Canada’s Versions of Berkshire Hathaway
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Berkshire Hathaway and its legendary chairman-CEO Warren Buffett are two of the most discussed topics in the entire U.S. stock market. And why shouldn’t they be? Under Warren Buffett’s leadership, a failing investment in a textile manufacturer turned into one of best collections of subsidiary companies in the world. This is a great story to discuss, but a story that is not limited only to the U.S. stock market. In Canada, a similar story can be told.
The Berkshire of Toronto
Since 1985, Prem Watsa has been the chairman-CEO of Fairfax Financial Holdings (NASDAQOTH: FRFHF.PK), a financial company primarily involved in insurance and reinsurance. Watsa uses the same value-oriented strategies made famous by Buffett and others, which have led to big gains for Fairfax investors. In the 27 years under Watsa’s leadership, shares of Fairfax have compounded 19% annually.
Management has done this by taking the float generated by its wide range of insurance businesses and investing it into its subsidiaries and equity investments. In addition to its insurance and other financial businesses, Fairfax’s non-insurance subsidiaries includes a livestock nutritionals company, various casual dining restaurant brands and Irish pub-style bars in Canada, travel services company in India and media company targeted at baby boomers and a kitchenware and wedding gift retailer. Fairfax also has more than $2.67 billion CAD invested in many U.S. and Canadian publicly-traded companies.
The bear to Buffett’s bull
Unlike Warren Buffett, who can sometimes be described as a cheerleader for the U.S. economy, Prem Watsa and Fairfax are the opposite. Watsa believes that the causes of the global financial crisis cannot be so easily remedied. These causes include high levels of government debt and high unemployment in the U.S. and Europe. Adding to these global issues, some housing-related Canada-specific problems that are also beginning to surface. This is why Fairfax has a large equity hedging program in place to offset what they see as a high-risk environment throughout the world. For investors looking for a bearish company to play against Buffett’s bullishness, Fairfax just might be up their alley.
The big BlackBerry bet
Although Watsa is bearish on the global economy overall, he is not afraid to take bullish stances on individual companies. One of his most recent and newsworthy stance is Fairfax’s stake in BlackBerry (NASDAQ: BBRY). During a time when the investors and the financial media were at their most negative and pessimistic, Watsa saw something within BlackBerry to be positive and optimistic about.
There is no denying that BlackBerry’s former management got complacent, failed to innovate as new rivals emerged and squandered their dominate smartphone position. Despite BlackBerry’s many problems, Watsa sees a brand that is well-known and trusted, has distribution network of over 650 wireless carriers and has more than 70 million subscribers worldwide. Watsa also sees a new management team capable to engineering a company turnaround. It is for these reasons that Fairfax now owns about 10% of BlackBerry and Watsa sits on the company’s board of directors.
The Berkshire of Montreal
If Warren Buffett is the Oracle of Omaha, then maybe Paul Desmarais Sr. is the Oracle of Montreal. Although relatively unknown outside of Quebec, Paul Desmarais man behind Power Corporation of Canada (NASDAQOTH: PWCDF). Together with his two sons, the Desmarais family run Power Corporation and is seen by many as the real power behind Canadian politics (as well as having political influence in France). A quick Google search of Paul Desmarais will tell you more about that subject.
With the exception of maybe Berkshire Hathaway and Warren Buffett, it would be difficult to find a company and leadership team that care less about quarterly results than Power Corporation of Canada and the Desmarais family. This is a company that absolutely cannot be bothered. They never let the short-term distract from what they are doing, which is likely why owning shares of Power Corporation have made investors and the Desmarais family a ton of money over the decades.
Wait… who owns what now?
Power Corporation of Canada is a holding company with a somewhat complicated organizational structure. Power Corporation’s primary holding is its 65.8% stake in Power Financial Corporation, which itself is a holding company. Power Financial, in turn, has a 68.1% stake in Great-West Lifeco (another holding company), 58.7% stake in IGM Financial and 50% stake in Parjointco (yet another holding company). To make it even more complicated, IGM Financial owns 4% of Great-West Lifeco, and one of Great-West Lifeco’s wholly-owned subsidiaries owns 3.7% of IGM Financial. I’m sure by now you understand my point about the complicated organizational structure, so I will leave out the remaining specifics.
Through its various subsidiaries, Power Corporation of Canada owns a magnitude of businesses in health and life insurance, reinsurance, investment and retirement services, asset management, mutual fund management, investment consultation and other services throughout North America, Europe and Asia. One of its subsidiaries also has very large stakes in some of France’s most prominent companies, including 56% of the minerals company Imerys, 21% of Lafarge (world’s largest cement maker), 7.5% of liquor giant Pernod Ricard, 7.2% of water utility Suez Environnement and 2.4% of GDF Suez (the world’s largest electric utility).
Which to choose, which to choose
Power Financial Corporation, Great-West Lifeco and IMG Financial are each publicly-traded companies, as well as Pargesa Holdings, a subsidiary of Parjointco. Aside from a few media-related properties and other investments only owned by Power Corporation of Canada, it and Power Financial Corporation are essentially the same company (although Power Corporation of Canada currently trades at a lower price to book ratio). But if you do not wish to own all of Power Corporation of Canada or Power Financial Corporation though, you can pick and choose your preferred subsidiaries. Do you want insurance and asset management? Choose Great-West Lifeco. Rather have mutual fund management? IMG Financial has you covered. Want a piece of those French companies mentioned previously? The Swiss company Pargesa Holdings is the investment for you. The choice is yours to make.
Canada has a lot to offer
We and our friends to the north share a great many things in common. We have our similar culture, history, economy and a love for driving on the right-hand side of the road like a civilized people (looking at you, UK and Australia). We also have an affinity for great Berkshire-like companies. Canadian companies rarely receive the same amount of attention as American companies, but the investing strategy employed by Warren Buffett is not confined to the United States. Sometimes we can get so caught up with the goings-on of our own stock market that we forget that great opportunities can be just a northern border crossing away.
Matthew Luke owns shares of Fairfax Financial Holdings and Power Corporation of Canada. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!