What's Fairfax Financial Up To Now?

That question is answered, at least in large part, by James Daw in the Toronto Star. Shareholders in Fairfax Financial (FFH/NYSE) received the latest annual report in the mail over the past week.

I posted sometime back and linked to Prem Watsa's shareholder letter. But I'm old-fashioned in many ways, and reading an annual report -- in hard copy -- is more enjoyable for me than reading it online. Or printing out loads of pages.

Enough of that. Daw asks what Watsa and Fairfax have been up to lately:

Dumped contracts that insured their stock holdings from losses, partly in October and entirely by mid-November.

Jumped back in to buy $2.3 billion (U.S.) in stocks late in 2008.

Sold almost all their U.S. federal government bonds, and switched to state and municipal bonds, most of them insured by billionaire Warren Buffett's company Berkshire Hathaway.

Watsa tells shareholders he still expects a long, deep recession, with a contraction in debt comparable only to the 1930s in the U.S. and in Japan from 1989 to the present. He expects this will be offset only partly by multi-trillion-dollar government bailouts and spending plans.

A bit further down:

The only stocks he discusses buying are Johnson & Johnson, Kraft Foods (maker of the dinners we once ate with pork butt in our first apartment) and Wells Fargo Bank for a total of $822.8 million.

The stocks were up in price at the year end, but down about $121 million from his purchase prices as of yesterday afternoon – leaving Watsa fans time to load up at cheaper prices than Fairfax paid.

I'll remind readers that Fairfax is a long-time holding of mine. It was bought several years before launching Controlled Greed in 2005. I'll especially remind that I've sold enough of the shares over time to get my original capital back -- so the company is a free ride for me.

Yet due to price appreciation -- and price declines for most other holdings -- Fairfax remains a large position and I expect that to continue. As always, you'll see any changes to this and other holdings posted here.