Fairfax Financial (FFH.TO)

This is positioned as a contra equity stock. If you believe that we are going to go into a Bear Market or we are going to have deflation, this is the one to own, because they have a huge exposure on derivatives in terms of the CPI index and other bond indices. If we have out and out inflation, this will do very well.

Have a lot of respect for Prem Watsa and this company. He is certainly a value oriented investor. This is an insurance company, so he would really like to see them have a better combined ratio. The lines of insurance they are participating in can be quite volatile. If you are a very long-term investor, you could consider stepping in. Well-managed. Dividend yield of about 2%.

Has one of the better managements, however management has gone on the negative side of financials, and for a considerable time, has essentially hedged themselves out of any potential growth. As far as he knows, they are still in a hedged position on markets rising and here we are looking like we are kicking off another good upward run.

This tends to hold up pretty well in bad markets, with the thinking that Prem Watsa is pretty smart and did very well in 2008, using credit default swaps. Have looked at this several times, but the liquidity and the volatility never presents itself at a perfect time. Chart shows a nice long base, but with the large gap between the base and the current price. He would be a bit concerned if it broke down through the $470 level which would bring it down to the range of between $440 and $463. This would be a point where he would be looking to get in.

Looking at a long chart, the stock has been going sideways for a decade. ROE is not particularly strong nor is there a lot of growth in the company. If you want to own the insurance area in Canada, there are other names he would prefer such as Manulife (MFC-T) or Intact Financial (IFC-T). Within the large-cap financials in Canada, he prefers CIBC (CM-T). Also, feels you get more bang for your buck in the mid-caps such as Home Capital (HCG-T).

You have to watch around the $400 level. We have seen it hold a few times over the next few months but if it falls below that it will go 10% more.

Doesn’t know the seasonality on this. Technically, the chart shows that it is going down, trading below its 20 day moving average and is underperforming the TSX. Not a good situation to own right now.

Had a big write-down last quarter because of a negative position on the equity market, which has clearly worked against them with stock markets rising. Management has run, this company exceptionally well in the last several years. It has always had a high valuation.

Preferred shares 1 accumulative 5-year reset. Bought it at $25 and it is now $21.43. What happened? 2 things have happened with this. This issue came out when they were issuing about 3% over Canada and now it is more like 4% over Canada, where they have to borrow in the preferred share market. Hence the drop off. This company was heavily involved with the BlackBerry (BB-T) takeover. He prefers the senior debt of this company rather than this.

One of the more volatile financial services company in Canada. Chart shows a nice breakout over a long period of time, which is very positive. Trading above its 20 day moving average and is outperforming the TSE. This gives it a technical score of 3. Looks very interesting.

He owns a series of rate reset shares. If they are trading below $25 then the market thinks they won’t be called. They are fairly illiquid. They have not recovered since the announcement of tapering and may be a good investment.

How comfortable should a person be in investing in this companies debt, dated 2020 to 2022? He would not be very relaxed as he is not very comfortable with companies that he doesn’t understand. He doesn’t understand their balance sheet or their strategy. It is a fluid situation and this is a long-term corporate bond with a rating of BBB minus, not strong credit.

Preferred C’s. This is a rate reset so it will come up for reset or redemption in Dec/14. If it were him, he’d be looking at taking profits and moving the money into something a little more longer term. Very high dividend yield of 5.75%.

A lot has been resting on their investing prowess. In a big picture view, if you can buy this in the next year or so below $300 it is attractive. $400 and north is the high end of the range. Not sure why it is selling off here and it is probably oversold at this point.

(A Top Pick Jan 9/12. Up 11.49%.) 6.4% bonds maturing May 25/21.