bonechip1

Should work out even better for Francis Chou's RRSP fund with a 26% weighting in the fund. I'm wishing I still held all the warrants I bought in 2009.

I actually enjoyed this book. It was a quick read for sure, and didn't delve deeply into topics, but I don't think that was the point. I think it was more along the lines of Jim Rogers "A Gift to My Children". I don't think it was geared to those who have deep experience in finance. However, I especially enjoyed his thoughts on philanthropy and partnerships, and his recommendation of Roger Rosenblatt's Rules for Aging is also a fantastic recommendation. When I read a book these days, if I change my thinking about 1 big idea, I feel it was a worthwhile effort and I feel Get Smarter did that for me.

Videos from the Pershing Square Challenge at Columbia earlier this year. Not so much for the investment ideas themselves, but I thought these videos were extremely interesting to watch how guys like Bill Ackman and his cronies critique an investment idea: http://dev7.gsb.columbia.edu/kaltura/node/1294/video http://dev7.gsb.columbia.edu/kaltura/node/1252/video

Video of Li Lu on a discussion panel at Columbia: Intelligent Investing Since the Crisis: http://dev7.gsb.columbia.edu/kaltura/node/1246/video

If you enjoy Greenblatt's books and interviews, you will probably enjoy the following blog, in particular the Lecture posts/notes: http://csinvesting.wordpress.com/

Hi Partner, Sorry for the delay. I think you get the assets at a discount, and the jockey for free. I am by no means an expert on this industry, and my bet is 95% on the jockey, and 5% on the assets currently owned. This is a back of the envelope valuation, but starting with dissolving pulp division, if/when they can get to production stage, delivered cash cost was estimated (in the presentation that I previously linked to) to be $600 US per tonne at time of acquisition. The dollar has moved since then, so say delivered cash costs are now $650 per tonne. The sales agreements, if you believe they are binding, lock in a majority of the DP production around a floor price of $1200 for 78% of the 200,000 tonnes of production (half for 5 years and half for 10 years). So their EBITDA per tonne should be $550 at the floor price. Multiply that by 78% of 200,000, and the supply under the agreements should produce EBITDA of $86 million, for an EBITDA margin of 36%. That does not include the other 22% of the production that is not locked into a sale agreement. Obviously this is not a capex light business, and granted there are other costs (including interest, taxes and corporate costs) but I think one could argue, at these types of margins, and with the agreements in place (again assuming they are binding) that someone would surely be willing to pay at least 5X EBITDA for these assets. So that would value the 78% of production at a little over $400 million. For the Dresden assets, there was a rumour that they turned down an offer a few years ago in the $150 million range from a competitor. That is reasonable, as the assets earn $20 million in EBIT annually which should continue to grow. The Landqart assets have been a bit of a disappointment, but they should be able to improve op margins into the range of competitors like De La Rue (20% op margin) once they fill new capacity expansion, as new R&D initiatives like Durasafe gain traction, and as the industry returns to normal conditions. In the medium term, they should be able to generate at least $100 million in revenues with the new capacity, and if they can ramp up to running the full capacity producing entirely higher margin banknotes, this revenue could approach $200 million (10,000 tonnes * $20,000 ave selling price per tonne) and even more if they can gain some traction with Durasafe notes - which I think would sell as high as $28,000 per tonne. At a 20% op margin, this division at full capacity producing Durasafe could be worth $560 million at a 10X EBIT multiple - although that is getting into the speculative realm, it is possible in the next 3-5 years. However, for now, to be conservative, we'll say they can get up to an ave selling price of $10,000 per tonne on 10,000 tonnes at a 10% margin. Multiply that EBIT by 8X, and you get an $80 million valuation for this division. Add the totals up, and you get $400 million for 78% of DP division, $150 million for Dresden and $80 million for Landqart for a total of $630 million. A little over 14 million shares fully diluted, and you get a floor value of $45 per share. Not included is the additional EBITDA that would come from the other 22% of DP not included under contracts at whatever the spot price is at the time. Also, not included is the additional EBITDA that would come from anything over the $1200 per tonne minimum sale price in the agreement (one set of agreements has a $1200 to $1600 collar and the other has no maximum price). Chad has been trying to add capacity in all 3 divisions at the right price, and I think you will see an announcement or two by the end of the year. And of course you get the CEO for free (well not quite free but you get him cheap). I think my numbers above are quite conservative, and if you input a higher spot price on DP, and use a slightly more aggressive multiplier, $100 - $125 per share wouldn't be totally unreasonable for an upper limit on IV. Hope that answers your question. By the way, your written English is better than some of us who's first language is English.

