woodstove

Hi smw397... You asked for advice, so here goes ... as with all advice it suffers from not knowing enough about your situation ... this is more of a possible solution to a puzzle you've posed, than actual actionable advice. My apology for being blunt in the following. First ... you have to play defense, not offense - this is a time to preserve your capital, not try to accumulate more by turning the change to advantage. If you were not overextended at present, you could consider some offensive move, but now it's defensive play time. Hence... don't change brokers at present time. You need to keep control of situation and timing of transactions. There is tight time window to act. Afterwards, you can explore brokerage alternatives. I'll suppose you have 50 pct FFH and 50 pct microcaps (low trading volumes, large bid-ask spreads, would lose big if had to sell them rapidly). And that FFH margin is 30 pct of portfolio - ie, you actually own 70 pct of the total shareholdings in your portfolio. Henceforth will refer to that as 50 FFH plus 50 Microcap, ie unit of measure is percentage of original portfolio. Also assume you have unrealized capital gain with FFH but unrealized loss with at least some Microcaps. Immediate action - get rid of the margin - sell the FFH which is liquid. That means reducing to 20 FFH + 50 Microcap, but you own it free and clear. And you are back in control of your investing, not at risk of broker errors. Secondary action - sell 15 units of Microcap, the ones which see a strong bid, and/or you feel least comfortable with. Repurchase 15 units of FFH. Now you have half-and-half portfolio, but no margin risk. And you have realized some capital losses to balance the tax effect of FFH gains. Then ... wait for mid-December, or later, and see what transpires. No more urgency on a personal basis, I think. Something will probably be worked out for the FFH holding. If not, then sell it in new year, and offset the gains by taking losses on other holdings. If insufficient losses to balance the capital gains, then be happy you have made money overall. Longer term ... in an interview posted today, Prem Watsa spoke of preparing for a combination of markets down 50 pct plus a Richter 7-8 quake, ie a major draw upon FFH assets just when it would not be pleasant to have to sell the equities held. You might consider that model for your own financial planning. It is good to have some diversification outside the stock market. Right now the market has gone up a lot, which means there is latent selling pressure whenever some segment of the crowd panics. Sure there are good businesses selling at 70 pct of what they "should" sell for, but another panic could reduce those prices to 50 pct of "should" or less. You cannot assume the ability to sell to other value investors at more than 70 pct of "should". So, besides general aversion to margin, there is a case against having margin in the present market context. Best wishes.

Thanks Return, for that info. I think you're entirely on the right path, encouraging management to improve on transparency and clarity of the cross holdings implications. All shareholders will benefit from that - and from the reponse you got re cost basis of indirectly held shares, it sounds like the CFO is very much attuned to the need for fair disclosure of info to all shareholders. The Q3/09 report, note 12 capital stock, discusses the reciprocal shareholdings and defines Adjusted Common Shares (3,319,470 shares net), and states that is used for calculating basic net income per share. Good - that is what makes sense - and I suppose it must be in agreement with GAAP. In effect, the company has (indirectly) repurchased 7,031 of its shares in the past 12 months. IFRS may throw a curve at this reporting. I have no idea what though. Basically, I'm happy to have the company run well operationally and for investments. The accounting presentation will improve as time goes by, provided management is doing its best to provide good info to shareholders - as I believe they are. There is no particular urgency or desire for any windfall related to GAAP presentation as some holding goes over 50 pct or whatever -- better would be to look for operational and investing performance and let the reporting follow as necessary. I just hope that the reporting changes mandated by GAAP or IFRS get explained, as best can be for very complex matters. I'm not an accounting specialist and appreciate having the experts do the hard work and explain it to shareholders in somewhat simpler terms.

Thanks - an interesting read. Likely in para 3 under Precision Steel, the phrase "not satisfactory" should be "now satisfactory".

Hi Returnonmycapital... Thanks for that info about Algoma. I've now had a read, and it looks pretty good. Book value seems a good approximation to value, ie $105/sh, but with the new ships coming on, should see about 25 pct growth in revenues. I'll guess $12/sh approx earning power is safe assumption. Say 10x, because of debt:equity leverage high approx 1:1, gives post-expansion value of maybe $120/sh. So buying at $75 as ELF did seems very advantageous. I think ALC will work out well. ELF seems to me the better choice for investing, ie indirectly in ALC and other ELF holdings. I haven't any questions for ELF's CFO aside from what others have mentioned. Thanks for gathering and sharing info.

Flip it around ... the NYSE listing created an opening for abuse, and probably has cost FFH investors something like 20 pct of intrinsic value because of dilution at depressed prices. De-risking is simply prudent.

