Lauren Templeton On Value Creation

Following our recent visit to Toronto for the Fairfax Financial Holdings annual shareholder meeting and its surrounding events, we once again left confident in the firm’s leadership, as well as the firm’s relatively unpublicized value that it delivers to its shareholders. In addition to the shareholder meeting, surrounding events including the Ben Graham Centre’s Value Investing Conference hosted by the Ivey Business School are first-rate in quality, featuring talks and panels with seasoned and accomplished, value investors. During this year’s gatherings, we had the great fortune to visit with private equity investor Wilbur Ross of W.L. Ross, as well as hear his key note address during lunch at the Value Investing Conference. In our view, Mr. Ross’s talk highlighted a critical but generally overlooked variable to the Fairfax investment thesis.

For those who are less familiar with Fairfax , perhaps the association that first comes to mind is Blackberry. This is somewhat understandable, albeit superficial, given its high profile coverage within the financial media over the past twelve months or so. Fairfax is the largest shareholder in Blackberry, and over the course of late 2013 was conducting due diligence following its bid to purchase the remainder of its shares and take the company private offered in September 2013. Later in November the transaction was cancelled in favor of a $1 billion capital injection through 6% debentures convertible at $10 per share. So while Blackberry stole the headlines and remains front of mind for many, we have remained fixated instead on Fairfax’s largest share position. This same investment also happened to be the topic of discussion for Wilbur Ross’s keynote address to a room full of attentive value investors in Toronto. Within the discussion that follows, we will relay in a much condensed version, the details of an investment that Fairfax and W.L. Ross spearheaded (with Fidelity and Capital Research following passively) into the Bank of Ireland during the thick of the European debt crisis in 2011. Before we begin however, we are reminded of a quote from the famed trader of the 1920s and 1930s, Jesse Livermore (paraphrasing from his book How to Trade in Stocks) to provide context.

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