Picasso

I think valuing these on dividends (I mentioned this in the KMI thread) is wrong. I prefer looking at FCF to the equity holders and EV/EBITDA. I'm not too worried about dividend cuts if they're doing the right things with the capital. SXC suspended their dividend yield of over 20% and the stock went up substantially. But that was because the complex traded for 5x EBITDA and the majority of the value of SXC came from SXCP. So supporting delevering efforts at SXCP will retain and grow the value of SXC as well. In that case a dividend cut is actually a positive. A dividend cut at KMI is different because the cash basically goes into a black hole of further capex and debt repurchases at par when they come due. It also traded for 10x EV/EBITDA and it will take a long time to get any cash out of the business. With the excess cash created now that the dividend was cut, SXCP is buying up their own debt at $60. They spent around $33 million this quarter to retire $43 million of debt. The longer those bonds keep trading in those ranges, the more debt they can repurchase, get further away from a covenant breach in case they get some bad news from a customer next year (they are at 4x now versus covenants of 4.5x), and if we're still valuing this on EV/EBITDA then that cash is still accruing to equity holders. SXC/SXCP doesn't have a lot of capex so you're getting some very high probability returns with the debt repurchases. CEQP was also trading around 3x FCF. Let them cut the dividend and repurchase stock or something, it doesn't matter that much. In the case of CEQP, their bonds were trading around 10% yields and so I felt a lot more comfortable owning the equity. That said there are a few customers I don't like but it didn't deserve 3x FCF.

Crestwood (CEQP) also looks interesting. Raging Capital just put out a detailed piece on it as well. That's a bit more liquid. Range Resources has some bonds yielding over 10% on one of the best gas assets out there. They would be the last player left standing after a bunch of other producers go belly up. I would expect some change on control redemption on those which can get you a 50% return in a year or two. Lots of stuff like that out there.

Large secular trends move in waves. I'm not a technician or anything like that, but these moves have a lot of psychological cycles to them. It starts with a cyclical/secular top in the price of the commodity. Value investors will search for the "bargains" which tend to be lower multiple, higher cost producers. Investors don't think the commodity will fall under those historically high prices which would cause those stocks to be unprofitable for extended periods of time. For example the investors who were burned in SD. Then you get the tourist like value investors who never really invested in the energy space before. They don't realize how nasty commodities can trade and for how long. They cause a dead cat bounce and set up for the next big leg down. Now the majority of energy related names are nowhere close to market estimates of profitability for the next few years. Investors ignore that, calling it a cyclical thing or the old "oil always comes back" or "low prices are a cure for low prices" etc etc. Now starts death by a thousand cuts as a lot of investors start averaging down on the trade. Capital markets which were widely available at the top are now shutting out even the mid-tier names. Higher risk premiums on the debt will cause higher risk premiums on the equity and you have another leg lower. Now you have high profile blow ups, like we recently had with a few energy and junk bond managers. Stuff starts getting sold at any price because it's clear there are trapped buyers who need to sell. Usually it takes a while to play out but this has rolled out really fast. I mentioned a thread on SunCoke, no one seemed interested, but it was stupid cheap at 3x FCF. There are a lot of similar things out there but I'm debating whether I want to disclose them anymore. Then again maybe it doesn't matter, investors here seem much more willing to take the risk to buy CHK, PWE equity instead.

I have been able to find a silly amount of bargains in the distressed energy space. Nothing producer wise (aside from a couple bonds) but tons of related stuff. I'm surprised to not see a lot of them mentioned on the board but I think most of the people here were burned before.

Or how about this for P2P: https://www.cryptocoinsnews.com/ghostsec-isis-bitcoin-wallet-worth-3-million/ Must be awesome when your digital wallet ends up on the same chain as an ISIS transaction. Sure there will some some niche for people who want to implement this kind of P2P (ISIS, drug smugglers, people upset about fiat money for some reason, etc.), but it's not going to be some large percentage of global transaction volumes.

What proof do you have that operating the blockchain is low cost? The attractiveness of bitcoin is ridiculous. I mean how about this for irony: https://blog.coinbase.com/2015/11/20/introducing-the-shift-card/ Cool! I get to spend my bitcoin at any merchant!.....that accepts Visa.... oh.....

He mentioned before it was "smart" ETF's. Probably not too different than what FRMO is trying to do. Personally I don't think it is that easy to start an ETF business.

I for one am disappointed that Berkowitz didn't add VRX or SUNE to the portfolio. Come on Bruce, jump outside your circle of competence like the rest of us!

