Fairfax 2026

[Viking]

49 minutes ago, 73 Reds said:

Perhaps you are right (again, as a shareholder I'm rooting for you).  But as a betting man, they literally did everything right for the past 5 years with a lot of macro help; what are the odds of that repeating over the next five years?  

 

@73 Reds, I am thinking more these days about your comment. What you are asking is: "Was it primarily skill or luck?" that has driven the outstanding results of the past 5 years. If it was skill, it is likely repeatable. If it was luck, it is not repeatable. 

 

I am firmly in the "it was primarily skill" camp. And that is for a couple of reasons:

1. They have made an enormous number of good decisions. And a bunch (not a few) have been needle movers. 
2. They have made very few poor decisions. And no big bad decisons.
3. The good decisions have been made across all parts of the business: insurance, investment management, capital allocation, strategic 

I agree the current macro environment is a perfect fit for their style of management/investing. But I don't expect the current macro environment to change - it should remain a tailwind.

 

The challenge with understanding Fairfax today is it has been transformed so much over the past 5 years (structurally and in sources of earnings) we have never seen this version of the company before. This does make it more difficult to look into the future and value the company - but in a really good way. The question is not "Will it be good?" but rather "How good is it going to be?" 

 

The really interesting thing to me is the stock is on sale today. It is trading at 1.35x P/BV, and we know BV is materially understated. Mr. Market is pricing Fairfax like it is being run by dummies. Their view is management will make bad decisions/destroy capital moving forward.

 

I love this set-up. I expect the current macro environment to continue to be a tailwind. Based on what I have seen the past 5 years, I think management is very good. I think they will continue to make good decisions moving forward - and continue to compound per share value at above average rates. At the current stock price, I get all the upside for free.

 

It's like getting a call option on Fairfax's management team for free - and it pays out if they turn out not to be dummies. And it pays out spectacularly well if they continue to do what they have been doing for the past 5 years.

Edited February 19 by Viking

[MMM20]

1 hour ago, 73 Reds said:

But as a betting man, they literally did everything right for the past 5 years with a lot of macro help; what are the odds of that repeating over the next five years?  

 

It's compounded at ~40% for the last 5 years. Wouldn't shareholders be thrilled with half that for the next 5?

[mananainvesting]

I think we tend to forget the snowball effect. All the capital the company has earned over the last 5 years, is also going to compound. Even if we may not earn the same amount of IRR over the next 5 years as the last, I think there is a higher probability of hitting >15% ROE than under. 

I really like how @SafetyinNumbers talks about the leverage available to us shareholders (3:1), which is why I think they are very likely to hit >15% ROE over the next 5 years. 

[dartmonkey]

1 hour ago, MMM20 said:

 

It's compounded at ~40% for the last 5 years. Wouldn't shareholders be thrilled with half that for the next 5?

I was wondering the same thing so I calculated it, 5 years from 2020-12-31 to 2025-12-31 and 5 years from 2021-02-19 to 2026-02-19 (at $1710, right now). Annualized, that gives 43.7% for the first comparison, and 35.4% for the second, just a few weeks later. In the second case, it is considerably lower because the shares jumped up from 311.56 (adjusted for dividends) to 382.06 in those first few weeks of 2021, and have dropped down from 1908.02 at the end of 2025 to 1710 now, lopping off a few percentages points at each end.

 

So a 40% annual return for the last 5 years is a pretty good estimate, and even if we only get half that for the next five years we will still double the share price and get our the prize for winning the bet (beer at the Keg, if Fairfax still owns it by then?)

[73 Reds]

1 hour ago, MMM20 said:

 

It's compounded at ~40% for the last 5 years. Wouldn't shareholders be thrilled with half that for the next 5?

Of course - which is why I own a rather large position in the stock.  Yet I don't mind being the lone skeptic here.  Have seen recency bias cause a lot of disappointment in past travails.  

[Munger_Disciple]

21 minutes ago, dartmonkey said:

I was wondering the same thing so I calculated it, 5 years from 2020-12-31 to 2025-12-31 and 5 years from 2021-02-19 to 2026-02-19 (at $1710, right now). Annualized, that gives 43.7% for the first comparison, and 35.4% for the second, just a few weeks later. In the second case, it is considerably lower because the shares jumped up from 311.56 (adjusted for dividends) to 382.06 in those first few weeks of 2021, and have dropped down from 1908.02 at the end of 2025 to 1710 now, lopping off a few percentages points at each end.

