manualofideas

Who knew? George Bush was "the decider," and Sardar Biglari is "the sole capital deployer." Good luck!

Hi MVP, we're honored and humbled that Mohnish mentioned MOI. His comment was very generous to say the least, because we certainly would not claim to be even close to the caliber of the other sources he mentioned...

We sat down with Howard Marks for an hour recently. Here's an excerpt: http://greatinvestors.tv/video/howard-marks-on-the-twin-pitfalls-of-overconfidence-and-lack.html

SD, from your mouth into God's ears... However, the realist in us says the most likely scenario is that the deal announced today is consummated without any changes. So much for the sad FBK saga. With better management, we could have been easily above $2 by now...

"Resolute is pleased to announce that the principal members of Fibrek's outgoing management team, including Pierre Gabriel Côté, chief executive officer, and Patsie Ducharme, chief financial officer, have agreed to assist in the transition process as special advisors until May 31, 2012." Cote gets bought off with a special payment by ABH... No wonder -- that management team has always only cared about themselves, not the shareholders. If they had not done that unnecessary rights offering a couple of years ago, there might still be an independent Fibrek today, with a much higher stock price.

Here is a good place to get bond quotes: http://cxa.marketwatch.com/finra/BondCenter/AdvancedScreener.aspx

SD, from your mouth into God's ears... However, the realist in us says the most likely scenario is that the deal announced today is consummated without any changes.

It will be hard to get any more money or stock out of ABH. If Fairfax or Pabrai were gunning for a higher offer, they would not have agreed to this provision: "... the Locked-up Shareholders have no ability to withdraw any Fibrek Common Shares to tender to or facilitate any competing transaction." Minority shareholders have been taken in much much more egregious ways recently, not least in the recap of Compton Petroleum, another TSE-listed company. The Fibrek deal doesn't even come close to the way minority shareholders were screwed in the Compton deal. Yet, the Compton deal went through. With Fairfax and Pabrai on board with the ABH offer, it seems like wishful thinking that the offer will change between now and December 31. It's a sad outcome for Fibrek shareholders because there was a lot more value in Fibrek (or at least potential value). Management really screwed up on the execution, and it's no surprise that Fairfax is kicking them now with no warning. Probably the best option for Fibrek shareholders is to seriously consider the stock offer and to try to capture some of the upside by becoming ABH shareholders. ABH does look interesting at current levels.

This video of Elon Musk is excellent:

Overall, our analysis agrees with Berkowitz's conclusion that Bank of America is undervalued. However, some of the information in his presentation is a bit sloppy. On slide 8 ("when others are greedy"), he shows how Fairholme raised cash when the S&P was riding high at the end of Q1. The chart shows that the S&P had barely changed by June 30, yet Fairholme had already deployed most of its available cash. This does not exactly prove the point the slide is trying to make. On slide 11, the math is too simplistic. The last step, i.e., getting from 10% to 20% is wrong because the variable that matters most in that context is time. If it takes 20 years for the discount to close, the return will stay pretty close to 10%. If it takes only one year, the return will be above 100%. So, to say that the implied annual return is 20% is fairly meaningless. Slide 15 is not exactly helpful to Fairholme's case, because whenever you have the kind of aggressive asset growth in boom times, the assets could be less than of the highest quality. Again, these details don't mean BofA is not a good investment, but we wish Berkowitz would have made a stronger case.

We profiled HII in the September issue of The Manual of Ideas. We're attaching a couple of files that might be helpful. Here is also Ravi Nagarajan's post in our online members area: moi20110901_superinvestors_hii.pdf hii_manual-of-ideas_20110901.xlsx

Hi guys, we'd love to answer the questions but just want to wait for Sanjeev to reply whether it's okay. This board is great partly because people don't promote their products here, and we don't want to break any rules. Thanks for the patience!

Hi, we are huge fans of this forum and would definitely offer a special subscription rate to the board members. However, we're aware of the non-commercial policy and don't want to do anything that Sanjeev doesn't approve. Sanjeev, if it's okay with you, we will post a discount here. If not, no problem. Thanks and keep up the great work!

I totally agree. I just don't like the way he approached this whole thing, and I'm suspect of how covert he keeps his operations. This strikes me more as Barry Minkow's "Fraud Investigative Unit", then say Bob Woodward and the Washington Post. Cheers! Yes, that's right. Ideally, regulators like the SEC would uncover the obvious frauds so that investors can have confidence in all companies listed on the major stock exchanges, regardless of their country of domicile.

Carson Block rubs me the wrong way, too. Objectively speaking, however, it's good that someone has called out the Chinese frauds. I find this quote spot on: "Within the fraud-committing circles in China, the U.S. markets were a laughing stock. They thought of Americans as dupes willing to snap up any piece of garbage brought out of China.” This perception of Americans as dummies may be starting to change among the fraudsters in China, and that's a good thing.

I like your ideas but you have to be quite jaded about the U.S. doing anything big if it can't even use its own natural gas for simple things like new government vehicles or 18-wheelers. I have come to believe that the U.S. political system is incapable of producing big change, even if necessary and desirable, until there is a major crisis. Heck, not even the latest financial crisis has produced much of a change on Wall Street. Look who is getting the biggest bonuses today -- many of the same people as in 2007!

We recently published an issue on Japanese value stocks. Here is an excerpt that includes some basic screen results.

