Wednesday, August 1, 2012


Prem Watsa, the CEO of Fairfax Financial (FFH) has been in the news a lot lately, regarding his continued purchasing of RIM shares. Fairfax now owns around 10% of RIM. Watsa is also on the board @ RIM. Watsa reminded the the market not to focus too much on the purchase as it's only a $190 million commitment. A drop in the bucket, when compared to Fairfax's $4 Billion+ common stock portfolio. Not to mention the $17 Billion, cash and bond holdings that FFH has.

I recently added to FFH @ 374/share. FFH has traded down this year from a high of $440. FFH's recent quarter was good, helped by solid insurance operations. Premium prices ( the price you pay for insurance coverage ) appear to firming up, a nice change from the soft market of the last several years.
Watsa has a lot of dry powder to deploy when opportunities arise. We won't know when that will be, but being hitched to his wagon has proved to be prudent. FFH, has also proved to perform well in down markets, making it a good hedge to my portfolio should the markets "tank". You might be wondering why I'd invest in a company where they have more cash than ideas (this will be old news for WatsaWatchers) and the guy who runs it, is buying stock in companies that are in trouble. Well, if you can take the ups and downs, and look out a few years, here's why: Watsa's record of value creation is truly extraordinary. The growth in book value ( a proxy for the true value of the company) at FFH is detailed below:

As of December 31, 2011
                                                                     5Yr        10Yr       15Yr       20Yr      Since Inception
compounded annual growth in book value                            19.4%     12.0%    12.4%     16.1%    23.5%
source: 2011 Chairman's Letter

So, I'll be watching the developments at RIM, but at the end of the day, if the RIM investment doesn't work, FFH will still do fine. For the record, I don't own a BlackBerry.


  1. He Andre,

    Good Post. I like FFH at this price too, but would like it even more under book value. That said I'm biased and own the stock (and will own it for many decades to come). Watsa is no idiot and doesn't seem to get much credit for his track record.

    I have been doing some deep thinking about his deflation derivatives and may post shortly on my blog. By doing so I have changed my perspective on the market and my expectations going forward. We are in a period of slow growth, and interest rates are likely to say low for quite a while.


    1. I agree, Watsa and the crew at Hamblin Watsa are highly under-rated. Funny, you should mention the interest rate idea. I've been thinking along the same lines, but I am not totally sold yet. I need to do more work on this, as these low rates are hammering the life co's like MFC.