"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q3 2015 Update"
"Prem Watsa’s US long portfolio decreased from $1.36B to $1.08B this quarter.Fairfax Financial’s largest five positions are Blackberry, Resolute Forest Products, Kennedy Wilson, International Business Machines, & Overstock.com. They together account for ~90% of the US long assets.The 13F portfolio is a small portion of the overall investment portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Prem Watsa’s US stock portfolio on a quarterly basis. It is based on Watsa’s regulatory  filed on 11/13/20115. Please visit our  to get an idea of his investment philosophy and our  highlighting the fund’s moves during Q2 2015.This quarter, Watsa’s US long portfolio decreased 20.68% from $1.36B to $1.08B. Although there are 40 13F securities in the portfolio, it is still very concentrated: a few large stakes and numerous minute positions. The focus of this article is on the larger (greater than 0.5% of the portfolio each) holdings. The top five holdings represent 90.42% of the US long assets. The top-two holdings are Blackberry and Resolute Forest Products and together they account for ~49% of the entire 13F portfolio.It should be noted that Fairfax Financial (FRFHF) has a negative view on equities, the stock portfolio is hedged, and the 13F holdings only represent a small portion of the overall ~$29B investment portfolio. As of Q3 2015, their equity portfolio is 100.3% hedged - it was 89.6% as of EOY 2014. Fairfax continues to have a fairly large 27% cash allocation ($7.7B) in the overall investment portfolio.New Stakes:POSCO ADR (PKX): PKX is a very small 0.62% of the US long portfolio stake established this quarter at prices between $34.64 and $50.83. The stock currently trades near the low end of that range at $36.32.Stake Decreases:Kennedy-Wilson Holdings (KW): KW stake in the common stock is the third-largest at 18.36% of the US long portfolio. This quarter saw a marginal reduction. Watsa’s ownership stake in the business is ~8%. KW currently trades at $24.66.Note: In a , Prem Watsa disclosed that his overall cost-basis in Kennedy-Wilson was $11.90. The original stake is from a 2010 private placement for Kennedy Wilson convertible preferred stock.Stake Increases:Blackberry Inc. (BBRY): BBRY is Watsa’s largest position at 26.45% of the US long portfolio. The stake was first purchased in 2010 at around $50 for 2M shares. Since then, the position was aggressively built up to the current stake of almost 46.7M shares (~9% of the business). His cost-basis is around $17 and the stock currently trades at $7.22. There has only been very minor activity in the last seven quarters.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 takes their ownership up to ~16.5% of the business.Sandridge Energy (SD): SD is a 1.43% of the US long portfolio stake first purchased in Q4 2008. The bulk of the position was acquired in Q4 2012 at prices between $5.19 and $7.38. Q4 2014 saw a ~57% stake increase at prices between $1.64 and $4.57. This quarter saw a ~13% increase at prices between $0.26 and $0.88. The stock currently trades at $0.39.Note: A 02/13/2015 13G filing showed a share-count of 62.55M shares compared to 50.89M shares in the Q1 2015 13F.Kept Steady:Resolute Forest Products (RFP): RFP is the second-largest holding at 22.29% of the US long portfolio. The stake was first established in Q4 2010 when it was named Abitibi Bowater and the position has since been more than doubled. In Q2 2013, the original stake was increased by ~17% at prices between $12.70 and $16.49. Since then, the position has remained relatively steady. Watsa’s average cost-basis on RFP is much higher than the current quote of around $7.54. The stock has lost ~57% so far this year. For investors attempting to follow Watsa, RFP is a good option to consider for further research.Exco Resources (XCO): XCO is a 1.22% of the US long