Pieter Slegers — Buying The Next Berkshire Hathaway
A transaction issue: $50,000 into Fairfax Financial at a CAD 2,300 limit for 30 shares — the second new position in three weeks, and the fourth name promoted from the Best Buys shortlist into the book this summer.
One-line take: the Best Buys pipeline delivers again.
Fairfax was ranked #2 on the 19 July Best Buys list — where the "fair and friendly" framing and the float mechanism were first laid out — and is bought four weeks later, exactly as
S&P Global was bought seven days after being ranked #1. The transaction is specified the usual three ways:
$50,000 · limit CAD 2,300 · 30 shares, announced before execution. The case is an explicit analogue rather than a valuation:
"Is the current Fairfax situation really like zipping back time 30 years and having the opportunity to buy a smaller Berkshire? We think it is." Supporting facts, all disclosed:
19.5% a year since 1985, a claim to have "outperformed Berkshire Hathaway by a wide margin" over that period, a market capitalisation of
CA$47.3bn (~US$34.6bn) against Berkshire's US$1.06trn, and management's own target of
15% annual growth — doubling every five years, driven by the Indian exposure. Prem Watsa is presented as a synthesis of four investors: Buffett (insurance float as cheap leverage), Graham (value discipline), Templeton (contrarian and global — "North America, Southeast Asia, Europe, Latin America, and even North Africa") and
Singleton ("sometimes, your best investment is simply your own business"), which is why the classification given is
Owner-Operator / Cannibal. The one thing conspicuously absent, in an archive that publishes a fair value for every holding:
no valuation of any kind — no price-to-book, no forward PE, no expected return. The limit price of CAD 2,300 is set 1.2%
above the CA$2,272 quoted price, so this is a fill-assurance limit, not a discount order.
1. Stocks & names mentioned
One purchase and one analogue. Berkshire Hathaway is the comparator throughout and carries no fresh view. Prem Watsa, Warren Buffett, Ben Graham, Sir John Templeton and Henry Singleton are cited as influences, not as securities. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis. Written post with no timestamps — the At link opens the article.
| Ticker | Name | Research | View | What he said | At |
|---|
| FFH.TO | Fairfax Financial Holdings | QT · SA · STK · FA | Positive | BOUGHT — $50,000, limit CAD 2,300, 30 shares. "Today we are buying a new stock for Our Portfolio." The five-point pitch: outperformed Berkshire Hathaway by a wide margin since 1985; led by "The Canadian Warren Buffett"; immediate exposure to the growing Indian market; uses insurance float to invest in stocks; and "management thinks they can grow by 15% per year (doubling every 5 years)." Disclosed data: price CA$2,272, market cap CA$47.3bn (~US$34.6bn), average daily volume CA$122m, ISIN CA3039011026, type Owner-Operator / Cannibal. The record: "The stock returned 19.5% (!) per year since 1985… Strong returns over a few years can be luck. But outperforming the market for more than 40 years takes extraordinary skill." The thesis in one line: "Via Fairfax, you get exposure to India which should allow Fairfax to double its intrinsic value every 5 years." Prem Watsa's synthesis is spelled out — Buffett on float, Graham on value, Templeton on contrarian global investing, Singleton on buying back your own business — plus his own addition, "Doing good by doing well." Ranked Best Buy #2 four weeks earlier. | read ↗ |
| BRK.B | Berkshire Hathaway | QT · SA · STK · FA | Neutral | The comparator, used three ways and not as a recommendation: as the performance benchmark Fairfax is said to have beaten "by a wide margin since 1985"; as the structural template — "just like Berkshire Hathaway they use their float to invest in stocks"; and as the size analogue in the headline question, "like zipping back time 30 years and having the opportunity to buy a smaller Berkshire." The archive's standing coffee-can holding and the analogue used in the 2 August portfolio update; no new view here. | read ↗ |
Two arithmetic notes. (1) The order size checks out. 30 shares at CAD 2,300 is CAD 69,000, which at prevailing rates is close to the stated US$50,000 — so the "$50.000" is dollars and the limit is Canadian, as written. The original prints "an order in the market for Q 30", where "Q" is a typo for quantity. (2) The limit is above the market. CAD 2,300 against a quoted CA$2,272 is 1.2% higher, which makes this a limit set to guarantee a fill rather than to demand a discount — the opposite of the June transaction issue, where the limits on V, KNSL and AMP all sat below the market. Worth noting that a CA$122m average daily volume makes a CAD 69,000 order trivially fillable either way.
