Profiting from Hedge Funds: Winning Strategies for the Little Guy

Chapter 13

Prem Watsa

A clear understanding of the fundamental value of our holdings allows us to go against the crowd. It is lonely at times, but it works.2

—Prem Watsa

Prem Watsa is the founder, chairman, and CEO of Fairfax Financial Holdings Limited, a Toronto, Ontario based insurance and investment management company. The insurance business is organized under a decentralized model through subsidiaries, such as Odyssey Re, Crum & Forster, Zenith Insurance Company, and Northbridge Financial. The investment management company is centralized, and operates as Hamblin Watsa Investment Council Limited (HWIC). Watsa, a chemical engineering graduate from the Indian Institute of Technology (IIT Madras), obtained his MBA from the Richard Ivey School of Business, London, Ontario. He was introduced to the Benjamin Graham style of value investing at his first posting as an analyst at Confederation Life in 1974.1

The insurance business greatly appealed to Watsa after his colleague at GW Investments, Francis Chou, highlighted how Warren Buffett invests with insurance float. Fairfax Financial Holdings was established in 1985, after Watsa took over the reins at Markel Financial, a troubled trucking insurance business, by providing a cash infusion of $5 million. Since its inception, Fairfax had a stunning compounded annual growth rate (CAGR) of 23.5 percent through 2011. The returns, along with the similarities to Buffett’s business model, have earned him the nicknames “Canadian Warren Buffett” ...