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"Warren Buffett of the North" Buys RIM

Written By Brian Hicks

Posted July 25, 2012

Have you heard of Prem Watsa? Even if you haven’t, you’ve probably heard of Warren Buffett.

Mr. Watsa is a Canadian investor and chief executive of Fairfax Financial Holdings Ltd. (TSE: FFH), an investment and insurance company. He’s also known as the “Warren Buffett of the North.”

And lately, in the vein of Mr. Buffett, he has become very interested in the floundering, once-mighty Research in Motion (NASDAQ: RIMM).

Watsa has been on the RIM board since January and is the largest publicly-known shareholder.

RIM, as ex-BlackBerry lovers or diehard fans will be aware, has had a disastrous few years. Unable to innovate or otherwise withstand the assault led by Apple’s (NASDAQ: AAPL) iPhone, RIM stock has slipped a shocking 80 percent in just the past year.

So why has Watsa just increased his company’s share in RIM to just below 10 percent?

Initial analysis suggests that Watsa’s odd move is more of an attempt to reduce the cost of his original investment in RIM than any hope of profits gained via a takeover of the company.

The Chicago Tribune reports:

“He said that he’s looking to average down (his cost) and their investment horizon is normally three to five years—they are not looking for a quick turnaround,” said Sameet Kanade, an analyst at Northern Securities in Toronto.

RIM has a new device out soon—the Blackberry 10. Guided by new CEO Thorsten Heins, the company has a lot riding on the fate of next year’s product. Watsa’s move comes across as a doubling down on his support of Heins and RIM.

RIM stock rose to C$6.94 on the news. The question is, will it really pay off?

RIM once had share prices of roughly $150. But that was years ago; this year, it saw share prices dip below $7.

As the price kept tumbling, rumors of possible takeovers flew fast. Heins’ move of hiring various banking personnel to review options including partnerships, joint ventures, or even a company sale merely increased speculation.

The fate of RIM is a signal to any once-great company that isn’t innovating enough. At one point, RIM was practically unbeatable in the smartphone sector and BlackBerries were ubiquitous among road warriors and corporate types. RIM had scaled great heights based on its development of email for mobile phones.

But all that changed in the iOS/Android era, and RIM was left far behind. Last month, the company declared its first operating loss in eight years and announced serious job cuts of almost 5,000 positions.

It remains to be seen how Watsa’s strategic move will play out in the longer term.