ItsAValueTrap

Here are the standings by my calculations. Congratulations to Orange! Orange -68.94% ItsAValueTrap -53.97% Constructive -48.09% Hielko -31.12% watsa_is_a_randian_hero -23.44% Edward -18.40% txitxo -16.30% thepupil -15.03% watchwoord -12.44% Frommi -11.15% Racemize -7.56% Rkbabang -6.85% deepValue -4.75% JEast 3.42% compoundinglife 3.46% enoch01 8.57% longinvestor 13.08% Otsog 13.64% Zorrofan 15.10%

I have heard this many times but I don't know what exactly this statement means for small investors. IB claims that their execution is better than other brokers. For a large trader this is probably important. But how does a small investor benefit. Is it in small stocks? You lose more money to poor execution on stocks with big spreads. Smallcap stocks tend to have wider spreads between the bid and the ask. If you are trading a liquid stock (e.g. top 10 in volume) with a 1 cent spread on the bid/ask, then with IB you might be better off by around 20-30 cents per 100 shares. They give you the rebates on limit orders. So you might get 24-28 cents per 100 shares if your order is routed to ARCA or NASDAQ (I don't know the exact numbers). They also don't play order execution games in the same manner than the retail brokerages do. You need to trade a lot for IB to be worth it, e.g. over a few hundred dollars in commissions. You need a minimum of $10k in assets. (*IB is my favourite broker.) 2- If you highly illiquid nanocaps, then your order execution might be ok with the retail brokerages because many market makers leave those stocks alone. They may not want to take the other side of your trade and try to fleece you.

Both Constellation and Computer Modelling Group seem pricey right now. The Constellation shareholder letter talks about Constellation's current valuation and suggests that it is a little pricey. CMG insiders are selling. You could take a look at Sirius XM Canada. You could also look at stuff that Donville Kent owns... though I would short some of his current and former holdings if they were easy to borrow (e.g. Rifco, China Greenstar).

Calumet's GP isn't publicly traded? In general, I'd rather own the asset managers.

Isn't that a good thing for the refiners?

Their profitability depends on: A- The type of oil that the refinery processes. Some refineries are optimal for light oil (e.g. from shale reserves), others for heavy oil (e.g. from oil sands from Canada). B- The supply and demand for refinery capacity. C- The location of the refinery / the local supply and demand in that particular area. American refineries are often located far away from oil production. The supply of refinery capacity doesn't look like it will be increasing. New refineries haven't been built in a long time. The permitting is difficult. Seaborne oil is a different story. If you think that technology and cheap capital is driving down the cost of light oil from shale, then it could be the case that *certain types* of refineries will do well in the future. If light oil from shale pushes out oil sands, then refineries that are optimal for heavy oil may not do so well.

If subprime lending was within your circle of competence then you would have understood the ways in which a company might hide problems with their loan book. I shorted CONN and I've written about the company on my blog.

thanks for the replies! i was looking for http://footnotechanges.com/ unfortunately it doesn't work right now so i'm using open office.

Thanks in advance.

My prediction: eventually it will go a lot lower and they will rename it. The TSX Venture (formerly the Vancouver Stock Exchange) is full of scum. I'd be shocked if it did well over a long period of time.

Not quite sure what you are saying here. That buying back shares now is a bad decision by management? They omitted the fact that insiders and the company were buying back shares. They would have known those things when they issued their press release. Bad form. Insiders were front running the NCIB. That strikes me as unethical.

Lightstream's press release on re-authorizing their share repurchase program was a little sketchy. http://www.lightstreamresources.com/news/news-releases.cfm?newsReleaseAction=view&releaseId=167 QUOTE: As of November 6, 2014, no purchases have been made under Lightstream's previously announced NCIB. On November 7, Lightstream bought back shares. On November 10, Lightstream issued the press release. Maybe insiders don't want other people to know that they are buying back a lot of shares? 2- In general, I think that management tries to mislead shareholders. I don't like sketchy management teams.

Read their latest shareholder letters. http://mongoliagrowthgroup.com/investors/monthly-shareholder-letters/

My bad. They have negative yields. What geniuses.

2million pre-tax profit on 45 million is a 4.4% yield. Interest rates in Mongolia are apparently 12%. :o

They have real estate with ~95% occupancy yet they seem to have negative cash flow. Ridiculous. How do you get negative yield on a low-risk asset? Their overhead is horrendously bloated.

