Don't you wish you had owned Berkshire Hathaway
But there's a stock out there with a record that's shaping up to be even better than Berkshire's, and its only 26 years into its run.
Bring home the Canadian bacon
Canada: a land of beauty, history, and a cash-printing insurance company. Toronto-based Fairfax Financial Holdings (OTC: FRFHF.PK) is a quiet but powerful company run by Prem Watsa, a man who has molded himself in the image of the Oracle of Omaha. The company went public in the early 1980s at $4 per share and now trades a sliver under $400. Few people talk about it, because Watsa is a recluse rarely making headlines, unlike media darling Buffett. So it makes sense that this value investor extraordinaire and his company are underfollowed.
Indian-born Watsa is known as the Oracle of Ontario. As one can assume with that nickname, the chief executive has an undeniably stellar track record. One of his most lucrative bets was against the U.S. housing market a few years ago. More recently, Fairfax took a 9% interest in the Bank of Ireland
While Fairfax's underwriting business tends to operate at an annual loss, Watsa's investing prowess has earned the firm consistent double-digit returns.
A Berkshire of a different name
So how close is Fairfax to looking like a mini-Berkshire? Pretty close. Where Berkshire has the edge is in its underwriting. The company manages the impressive feat of operating at breakeven or net profits for its underwriting business -- giving Buffett essentially free money to invest. Berkshire's near-zero cost of capital is one of its unique beauties. 2011 was particularly bad due to an increase in natural disasters around various parts of the globe. The Japanese earthquake, Thai flooding, and U.S. tornados strongly affected many of Fairfax's subsidiaries.
Berkshire trades at roughly 1.2 times its book value, whereas Fairfax looks cheaper at 1.08 times book. While 2011 was a rough year for Fairfax, with a net loss per share, the year before that the company earned more than $14 per share. I believe 2011 was an isolated event and not an indicator of Fairfax's long-term prospects.
Fairfax's recent 5% stake in Research In Motion
Furthermore, Watsa is not known as an activist. He prefers to be passive in his investments and let his skilled analysis speak for itself. How active will he be as a board member? Will he encourage a spinoff or liquidation of the consumer goods segment and focus on the company's bread-and-butter corporate business? I am cautious to question the motives of one of the best investors out there, but this half-billion-dollar move weighs heavily in my analysis of the company.
Aside from the Research In Motion bet, I am a firm believer in Watsa and Fairfax. Not only that, but after 2011's lackluster performance, the stock has tumbled about 10%. When a great company with excellent management gets hit with some bad news and negative sentiment, I smell opportunity.
Even Berkshire has had its tough years over the past 46, yet one cannot argue with its absolute return of more than 513,000% since inception. Will Fairfax attain that ludicrous return? Probably not, but I'll settle for half of that -- or a quarter.
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