bizaro86

This is sort of a general question spurred by your suggestion. Where do you find the documents describing the terms for such debentures as these? I took a look on SEDAR for company filings but I have no idea what the filing would be called (if its even there). Hopefully this isn't too dumb of a question. Not at all. The prospectus is on Sedar. It is filed as Final short form prospectus, and dated Dec 23, 2010. I generally find it easier to search Sedar by date rather than filing type. If you google "Southern Pacific sells debentures" or something similar, you can find out when they sold the securities, and the prospectus will be on Sedar around that time. Hope that helps.

My current favourite speculative potential multi-bagger is STP.DB (trading in Toronto). The company is an oil producer with a 2 producing assets. One that they bought at a bargain price a few years ago and have started starving of capital due to their extremely distressed balance sheet/cashflow position. The other is an oilsands project that has been continually having performance issues. The company is not likely to be able to repay the debt they took on to build the oilsands project without a material improvement in its productivity. I think the company is almost certain to require CCAA/restructuring, but I think the debentures are a potential multi-bagger anyway at their current price of $2.50 per $100 of par value. The company recently sold a non-core asset for $19.5 million, which gives them enough liquidity to meet their December debt payments and operate for a few more months after that (probably 3-6, depending on various factors). The debentures are owed $3 per $100 of par value this december, so a speculation could return all its capital in a short time if they make the payment. If they don't, they would convert the debentures to shares at Par, at a 5% discount to the recent share price. This would be my preferred option, as although that would immediately tank the stock even further, I'd probably be able to sell the shares for more than the current debenture prices indicate, and likely for a 3-5 bagger. The hugely speculative upside option is that they make the payments in december, and their production turns around from ICD installations (inflow control devices have been installed at the oilsands project, and scuttlebutt is they're starting to work). If they do, the debt could be worth 30-40 cents on the dollar easily.

I'm sure the market will provide lots of those in every industry on a regular basis. (GTAT was another recent one in a pretty different sector). I'm pretty levered to the sector via my job/stock options/real estate interests in an oil city, so I try not to overdo it on the O&G investments, but some of this stuff is very cheap. I have a full position in LTS now, and can't help but thinking the board should be frustrated enough to sell the entire SK operations to Crescent Point any day now... I also have a decent size position in Touchstone, which I inherited from the old Petrobank which was a net-net when I bought it. I have a hard time figuring out the Trinidad assets there, but I really like their SK heavy assets now that they've finally given up on THAI. Slap a modular (Propak or Oak Point) SAGD facility down (or just modify the existing THAI one) and those lands would make a material amount of free cash flow. If CNQ gets too much cheaper I'll load up on it. They're the lowest cost operator in the basin, and if there are big distressed assets on the market they're the guaranteed buyer.

Depends on the accounting standard used. For instance, Canadian REITs (and hotel companies) usually mark their real estate to fair value every year, as we switched over to IFRS from GAAP a few years ago.

In the medium term I think depreciation can be ignored for cash flow, but it eventually catches up with an asset. If you were taking a very long view (which may not be necessary) you should include some sort of estimate, as large building wide renovations probably end up getting capitalized, even though they're necessary to keep the asset productive. As an example, KingSett and Innvest just bought the Fairmont Royal York in Toronto. The property is in the midst of a $100 MM upgrade, and the new owners are planning on doing an additional $50MM upgrade. The property has ~1300 rooms, so they are doing about $115k per room in renos, which is signicant. Granted the hotel is extremely old. On the other hand, the implied valuation of the hotel from the deal is only $186 million AFTER the previous owner put in a $100MM reno. And the hotel sits on extremely valuable land right across the street from Union Station. So the renovation is an extremely large portion of the value of the hotel building, suggesting that depreciating the previous building to very close to zero would have been economically accurate. http://www.thestar.com/business/2014/10/28/royal_york_sells_for_186_million.html

Thanks!

It says the conference call auction doesn't start until Oct 28th.

I've never been a reserves evaluator, but I have argued with one that my property deserved more reserves... :D Seriously though, Sproule is one of the the three consulting firms generally used in Canada. The other two are McDaniel and GLJ. They care about their reputation, so they're not likely to outright lie. However, the assumptions that go into their evaluations are highly maleable. I like looking at proved numbers, because in my experience they're (evaluators in general not Sproule specifically) much less willing to move on proved numbers than they are on probable.

I don't have a position in either, but CNQ has much better management, imo. The company consistently makes the best acquisitions in the business, and has a much better track record than Suncor. (Over the last 15 years they're about a 10 bagger vs about a 5 bagger for Suncor). I've dealt with both companies in various ways, and know people employed at both. CNQ has the attitude of a low cost operator, and makes their decisions in more of a "capital allocation" way. Having an owner-operator (Murray Edwards) at the helm helps with that, I think.

CNQ is the other big one

They managed to name most of my oil and gas shorts. :o Um... you should probably avoid any resource stock written up on VIC as a long. For whatever reason, VIC is very good at identifying the worst stocks as longs- ATPG, Yukon Nevada / Veris Gold, ?Goldgroup? GGA.TO, Baja Mining, MILL, etc. etc. I would guess that it's people stretching outside their circle of competence, maybe trying to fill their quota of two ideas per year? To the OP, the 6:1 ratio has no value for an investor. I would ignore it, and deal with oil and gas reserves/production separately in your analysis.

They're trying to win back Canada...Gretzky came out wearing his Canadian tuxedo (full denim) with a hockey stick, light beer, and Blackberry. What self respecting Canadian wouldn't buy the phone after that eh? I didn't see the video. But if you're American, and observed him having what you'd consider a light beer, what was the brand? Dasani? :D

If people are getting more aggressive selling puts, it makes intuitive sense to me that they would be moving strikes closer to market prices.

