FFH.TO · Fairfax Financial Holdings 2,251.31 CAD -52.51 (-2.28%) 2026-SEP-18 12:48 EST

Fairfax appears here only as reading material — 772 pages of Prem Watsa's shareholder letters, one of the three sources behind the article. There is no view expressed and no numbers given.

It is still worth noting, because Fairfax is the Canadian company built on exactly the mechanism this issue is about: underwrite insurance, hold the float, invest it. Slegers bought a position in it three weeks earlier and named it for an increase a week earlier. This issue is that same idea taken one step further — from owning shares in a company that does this, to owning a company outright and doing it yourself.

Fairfax is the Canadian insurer that invests its float — the premiums it holds before claims are paid — the way Berkshire Hathaway does. It was bought two weeks before this letter and is already marked for a bigger position.

The tables show why. It is the cheapest holding in the portfolio at 10 times next year's earnings, and it has the highest modelled three-year return of any position at about 18.6%. Most striking is the cash: just 30 shares throw off $5,757 a year of look-through free cash flow — $191.90 per share, more than double the next highest — so a 2.6% position contributes over 5% of the portfolio's total cash generation.

That is the practical case for raising the weight: a name this cheap, this cash-generative and this new is under-represented purely because the money has not been put in yet.

This piece is really a second look at the Fairfax purchase made eleven days earlier, filling in the number that was missing then. Fairfax invests about $75bn, of which $4.3bn — about 5.7% — is in India, and the expectation is that this share grows a lot. It also owns 43% of Fairfax India and, more usefully, is paid to manage it: 1.5% of assets a year plus a fifth of any gain above a 15% three-year hurdle.

The same conservative-valuation argument then gets applied to Fairfax itself, with a case that has already been settled in cash. Fairfax held a stake in a private business called Poseidon on its books at $15.50 a share. In late May it sold part of that stake at $28.30 — 85% more — banking $1.91bn and a gain of $837m. That is what it means to say the accounts lag reality.

It matters because Fairfax's shares look expensive on the usual insurance yardstick, about 1.3 times book value. If the book itself understates what the assets are worth — as Poseidon just demonstrated — then 1.3 times an understated number is not the multiple it appears to be. That is the whole valuation defence, and it is a good deal more than the 16 August purchase note offered.

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.

An insurer collects your premium today and pays your claim, if you ever make one, years later. In between it is holding a large pile of other people's money — the industry calls it float — and whatever it earns investing that pile belongs to shareholders. That is the whole Berkshire idea, and Fairfax runs it deliberately.

The person doing the investing is Prem Watsa, whom Slegers calls "The Warren Buffett of Canada." The name Fairfax is the method: fair prices, friendly deals, no hostile takeovers — sellers approach them because they are not going to be dismantled.

There is one number that tells you whether the insurance half is working: the combined ratio, which compares what the insurer pays out in claims and expenses against the premiums it takes in. Under 100% means the underwriting itself makes money, so the float is genuinely free — the investing returns are pure profit on top. Fairfax's is below 100 and the float keeps growing, which is exactly the compounding engine he is buying.

This is a sales letter that argues a real case and withholds the name, so it can be sold inside a paid report. The company is identifiable from the details and the archive confirms it four weeks later by buying Fairfax Financial with exactly the same framing.

The business does what Berkshire does. It buys insurance companies cheaply, fixes their underwriting, and invests the money it holds between collecting premiums and paying claims — the float — into other businesses and shares. The man who built it took over a small, struggling truck insurer at the age of thirty-five and has run the same method ever since; the article's most memorable detail is that a secretary given a hundred shares early on became a multimillionaire.

The case for buying it now rests on four numbers. The shares have returned 34.2% a year over the past five years, roughly three times Berkshire and seven times the American market. The company is about thirty times smaller than Berkshire, which matters because size is what stopped Berkshire compounding at those rates. It trades at about eight times profits. And management has bought back more than a quarter of the shares, taking the count from 27 million to 20 million, so each remaining share owns more of the business — with insiders buying personally on top of that.