Hi sreenr ... when looking at documents for a company on Sedar, be sure to check out the annual information form, which TSX-listed companies are obligated to file annually. Generally the AIF describes business strategies with a longer term horizon than the annual reports. Not all AIF's are informative, but ELF's is ... filing date of latest AIF is 17-March-2009, document dated 09-March-2009. Does anyone have any perspective on ELF's increased ownership position in Algoma Central?

Rabbit's mention of "Jeet Kune Do" sent me to Wikipedia - very interesting - read it yourself for more than I'll copy to here. Bruce Lee's approach to martial arts. And readily transposed to investing or other pursuits. Here is a quote from Bruce Lee which gives the flavour. Something that Warren Buffett might have said about investing, with some changes of a few nouns. "I have not invented a 'new style', composite, modified or otherwise that is set within distinct form as apart from 'this' method or 'that' method. On the contrary, I hope to free my followers from clinging to styles, patterns or molds. Remember that Jeet Kune Do is merely a name used, a mirror in which to see 'ourselves' ... Jeet Kune Do is not an organized institution that one can be a member of. Either you understand or you don't, and that is that. There is no mystery about my style. My movements are simple, direct and non-classical. The extraordinary part of it lies in its simplicity. Every movement in Jeet Kune-Do is being so of itself. There is nothing artificial about it. I always believe that the easy way is the right way. Jeet Kune-Do is simply the direct expression of one's feelings with the minimum of movements and energy. The close to the true way of Kung Fu, the less wastage of expression there is. Finally, a Jeet Kune Do man who says Jeet Kune Do is exclusively Jeet Kune Do is simply not with it. He is still hung up on his self-closing resistance, in this case anchored down to reactionary pattern, and naturally is still bound by another modified pattern and can move within its limits. He has not digested the simple fact that truth exists outside all molds; pattern and awareness is never exclusive. Again let me remind you Jeet Kune Do is just a name used, a boat to get one across, and once across it is to be discarded and not to be carried on one's back." Now I am most certainly not a physical artist, and very far from being an investing artist - but these words are very liberating. And I am a bit of a political fighter, and Mr Lee's words are worth consideration in that way as well. Next stop ... the public library! Many thanks to Rabbit for a hint.

Re - why choose Alice Schroeder to write a Buffett-assisted biography: My guess is that he was impressed with Schroeder's prior good analysis of Berkshire, and was hoping for more of an investment-methodology book rather than a personalities story-telling such as Lowenstein's (despite its excellence). Someone who understands the company and can present the subtleties of his "painting". So he gave lots of access. It didn't work out as Schroeder was seduced by the endorsed access to write a personalities book and dish lots of insider anecdotes. Too bad. But there will be other biographies, even ones which do a good job of explaining the company's structure and Buffett's methodologies. One subject-assisted biography is enough, I would imagine is Mr Buffett's take on the experience. For reading ... Robert Miles' book, "The Warren Buffett CEO" might be of interest. And there's "Of Permanent Value" by Andy Kilpatrick.

In the land of the overextended, the man with affordable debt is king?

That's a great interview. Bits of note... - Time efficiency, compounding of time investment. - Insurance company acquisitions lose money afterwards - probably more cautious reserving. I also get a better impression of Alice Schroeder than from just reading about her. Thanks for posting the link.

A couple of other aspects of the Burlington purchase... 1) Buffett can now say "sorry, can't afford it" when some worthy cause comes calling. The GS and GE preferreds encourage copycats. He may not want to backstop CIT, for instance. Or might want to do it as new-venture - but that did not work out well with municipal debt guarantees, did it? After the initial relief, mostly anger at Berkshire charging enough to make it worthwhile. 2) Making BRK.B available in $55-90 range will help divert charge of elitism. Risk reduction. Finally, I'm seeing this move as partly capitulation. That's ok. Berkshire is not bigger than the economy; it is a slice. And transportation is a biggie. With auto manufacturer, now railroad, and already an airline ...not too bad. My projection re stock price ... near term selldown to $55-ish perhaps, but $90-ish within 12 months. Or maybe takes longer. Still, 5 years out, BRK.B should get significant multiple, and somehow indexes that claim to represent economy will have to find a way to include it, BRK.As or not. Good for funding the charitable foundation.

