To say Buffett inspired many investors is an understatement. Among the followers, Prem Watsa, Chairman and CEO of Canada’s Fairfax Financial Holding Ltd. is one of the more successful ones. In 1985, Prem Watsa took over Fairfax. The firm had $30 million in assets and $7.6 million in common equity. At the end of 2009, 24 years later, the firm claims $28 billion in assets and $7.4 billion in equity. Firm grew about 1000 fold during the period. Book value per share has compounded 26% per year.
If you are concerned the size of Berkshire Hathaway may hinder its growth and Buffett’s seniority presents another risk you do not want to face, consider Fairfax Financial. The shares of the Canadian company is traded in Toronto and can only be bought over-the-counter in the US under the symbol “FRFHF”. Fairfax is smaller than Berkshire and managed by a guy 20 some years younger than Buffett.
In early Berkshire years, Buffett grew his wealth and that of his shareholders by milking the textile company and used the cash earned to invest in other areas. He kept on looking for and finding his next cow to milk until he found insurance companies such as GEICO in which he found cash cows that never die. To the contrary, insurance provides Buffett with money that of little or negative costs, and Buffett was able to use that float to grow a franchise now we know as “Berkshire Hathaway”.
Watsa, on the other hand, cut to the cheese right way – Fairfax owns insurance operation from the very beginning of when he took over.
I assure you that it has not been as easy as I put here. Many tried and failed, what we see in Buffett and Watsa are survivors in a very tricky business. The latest victim in the insurance industry? Look no further than American International Group, or otherwise known as “AIG”. It was founded in 1919, or some 80 years ago. It took the company almost 80 years to accumulate about $100 billion in equity, and it did not take as long for them to ruin it.
So long the founding fathers are still in charge, we tend to believe the secret ingredients for success are still potent. In another word, we believe the achievement of Berkshire Hathaway in the past 46 years and that of Fairfax in the past 24 years are the results of deliberate business execution and disciplined value investing methodology.
Both Berkshire and Fairfax own a diversified stock portfolio. You can call it “great minds think alike”, we are just amazed by the large degree of the overlapping:
Wells Fargo & Company (WFC)
Wells Fargo & Company is a diversified financial services company. Wells Fargo & Company has a market cap of $161.35 billion; its shares were traded at around $31.1 with a P/E ratio of 17 and P/S ratio of 1.6. The dividend yield of Wells Fargo & Company stocks is 0.6%. Wells Fargo & Company had an annual average earning growth of 4.5% over the past 10 years.
Buffett owns 320,088,385 shares and Watsa owns 20,043,700 shares as of 12/31/2009.
Johnson & Johnson (JNJ)
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $178.66 billion; its shares were traded at around $64.82 with a P/E ratio of 14 and P/S ratio of 2.9. The dividend yield of Johnson & Johnson stocks is 3%. Johnson & Johnson had an annual average earning growth of 12.2% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 5-star.
Buffett owns 27,132,467 shares and Watsa owns 6,884,300 shares as of 12/31/2009.
Kraft Foods Inc. (KFT)
Kraft Foods, Inc. is the largest branded food and beverage company headquartered in the U. Kraft Foods Inc. has a market cap of $45.18 billion; its shares were traded at around $30.54 with a P/E ratio of 15.1 and P/S ratio of 1.1. The dividend yield of Kraft Foods Inc. stocks is 3.8%.
Buffett owns 138,272,500
U.S. Bancorp (USB)
U.S. Bancorp is a financial services holding company. U.s. Bancorp has a market cap of $49.72 billion; its shares were traded at around $25.96 with a P/E ratio of 27 and P/S ratio of 2.6. The dividend yield of U.s. Bancorp stocks is 0.8%. U.s. Bancorp had an annual average earning growth of 1.7% over the past 10 years. GuruFocus rated U.s. Bancorp the business predictability rank of 3.5-star.
Buffett owns 69,039,426 shares and Watsa owns 15,857,400 shares as of 12/31/2009.
General Electric Company (GE)
General Electric is one of the largest and most diversified industrial corporations in the world. General Electric Company has a market cap of $196.33 billion; its shares were traded at around $18.4 with a P/E ratio of 16 and P/S ratio of 1.3. The dividend yield of General Electric Company stocks is 2.2%. General Electric Company had an annual average earning growth of 14.1% over the past 10 years. GuruFocus rated General Electric Company the business predictability rank of 4-star.
Buffett owns 7,777,900
WalMart Stores Inc. (WMT)
Wal-Mart Stores, Inc. is the world's largest retailer. Walmart Stores Inc. has a market cap of $212.38 billion; its shares were traded at around $55.74 with a P/E ratio of 15.2 and P/S ratio of 0.5. The dividend yield of Walmart Stores Inc. stocks is 2.2%. Walmart Stores Inc. had an annual average earning growth of 10.3% over the past 10 years. GuruFocus rated Walmart Stores Inc. the business predictability rank of 5-star.
Buffett owns 39,037,142
Wesco Financial Corp (WSC)
Wesco Financial Corp. is engaged in three principal businesses through wholly owned subsidiaries: the insurance business, through Wesco-Financial Insurance Company and The Kansas Bankers Surety Company; and the steel service center business, through Precision Steel Warehouse, Inc. Wesco Financial Corp has a market cap of $2.75 billion; its shares were traded at around $386 with a P/E ratio of 50.9 and P/S ratio of 3.4. The dividend yield of Wesco Financial Corp stocks is 0.4%. Wesco Financial Corp had an annual average earning growth of 7% over the past 10 years.
Buffett owns 5,703,087 shares and Watsa owns 1,100 shares as of 12/31/2009. This is the company chaired by Charlie Munger. Berkshire owns 80% of the company and perhaps Watsa own some shares just to be polite?
USG Corp. (USG)
USG Corp., through its subsidiaries, is a manufacturer and distributor of building materials producing a wide range of products for use in new residential, new nonresidential and repair and remodel construction, as well as products used in certain industrial processes. USG Corp. has a market cap of $1.74 billion; its shares were traded at around $17.5 with and P/S ratio of 0.5.
Buffett owns 17,072,192 shares and Watsa owns 7,311,500 shares as of 12/31/2009.
The two greatest asset allocators of our time own quite a number of the same stocks.
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About the author:
Amit Chokshi is the founder and owner of Kinnaras and affiliated companies and is responsible for security analysis, selection, portfolio management, and Firm operations. Prior to founding Kinnaras, he worked as an associate at the Royal Bank of Scotland ("RBS") in the firm's Corporate Advisory Services group, which provided corporate finance and mergers and acquisition ("M&A") services to the firm's clients with a particular emphasis on private equity firms. Amit also worked at Morgan Stanley and received a B.S. in Finance from Bryant University and an MBA from Emory University. In addition to passing the NASD Series 7, 63, and 65 exams, Amit is also a CFA Charterholder and on the Board of the Stamford CFA Society. Amit has appeared on Bloomberg Radio and has also been quoted in various publications regarding Firm-specific holdings.