 

So a 40% annual return for the last 5 years is a pretty good estimate, and even if we only get half that for the next five years we will still double the share price and get our the prize for winning the bet (beer at the Keg, if Fairfax still owns it by then?)

 

Part of the run-up in the last 5 years was due to (justified) re-rating of the stock: price-to-book went up from 0.8 to 1.4 (at a CAGR of 12%) in the last 5 years, and it's unlikely to be repeated. Thus we should definitely lower our expectations for the next 5 years.

Another reason is that ST treasury yields went up from nearly 0% to 4% in those 5-years, and this rate of earnings growth is also unlikely to be repeated. 

Edited February 19 by Munger_Disciple

[Txvestor]

1 hour ago, MMM20 said:

 

It's compounded at ~40% for the last 5 years. Wouldn't shareholders be thrilled with half that for the next 5?

I agree with you and hence my position sizing. 
That said, it also compounded at 0% if you look at the 10yrs before that, Feb 2011 to Feb 2021(around $380). Nothing but dividends. 
The lag in stock price is atleast partially related to that. I know Viking and almost everyone has acknowledged that, but there's a lingering fear in the market that they revert to something resembling that. 
 

[Munger_Disciple]

1 minute ago, Txvestor said:

I agree with you and hence my position sizing. 
That said, it also compounded at 0% if you look at the 10yrs before that, Feb 2011 to Feb 2021(around $380). Nothing but dividends. 
The lag in stock price is atleast partially related to that.

 

+1

[Viking]

1 hour ago, mananainvesting said:

I think we tend to forget the snowball effect. All the capital the company has earned over the last 5 years, is also going to compound. Even if we may not earn the same amount of IRR over the next 5 years as the last, I think there is a higher probability of hitting >15% ROE than under. 

I really like how @SafetyinNumbers talks about the leverage available to us shareholders (3:1), which is why I think they are very likely to hit >15% ROE over the next 5 years. 

@mananainvesting, great point. I know I do not fully understand the effect that compounding is having on Fairfax’s intrinsic value. This is going to be an increasingly important driver of future results (like it was for BRK back in the 1980’s and 1990’s). This is a topic I need to spend some time on. 

Edited February 19 by Viking

[Gregmal]

30 minutes ago, 73 Reds said:

Of course - which is why I own a rather large position in the stock.  Yet I don't mind being the lone skeptic here.  Have seen recency bias cause a lot of disappointment in past travails.  

I think it's more important to appreciate that this board, for obvious reasons, has pretty much never been "not bullish" on Fairfax. Since Ive been a member, even for years prior, this is self evidently true. 

[73 Reds]

4 minutes ago, Gregmal said:

I think it's more important to appreciate that this board, for obvious reasons, has pretty much never been "not bullish" on Fairfax. Since Ive been a member, even for years prior, this is self evidently true. 

Yeah, but the stock has been cheap for most of that time so bullishness was not out of place.  I just question the high expectations going forward vs. a backdrop of near perfection the past 5 years.  Personally, would be happy with 10% annual returns on this investment for the next 5 years, given a not so rosy crystal ball for public equities in general over the remainder of this decade.

[Txvestor]

14 minutes ago, Gregmal said:

I think it's more important to appreciate that this board, for obvious reasons, has pretty much never been "not bullish" on Fairfax. Since Ive been a member, even for years prior, this is self evidently true. 

While this is true. I also think in 2016 there was reason to be bearish. 

1) Underwriting was uneven and insurance operations were in the repair shop. 
2) Interest rates were still close to zero and their short bond portfolio was making close to nothing. 
3) Their market shorts were chewing up any small profits. 
4) Their major investments like BlackBerry, Sandridge energy, RFP,(even the same eurobank for a long while was substantially under water) and mostly performed poorly.

5) They had not yet acquired Allied world increasing their underwriting by 40%. 
6) Their venture tech based bets like GoDigit and Ki had not even started, and frankly I didn't even know they were capable of that.

7) Prem had just asked for control of the company(2015) against that backdrop. 

 

For these and some other minor reasons it traded at like 0.6-0.7 xBV. 
 

There are definitely reasons for a rerating. Some of which are permanent structural changes and some of which can reverse and most of which are better understood atleast here on COBF. 

Edited February 19 by Txvestor

[Gregmal]

3 minutes ago, Txvestor said:

While this is true. I also think in 2016 there was reason to be bearish. 

