Profit From Panic With Businesses Like Fairfax, Linn

In the third quarter alone, Fairfax realized cash proceeds of $575 million through the sale of $3.22 billion notional amount of credit default swaps that were purchased for $53 million. Fairfax has sold $8.87 billion notional amount of credit default swaps since inception for cash proceeds of $1.85 billion on an original acquisition cost of $197 million -- a cumulative gain (measured using original acquisition cost) of $1.65 billion.

As of Sept. 19, the remaining $12.87 billion notional amount of credit default swaps had a market value of $684.9 million and an original acquisition cost of $238.1 million, representing an unrealized gain (measured using original acquisition cost) of $446.8 million.

And this company only has a market value of $5.6 billion, so in the third quarter alone it netted 10% of the market cap in cash just from the sale of a book of swaps. These swaps alone essentially make Fairfax one big giant "put option" on the market.

On top of that, you get a best-in-breed insurance company that wrote $4.5 billion in net premiums in 2007, has a $19 billion investment portfolio and book value of $4.7 billion. The investment portfolio is of the highest quality: 46% government bonds, 23% cash, 5% corporate bonds, and 26% equities and other investments. So you basically have a 70% cash position, and Watsa has also hedged out 100% of the equity position.

With so much downside protection, huge cash positions, and a very prudent capital allocator at the helm, imagine what this company will look like five years from now.

TheStreet.com TV: Cramer: Focus on the Time Frame (Video, Oct. 8)

Jim Cramer stresses to investors that it's all about the five-year time frame.

To watch the video, click the player below:

Cramer: Focus on the Time Frame