Prem Watsa on the social bubble and other quotes

Prem Watsa was once called the savviest value investor you will never know. He is also known as the Canadian Buffett. In fact, his investing approach is uncannily similar.

He heads Fairfax which owns multiple insurance companies. He generally buys companies in whole and mostly when they are in trouble (Blackberry being a recent example). He also writes letters to his shareholders annually which seems similar to the ones that Buffett writes. Both Berkshire and Fairfax have offices with minimal staff.

The performance record he shared in his latest letter looks similar to the one Buffett shares, though it is not on page 1. Unlike Buffett though, his letter is mostly about performance of his company and investments it made, rather than the snippets of wisdom that Buffett’s letters are peppered with.

If interested, this year’s letter can be found at this link here

Interestingly though, Prem Watsa has commented on the bubble in social and tech companies both public and private.

“I have learned that the tech world is very difficult to predict and things change very quickly. Yesterday’s hit can be
today’s dog, but with the right leadership, things can also change very quickly for the positive. We continue to be
excited to be long-term shareholders of BlackBerry and have no intention of supporting a takeover of BlackBerry.

I am always amazed at the speculation that can take place in the stock market, as shown in the table below, and how
long it can last:”

Prem Watsa

And then he goes on:

“The Wall Street Journal says that worldwide there are 73 companies that are valued at more than $1 billion by
venture capital investors, versus half that number prior to the dot.com crash. The third column of the table above
shows the ratio of the latest valuation of each company to its total cumulative equity funding raised from inception.
So Uber has a valuation of $41.2 billion as compared to the cumulative equity capital raised of $2.8 billion – i.e., the
valuation is a hefty 14.7 times all of the money that was raised by the company.

We’re confident that most of this will end as other speculations have – very badly!”

Prem Watsa, an IIT Madras chemical engineer, who later moved to Canada, is a first generation value investing entrepreneur who bought Markel Financial in 1986 and named it Fairfax Financial to mean “fair, friendly acquisitions”.

In addition to his western holdings, the other difference from Buffett is that Watsa’s companies have holdings in India too – in the form of India Infoline, Thomas Cook, Sterling Resorts.

Not known to be flashy or open to media, he still has some wise words to share whenever he has spoken. Very often they would also remind the reader of the words of some of his other famous contemporaries.

Here is a brief compilation that one would do well to remember.

1. “Our long-term view has also meant that we have a commitment not to sell our core companies, no matter how attractive the price.”

2. “Buy when you hear the sound of canons. Sell when you hear the sound of trumpets.”

3. ” When the music stops, it stops very quickly.”

4. “Trees don’t grow to the sky, and markets don’t fall to the floor.”

5. “Don’t ever think that the [stock] market knows more than you do about the underlying business. That’s the biggest mistake you can make.”

6. “Speculation (and I have been in the business more than 35 years) is the same over time, over countries – the same.”

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