Saturday, February 28, 2009

Warren Buffett vs. Prem Watsa

Twenty years junior to Warren Buffett, our Investment Guru of Year 2008 Prem Watsa is known as the “Warren Buffett of the North”, for good reasons, as you will see.

Just as Warren Buffett built Berkshire Hathaway (BRK-A), Prem Watsa built his Fairfax Financial Holding Limited (FFH) empire on the foundation of a collection of excellent insurance subsidiaries, except he cut through the deviations that Warren Buffett experienced during his earlier year -- No time for beating the bushes in textile or retail businesses; if Warren Buffett tried and failed, no need for Prem Watsa to reinvent the wheel.

If short term performance is all that matters, Prem Watsa should pride himself for outshining Warren Buffett considerably in 2008. On February 19, FFH reported best earnings in the company’s twenty-three-year history. Fourth quarter 2008 earning was $346.8 million and annual earning was $1,473.8 million for the 2008 year ($19.62 and $79.53 per diluted share, respectively). Company book value per share reached $278.28 and the company has more than $1.5 billion in cash and marketable at the holding company level.

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So what do Warren Buffett and Prem Watsa have in common in when it comes to stock investing?

First of all, both have a highly concentrated portfolio.

According to GuruFocus Data, As of December 31, 2008, Warren Buffett has a stock portfolio of $52 billion, allocated among 41 stocks. For Prem Watsa, it is $5.2 billion among 44 stocks. Compared to some of other Gurus we follow, such as Kenneth Fisher who owns 632 stocks, or even the 500 companies that S&P 500 index includes, Buffett and Watsa are very concentrated.

Looking closely, their portfolios are more concentrated than these number suggested. The following table lists the top 10 holdings of Warren Buffett and Prem Watsa respectively. Each concentrates more than 85% in their top 10 holding.

Among Watsa's holdings are JNJ (2), PFE (3), DELL (5), INTC (6), GE (7).

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There are twelve (12) stocks that are owned by both Gurus, in particular WFC, KFT, JNJ. The others are BNI, GE, USB, WSC, WMT, USG, GCI, SNY, GSK.

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