In a recent interview with Diane Francis from National Post, Prem Watsa spoke about his track record with Fairfax: “We are long-term investors and our company is a long-term investment. Short term fluctuations are market driven and not value driven. We began in 1985, 24 years ago, with US$30 million in assets and about US$7.5 million of shareholders’ capital. Today, coincidentally, we have US$30 billion in assets and US$7.5 billion in shareholders’ equity. That’s up 1,000 times. Per share book value has grown from US$1.50 to US$372. Our stock price has gone from C$3.25 to between C$375 and $390 a share. These are all long-term results…We are thankful for our track record. More recently our book value in 2006 was US$150 a share and now, as of end of September, it is US$372 a share, more than double and the stock price has naturally followed suit. Over time the book value and the stock price tend to go together.”
In 2009, Fairfax Financial earned $562.4 million for the third quarter, compared to $467.6 million in 3Q of 2008. Revenue stayed at $2.16 billion. (U.S. dollar) The Fairfax Financial manages $6.63 billion portfolio with 56% vested in financial sector. For details on Prem Watsa’s investments, please read our top holdings article. Prem Watsa allocates 41.4% of the portfolio into reinsurance company Odyssey Re Holdings Corp. (ORH).
Prem Watsa wrote to the shareholders in Quarter Letter (p4): “While 2007 was a record year for us, 2008 was even better!...We were perfectly positioned with a cash and government bond position of approximately 75% of our investment portfolio [and] CDS position and hedges was 16.4%.”
Annual Compound Growth Rate
2001 – 2008
Canada casualty Insurer
Crum & Forster (US GAAP)
U.S. specialty Insurer
OdysseyRe (US GAAP
Prem Watsa buys stocks when they are cheap, and puts his investments in companies that hold their value. He took advantage of the price drop in 2008 and purchased “long” stocks in the some of the companies below (p5).
Cost per Share
Johnson & Johnson
In the interview, Watsa spoke about his thoughts on bubbles in asset classes and “opportunities for strong banks like Wells Fargo [to] buy up regional or smaller banks for cheap”. In a different interview with Canada.com, he said, “the culture of our company is based on the long-term view of everything we do. We have been through many bubbles in 35 years in the investment business. We know they cannot last for long.” He admitted that he was criticized for buying up CDS before 2003 valued at $300 million, then fell to $75 million in 2006 before the turn-around.
Berkshire Hathaway Inc. (BRK-A)(BRK-B)
Berkshire Hathaway Inc. has a market cap of $104.64 billion; its shares were traded at around $99000 with a P/E ratio of 30.1 and P/S ratio of 1. Berkshire Hathaway Inc. had an annual average earning growth of 27.1% over the past 10 years.
The FTC approved Berkshire Hathaway’s $44 billion takeover of Burlington Northern Santa Fe. Berkshire is borrowing $26 billion to complete the acquisition. For the quarter, Berkshire Hathaway earned $3.24 billion or $2,087 (per class A equivalent share) compared to $1.06 billion or $682 in the same period a year ago. Berkshire Hathaway's insurance underwriting premiums generated $363 million of profits in the third quarter, up from $81 million a year earlier. Prem Watsa owns 4 shares as of September. BRK-A share price has increased between the last two quarters of 2009, from 2Q $89,500 to 3Q $101,000 per share.
Brown & Brown Inc. (BRO)
Brown & Brown, Inc. insurance and reinsurance provider has a market cap of $2.53 billion; its shares were traded at around $17.79 with a P/E ratio of 15.3 and P/S ratio of 2.6. The dividend yield of Brown & Brown Inc. stocks is 1.7%. Brown & Brown Inc. had an annual average earning growth of 25% over the past 10 years.
Prem Watsa owns 12,000 shares as of September. The company is ranked by Business Insurance magazine as the United States' sixth largest independent insurance intermediary. Brown & Brown’s subsidiary Hull & Company acquired Anchor Bay Insurance Managers for an undisclosed price. B&B paid $50,000 to Prudential to extend its debt agreement another 3 years. Quarterly, earnings stayed flat at $40.961 million or $0.29 a share, compared to $40.593 million or $0.29 a share. Revenue for the same period declined to $243.766 million from $247.029 million (2008).
[b]Nam Tai Electronics Inc. (NTE)
Nam Tai Electronics Inc. provides upstream pre-assembly design and products to companies like Texas Instruments, Epson, and Sharp. The company has a market cap of $237.5 million; its shares were traded at around $5.3 with a P/E ratio of 29.5 and P/S ratio of 0.4. Nam Tai Electronics Inc. had an annual average earning growth of 21.9% over the past 10 years.
Prem Watsa owns 25,000 shares as of September. The circuit board maker reports 3Q 31.2% sales drop to $110.4 million from $160.5 million same period in 2008. 3Q earnings were $4.5 million or $0.10 per share compared to $4.9 million or $0.11 per share of 2008.
New York Community Bancorp Inc. (NYB)
New York Community Bancorp, Inc. has a market cap of $4.69 billion; its shares were traded at around $13.1 with a P/E ratio of 12.5 and P/S ratio of 2.9. The dividend yield of New York Community Bancorp Inc. stocks is 7.6%. New York Community Bancorp Inc. had an annual average earning growth of 20.5% over the past 10 years.
The giant lender has made $864.6 million from public share offerings earlier this quarter. The company sold 9 million shares at $13 per share to underwriters, and 60 million shares to the public last week. Prem Watsa owns 25,000 shares as of September.
Baldwin & Lyons Inc. (BWINB) 0.34% Weightings
Baldwin & Lyons markets casualty insurance for the trucking industry. It has a market cap of $370.4 million; its shares were traded at around $24.62 with a P/E ratio of 25.2 and P/S ratio of 2.2. The dividend yield of Baldwin & Lyons Inc. stocks is 4%. Baldwin & Lyons Inc. had an annual average earning growth of 14.5% over the past 10 years.
Prem Watsa owns 969,875 shares as of September of this year. The share price has increased 34% since Prem Watsa purchased in June of 2008 (purchase price $17.48). Baldwin & Lyons will pay quarterly dividend of $0.25 a share to shareholders. Revenue doubled from $33 million to $65.4 million comparing 3Qs of 2008 & 2009. Quarterly et income was $14.3 million or $0.97 per share compared to a net loss of $7.2 million or $0.48 per share from prior year.
Annual Letter (2008)
Quarter Letter (March 2009)
Interview with Canada.com