Fairfax’s Enormous Gamble on RIM: Totally Genius or Incredibly Stupid?

Prem Watsa has been described as “Canada’s Warren Buffet.”

Which is why he rocked the media world when his holding company, Fairfax financial, bought 14 million Research In Motion shares in January of this year.

At the time, RIM was trading for around $15. So, needless to say, Prem has looked like a fool all year. But he doesn’t care what outsiders think. In July, when RIM had dropped to $7, Fairfax doubled its stake in RIM to 10%, becoming the company’s biggest shareholder.

At the time, Prem quoted famed investor John Templeton: “the best investments are made at the point of maximum pessimism.” He added that “we don’t know if RIM has reached that point, but we figure it’s pretty close.”

RIM indeed managed to get worse, bottoming out at just above $6 in late September. The Waterloo-based BlackBerry maker was shaping up to be the company’s worst investment of all time.

But Prem didn’t panic and sell. “We’ve never seen a technology company with assets and talent of this calibre come down as cheap as the stock of this one has,” Prem explained. “This company has a tremendous brand name that is recognized worldwide. It has 78-million users, 56-million BlackBerry Messenger users, patents and a worldwide network.” Not to mention $2.2 billion in cash and no debt.

SEE ALSO: If This is Any Indication, BlackBerry 10 Will be Epic

And now, thanks to positive early reception of BB10, things are looking up—way up. RIM shares have surged in the past month. They’re firmly back into double-digit territory and even flirted with $12 today.

Fairfax hasn’t exactly made a killing on its total investment of RIM—like we said, the company bought a lot of shares for about $15, and previously acquired some at even higher prices. But the bold double-down at $7 is looking very wise today. A successful BB10 launch will likely skyrocket RIM’s stock—some say up to $43 per share, which would be a growth rate of more than 300%.

If that happens, perhaps Warren Buffet will turn to Prem for some financial advice.

UPDATE: RIM continues its remarkable rally even as most of the stock market languishes. Company shares are now trading above $13 and are close to their 52-week high.

Photo: Norm Betts/Bloomberg