Watsa Decries `Unicorpse' Collapse as Tech Companies Lose Valueby
Fairfax Financial CEO says shares may decline 90% from peak
Speculation in tech firms `ended with a thud,' Watsa says
Prem Watsa, the investor who heads Fairfax Financial Holdings Ltd. and foretold a drop in technology company shares two years ago, is now saying “I told you so.”
In his annual letter to shareholders, Watsa said he expects tech stocks from Twitter Inc. to Yelp Inc. to fall even further -- as much as 90 percent from their peak in the last two years. And the damage will extend to closely held startups, said Watsa, Fairfax’s chief executive officer.
“The speculation in private high-tech companies (the most valuable of which are known as ‘unicorns’) has also ended with a thud,” he said in the letter issued Friday. “A friend of mine said the new name for these companies is ‘unicorpse’ as many of them cannot fund their losses internally for more than a few months and now have almost no access to external funding.”
In 2014, Watsa highlighted what he said was overvaluation of technology companies. In the past year, Twitter has dropped 64 percent, Yelp is down 55 percent and LinkedIn Corp. slipped 56 percent. Watsa said he continues to support smartphone maker BlackBerry Ltd. and its CEO, John Chen. Fairfax is the second-largest investor in the Waterloo, Ontario-based company, according to data compiled by Bloomberg.
Watsa, 65, founded Toronto-based Fairfax in 1985. He’s modeled his investment style and strategy after value investor Warren Buffett. Fairfax gained from the 2008 financial crisis when Watsa bet on declines in the creditworthiness of U.S. banks and insurers. This year, he’s been piling into inflation-linked securities and short positions on stocks and markets.
Investors look to Watsa’s annual letter to gauge his outlook on the world economy, markets and any changes to company strategy. He said on Friday that Canada’s housing market was due for a correction amid record consumer borrowing and a lack of regulation, comparing the environment to the U.S. before the crisis.
Canadian housing prices "have gone up significantly, driven by lax policies” at Canada Mortgage & Housing Corp., the nation’s equivalent to Fannie Mae and Freddie Mac, Watsa said. “Canadians have accessed their increasing real estate wealth through lines of credit easily available from the banks. Sounds familiar? This is exactly what happened in the United States before the financial crisis."
Fairfax will probably lose its entire investment in Sandridge Energy Inc., an Oklahoma City-based energy producer, as the company recently stopped paying interest and didn’t fully hedge oil production, Watsa said. He reiterated in the annual report that he will continue to receive C$600,000 ($454,000) in compensation, without bonuses or equity incentives.
Fairfax gained 1.4 percent to C$715 Friday in Toronto, and has advanced 8.8 percent this year.