"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q3 2018 Update"
"Prem Watsa’s 13F portfolio value increased from $1.84B to $2.37B this quarter.Fairfax Financial’s largest three stakes are Blackberry, Resolute Forest Products, and Seaspan Corp. They together account for ~53% 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 11/14/2018. Please visit our  to get an idea of his investment philosophy and our  for the fund’s moves during Q2 2018.This quarter, Watsa’s 13F portfolio value increased ~26% from $1.84B to $2.37B. 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 Seaspan. Together, they account for ~53% 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 Q3 2018 was $37.45B of which ~25% is in cash and short-term positions. The cash allocation is down this quarter as they purchased short-dated US Treasury Bonds during the quarter. Prominent equity allocations include investments in Greece and India at ~$1.5B and ~$5B respectively. They have a huge position in CPI linked derivative contracts (~$115B notional amount, $11.8M fair value, 3.9 years average maturity) designed to protect against global deflation. FRFHF currently trades at ~$464 compared to a book value of ~$451. The equity portfolio was over 100% hedged as of Q3 2016 but those were removed in the following quarter.Stake Disposals: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 ~$122. There was a ~6% trimming in Q4 2017 and the disposal this quarter was at prices between $140 and $153.Stake Increases:Seaspan Corp. (SSW): The large (top three) 13.57% SSW position came about as a result of exercising 38.46M in warrants on July 16, 2018 at $6.50 per share. They are also expected to exercise another 38.46M in warrants in January 2019 at the same strike. Combined, the total equity investment will then be $500M. They also have around the same amount in SSW debt. The stock currently trades at $9.41.General Motors (GM): GM was a minutely small 0.17% position as of last quarter. This quarter saw the stake increased by ~370% to a 0.53% portfolio position at prices between $33.50 and $40. The stock is now at $35.75.General Electric (GE): GE was a minutely small 0.31% of the portfolio stake as of Q1 2018. Last quarter saw a ~160% stake increase at prices between $12.75 and $15.25 and that was followed with a one-third further increase this quarter at prices between $11.25 and $14.20. The stock currently trades well below those ranges at $8.02.Kept Steady:Blackberry Ltd (BB): BB is Watsa’s largest position at ~22% 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 $8.97. 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 $11.80.Kennedy-Wilson Holdings (KW): KW stake is the fourth-largest position at ~12% 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 in Q1 2018.  KW currently trades below their recent purchase price ranges at $18.84.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 ~$250M.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% next quarter at prices between $15.50 and $19. The stock currently trades at $19.17. Last quarter saw a ~6% stake increase.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% of the portfolio stake at prices between $46.50 and $61. The stock is currently at $62.59. There was marginal trimming in Q1 2018.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 ~$146 and the position is at 0.86%. There was a ~2% reduction in Q1 2018 and marginal trimming last quarter.POSCO ADR (PKX): PKX is a very small 0.53% of the 13F portfolio stake established in Q3 2015 at prices between $34.50 and $51. The stock currently trades above that range at $57.61. There was marginal selling in Q1 2018.McDermott International (MDR): MDR is a very small 0.51% 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 $8.59.Note: Greek allocation in the investment portfolio includes the following individual securities: ~$1B in Eurobank (EGFEY) and ~$500M 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: Argan Inc. (AGX), Carbo Ceramics (CRR), Cray Inc. (CRAY), FreightCar America Inc. (RAIL), Jacobs Engineering (JEC), Kulicke and Soffa Inds. (KLIC), Northwest Pipe (NWPX), and Signature Bank New York (SBNY).The spreadsheet below highlights changes to Watsa’s 13F stock holdings in Q3 2018:8/3 –  &  – BV $453.99,5/18/2018: : we see rates going – 8-years of poor economic growth in the US – that is the reason housing is so strong – housing starts, autos, etc. were too low and so is doing catchup. Administration – rolling back regulations, 21% tax-rate, etc. are good for business – so good growth runway. CASH – reflection of valuation overall. INDIA – most excited – possibilities enormous.Regulatory Filings thru 8/15/2018: 13D/A – 7/27, 7/18 – Seaspan - SSW – 64.1M shares – 32.2% of business, 13D/A -6/4 – 39.1M shares – 28.8% of business – amendment related filing, 13G/A – 6/8 – IPI – 0,"