"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q3 2019 Update"
"Prem Watsa’s 13F portfolio value decreased from $2.29B to $2.17B this quarter.Fairfax Financial’s largest three stakes are Seaspan Corp, Kennedy-Wilson, and Blackberry. They together account for ~63% of the 13F assets.The 13F securities form a small portion of their overall investment portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Prem Watsa’s 13F portfolio on a quarterly basis. It is based on Watsa’s regulatory  filed on 11/14/2019. Please visit our  to get an idea of his investment philosophy and our  for the fund’s moves during Q2 2019.This quarter, Watsa’s 13F portfolio value decreased ~5% from $2.29B to $2.17B. There are 33 securities in the portfolio, but it is concentrated among a few large stakes. The focus of this article is on the larger (greater than 0.5% of the portfolio each) equity holdings. The top three positions are Seaspan, Kennedy-Wilson, and Blackberry. Together, they account for ~63% of the entire 13F portfolio.Note: Fairfax Financial’s (FRFHF) 13F holdings only represent a small portion of their overall investment portfolio. The total size as of Q3 2019 was $39.90B of which ~25% is in cash and short-term positions. The cash allocation has gone down as they purchased short-dated US Treasuries and other short-dated Corporate Bonds. Prominent equity allocations include investments in Greece, India (FFXDF), and Africa (FFXXF). They have a huge position in CPI linked derivative contracts (~$112B notional amount, $18M fair value, 2.9 years average maturity) designed to protect against global deflation. FRFHF currently trades at ~$452, below Book Value (Q3 2019) of $463 per share. The equity portfolio was 100% hedged starting from around 2003 but those were removed in Q4 2016.Stake Increases:Micron Technology (MU): MU is a very small 0.64% portfolio position that saw a ~60% stake increase in Q1 2019 at prices between $31 and $44. This quarter also saw a ~9% stake increase at prices between $39.50 and $51. The stock currently trades at $46.58.Kept Steady:Seaspan Corp. (SSW): SSW is currently the largest 13F stake at ~38% of the portfolio. It came about as a result of exercising 38.46M in warrants in July 2018 and the same amount in January 2019 at t $6.50 per share. The stock currently trades at $11.20.Note: Regulatory filings from earlier this year show them owning 102.6M shares (47.7% of the business). This is compared to 77.16M shares in the 13F report. In January, Fairfax added $500M more in a structure similar to the first tranche made in March 2018 (debt + warrants converted early). Total investment is $1B - $500M each in equity (38.46M warrants * 2 converted at $6.50 per share) and debt. The early conversion of warrants in July last year resulted in Fairfax also getting 25M in 7-year warrants exercisable at $8.05 per share.Kennedy-Wilson Holdings (KW): KW stake is a large (top three) ~14% of the 13F portfolio position. Watsa’s ownership stake in the business is ~9%. Q4 2016 saw a ~40% increase at prices between $20 and $23 and that was followed with a ~8% increase in Q1 2018.  KW currently trades at ~$22.74.Note: The original 2010 stake was from a private placement for Kennedy Wilson convertible preferred stock. The total investment from that point thru Q3 2016 was $645M. Since then, they have invested another ~$85M. By EOY 2015, they had already received distributions of $625M and so the net investment was only $105M. That is compared to a current market value of ~$280M.Blackberry Ltd (BB): BB is Watsa’s second-largest position at ~15% of the portfolio. The stake was first purchased in 2010 at around $50 for 2M shares. The position was aggressively built up to 46.7M shares (~9% of the business) in the following years. Their net cost on a fully converted basis is $12.30 per share and the stock currently trades at $5.35. There has only been very minor activity in the last six years.Note: In Q4 2013, Fairfax co-sponsored a cash-infusion of $1B through