I think the "millenials" have come to a point where they want everything for free. Stock trading for free. Banking for free. Payment networks for free. Content for free. Shipping for free. It's all becoming very silly. There are absoutely tangible benfits for both the buyers and sellers on the existing payment networks when talking about say Visa. Go look up all the sad stories about consumers getting their bitcoins stolen (no reversible transaction, awesome) or the heavy costs of maintaining the blockchain that is paid by the miners. Sure load up your prepaid debit card so that when it gets compromised you lose all your cash with almost no ability to get it back. You suddenly pay a price by becoming the risk taker by shifting that burden off someone like a Visa merchant. I don't think anyone looks down on someone paying with a Visa. Try paying with cash, bars of gold, or bitcoins that take 5 minutes to verify a transaction. I'm sure that will impress your clients at a lunch meeting.

SD, I don't think you know what you're talking about on this topic. It's fairly easy to refute all your points. The numbers don't support your claims at all.

I think this sums up where we are:

Yeah which is why I have it in quotations. It doesn't affect the value of the business but this isn't the most liquid stock if he's forced to cut it down.

Anyone worried about potential liquidations from Pershing Square hitting the price of FNMA/FMCC? Seems like a real "risk" given what's happening with Valeant lately and having Pershing as your largest holder (outside of the government).

Oh man, this is just too good. Biglari wanted to hang out on the sets of scantily clad photoshoots. He must have walked in to the shoot and flipped his lid. Amazing what ego can do to an intelligent person.

http://www.businessinsider.com/bill-maris-explains-why-gv-didnt-invest-in-theranos-2015-10

I had the exact opposite reaction to the Mad Money interview. Listen to her response to Cramer starting at 4:08 when he asked "Why didn't you just speak with the Journal reporter months ago?" Her response was basically "well, the Journal wrote a good piece a year ago, I published an op-ed on the Journal, but in this case the sources focused on detractors who said I would never succeed." She then offers a pretty weak response that the Journal only provided a "three day window" in which she was unavailable before the Journal had to publish. So, that's a bit of a dissembling response in my book. She basically didn't respond for months because she didn't like the article that was being written. Then she says that she finally decided to respond after months of inquiries but by the time she decided to respond, the schedules didn't match up. These are things that wouldn't hold up w/ a cross-examination, but that's not really Cramer's job. No opinion on fraud or anything like that, but I found her answers to Cramer to be questionable. +1 Nevermind that she's had time to do many, many media appearances and since the article came out she's been out in the media left and right.

http://www.wsj.com/articles/hot-startup-theranos-dials-back-lab-tests-at-fdas-behest-1444961864 Hey, at least we can get tested for the hippity herps using their nanotainers. I'm all for rooting for people doing extraordinary things, but she's been hand waiving the accusations away as if they're completely baseless. At least Elon Musk can explain the physics behind why his ideas work. We're just seeing Theranos try to attack the credibility of their accusers. That's not exactly a good argument. I'm withholding my judgement since she's obviously under a lot of pressure to make this work, and the cause is noble.. After all, she's supposed to be the next Steve Jobs or something. Whatever that means.... But it sure looks like she's torching VC money to create a profitless business based on blackbox trademarks and marketing hype. Ack! There I go again passing judgement... So hard... When is the Wall Street Journal going to take down Intrexon? That's worth like $4B or something last I looked, amazing board members, dna.com, etc etc....

Sort of interesting to pair this with the Glassdoor reviews which seem barbelled between fabricated positive stories and negative hype. Just seems like a very bizarre story and Theranos has responded very poorly so far. Something seems really off about this whole thing.

Reminds me of this for some reason: Deferred taxes are a secret ploy to grow float! Not the obvious result of good capital allocation in a long lived asset!

Forever should be used sparingly when talking about your investments. There aren't that many good businesses out there. At least relative to the size of the total investing universe, and much less ones that are inexpensive. I sometimes joke that a bad business also has a forever holding period. Forever in that once it becomes clear the business has no competitive advantage, or is just a crappy business, you'll be stuck holding it forever in hopes that your now insignificant investment recovers its losses. A lot of Buffett quotes get thrown around without proper context. In the case of Pabrai, the jury is still out on ZINC but I'd say it doesn't have the kind of qualities to make it a forever stock. I find that investors will throw out buzz words associated with a good business (high touch, pricing power, capital light, competitive advantage, ROE, ROIC, among others) when in reality it isn't such a good business. ZINC probably fits in that category based on what I've heard about the bull thesis for the past few years. And lastly, ZINC is more a story about investors going outside their circle of competence. What the heck do a lot of value investors know about Zinc smelting and all that jazz? It's probably a complicated thing to understand. So we won't really know for a while whether it's Pabrai getting the value wrong or the market being classic Mr. Market. I'm refraining judgement because I'm one of those value investors that doesn't know anything about Zinc demand, processing, etc.