Today I encountered a curious trading phenomenon, and wonder what you make of it... I put in a bid at 86c for 13,000 shares of a smallcap. There were 11 sales of 1,000 shares into my bid, at times 216pm, 216 again, 226, 236, 246, 256, 306, 317, 327, 337, and 350pm. No other transactions in that stock in the afternoon from 216pm to end of day. Would that be a computer program selling? Surely so, from the regularity of timing of sales. Perhaps the program got slow, or encountered slow network, towards the end of day, so was a couple minutes slow on last sale? Motivation? Why would someone who had 11,000 shares to unload, sell 11 times in 1,000-share blocks (of a sub-$1.00 stock, so we're not talking big money)? Would that kind of selling behaviour be an indication that the seller is trying to drive down the bid? In which case I'm very happy to be on the other side of that trade! Thoughts?

Here is an opportunity for those of us interested, to put our business venture analysis skills to socially beneficial use. Aviva Community Fund (funded by Aviva insurance group) at www.avivacommunityfund.org is soliciting ideas for community improvement projects across Canada. Project ideas input is open, with accompanying brief description, and website visitors can vote on ideas they feel deserve support. The idea seems to be that the short list will be determined by website visitor voting, and then fund staff will follow up with that short list to choose the actual funding recipients, amounts, etc. Three categories of project size (<10k, 10k-50k, 50k-250k) and various project types (rejuvenate neighbourhood, support youth, improve education, etc). The website is a bit complicated to navigate. Basically, if you want to go thru and review all the proposals, it seems most effective to click on "explore ideas", choose the "list" form of display which will be sorted by "most recent", go to last page of list (approx page 27 presently, 10 proposals per page), click on each proposal of interest to read further info and have the option to vote in support of it, and use "back" on browser nav-bar to get back to project list page you came from. Once one has voted, those projects are added to your "my supported ideas" shortlist. You can vote again on subsequent days (once/day if you feel inclined). I'm treating it as sort of like a resume filtering task, selecting a list of potentially beneficial projects, planning a subsequent scan thru that list to vote an additional time. Good activity for a slow day. Some interesting ideas - some from well organized groups, others from individuals who seem to have potential and a small bit of funding (under $10k) might encourage them in good directions. I think the project proposal review is an ideal task for our skillsets, as we have so much practical experience in looking at business proposals, filtering out the get-it-done types from the self-serving or air-headed, etc. The fund plans to close submissions and voting at end of October (maybe Nov 1st). Disclaimer: not affiliated with Aviva or their projects. Visited website at request of a friend to consider voting for his project proposal.

You're welcome! Richelieu is probably the superior business, considering its return on capital. With Winpak, I'm looking for a re-assessment as the next few quarterlies come out -- commodity price changes, and also some efficiencies resulting from getting recent capital expansion projects into smooth production. But I would anticipate selling some non-core WPK sometime to move back to RCH or something else. WPK is sort of a hunting expedition setting out from a stable base. It's a question of what style makes a person feel comfortable. I like to deploy capital in excess of what is a reasonable long term allocation, wait for a good news event, and then sell back to a core position and retrieve the original capital. If everything goes very well, might get the core position "free" on a cash flow basis. I know it's irrational and anchoring, but it definitely makes me feel better. Sort of psychological hedging. Still, if buying for a five-year hold, no trading, I think RCH would be superior to WPK, even given the Price-to-Value ratios of the two securities.

Currencies are too abstract for me to make money directly taking currency positions. Rather two approaches make sense to me... - Tangibles are a form of alternative currency, useful for diversification. Imperial Oil, for instance, was selected for its reserves, and because the company has proven adept at slowly converting those reserves to cash, profitably, over long duration. - Firms that provide a business process, converting from one material form to another, or from one location to another (distribution), and that have shown the ability to adjust pricing as input costs change (up or down), while still maintaining profitability. For instance, Richelieu Hardware, and Winpak, are two. All three firms have no debt and no shennigans (that I've noticed) going on re financial structure, so they are reasonably likely to be robust in turbulent times (ark weather). Disclosure: positions in all three (and Berkshire and Fairfax). Though have downsized Richelieu recently, waiting for price fluctuation. Actually, rather than "making money" as a criterion of merit, Richard Russell's comment may be relevant for ark weather: He who loses the least, wins.

Richard Koo's theory/book is impressive, great explanatory power. I became aware of it thru this board - probably have you to thank JEast. Anyway, for what it's worth, I strongly second the recommendation to read Richard Koo's book(s) - the one I read is the "Holy Grail" book, which is a bit of an odd title, but it refers to a Ben Bernanke statement that an understanding of the causes of the Great Depression is the holy grail of economics. There is (was) also an online audio lecture by Koo, link posted earlier, very probably available via search. [added in edit] Oh - and thanks Viking for the link to Irving Fisher's paper. I'm printing it now. Looks very interesting, good detail, goes beyond the capsule summary of ideas previously encountered.