portfolio stake first purchased in Q1 2012. The bulk of the current position was purchased in Q4 2012 at prices between $6.77 and $8.93. In January 2014, XCO had a rights offering (one new share at $5 for every four shares of XCO held) and Watsa increased his stake from 10.81M shares to 17.54M shares as a result - Prem Watsa along with Wilbur Ross agreed to backstop the offering thereby acquiring more shares than what he would have received by exercising his rights. The stock currently trades well below the low-end of his purchase price ranges at $1.08. Watsa controls 6.4% of the business.International Business Machines (IBM): IBM is a large (third largest) 18.27% of the US long portfolio position established in Q3 2014 at prices between $181 and $196. The stake was increased by ~28% in Q4 2014 at prices between $151 and $190. The stock currently trades below the low end of those ranges at around $132. For investors attempting to follow Watsa, IBM is a very good option to consider for further research.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 stake was sold at prices between $85.86 and $94.39 and in the following quarter the remaining position was almost eliminated at prices between $85.61 and $95.63. The stock currently trades at $100 and the stake is now very small at 0.71%.Overstock.com Inc. (OSTK): OSTK is a top-five position at 5.05% of the US long portfolio. The original stake was purchased in Q4 2008 at prices between $9 and $17 and has since been kept relatively steady. The stock currently trades at $13.58.Baldwin & Lyons Inc. (BWINB), BCE Inc. (BCE), and Pfizer Inc. (PFE): These are very small (less than ~2%) positions that were kept steady this quarter.The 13F portfolio also has numerous very small positions (less than ~0.5% of the US long portfolio each) that add up to a total allocation of ~2%.  The very small stakes are Altera Corp. (ALTR), Berkshire Hathaway (BRK.A) (BRK.B), BP plc (BP), Citigroup (C ), CSX Corporation (CSX), Dex Media Inc. (DXM), General Dynamics (GD), Helmerich & Payne Inc. (HP), Hologic Inc. (HOLX), K12 Inc. (LRN), Lumenis Ltd. (LMNS), MBIA Inc. (MBI), Merck & Co. (MRK), Nam Tai Property (NTP), New Oriental Education (EDU), New York Community Bancorp (NYCB), New Tork Times (NYT), Omnivision Technologies (OVTI), Patterson UTI Energy (PTEN), Penn West Pete. (PWE), Pfizer Inc. (PFE), Rayonier Advanced Materials (RYAM), Sterling Bancorp (STL), USG Corporation (USG), Ultra Petroleum (UPL), US Bancorp (USB), Wells Fargo (WFC), and Yodlee Inc. (YDLE).Note: Of the minutely small 13F stakes, Altera Corp. (ALTR) and Yodlee Inc. (YDLE)  were newly added this quarter while Advent Software Inc. (ADVS), Atwood Oceanics Inc. (ATW), Biglari Holdings (BH), Catamaran Corp. (CTRX), Colfax Corporation (CFX),  Dresser-Rand Group Inc. (DRC), Geeknet Inc. (GKNT), Newmarket Corporation (NEU), Old Republic Intl. (ORI), Polypore International (PPO), Precision Castparts (PCP), and Wendy’s Co (WEN) were dropped.The spreadsheet below highlights changes to Watsa’s US stock holdings in Q3 2015:: At June 30, 2015 equity hedges with a notional amount of $6,803.5 (December 31, 2014 - $6,856.9) represented 101.0% (December 31, 2014 - 89.6%) of the company's equity and equity-related holdings of $6,738.7 (December 31, 2014 - $7,651.7). The increase in the hedge ratio principally resulted from net sales of equity and equity-related holdings and net unrealized depreciation of equity and equity-related holdings denominated in the euro and Canadian dollar as a result of the strengthening of the U.S. dollar in the first six months of 2015.Note: In the , Prem Watsa disclosed that his ownership of Kennedy-Wilson is at 10.7% of the business (11.5M shares, $11.90 cost-basis)., , , & :  Equity portfolio is $94.4% hedged as of Q1 2015- it was 90% hedged last quarter and 100% hedged before. 22.7% cash ($5.7B) as of Q1 2014 vs 23% cash ($6.1B) last quarter."