http://business.financialpost.com/news/fp-street/fairfax-financial-holdings-ltd-chief-executive-prem-watsa-tells-his-horatio-alger-story
Fairfax Financial Ltd chief Prem Watsa tells his ‘Horatio Alger’ story
Horatio Alger, the 19th century American author, was famous for his novels for children — Ragged Dick, Tattered Tom, Luck and Pluck, and Strive and Succeed — that shared a theme: with hard work and the right attitude comes prosperity.
In Alger’s 1909 novel Telegraph Boy we meet a 15-year-old sitting on a bench in New York. An orphan, he has arrived from Hartford by boat. He is flat broke:
“‘Twenty-five cents to begin the world with,’ reflected Frank Kavanagh, drawing from his vest pocket two ten-cent pieces and a nickel. ‘That isn’t much, but it will have to do.’”
This past Tuesday at a lunch on Toronto’s Bay Street, after the operatic group, The Tenors, sang the anthem, Prem Watsa, chief executive of Fairfax Financial Holdings Ltd., took the podium. He wore a navy pinstripe suit and baby blue tie. He had his own Horatio Alger story to tell. It was his own.
“I was an immigrant myself 43 years ago,” Watsa, 64, reminded a crowd that included Bruce Heyman, the U.S. ambassador to Canada, astronaut Chris Hadfield, Issy Sharp, the chairman of Four Seasons Hotels and Resorts, and John Tory, the mayor, former prime minister Brian Mulroney, and Rick Waugh, retired CEO of Bank of Nova Scotia. “I benefited myself from a good education,” he added. The event, after all, was to award scholarships to business students — the association, with a $10 million endowment, delivers 80 annual scholarships of $5,000 each and another 10 of double that. Fairfax also sponsors 45 scholarships of its own, which the association will be administering from now on.
Watsa has long been known as a reticent business leader in Canada, despite being one of the most prosperous in the country. But he spoke to the Financial Post this week about his own story and his passion for the association that helps open opportunities for hard-working kids.
Watsa says he’s never read Telegraph Boy; but he credits his success to two vintage American books of capitalist wisdom. And to his mother Irene, who raised four children, and his father, Manohar Clarence Watsa, an orphan himself, who worked his way up to become the principal of a top boys school in India. Much of Watsa’s life has been influenced by his father’s tenacity, and the advice he passed to his son: “Work as hard as you can, as though everything depended on you. Pray as hard as you can, as though everything depended on God.”
“I won the ovarian lottery,” Watsa says. “A billion people in India and I have two great parents.” Today he is a billionaire with homes in Toronto and in Caledon, north of the city. A contrarian investor, he is most well known for shrewdly betting a chunk of his insurance empire’s assets that the U.S. housing market would crash in 2008. That move netted $2 billion. Watsa himself is estimated to be worth $1.2 billion.
Born near Hyderabad, India, Watsa’s father’s position won him free tuition in private schools. Later, studying chemical engineering at the Indian Institute of Technology in Chennai, he played field hockey, ping-pong, tennis, and chess; as sports secretary, he led his school to its first sports triumph over the other IIT schools.
“With a lot of hard work, coaching, practice, we won that inter-varsity meet. The idea of winning came into your head,” he said. At the school he met Nalini Loganadhan, now his wife.
At age 20, he remembers catching a train from school in Chennai on the Bay of Bengal to home in Hyderabad.
“It was third class,” he recalls. “I was sitting on the steps of the carriage, because it was full, holding on for dear life, and this guy sits down next to me, and he says, ‘Have you ever read Napoleon Hill’s book, Think and Grow Rich? You gotta read it.’ It had a huge impact on me. It was a Horatio Alger book in a sense.”
Think and Grow Rich, published in 1937, starts with a description of Edwin C. Barnes, a young man so determined to work for Thomas Edison that he hopped a freight train to New Jersey. Watsa soon found in himself the same type of pluck. After deciding to go into business, he applied to the best business school in India — only to be one of the thousands of applicants who did not make the exclusive cut. After doubling down on his studies and finally landing a spot, he opted to turn it down, anticipating a better opportunity in Canada.
In 1972, with just eight dollars, he came to London, Ont. to live with his brother David and sister-in-law, and to study at the University of Western Ontario at what is now the Richard Ivey School of Business. To pay his way he sold stationery and gifts door to door.
“It was in the snowbelt,” Watsa recalls. “And it was cold. I thought I’d not survive that. Oh my goodness. Lots of snow.”
When summer finally came, Watsa switched to peddling Lennox air conditioners around town. He borrowed a car from his brother’s brother-in-law and started working for another immigrant, Ihor Horich, from Ukraine.
You know why I got that job? Because I got a call for a second interview, and the other three didn’t show up
“He says, ‘You know, Prem, you gotta go and sell.’ I’m not selling too much. I have no money coming in. I said to him, ‘You have to pay me some gas.’ And so he took me to a coffee shop, and said, ‘How can I pay you any gas money if you don’t sell?’ So he put his arms around me and said, ‘Instead of giving you a three per cent commission I’ll give you a five per cent commission.’ Then I started selling. I sold a lot of air conditioners.”
