Fairfax Financial Braces for 'Hundred-Year Storm'

The Toronto Star has an article on Prem Watsa of Fairfax Financial (FFH) addressing the first annual Intelligent Investing Conference. The event was organized by the Ben Graham Centre for Value Investing at the Richard Ivey School of Business in London, Ontario.

Fairfax's US$16-billion investment portfolio is braced for what Watsa calls a "hundred-year storm." Three quarters of the portfolio is in government bonds and Treasury bills. Common stocks account for 15%, and half of that is hedged by shorting the S&P 500 Index. The portfolio holds no oil stocks.

Watsa owns roughly 8% of Fairfax, which accounts for 95% of his personal wealth.

"Buy when you hear the sound of canons, sell when you hear the sound of trumpets," he said, first in French and then in English. Then he added: "We hear the sound of trumpets."

"The music may stop again," he warned. "You have to be really, really careful."

Good advice.

Another bit from the article of interest is this:

Access to cheap debt is fuelling a boom among the private investment funds that use a high proportion of debt to take over public companies, as in the anticipated bid for BCE Inc. But Watsa fears the support such deals provide for stock prices could evaporate if there is some shock to the world economy.

That sentiment is taken to heart here. It's the kind of thinking that lead me to trim the BCE (BCE) stake by 25% on Friday. Controlling my greed, you know. ;-)