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?
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