Billionaire Prem Watsa’s No-Brainer Micro-Cap Stock Pick Omission Causes Huge Loss

Novice investors like you and me have to candidly admit that we are totally dependent on the stock wizards to bail us out. We have neither the intellectual bandwidth nor the analytical ability to figure out stock picks on our own. On the few occasions that we have attempted to do so, we have burnt our fingers badly. In fact, we are able to eke out a living and make ends meet thanks to the generosity of eminent stock wizards who share their stock picks with us.

In these circumstances, it is our bounden duty to maintain a 24×7 vigil on the actions of the wizards in the market and to understand the rationale behind their stock picks.

To our collective credit, we have been discharging this onerous responsibility in a diligent manner.

However, in a shocking lapse, the much-publicized foray by Billionaire Prem Watsa into a micro-cap called Adi Finechem has gone completely unnoticed by all of us.

There are several reasons why this lapse is inexcusable:

(i) Prem Watsa is not a run-of-the-mill stock wizard. Instead, he enjoys legendary status and is fondly referred to as “the Warren Buffett of Canada” in informed circles;

(ii) Prem Watsa started life as a pauper with only $10 in his pocket. He single-handed created wealth of $2 Billion (Rs. 13,000 crore) by investing in stocks. Fairfax Financial Holdings Ltd, his investment vehicle, has assets worth more than $31.70 Billion;

(iii) Prof Sanjay Bakshi, the authority on value investing, has paid rich tribute to Prem Watsa in his piece “Why I bought Thomas Cook”. The Prof is right in his analysis because since that fateful day (01.12.2013), Thomas Cook is up a fabulous 178%;

(iv) Ajit Issac, Fairfax India’s top brass, gave a talk where he outlined the ambitious plans that Prem Watsa has for India. Issac pointed out that Fairfax already has a strong presence in India in the form of ICICI-Lombard, Thomas Cook, Sterling Holidays, India Infoline etc;

(v) Adi Finechem, the micro-cap (then market capitalisation of only Rs. 315 crore), whose 45% shareholding was acquired by Fairfax, has the credentials of a powerhouse stock with top-quality management, high RoE, monopoly products in the specialty chemicals segment etc;

(vi) All specialty chemicals stocks, even those with dubious pedigree, are in great demand owing to the slowdown in China. Obviously, companies with top-management pedigree will be in even greater demand;

(vii) Prem Watsa is himself a chemical engineer from IIT Madras. So, he has a clear understanding of the technical and commercial aspects of the chemical industry.

[*C] Consolidated     [*S] Standalone

(Source: Business Standard)

Prem Watsa reached out to us specifically by stating that “We look forward to investing in ADI which will continue to grow its operations over the long term. This investment fits within our strategy of investing in well-managed companies with a history of profitability and high integrity“.

Now, with all these positive attributes, even an idiot novice investor would have realized that Adi Finechem was a “no-brainer” stock pick.

The lapse has cost us dearly because the stock is now surging like a rocket and reaching new highs.

On Friday, the stock surged an impressive 20% and tripped the upper circuit.

The return since Prem Watsa bought the stock in November 2015 is an impressive 84%. The three month return is itself 33%.

Fortunately, Adi Finechem is still a micro-cap at Rs. 538 crore market capitalisation. It has a long way to go under Prem Watsa’s tutelage and visionary approach. We need to henceforth keep a red alert on the stock because more buying opportunities are likely to arise in the future!