The world’s greatest investors: Prem Watsa

Prem Watsa is an Indian-born Canadian investor who has been dubbed the “Canadian Warren Buffett”. He is the founder, chairman and chief executive of Fairfax Financial Holdings, which owns a wide range of businesses, including insurance and reinsurance business all over the world. Watsa was born in Hyderabad in 1950 and studied chemical engineering at the Indian Institute of Technology.

He emigrated to Canada in 1972, reportedly arriving with just $8 in his pocket, and sold stationery products door-to-door to make ends meet. He gained an MBA from the University of Western Ontario and found work at the Confederation Life Insurance in the same city, before founding Fairfax in 1985.

What is his strategy?

Watsa follows a value-oriented approach to investing. He modelled Fairfax on Buffett’s Berkshire Hathaway, and one of his children is named after Ben Graham, the legendary value investor. His key to success is to focus firmly on the long term and he is proud of his ethical stance. Watsa says that the name of his company is an abbreviation of his philosophy of “fair and friendly acquisitions”. His guiding principle is to “work as hard as you can, as though everything depended on you”.

Did this work?

Over the last 20 years Fairfax has returned more than 5,000% to investors. As with Buffett and Berkshire Hathaway, Watsa has a devoted fan base of value investors who gather each year at the company’s annual general meeting. He takes a salary of $600,000 and is reckoned to be worth more than $4bn.

What are his biggest successes?

Watsa predicted the 1987 stockmarket crash and Japan’s crash of the 1990s. But perhaps his biggest success came in the  financial crisis of 2008-2009, when he made $2.6bn by moving into bonds and cash, hedging his stock positions and using credit default swaps. And in 2011 he acquired a big stake in the Bank of Ireland at a knockdown price, which saved the bank from being nationalised. In 2016, Fairfax sold 85% of its position for a total gain of $806m. 

What lessons are there for investors?

Watsa has built much of his success identifying businesses that are out of favour, but which can be turned around. But he also has a cautious streak. In his latest letter to investors he said he believes that the odds of “robust growth” in the global economy have “significantly increased”, but he would remain wary of risks and intends to keep his “protections in place”. His career is also another reminder that a diversified portfolio is crucial to long-term success.

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