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Guru Prem Watsa profits by foretelling the financial crisis

December 02, 2008 | About:
guruek

Only a handful of financial companies worldwide are in better shape now than before this crisis started. Fairfax Financial is one of them. CEO Prem Watsa managed to make $2 billion and thumb his nose at his opponents at the same time.

By betting against companies such as MBIA, Prem Watsa stroke gold. At the end of 2005, the company had $559 million in cash and investments, but more than twice as much long-term debt--about $1.4 billion. The numbers are now reversed: There's more cash and investments ($1.2 billion) than debt ($1.05 billion). The share price, which for so long traded far below book value, hit a nine-year high in October. As of Nov. 5, it was up 22% on the year, the eighth-best performance among the 280 financial services companies in the Bloomberg world U.S. financial index.

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Rating: 3.3/5 (19 votes)

Comments

Max7777
Max7777 premium member - 5 years ago
I have a lot of respect for Prem and his achievements in Fairfax; based on it I am now an investor in FFH and reviewing what he achieved before 2000 would hint at possibly one of the great value investors of all time. His recent CDS bet was smart and he got the rewards of it, but his early investments are what make him stand out to me, not this bet. However I think he will do very well with the money he received because of this CDS bet, and that is why I am investing in FFH.

But to say the truth, this piece to me is way to glossy and light, to be a serious review of Watsa. Describing him as " cash-rich saviour " , "a real cool-hand Luke ", "a unique investor who is now in a unique position " is just not relevant comments. I would rather have the writer give us a serious and granular analysis of Warsa's investment thinking process than the glamorization we see here. All I got here was a repetition of the know facts, and glossy overview. He deserves a more detailed and article.

Also:

"Officially, he is bearish on the stock market. In October, he told The Globe that despite the collapse in equities, it could still get a lot worse.."

I think he now has taken off the hedge and is no longer bearish.

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