Fairfax 2026

[djokovic1]

50 minutes ago, Marco Van Basten said:

Where are you getting average annual fixed income return = 4.2% over the past 40 years?  That seems extraordinarily low.  Even AI claims it averaged 4.61% for a 5 year treasury.  Given that Fairfax seems to have bought corporate debt and mortgages, my guess is that the return on the fixed income portfolio was north of 6% per annum over the past 40 years.  

Do you have a more accurate number? Where does the 6% come from precisely? Even if 5 year bond yields average 4.5% over the last 40 years, Fairfax has always run much shorter duration than that. How do you factor that in to your analysis?

 

Btw, even with your 6% assumption the equity returns are 12%+ which beats the S&P over 40 years.....can't argue with that?

 

 

47 minutes ago, Marco Van Basten said:

f we assume that those returns are indeed correct, then why didn't Fairfax raised a twenty billion or forty billion hedge fund from endowments and ran it with the incentive and management fee going to the company?

 

Why didn't Buffett do this?

Edited 18 hours ago by djokovic1

[Viking]

I think it is pretty much impossible to determine a rate of return on Fairfax’s equity book over the past 40 years. What do you include? CDS? Equity hedges? TRS? Some of these were risk management positions, others were investments? 
 

But we do know with certainty one thing: Fairfax’s share price compounded at 19% for the past 40 years (US$; dividends reinvested). That is elite performance. Clearly, Fairfax is doing a number of things exceptionally well. 
 

Fairfax has two businesses: 

• Insurance
• Investments. 

We also know returns from the insurance business were weak pre-2010. 
 

As a result, I suspect investments have been an important driver of long term results.
 

What did they return each year?
 

No idea. And I don’t need to know… All I have to do is look at the stock price to know what I need to know. (Fairfax’s total performance has been elite.)

 

I am a quickly becoming a Thordike desciple…. Capital allocation is the most important thing over the long term for a company like Fairfax. Capital allocation drives per share results over the long term more than anything.

But assessing capital allocation is not easy - so most investors/analysts ignore it. Instead they focus on other things that are easier. 

Edited 15 hours ago by Viking

[Txvestor]

4 hours ago, djokovic1 said:

Do you have a more accurate number? Where does the 6% come from precisely? Even if 5 year bond yields average 4.5% over the last 40 years, Fairfax has always run much shorter duration than that. How do you factor that in to your analysis?

 

Btw, even with your 6% assumption the equity returns are 12%+ which beats the S&P over 40 years.....can't argue with that?

 

 

 

Why didn't Buffett do this?

Thats what I was saying about being invested in the model than the stock/equity picking acumen of HWIC. If they manage to do that, it would be icing on the cake. Even a mere 5% annual gain on the equity book get you to double digit equity returns. And we already currently have billions in unrealized gains in the trunk(almost worth around 15% of total equity worth). 

Edited 13 hours ago by Txvestor

[djokovic1]

3 hours ago, Viking said:

I think it is pretty much impossible to determine a rate of return on Fairfax’s equity book over the past 40 years. What do you include? CDS? Equity hedges? TRS? Some of these were risk management positions, others were investments? 

I agree it’s hard to be precise but I find it an interesting endeavor. Personally, I would include the CDS, hedging, TRS all of it and not exclude them. They were decisions taken by management at the time to maximize risk reward of the model. So I would first calculate the all-in number and then if you wanted to strip out specific items you can.

 

I don’t think it would be impossible to approximate a rough FI returns using historic financials (though it will take time and I may make an attempt), and if you have that number you will also have a directionally correct equity return.  It would be nice if management did the hard work for us as I’m sure they have the numbers

 

~15% CAGR of equity compounding for 40 years is mind blowing and so is 19% of bvps and share price compounding for 40 years.

[Maverick47]

2 hours ago, Txvestor said:

Thats what I was saying about being invested in the model than the stock/equity picking acumen of HWIC. If they manage to do that, it would be icing on the cake. Even a mere 5% annual gain on the equity book get you to double digit equity returns. And we already currently have billions in unrealized gains in the trunk(almost worth around 15% of total equity worth). 

Excellent point.  The prospect of double digit returns without a sizable risk of loss of capital is an ideal investment for me personally.  For more than ten years now I have set my personal expectations for investment returns at somewhere in the range of 6 to 8% annually.  That’s the level that should allow me to reach my reasonable goals for income in retirement.  I would be well satisfied with that result.

