Inside Fairfax Financial’s Even Bigger ‘Big Short’: How Prem Watsa’s Team Anticipated the Financial Crisis and Netted Billions
By David Thomas, Special to Financial Post
Published November 21, 2025
In early 2007, Fairfax Financial took a crucial step. CEO Prem Watsa led the company. He gathered a small, expert committee around one table. They met to review the best investment ideas. Watsa asked, “What’s the best idea we’ve got?”
Brian Bradstreet, Fairfax’s bond expert, showed doubt. He knew the company held a risky bet. They were shorting the growing mortgage securities bubble. This move cost nearly $250 million on paper. Still, the trade acted as an insurance policy for Fairfax’s capital. It promised a large gain if the market fell as predicted.
Brian’s worry was clear. Many companies would cancel a trade like this after such losses. Yet Fairfax had a history of early, contrarian moves. Their approach favored discipline and patience.
A History of Contrarian Calls
Fairfax has a long record of bold bets. In the 1980s, they left Japan’s inflated stock market before the crash. They missed some gains when the market soared but avoided deeper trouble. In the late 1990s and early 2000s, the firm lost money by betting against tech stocks. When the bubble burst later, Fairfax earned large rewards. This pattern of pain for future gain was repeating as the financial crisis neared.
The Psychological Toll of Waiting
Investing in a bubble is hard. First, you spot a problem. Next, you place a bet. Then, you wait. Fairfax watched its position shrink as losses grew each quarter. Doubts crept in. They wondered, “How long should we hold on?” and “When should we give up?”
Even famous investors have struggled. Julian Robertson closed Tiger Management during the tech bubble after two years of failed shorting. Laurence Tisch of Loews Corporation quit after losing $2.5 billion trying to short the same bubble—just months before it burst.
Doubling Down on the Big Short
During tense meetings, Francis Chou broke the silence. He said, “Buy more credit default insurance.” With clear conviction, the team bought extra protection. They had already spent $341 million. By mid-2007, they faced $211 million in paper losses. The timing was uncertain, yet they believed the financial bubble would burst.
By the summer of 2007, their forecast began to hold true. The mortgage crisis surged and turned into a full financial meltdown by fall 2008. Watsa described it as a “1-in-50 or 1-in-100 year storm.” While most investors ran for safety, Fairfax’s contrarian bet paid off. It turned into a multibillion-dollar windfall.
A Safe Harbour Amidst the Financial Storm
In letters to shareholders, Watsa noted how many risks erupted at once. He also mentioned that few investments could still call themselves safe. Thanks to clear foresight and firm commitment, Fairfax not only survived the crisis but prospered while others struggled. This episode underlines Fairfax’s investing style: clear analysis, the courage to defy market trends, and the patience to see plans through long uncertainty. Although many lost in the 2007 crisis, Fairfax Financial’s Big Short stands as a powerful investment story. It shows the rewards that come when one dares to think differently and withstand short-term pain for long-term gain.
About the Author:
David Thomas is a contributing writer who focuses on finance and investment stories. This article is adapted from The Fairfax Way, which details Fairfax Financial’s investment philosophy and history.
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