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Prem Watsa Adds to Research-in-Motion, AbitibiBowater, Reduces Wells Fargo

May 15, 2012 | About:
Prem Watsa Adds to Research-in-Motion, AbitibiBowater, Reduces Wells Fargo

Prem Watsa is known for running the extremely successful insurance company Fairfax, increasing its book value by 25% for 25 years. Besides running successful business, he is also a great investor. He has made sizable gains by investing in common stocks, too.

Prem Watsa’s investment idol is Ben Graham, and he spent a great deal of time studying Ben Graham. During our interview with him, he repeatedly mentioned Ben Graham. Running an insurance company, he is extremely cautious with risks. He said several times that Ben Graham wrote “If you were not bearish, if you're not concerned about the economy in 1925, not in 1927, 28, 29, but in 1925, there was only a 1/100 chance that you survived the depression, because what'd you have looked at was if you were not bearish in 1925, you'd have seen the crash in 1929, drop 50%, and you'd have come right in and thought of it as an opportunity, because the Dow Jones dropped from 400 to 200, went back up to 300, and the second leg after that was a killer, dropping about 90%!!”

Prem Watsa is certainly a Ben Graham type of investor. He looks to buy stocks that are cheap to their book values, and holds them for long term. This can be clearly seen from his investment portfolio. He bought Bank of Ireland (IRE) with the thought that the book value is about 0.3 Euro per ordinary shares. He will usually average down, i.e. buy more if the stock prices go down. This is one of secrets to the success.

This is exactly what he is doing with Research-in-Motion (RIMM) and AbitibiBowater (ABH). In the quarter ended on March 31, 2012, he added to his positions in both of them, as the stock prices decline.

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.

His position with AbitibiBowater was received from debt conversion. He bought the debt of the company at good prices. The debt was converted to shares as the company emerges from bankruptcy.

It is interesting to see Prem Watsa keep seeking Well Fargo (WFC), the bank that Warren Buffett loves and has in his personal portfolio. This is the holding history of Prem Watsa with Wells Fargo



Here is the complete portfolio of Prem Watsa. Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Prem Watsa.

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Comments

kfh227
Kfh227 premium member - 2 years ago
ABH and RIMM are two stocks I investigated because of Prem. I have bought into both after doing some due diligence.

RIMM is 100% misunderstood. It is not dieing. Far from it. It falls into he category of "no analyst would dare say to buy it". Why? Simple. 2 things an analyst can say with 4 outcomes.\

1) Do not bring up RIMM. Results in RIMM going up a ton or tanking a ton. Analyst keeps job

2) Bring up RIMM as a buy to your boss. RIMM goes up a ton, Analyst keeps job. RIMM tanks, analyst looking for new job.

Quite frankly, this is how it works. I can't wait for people to start changing their minds and they all line up telling their bosses to buy.
gurufocus
Gurufocus premium member - 2 years ago
hi kfh227,

why don't you do some write up to share your due diligence with us?

RIMM is getting cheaper again.

thanks!
softdude2000
Softdude2000 - 2 years ago
Kfh22,

How did you analyze ABH and RIMM?

ABH is a simple business. But I was not able to get my head around demand and supply with paper industry being all over the world.

Thanks

windplayer13
Windplayer13 - 2 years ago


RIMM and Prem's purchase caught my attention, but I have been guility of being a "falling knife" value trap investor so I decided to sit on the sidelines on this one so far (thankfully).

The concern I have is this, and it may be a bit of a stretch: Could there be a possiblity that Prem holds hidden (or at least hard to find) Credit Default Swaps, CDS options, or plain options on RIMM in one of his bank or insurance companies? If a bank or insurance company he owns does hold the CDS, does that bank/insurance co. have to disclose this information or does Fairfax? Even if it is reported somewhere, how easy is it to find this hedge purchase (buried in the footnotes perhaps) and how easy is it to decipher the exact details of the CDS contract?

The theory is Fairfax could make more money by the company going bankrupt triggering the CDS "insurance" payout. Owning the equity might (I am not an expert) give him the ability to control the company through a prepackaged bankruptcy, and at minimum it convinces everyone he is long RIMM.

Does anyone think these potential "IED" hedges laying around should be a cause of concern or not an issue at all?

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