One of GuruFocus readers sent us a book published by Fairfax, the Canadian insurance company founded by Prem Watsa. In case you missed this, we have recently interviewed Mr. Watsa. In the interview Mr. Watsa shared his philosophy in running Fairfax, his view on economy, Europe, and his holdings in Bank of Ireland (IRE), Research-in-Motion (RIMM) and Dell (DELL). You can read the transcript here.
This article lists some highlights from the book “Fair and Friendly: The First 25 Years of Fairfax”.
- Prem Watsa was born on Aug. 5, 1950. His parents were originally from the small Christian community in southern city of Mangalore.
- Studied at the Indian Institute of Technology, major in chemical engineering.
- On Sept. 11, 1972, Prem Watsa arrived in London, Ontario, with $8 in his pocket and a $600 draft toward the first year’s tuition.
- Attend the MBA program at what later became the Ivey Business School at the Univesrity of Western Ontario.
- Arrived at his first job Confederation Life in 1974. John Watson, the director of research handed him a book “Security Analysis”. “
- 1985: met Francis Chou, then working as a telephone technician at Bell Canada. One day, Francis asked Prem almost casually, “Do you know how Warren Buffett made his money?” Prem thought he knew the answer, but Francis pointed to something he hadn’t noticed: insurance float.
- Met Steve Markel and set down the terms to buy Markel Financial for $5 million.
- 1986: Markel Financial was renamed Fairfax Financial. It means “fair, friendly acquisitions”.
- Book value per share grew from $1.52 in 1985 to $10.5 in 1989, which then grew to $38.89 in 1995.
- Made series acquisitions, asset reaches billions.
- Fairfax was listed on NYSE in 2002.
- Attacked by hedge fund shorts including James Chanos, Whitney Tilson etc. Stock price down 40% to Cdn$57.
- Regarding to shorts, Prem said, “Our one major worry, was that people would no longer deal with us. It never used to be that way, but now everybody looks at the stock price to get a sense in confidence in a company.”
- Filed lawsuit against shorts in 2006.
- Buy CDS. “We bought our first (CDS) contract in 2003 and our last ones in December 2007. We just keep buying more and more, first five-year, then sever-year, because they were so cheap….” At one investment committee meeting where pre asked, “What’s the best idea we’ve got?” Francis Chou, who’s a pretty shy guy, piped up, “buy more credit default insurance.” In the fall of 2008, Fairfax started to sell its CDS. The company made about $2 billion from those sales.
- Removed its hedge in 2009.
- 90% hedged today as September, 2011.
Prem Watsa Quotes:
- “Being an immigrant, you develop qualities you never thought you had, you do things you never thought you’d do. You work harder, because you’re at the bottom and the only way is up. I consider my kids less fortunate for not having had the immigrant experience.”
- “Warren Buffett attributes his success to Ben Graham’s work, and in a smaller way, it is the same for me and hundreds of people who’ve made it as investors. You read that book and wither you get what it’s saying in a smap or you never get it. For me it was so simple and made so much sense, I thought I had died and gone to heaven. It was my ‘road to Damascus’ moment.”
- This is by Tony Hamblin, Prem Watsa’s partner in starting his investment firm: “It doesn’t take a lot of money to start up an investment conselling company. The cost of entry is qualitative. You need to have a track record, contacts and credibility, and fortunately Prem and I had all three.
- “Our long-term view has also meant that we have a commitment not to sell our core companies, no matter how attractive the price.”
- “Anything in the world is possible,” as Ronald Regan used to say, “If you don’t care who gets the credit.”
- Having shaken hands on an acquisition, we’ve never walked away from a commitment or gone back to change the deal.
- “Work as hard as you can, as though everything depended on you”