 

Finding a candidate for inclusion in my portfolio that has outpaced this target for the last five years, with a realistic prospect of doing so for the future five years as well, is already “icing on the cake” for my personal needs, and as you note, the business model of Fairfax and current store of unrealized gains may well produce results skewed to the upside.

 

Fairfax under Prem’s stewardship for 40 years has produced stellar annualized returns of roughly 19%.  I don’t need Fairfax to produce anything like this for the next 40 years in order to achieve my personal wealth goals,  and in fact, even the achievement of their current target of 15% would be far in excess of what I would hope for.

 

I am reminded of Charlie Munger’s comment regarding Berkshire Hathaway and Warren Buffett’s stewardship thereof, made sometime near the turn of the century:

 

"I think the top guy won't be as smart as Warren. But it's silly to complain, 'What kind of world is this that gives me Warren Buffett for 40 years and then some bastard comes along who's worse?'

[djokovic1]

3 hours ago, Viking said:

am a quickly becoming a Thordike desciple…. Capital allocation is the most important thing over the long term for a company like Fairfax. Capital allocation drives per share results over the long term more than anything.

 

And I 100% agree with this. I am lucky  to have spent some 1-1 time with him and discussed investments with his team. will also be seeing /meeting him at a conference tomorrow. Excited!

 

His book is my investment bible and assessing capital allocation is the most important aspect in my investment decision making.

[This2ShallPass]

https://x.com/ihtesham2005/status/2067336730693509150/video/1

Bill Ackman video, first half is a great pitch for owning Fairfax and second owning JOE (he talks about neither though)

[Marco Van Basten]

13 hours ago, djokovic1 said:

Do you have a more accurate number? Where does the 6% come from precisely? Even if 5 year bond yields average 4.5% over the last 40 years, Fairfax has always run much shorter duration than that. How do you factor that in to your analysis?

 

Btw, even with your 6% assumption the equity returns are 12%+ which beats the S&P over 40 years.....can't argue with that?

 

 

 

Why didn't Buffett do this?

Dude, you stated that the company owned a portfolio of 5 year bonds.  So that's what I went on.  Recently in the last couple of years, Fairfax disclosed or somebody stated on this board it was buying mortgages via KW at 8-10% yields.   So in my opinion, your assumption of 4.2% annual return from fixed income portfolio is untenable and cannot be supported.  

Over the last 40 years, investment grade bond index returned 6.16% annual compounded return.   So my assumption of 6% does not look unreasonable.

 

My view which I am clearly articulating poorly is this:

 

a) We have no idea how well the company's equity portfolio have performed over the long term.

b) Using reasonable assumptions it is possible to show that the equity portfolio has underperformed the S&P 500 over the past 40 years, and similarly it is possible to show that it has outperformed.

c) The equity portfolio is very unlikely to have materially outperformed the S&P over the past 40 years.

[Viking]

1 hour ago, Marco Van Basten said:

Dude, you stated that the company owned a portfolio of 5 year bonds.  So that's what I went on.  Recently in the last couple of years, Fairfax disclosed or somebody stated on this board it was buying mortgages via KW at 8-10% yields.   So in my opinion, your assumption of 4.2% annual return from fixed income portfolio is untenable and cannot be supported.  

Over the last 40 years, investment grade bond index returned 6.16% annual compounded return.   So my assumption of 6% does not look unreasonable.

 

My view which I am clearly articulating poorly is this:

 

a) We have no idea how well the company's equity portfolio have performed over the long term.

b) Using reasonable assumptions it is possible to show that the equity portfolio has underperformed the S&P 500 over the past 40 years, and similarly it is possible to show that it has outperformed.

c) The equity portfolio is very unlikely to have materially outperformed the S&P over the past 40 years.

Can you please define what you mean by equity portfolio? Are you talking stocks? Are you talking CDS/equity hedges (did well), equity hedges/shorts (did poorly) and TRS(did well)? 
 

What exactly are you trying to measure?

[LC]

I'm not as bullish on Fairfax's equity picks but over 40 years I agree w Viking the share price is a good indicator of the performance of the underlying earnings streams (investments, insurance). Hard to argue that, IMO.

[SafetyinNumbers]

1 hour ago, LC said:

I'm not as bullish on Fairfax's equity picks but over 40 years I agree w Viking the share price is a good indicator of the performance of the underlying earnings streams (investments, insurance). Hard to argue that, IMO.

The equity returns were strong when underwriting was weak. Then the equity returns were weak when underwriting was strong. That generated 18%+ CAGR in BVPS. Now they are both strong. It will be interesting to see if returns are better than the <10% built in to the share price.