Did they inflate the square footage of your condo by including common areas, the walls, etc.? That's one way to game the CMHC system. The emili system is a computer-based system so it should come up with the same value every time. The fraudsters who commit egregious mortgage fraud game the computer-based appraisal system by flipping homes to themselves in a local neighborhood. This inflates the emili appraisals because emili is based on local comparable sales. When they commit mortgage fraud, they get a few hundred thousand dollars extra because the CMHC did not appraise the home well. In general, Canada has better underwriting than the US. - Banks aren't allowed to do really dumb things. - No 30-year fixed rate. - Recourse mortgages. Only some parts of the US are recourse. - Prepayment penalties. - None of this 0% downpayment nonsense. You can still get a 0% downpayment mortgage in Canada by getting a loan plus a 5% downpayment mortgage. But nobody offers mortgages that are officially 0% downpayment. - More income verification for self-employed individuals.

Shorting is emotionally difficult. Nowadays I am much more comfortable shorting because I keep my position sizing less than 1% (for common shares). I've figured out ways to find really compelling shorts without having to put a lot of time into research. Most people who short stocks might start their positions with a few percent of their portfolio. And what invariably happens is that your shorts will go up 2-4X. Tesla was heavily shorted in the $20s and the borrow was 20% at some points. Then Tesla went up to $291. If you shorted 3% of your portfolio in TSLA, this would be very difficult to handle emotionally and financially. 2- By my estimate, roughly 2%of American stocks are sold short. The longs outnumber the shorts by a large margin. 3- Short selling is the strategy that I am most comfortable with (and that I've had the most success with). However, it's dangerous. It can be a very difficult way to make money.

:D Part of me wants to see subprime 2.0 so I can go short some stocks. Too bad the lending market is now mostly Fannie, Freddie, USDA, FHA, and VA. I believe that's 90%+ of all mortgages? All subsidized by the American taxpayer. And then there's the other subsidies- tax deductions, HAMP, HARP, the defunct tax credit, bank bailouts, lenient banking regulations (though tightening), etc. etc. Some of the incentives in the US are a little perverse. You might want to continually refinance your home (and pull equity out) so that you maximize your tax deductions. Ironically, this was a great strategy in 2007 because the US government would bail you out in a few years. The more irresponsible you were, the likelier you were to receive bailouts. The US is one of the few countries in the world where 30-year fixed rate mortgages are a thing. And it is also a country where no prepayment penalties is a thing. These mortgages are very, very difficult for the lender to hedge. e.g. Bank depositors are not making 30-year bank deposits. And then trying to hedge away the prepayment risk is also difficult.

Even proven reserves can be manipulated. On some level the reserve estimator has to plug something in for G&A. If you wanted to manipulate the # of barrels, then you could apply too little corporate overhead/corporate G&A to the wells. This lowers the G&A costs to operate the well. With lower costs, the wells have a longer life and more reserves. NPV goes up. And even the proven reserves involve subjective assumptions, so there is leeway in determining proven reserves. 2- Personally I look for: A- Skill in being the low-cost operator. There are a very limited number of these people. B- Management with integrity. C- Valuation. Without B the E&Ps get black box-ey. It's not worth it. So CLR (Continental) for example satisfies A but not B; depreciating software over 20+ years is too egregious for me. If there was industry-wide undervaluation, more of these guys would be buying back shares rather than issuing them.

Whoa. Um... the lender is not supposed to mess around with the appraisal value. Otherwise it leads to bad loans being made, which leads to all sorts of problems as shown by the US housing bubble. Trying to influence the appraisal is a dodgy underwriting practice. If the appraiser has to hit a certain value, then it's a waste of money to hire them. (Whatever. A loan with a 30% downpayment is a very responsible loan for the borrower and the lender.) --- The American housing market is a strange place.

Why are they talking about EOR so soon? Is this EOR for wells drilled within the past decade? Here's the thing: -EOR is for wells near the end of their life. -If they're talking about it now, it suggests that their wells are nearing the end of their life. -Usually you don't get a lot of money out of EOR projects because it's used on wells that are near the end of their life. I have a feeling that Lightstream has mainly new wells drilled within the past decade. If the life of those wells is only 1-2 decades without EOR (and that could very well be the case), then the short life may not be good for the economics of those wells. But mainly, you should be very skeptical about their reserves and well economics.

