Highlights from Prem Watsa's Speech at UWaterloo

[epictetus]

Fair & Friendly Acquistions – The Fairfax Story

 

University of Waterloo – Modern Languages Building

April 20, 2009 - Noon

 

 

Prem was introduced by UW President and then spoke for 45 minutes or so... 

 

 

 

Background

 

Important decisions in life may not be under one’s control as much as one thinks.  Watsa won ovarian lottery – born in India, parents educated him well, born to teachers and educators, lucky to have such a start in life

 

Came to Canada 37 years ago, settled in London with brother and went to Western for his MBA, no money then.

 

Married at 23, three children, married for 35 years – blessed in family life

 

Got job at Confederation Life in 1974, only one of four interviewees who showed up for second round of interviews.  Lucky to get foot in the door of investing – given Security Analysis to read by boss at the time.  Opened up a new avenue of investing.

 

In 1985 borrowed funds to buy entity that became Fairfax and Confederation Life loaned money also

 

 

Guiding Principles Of Fairfax

 

Guiding principles are keys to success of FFH, they are in the 10K and attached at the back of this note. 

 

The objectives are to make a return for shareholders, only do friendly acquisitions, focus on long term.  Be financially prepared for both problems and opportunities.  Full disclosure to shareholders, let people know the negatives early on.

 

The structure is a decentralized management style, small head office staff, split into investment vs. operations.

 

The values are the most important piece – honesty, integrity, teamwork, no egos.

 

 

 

 

Book recommendation  - My Years with General Motors by Alfred Sloan

 

 

 

 

Three Quotes Watsa Feels are Important:

 

 

Jesuit quote about hard work – I missed it.

 

"Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also”  Matthew 6  - used often by Templeton

 

 

“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?”

 

 

 

 

Questions

 

 

Templeton relationship?

Big fan, was a mentor, visited him every year in Bahamas.    Templeton was very generous with his time with Watsa.

 

 

Ben Graham relationship?

Given Security Analysis at Confederation Life, had a year to absorb it before putting any fancy MBA models and math to work.  His son is named Ben.

 

 

 

 

 

 

 

 

OBJECTIVES:

1) We expect to compound our mark-to-market book value per share over the long term by 15% annually by running Fairfax and its subsidiaries for the long term benefit of customers, employees and shareholders – at the expense of short term profits if necessary. Our focus is long term growth in book value per share and not quarterly earnings. We plan to grow through internal means as well as through friendly acquisitions.

2) We always want to be soundly financed.

3) We provide complete disclosure annually to our shareholders.

 

STRUCTURE:

1) Our companies are decentralized and run by the presidents except for performance evaluation, succession planning, acquisitions and financing which are done by or with Fairfax. Cooperation among companies is encouraged to the benefit of Fairfax in total.

2) Complete and open communication between Fairfax and subsidiaries is an essential requirement at Fairfax.

3) Share ownership and large incentives are encouraged across the Group.

4) Fairfax will always be a very small holding company and not an operating company.

 

VALUES:

1) Honesty and integrity are essential in all our relationships and will never be compromised.

2) We are results oriented – not political.

3) We are team players – no “egos”. A confrontational style is not appropriate. We value loyalty – to Fairfax and our colleagues.

4) We are hard working but not at the expense of our families.

5) We always look at opportunities but emphasize downside protection and look for ways to minimize loss of capital.

6) We are entrepreneurial. We encourage calculated risk taking. It is all right to fail but we should learn from our mistakes.

7) We will never bet the company on any project or acquisition.

8) We believe in having fun – at work!

 

 

 

 

 

 

 

 

 

[Parsad]

Thanks very much epictetus!  Prem is very fortunate.  He has a very lovely family.  His wife Nalini is also as caring as Prem.  Each year, she says hi to me and asks me how I am and how the funds are doing.  Those things trickle down to everyone else.  Cheers! 

[Partner24]

Thank you epictetus! Very interesting to hear what Prem has to say about Fairfax and Templeton. I didn't knew that entire Bible quote (I knew just the end), it is an interesting one.

 

Also, from the highlights of the speaches he made, I see that Prem is a spiritual person and I like that. They say have your head in heaven, but keep your feets on the ground. Another CEO that I've red about and is very spiritual is J-Robert Ouimet from OCB Holding in Quebec (Cordon bleu, Piazza Tommasso). He's written a book about his business (it's christian values applied to the corporate culture in his business) and his deep spiritual relationship with Mother Theresa. The book is written in french.