I'm not going to supply any reasons not to worry, and my understanding of skew is limited at best. However, I would suggest you invert that thought. If you're worried about too many people selling puts and being exposed to a downturn, maybe some of those puts are a +EV buy right now? Maybe slightly out of the money puts on big names, the type of thing people would figure doesn't have much downside risk. Even KO was down ~33% from its 2008 peak to trough...

Yeah, I probably wouldn't have invested in them in the early 80s even if I'd been investing then. The "we're putting money into LBOs run by our old buddy the principal of the Jordan Company and not disclosing any of the terms or deals" is something I would have found pretty off-putting.

Certainly, I wasn't appreciating it for insight into Leucadia, rather looking for strategies and thought processes that have been effective in the past.

Thank you very much for this! I'm up to 2006, and just starting to hear about how subprime just isn't cheap enough to be interesting, and is probably a bubble. Exciting stuff. Interesting to me how much their strategies varied over time. At the beginning they benefitted significantly from reorganizing/debt exchange, which gave them a huge increase in book value right of the bat. In the 80s they participated in LBOs, owned securities, bought manufacturing businesses/insurance, and took greenmail. In the 90s they went big into distressed insurance and sold out for huge gains, and did subprime auto loans, which they stopped doing well before the crash as they felt they weren't getting fully compensated for risk. In the 00s there were some big commodity investments. It seems to me they caught the cycle in each decade. They didn't seem to focus on macro, just cheap businesses. Very inspirational, I'd be very interested in seeing what take-aways others have from this great resource.

I do a quick net work calculation ~1 time per year. Since a significant portion of our net worth is still investment real estate, there is real uncertainty to the values on the asset side. To those doing this more often: Are you changing actions you take in your life because you have this information? What insights have you gained from the process?

I have a pretty deep familiarity with one of the projects on that list, and their numbers are not even close to reality. Critical thinking also suggests consider the bias of the source. From the "objectives" page of carbontracker.org, who generated this:

Alert do you recall which publication that was? I'd like to look it up if possible. Daily oil bulletin, maybe?

Surely you don't believe that the existence of something is dependent on being able to prove the existence of that something? Did black swans not exist until the Europeans sailed around the world and discovered them?

There are definitely costs. If reality is a certain way but your mental model of reality doesn't match it (nothing is 100% perfect, but you can be closer or farther away), you won't be thinking as effectively as you would if you had a more accurate map of the territory. Since all your choices and actions are derived from how you think, your whole life is changed. Religion has a cost, because if you really believe, you have to do and think what whatever religion you follow tells you to do, things you might not do otherwise. People who pray for a cure instead of going to the hospital might be dying because of their religion, for example. I, for one, am glad that engineers follow the laws of physics when designing something rather than leave it up to god to make it work (Inshallah, as the devout muslims say). A religion that imposes not costs whatsoever (even if just in time and energy) on the follower is basically the same as no religion at all. Unless it's just a custom made up religion where the person just says that god wants whatever they want, which is another kind of problem... You can't have your cake and eat it too. I've done the odd engineering design, and have managed to follow the laws of physics. I would suggest that you have a false equivalency. A bridge design depends on Newton's laws and predicting the well understood modes of failure. (It also has a margin of safety). A belief or disbelief in God is fundamentally different. As I posted above, one is verifiable, and one is based in uncertainty. They are at their core different types of decisions, which require a different mental model.

I believe Wealthy Barber was also a big hit in the States. I recall reading actually a couple editions of it in the 90's at some point. That was a pretty good book for what it is. I remember the story around which Chilton weaves the investment advice was well done. I always remembered the first part of the book when the main character talks about how great spring is because school is almost over (I believe he was a teacher) and one had the Tigers, Pistons and Red Wings on tv all at the same time (he's supposed to be in Detroit). Interesting. Looks like they made a version localized for the U.S., because Wikipedia says the story is set in Sarnia, Ontario: https://en.wikipedia.org/wiki/Wealthy_Barber Wikipedia also says: "The basis of the book is Roy's advice to "save 10 per cent of all that you earn and invest it for long-term growth." In that, it draws from the advice first set forth in The Richest Man in Babylon. " Detroit is by far the closest major city to Sarnia, ON. People growing up there would quite possibly be fans of Detroit sports teams, and it's probably where they'd go to watch a game. Toronto is nearly 3 times as far.

Of course, the burden of proof discussion above is a reasonable point. To prove the existance a diety is something nobody has been able to do, and of course it is essentially impossible to disprove the existance of something. (That's the black swan problem, just because you/nobody has seen one doesn't mean they don't exist). Proof is actually something that I don't find very interesting. Decisions made in an uncertain environment are much more interesting. Rationale inferences made from incomplete information are one of the foundations of investing (if you had perfect information about the future a margin of safety wouldn't be required, and the market would be efficient).

;D So is a deity a value investment?? Since belief doesn't cost anything in and of itself, and has the potential for significant intrapersonal/emotional value, you could make that case. Of course, disbelief doesn't cost anything either, and people seem to be just as passionate about that... Actually, this discussion reminds me of two things that I'd never associated with value investing, but seem apropos: 1) The sunday school definition of grace: "God giving me a free gift I don't deserve" referenced from Ephesians 2:8 "For by grace you are saved through faith, not of yourselves, it is a gift from God" I love free stuff. 2) The classical upside/downside argument for belief in God, which is a decision tree with two branches. If there is the existence of God, and I believe in him, then I receive the supernatural rewards of that belief. If I don't, then I don't receive those rewards. However if there is no God, then belief in God doesn't appear to have harm, as we would all be lifeless and decomposing in the absence of an afterlife. It sort of feels like a call option to me, with a very low premium. No cost, but potential significant upside. Not much downside either. Might be mispriced.