Prem Watsa doubles down on RIMM

The Fairfax Financial CEO buys 25 million more shares.

By Jul 23, 2012 1:07PM
Fairfax Financial CEO Prem Watsa doubled his bet on Research In Motion (RIMM), buying 25 million shares of RIMM in the past month. As of July 4, he owns 51.8 million shares, which is about 9.9% of the company. He owned 26.8 million as of March 31, more than twice his holdings at the end of 2011.

Watsa started buying RIMM in the third quarter of 2010, when the stock was trading in the $50s, down 60% from its peak in 2008. The stock has since lost another 90%, and Watsa has kept buying. His average cost was about $26 a share before the latest purchase. His June purchase brings his cost per share to the high teens, which is still significantly higher than its current price of $6.77 a share.

Watsa is apparently full of confidence in the BlackBerry maker. At the Fairfax Financial Dinner in May, he noted that RIMM remains No. 1 in many markets. It has $2.1 billion in cash and no debt. Prem is bullish on BB10, the firm has terrific technology, and he notes that Mike Lazaridis is a genius. He also likes Thorsten Heins and remains happy to hold RIM's shares.

Averaging down is one of the secrets in Watsa's 35 years of investing. In his last shareholder letter, he wrote: "average down when buying and average up when selling! Illustrated with the case of International Coal, we averaged down from our initial cost of $4.58 per share to an average cost of $3.37 per share. We sold half our position at $7.26 per share (a 115% gain) and only five months later, there was a takeover offer for the whole company at double that price. In spite of not buying only at the low and not selling only at the high, we earned $341.2 million by selling at over three times our cost."

We have had a lot of discussions about value traps lately. RIMM is considered a value trap as the company continues to lose market share and delay the release of its new products. But Watsa is not an average investor. He is doubling down again.

The question is, will you follow him into RIMM?

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Tags: RIMM
Jul 30, 2012 11:17PM

i absolutely believe that rim is dead/

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