Rabbitisrich
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Posts posted by Rabbitisrich
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:o I misread the use of cash. Management used expensive capital indeed to buy back $39 million in debt.
Is there any scenario that will pull the sell trigger for the FBK holders on the board? Does the thesis rely upon 2009 pricing as an exceptional trough, or is the takeover scenario necessary?
I'm so tempted to buy the company on a replacement value basis, but that seems like a roundabout way of hoping that someone will bite the takeover bait, since one could probably pick up the company cheaper if a suitor doesn't emerge and pricing reaches 2008 levels.
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Incidentally, MAJC has just announced that it signed a definitive agreement to be acquired by Bayside Capital for $0.45/share.
http://finance.yahoo.com/news/Majestic-Capital-to-Be-bw-3472550300.html?x=0&.v=1
Do you know why the market is so skeptical about the transaction? It's trading at a 22% discount to the offer price.
By the way, Sanjeev, your patience with people like Rick_V is way beyond my capabilities.
Bayside doesn't have any disincentive to cancelling the agreement.
From the merger agreement:
This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned at any time prior to the Effective Time by Parent if: (a) there has not been any event, condition, change, effect or development that individually or in the aggregate has had or will have a Company Material Adverse Effect; or (b) prior to receipt of the Required Company Vote, (i) there shall have been an intentional material breach by the Company of its obligations under Sections 6.02 or 6.05; (ii) the board of directors of the Company (or a committee thereof) shall have failed to include the Recommendation to Shareholders in the Proxy Statement or shall have withdrawn, modified, qualified or amended, in any manner adverse to Parent, the Recommendation to Shareholders (or publicly announced any intention to do so); or (iii) the board of directors of the Company shall have approved or recommended any Acquisition Proposal (or any committee of the board of directors of the Company with authority to do so shall have approved an Acquisition Proposal).
In other words, Bayside can cancel the agreement, penalty free, if there is no material adverse effect. The extension/waiver language from Section 8.07 may enable Bayside to push the closing date and observe the loss developments.
Given that Lancer Financial is described as a principal member of Bayside, there doesn't appear to be much pressure to complete the agreement. The proposal is more of a free call option for Bayside than a future agreement.
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The creator of this site, Nick Webb, collected some of Buffett's and Munger's best quotes and organized them by topic:
Also, Buffett is going to guest host on Squawk Box tomorrow.
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Maybe the KIPCO deal included a share issuance as part of the private placement. It's a pretty hefty discrepancy.
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One thing RickV missed was that alpha doesn't describe an absolute return. If you ignore the mean-variance assumptions behind the CAPM model, alpha is basically an attempt to match return to some measure of risk.
RickV's point is well taken if there are boardmembers with a 30% allocation to Fairfax who are expecting 25% returns from today's prices. But I think most boardmembers have a much more realistic appreciation for the likely range of yields, and are comforted by management's rigorous attempts to mitigate failure while looking for risk adjusted returns.
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I checked out MAJC when it traded around $0.70 and it certainly didn't appear to be an easy win. Even as the new CEO, who was the former CFO, desperately tried to cut costs, the loss reserves didn't seem to be significantly overstated, and the assets seemed unlikely to outgrow the liabilities. I can understand RickV's intent, though, since a capital infusion could have restored a lot of value, but it's really a situation that required face to face time with the likely principals.
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Thank you to the people at Fairfax for being conscientious stewards of hopes and goals!
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Has management discussed their tax asset valuation given recent profitability? If you assume a 35% tax charge on future earnings, then at $850 NBSK and $650 RBK against $59 per tonne distribution and $20 MM SG & A, the current market cap seems less absurd.
Fibrek seems to have a pretty decent balance sheet now with about $80 MM in cash, but I would rather see a dividend issue than a buyback given the inherent volatility of the business.
