Prem Watsa

prem watsa photo-Profile:

Prem Watsa was born in 1950 in Hyderabad, India  he received his degree in Chemical engineering at the Indian Institute of Technology (ITT).   His parents gave him a great education and encouraged him to pursue it further. After Watsa graduated college,  he along with his brother moved to Canada with no money, at the urging of their father.

Watsa received an MBA from the Richard Ivey School of Business, which is located in Ontario, Canada. Watsa also is a CFA charter-holder, and is commonly called the Warren Buffett of Canada.

In 1974, Watsa started working as analyst for an insurance company in Toronto. His boss gave him a copy of Security Analysis by Benjamin Graham. In 1983, Watsa the company to join GW Asset Management (Gardiner Watson) as Vice President of asset management. In 1984, Watsa met legendary value investor Francis Chou at GW. In 1984, Watsa founded Hamblin Watsa Investment Counsel Ltd, an asset management firm.

In 1985, Prem Watsa borrowed money and took control of Markel Financial, a Canadian insurance company. In 1987, Watsa re-organized Markel Financial Holdings Limited and  re-named  the company, Fairfax Financial Holdings Limited. He wanted to run an insurance company along the lines of Berkshire Hathaway. Today, Watsa is the CEO and Chairman of Fairfax, which has a market cap of approximately  $8 billion. The company has over 8,000 employees, and is engaged in a variety of insurance operations.

Watsa married at 23 (close to three decades of marriage), and has three children. At least one of his sons, Ben (who was named after Benjamin Graham) works as an analyst in Toronto.

Investment Philosophy:

Watsa  gained an appreciation for value investing after reading Benjamin Graham’s book. He also is a large admirer of Warren Buffett, modeling Fairfax after Buffett’s Berkshire Hathaway. Sir. John Templeton was also a big influence on Watsa. Templeton, who passed away recently, was a large shareholder of Fairfax Financial and close friend of Watsa. Watsa used to visit Templeton at least once a year, and today keeps a large sculpture of Sir John Templeton,  in Fairfax’s boardroom.

Watsa focuses on once in a lifetime events i.e. black swans. He had carefully positioned Fairfax for the financial storm before the crisis erupted in 07-09. Watsa made money for Fairfax by buying very cheap Credit Default Swaps CDSs on bonds, which rose tremendously in value as the subprime crisis erupted. Prem does not invest in commodities, he invests in American and Canadian bonds and CDSs. Watsa also buys stocks and hedge them against the S&P500.

Most of Watsa’s stocks at the time of this writing (April 2011) consist of large blue chip companies, many of which are owned by Warren Buffett. These include Johnson & Johnson, Kraft, Dell, Wells Fargo, and US Bancorp, You can find a full and current listing of Prem Watsa’s portfolio here.

Books by and about Prem Watsa:

Prem Watsa recommended reading- My Years with General Motors by Alfred P. Sloan

Unfortunately there are no books specifically about Prem Watsa, I have no doubt there will be several books about him in the future. However, for a good book which talks a bit about Watsa (and some other great Canadian value investors) check out-There’s Always Something to Do: The Peter Cundill Investment Approach by Christopher Risso-Gill



Prem Watsa Stock Picks and Prem Watsa Portfolio Holdings

Performance of Fairfax Per Share Book Value:
Fairfax   S&P500    Out-performance

25-Year Cumulative 24424.4 979.9 23444.5
2011, March 04 (Annual) 102 KB
2010, March 05 (Annual) 86 KB
2009, March 6 (Annual) 78 KB
2008, March 07 (Annual) 81 KB
2007, March 09 (Annual) 67 KB
2006, March 31 (Annual) 80 KB
2005, March 04 (Annual) 73 KB
2004, March 05 (Annual) 66 KB
2003, March 03 (Annual) 74 KB
2002, November 08 45 KB
2002, March 08 (Annual) 95 KB
2001, November 03 42 KB
2001, March 01 (Annual) 74 KB

Speeches and Interviews:

Notes on Speech at UWaterloo

Link to CFA Institute Audio Conference with Prem Watsa (2008)

Saturday Interview: Prem Watsa (2009)

Diane Francis of the Financial Post in Canada conducts a rare interview with Prem Watsa (2008)

Latest news:

[gnews search=”Prem+Watsa”]

Prem Watsa: on avoiding storms

Prem Watsa and Hedging (2011)

Nasty E-Mails From Loeb, Sender Made Public (2011)

How Prem Watsa turned SickKids’ portfolio around (2010)

New computer virus spreads, inflation is all about cars (2010)

Watsa and Gross face off over US deflation – The Globe and Mail(2010)

Fairfax Financial To Acquire Zenith National. (2010)

Prime Minister Harper Remarks On Canada’s Relationship With India

The $2-Billion Man | (2009)

Prem Watsa: Warren Buffett’s mini-me? (2009)

Flush Fairfax snaps up ‘opportunities’ –

Fairfax hoping for better days at Mega Brands(2008)

Credit Squeeze Is Still in `Early Days,’ Watsa Says (Update2) -… (2008)

Fairfax: The emperor|Markets|Stocks|Canadian Business Online(2007)

Fairfax Shares Plunge After SEC Issues More Subpoenas (Update2) - (2006)

Errors worse than expected, Fairfax Financial admits

Prosecutors join SEC in Fairfax probe: WSJ – MarketWatch (2005)

Fairfax Financial Holdings Limited: US$300 Million Equity Issue (2005)

Canadian Underwriter – Fairfax issues US$300 million in shares (2004)

Fairfax Announces Proposed Market Purchases By Prem Watsa Of Up To 250,000 Shares (2003)

Unsure Times for Insurer Fairfax Financial – TheStreet

Fairfax to Buy 38.4% of Zenith National – New York Times

To stay, or not to stay in stocks (1986)

Quotes (look at some of the great calls  Watsa has made):

“BenGraham made the point that only 1 in 100 of the investors who were invested in the stock market in 1925 survived the crash of 1929 – 1932″ (Prem Watsa annual report 2007)

“We have witnessed credit spreads widen dramatically for mortgage insurers, bond insurers and junk bonds, reflecting mainly the problems of the housing market. We remain vigilant for the spreading of these risks into all credit markets, because the same loose lending standards and asset backed structures have been applied to these markets”(Prem Watsa 2007 annual report)

“We continue to protect our shareholders from a 1 in 50 or 1 in 100 year financial storm by hedging over 80% of our equity exposure against the S&P 500 (mainly), by holding approximately 80% of our investment portfolio in treasury bills and government bonds, and by our $18 billion notional CDS position.” (Prem Watsa 2007 annual report)

“We have always taken a long term view and in 2003 we started worrying. We were concerned about asset-backed paper. We saw the moral hazard in all this credit that we saw was being blended and blown out. This was because interest rates were dropped to 1% to bail out the technology companies after the bubble burst in 1999 and we saw that this would lead to the real estate and auto loans and credit card problem. We saw that half of consumer spending was from home equity loans. So we protected ourselves. Credit default swaps are why our ratings went up.” (interview 2008)
“Jesuit quote about hard work – I missed it.”

“For what is a man profited, if he shall gain the whole world, and lose his own soul? or what shall a man give in exchange for his soul?”

“I met with him (John Templeton), beginning in 1978, every year and would go down to see him in his Lyford Cay home in the Bahamas. He was a long term investor and was very prescient about markets. Like him, I take the long term view, buy the best and short the worst.”

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