Found this great interview with Fairfax Financial Holdings (FFH, Financial) Chairman and CEO Prem Watsa by Diane Francis with nationalpost.com:
Property and casualty insurer Fairfax Financial Holdings Ltd. of Toronto not only weathered the greatest financial storm since the Depression, but profited mightily and continues to do so. Its 2009 third-quarter results, released Thursday -- it earned US$562.4-million, up from US$467.6-million a year ago, while revenue increased to US$2.21 billion from US$2.16 billion -- reflected its steady hand at the helm. Yesterday, founder, chairman and CEO Prem Watsa talked with me about the results and future financial conditions.
Q. In March, when markets turned, you hedged 25% of your equity portfolio (after removing hedges in late 2009) why?
A: “Stock prices have gone up considerably from March 2009, 50% to 60%, but we continue to test parameters. We look at the biggest potential risk such as a drop in stock markets of 50% and, at the same time, a one-in-250 catastrophe in the insurance world such as a US$100 billion natural disaster. This would be a hurricane hitting Miami or a major earthquake in California.”
“By hedging 25% of our equity portfolio with a short at 1062 on the S&P 500 index we reduced our exposure so that we can better absorb both those events with basically no impact on our cash in our holding company. That’s the type of protection we like to provide our shareholders and company with.”
Q: One commentator noted that Fairfax’s stock has declined by 3.4% this year, why?
A: “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. Our 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.”
Read the entire interview
Property and casualty insurer Fairfax Financial Holdings Ltd. of Toronto not only weathered the greatest financial storm since the Depression, but profited mightily and continues to do so. Its 2009 third-quarter results, released Thursday -- it earned US$562.4-million, up from US$467.6-million a year ago, while revenue increased to US$2.21 billion from US$2.16 billion -- reflected its steady hand at the helm. Yesterday, founder, chairman and CEO Prem Watsa talked with me about the results and future financial conditions.
Q. In March, when markets turned, you hedged 25% of your equity portfolio (after removing hedges in late 2009) why?
A: “Stock prices have gone up considerably from March 2009, 50% to 60%, but we continue to test parameters. We look at the biggest potential risk such as a drop in stock markets of 50% and, at the same time, a one-in-250 catastrophe in the insurance world such as a US$100 billion natural disaster. This would be a hurricane hitting Miami or a major earthquake in California.”
“By hedging 25% of our equity portfolio with a short at 1062 on the S&P 500 index we reduced our exposure so that we can better absorb both those events with basically no impact on our cash in our holding company. That’s the type of protection we like to provide our shareholders and company with.”
Q: One commentator noted that Fairfax’s stock has declined by 3.4% this year, why?
A: “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. Our 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.”
Read the entire interview
