Fairfax Financial (FFH.TO)

FFH is a bet on Prem Watsa. FFH was in the wilderness for a while, but has returned to nice levels. Watsa has made some smart bets. Also, insurance premiums have gone up, and he makes money on his investments. But the company is hard to analyze.

A higher-for-longer trade. Insurance markets are getting sales growth, and on top of that reinvesting premiums at the highest part of the interest rate curve. Doing exceptionally well from interest income, and very nice to have in your portfolio to offset higher rates. Yield is 1.08%.

Trading at a historical price-to-book discount. Over the next couple of years, a great opportunity for the stock to do well.

They continue to make deals and acquisitions. Their private equity portfolio has been hit and miss, but their $30 billion portfolio of policy reserves is rocket fuel (largely invested in short/medium-term corporate bonds, which are yielding 3-4x what they were in previous years). Strong cash flow and income.

P&C insurance is doing very well, though this year is tougher than most because of catastrophic losses. So they raise their prices. One of the lower combined ratios in the space. Benefits from higher interest rates. Outlook is for double-digit returns over the next several years.

Great insurance company, lots of assets. Depends a lot on market rates. Can't bet against management. Buy and hold for a long time.

One of the top investment companies in Canada.
Good for a long term investment.
Current valuation very high.
Wait to buy when price is lower.

Stock's had a nice run. Very well run, respected CEO. Hard to buy when the chart's gone up so quickly. Good long-term hold. See her Top Picks.

He entered this in the $400s and it's now around $1,000. They increased their insurance premiums by 16% in the past year, and they manage their float well (reinvesting those customer premiums into short-term bonds). So, they're not exposed to interest rate fluctuations.

Never been a huge fan of it, because he always wondered about their growth profile, but Prem has been a mini-Buffett and has done pretty well. He has a good, long-term track record and the valuation is not outrageous. It will continue to be a fine growth stock.

Their investment portfolio is rooted in their float from insurance operations, and the float is levered to interest rates. Totals $30 billion. Every 1% rise in rates means $280 million in annual income means $12 per share.

FFH in the past focused on growing book value per share and paying minimal dividends.
The company compounded book value per share at around 15% on average, used to be considered as a “Canadian version” of  BRK.B. 
However, in the last ten years, performance has not been impressive, book value compounded around 8%, while most earnings are paid out as dividends. 
We think FFH will still do okay going forward, but it is quite hard to repeat the track record of its past. 
FFH also used to take large 'bets' on the market (both ways), and has seemed to have reduced this activity.  
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