Tuesday, April 21, 2009

FairFax Financial: The most interesting company to date

Fairfax Financial Holdings Limited (TSE: FFH. NYSE: FFH) is a financial services holding company. It also is the biggest Canadian reinsurance company. A close look at their financial statements allowed me to conclude that the company had had an excellent return on equity since it went public in 1985: a consistent 20% every year. Talking about the business, the company’s stock is selling under book value and intrinsic value, which is one of the main reasons I decided to get involved with that company. The only reason why people might have missed on that company is that their stock is also selling at a psychologically high level for a trader. Most people would be intimidated by a company with a stock price in the hundreds of dollars, but the intelligent investor looks further than just the price tag. In fact, the price of a stock will be the last element we will take into account in our analysis before making an acquisition.

The ultimate reason I have a very important part of our portfolio in Fairfax is the chairman and CEO: Vivan Prem Wasta. His letters to the shareholders of the company are a masterpiece of financial knowledge and literacy of the insurance industry in Canada. I was far from surprised since he is a proud member and advocate of the value investing philosophy. He adheres to making much reflected acquisitions and keeping the company in a strong financial position; that focus is reflected in their very healthy balance sheet. Since he is a big individual shareholder of Fairfax, his attitude is very much reflected in how he leads the company. He is exactly the king of managers I look for.

Fairfax is probably one of my most promising positions and it has proved its performance by showing record profits in a year gloomed by a bear market. Acquiring parts of that company at such a low price is the closest thing to a robbery and I am pretty sure that I will be even more surprised when the company gets to be fairly valued by the market.

More on their website at: http://www.fairfax.ca/

Full disclosure: Long FFH.TO

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