Prem Watsa’s BlackBerry Ltd (BBRY) Investment Questionable

Prem Watsa, who is known for his investment acumen and holds a significant stake in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), is not immune “from making the occasional catastrophically bad mistake,” says a report from Forbes by Charles Sizemore.

Presently, the Orlando, Waterloo-based company is looking into strategic options, which includes selling or going private, and Watsa has stepped down from the board of directors citing probable conflicts of interests.

BlackBerry investment not profitable

Prem Watsa, the chairman and CEO of Fairfax Financial Holdings Ltd (PINK:FRFHF) (TSE:FFH), owns about 10 percent of BlackBerry shares. The company employs various hedges that give a complicated structure to its portfolio and make it hard to understand. However, one thing that is clear is Watsa has bet big on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) and it seems to have failed.

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Of his total investment in BlackBerry, around half of the shares were purchased at a “going out of business” price in the $7.00-$8.00 per share range, which produces returns of 20 percent to 30 percent. However, his initial purchases, in 2010, were at an average cost of $50, drowning him by approximately 80 percent at current prices. The current value of his position in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is nearly $570 million, and his cost is around $900 million.

Watsa’s investment style similar to that of Warren Buffet

Prem Watsa’s investing style resembles that of Warren Buffet. Watsa, like Buffet, invests through his ownership in an insurance company. Over the past few years, the performance has not been so good with returns underperforming S&P 500 by about 7 percent per year.

But if we expand the time horizon, he has increased Fairfax’s book value by 18.9 percent per year, in the past 25 years, and more than doubled the S&P 500’s annual returns in those 25 years.

Tech stocks must be handled cautiously

Picking up stocks when the price goes down is not advisable, but if the nature of a company is highly predictable, fundamentals are good and there is no reasonable possibility of any kind of financial decline then averaging the stock is a good opportunity to expand the portfolio or to earn dividends from them.

However, this strategy is very risky in any dynamic industry or in technology companies. Especially in those companies who derive a chunk of their value from platform and networking effects.