Berkshire Hathaway Inc. (NYSE:BRK.A) and its legendary chairman-CEO Warren Buffett are two of the most discussed topics in the entire U.S. stock market. And why shouldn’t they be? Under Warren Buffett’s leadership, a failing investment in a textile manufacturer turned into one of best collections of subsidiary companies in the world. This is a great story to discuss, but a story that is not limited only to the U.S. stock market. In Canada, a similar story can be told.
The Berkshire of Toronto
Since 1985, Prem Watsa has been the chairman-CEO of Fairfax Financial Holdings, a financial company primarily involved in insurance and reinsurance. Watsa uses the same value-oriented strategies made famous by Buffett and others, which have led to big gains for Fairfax investors. In the 27 years under Watsa’s leadership, shares of Fairfax have compounded 19% annually.
Management has done this by taking the float generated by its wide range of insurance businesses and investing it into its subsidiaries and equity investments. In addition to its insurance and other financial businesses, Fairfax’s non-insurance subsidiaries includes a livestock nutritionals company, various casual dining restaurant brands and Irish pub-style bars in Canada, travel services company in India and media company targeted at baby boomers and a kitchenware and wedding gift retailer. Fairfax also has more than $2.67 billion CAD invested in many U.S. and Canadian publicly-traded companies.
The bear to Buffett’s bull
Unlike Warren Buffett, who can sometimes be described as a cheerleader for the U.S. economy, Prem Watsa and Fairfax are the opposite. Watsa believes that the causes of the global financial crisis cannot be so easily remedied. These causes include high levels of government debt and high unemployment in the U.S. and Europe. Adding to these global issues, some housing-related Canada-specific problems that are also beginning to surface. This is why Fairfax has a large equity hedging program in place to offset what they see as a high-risk environment throughout the world. For investors looking for a bearish company to play against Buffett’s bullishness, Fairfax just might be up their alley.
The big BlackBerry bet
Although Watsa is bearish on the global economy overall, he is not afraid to take bullish stances on individual companies. One of his most recent and newsworthy stance is Fairfax’s stake in Research In Motion Ltd (NASDAQ:BBRY). During a time when the investors and the financial media were at their most negative and pessimistic, Watsa saw something within BlackBerry to be positive and optimistic about.
There is no denying that BlackBerry’s former management got complacent, failed to innovate as new rivals emerged and squandered their dominate smartphone position. Despite BlackBerry’s many problems, Watsa sees a brand that is well-known and trusted, has distribution network of over 650 wireless carriers and has more than 70 million subscribers worldwide. Watsa also sees a new management team capable to engineering a company turnaround. It is for these reasons that Fairfax now owns about 10% of BlackBerry and Watsa sits on the company’s board of directors.
The Berkshire of Montreal
If Warren Buffett is the Oracle of Omaha, then maybe Paul Desmarais Sr. is the Oracle of Montreal. Although relatively unknown outside of Quebec, Paul Desmarais man behind Power Corporation of Canada (TSE:POW). Together with his two sons, the Desmarais family run Power Corporation and is seen by many as the real power behind Canadian politics (as well as having political influence in France). A quick Google search of Paul Desmarais will tell you more about that subject.
With the exception of maybe Berkshire Hathaway Inc. (NYSE:BRK.A) and Warren Buffett, it would be difficult to find a company and leadership team that care less about quarterly results than Power Corporation of Canada and the Desmarais family. This is a company that absolutely cannot be bothered. They never let the short-term distract from what they are doing, which is likely why owning shares of Power Corporation have made investors and the Desmarais family a ton of money over the decades.
