"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q2 2015 Update"
"Prem Watsa’s US long portfolio decreased from $1.42B to $1.36B this quarter.Fairfax Financial’s largest five positions are Blackberry, Resolute Forest Products, International Business Machines, Kennedy Wilson, & Overstock.com. They together account for ~90% of the US long assets.Kennedy-Wilson is now a huge 16.15% of the 13F 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 08/14/20115. Please visit our  to get an idea of his investment philosophy and our  highlighting the fund’s moves during Q1 2015.This quarter, Watsa’s US long portfolio decreased 3.94% from $1.42B to $1.36B. Although there are 49 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 89.57% of the US long assets. The top-two holdings are Blackberry and Resolute Forest Products and together they account for ~52% 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 ~$28B investment portfolio. As of Q2 2015, their equity portfolio is 101% hedged - it was 94.4% hedged last quarter. Fairfax continues to have a fairly large 22.5% cash allocation ($6.3B) in the overall investment portfolio.Stake Disposals:None.New Stakes:None.Note: Please see the last paragraph for details on the minutely small (less than 0.5% of the US long portfolio each) stakes.Stake Decreases:None.Stake Increases:Resolute Forest Products (RFP): RFP is the second-largest holding at 23.94% 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. Watsa’s average cost-basis on RFP is much higher than the current quote of around $9.89. In Q2 2013, the stake was increased by ~17% at prices between $12.70 and $16.49. Since then, the position has remained relatively steady. For investors attempting to follow Watsa, RFP is a good option to consider.  The stock has lost ~45% so far this year. The position saw a very minor increase this quarter.Kennedy-Wilson Holdings (KW): KW stake in the common stock is now at 16.15% of the US long portfolio.Note: In a , Prem Watsa disclosed that his ownership of Kennedy-Wilson is at 10.7% of the business (11.5M shares, $11.90 cost-basis). The original stake is from a 2010 private placement for Kennedy Wilson convertible preferred stock. KW currently trades at $25.68.Kept Steady:Blackberry Inc. (BBRY): BBRY is Watsa’s largest position at 27.97% 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 average cost-basis is around $17 and the stock currently trades at $7.66. There has only been very minor activity in the last six quarters: Q1 2014 saw a ~10% decrease while last quarter saw a marginal increase.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. 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 those ranges at $0.62. Watsa now controls 6.4% of the business. For investors attempting to follow Watsa, XCO is a good option to consider for further research.International Business Machines (IBM): IBM is a large 16.26% 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 at around $156. It is currently Watsa’s third-largest position after Blackberry and Resolute Forest Products. The substantial stake build-up indicates a clear bullish bias. 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 an average 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 $98.79 and the stake is now very small at 0.59%.Overstock.com Inc. (OSTK): OSTK is a top-five position at 5.26% 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 well outside that range at $21.30.Sandridge Energy (SD): SD is a 3.26% 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. The stock currently trades well below the low-end of his purchase-price-ranges at $0.51.Note: A 02/13/2015 13G filing showed a share-count of 62.55M shares compared to 50.89M shares in the 13F.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 ~2.01%.  The very small stakes are in Advent Software Inc. (ADVS), Atwood Oceanics Inc. (ATW), BP plc (BP), Berkshire Hathaway (BRK.A) (BRK.B), Biglari Holdings (BH), Catamaran Corp. (CTRX), CSX Corporation (CSX), Citigroup (C ), Colfax Corporation (CFX), Dex Media Inc. (DXM), Dresser-Rand Group Inc. (DRC), Geeknet Inc. (GKNT), 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), Newmarket Corporation (NEU), Old Republic Intl. (ORI), Omnivision Technologies (OVTI), Patterson UTI Energy (PTEN), Penn West Pete. (PWE), Pfizer Inc. (PFE), Polypore International (PPO), Precision Castparts (PCP), Rayonier Advanced Materials (RYAM), Sterling Bancorp (STL), USG Corporation (USG), Ultra Petroleum (UPL), US Bancorp (USB), Wells Fargo (WFC), and Wendy’s Co (WEN).Note 1: Of the minutely small 13F stakes, Advent Software Inc. (ADVS), Biglari Holdings (BH), Catamaran Corp. (CTRX), Geeknet Inc. (GKNT), Lumenis Ltd. (LMNS), Omnivision Technologies (OVTI), Polypore International (PPO), and Wendy’s Co (WEN) were newly added this quarter while Talisman Energy (TLM) and Turquoise Hill Resources (TRQ) were dropped.Note 2: GameStop (GME) acquired Geeknet (GKNT) in a $20 cash deal that closed in July.The spreadsheet below highlights changes to Watsa’s US stock holdings in Q2 2015:"