BlackBerry shareholder Watsa takes far-sighted approach to investment

Written by Reuters | Toronto | Updated: Aug 14 2013, 21:51pm hrs
Just over a year ago, Prem Watsa said Research in Motion, now renamed BlackBerry, was a Canadian success story, a good buy and a likely turnaround story, despite declining market share.

BlackBerrys fortunes have only deteriorated since then, but Watsa, chief executive of top BlackBerry shareholder Fairfax Financial, is an old hand at looking wrong today and right tomorrow.

Fairfax, both an insurance holding company and Watsas investment vehicle, was on the losing end of bets against the market in the mid 2000s as Watsa waited for the US mortgage industry to collapse. The companys stock fell by 50% between mid-2003 and mid-2006 as Watsas purchases of credit default swaps flattened profits, while rivals feasted on a housing-fed bull market.

But when the market began to weaken in 2007, Fairfax began notching up investment gains, pulling in billion-dollar profits in 2007 and 2008. Then with markets still reeling and other investors licking their wounds, Watsa started to plough money back into equities, bringing another strong year in 2009.

Since their 2006 low of C$100, Fairfaxs shares have more than quadrupled, and the stock is up 100-fold over 28 years.

Often called Canadas version of Warren Buffet, Watsa preaches a long view that suggests it may be too early to assess his decision to take on a leading 10% stake in BlackBerry.

As it sits now, BlackBerry has not been a turnaround story under Watsas watch. Since January 2012, a period when Fairfax has raised its stake in the company from just over 2% to just under 10%, BlackBerrys share price is down about 25%.

Prem invests for the long term, said Paul Holden, an analyst at CIBC World Markets who follows Fairfax. Hes held his major stake now for what I would say is a fairly short period of time relative to his investment horizon, so I would say its probably too early to put any score on that investment.

Watsa stepped down from the BlackBerry board on Monday, citing a potential conflict of interest, as the company said it was exploring the sale of itself and other options.

Holden said Fairfax, with a market capitalisation of C$8.7 billion, would be too small to purchase BlackBerry outright. The smartphone maker has a market capitalisation of C$5.8 billion.

But others said the signs that Watsa could be working behind the scenes were a positive.

We have a lot of respect for the investment acumen and long-term track record Prem Watsa has established at Fairfax, said Todd Johnson, a portfolio manager at Winnipeg-based BCV Financial, which owns Fairfax debt. Hearing the announcement from BlackBerry accompanied by Prems departure from the board should indicate something will happen this time on the strategic front.

Watsa, who was born in 1950 in Hyderabad and trained as a chemical engineer, has a public profile that has at times bordered on the reclusive since he took over Fairfax in 1985. For his first 15 years at the company, he barely spoke to a reporter, and he only started holding investor conference calls in 2001. To be sure, not all Watsas moves have been golden. Fairfax had to write off most its investment in Winnipeg-based media company Canwest in 2009 as the company filed for bankruptcy protection.

It also wrote down a significant investment in publisher Torstar in 2008-09 and took losses on its holding of forestry company Abitibi Bowater.

Speaking last year, Watsa suggested investors looking for a short-term rebound in BlackBerry might be disappointed.

Is it going to turn around in three months, six months, nine months No, he told reporters. But if youre looking four, five years ... We make investments over four or five years.