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Prem Watsa is Losing Big on Research-In-Motion, So Far

May 09, 2012 | About:

Renowned value investor and CEO of Fairfax Financial (FRFHF) Prem Watsa is seeing substantial loss from his investment in Research-In-Motion (RIMM) so far. But he was buying more as recently as three months ago.

This is the holding history of Fairfax with Research-In-Motion.

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.

Prem Watsa apparently has full confidence in Research-In-Motion. He himself joined the board. Averaging down is a method that Prem Watsa has used over and over in the past to buy companies he likes at lower prices. He shared this in his latest annual shareholder letter.

His latest success: his experience with International Coal (ICO), which he discussed here. He started buying the stock at $4.58 a share in 2006. He bought 21 million shares at the cost of about $4.5 a share. The stock then dropped all the way to $1.2 a share, and he bought another 24 million shares at about $2.5 a share. Eventually the stock price recovered and he started selling at $7.26 a share — he sold most of his shares at $14.6 a share.

The key to averaging down is to have confidence in the company. Prem Watsa certainly displayed great confidence in the recovery of Research-In-Motion. If you have the confidence, too, you can now buy Research-In-Motion at much lower prices than Prem Watsa has paid.

To understand more about how Prem Watsa invests, and his current view, please read GuruFocus Interview with Fairfax CEO Prem Watsa.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.9/5 (16 votes)


Superguru - 5 years ago    Report SPAM
Watsa, Chou and Berkowitz are having their deep value picks go against them while market kept hitting new highs.

Very scary way of investing and very different from Buffett's style. Requires lot of courage and conviction. If it was not for their past results I would think these people are out of their mind.

I noticed Donald Smith also has lot of these. Klarman is mostly invested distressed debt and not stock.

What do you think of this style of investing? Which other gurus uses this style?

Cm1750 - 5 years ago    Report SPAM
Personally, I think Prem Watsa is committing the sin of straying outside his core competency.

Tech is very hard to make money in for value investors - lots of value investors bought HPQ also. At least Buffett admits tech belongs in the "too hard" pile.

Not sure why Prem think RIMM will turn around unless he thinks the new BB10 is going to be a game changer. AAPL is eating RIMMs lunch and is making strong inroads into RIMM's castle with 85% of the Fortune 500 developing or implementing AAPL products like the iPad/iPhone. Even RIMM realizes this and is trying to sell it's secure e-mail as a standalone product for firms wishing to use it with non-RIMM products.

At this price, it might be a cigar butt story but Prem bought in way to early as he obviously misjudged the competitive environment.
Batbeer2 premium member - 5 years ago
The future of RIMM may not be about selling Blackberrys.

The company dominates the digital dashboard space. They are just not charging for it (yet).

A lot of modern cars out there are equipped with a dashboard that is basically a playbook. These cars will be around in ten years or more.

The drivers of those cars don't realize they are staring at a playbook because the "skin" is a "virtual speedometer". What if RIMM decides to create an app store for millions of cars ?

Would that be a sticky revenue stream ?

Read up on the history and uses of the QNX operating system. That bit of software was around before people had mobile phones and will probably be around long after the blackberry brand becomes a faint memory. If and when that comes to pass.
Alleygator - 5 years ago    Report SPAM
He's also losing heavily on ABH, his 2nd biggest holding. Yet FFH stock is doing fine.
Freedom35 - 5 years ago    Report SPAM
Fairfax's position in RIMM has not had stellar performance...true. They were in early, and they appear to be in for the long haul. Great investors are not afraid to be early, or be underwater on their positions. Only time will tell if RIMM was a performer or not, and I am of the opinion that we will look back at RIMM below $12 and say "wow, I wish I had the foresight to have loaded up then." In either case, it is too early to judge, as time hasn't had the chance to work its magic. If in 5 years the RIMM position still looks this bad, then you can say Prem made a bad call.

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