"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q1 2016 Update"
"Prem Watsa’s US long portfolio increased from $1.23B to $1.66B this quarter.Fairfax Financial’s largest five 13F stakes are Blackberry, International Business Machines, Kennedy Wilson, Resolute Forest Products, & Overstock.com. They together account for ~60% 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 05/13/2016. Please visit our  to get an idea of his investment philosophy and our  highlighting the fund’s moves during Q4 2015.This quarter, Watsa’s US long portfolio increased 34.69% from $1.23B to $1.66B. The increase was primarily due to a $533M position in Blackberry convertible debt (see note under Blackberry section below for details) that is newly listed in the 13F. There are 30 13F 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) holdings. The top five positions represent 59.47% of the US long assets. The top-two holdings are Blackberry and International Business Machines and together they account for ~35% of the entire 13F portfolio.Note: Fairfax Financial (FRFHF) has a negative view on equities, the stock portfolio is hedged (107.2% as of March 31, 2016), and the 13F holdings only represent a small portion of the overall investment portfolio. The total size of their investment portfolio as of Q1 2016 was $28.6B of which 18.3% is in cash and short-term positions. Also, they have a huge position in CPI linked derivative contracts ($112.1B notional amount, $228.9M fair value, 6.3 years average maturity) designed to protect against global deflation. FRFHF currently trades at $511 compared to a book value of $399.Stake Disposals:Sandridge Energy (SDOC): SDOC was a 0.91% of the US long portfolio stake as of last quarter. It was 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 also saw a ~57% stake increase at prices between $1.64 and $4.57. The position was eliminated this quarter at prices between 3c and 14c. The OTC traded stock is now at 6c.New Stakes:ICICI Bank (IBN): IBN is a small 0.65% of the 13F portfolio stake established this quarter at prices between $5.18 and $7.83. The stock currently trades at $6.74.Stake Increases:Helmerich & Payne (HP): HP was a minutely small stake as of Q3 2015. Last quarter saw the position increased to a 1.52% of the portfolio stake at prices between $46.86 and $61. The stock is currently at $58.08. This quarter saw a marginal further increase.Kept Steady:Blackberry Inc. (BBRY): BBRY is Watsa’s largest position at 22.83% 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 $6.68. There has only been very minor activity in the last two 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 takes their ownership up to ~16.5% of the business.Exco Resources (XCO): XCO is a 1.52% 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. Last quarter saw another ~46% increase at prices between $0.75 and $1.36. The stock currently trades at $0.72. Watsa controls ~9% of the business.Note: 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.International Business Machines (IBM): IBM is a large (second largest) 12.44% 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 $148. 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 $114 and the stake is now very small at 0.54%.Kennedy-Wilson Holdings (KW): KW stake in the common stock is the third-largest at 11.81% of the US long portfolio. Watsa’s ownership stake in the business is ~8%. KW currently trades at $20.01 and his cost-basis is $11.90.Note: The original stake is from a 2010 private placement for Kennedy Wilson convertible preferred stock. The total investment from that point on was $645M. Over the years they received distributions of $625M and so the net investment is only $20M compared to the current value of close to $200M.Overstock.com Inc. (OSTK): OSTK is a top-five position at 2.76% 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 $14.70.Pfizer Inc. (PFE): The very small 0.37% portfolio stake in PFE saw a ~11% reduction last quarter at prices between $31.33 and $35.45. The stock is now at $33.18.POSCO ADR (PKX): PKX is a very small 0.55% of the US long portfolio stake established in Q3 2015 at prices between $34.64 and $50.83. The stock currently trades near the low end of that range at $43.38.Resolute Forest Products (RFP): RFP is the fourth-largest holding at 9.63% 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 cost-basis on RFP is much higher than the current quote of around $5.46. The stock lost ~55% in 2015 and another ~30% YTD.Note: A regulatory 13D/A filing on 5/13/2016 shows Fairfax owning 29,485,689 shares (32.9% of the business). This is compared to 29.05M shares in the 13F.Baldwin & Lyons Inc. (BWINB) and BCE Inc. (BCE): 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 stakes are The ADT Corporation (ADT), Cleco Corporation (CNL), Colfax Corp. (CFX), CSX Corporation (CSX), Eros International (EROS), K12 Inc. (LRN), Leucadia National (LUK), New Oriental Education (EDU), Rayonier Advanced Materials (RYAM), Starwood Hotels & Resorts (HOT), Turquoise Hill Resources (TRQ), US Bancorp (USB), USG Corporation (USG), and Wells Fargo (WFC). Of these, ADT, CNL, CSX, HOT, and LUK are new this quarter.Note: In the 2015 investor letter, Watsa identified their investment in Eurobank (EGFEY) as having the largest unrealized losses ever.The spreadsheet below highlights changes to Watsa’s US stock holdings in Q1 2016:Note: Include info from 2015 annual & Q1 2016 interim reports for Q1 2016 Update. It was not ready for Q4 2015 report and so was not included. See below Q4 2015 article for an example of what can be gleaned from these reports."