The growth is expected to come from outside North America: one of India's largest airports, insurers in the Middle East and Europe, and continued investment in fast-growing emerging markets — with Netflix's move from one country to the world offered as the analogy for what that can be worth.

Two cautions worth carrying. This is promotional writing, and it shows: the size of the opportunity is given as $50 trillion in one place and $3.9 trillion in another, and the seven-point quality checklist is attributed to Will Thorndike's The Outsiders when it is actually the author's own framework. And in an archive that publishes a fair value for every holding, neither this letter nor the purchase that follows attaches one to this company.

Fairfax is the Canadian insurer run by Prem Watsa, sometimes described as a smaller Berkshire: it underwrites insurance and invests the premiums it holds before claims are paid. It is used here as the more extreme version of the same lesson.

Over the identical 1998-2000 window in which the Nasdaq gained 75%, Fairfax's shares lost 64% — an underperformance of roughly 139 percentage points. That is not a rough patch; that is a collapse in the share price of a business whose underwriting and investing discipline was, in hindsight, entirely correct. And like Berkshire, it went on to beat the index by a wide margin once the bubble deflated.

Slegers is not making a valuation case for Fairfax in this letter — it is separately a Best Buy on this hub — but citing the size of the drawdown deliberately. The honest version of his message is not "quality never hurts"; it is that quality can hurt by 64% and still be right.

Fairfax is rated Buy here, but it is worth recording how thin the numerical case is: an 8% discount to fair value, a multiple slightly above its own history, and a reverse discounted cash flow where the growth the price requires and the growth expected are exactly equal — no margin at all.

What carries the rating is the record: 33.4% a year over five years, achieved by an insurer that invests the money it holds between collecting premiums and paying claims. Two months later the firm buys it with $50,000, on the argument that it is a smaller Berkshire with Indian growth attached — and that purchase, like this rating, rests on the track record rather than on the valuation.

Fairfax is a Canadian insurance group that works the way Berkshire Hathaway does. It collects insurance premiums today and pays claims years later, and invests the money in between. That pool of held cash is called float.

The crucial question with any float business is whether the insurance itself makes money. The test is the combined ratio: claims and costs divided by premiums. Below 100% and the underwriting is profitable, which means the float costs nothing at all — it is free money to invest. Fairfax has consistently run below that line, and the float keeps growing as more policies are written.

The organisational point is that Fairfax is deliberately decentralised: each insurance subsidiary runs itself with a strict focus on writing profitable policies, while Prem Watsa's team at head office handles the investing. Watsa is widely called the Warren Buffett of Canada.

Ranked the second-best idea of the month here. It was bought for the portfolio in August.

Fairfax runs the same machine as Berkshire, in Canada, and is presented here under the heading "The Next Berkshire Hathaway". It sells insurance, holds the premiums, and invests them in shares and whole businesses. Prem Watsa, who has run it since the beginning, is nicknamed the Canadian Warren Buffett.

What makes it work, according to the write-up, is that it is deliberately decentralised. Each insurance subsidiary has its own chief executive who runs it independently and is judged on its own results; those managers stay for a long time; and because the businesses are legally separate, Fairfax can sell a slice of one to raise money without giving up control of it.

The record is the evidence: shareholders' money has compounded at more than 19% a year since the company listed in 1985 — a forty-year run, long enough that luck is not a plausible explanation.

Worth noting the author is doing the primary work rather than taking the reputation on trust: he has read Watsa's book and is working through more than a thousand pages of shareholder letters.

Fairfax moves from Hold to Buy on this month's list, which is the step that leads to it actually being bought in August.

The numbers behind the rating are unusual and worth reading carefully. The shares cost 9.1 times next year's earnings — but the "fair exit" multiple, the multiple the model assumes you would eventually sell at, is 8.0. That is lower than today's, and it is the only company on the entire 49-stock list where that is true. The model is therefore not expecting the valuation to improve at all; the whole 10.7% expected return comes from profits growing and dividends being paid, with the multiple assumed to shrink.

