A core tenet of Gates's management philosophy was extreme financial conservatism. He insisted on keeping enough cash in the bank to cover all expenses for a full year, even if revenue dropped to zero. This survival-focused mindset provided a massive strategic advantage and independence from outside capital.

During the 2023 banking crisis, IBKR’s holdings of short-dated bonds allowed it to benefit from rising rates while competitors with long-dated assets suffered. This shows a conservative balance sheet is not just defensive but an offensive tool to win client trust and outperform during turmoil.

After profiting from its GFC hedges, Fairfax over-learned the lesson and continued hedging equities from 2010 to 2016. This protective stance became so costly in a bull market that it completely wiped out all operating income for that period, causing massive underperformance against the S&P 500.

Many S&P 500 companies optimize for short-term efficiency through high leverage and lean operations, making them fragile in a crisis. Berkshire Hathaway prioritizes endurance and durability, maintaining a 'lazy' balance sheet with excess cash. This sacrifices peak efficiency for the ability to withstand and capitalize on systemic shocks that cripple over-optimized competitors.

Fairfax employs a clever M&A strategy called the "cannibal buy-up." When an asset is too large to acquire outright, they partner with another firm. Later, when financially stronger, they use their capital to buy out the partner's stake, allowing them to gain 100% control of a valuable asset over time.

In an industry like insurance with few structural competitive advantages, founder Prem Watsa identifies culture as Fairfax's only true moat. Qualities like trust, fairness, humility, and long-term thinking differentiate the company, drive performance, and are nearly impossible for competitors to copy.

When airlines select an IT provider for their central nervous system, the provider's financial stability is paramount. Amadeus's strong balance sheet is a competitive weapon against more levered peers, as customers cannot risk their core operations on a financially unstable partner.

Fairfax executed a brilliant capital allocation move by selling a 10% stake in its subsidiary, Odyssey, to pension funds for 1.7 times its book value. They then used the billion-dollar proceeds to buy back their own undervalued parent company stock, which was trading at a discount of 0.9x book value.

Fairfax's multi-billion dollar gain during the 2008 crisis was not a speculative macro bet but a defensive one. They bought credit default swaps (CDS) as insurance against their own reinsurers, whom they identified as being dangerously exposed to mortgage-backed securities, protecting themselves from counterparty failure.