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http://www.nytimes.com/2010/09/07/health/views/07mind.html
There are some interesting ideas in here:
- Testing reinforces learning
- Varying your study area helps recall
- Spacing your study periods supports retention
- Focusing upon distinct yet related activities aids performance
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I'm still finding a lot of values if the economy is nearing a trough and will schlump around for a bit. But I'm not finding values that can withstand major inflection point scenarios like what Klarman and Watsa are hedging against.
I have a few liquid stocks like KMX, AN, TU and SPLS that seem to hold up compared to the overall market so I've shed some of my weaklings like CBS, NARA, EIG, and JACK and migrated the funds to companies who should take market share over time. I might actually get out of TU as it's had a good run lately and I'm less comfortable with its 10 year prospects than my other companies.
Hopefully, I am in spots that will continue to take market share in a favorable economy, but that will allow me to sell 50 cent dollars if everything else falls to 25 cent dollars.
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Munger made a point of reminding the last Wesco audience that Wesco's independence was by accident. I think The Snowball reported that the former owner required its independence, and Munger's leadership, as a condition of the sale (I might have remembered wrong!). He said that he and Warren had wanted to fully incorporate Wesco years ago, but that "groupies" drove the price to unreasonable levels.
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The SF Fed posted two articles that are relevant to this topic:
http://www.frbsf.org/publications/economics/letter/2009/el2009-19.html
This article references a model that looks at lighter than expected declines in core inflation to infer that the ouput gap is less than estimated by the CBO. If the natural unemployment rate has risen--8.6% in the August 2010 update!--then pricing pressures should be comparatively subdued.
http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html
This other article looks at Japan's non-financial private business develeraging throught 90s as a benchmark for U.S. household deleveraging.
Assuming an effective nominal interest rate on existing household debt of 7%, a future nominal growth rate of disposable income of 5%, and that 80% of future saving is used for debt repayment, the household saving rate would need to rise from around 4% currently to 10% by the end of 2018. A rise in the saving rate of this magnitude would subtract about three-fourths of a percentage point from annual consumption growth each year, relative to a baseline scenario in which the saving rate did not change.
Emphasis added. The model assumes a near-term impact of (.5%) on GDP along with a 5% growth rate of disposable income in a 10% savings rate environment :-*.
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Long- You might find this thread on portfolio construction of interest...
Thanks for that link. It has useful content including the VIC presentation with the exact title of interest to me.
Looks like, ultimately, mental make up decides the concentration. I have had to make many mental adjustments, including the one which lead me to post this thread. I have never felt more comfortable than now with concentration, despite uncertain markets and such. I sleep well now. Also my mental make up today is to not be a busybody in the name of "finding" values. My question "how many 15% ideas?" has this in background. Also that value investing is a loose term. Lynch was right, when you take your 15% to the bank it does not matter if it came from 1 or 3 or 100 ideas, it is just greenback. I (we) have been spoiled that for ten long years, FFH and BRK continue to be deep value ideas themselves, making me not work hard at all. I doubt very much that 5 years from now we will see this kind of opportunity, so I am making the proverbial hay now. It does not get better than this. Never-in-history times will be these....looking back from 2020 or later! I have even bought the mythical "$10000 invested in BRK in 1954...." in my kids accounts at these prices. Simply unbelievable!
I think that the role of emotions in "rational" decision-making is deeply underrated. There are so many factors to consider in even small decisions that if we had to work through them all we would just sit at home considering nuances. Just like ants use pheromones to communicate short cuts, we use conviction, boredom, greed, etc. to guide our logic systems.
That being said, diversification is a hedge when the nuances become a big deal, and our decision making framework skips over the difference because of years of success. I would point to Bill Miller with financials, Weitz with Countrywide, and Pabrai with DFC and CCRT and PNCL. It's easy to point fingers at their mistakes, but it's more productive to realize that all those men are very smart and very successful and they still screwed up. My guess is that their past successes produced emotional networks which caused them to feel too comfortable with some risks, and too certain in the face of new information.