2. Talking points
The five-point pitch
- "Outperformed Berkshire Hathaway by a wide margin since 1985; is led by 'The Canadian Warren Buffett'; you get immediate exposure to the growing Indian market; just like Berkshire Hathaway they use their float to invest in stocks; management thinks they can grow by 15% per year (doubling every 5 years)."
- Note the structure: three of the five are comparisons to another company and one is management's own forecast. Only the India exposure is a statement about Fairfax's own assets.
The float mechanism, restated
- "Fairfax makes money by selling insurance and reinsurance policies, collecting premiums from clients while carefully managing risks. It then invests the money it holds before paying claims (the 'float') to earn additional returns."
- The same explanation given on 19 July, where the combined ratio was added as the test of whether the float is genuinely free — "a ratio below 100% means the insurance business is profitable." That test is not repeated here.
Fair and Friendly
- "Fair: Fairfax generally offers reasonable prices and deals with sellers and shareholders in good faith. Friendly: They like to work with management teams, not against them. You won't typically see Fairfax launching hostile takeovers."
- Presented as a source of deal flow rather than as ethics — a reputation for friendly dealing brings sellers to you, which is the same argument made for Diploma's founder-retention model earlier in the month.
Watsa as a synthesis of four investors
- Buffett: "leverage insurance operations to generate cheap float to invest."
- Graham: "think like a value investor."
- Templeton: "be contrarian and invest globally" — Fairfax "operates/invests in North America, Southeast Asia, Europe, Latin America, and even North Africa."
- Singleton: "Sometimes, your best investment is simply your own business" — i.e. buybacks, which is what earns the Cannibal half of the Owner-Operator/Cannibal classification.
- Watsa's own addition: "Approach business as a force for good… 'Doing good by doing well'."
The record, and the standard of evidence
- "The stock returned 19.5% (!) per year since 1985."
- "Strong returns over a few years can be luck. But outperforming the market for more than 40 years takes extraordinary skill." An explicit statement of the sample size at which the archive treats a record as evidence rather than noise.
The India argument
- "Via Fairfax, you get exposure to India which should allow Fairfax to double its intrinsic value every 5 years."
- This is the whole growth case and it is asserted in one sentence. No holdings, valuations or figures for the Indian assets are given here; the "full investment case" is linked separately and is not part of this issue.
The transaction
- "We are buying Fairfax for $50.000. We use a limit price of CAD 2300. This means we enter an order in the market for [quantity] 30." Executed through Interactive Brokers, with the order ticket published.
- Same $50,000 unit as the S&P Global purchase three weeks earlier — a standard new-position size rather than a conviction-weighted one.
What is missing
- No fair value, no forward PE, no price-to-book, no expected return, no reverse DCF — in an archive where every holding is published with a fair value and a required-return threshold two weeks earlier.
- The purchase is justified on track record, analogy and a management forecast. That is a materially lower evidentiary bar than the archive's own standard, and the gap is worth noting even if the conclusion is right.
3. In plain English
A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)
FFH.TO — Fairfax Financial Holdings Positive
Fairfax is a Canadian insurance company that works the way Berkshire Hathaway does. Insurance customers pay their premiums up front and claims are paid out later, sometimes years later, so at any moment the company is holding a very large pile of other people's money. That pile is called the float, and Fairfax invests it. If the insurance business itself roughly breaks even, the float is effectively a free, permanent loan that can be put into shares and businesses — which is the entire trick Warren Buffett used to build Berkshire.
Prem Watsa, who runs it, is described as combining four influences: Buffett on using insurance float as cheap leverage; Benjamin Graham on buying things for less than they are worth; John Templeton on being willing to invest anywhere in the world and against the crowd — Fairfax has money in North America, Southeast Asia, Europe, Latin America and North Africa; and Henry Singleton on buying back your own shares when they are the best thing available. That last influence is why the firm classifies it as an owner-operator and a "cannibal" — a company that steadily eats its own share count.
The record is the argument. The shares have returned 19.5% a year since 1985, and the reasoning offered for trusting it is a statement about sample size rather than about the business: a few good years can be luck, but forty years of beating the market cannot. The growth from here is expected to come from India, where Fairfax's holdings are said to be capable of doubling the company's underlying value every five years — which lines up with management's own 15%-a-year target.
The purchase: $50,000, a limit price of CAD 2,300, thirty shares, announced before execution. Two things a reader should hold in mind. The limit sits slightly above the market price of CA$2,272, so it is set to make sure the order fills rather than to demand a bargain. And unlike every holding in the published portfolio, this one arrives with no valuation attached at all — no multiple, no fair value, no expected return. The case rests on the track record, the Berkshire analogy and a forecast made by the company's own management.
Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.