I agree. I just think it's clear that for "some" securities theres a lot of tendency for confirmation bias, cough Constellation being the latest...so one needs to keep a head on the proverbial swivel. I like Fairfax here and its still part of the core 4, so Im not disagreeing with the enthusiasm or future prognosis, just saying that if something turns, I dont see this as being the place where its harped on. Theres also the possibility that the stock just does what stocks do...sometimes outperforms to the upside and sometimes underperforms, and neither(but especially the later) are necessarily a reason to get crazy. 

[valuesource]

1 hour ago, dartmonkey said:

I was wondering the same thing so I calculated it, 5 years from 2020-12-31 to 2025-12-31 and 5 years from 2021-02-19 to 2026-02-19 (at $1710, right now). Annualized, that gives 43.7% for the first comparison, and 35.4% for the second, just a few weeks later. In the second case, it is considerably lower because the shares jumped up from 311.56 (adjusted for dividends) to 382.06 in those first few weeks of 2021, and have dropped down from 1908.02 at the end of 2025 to 1710 now, lopping off a few percentages points at each end.

 

So a 40% annual return for the last 5 years is a pretty good estimate, and even if we only get half that for the next five years we will still double the share price and get our the prize for winning the bet (beer at the Keg, if Fairfax still owns it by then?)

We used to do Chalet Swiss near Yonge/Dundas. Appropriate upgrade!

[Hamburg Investor]

1 hour ago, Munger_Disciple said:

Part of the run-up in the last 5 years was due to (justified) re-rating of the stock: price-to-book went up from 0.8 to 1.4 (at a CAGR of 12%) in the last 5 years, and it's unlikely to be repeated. Thus we should definitely lower our expectations for the next 5 years.

Another reason is that ST treasury yields went up from nearly 0% to 4% in those 5-years, and this rate of earnings growth is also unlikely to be repeated. 

 

I agree that this is unlikely to happen again.

 

However, isn't it better for FFH's earnings over the next 5 years, if Treasury Yields would just stay were they are today? Than FFH would have a full 5 years of 4% returns (or: an average yield of 4%) – instead of 1 year of around 1.5%, another year in which the US10 rose from a yield of 1.5% to 3.5%, and 3 years with an average of 4%; that's what lies behind us? We are not looking back on five years with an average yield of 4%, don't we? I know FFH had and has not only US10 but a lot of shorter running bonds, so maybe US10 ist not the best comparison; but you get my point. It's not important, if Treasury Yields go up; it's important, that they are (somewhat) high on average.

 

And FFH had short maturities (three months? Six months? I don't remember...), but even those cost something when things went uphill so quickly; and I don't see that happening in the next five years (although anything can happen, as always), so that headwind might not show up again. The increase helped FFH to leave the insurance market behind, but a consistent 4% bond yield over the next five years would actually give FFH a higher average return than it has had in the past 5 years imho, not a lower one.

 

Personally, I don't find this argument very convincing as an evidence that FFH's float would be less worth looking through the windshield than through the rearview mirror.

 

Or do you mean bond yields will be worse over the next five years than they have been in the past? I've been reading for three to four years now that yields will fall significantly again. But that's not happening, and I don't know anyone who could predict it certainly. In any case, 4% doesn't seem implausible to me over the next five years. In any case, it seems more plausible to me than 2% on average or 6%. Maybe the average yield of the past 5 years was between 3.0% and 3.5%; so even if that would be again the average of the next 5 years, that wouldn't be a "new" headwind to FFHs.

 

I also think that your two points could be related; isn't it precisely because bond yields rose that FFH was revalued higher over the last five years. Not only because of that, but also because of that?

 

 

Edited February 19 by Hamburg Investor

[gfp]

I made a thread for the results, which are out ->

 

 

[Hsmpanl]

Does anyone know if Fairfax buys any of the recent ABS issuances tied to the oil and gas industry acquisitions?? Seeing a ton of froth in recent deals in O&G and they’re predominantly ABS buyers who are placing their debt with insurance companies. Multiple deals getting preempted which hasn’t happened in O&G in a long time. Definitely a sellers market right now, might bode well for Exco.

[Munger_Disciple]

1 hour ago, Hamburg Investor said:

 

I agree that this is unlikely to happen again.

