TIP832: Fairfax Financial (FFO.TO): The Berkshire Of The North w/ Kyle Grieve & Shawn O'Malley

**SPEAKER_1** (0:00)
You're listening to TIP.

**Shawn O'Malley** (0:03)
The fact that they compounded at 18% a year for over 40 years now, that's just unbelievable. I mean, it has to be one of the most under-the-radar long-term success stories that we've ever come across.

**SPEAKER_1** (0:15)
Right.

**Kyle Grieve** (0:15)
And to think it all started with acquiring a nearly bankrupt Canadian trucking insurance business with just $13 million in float and has now grown that to nearly $41 billion.

**Shawn O'Malley** (0:25)
And the bet they put on the housing bubble during the GFC was, like, absolutely incredible trade, right? And I think they netted over $4.5 billion. And so really the big short should have been about them, not Michael Burry.

**SPEAKER_1** (0:41)
Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you.
This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Shawn O'Malley and Kyle Grieve.

**Shawn O'Malley** (1:27)
Daniel and I researched the gold standard of value investments when we looked at Berkshire Hathaway last year. And fittingly, we added it as a position to the intrinsic value portfolio that we run. So we have some experience looking at insurance-based holding companies. And Berkshire Hathaway is one of the best simply because they have the world's best capital allocator leading the business and Warren Buffett. And he led it for many, many decades. But I'm excited to look at another insurance business that tends to run much more under the radar than Berkshire simply because its CEO, Prem Watsa, doesn't quite have the same cult-like following as Buffett and lives in Canada too, not the US. So maybe that's a factor. And for a lot of diehard investors though, going to this company's annual shareholder meeting is just as important as going to Berkshire's.

**Kyle Grieve** (2:21)
That's right. And this business is Fairfax Financial and it's compounded its book value at over 18% per year since 1985 Now, interestingly, one of the biggest tenets in value investing is that price follows intrinsic value over the long term. And Fairfax has done just that, compounding its share price at 18% as well.
And since 1986, when Fairfax had positive earnings per share, it has compounded its earnings per share at about 15% and just insanely high rate for any business over a 40-year time period.

**Shawn O'Malley** (2:49)
And speaking of Berkshire Hathaway, they've compounded book value at just a touch under 20% a year since inception. So Fairfax is really not too far behind. And Fairfax is interesting because it really has so many parallels to Berkshire, from having an incredibly well-aligned CEO who prioritizes shareholders, to running a decentralized organization, to taking advantage of float from insurance. There's just a lot of parallels that stand out between the two businesses.

**Kyle Grieve** (3:17)
Yeah, they really do. Prem Watsa has often been called the Canadian Warren Buffett. And I doubt Prem would ever say that himself, as he seems to be a very humble person. But I think he's taken a lot of inspiration from Warren Buffett and Berkshire Hathaway. If you just look up the annual reports, there's a very striking similarity between the two and I don't think that's really a coincidence.
But of all the managers I've really analyzed closely, I think I might have a hot take here in some circles, but I'd actually say Prem is a manager that is definitely most similar to Warren Buffett that I think I've ever come across.
In business, you seem to see many managers spelt the lessons from Buffett and Munger. But when you dig into what they really do, I think they are more or less just paying lip service to them rather than actually implementing their principles into how they conduct themselves in business and in life. And when you look at Prem Watsa, he aligns just so closely to Buffett and he's been such an exceptional steward of shareholders capital for over four decades now.

**Shawn O'Malley** (4:11)
We'll be going over many more similarities between Fairfax and Berkshire today, but let's begin here by looking at exactly where Fairfax Financial came from. How did this company come about to even be mentioned in the same breath as Berkshire?
Yeah.

**Kyle Grieve** (4:26)
So Fairfax began with a very simple idea. So Prem learned that if you run an insurance company, you get access to a float. And the great thing about that float is that you're basically collecting premiums upfront, so you can then invest that money for a time before the claims are paid out at a later time.