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Canadian Billionaire Prem Watsa’s Top Picks and New Bets for Current Quarter

Billionaire Prem Watsa, one of Canada’s most prominent investors, is the founder, Chairman and Chief Executive Officer of Toronto-based Fairfax Financial Holdings. Mr. Watsa’s holding company primarily engages in property and casualty insurance and reinsurance, as well as investment management. Like billionaire Warren Buffet, the Canadian businessman uses excess capital generated by his company’s insurance operations to invest in high-potential or undervalued equity securities. Earlier this year, Prem Watsa voiced his concerns over the risk that North American and European economies may fall back into recession, as governments’ options to spur economic growth are limited. With China’s economic growth decelerating and near-zero interest rates around the globe, “there is nothing to fall back on now if the U.S. and Europe slip back into recession”, said the Canadian billionaire in the not-so-distant past. Having this in mind, let’s proceed to the discussion of Fairfax’s three largest equity holdings as of the end of March and two new equity bets made during the quarter.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Leucadia National Corp. (NYSE:LUK) during Q1

– Number of shares owned by Fairfax as of March 31: 300,000

– Value of Fairfax’s holding as of March 31: $4.85 Million

Fairfax Financial Holdings acquired a new stake of 300,000 shares of Leucadia National Corp. (NYSE:LUK) during the first quarter of 2016, which was worth $4.85 million at the end of the quarter. Leucadia National, the parent company of securities and investment banking firm Jefferies, has seen its shares gain 2% since the start of the year. The diversified holding company also owns and operates beef processing, oil and gas E&P, and fixed wireless broadband services businesses. Just recently, Jefferies laid off 17 positions on its equities trading desk after first-quarter revenue from equities trading plunged 99% to $1.75 million. The workforce reduction accounted for a mere 2% of the total number of jobs in the equities division. Meanwhile, the company’s first-quarter revenue from the beef processing business, which accounted for 81% of net revenue, declined to $1.63 billion from $1.86 billion recorded a year ago due to lower selling prices for boxed beef and other related products. First Pacific Advisors LLC, overseen by Robert Rodriguez and Steven Romick, owns 20.90 million shares of Leucadia National Corp. (NYSE:LUK) as of the end of March.

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