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This is the holding history of Fairfax with Research-In-Motion.
Prem Watsa started to buy Research-In-Motion in the third quarter of 2010. He bought about 2 million shares when the stock was trading in the $50s. He then added to his position as the stock price collapsed to the $40s then $30s and $20s in 2011. The last time he bought was January of 2012. He doubled down on his position and bought another 14 million shares. We estimate that his cost per share is around $30. He owns 26.8 million shares as of January 2012, which is about 5% of the shares outstanding. At the current price of around $12 a share, Prem Watsa has had more than $400 million of paper loss with his position in Research-In-Motion.
Prem Watsa apparently has full confidence in Research-In-Motion. He himself joined the board. Averaging down is a method that Prem Watsa has used over and over in the past to buy companies he likes at lower prices. He shared this in his latest annual shareholder letter.
His latest success: his experience with International Coal (ICO), which he discussed here. He started buying the stock at $4.58 a share in 2006. He bought 21 million shares at the cost of about $4.5 a share. The stock then dropped all the way to $1.2 a share, and he bought another 24 million shares at about $2.5 a share. Eventually the stock price recovered and he started selling at $7.26 a share — he sold most of his shares at $14.6 a share.
The key to averaging down is to have confidence in the company. Prem Watsa certainly displayed great confidence in the recovery of Research-In-Motion. If you have the confidence, too, you can now buy Research-In-Motion at much lower prices than Prem Watsa has paid.
To understand more about how Prem Watsa invests, and his current view, please read GuruFocus Interview with Fairfax CEO Prem Watsa.
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Very scary way of investing and very different from Buffett's style. Requires lot of courage and conviction. If it was not for their past results I would think these people are out of their mind.
I noticed Donald Smith also has lot of these. Klarman is mostly invested distressed debt and not stock.
What do you think of this style of investing? Which other gurus uses this style?