"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q3 2014 Update"
"Prem Watsa’s US long portfolio increased marginally from $1.46B to $1.48B this quarter.Fairfax Financial’s largest five positions are Blackberry, Resolute Forest Products, International Business Machines, Sandridge Energy, & Exco Resources. They together account for 89% of the US long assets.Watsa established a large ~14% position in International Business Machines this quarter.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 11/14/2014. Please visit our  to get an idea of his investment philosophy and our  highlighting the fund’s moves during Q2 2014.This quarter, Watsa’s US long portfolio increased marginally from $1.46B to $1.48B. Although, there are 43 13F securities in the portfolio, it still is 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 just over 89% of the US long assets. The top-two holdings are Blackberry and Resolute Forest Products and they account for over 30% of the entire 13F portfolio each.It should be noted that Fairfax Financials (FRFHF) has a negative view on equities, the stock portfolio is hedged, and the 13F holdings only represent a small portion of the overall portfolio. Per Q3 2014 , their equity portfolio is 79% hedged - it was 100% hedged before but more stocks were bought without additional hedging to bring it down. Watsa continues to have a fairly large 23% cash ($5.9B) allocation.Stake Disposals:None.New Stakes:International Business Machines (IBM): IBM is a large 13.71% of the US long portfolio position established this quarter at prices between $181 and $196. The stock currently trades well below that range at $164. It is currently Watsa’s third-largest position after Blackberry and Resolute Forest Products. The substantial stake establishment indicates a clear bullish bias. For investors attempting to follow Watsa, IBM is a very good option to consider for further research.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 an average cost-basis of $62.29. Since then, the position was adjusted with the net effect that Watsa owned slightly more than 5.9M shares at a cost-basis of around $60 as of Q2 2013. In Q3 2013, roughly half the stake was sold at prices between $85.86 and $94.39 and most of the remaining stake was eliminated in Q4 2013 at prices between $85.61 and $95.63. This quarter saw a minor reduction. The stock currently trades at around $108. The remaining stake stands at 0.60% of the portfolio.Stake Increases:None.Kept Steady:Blackberry Inc. (BBRY): BBRY is Watsa’s largest position at 31.37% 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 position of almost 46.65M shares (~9% of the business). His average cost-basis is around $17 and the stock currently trades at $11.20. 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. Q1 2014 saw a ~10% stake decrease in the 13F position and since then has been kept steady.Resolute Forest Products (RFP): RFP is the second-largest holding at 30.37% 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 $18.58. 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 spiked ~25% in the beginning of the year and then retreated. It has returned ~16% for the year and following the October lows has bounced ~20% in the last five weeks.Sandridge Energy (SD): SD is a 9.39% 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. The stock currently trades below the low-end of that range at $3.90. For investors attempting to follow Watsa, SD is a good option to consider for further research.Exco Resources (XCO): XCO is a 3.95% 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 below the low-end of those ranges at $3.24. Watsa now controls 6.4% of the business. For investors attempting to follow Watsa, XCO is a good option to consider for further research.Overstock.com Inc. (OSTK): OSTK is a 3.63% of the US long portfolio position that was kept steady this quarter. The original stake was purchased in Q4 2008 at prices between $9 and $17 and had since been kept relatively steady. The stock currently trades well outside that range at $24.32.Kennedy-Wilson Holdings (KW): KW is a very small 0.73% of the US long portfolio position established in Q4 2013 at prices between $18 and $22.25. The stock currently trades outside that range at $26.56.Baldwin & Lyons Inc. (BWINB), BCE Inc. (BCE), & Cresud (CRESY): These are very small (less than ~1%) positions that were kept steady this quarter.The 13F portfolio also has Intel Corporation (INTC) convertible bonds (cusip:458140AD2, 2.95%, 12/2035, 31.53 strike) and numerous minute positions (less than 0.5% of the US long portfolio each) that add up to a total allocation of 3.06%.  The very small stakes are in BP plc (BP), Bally Technologies (BYI), Berkshire Hathaway (BRK.A) (BRK.B), CSX Corporation (CSX), Citigroup (C ), Dex Media Inc. (DXM), General Dynamics (GD), Hologic Inc. (HOLX), K12 Inc. (LRN), MBIA Inc. (MBI), Navient Corporation (NAVI), New Oriental Education (EDU), New York Community Bancorp (NYCB), New Tork Times (NYT), Newmarket Corporation (NEU), Old Republic Intl. (ORI), Patterson UTI Energy (PTEN), Penn West Pete. (PWE), Pfizer Inc. (PFE), Precision Castparts (PCP), Rayonier Advanced Materials (RYAM), SLM Corporation (SLM), Sterling Bancorp (STL), Turquoise Hill Resources (TRQ), US Bancorp (USB), USG Corporation (USG), Ultra Petroleum (UPL), Wells Fargo (WFC), and Nam Tai Property (NTP).The spreadsheet below highlights changes to Watsa’s US stock holdings in Q3 2014:"