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Prem Watsa Doubled Down on Research-In-Motion, Again
Posted by: GuruFocus (IP Logged)
Date: July 23, 2012 08:02AM

Fairfax Financial CEO Prem Watsa doubled down his bet on Research-In-Motion (RIMM). He bought another 25 million shares of RIMM in the last month. As of July 4, he owns 51.8 million shares of RIMM, which is about 9.9% of the company. He owned 26.8 million as of March 31, 2012, which was more than doubled from his holdings at the end of 2011.

Prem Watsa started buying RIMM in the third quarter of 2010, when the stock was traded at $50s and has declined 60% from its peak in 2008. The stock has since lost another 90% while Prem Watsa kept buying. His average cost was about $26 a share before the latest purchase. The latest purchase in June brings his cost per share to high teens, which is still significantly higher than its current price of just below $7 a share.

Prem Watsa is apparently full of confidence with RIMM. At Fairfax Financial Dinner in May, he noted that RIMM remains #1 in many markets. It has $2.1 billion in cash and no debt. Prem is bullish on BB10, the firm has terrific technology, and he notes that Mike Lazaridis is a genius. He also likes Thorsten Heins and remains happy to hold RIM's shares.

Averaging down is one of the secrets in Mr. Watsa’s 35 years of investing. In his last shareholder letter, he wrote: “average down when buying and average up when selling! Illustrated with the case of International Coal, we averaged down from our initial cost of $4.58 per share to an average cost of $3.37 per share. We sold half our position at $7.26 per share (a 115% gain) and only five months later, there was a takeover offer for the whole company at double that price. In spite of not buying only at the low and not selling only at the high, we earned $341.2 million by selling at over three times our cost.”

We have had a lot of discussions of value traps lately. RIMM is considered a value trap as the company continues to lose market share and delay the release of its new products. But Prem Watsa is not an average investor. He is doubling down again.

The question is, will you follow Prem Watsa into RIMM?

Related:

GuruFocus Interview with Fairfax CEO Prem Watsa

What You Want to Know from the Shareholder Letter of Fairfax CEO Prem Watsa



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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: tkervin (IP Logged)
Date: July 23, 2012 09:12AM

Well, since Fairfax is my largest position......I guess I am.

It is a gross error in my view. (My fair value vote for RIMM was $5....last fall)

Does this disqualify Fairfax's deflation bet and PM's other investments?

Not in my view but it is troubling.

Is this a great investor being steadfast? Or a man who can't admit error and cut bait?


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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: mocheng (IP Logged)
Date: July 23, 2012 02:19PM

The guy is a canadian, he will support canadian companies like RIMM forever


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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: ecotycoon (IP Logged)
Date: July 23, 2012 02:54PM

Love that, certainly the best investor in the world, buying part of the business for it's liquiquidation value, low risk good chance of good return. Head you win big tail you don't lose that much.



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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: JJINVEST (IP Logged)
Date: July 23, 2012 04:46PM

It might not be a Canadian thing. It could be that he is able to look beyond N. America and see the leading positions that RIMM has in the developing countries and stick to his thesis. After all, this is a company with plenty of cash on hand and a hoard of patents. We are being bombarded daily with news about RIMM in the U.S. We fail to see what RIMM can do in other markets. I wonder if he is investing in RIMM also precisely because at the lower end of the cell phone/smartphone market, RIMM can do much better than, say, Nokia.


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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: ecotycoon (IP Logged)
Date: July 23, 2012 08:41PM

You are right JJinvest, here is a graph of the growth in intangible, RIM make many aquisition of great patents, that is quite a moat on the long term and preserve value for shareholder on the short-term base on liquidation value. RIM use to growt a lot in other market while decreasing in US in the past 4 years but the decline that have start base on that point is worst in the latest quarter look at the graph and it s good news for us because it bring the price of the stock to a realy low level lower than the liquidation value look at the last graph, i made a article on that you should take a look:

RIM Success lies in Paradox



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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: tkervin (IP Logged)
Date: July 24, 2012 08:56AM

......or perhaps Heads you have the worst investment decision of your life, Tails you don't lose too much.....:-)

At an average price of about $26 per Gurufocus for Prem's stake........hard to frame this as a position anyone would swap into by choice.


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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: Adib Motiwala (IP Logged)
Date: July 24, 2012 10:11AM

his average will reduce down now as he doubled down. I think it would be high teens now.


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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: pravchaw (IP Logged)
Date: July 24, 2012 05:41PM

I guess this is what seperates the true great value managers from the pretenders- ability to remain calm while others run for the exit. However some times there is fire when the fire alarm rings and you can get cooked.

What many investors do not realize that the risk with RIMM is lower now at $7 than it was at $20. Stocks with issues have reverse elasticity of demand - as prices decrease - demand decrease. RIMM's price action is currently mostly emotion (fear) and very little little to do with fundamentals.


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Re Prem Watsa Doubled Down on Research-In-Motion Again
Posted by: superguru (IP Logged)
Date: July 24, 2012 06:29PM

"risk with RIMM is lower now at $7 than it was at $20"

Is Risk not the same? 100% loss.

Upside is definitely more if it turnarounds.


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