Fairfax Financial (FFH.TO)

This has come off quite a bit recently, giving investors an opportunity to buy a high quality, global property/casualty insurance business. It is firing on all cylinders. For a long time, they’ve had an incredible long-term track record, but for the last number of years returns haven’t been as good. You have the insurance business operating at low 90%-91% combined ratio, so they are earning a lot of money there. Recently took off a lot of their equity hedges and got out of a lot of their bonds just before the election. There are now in an enviable position where they can redeploy their huge amount of cash into higher yielding investments. Trading at close to BV. Dividend yield of 2.28%. (Analysts’ price target is $764.97.)

Prem Watsa is a brilliant investor. This is a dual class share company, and he is not crazy about that format. It is still basically an insurance-based operation. They have some great niche businesses. They make big investment bets. You have to ask if the dual class shares convert into all the same shares on Prem Watsa’s demise or retirement, or does it get handed down to family.

This has always been considered the Warren Buffett of Canada. The fact that they had the big negative bet on the market has sort of moved against them.

They made a bet back in the housing crisis. You got a growth in book value and the stock price reflected it. Now they are betting on inflation by shorting CPI indexes. If we have a Japan type of deflation, then you win. They see a severe bear market coming. The stock is overvalued 50% from its model price of $345. It has no earnings. He likes to have it as a hedge.

A very astute investor that has made very good use of float. It is a bit stretched here short term but you can’t argue with the long term creation of shareholder value.

They have been buying puts on the S&P 500. If the US market continues to do well, then this would negatively impact this one.

This is the stock to own if you think the world is going through a deflationary period. We can see deflation in Europe. Their investments have significant payback in that part of the world. He owns the preferred.

Prem Watsa is a very smart man and has done a brilliant job with the company. Prem has a very large bet that there is going to be a catastrophe in the markets. Wouldn’t be interested in this unless he saw more negativity coming than what he is currently happening.

The insurance business is under pressure right now. This is an OK company and is well thought of, but overall their lines of business is probably something he would not be rushing into at present given the slower growth. He would call it a Hold, but wouldn’t recommend buying it.

Fantastic business and management. It is pretty volatile, but we see a nice long term trend. Management has a better vision around the world than most of us do.

Technically the stock is in an upward trend. It had some short-term breakouts in the last few weeks, which is encouraging. It also had formed a triangle pattern, and just broke above that pattern, an encouraging sign. Continue to Hold and even buy more.

He admires Prem Watsa and the company he has built. Extremely well-run, but it is an insurance business, particularly in property and casualty. A highly, highly variable business. Sometimes the combined ratios are in your favour and you make a lot of money, and sometimes the premium intake doesn’t cover the expenses. This company has always relied on its investment acumen. People taking a longer term point of view stands a better chance of making money, but shouldn’t expect a smooth ride given the nature of the businesses that it is in. This doesn’t look like an unreasonable place to position yourself, but you have to be willing to be a long-term player.

An insurance company where they have a lot of insurance funds they manage, and 90% of them are in fixed income by legislation. With the rest of it, they can make equity investments. This is an easy way for somebody to have a hedge, you buy some gold or you have some of this company.

Prem Watsa is one of the most interesting personalities in Canadian Finance. Believes Prem is betting very strongly that the NA markets are going to collapse. He is not crazy about companies that are prepared to bet a substantial amount of the company on something that he views as inherently unpredictable.

Views this as a listed hedge fund that seems to have a perpetually bearish view in the markets, and that has an insurance company that they run on the side. If you have negative view on Canadian markets, and you want to have a Long position, then this is a good one to hold.