I must have been in the minority that was not at all impressed by the video. Half of it ruined the substance of the argument by including things like carried interest and Donald Trump. What the heck do those things have to do with the market? When we had the last crisis, the yield curve was inverted and you had no liquidity in junk bonds for various reasons. It'll probably happen again at some point but he didn't say what would cause it. Of course no one knows what will cause it, but he didn't give anything that could help identify a catalyst. I could totally understand shorting a junk bond ETF. There's not enough liquidity in that market during stressful times to give you an accurate market price. But that's a completely separate issue from saying there's danger because junk bonds are frothy, etc.

Don't worry guys. At this rate the decline in ZINC will put him back under 10% of the portfolio.

Sorry I was respectively referring to Apple as a cyclical but great business that trades at 13x. i wasn't referring to Berkshire in that aspect.

I think this is key. Just look at the past five years of savvy WEB moves: Getting BAC to give away massive amounts of shareholder returns to Berkshire. Partnering with 3G to take Heinz private. Partnering with 3G to fund QSR with very generous terms. Partnering again with 3G to do a leveraged recap of Kraft. Swapping assets tax-free with PG and PSX. And there have been others. Some of this is probably offset by weakness in large public positions like IBM. Part of me is worried by the current quality of the large value drivers. Berkshire was built on several decades of growth in GDP per capita where there were very large secular tailwinds behind Coke, Sees Candy, Kraft, Gillette, Heinz, etc. But now you have a pretty sluggish outlook where some of those businesses true economic costs don't show up on the net income statement. Or there is massive disruption coming up in some of those businesses. Coke has spent years attaching their brand to happy moments, but it puts a very large financial burden on other parts of the economy with health care costs. It just seems to me that it will be a big fight for the next ten or twenty years for those guys. Maybe someone else is more confident that twenty years from now, Coke will be "guzzled down the throats" of many more consumers. A big part of Berkshire is built around these not-so-great for taxpayers type businesses. WEB has repeatedly stated that many of these businesses are permanently housed at Berkshire almost no matter what. I don't think the quality of some of these businesses are as perpetually attractive versus twenty years ago. So comparing multiples on Berkshire to the past is sort of irrelevant for me. If WEB passes away in the near future, isn't it realistic to think that you are going to miss out on a lot of the important deals that have occurred due to his presence? Won't that affect the earnings trajectory? I don't know what the stock price will be but I bet it's going to get close to 1.2-1.3x book or perhaps lower without WEB. After all, WEB is simply one of a kind. So far no one is even close to building up a 50-60 year track record like he has. When he's gone, I need to adjust to the reality of a new Berkshire. I don't know what kind of Berkshire that is yet, but I probably want to pay closer to book value to compensate for that new uncertainty. At the current size Berkshire is now very similar to something like Apple. Float isn't going to compound like it has in the past. You may have great performance in the future, but the businesses are at a scale that makes it hard to pay beyond 1.3x book or 13x earnings. It's not even law of large numbers, it's dealing with a cyclical business which Berkshire is today more than ever before. You've also had a very long run of positive insurance combined ratio results. You always have a point where they have a few bad years. I'd argue we're much closer now and while they will likely become stronger as a result, you can expect Berkshire stock to become less valuable because we don't know how long that may take. In the end I think some investors are overly enthusiastic about the share price at 1.3-1.4x book. It's probably priced for high single digit returns on the most probable outcome. Or maybe a bit more. As much as I would like to see it, I don't see the easy 15% returns. And I own a fair amount of the stock. I guess I'm just stating the general market worries about Berkshire, but I happen to think those worries justify a more moderate valuation. Which is fine because you won't have to worry about selling your stock anytime soon. It just seems like almost everyone else is happy to disregard the downside of buying in when the master capital allocator is near the end of a storied career and several years of positive insurance tailwind. The last thing I will note is the behavioral finance behind Berkshire. We're all so used to Berkshire with WEB that it's hard to give it a proper valuation since it's so easy to assume his presence or Berkshire's performance will always be there. The thought process of investors when he is gone will change how people value the stock and they will probably want to see results before paying a fully priced valuation. But who knows, it's time to get back to finding other undervalued securities....

Seriously, am I the only guy not finding clever ways to defraud investors? http://www.bloomberg.com/news/articles/2015-09-10/new-york-global-group-founder-charged-with-securities-fraud And then take a look at his LinkedIn profile: https://www.linkedin.com/in/benjaminwey Benjamin Wey ® is a U.S. registered trademark. BENJAMIN WEY'S LIFE PRINCIPLES 1) "Important principles may, and must, be inflexible." - Abraham Lincoln 2) "No publicity is bad publicity." - Donald Trump 3) "YOLO" - You Only Live Once. Fight for Principles, Not Live Like a Coward 4) "We never settle any claims, we win them." Seriously? lol