"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q2 2018 Update"
"Prem Watsa’s 13F portfolio value increased from $1.34B to $1.84B this quarter.Fairfax Financial’s largest three stakes are Blackberry, Resolute Forest Products, and Kennedy Wilson. They together account for ~57% 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 08/14/2018. Please visit our  to get an idea of his investment philosophy and our  for the fund’s moves during Q1 2018.This quarter, Watsa’s 13F portfolio value increased ~38% from $1.34B to $1.84B. The increase was primarily due to 500M in convertible debentures of Blackberry that is listed in this quarter’s report. There are 34 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 Blackberry, Resolute Forest Products, and Kennedy-Wilson. Together, they account for ~57% 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 Q2 2018 was $37.47B of which one-third is in cash and short-term positions. Prominent equity allocations include investments in Greece and India at ~$1.4B and ~$5B respectively. The cash allocation is up a lot compared to 19.3% as of Q3 2016. They have a huge position in CPI linked derivative contracts (~$116B notional amount, $16M fair value, 4.1 years average maturity) designed to protect against global deflation. FRFHF currently trades at ~$550 compared to a book value of ~$454. The equity portfolio was over 100% hedged as of Q3 2016 but those were removed the following quarter.New Stakes:McDermott International (MDR): MDR is a very small 0.70% of the portfolio position. It came about as a result of MdDermott’s all-stock (0.82407 shares of MDR for each share held) deal for Chicago Bridge & Iron. Fairfax had a small position in CBI purchased in Q3 2017 at prices between $9.55 and $20. MDR currently trades at $18.18.Stake Disposals:USG Corp. (USG): The 4.62% USG position was established in Q4 2016 at prices between $24 and $32. There was a huge 335% stake increase in Q2 2017 at prices between $28.50 and $34.50. The disposal this quarter was at prices between $39.50 and $43.25. The stock currently trades at ~$43. USG accepted a $44 per share buyout offer from Germany’s Knauf in June.Intrepid Potash (IPI): IPI was a 4.52% of the portfolio stake established in Q1 2017 at prices between $1.40 and $2.45 and disposed this quarter at prices between $3.50 and $5. The stock currently trades at $3.18.Chicago Bridge & Iron: CBI was a very small ~1% portfolio position purchased in Q3 2017 at prices between $9.55 and $20. McDermott International (MDR) acquired CBI in an all-stock-deal that closed in May.Stake Increases:Centurylink (CTL): CTL is a small ~2% of the portfolio stake established in Q4 2017 at prices between $13.50 and $20.50 and increased by ~30% last quarter at prices between $15.50 and $19. The stock currently trades at $22.47. This quarter saw a ~6% stake increase.General Electric (GE): GE was a minutely small 0.31% of the portfolio stake as of last quarter. This quarter saw a ~160% stake increase at prices between $12.75 and $15.25 and the stock currently trades at $12.22.Stake Decreases: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 ~$130 and the position is at ~1%. There was a ~2% reduction last quarter and marginal trimming this quarter.Kept Steady:Blackberry Ltd (BB): BB is Watsa’s largest position at ~24% of the portfolio. The stake was first purchased in 2010 at around $50 for 2M shares. Since then, the position was aggressively built up to 46.7M shares (~9% of the business). His cost-basis is ~$17 and the stock currently trades at $9.95. There has only been very minor activity in the last five 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 second-largest holding at ~17% 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. Watsa’s cost-basis on RFP is much higher than the current quote of $12.15.Kennedy-Wilson Holdings (KW): KW stake is the third-largest position at ~15% of the 13F portfolio. Watsa’s ownership stake in the business is ~12%. Q4 2016 saw a ~40% increase at prices between $20 and $23 and that was followed with a ~8% increase last quarter.  KW currently trades at $21.10.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 ~$282M.International Business Machines (IBM): IBM is a ~2% of the 13F portfolio position established in Q3 2014 at prices between $181 and $196. The stake was increased by ~28% in the following quarter at prices between $151 and $190. Q2 2017 saw an about turn: position reduced by half at prices between $150 and $175 and that was followed with another ~60% selling the following quarter at prices between $140 and $156. The stock currently trades at ~$144. There was a ~6% trimming in Q4 2017.Helmerich & Payne (HP): HP was a minutely small stake as of Q3 2015. The following quarter saw the position built up to the current 1.19% of the portfolio stake at prices between $46.50 and $61. The stock is currently at $61.92. There was marginal trimming last quarter.POSCO ADR (PKX): PKX is a very small 0.76% of the 13F portfolio stake established in Q3 2015 at prices between $34.50 and $51. The stock currently trades well above that range at $68.79. There was marginal selling last quarter.Note 1: Fairfax has a huge ~$1B in total investments in Seaspan Corp (SSW) stock, warrants ($6.5 exercise price), and debt. Regulatory filings in July show them owning 64.1M shares (32.2% of business).Note 2: Greek allocation in the investment portfolio includes the following individual securities: ~$1B in Eurobank (EGFEY) and ~$400M in others including Grivalia Properties, Mytilineos (MYTHY), Praktiker, etc.The 13F portfolio also has numerous very small equity stakes (less than ~0.5% of the portfolio each) that add up to a total allocation of ~4%.  The following positions are sized between ~0.1% and ~0.5% of the portfolio: Ampco-Pittsburgh (AP), Argan Inc. (AGX), Carbo Ceramics (CRR), Cray Inc. (CRAY), Envision Healthcare (EVHC), Fluor Corp (FLR), FreightCar America Inc. (RAIL), General Motors (GM), Independence Contract Drilling (ICD), Jacobs Engineering (JEC), Kulicke and Soffa Inds. (KLIC), NetEase Inc. (NTES), Northwest Pipe (NWPX), Seaspan Corp (SSW), Signature Bank New York (SBNY), and Stratasys Ltd. (SSYS).The spreadsheet below highlights changes to Watsa’s 13F stock holdings in Q2 2018:Regulatory Filings thru 5/16/2018: 13G/A 5/11/2018, Form 4 5/8, 5/4 – IP – 10.4M shares – 7.9% of business – 4M disposed at $3.95, 2M disposed at $4.4, 13D/A 4/12 & 13D 2/26 – Seaspan Corp (SSW) – 39.14M shares – 28.8% of business – these are warrants associated with a $250M capital raise (38.5M shares at exercise price of $6.50),: BV 461.18,: Greek Investments - ~$1B in Eurobank & ~$400M in others including Grivalia Properties, Mytilineos, Praktiker, etc – Fair Value now is ~$1B, Debt and Warrant Deals:: (Letter dated March 9, 2018): Float at $819 per share – 13% increase from 2016. Allied World is the largest acquisition to date: gave ~32% premium to book value and funded with Fairfax shares issues at a ~6% premium to book value. India Investments @ over $5B as below:"