The meltdown's big winner
Fairfax Financial Holdings Ltd., like Campbell's Soup, has defied the stock market carnage as Wall Street and the global financial system melts down. Fairfax has defied gravity because the property and casualty insurance company, led by its Chair Prem Watsa, realized a few years ago this perfect financial storm was about to hit. So it positioned its gigantic portfolio of premium income and profits to not only withstand the storm, but benefit from it. Since the August 2007 crisis, the value of Fairfax's investments has gone up by $2.3 billion to $19.55 billion. I interviewed Prem Watsa about his winning strategy in July. This week, he spoke with me to offer his predictions and observations about the extent and duration of this crisis as well as to give some advice for Canadians, Americans and other investors or business people.
Q. Will Washington's proposed US$700 billion rescue plan work? What should the average person do?
A. "$700 billion or whatever is not going to stop this. This is going to be long and deep and people want to save money. Be careful about risk. There are unintended consequences in fixing this and all are ahead of us. This will take years to sort out."
"There will be problems here in Canada too. If the US has a recession we will. For individuals, safety is number one. Buy real estate for your family but not as an investment. Don't borrow for new cars. Keep borrowing at a minimum."
"Now's the time to protect your money. Keep your life simple. Be mortgage free if you can. People must hunker down."
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