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I think the statements Hawks references are simply generalized statements about uncertainty about stock theses. Every bottom-up analysis implies a macro view, and most value investors try to mitigate an imprecise macro view with price discounts and scenario tests. Keeping cash on hand allows for maneuverability if new information comes along that blows your views apart.
I remember in March of last year I felt a surge of undifferentiated anxiety. I kept looking over my holdings in an unproductive fashion. It wasn't until I forced myself to be specific about contingencies that I could make some money.
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It's a bit scary that the CFO resigned given that he was appointed by the current CEO, who had been the CFO from '05 to '09.
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Sorry to hear about the job loss. Have you considered Singapore? It's a great city for foodies, and it has a pretty robust financial community.
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I like Weitz's fund, but his experience with Mozilo really informed my distrust of managers. They knew each other for over a decade, but Mozilo still burned Weitz when it seemed that the relationship no longer represented business value.
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Anyone have thoughts on SUR's excess capital? It seems like they have plenty of statutory surplus, flattish written premiums, and a low yielding portfolio.
Assuming that loss experience doesn't hike up, it seems that management should pay dividends or repurchase stock. They could have done so from 2008, actually, if we assume a steady loss experience.
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The gov will make sure it's inflation. Deflation will kill the economy.
http://www.frbsf.org/publications/economics/letter/2010/el2010-24.html
Figure 3 exhibits the herculean task the Fed is undertaking. Not surprisingly, Watsa spoke about this factor last year with his 20% of spending against 80% of the economy quote.
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Or actually, shouldn't the liquidity discount (premium) be implied by the current rate of T-Bills?
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Wouldn't the liquidity discount be a negative number with regard to T-bills? I thought the LIBOR-OIS and TED spreads demonstrated the cash like quality of perceived "risk-free" securities by showing how valuable they became relative to risky securities.
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If you agree with the 12% growth estimate and the 1.5X book valuation, then you are implying a 10.5% return at intrinsic value. That's a pretty high required return relative to current borrow costs, and a pretty low growth estimate relative to historical returns. 1.5X is a good starting point to think about selling significant amounts of stock, but I would want ready alternatives before selling at that price.
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thanks for posting this - can anyone clarify the comment from the Q & A section about buying a runoff portfolio? I never heard about this??
thanks
Zorro
They made a purchase through TIG: http://www.marketwatch.com/story/fairfax-financial-holdings-limited-second-quarter-financial-results-2010-07-29?reflink=MW_news_stmp
Search for "On June 11, 2010, TIG Insurance Company ("TIG"),".
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If we are assuming financially savvy management, then, as a small investor, I would prefer buybacks.
The company can act as a source of liquidity to draw out less savvy sellers and pass the value proportionally to the holders. In a dividend situation, the extra value will concentrate on the most liquid holders, as everyone else can only apply their dividend plus small reserve to purchasing stock.
Ericopoly, I definitely appreciate your arguments, especially considering the prices I've seen for actual buybacks. However, regular dividends seem to have a stultifying effect on shareholders. If the company needs cash and wants to cut dividends to issue equities, you get massive selling. If the management wants to divert attention from operations, it increases dividends. There is something about giving out cash that seems to placate people.
Networth of board members
in General Discussion
Posted
Brox, I don't think the distinction between a financial asset and other asset categories is useful to this thread. Personal net worth should utilize accounting methods that most closely represent economic reality, as opposed to GAAP which prioritizes clarity and uniformity.
That notional value may be difficult to measure does not eliminate the economic reality of the asset. If accuracy is your goal, it is no more conservative to understate an asset's value with a cost basis than it is to overstate the value.
It would be more accurate to separate the liability from the asset. In the case of a house, you can create a contra account or a liability account for the PV of expected expenses, while also accounting for the PV of expected realized value, or the current market value. This method provides for a range of expected outcomes instead of stuffing those outcomes into the asset or liability side based on the direction of cash flows over some arbitrary period.