Liberty, Lanqart and Dresden contracts with unionized employees are renewed every year, and at Thurso there are 3 unions, and the contracts are not up for renewal until 2016. From what I know, there are no issues with the unions however I have not verified this independently. There have been no work stoppages in the time that FTP has owned these mills. The Thurso unions gave up some concessions on the current contract to get the deal completed, and were quite happy to get back to work from what Chad has said. Certainly labour relations are a concern, but shouldn't be a concern at Thurso for some time.

Liberty, I think that the share price is modestly undervalued at current levels and you get the CEO for free. Although it's difficult mentally to pay 8X what I paid for the same shares 3 years ago, the facts have changed over the last several months, and so I recently bought more at $42 per share (although I had sold some recently as high as $62 per share). Most analysts have FTP earning in the $7 EPS range in 2012, using conservative dissolving prices that are about half of recent dissolving prices. Recent prices have been in $2,500-$3,000 per tonne range. I think that $7 EPS is reasonable and conservative. At today's dissolving pulp prices they would probably be earning roughly $15/share from dissolving pulp division alone. Current dissolving pulp spot prices will most likely drop, as recent dissolving pulp capacity additions have been announced - nothing attracts competition like high prices. Marginal cost of production seems to be in the $900-$1,000 per tonne range, and FTP are a lower cost producer, so delivered cash costs are $600. So even if low cost capacity is added, there is a large cushion to maintain profitability. The non-woven wallpaper base division should earn $1.50 per share in EBIT. The Landqart security paper division should be earning at least the same amount or more once recent capacity additions are filled, and new R&D products gain traction. Next year, they will build the Thurso cogeneration facility and sell power back to the Quebec grid at attractive prices, that will add another $1 EPS. The balance sheet is solid, and cashed up for another acquisition or 3. Here is a presentation that FTP released shortly after the Thurso acquisition was announced last year. A few things have changed - obviously the dissolving spot price is much higher than forecast, USD/CAD has changed for the worse, and cogen estimate will be about $25 million more than forecast, due to inability to find used equipment. Thurso conversion is on time and on budget. http://www.fortresspaper.com/pdf/FortressSpecialtyCellulose_April_15_2010.pdf

rogermunibond, I'm very impressed with what Chad has done at FTP, but my concern is that his CoC seems entirely within commodity industries (uranium, gold, paper/forestry), being from western Canada I suppose that is not surprising. You hunt what's in your backyard first. Suppose the commodity world goes from being undersupplied with excess demand to the reverse, oversupplied with lack of demand. What then? Then he goes after more distressed assets at the trough of the cycle once again - no different than buying the Landqart, Dresden and Thurso assets - that is the part of the business cycle that Chad shines. On his circle of competence, before he invested in the pulp and paper industry he had little knowledge of the pulp and paper industry. Sure there is some carryover from investing in other commodity businesses. But he has shown a remarkable ability to perform due diligence and come up to speed on a distressed industry very quickly. I think that the fact that he has been involved in commodity type businesses recently has more to do with where he was finding the best value. In regards to your concern about demand drying up for commodities (say Chinese demand growth for rayon doesn't materialize), I would argue that FTP's businesses have weak moats around them with some competitive advantages that would carry them through the bottom of the commodity cycle - if you look at 2008/2009 period, Dresden business performed remarkably well because they are the low cost producer of non-woven wallpaper base with the economies of scale that come from a 50% market share. Thurso should be a low cost producer when up and running as well. In addition, the Thurso debt is mostly non-recourse to FTP, so they could hypothetically walk away without risking the rest of the company if that is a concern. Would Chad be able to change gears and do what Buffett or Cumming/Steinberg do? I think Leucadia and Berkshire have always done something similar to what Chad is doing currently and they have made some of their largest gains on distressed/underperforming assets. For a brief list - Leucadia made a killing on turning around distressed insurer Colonial Penn and acquiring distressed Finova assets in Berkadia JV with Berkshire. Washington Post and Buffalo News were unprofitable and suffering when Berkshire invested in them, and GEICO was near bankruptcy when Buffett brought in Jack Byrne to turn it around. I would suggest that Chad has one upped Steinberg/Cumming and Buffett in investing in distressed/underperforming assets. Chad doesn't just acquire distressed assets and turn them around by restructuring them, he also identifies higher margin uses for the assets prior to acquisition. The Thurso mill will be the third time that Chad has done this. For example, when the Dresden mill was acquired, it was producing mostly low margin Simplex and Duplex wallpaper base. Soon after acquiring the assets, he upgraded them to produce higher margin non-woven wallpaper base. He did the same with Landqart - from mostly low margin specialty papers to high margin security/currency paper (although the real rewards are yet to materialize here from this upgrade of assets). Buffett has mostly gravitated to buying great businesses at good prices, and Leucadia has recently stated that future purchases will be in this category as well (I would state that Steinberg/Cumming have no track record in buying great businesses but I am sure they will be fine). There is so much less competition in buying the types of businesses that Chad is buying. I believe he was the only bidder on the Thurso asset. If you can identify a distressed business that you can buy for less than scrap prices, and you can turn it into a good business with a modest investment, that to me seems to be the path to investment nirvana. There are very few in this world who can do this well, and there should be a supply of these types of assets available until they become too large to move the needle with these types of purchases (they only need one every 2 or 3 years). I will probably be long gone by that time. Last point - Buffett and Munger have said something to the effect that the biggest predictor of success in the business world is if a person started their entrepreneurial career at a young age. Chad's paper trail is superb here and I would say matches Buffett's entrepreneurial endeavours in his early years - in fact I think they overlap somewhat in some of the industries they were involved with (sale of used golf balls).

