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Hi Partner 👋
Over the past few weeks, we’ve been giving you an extensive Portfolio Update.
In case you missed it:
For every company in the Portfolio, you found out about our conviction levels.
And you’ve also found out about opportunity costs.
When you find a company with a higher expected return than one you’re currently invested in, you should consider making the switch.
Let’s dive into the companies we’re considering adding to the portfolio.
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Our Shopping List: Part 2
Fairfax Financial Holdings ($FFH)
How does the company make money?
Faifax Financial Holdings is a holding company.
It’s a Canadian company operating a collection of global insurance and reinsurance businesses, collecting premiums upfront and investing the float before claims are paid.
The CEO Prem Watsa takes an opportunistic, value-oriented approach to investing the float, adding a second engine of returns alongside underwriting profit.
The goal of the company is to grow its book value by 15% per year on average in the long term.
In essence, Fairfax copied the business model of Berkshire Hathaway.
I’m currently reading the book The Fairfax Way. It’s a must read.
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Why is it an interesting company?
The man who made $3 billion from a single bet: Prem Watsa, Fairfax’s CEO, called the 2008 financial crisis before almost anyone. He runs this company like his personal investment fund; with deep conviction and zero interest in short-term noise.
Two ways to make money at the same time: Fairfax earns on insurance premiums and on its investments simultaneously. When both engines fire together, the returns can be very powerful.
Growing in places most competitors ignore: Around 25% of Fairfax’s business comes from faster-growing markets outside North America (like India). That’s a growth lever most insurance peers simply don’t have.
A great business at a cheap price: Fairfax has compounded book value at 12% per year for over a decade. The stock trades at just 8x earnings. You’re not paying much for something that has consistently delivered.
The CEO hasn’t given himself a raise in 25 years: Watsa has kept his salary at CAD 600,000 since 2000. He’s not here for the paycheck. He owns the stock. His interests and yours are exactly the same.
At which price are we interested?
Fairfax is an amazing business.
Just look at how the intrinsic value evolved over the years (the stock price followed):
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The company massively outperformed over the past 40 years: