Fairfax's Watsa still avoids stocks despite hedging loss
By Cameron French
TORONTO (Reuters) - Prem Watsa, investment guru and chief executive of Fairfax Financial Holding Ltd (FFH.TO: Quote), said on Friday the time is not right to undo Fairfax's equity hedges even as the insurance company loses money due to recent strong stock markets.
Watsa, who made billions for Fairfax by correctly calling the 2008 financial crisis, fully hedged the company's equity exposure in 2010 in anticipation of a prolonged market funk. His strategy has led to choppy quarterly results for Fairfax as markets have fluctuated.
Indeed, strong markets during the third quarter led the insurer to take a $23.6 million net investment loss, the company reported late on Thursday, although it posted an overall profit due to robust insurance underwriting results.
But Watsa, whose value investing approach has earned him comparisons to Warren Buffett, said chasing investments that have performed well, or "reaching for yield", would be a mistake.
"Right now it's very important not to reach for yield, because if you do reach for yield, if you put money into the stock market at these prices, you could suffer permanent losses," he said on a conference call to discuss the company's results.
"We'll take temporary losses, but we don't like taking permanent losses."
Fairfax's main business is property and casualty insurance, but the company's fortunes tend to rise and fall with Watsa's management of its investment portfolio.
Fairfax, which is Research In Motion's RIM.TO largest shareholder with a 9.9 percent stake, posted a profit of $34.6 million in the third quarter, down sharply from a profit of $973.9 million a year earlier, when the results were goosed by a $1.6 billion gain on investments. Continued...