 

I can compound my net worth by X times over my life span, but will keep nothing of that with me when I'll die. That's something that I like to remember myself from time to time.

 

Cheers!

 

 

 

[joey]

I went to Prem's lecture at the Uof W yesterday - and to the AGM last week. What a contrast!

 

I hadn't known 'til yesterday that Prem is the incoming chancellor for the UofW - succeeding Mike Lazaridis!

 

fyi: http://newsrelease.uwaterloo.ca/news.php?id=5000

 

One connection... I think Prem's been recruited by one who knows Prem well: FFH board member, David Johnston, who is the business oriented President of UofW.

 

Here's the local paper's coverage of the event:

http://news.therecord.com/Business/article/523889

 

What do you think, guys? Higher profile, here it comes...

 

regards all.

[SFValue]

I went to Prem's lecture at the Uof W yesterday - and to the AGM last week. What a contrast!

 

I went only to the AGM, can you elaborate?

 

Thanks,

[joey]

elaborating on the UofW event:

 

-an audience of about 200, maybe 300 max - scheduled for 12noon with a reception to follow (which I didn't attend) - and the audience appeared to me to be primarily staff and teachers/professors and retirees, with very few students (understandably, as those on campus are probably still distracted by exams)

 

-it appeared to me that not many there knew about Prem  (except, maybe, that he was the incoming chancellor);  as I was coming into the theatre venue, I overheard someone asking the usher who's speaking today; and the usher didn't know. For the most part, those attending appeared to be people taking a break from their offices over the lunch hour for whatever the offering was in the theatre

 

- Prem's 'lecture' was a friendly presentation - nothing heavy duty - during which he spoke of being the son of an educator, who would be proud of Prem's appointment  as chancellor; and said also that his previous introduction to the university was through his nephew who attended as a student  and through having read a 50th anniversary history of Uof W book, given to him by Pres. Johnston. Google watsa basketball U of waterloo; and see what you get: his nephew was an outstanding athlete and student - an all cdn all star.

 

-the presentation was billed Prem Watsa on Fair,Friendly Acquisitions...The Fairfax Story. Prem spoke of how he got started and provided a few growth stats; and then worked his way through the guiding principles, Appendix A to the Annual Report.

 

- I am biased; but I was impressed not so much by what Prem said; but by what surely must have been the impression: Prem just oozed decency, humility and 'smarts'.

 

- so, the contrast was that Prem appeared to me to be presenting to a somewhat smallish gathering, to whom he was an unknown, and who probably cared not a wit about matters financial ( except that I read recently that their mandatory pension contributions are going up bec. the managed pension fund has taken a hit; so they probably care about that)

 

It struck me as wonderfully ironic that Prem is succeeding Mike Lazaridis as chancellor. Prem, the poster boy for integrity, whose interests are aligned with long term shareholders and who eschews option grants as incentives for insiders and key personnel (he said yesterday that no subsidiary president had ever voluntarily moved on; so, what a farce that options are a necessary inducement to retain key people) is succeeding Mike Lazarides, the co-CEO of RIM, which was/probably still is an option machine with key exec's, Mike included, having profitted from and been sanctioned for option backdating abuses. Now, I respect Mike and his achievements  and admire him for his philanthropy; and I personally believe that he is not motivated by greed and may have unwittingly been caught up in an illegal practice under inappropriate or no advice; but the facts are what they are, as admissions have been made - and Mike has had to cough up a few hundred million for this illegality; and may have more to come with the US authorities. So, I find it ironic...

 

In my opinion, UofW is very 'lucky' - Prem gave much credit to luck  and ego less team work yesterday - to have engaged  Prem to be  chancellor.

 

regards all.

 

 

[Parsad]

Thanks Joey!  Good stuff.  Cheers!

[Parsad]

Waterloo Record article on Prem.  Cheers!

 

http://news.therecord.com/Business/article/523889

[bookie71]

The more I read about Prem Watsa the more I would like to meet him someday.  Not many people I can say that about.

[Parsad]

The more I read about Prem Watsa the more I would like to meet him someday.  Not many people I can say that about.

 

You can!  Come to the Fairfax AGM one of these days, and you'll be able to say hello.  Better yet, you'll be able to listen to him speak, and meet all the terrific managers who work for Fairfax.  Cheers!

[SFValue]

Thank you very much Joey.

 

Very interesting