in 2016 which, in turn, resulted in a loss in 2016 of $512 million or $24.18 per share."

 

"When we removed our hedges near the end of 2016, we realized a loss of $2.6 billion in 2016, but that included $1.6 billion which had gone through our statements in prior years. As discussed earlier, since 2010 we have had $4.4 billion of cumulative net hedging losses and $0.5 billion of unrealized losses on deflation swaps (which we still hold), offset entirely by net gains on stocks of $2.7 billion and net gains on bonds of $2.2 billion. The volatility of our earnings caused by our hedges and long bond portfolios is over – and as I said earlier, we are focused on once again producing excellent investment returns." Prem Watsa – Fairfax 2016AR

 

 

 

Equity contracts: “Throughout 2015 and most of 2016, the company had economically hedged its equity and equity-related holdings (comprised of common stocks, convertible preferred stocks, convertible bonds, non-insurance investments in associates and equity-related derivatives) against a potential significant decline in equity markets by way of short positions effected through equity and equity index total return swaps (including short positions in certain equity indexes and individual equities) and equity index put options (S&P 500) as set out in the table below. The company’s equity hedges were structured to provide a return that was inverse to changes in the fair values of the indexes and certain individual equities.”

 

“As a result of fundamental changes in the U.S. that may bolster economic growth and business development in the future, the company discontinued its economic equity hedging strategy during the fourth quarter of 2016. Accordingly, the company closed out $6,350.6 notional amount of short positions effected through equity index total return swaps (comprised of Russell 2000, S&P 500 and S&P/TSX 60 short equity index total return swaps). The short equity index total return swaps closed out in 2016 produced a realized loss of $2,665.4 (of which $1,710.2 had been recorded as unrealized losses in prior years). The company continues to maintain short equity and equity index total return swaps for investment purposes, and no longer considers them to be hedges of the company’s equity and equity-related holdings. During 2016 the company paid net cash of $915.8 (2015 – received net cash of $303.3) in connection with the closures and reset provisions of its short equity and equity index total return swaps (excluding the impact of collateral requirements).” Fairfax 2016AR

 

 

Excellent summary and overview of the “lost decade” for Fairfax @Viking!
 

The discussion of trust between a company and its shareholders was apt as well.

 

I think it was Richard Feynmann who said that the first principle of scientific analysis is “not to fool yourself”, and that one must also keep in mind that “you are the easiest person to fool”. 
 

It’s too easy as human beings and investors to remember evidence of our own superiority and outperformance and to ignore evidence of mediocrity and failure in assessing our own capabilities.

 

I really enjoyed the juxtaposition of the two posts, first cheering the CDS episode with over a $2 billion positive return, followed by the decade long foray into shorting equity indexes and buying protection against the possibility of global deflation which resulted in a loss of more than twice the CDS gain, even before considering the opportunity cost connected with having to sell equities earlier than would have otherwise been the case.  
 

Had the $5 billion loss over a decade not occurred, and if the company had not been forced to leave over a billion of additional equity gains on the table by selling shares early, then we might consider that the purchases of companies such as Allied World and Brit could potentially have been funded by the lost profits and potential positive investment returns on those lost funds instead of requiring the issuance of about 7 million of common shares.

We have all been happy that the repurchase of shares has essentially returned us to the same share count as before the Allied World acquisition, but imagine if those shares hadn’t needed to have been issued in the first place….

 

 But if no mistakes had ever been made, the opinion of Mr. Market on the relative valuation of Fairfax shares would likely have been sky high…at nosebleed level prices for the entire period up until this very day, leaving me and others on this board with precious little opportunity to purchase shares again and again over the last 5 years or so at quite attractive prices.

 

So as painful as the lost decade was, it sowed the seeds of a solid investment for me personally in the years since.  I don’t have to bemoan the fact that I wasn’t around to buy Fairfax in 1986.  Instead, I can be happy that I was able to buy it at reasonable prices for the most recent 5 years or so….

[Viking]

@Maverick47, here is where the story gets even more interesting…

 

1. You lose $500 million for 11 straight years.

2. Lots of the equities purchased from 2014 to 2017 underperformed. 
3. Interest rates are also very low for much of the time.

 

And you still deliver a compound return of 4% over the 11 years.
 

How did they do it?
 

Fairfax has an exceptionally powerful business model. Just imagine what it is capable of if the company was firing on all cylinders? 

Edited 55 minutes ago by Viking

[thowed]

Thanks as always, @Viking, for these fascinating posts.

 

I am relatively new to FFH, but do remember being impressed at the time when Prem took off the hedges in 2016 after Trump got elected.

 

I think we can all think of fund managers who became bearish, not unreasonably, but who have struggled to concede they were wrong, and have just stayed stuck with their convictions, underperforming.

 

So while it was a painful decade, it is a great credit to them that they managed to recognise their mistake, and how things had changed, and reposition themselves.

 

Cheers