Street Capitalist: Event Driven Value Investments

Prem Watsa recently gave a talk at the University of Waterloo about some of Fairfax Financial’s guiding principles in terms of organizing and managing its subsidiaries. I’m sure a lot of interested investors could not make it to the event, but luck for us Rose Simone of The Record has a great article that covers the event:

Fairfax is short for “fair, friendly acquisitions,” Watsa said, adding the company will never consider a hostile takeover.

Furthermore, Fairfax doesn’t believe in selling its companies for a quick profit. “We say our companies are not for sale,” he said.

That may upset some shareholders, but “the advantage is that you can build a company over the long term,” Watsa said. “You can’t replace people or a culture,” he added.

Fairfax believes in “full disclosure,” to shareholders, taking great pains to stress the potential risks of decisions.

“If they want to buy, they can buy. If they want to sell, they can sell. But they cannot say we didn’t tell them,” Watsa said.

The company follows conservative financial practices. The primary goal is “not losing money,” and long-term returns, Watsa added.

That also applies to the company as a whole, Watsa added. “We will never bet the whole company on any acquisition.”

Fairfax has a decentralized structure, giving its executives a great deal of freedom. “Fairfax itself is a small holding company, not an operating company,” he said.

The result is that Fairfax has “never lost a president who has performed well,” and those presidents operate as if the companies are their own, Watsa added.

Most important is the principle of “honesty and integrity in all relationships,” Watsa said.

The company wants its employees and executives to be hard working, “but not at the expense of families,” he added.

After growing Fairfax into a multibillion-dollar company, Watsa cited one his favourite quotes, from the Bible’s Matthew 16:26: “For what is a man profited, if he shall gain the whole world, and lose his own soul?”

Investor advocates honesty, fairness (The Record)

Elsewhere, I saw it reported that Watsa recommended My Years with General Motors by Alfred Sloan which certainly seems interesting when you consider the current troubles at GM. The book seems to primarily be about Sloan’s time at GM and how the company changed its management structure in favor of decentralizing certain decision making roles. When you consider what Watsa says above, it’s likely that the book had an influence on the way Fairfax is run today.