Kevin I really respect your opinion. You are of the same opinion as value trap, another knowledgable poster here I am just wondering how you go about looking at these reserve reports? For others here, here is a report on reserves starting at the bottom of page 14. http://www.lightstreamresources.com/files/pdf/investor-relations/2013/2013%20Annual%20Information%20Form.pdf It seems that reserves are estimated by Sproule, who seems to evaluate most O&G properties that I have looked at. Maybe thats my problem I am looking at the wrong properties. Are these professional engineering groups in collusion with management similar to the financial auditor pre 2008. With the way things are working out I am really doubting myself. I have a very small 1% position but was thinking of adding. The whole reserve report seems to have a lot of estimates. Estimate for future prices, operating cost, etc...I understand how the NPV number can be BS . How accurate are the estimate of actual reserves in barrels of oil. i.e. if they say that they "probably" have 176 million of barrels of oil in reserve, do we care if its 125 or 200 million barrels....Ok I care, I would rather it be 200 but if you're buying all 178 million barrels for $2.26B ($1.5B in Debt + the rest in equity), that works out to ~$13 per barrel..that seems inexpensive. If they end up having 125 million barrels then that ends up being $18 per barrel...still ok assuming that they can still turn a profit I had assumed that the estimates were roughly accurate +/- 20%. The way I see it they are too good to be true. Yet I want them to be true. I really appreciate Kevin4u2 and value trap introducing some skeptism. Hoping to learn something. Hoping not to lose money. There are different ways in which you can fudge a reserve estimate. Auditors and reserve estimation is different. Auditors do not have a duty to find fraud. Their scope is limited. Also, they often aren't colluding with management. They might overlook aggressive accounting. However, it would be extremely rare for an auditor to overlook clear evidence of fraud. They will usually (almost always) resign before they sign off on an audit that will get them into trouble. While there are some crooked auditors out there, and sometimes they have conflicts of interest, they aren't as godawful as the engineers who inflate reserves. Being bad at finding fraud is not the same as participating in it. The engineers who inflate reserves must know that what they're doing is messed up. But they also know that they won't ever be going to jail. Anybody prosecuting them would have to prove beyond a reasonable doubt that they broke the law. Of course, the real world isn't always black and white. There are a lot of shades of grey. Sometimes estimates are a little optimistic but not unreasonably so. 2- Take a look at the ATPG thread: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/atpg-atp-oil-and-gas/?nowap 3- I've never researched Light Stream.

If they buy shares then the shares would be publicly-traded and be fairly easy to value. Yes, management could destroy value by investing in juniors. That's a risk you have to take. But honestly this is one of the easier stocks to analyze. They have a pile of cash (with a stake in one stock) that may turn into a pile of cash and stocks. The future value will likely be similar to today's value. Add in some free money from buybacks and subtract money for the bloated corporate overhead.

PWE: This deserves to sell off due to their accounting issues. They are not as profitable as they said they were. Suppose you have an asset that yields 10%. Then suppose news came out that there were "errors" and that the asset only yields 5%. That would certainly affect the valuation wouldn't it? I don't get why people on this forum don't understand that. SD, XCO: They provide very little information on their cash flows and their forecasted/projected cash flows. So these stocks are like black boxes to some degree. They are ok shorts because their historic cash flows are bad, management is questionable, negative GAAP retained earnings, etc. I shorted SD for a very small profit and covered way too early. SD could go to zero, depending on commodity prices. ADV: Kami isn't getting built any time soon due to low iron ore prices and probably because the mine would be a very high cost producer. LMM hasn't nonimated their candidate to the board, so it is likely that LMM is liquidating. ALS.TO: Same idea... Kami isn't getting built. Drillers: Haven't done my research. Requires you to forecast dayrates. FTP: I don't research stocks that constantly sell stock (except as shorts). SHLD: The short thesis is obvious. This is a badly-run retailer that is bleeding cash. Everything else on your list: I don't understand those stocks. --- There are some stocks that have fallen despite the fundamentals not changing. Ryan Gold and Kobex Minerals are fairly easy to analyze because they are mostly piles of cash. I own a little bit of both. You could also go to SPAC arbitrage land, which is easy to understand and low risk.