Prem Watsa Resource Page

“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?” — Prem Watsa

Prem Watsa: Background & bio

Prem Watsa was born in 1950 in Hyderabad, India he received his degree in Chemical engineering at the Indian Institute of Technology (ITT). His parents gave him a great education and encouraged him to pursue it further. After Watsa graduated college, he along with his brother moved to Canada with no money, at the urging of their father.

Prem Watsa received an MBA from the Richard Ivey School of Business, which is located in Ontario, Canada. Watsa also is a CFA charter-holder, and is commonly called the Warren Buffett of Canada.

In 1974, Prem Watsa started working as analyst for an insurance company in Toronto. His boss gave him a copy of Security Analysis by Benjamin Graham. In 1983, Watsa the company to join GW Asset Management (Gardiner Watson) as Vice President of asset management. In 1984, Watsa met legendary value investor Francis Chou at GW. In 1984, Prem Watsa founded Hamblin Watsa Investment Counsel Ltd, an asset management firm.

During 1985, Watsa borrowed money and took control of Markel Financial, a Canadian insurance company. In 1987, Watsa re-organized Markel Financial Holdings Limited and  re-named  the company, Fairfax Financial Holdings Limited. He wanted to run an insurance company along the lines of Berkshire Hathaway. Today, Prem Watsa is the CEO and Chairman of Fairfax, which has a market cap of approximately  $8 billion. The company has over 8,000 employees, and is engaged in a variety of insurance operations.

Watsa married at 23 (close to three decades of marriage), and has three children. At least one of his sons, Ben (who was named after Benjamin Graham) works as an analyst in Toronto.

Prem Watsa: Investment Philosophy

Prem Watsa gained an appreciation for value investing after reading Benjamin Graham’s book. He also is a large admirer of Warren Buffett, modeling Fairfax after Buffett’s Berkshire Hathaway. Sir. John Templeton was also a big influence on Watsa. Templeton, was a large shareholder of Fairfax Financial and close friend of Watsa. Watsa used to visit Templeton at least once a year, and today keeps a large sculpture of Sir John Templeton,  in Fairfax’s boardroom.

Watsa focuses on once in a lifetime events i.e. black swans. He had carefully positioned Fairfax for the financial storm before the crisis erupted in 07-09. Watsa made money for Fairfax by buying very cheap Credit Default Swaps CDSs on bonds, which rose tremendously in value as the subprime crisis erupted. Prem does not invest in commodities, he invests in American and Canadian bonds and CDSs. Watsa also buys stocks and hedge them against the S&P500.

Most of Watsa’s stocks at the time of this writing (April 2011) consist of large blue chip companies, many of which are owned by Warren Buffett. These includeJohnson & Johnson, Kraft, Dell, Wells Fargo, and US Bancorp.

Prem Watsa: Quotes

“Ben Graham made the point that only 1 in 100 of the investors who were invested in the stock market in 1925 survived the crash of 1929 – 1932” (Prem Watsa annual report 2007)

“We have witnessed credit spreads widen dramatically for mortgage insurers, bond insurers and junk bonds, reflecting mainly the problems of the housing market. We remain vigilant for the spreading of these risks into all credit markets, because the same loose lending standards and asset backed structures have been applied to these markets”(Prem Watsa 2007 annual report)

“We continue to protect our shareholders from a 1 in 50 or 1 in 100 year financial storm by hedging over 80% of our equity exposure against the S&P 500 (mainly), by holding approximately 80% of our investment portfolio in treasury bills and government bonds, and by our $18 billion notional CDS position.” (Prem Watsa 2007 annual report)

“We have always taken a long term view and in 2003 we started worrying. We were concerned about asset-backed paper. We saw the moral hazard in all this credit that we saw was being blended and blown out. This was because interest rates were dropped to 1% to bail out the technology companies after the bubble burst in 1999 and we saw that this would lead to the real estate and auto loans and credit card problem. We saw that half of consumer spending was from home equity loans. So we protected ourselves. Credit default swaps are why our ratings went up.” (interview 2008)

“I met with him (John Templeton), beginning in 1978, every year and would go down to see him in his Lyford Cay home in the Bahamas. He was a long term investor and was very prescient about markets. Like him, I take the long term view, buy the best and short the worst.”

Prem Watsa: News

Prem Watsa: Newspaper cuttings

Prem Watsa: Interviews

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