The chairman and CEO of investment firm Fairfax Financial (TSX:FFH) told investors Wednesday at its annual meeting he believes some of Silicon Valley's most-prized companies are sitting on unproven foundations.
"There's nothing underlying the value of these companies," he said, referencing a chart that outlined names like Netflix and LinkedIn.
"The last time this happened was in the dot-com era. I can tell you this is going to end in tears, because it always has."
Last week, technology stocks came under pressure on Wall Street as traders became concerned they were overvalued in an uncertain global economy.
Watsa has been increasingly vocal about his concerns for the technology sector.
In a letter to shareholders in March he criticized Facebook's decision to purchase mobile phone chat program WhatsApp for US$19 billion, calling it "the poster child for the excesses that prevail in the tech world."
When it comes to investments, Fairfax has traditionally stayed away from the volatile technology sector, with the exception of Canadian smartphone company BlackBerry (TSX:BB).
The firm headed a consortium of investors who injected US$1 billion into Waterloo, Ont.,-based company last fall, after a failed attempt by Watsa to raise enough money to take it private.
Fairfax later exercised an option to buy an additional $250 million of convertible debt in the smartphone maker to bring its share of the financing to $500 million.
Watsa says he's happy with the progress BlackBerry has made in turning around its business, and that new chief executive John Chen has the right experience to make the company profitable again.
"John, in five months, has done so many changes. We're very impressed," he said. "He's hit the road running."
Chen's performance, and turnaround of BlackBerry, has been a major focus for Fairfax, which holds an equity stake as well as the convertible debt.
While Chen has been praised for leading the turnaround of enterprise software developer Sybase, Watsa said his reputation extends beyond saving companies who are in dire straits.
He said Chen is a good leader, and pointed to several executives who left their jobs at Sybase to join Chen at BlackBerry as a sign of his skills.
Fairfax's investment in BlackBerry has raised some eyebrows because many analysts believe the smartphone company has lost most of its customer base and failed to launch new devices good enough to rebuild its reputation as a technology leader.
BlackBerry shares have suffered a major drop since its heyday, hovering around $10 over the past year, compared with its all-time high of $149.90 reached in June 2008. BlackBerry shares closed down four cents to $8.66 on Wednesday.
Watsa said he believes BlackBerry investors have overreacted.
"When stocks prices come down the market — very short term — predicts bankruptcy, and when it goes up predicts years of fantastic growth," he said.
"The truth is always in between."
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