Skip to main content
The Globe and Mail
Get full access to globeandmail.com
Support quality journalism
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
The Globe and Mail
Support quality journalism
Get full access to globeandmail.com
Globe and Mail website displayed on various devices
Just$1.99
per week
for the first 24 weeks

var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){console.log("scroll");var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))}pencilInit(".js-sub-pencil",!1);

Fairfax Holdings CEO Prem Watsa speaks at the annual general meeting for shareholders in Toronto.

MARK BLINCH/REUTERS

Canada's most renowned value investor believes the market's infatuation with Twitter and Facebook will "end in tears," but sounded a new note of optimism about the outlook for battered BlackBerry Ltd.

Prem Watsa, chief executive officer of Fairfax Financial Holdings Ltd., has invested hundreds of millions in the smartphone maker and indicated it is on track to stanch its financial bleeding within a year.

Mr. Watsa said John Chen, BlackBerry's new president, has made many changes in his first five months at the company and has set a target of stemming the business's losses over the next few quarters. "He said that he would break even, cash-wise, by … February, 2015," Mr. Watsa told an auditorium of investors at Fairfax's annual general meeting in Toronto on Wednesday.

Story continues below advertisement

Mr. Watsa is famously contrarian and is known for buying into distressed companies and other risky situations. He has generated spectacular profits from some of his bets, such as a large position in credit default swaps that soared in value after the U.S. housing market collapsed.

But the jury is still out on his BlackBerry stake. The smartphone maker's stock is now trading at $8.66 a share, a far cry from the $137.90 it reached in 2008, when its products dominated the smartphone market. BlackBerry lost $5.9-billion (U.S.) in its most recent fiscal year.

Fairfax led a consortium of investors last year in an effort to take BlackBerry private, but the group later abandoned the plan and invested $1.25-billion in BlackBerry convertible debt. Fairfax also owns nearly 11 per cent of the company's stock

On Wednesday, Mr. Watsa reminded shareholders of the big profits that Fairfax has generated from its investment in Bank of Ireland. Fairfax was part of a consortium that put $1.5-billion into the bank when the lender was on the verge of being nationalized in 2011. The value of the investment has since risen dramatically, and by the time Fairfax began to pare its stake in March, it had become one of the company's greatest investing triumphs.

Mr. Watsa credits much of that success to the bank's CEO, Richie Boucher, who showed that "companies are so sensitive to the person running it." In similar fashion, Mr. Chen, who previously turned around the struggling software compay Sybase, is the "big plus" of Fairfax's investment in BlackBerry now, Mr. Watsa said.

"We had dinner last night in a group and John Chen said he's looking forward," Mr. Watsa said. "I told people about the Bank of Ireland … the one company we had put money in that had $1-billion in unrealized gains, and he said he'd like to beat that."

Mr. Watsa's optimism about BlackBerry's outlook is in stark contrast to his pessimism about the market in general. He said there is a big disconnect between the buoyant stock market and the real economy.

Story continues below advertisement

He points out that while U.S. and European central banks have pumped billions in stimulus into the market, economic growth has been less than robust – particularly in the United States. He is also worried about high levels of debt in the U.S., and the impending deleveraging hanging over the country, as well as in Europe.

He suggested that both regions face the threat of deflation – a state in which prices keep falling, thereby depressing the motivation for consumers to spend and for companies to invest. Japan has been mired in a slow growth, deflationary economy for more than a decade. "We remind you that it took five years after the stock market crash in 1990 before Japan saw deflation – and this deflation continued for most of the following 19 years," Mr. Watsa wrote in a recent note to shareholders.

Among other red flags for Fairfax are Chinese real estate prices, which constitute a "monstrous bubble" in the eyes of the company, and the market's love affair with technology stocks.

Mr. Watsa said soaring stock prices for companies such as Netflix, Facebook and Twitter are being driven by "extraordinary speculation" that will end badly for investors, much as the previous tech boom burned investors between 1999 and 2000.

In response, Fairfax has hedged its stock portfolio against losses. In 2013, the cost of those hedges wiped out realized gains on its stock portfolio of $1.3-billion.

"We made a ton of dough in the common stock markets, but it's hidden because of the hedging position that we took to protect ourselves from unexpected consequences," Mr. Watsa said.

Story continues below advertisement

The crew of long-term-focused value investors that follow Mr. Watsa appear to be content with that position.

Many of the company's shareholders who approached microphones to ask questions about Mr. Watsa's views expressed gratitude for their long-term returns, and some praised his focus on preserving their capital.

Fairfax's stock has returned 19 per cent on average in the 28 years that Mr. Watsa has been running the company.

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies