Fairfax down 8% this morning

[wknecht]

How would people describe Prem's investment strategy?

 

This would typically be a situation I am interest in, but I read a few annual reports and couldn't get comfort over his investing style.  Two things that turned me off immediately were his hedging of his equity portfolio and his large position in RIMM.  I don't feel I have as much comfort over his methods compared to MKL's and BRK's, which have very simple investing rules imo.

 

Here's Prem's reply when asked the question in one of the Fairfax newsletters posted some time back:

How would you describe the investment style of Hamblin Watsa?

 

Our investment philosophy at Hamblin Watsa rests on the principles of value investing championed by Ben Graham and practised by Warren Buffett and John Templeton. We have a long term value oriented approach to managing money, which results in our viewing the risk of capital loss within a portfolio differently than how other investment managers may view it. We do not worry about the short term fluctuations of the market, focusing instead on the long term asset values of our investments. We look at markets declining as an opportunity to buy good assets cheaply, or in other words, an opportunity to buy one dollar for fifty cents, as my old friend Peter Cundill would say. Similarly, when market exuberance sends prices well above our estimation of value, we don’t buy, and we might sell. This long term approach takes solid research and courage and conviction, because you are regularly acting differently from the prevailing market sentiment and you may initially, and sometimes for quite a while, suffer unrealized losses until the market ultimately validates your investment choice. Simply put, a clear understanding of the fundamental value of our holdings allows us to go against the crowd. It is lonely at times, but it works. Warren Buffett is the most well-known practitioner of this brand of long termvalue investing. We have long admired his skill and investment returns. But the most important idea I got from Mr. Buffett – and it was Francis Chou (who later became a young employee at Hamblin Watsa) who brought this idea to me – is that Warren Buffett, like Larry Tisch and Henry

Singleton before him, realized that owning insurance companies would allow him to significantly increase the profits of those companies by exercising his investment skills on those companies’ float (the “float” is basically the premiums collected but not yet used for paying claims or expenses).

 

Each specific decision can be debated on end, so personally I think it's important to get comfortable with their principles and then look at the track record. There are a lot of folks with good track records that I couldn't understand how they make money (e.g., SAC). On the other hand, I'm sure there are also lots of folks spouting Grahamisms and Buffettisms that haven't proven any good at implementation or remained disciplined enough over a long time horizon. (One should also be careful of affinity schemes.)

 

Hopefully looking at their annual reports/letters gives a good feel of both the principles and the track record. For me, they have check marks in both columns, combined with relatively inexpensive capital, so I have given them a good deal of my money (while being price conscious).

 

As ShahKhezri mentioned, I would also say their style is a more Graham-like, before-he-met-Munger Buffett-like, Klarman-like, or maybe even LUK-like than modern day Buffett-like. Though they certainly sometimes venture up the "quality scale" (e.g., J&J and number of others). 

 

Others can probably interject with better specifics, but hope it helps some!

[rkbabang]

I've been thinking of buying for years. I FINALLY BOUGHT SOME TODAY. THAT'S THE REAL REASON THE STOCK PRICE HAS FALLEN!!!

 

Ohhh, so it was all just to give you the opportunity to get in?  Well good, now that you have made your purchase it is free to increase again.

I think he was saying that his purchase caused the price fell, i.e. everything he touches turns to....coal? I think every investor has felt this way at some point! Just a little self-deprecating humor :)

 

If that is the case I misunderstood him.  I though he bought after it went down not before.  So he's saying that he is the anti-midas, not that he can move markets with his will (which would certainly be a useful skill to have).

 

[LowIQinvestor]

How would people describe Prem's investment strategy?

 

This would typically be a situation I am interest in, but I read a few annual reports and couldn't get comfort over his investing style.  Two things that turned me off immediately were his hedging of his equity portfolio and his large position in RIMM.  I don't feel I have as much comfort over his methods compared to MKL's and BRK's, which have very simple investing rules imo.

 

That's a really good question and you have to be comfortable with the ebb and flow of FFH's investing style to invest.  I've been a shareholder since the low 200's, around 2008, there are other board members here that have held a position longer and know much more. 

 

Right now you hear a lot of talk about RIMM, DELL, the newspaper investments, that haven't done too well and that's fair.  However, this is their style and over time they have done remarkably well (there have been the ICO's, SD, the banks in early 2009, the CDS, the Muni's and a lot of others).  There are shareholders that sometimes piggyback on some of their investments, I try not to.  Prem is more of a Ben G. type and if I remember correctly he named his son Ben Graham. 

 

I also own MKL, but don't think that they don't receive their share of criticism.  Often, the criticism is on why Tom is conservative and why in 2009 he wasn't as aggressive.  I think that's fair as well, but personally I kind of like the fact he sticks to his circle, he's more of Berkshire circa (Coke, PG, quality). 

 

I owned Y until today, but they are different as well.  There's also WTM (which I haven't followed for a long time). 

 

Any specific reason you sold "Y"? I just started reading their annual reports and am quite impressed with the combination of their combined ratios and investment returns.

[ShahKhezri]

How would people describe Prem's investment strategy?

 

This would typically be a situation I am interest in, but I read a few annual reports and couldn't get comfort over his investing style.  Two things that turned me off immediately were his hedging of his equity portfolio and his large position in RIMM.  I don't feel I have as much comfort over his methods compared to MKL's and BRK's, which have very simple investing rules imo.

 

That's a really good question and you have to be comfortable with the ebb and flow of FFH's investing style to invest.  I've been a shareholder since the low 200's, around 2008, there are other board members here that have held a position longer and know much more. 

 

Right now you hear a lot of talk about RIMM, DELL, the newspaper investments, that haven't done too well and that's fair.  However, this is their style and over time they have done remarkably well (there have been the ICO's, SD, the banks in early 2009, the CDS, the Muni's and a lot of others).  There are shareholders that sometimes piggyback on some of their investments, I try not to.  Prem is more of a Ben G. type and if I remember correctly he named his son Ben Graham. 

 

I also own MKL, but don't think that they don't receive their share of criticism.  Often, the criticism is on why Tom is conservative and why in 2009 he wasn't as aggressive.  I think that's fair as well, but personally I kind of like the fact he sticks to his circle, he's more of Berkshire circa (Coke, PG, quality). 

 

I owned Y until today, but they are different as well.  There's also WTM (which I haven't followed for a long time). 

 

Any specific reason you sold "Y"? I just started reading their annual reports and am quite impressed with the combination of their combined ratios and investment returns.

 

I think Joe is going to do a good job there.  I bought last year around $280 after their TRH acquisition.  At the time it was a 5% position.  I own a full position in (30%) FFH and (15%) MKL, I started unloading a lot of the smaller positions over the past two months to pickup BAC warrants.  With Y, I just like AIG more, I still think you will do well with Y over the long term.  Annual reports are great, they have joined the deflation camp recently.

[Buffett_Groupie]

Hope FFH will have similar buy-back announcement like BRK today!

[obtuse_investor]

Hope FFH will have similar buy-back announcement like BRK today!

 

I hope their threshold is 0.5xBook--- purely because I am not done creating a full position in FFH, yet. :)

[LowIQinvestor]

Nice little opportunity right now to buy more.

Our order just got filled