By 1974, with a master’s degree, Watsa landed an interview at Confederation Life in Toronto. Alighting from the subway, he ran into trouble.
“I am hurrying, and suddenly a police squad car jumps the sidewalk. He comes right up, takes out his gun, puts me on the car with my hands up and asks me a few questions. ‘Did you rob the bank?’ He frisks me, and lets me go, and I am like 10 or 15 minutes late for my interview.
Confederation Life offered Watsa $11,000 a year. Horich offered Watsa his air-conditioner business. Watsa chose insurance.
“I said, ‘Well, you know, I got a job, Ihor.’ And he said, ‘How much are they paying you?’ And I said, ‘$11,000 a year.’“ He said, ‘$11,000? You’re not worth that.’”
At Confederation Life, Watsa’s boss, John Watson, gave the young mover another classic business book that would influence his life: Ben Graham and David Dodd’s Security Analysis, published in 1934. Drawing lessons from the 1929 stock market crash, Graham gives examples of the market’s tendency to under-value out-of-favour securities. It would go on to become the urtext for value investing philosophy. Warren Buffett called it his “roadmap.”
“Value investing is a lot more prevalent now, because of Warren Buffett,” says Watsa. “But you’re talking about 1975. If I read it once, I read it 10 times, and it was my road to Damascus. I build a career on it.” Such was the lead author’s influence that the Watsas named their son Ben. Now 36, Ben Watsa recently took a seat on the Fairfax board.
His father, born in an impoverished country, who came to Canada with just a few dollars, says it’s his son Ben who has the disadvantage of being born where he was.
“I consider my children less fortunate for not having had the immigrant experience,” Prem Watsa says. “Being an immigrant … the only way to go is up.”
A decade after joining Confederation Life, Watsa and colleagues struck out to form the company that would eventually be called Fairfax. Today it owns insurance companies in Canada and the United States, Singapore, Hong Kong, Malaysia, Indonesia and Brazil; owns a pet insurance company based in Toronto, and owns reinsurance companies in the United States, United Kingdom, Poland and Barbados. Its market cap is north of $13 billion.
But every Horatio Alger hero faces his bumps in the road. Along the way, Watsa bought shares in Canwest Global Communications Corp., the former owner of the National Post, and in AbitibiBowater; both stocks were later delisted and together saw Fairfax write down nearly half-a-billion dollars in loss. A bad call on Torstar lost Fairfax another $175 million.
Recent years have been more favourable. Fairfax in 2014 declared US$26 billion in investments and reported profit of US$1.6 billion. Since 2010 an investment in Fairfax has earned more than double the overall market gain.
Watsa is now betting his country of origin has the pluck and tenacity to finally prosper. He believes in Narenda Modi, the Indian prime minister, whom he met in India and recently in Canada.
“He is going to transform India,” says Watsa, who recently raised US$1 billion for a new company, Fairfax India, on the Toronto Stock Exchange. “Canada’s economy is $2 trillion. India’s economy is $2 trillion. We have 35 million people; they have 1.2 billion people. The reason for that difference is that Canada is very much free enterprise and India went the socialistic route. Mr. Modi is going to reverse all that, make it business-friendly. He is incorruptible, and there is nothing for him, it’s all for the country. He’s a bachelor, and I think this man could be like Lee Kuan Yew [the first prime minister] in Singapore.”
At home Watsa is sticking with his contrarian streak, favouring the out-of-favour underdogs. Fairfax owns nine per cent of shares in the beleaguered BlackBerry Ltd. Asked at the Horatio Alger lunch whether he uses one of the devices himself, Watsa throws out his chest and asks “Does the sun rise in the east?” He pulls a BlackBerry Passport from his inside vest pocket.
“It’s beautiful. It’s the only one you should use for heaven’s sake. What phone do you have? An iPhone? … This is safer, it’s got a 24-hour battery, and a beautiful screen. I really like it. ”
ked why he put money in the struggling Waterloo tech firm, Watsa says, “These things go in cycles. Most people think that when companies do really well, they’ll never not succeed. And when companies go down, they’re going bankrupt. The reality is different. BlackBerry used to be $140 (a share). Every stock analyst loved it. Today it’s $10. Few stock analysts like it.” Apple shares, he notes, have risen from $5 to $700, and are now less of a buying opportunity. “You have to remember that the business flows up and down.”
In the story Telegraph Boy, Frank Kavanagh briefly works for a panhandler who pretends to be blind; then he sells newspapers. His luck changes when he helps a man on Broadway find an umbrella and the gentleman invites him home and sets him up with a job delivering messages. Through diligence Frank works his way up; by the book’s end he is worth $6,000 — decent money a century ago.
“Among the busy little messengers who flit about the city,” writes Alger, “there are some, no doubt, who will in years to come command a success and prosperity as great as our hero has attained.”
Watsa has plainly transcended the gumption of any Horatio Alger character. But coming up on 65, he’s not planning to retire — but he is looking forward to the opportunity to save a couple of bucks a day on his commute.
“I am going to be able to go on the subway and get my senior discount.”
With files from Christina Pellegrini
Financial Post
