The Blackberry launching mega-shareholder
, CEO and Chariman of Canada's Fairfax Financial Holdings
Limited, has been tagged as "Canada's
." Watsa's history of massive gains, a cautious approach, and
personal affability have earned him that honor. Coming from
almost mythical origins, Watsa is said to have started with $8
dollars in his pocket but got a clue when he learned about
insurance float from another Guru
, referring to yet another top Guru
, back in 1985. Watsa and Chou were in Toronto, and Billionaire
Investor Chou was working as a...telephone repairman! (Yes, you
can become a billionaire, too.)
In a past interview with GuruFocus, Prem Watsa shared about his
"When we began 25 years ago, if anyone told us where we'd be
today, we'd never believe it. All we were trying to do when we
began, book value was about $2 Canadian [$1.50 US in those days]
and we were trying to double book value every five years. We
thought we could do that with the insurance float, and of course
opportunities came our way, we were flexible, and we had a ton of
good people join us, and today we have done significantly better
than what we expected. Our book value has compounded at 25% a
year, way more than what we expected. So we simply take a year at
a time, we take what comes to us, and we don't make any grand
plans. Our history has been to be open to the opportunities ahead
Today Fairfax Financial is a worldwide insurance/reinsurance
company operating in over 100 countries and penetrating new
insurance markets. In his most recent 2012 letter to
shareholders, Watsa offered many kudos to his talented team
members while describing how it is to be an insurance company
doing business in a climate of catastrophe. He described
Hurricane Sandy as the insurance industry's nightmare and said
the storm is "expected to cost us about $261 million - mostly
from OdysseyRe." Described as the Fairfax crown jewel, OdysseyRe
accounts for almost half of the company's business. The OdysseyRe
shareholder letter explained: "We see this deterioration in
earnings as the result of a year of high catastrophe losses, and
not as an indication of prospective deterioration in underwriting
performance..." In fact, OdysseyRe had the best combined ratio in
its history, with a record 88.5% combined ratio for 2012,
generating $267 million in underwriting profit with conservative
reserving, according to Watsa's letter. OdysseyRe premiums also
grew 15% in 2012.
A proponent of "no ego" among his team members, investor Guru
Watsa described his company's year of "lumpy results" and
disclosed a book value per share increased by 6.5%. Book value
per share ended the year at $378 per share, and common
shareholders' equity ended the year at $7.7 billion. He also
stated, "In the 27 years since we began in 1985, our compound
annual growth in book value per share has been 23%, while our
common stock price has compounded at 19% annually."
He further commented, "Our results have always been lumpy. In the
three years 2007 - 2009, we earned $3.4 billion after taxes and
book value per share increased by 146%. Since then, book value
per share has increased by only approximately 10% (including
dividends) because of our very cautious view of the financial
markets (which has led us to be 100% hedged in our common stock
portfolios) and, of course, the unprecedented catastrophes in
2011. We ended the year with cash and marketable securities at
the holding company in excess of $1 billion."
How does an insurance expert view this time of hurricanes and
earthquakes? According to Watsa, "The key in the catastrophe
business is to view it over the long term rather than pulling
away after catastrophes have occurred."
Born in India, Watsa's company does business all over the world
with many different cultures. He offers a keen understanding of
culture differences and how they impact business and the decision
making process. Watsa told GuruFocus: "We tried to be careful
about who we become partners with, who we associate ourselves
with. We have this fair and friendly culture that we've talked
about. This fair and friendly culture is one of our guiding
principles, and we want people who fit with that, we want
partners who fit with that, who think long term. We're not trying
to make money at the expense of everything else. If they don't
buy into our values, we don't want to be partners with them, so
that helps in terms of spreading our culture to any company we
For its global insurance reach, Fairfax Financial Holdings
Limited reported that in 2012, gross premiums written were $7.2
billion, compared to $17 million in 1985. The $7.2 billion does
not include the company's non-consolidated international
operations like India, China and the Middle East which produced
$2.5 billion in gross premiums written in 2012, of which the
Fairfax share was $650 million.
Fifty-seven percent of that $7.2 billion was derived from North
American insurance, with 31% from global reinsurance and 12% from
Watsa described the emerging insurance markets of Asia, Latin
America and the Middle East. There is room for rapid growth
because of the market's low penetration.
The company's long term equity holdings are effectively remaining
the same, according to Watsa, with reductions in bank positions.
For example, he reduced his Wells Fargo (
) position by 40.65% quarter ending Sept. 30, 2012, with current
shares at 1,754,687.
He also reduced his US Bancorp (
) position, the same quarter ending, by 30.03%, leaving him with
As of December 31, 2012, Prem Watsa's top holdings include:
The BlackBerry company, called Research in Motion Ltd. (
), with a portfolio weighting of 24.5%, and shares of 51,854,700.
BlackBerry launched its new Z10 Smartphone in the US this week.
The company has a market cap of $7.57 billion; its shares were
traded at around $14.45 with a P/E ratio of 9.6 and P/S ratio of
0.6. Research In Motion Ltd. had an annual average earnings
growth of 18.6% over the past 5 years.
Johnson & Johnson (
), with a portfolio weighting of 16.6%, and 5,941,600 shares.
Johnson & Johnson was incorporated in the State of New Jersey
in 1887. Johnson & Johnson has a market cap of $224.33
billion; its shares were traded at around $80.25 with a P/E ratio
of 20.8 and P/S ratio of 3.4. The dividend yield of Johnson &
Johnson stocks is 3%. The company has had an annual average
earnings growth of 6.3% over the past 10 years.
Watsa added 1519.45% to his EXCO Resources Inc. (
) position quarter ending Dec. 31, 2012, with current shares at
His holding history:
Prem Watsa also holds Resolute Forest Products Inc. (
), with a portfolio weighting of 13.1%, and 24,776,519 shares.
Resolute Forest Products Inc. has a market cap of $1.6 billion;
its shares were traded at around $16.92 with a P/E ratio of 59.3
and P/S ratio of 0.4.
Prem Watsa also added to his SandRidge Energy, Inc. (
) position by 645.59%, quarter ending Dec. 31, 2012, currently
owning 32,463,200 shares.
His latest trade was on Feb. 12, 2013. Watsa bought a new
holding, 2,839,817 shares of Novadaq Technologies (
), priced at $11.1.
To summarize the year for Fairfax Financial Holdings Limited,
Watsa wrote to shareholders: "We ended 2012 in a strong financial
position, holding cash and marketable securities at the holding
company of over $1 billion with no significant debt maturities in
the next five years."
"Canada's Warren Buffett," Prem Watsa's top buys, sells, and
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