That is a conservative way to underwrite an insurance holding company whose earnings swing about with investment results, and it produces a modest answer: fair value 2,352 against a price of 2,168, only 7.9% of upside. Which sits oddly beside the estimate published a week earlier of an intrinsic value of 3,000 Canadian dollars.

Written on a flight to the Berkshire Hathaway annual meeting, this is the section where Fairfax gets a value put on it for the first time. The context is Buffett's retirement and the question of what comes next: "I don't think there is a next Berkshire Hathaway out there. However, there are some companies that come close."

Fairfax is the closest. Prem Watsa took it over in 1985, copied the Berkshire model of using insurance premiums as investable capital, and the shares have gone from CAD 3.25 to CAD 2,346 — very nearly a thousandfold. People call him the Canadian Warren Buffett for good reason.

The number given is an intrinsic value of CAD 3,000 a share against a market price of CAD 2,340, so a 22% discount, and the stated intention is to "buy Fairfax on weakness."

Worth noting for anyone following the record: a week earlier the stated entry was 1.2 times book value, which worked out at CAD 1,777 — implying the shares were nearly 30% too expensive. Now they are 22% too cheap. The valuation basis changed without comment, and when Fairfax is finally bought in August at CAD 2,300, no valuation is published at all.

Fairfax is a Canadian insurance group run on the Berkshire Hathaway model: collect premiums now, pay claims later, and invest the money in between. Prem Watsa has been doing it since 1985.

Two things are praised. The float mechanism, which gives the company a large pool of investable money it does not have to borrow. And the culture — "they focus on business results over stock prices", which is the same trait admired in KKR and 3i.

There is an honest wrinkle worth spotting. This is the issue that introduces smooth, predictable growth as the new standard, and the Fairfax paragraph concedes in its own words that "earnings can be lumpy quarter to quarter." The defence offered is the long-run record rather than the shape of it. Fairfax is eventually bought in August, three and a half months later.

Fairfax is a Canadian insurance group built on the Berkshire Hathaway model. Insurance customers pay premiums now and claims are paid later, so the company always holds a large pile of other people's money in the meantime. That pile is called the float, and Fairfax invests it. When both sides work — the insurance itself makes a profit and the investments do too — you earn twice on the same capital.

Prem Watsa has run it since 1985. He is best known for correctly predicting the 2008 financial crisis and making about $3 billion from it. About a quarter of the business is outside North America, notably in India, which most insurers have no exposure to at all. Book value — the accounting measure of what the company is worth — has grown 12% a year for over a decade, and the shares change hands at only eight times earnings. His salary has been CAD 600,000 since the year 2000, so he is paid by owning the stock, not by drawing from it.

The verdict here is not yet. For an insurance holding company the sensible yardstick is a multiple of book value, and the stated willingness to buy is 1.2 times book — about CAD 1,777 a share against a market price of CAD 2,472. Worth following what happens next: the same company is eventually bought in August at CAD 2,300, well above this target and on a completely different valuation argument.

Fairfax does two things at once. It sells insurance and reinsurance, collecting premiums and paying claims — and while those premiums sit waiting to be paid out, it invests them. That waiting pile of money is called float, and it works like a loan the company gets to invest for its own benefit without paying interest, as long as the underwriting is disciplined. Roughly two thirds of revenue comes from writing policies and one third from investing the float.

The name means "fair and friendly acquisitions": it pays sensible prices and works with existing management rather than launching hostile takeovers. Slegers puts a lot of weight on the founder, Prem Watsa, who arrived in Canada from India with $8, sold furnaces while studying, and in 1985 bought the small trucking company he renamed Fairfax. The pitch in one line: "They make money from insurance. Then they invest that money to make even more money." The row uses the Toronto ticker (FFH.TO); the US over-the-counter line is FRFHF.