Prem Watsa, often referred to as “Canada’s Warren Buffett,” has long followed a value investing strategy similar to the renowned investor. His approach has involved acquiring undervalued companies and leveraging insurance firms as investment vehicles. As of 2023, Fairfax Financial Holdings, under his guidance, has achieved notable annualized returns, demonstrating the efficacy of his investment choices. With Watsa stepping down as chairman, his investment strategies continue to draw attention, particularly his concentrated holdings in three key stocks.
What Are Watsa’s Major Investments?
Fairfax Financial’s portfolio consists of 38 stocks, yet 61% of its investments are focused on just three companies. Watsa’s most notable investment is in Occidental Petroleum, where he holds over 6 million shares valued at $379 million. His stake represents 32% of the fund’s total investments, despite a potential 15% implied loss due to fluctuating oil prices and the company’s substantial debt. This focus on Occidental mirrors Buffett’s own interest in the oil sector.
Why Orla Mining and Kennedy-Wilson?
Aside from Occidental, Watsa’s significant holdings include Orla Mining and Kennedy-Wilson Holdings. Orla Mining, a gold and silver miner, represents 18% of Fairfax’s portfolio. Its productive operations in Mexico and ongoing projects in Nevada highlight its potential, despite facing challenges in Panama. The third key investment, Kennedy-Wilson Holdings, a global real estate firm, accounts for 11% of the portfolio. Despite market challenges, it offers a high dividend yield, much like a REIT, although it is structured differently for tax purposes.
Historically, Watsa’s strategy of focusing on a few companies contrasts with the broader diversification seen in other investment funds. This concentrated approach has both amplified returns and magnified risks, reflecting a commitment to his investment principles. His recent shift away from the chairman role might influence future strategies, as new leadership could bring changes in investment direction.
Fairfax Financial has experienced both success and setbacks by concentrating investments in a select few companies. The approach has led to significant growth in book value and returns since its inception. Watsa’s departure from the chairman position introduces a potential shift in strategy, as his son, Benjamin Watsa, assumes the role. The fund’s future performance will be closely watched to see how it navigates these changes.
Focusing on specific sectors such as energy and real estate, Watsa’s investment selections have aligned with areas of personal expertise and interest. The continued emphasis on these sectors reflects a belief in their long-term potential, despite current market fluctuations. Investors may find insights in Watsa’s strategies, particularly in assessing the balance between concentrated holdings and diversification.
As investors analyze Watsa’s portfolio, the concentrated investments in Occidental Petroleum, Orla Mining, and Kennedy-Wilson Holdings stand out. Each choice reflects both opportunity and risk, providing potential lessons for managing large stakes in few companies. Watsa’s legacy at Fairfax is marked by this strategic boldness, setting a distinct path among investment funds.
