Most new investors seek to maximize their upside with little to no regard for risks taken on. While it’s good for youngsters to take on more risk to punch their ticket to outsized gains over the long run, I think many beginners are at risk of being led down the path of speculation in their pursuit of high upside.
Do take risks if you can handle them, but make sure you’ve got the risk tolerance, so you don’t put yourself in a spot to be frightened out of the markets. Not every investor has the temperament to dodge and weave the punches that are thrown by the unforgiving Mr. Market. Those who seek to make a quick buck are often the ones that are dealt with hits to the chin that they may not recover from.
Invest like Prem Watsa — the Canadian Warren Buffett
Most legendary investors have a careful consideration of downside risks. They seek to maximize their upside relative to the risks they’ll take on. Heck, some of the smart money managers, such as Prem Watsa, may be more about protecting wealth from downside risks than maximizing returns.
When you start looking at investment opportunities on a risk-adjusted basis, you can set yourself on a path to get rich slowly. And you won’t put yourself in a spot to be wiped out should momentum reverse on itself.
If you’re looking to invest in businesses with wide margins of safety, with long-term appreciation potential, consider the following “boring” stocks that look heavily out of favour and severely undervalued at today’s market crossroads.
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Fairfax Financial Holdings
Fairfax Financial Holdings (TSX:FFH) is the insurance and holding company managed by none other than the legendary Prem Watsa. The iconic Canadian investor has a knack for spotting macroeconomic trends and placing bold bets to profit from them or to mitigate potential downside risks. He’s also got an eye for value and the patience to wait for undervalued opportunities to “correct to the upside” over time.
While most investors invest for the next several months or a year, Watsa invests for years, if not decades, at a time. Both the real Warren Buffett and the Canadian one are the epitome of a long-term investor. But of late, the Canadian Warren Buffett and Fairfax have been in a bit of a slump, with FFH stock being a gross underperformer over the last decade.
Despite the underperformance and recent investment losses, I think Fairfax and Watsa are more than capable of making up for lost time if you’ve got a horizon that spans years, not just months. The legendary Watsa has come back from many slumps in the past, and he’s more than capable of coming back from this latest slump.
With a low price of admission into Fairfax stock and a gradually improving underwriting track record, I’d back up the truck on the name at these multi-year lows.
Fairfax Africa Holdings
Sticking with the Fairfax theme, we have Fairfax Africa Holdings (TSX:FAH.U), a holding company that focuses on investments within Africa, a market that some consider as one of the final frontiers of emerging market growth.
Fellow Fool Ryan Vanzo thinks investors should trust in Watsa, as investors look for excess risk-adjusted returns across the African continent.
“Africa has several of the world’s fastest-growing populations. Nigeria, for example, is growing its population more than four times faster than China,” said Vanzo. “Nigeria’s population will more than double over the next 30 years. It should be no surprise that Watsa believes these opportunities are the ‘single best place’ to put money to work.”
If you’re looking to maximize your risk-adjusted growth potential, investing in the emerging markets is a must. Fairfax Africa offers an easy way for Canadians to gain exposure to some of the quickest growing countries in the world. Of course, there will be volatility along the way. Still, if you’re looking to invest for the next 10 years, Fairfax Africa looks nothing short of compelling following the recent merger deal with Helios Holdings.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends FAIRFAX FINANCIAL HOLDINGS LTD.