Briefly, Fairfax is an insurance company run by the so-called Canadian Buffett, Prem Watsa. The company, apart from running a typical insurance and re-insurance business, is also an active portfolio allocator (investing in equities, holding large long / short positions in equity futures, betting on major economic events etc.)
Now, shortly after the US presidential elections Fairfax made the following adjustments to its investment portfolio:
- the US bonds exposure was radically reduced (the company sold-off a large portion of its US and Canadian treasuries)
- a short position held on Canadian and US equity markets was radically cut
What is more, the company (or, better said, Prem Watsa) was right. Since the US elections the prices of treasuries went down and the US and Canadian stock markets went up.
However, Fairfax share prices did something strange - they went down:
In the lower panel of the chart I have plotted Tembec share price action (Tembec is one of the largest equity holdings acquired by Fairfax a few years ago; a few days ago Fairfax sold part of its stake in Tembec).
Summarizing - Prem was right but the stock market was...more right?