 

However, isn't it better for FFH's earnings over the next 5 years, if Treasury Yields would just stay were they are today? Than FFH would have a full 5 years of 4% returns (or: an average yield of 4%) – instead of 1 year of around 1.5%, another year in which the US10 rose from a yield of 1.5% to 3.5%, and 3 years with an average of 4%; that's what lies behind us? We are not looking back on five years with an average yield of 4%, don't we? I know FFH had and has not only US10 but a lot of shorter running bonds, so maybe US10 ist not the best comparison; but you get my point. It's not important, if Treasury Yields go up; it's important, that they are (somewhat) high on average.

 

And FFH had short maturities (three months? Six months? I don't remember...), but even those cost something when things went uphill so quickly; and I don't see that happening in the next five years (although anything can happen, as always), so that headwind might not show up again. The increase helped FFH to leave the insurance market behind, but a consistent 4% bond yield over the next five years would actually give FFH a higher average return than it has had in the past 5 years imho, not a lower one.

 

Personally, I don't find this argument very convincing as an evidence that FFH's float would be less worth looking through the windshield than through the rearview mirror.

 

Or do you mean bond yields will be worse over the next five years than they have been in the past? I've been reading for three to four years now that yields will fall significantly again. But that's not happening, and I don't know anyone who could predict it certainly. In any case, 4% doesn't seem implausible to me over the next five years. In any case, it seems more plausible to me than 2% on average or 6%. Maybe the average yield of the past 5 years was between 3.0% and 3.5%; so even if that would be again the average of the next 5 years, that wouldn't be a "new" headwind to FFHs.

 

I also think that your two points could be related; isn't it precisely because bond yields rose that FFH was revalued higher over the last five years. Not only because of that, but also because of that?

 

 

 

Yes the two points I made are related but not the same. I think short term rates are likely to be lower going forward and no one really knows what happens to the LT rates (10-Year US treasuries). 

 

I am just saying that Fairfax is not going to get another big re-rating in its price-to-book. And ST T-bills are likely to yield a lower interest rate which further could pressure on price-to-book. 

 

Finally I think we would be wise to heed Charlie Munger's sage advice: "Secret to happiness in life is low expectations."

Edited February 19 by Munger_Disciple

[giulio]

Interesting that most are discussing future returns expectations but only a few here are focusing on what actually matters, i.e. the per share earning power of the business and relative IV. 

I certainly have no idea where interest rates will be in the future or what returns to expect from ffh equity portfolio, or investment gains. 

What helps me in having a better/complete view is calculating look-through earnings. Last year they were ~190USD per share. These excludes gains from investments and derivates such as TRS.

Is this a reasonable expectation going forward? YES. On average, over the next 5 years I expect ffh to earn ~200USD per share.

The possible downsides are pretty clear to all: higher CR, slower growth or reduced NPW, lower yield on FI, lower returns from equities. 

Here are the factors that may help mitigate these risks: less premiums ceded, minorities buyback, longer FI duration, shift from gov to corporate bonds, higher income from consolidated companies, reinvestment of earnings, lower shares count.

Not everything that matters can be counted and not everything that can be counted matters.

Still, starting from last year 190, I am pretty sure that 1) buying back minorities can add 20USD per share, 2) consolidated operations might add another 20, 3) s/o will be lower, closer to 18M if I have to guess.

What's a fair multiple? Certainly not 8x. 13x or 15x? That means today IV is 2600-3000USD.

You can then triangulate this estimate with other methodologies, P/B, float + equity? Hard for me to see a value lower than 3000.

You cannot know exactly what bonds will yield or what realized gains will be. You know the company culture, investment framework and horizon.

Make your bets accordingly. 

 

Best,

G

[SafetyinNumbers]

11 hours ago, Munger_Disciple said:

 

Yes the two points I made are related but not the same. I think short term rates are likely to be lower going forward and no one really knows what happens to the LT rates (10-Year US treasuries). 

 

I am just saying that Fairfax is not going to get another big re-rating in its price-to-book. And ST T-bills are likely to yield a lower interest rate which further could pressure on price-to-book. 

 

Finally I think we would be wise to heed Charlie Munger's sage advice: "Secret to happiness in life is low expectations."

Using low expectations instead of realistic expectations has kept investors out of the stock or encouraged them to sell too soon for years. Good for the rest of us, I suppose.

[MMM20]

5 minutes ago, giulio said:

What's a fair multiple? Certainly not 8x. 13x or 15x? That means today IV is 2600-3000USD.

You can then triangulate this estimate with other methodologies, P/B, float + equity? Hard for me to see a value lower than 3000.