A few years ago a Chinese company called China Expert Technology (CXTI) was discovered to be a fraud. They also had a brand-name auditor if I recall correctly (a member firm of BDO Seidman?). Here is how CXTI did it: The auditor signed off on their year-end financial statements, for our purposes this might be December 31, 2009. The subsequent quarterly statements are unaudited, so management can invent them if they wish to do so. The next audited financial statements for the year ending December 31, 2010 would not be due until March 31, 2011 or June 30, 2011, depending on whether the company files 10-Ks or 20-Fs. So, management has more than a year to put out fake quarterly financial statements in an attempt to get the share price up while disposing of their own shares in the company (probably without making the requisite SEC filings), and/or stealing the actual cash on hand. This seems to be what CXTI did -- they disclosed a relatively modest cash number in the yearend audited financials (this was cash from the IPO or something like that). Then in the unaudited quarterly financials they made it look like cash was growing by leaps and bounds and the company was performing incredibly well. By the time the next year's audited financials were due, management had stolen the actual cash that was there and was gone without a trace, and U.S. investors (including Jeff Feinberg's fund) were left holding the bag. There was never any kind of justice nor did U.S. investors see a penny. What's interesting with CCME is that we are also seeing a very rapid increase in cash following the audited financials as of yearend 2009. At December 31, 2009 cash was $57 million. Then on March 31, 2010 it was $114 million (unaudited), and on June 30, 2010 it was $139 million (unaudited). I don't get to toot my own horn too much, but in this case, I think the analogy to CXTI was spot on. Back in September I said that the CCME fraud could go on until the audited annual financials were due. I think this type of fraud should be added to everyone's mental model -- just because the unaudited quarterly financials look good, it doesn't mean that the audited annual financials will look as good or even be released -- ever.

I own FBK and have owned it since $0.20, but I now have to admit that I was LUCKY rather than smart on this one. If pulp prices had not skyrocketed off the lows, this company would have been bankrupt. The fact that they can't turn a GAAP profit in a quarter in which pulp prices averaged well over $900 is inexcusable. They should have made at least $20 million in EBITDA in Q4. Incredible how well MERC is doing while FBK continues to suck. To add insult to injury, now the management team wants to blow more money so they can apply their "Operational Excellence." Prem, cut these guys loose and put some adult supervision into this company!

I'm happy to be the idiot on Compton for a while, just hopefully not forever! I have been loading up on Compton around C$0.40 per share. It looks like Peter Seldin's Centennial Energy has been dumping on me, so your friend Eric Nuttell is not the only one who thinks Compton sucks. I am scared but also kind of excited that these guys who know much more about E&P investments are on the other side of Compton. Sometimes the industry specialists are the ones who miss the easy pickings because they are too focused on the best-of-breed companies in their industry. The great -- or terrible -- thing is that time will definitely be the judge, so we'll see what happens. That's what I love about investing -- there is a scorecard and no place to hide.

For what it's worth, I believe going long a leveraged natural gas producer like Compton Petroleum (Toronto: CMT; C$0.40 per share) is incredibly compelling. With Compton, shareholders can win simply from asset sales even in a low natural gas environment. But natural gas prices won't stay low -- it just doesn't compute that the same amount of energy would cost you $25 with natural gas versus $90 with oil. This gap will close, and some of it will occur due to higher natural gas prices. In a couple of years, it will seem obvious that nat gas prices had to go higher, but right now it's easy to fall for the analyst consensus. Think about it this way: If nat gas can make one boe cost $25 into perpetuity no matter the inevitable increase in demand, the world's -- or certainly North America's -- energy problems will be solved. Do you really think this will happen? I don't think so, but if it does, I'll be happy to lose my shirt in Compton (though Compton has value even at current nat gas prices). I own a lot of Compton, but don't take this as a recommendation to buy, and please do your own work. As an aside, over on the Fibrek board, people are now showing articles about how China will use more toilet paper and how this will make pulp a hot commodity. I remember less than two years ago, in the summer of 2009, many folks saying that pulp was a terrible commodity and that Fibrek was doomed (it traded at C$0.20 then). I still own Fibrek, but I certainly have no illusions about pulp. If the choice is pulp or natural gas, I choose the latter.

Great points txlaw. Berkowitz seems to rub some people the wrong way because he seems to shoot from the hip. However, behind that facade is an excellent investment process and one of the best minds in investing today. Berkowitz wins on judgment, not because he has an information edge. A lot of investors are envious that someone can beat them consistently on judgment alone. Berkowitz doesn't get scared like the rest of them, nor does he get exuberant like the rest of them. This allows him to make contrarian investments when they are priced to yield the most favorable risk-reward tradeoff.

Ted Turner: Call Me Ted (great audiobook version narrated by Ted Turner himself)

philassor, you're right, she does give Buffett more credit in later stages of the interview. Good for her. I felt that in the early part of the interview, she was still emphasizing some bogus criticisms, for example that Berkshire has bad disclosure. In one answer, she had talked about how Warren expected other managements to be transparent, but he was not. She had also mentioned that some unnamed Buffett fans were privately uncomfortable with the level of financial disclosure by Berkshire. This is kind of like The Corporate Library giving Berkshire a poor corporate governance rating. They approach Berkshire with a rigid template and don't realize that Warren is actually giving you all the information an owner would need to have to assess the value of their investment in Berkshire.

I am a bit disappointed that they did not sell more NBSK pulp at near-record prices in Q3. What are they waiting for -- lower prices? The explanation about plentiful world supply is lame. Do they really think that selling an additional 10-20K tonnes would affect the world market price? They are acting as if they are a member of a "Pulp OPEC" so they have to hold back on volume. This is just poor execution in my humble opinion. In any case, Fibrek remains deeply undervalued, and there was a lot to like in the Q3 release, especially the $10 million/year reduction in wood chip costs going forward. Also, as the RBK segment generated a small loss in the quarter, any turnaround in that segment will be a great boost to overall profitability. I sure hope they will sell more NBSK pulp in Q4...