convertible debentures ($10 conversion price earning 6% interest) - they financed $500M of that transaction and the remaining was funded by a consortium of other investment funds - the implied dilution took their ownership up to ~16.5% of the business. In Q3 2016, those shares were redeemed and new ones issued ($605M in 3.75% debentures convertible at $10 due 11/13/2020) to the same entities in a private placement.Resolute Forest Products (RFP): RFP is the fourth-largest holding at ~10% of the portfolio. The stake was first established in Q4 2010 when it was named Abitibi Bowater and the position has since been more than doubled. Over the years, their net investment in RFP was $745M ($24.39 per share) and the current value is ~$144M ($3.63 per share) – in the books, the cost is listed at $300M as they wrote down losses.CenturyLink (CTL): CTL is a small 1.36% of the portfolio stake established in Q4 2017 at prices between $13.50 and $20.50 and increased by ~30% next quarter at prices between $15.50 and $19. Last quarter saw another ~20% stake increase at prices between $11.50 and $16.75. The stock currently trades at $15.08.Johnson & Johnson (JNJ): JNJ is a long-term position that has been in the portfolio since 2007. The original stake was 5.9M shares purchased at a cost-basis of $62.29. In Q3 2013, roughly half the position was sold at prices between $85.50 and $94.50 and in the following quarter the remaining stake was almost eliminated at prices between $85.50 and $96. Q4 2016 saw an about turn: ~80% increase at prices between $111 and $120. The stock currently trades at ~$135 and the position is at 0.88% of the portfolio.General Motors (GM): GM is a small 0.65% position. Q3 2018 saw a huge ~370% stake increase at prices between $33.50 and $40. The stock is now at $36.38.Bank of Nova Scotia (BNS): BNS is a small 0.65% of the portfolio position established in Q4 2018 at prices between $49 and $60 and the stock currently trades at $57.62.General Electric (GE): GE was a minutely small stake as of Q1 2018. Q2 2018 saw a ~160% stake increase at prices between $12.75 and $15.25 and that was followed with a one-third further increase next quarter at prices between $11.25 and $14.20. Q4 2018 saw another ~30% increase at prices between $6.75 and $13.75. The stock currently trades at $11.50 and the stake is at 0.57%.Diamond Shipping (DSSI): DSSI is a small 0.53% of the portfolio stake established last quarter as a result of its Direct Listing in March. Fairfax’s investment goes back to 2011 when they were part of a $1B funding round headed by Wilbur Ross. Shares started trading at $10.40 and currently goes for ~$14.94.Note: Greek allocation in the investment portfolio primarily consists of Eurobank (EGFEY) (EGFEF) and Praktiker. Grivalia Properties merged into Eurobank last quarter and Watsa’s 52.4% stake got converted to Eurobank shares. Fairfax now owns 32.4% of Eurobank.The 13F portfolio also has numerous very small equity positions (less than ~0.5% of the portfolio each) that add up to a total allocation of less than 5%.  The stakes are Ampco-Pittsburgh (AP), Argan Inc. (AGX), Berkshire Hathaway (BRK.A), Delek US Holdings (DK), Destination Maternity (DEST), FreightCar America (RAIL), Garrett Motion (GTX), Helmerich & Payne (HP), Independence Contract Drilling (ICD), Jacobs Engineering (JEC), Kulicke & Soffa (KLIC), Mastercraft Boat Holdings (MCFT), McDermott Intl (MDR), NetEase Inc. (NTES), Northwest Pipe (NWPX), Pacific Biosciences (PACB), Quarterhill Inc. (QTRH), Signature Bank New York (SBNY), Spark Therapeutics (ONCE), Taiwan Semi (TSM), and US Silica Holdings (SLCA).The spreadsheet below highlights changes to Watsa’s 13F stock holdings in Q3 2019:Q2 2019 Interim : Book Value: Common shareholders’ equity at June 30, 2019 was $12,496.3 or $464.86 per basic share (excluding the unrecorded $91.1 pre-tax deficiency of fair value over the carrying value of investments in associates and certain consolidated subsidiaries).Regulatory filings thru 8/18/2019: None."