 

1 minute ago, SafetyinNumbers said:

Using low expectations instead of realistic expectations has kept investors out of the stock or encouraged them to sell too soon for years. Good for the rest of us, I suppose.

 

What do you call a high intrinsic value per share grower that persistently trades at a wide discount to that value?

 

A compounder!

[SafetyinNumbers]

10 minutes ago, giulio said:

Interesting that most are discussing future returns expectations but only a few here are focusing on what actually matters, i.e. the per share earning power of the business and relative IV. 

I certainly have no idea where interest rates will be in the future or what returns to expect from ffh equity portfolio, or investment gains. 

What helps me in having a better/complete view is calculating look-through earnings. Last year they were ~190USD per share. These excludes gains from investments and derivates such as TRS.

Is this a reasonable expectation going forward? YES. On average, over the next 5 years I expect ffh to earn ~200USD per share.

The possible downsides are pretty clear to all: higher CR, slower growth or reduced NPW, lower yield on FI, lower returns from equities. 

Here are the factors that may help mitigate these risks: less premiums ceded, minorities buyback, longer FI duration, shift from gov to corporate bonds, higher income from consolidated companies, reinvestment of earnings, lower shares count.

Not everything that matters can be counted and not everything that can be counted matters.

Still, starting from last year 190, I am pretty sure that 1) buying back minorities can add 20USD per share, 2) consolidated operations might add another 20, 3) s/o will be lower, closer to 18M if I have to guess.

What's a fair multiple? Certainly not 8x. 13x or 15x? That means today IV is 2600-3000USD.

You can then triangulate this estimate with other methodologies, P/B, float + equity? Hard for me to see a value lower than 3000.

You cannot know exactly what bonds will yield or what realized gains will be. You know the company culture, investment framework and horizon.

Make your bets accordingly. 

 

Best,

G

This all makes sense to me. I think the value of the investment portfolio or about 3x BV is a fair multiple. Investors would pay full value for an equity etf and a bond etf so I think it’s fair to argue the same for FFH. It’s actually better as we get paid to own it because underwriting income exceeds holding company and interest expenses.

 

BVPS growth over the past 5 years is > 20% for the next 5 years. If it can stay above 15% for the next 5 which seems like a low bar, then maybe we’ll test 3x BV. The higher BVPS compounds the better the chance the P/B multiple gets silly and goes well beyond 3x. It’s nice to get the right tail for free.

Edited February 20 by SafetyinNumbers

[yesman182]

21 minutes ago, SafetyinNumbers said:

This all makes sense to me. I think the value of the investment portfolio or about 3x BV is a fair multiple. Investors would pay full value for an equity etf and a bond etf so I think it’s fair to argue the same for FFH. It’s actually better as we get paid to own it because underwriting income exceeds holding company and interest expenses.

 

BVPS growth over the past 5 years is > 20% for the next 5 years. If it can stay above 15% for the next 5 which seems like a low bar, then maybe we’ll test 3x BV. The higher BVPS compounds the better the chance the P/B multiple gets silly and goes well beyond 3x. It’s nice to get the right tail for free.

If this trades at 3x BV and consistently earns 15% ROE a stock holder can expect to earn 5% per year, right? In a world with 4% 10 year  gov bonds, that seems like a very small equity risk premium. If they continue to grown  their income buckets outside of insurance, similar to Berkshire I think it’s more likely. 

[SafetyinNumbers]

Just now, yesman182 said:

If this trades at 3x BV and consistently earns 15% ROE a stock holder can expect to earn 5% per year, right? In a world with 4% 10 year  gov bonds, that seems like a very small equity risk premium. If they continue to grown  their income buckets outside of insurance, similar to Berkshire I think it’s more likely. 

No, they expect a 15% return if it keeps its multiple. I think the key is the investments:equity leverage. If they sacrifice that, then ROE expectations probably come down. That’s the position BRK is in. Too much success and not enough high return opportunities to reinvest. Fairfax has high return investment options for now including buying back shares and buying in minority interests.

[Hamburg Investor]

14 hours ago, Munger_Disciple said:

I am just saying that Fairfax is not going to get another big re-rating in its price-to-book. And ST T-bills are likely to yield a lower interest rate which further could pressure on price-to-book. 

 

Finally I think we would be wise to heed Charlie Munger's sage advice: "Secret to happiness in life is low expectations."

+1 

And please let me add (from Buffett):
„We don’t buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do.“