bizaro86

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.

Is the low ROE partially due to holding significant excess cash? Although Japan is not the US, it's still reasonable to exclude obviously excess cash from the ROE when calculating the quality of the business, imo.

I probably should mention I'm in Canada, so a brokerage catering to the Canadians is a requirement. Does anyone have any experience doing this with one of the big bank brokerages? Scotia iTrade and RBC direct investing would be the most convenient for me, but I'd love to hear about others experiences.

I recall seeing the odd discussion around shorting penny stocks in Canada, and was wondering what broker folks have used for that? I'm with IB, and they generally don't have availability for either Canadian stocks or their OTC equivalent at the small end of the market where I'm looking. One additional comment: I'm not intending to naked short penny stocks, a potentially terrible idea as CYNK demonstrated. I'm more looking to exploit market inefficiency's related to warrants, exchange offers and other special situations. No current ideas, but the odd really tempting debt exchange in the past has gone down without me profiting, which seems unfortunate to me. So I'd like to be prepared. Anyway, I'd appreciate all ideas, hopefully from itsavaluetrap and others.

I looked through at it and am afraid I don't have much to add. I probably won't buy it for 2 reasons. 1) I don't have the ability to understand US/Puerto Rico politics. It's just too far out of my circle of competence. 2) As a Canadian I don't benefit from the tax free nature of municipal bonds, which puts me at a cost of capital disadvantage to everyone else in that market. It does seem like the type of thing that is very likely to be inefficient, so I'm sure there are opportunities. I don't trust the legal system in the US for things that are political and unknown, which seems like the biggest risk factor here to me. If they can take away the petroleum tax what else can they take out of the asset coverage? With most of my distressed investments, I felt like the law was pretty clear and what should happen.

Would you be able to share one or two examples of work you were involved in, or hypothetical investments you were aware of as potential case studies for members here? Also, I'd be very interested in hearing what you learned from the experience. What are the most common mistakes? What sources of upside/downside are most frequently missed, etc? Thanks for anything you are able to discuss.

I went back through my records, and Holloway was a better investment than I thought it was. I bought the debentures at $0.60 per dollar, at the end of 2010. I thought it was probable Royal Host/Geosam would rescue them and the debentures would eventually pay out par. However, approximately 1 year later the company swapped their debt for equity at the recently weighted average trading price, as was their right according to the prospectus. This was the downside case in my analysis, so I was disappointed. However, that worked out to one share for every 6.5 cents of par value. After the exchange closed I sold my units immediately at 5.5 cents, for a recovery of $0.85 per dollar, which is a significant percentage gain on my $0.60 purchase price. I also received a few interest payments. Interestingly, the units are currently trading at a split adjusted 11.25 cents, so I should have kept them.

Clearly not, as you broke a major rule of referencing the CFA designation. (I'm just teasing. This is one of the stupid things that the CFA tests cover.) :D I probably should write those exams, but my new baby is limiting my extra time. Then I could (eventually) refer to myself as a CFA charterholder. (Or, apparently more correctly, add the letters CFA to the P.Eng behind my name). One of the other reasons I haven't is my current job (which I really enjoy) wouldn't qualify for the experience part, so even if I wrote the exams I wouldn't qualify.

I love distressed debt. My best investments have all been distressed debt and prefs. Not seeing too much that is appealling in that area right now, would love to hear if others are finding distressed ideas. As a couple of case studies, I would be happy to share a few situations where I've made money, and one where I broke even in distressed debt. I purchased strategic hotels preferred shares at $2 ($25 par value) in 2009. It was the end of the world, and nobody would ever be able to refinance any debt ever again. I did a little bit of research (the Four Seasons Punta Mita is off the hook, I didn't have the cohones to try deducting the trip as an investment expense) and concluded that their assets covered their debt and the prefs. The debt was individual mortgage non-recourse, and mostly wasn't due in the near term. I unwound the position at prices from ~$4 (one of my biggest mistakes ever was selling a big chunk after the double) to ~$22. They eventually paid out par. But that was in 2009, when everything was on sale. My next biggest success was buying American Airlines debt at the time of its bankruptcy. I bought the trust preferred securities just after the announcement for $4 and change, again it was debt with a $25 par value. They paid out $25 plus interest in 2013 in the form of preferred shares which I immediately liquidated. The value here was in buying right away, as the debt traded up after the distressed funds got their teeth into it and the previous holders had mostly puked it up. Also, to make the thesis go around you had to assume the company had franchise value. I felt the value of their non-tangible assets (ie slots at La Guardia/DCA, rights to fly to Brazil, dominant position in DFW) had value beyond the price of the planes they used to fly the routes. A great hedge would have been a Delta/United long, as those companies would have benefited big from a AMR liquidation. I was a bit hesitant about the politics, as I had bought similar GM securities after its bankruptcy. While they turned out not bad, I felt the political situation transferred value from debtholders to other stakeholders, so I get concerned about companies that are big enough to matter politically. Distressed debt isn't all roses though. I purchased Holloway REIT (in Canada) convertible debentures at a steep discount. They were converted to shares in a way that made me whole, although just barely, and there was significant opportunity cost to not having that money invested elsewhere in a market full of bargains. I'm not sure now is a great time for distressed debt investing to be honest, as a company that couldn't raise equity right now is probably not a sustainable business. Of course, if there is a bankruptcy of a decent but overleveraged company, there is an opportunity for a quick revaluation in this market, which speeds up the realization of value. I'm not a CFA (but I play one in my portfolio). I don't think that's totally necessary, but distressed debt isn't for people who aren't comfortable reading long dense sets of documents. I too would be very interested in hearing about SD's successes.

Fair enough. I have a full Touchstone position already, may top up a bit here and there. I agree that it wouldn't take much for this move, one fund manager or large private investor who realizes that its probably worth at least 50% more than the current price. As to so many members being in the same names, I think that's due to the level of the market, where value is harder to find. In 2009 everything was cheap, in 2014 there are less choices for value investors, so as a group we're more likely to crowd into the same names.

I'm also long touchstone (via Petrobank). Looks like liquidity is ~$100k per day, which is not bad for a company with a $77 MM market cap imo.