biaggio, Chad's interests are certainly aligned with shareholders, and I believe his FTP stake now accounts for the majority of his net worth. He just signed on as CEO for another 6 years, but even if he steps out of a day to day role, I am sure he would have a significant control over capital allocation decisions. However, he has been known to exit investments when they are trading above intrinsic value, so it's a possibility he could exit the FTP scene. Also, if he stays involved longer than the 6 years he signed on for, he is not married to the pulp/paper industry and is willing to go where value is. With 6 years of solid allocation of capital, he could set the company up for many years beyond that. Biggest risks/short thesis: FTP signed agreements with Chinese dissolving pulp customers at a floor price of $1200 per tonne. With the legal system in China favoring Chinese companies over outsiders, not sure how enforceable these agreements would be if prices fell below the floor. Also, agreements price dissolving pulp in USD, and majority of company expenses in CAD, so there are also risks related to devaluation of USD. Also, if dissolving pulp transition was delayed, they may see significant losses if they continue to produce NBHK in a declining commodity environment, as they are a high cost producer in NBHK. Related to this, the business plan estimates they will be a low cost producer of dissolving pulp, but this may not materialize. Other risks related to dissolving pulp - if dissolving pulp production is delayed past Q3, they could be on the hook to supply dissolving pulp to Chinese customers under agreements, and may have to purchase pulp at spot prices which could be disastrous at current spot prices. Delays could be a result of recent lawsuit, or just conversion problems. Management has stated they would also like to double non-woven wallpaper base capacity, and so there would be risks related to acquisition/new build out. And in the security paper division, trust is huge in this industry, and it takes only one rogue employee to kill a reputation. Lastly, Chad's comments at the end of the linked article saying "The deals are getting bigger and better and easier" is slightly concerning. From personal experience, my biggest mistakes have come shortly after huge successes when complacency sets in. However, despite that comment, I trust that Chad is rational and won't let his recent successes cloud his thinking. I think the current stock quote prices in all these low probability risks and doesn't put any premium on Chad's deal making abilities. At half the current dissolving pulp price, FTP should still earn $ 6 or $7 EPS. If you believe Chad, private market value of a dissolving pulp mill with less capacity than Thurso is $400-$500 million and new build would be double that. They have had inquiries to sell the Thurso mill. He also mentioned in another recent interview something to the effect that there is a potential for multiple arbitrage, in that these types of assets are rated at twice the multiple on Chinese public markets (I haven't verified this). Not sure if the capital would be captive within China if they took Thurso public in China, but it is interesting food for thought nonetheless - good to hear that Chad isn't married to any of the assets and would be willing to monetize them at the right price. I sold a large chunk of this one over the last 6 months as it had become an oversized position in the run-up, but have recently added to my position again for the first time in 2 years as the price has dropped by 1/3.

Chad Wasilenkoff of Fortress Paper is my highest conviction pick for best owner/operator. Reminds me of a young Steinberg/Cumming. He's in his late 30's. Last week I told my brother that if Chad sticks around for the long haul, I think he will best Berkshire's record over it's first 25 years as a public company - not an insignificant feat at all, but that's how much faith I have in this guy's capital allocation skills. http://www.globeinvestor.com/servlet/story/GAM.20110325.ROBMAG_APRIL2011_P32_33_34_35_37/GIStory/currencies/ Paul Smith at EQI-T is a smart owner/operator who should do pretty satisfactory going forward. I also have been impressed with the management team at XPO-A. Excellent operators, excellent capital allocators, although I would like to see management own more stock. Disclosure: I own all of the above except for XPO, which I owned up until late last year.

Thanks valuesource.

I recently read The Mind Map Book and The Speed Reading Book both by Tony Buzan which were both worthwhile and quick reads. I would put both into the smart reading category in addition to Adler's book.

Anybody have a source for the number of FFH shares that are currently sold short? Thanks, Chip

Investor 1 Ken Shubin Stein Investor 2 Burry Investor 4 Guy Spier Investor 5 Ackman Investor 6 Zeke Ashton