Here's a scary statistic ... in 2009 fiscal year ended Sept 30/09, the US Small Business Administration backed 44,211 loans from banks under its "7(a)" loan program, down 36 pct from FY 2008 loan count. Loans totalled $9.3 billion in FY 2009, down 27 pct from FY 2008's $12.7 billion. That's an average loan size of $210,000. A lot smaller than Pakit's $5m, in a different range really, but an indication that the credit crunch monster is alive and rampaging up and down main street ... and devastating industrial parks too. It is a movie from Japan, perhaps. Will the real Godzilla please stand up? Oh - but he looks just like ... ?! CIT going down again, maybe this time for the count, is an indication too. There is tremendous demand, and much of it is justified by sound business history, order book, and management. If this were insurance, we would call it a really hard market, and recognize there are many good risks going uninsured. Of course it is worse ... you actually can operate without insurance (until you trip over something) but credit is genuinely mandatory. Selling insurance is retail - a policy with a premium of say $500,000/year is pretty large in the insurance biz. There is no reason Fairfax or a related company cannot do very well. The Pakit press release was from Pakit - there may be many others who didn't publicize as much. If there is insufficient staffing to consider all the opportunities, perhaps an affiliation with some firm like Accord would be a good match.

It's the "stock advice from man in street" stage. The money on sidelines is now returning to the market. One strategy might be to sell into price extravagance, gather cash for probable future dis-enthusiasm. Another view - options because people who got burnt are trying to make it back on speculative stuff. So perhaps dull solid businesses continue to be underpriced - something like 1999 dot-com vs quality.

Try CCL.B

This is maybe a good place to share my "efficientizing" proposal for auto manufacturing and sales. Not likely suited for BYD who have plan already; perhaps more for some North American entrepreneur. Two barriers to entry in auto manufacturing (auto sales, really) are dealership network and service network. For dealership network, can recruit used car dealers, some of whom would be delighted to have a new-car option to offer purchasers. For service network, can utilize independent repair shops, who are nowadays getting squeezed out by auto manufacturers placing barriers to service info availability, longer warranty periods, expensive custom parts etc. The latter, as well as widespread layoffs in assembly and engineering talent, makes available a great opportunity for entrepreneurs. To keep things simple, perhaps design a vehicle which: - Utilizes standard aftermarket parts as much as possible. Almost everything but the chassis is available via aftermarket. - Has more than ample documentation of maintenance procedures. Encourage widespread repair, customization, tinkering. Online chat rooms how-to-fix-it staffed by company experts, advising service people and do-it-yourselfers. Think of how white-box personal computers have prospered. And open source software making it easier to try new ideas. Start with a custom assembly line type of operation, about 40 vehicles/day, ie 10,000/year capacity single shift. Don't have to do much particularizing, maybe colour is the only meaningful option for target purchasers. Easy to ramp up thruput and replicate operations based upon successful performance. Strike deal with union. New jobs. Benefits paid to union-managed plans who handle the admin details.

Lands End is also a great brand and operation, easy to monetize.

Very nice concept. Fairfax could bring to the table, a team with disciplined approach to runoff, and experience with CDS. As part of a group, sort of subcontractor for operational matters. Fairfax is only 1/30th the mass of Berkshire, eg. If a group, no-one seen as unfair beneficiary of govt largesse. But Obama admin (and legacy of Bush admin too - bipartisan objective) has to get AIG resolved sooner than later, before the pitchforks come out. And industry wants AIG's underdisciplined pricing and high-volatility event wagering to end also.

What about ... stimulate underwriters to updated coverage, stock price increases, acquisition funded by stock issuance?

The significant reduction of inventories should have resulted in positive cash flow to correspondingly reduce debt. That debt did not go down very much is a further indication that in Q2 SFK was selling below marginal cost of production - as is already apparent from EBITDA numbers. I find it hard to accept management's statement that the value of long term assets on the balance sheet - the three mills - has not been impaired. Those prices were established as transfer prices in a much more upbeat economic climate for pulp mills. Still, understanding that a writedown might affect credit ratios, and also might lose some future tax benefits, it is reasonable to keep carrying the assets at those values - if/while the auditors permit. I would think there might be a surprise next annual report however, if the auditors insist upon checking the cash flow projections the company is using to justify not taking fixed asset writedowns. These are very tough circumstances for SFK. I'm sure there is regret now that the size of the equity and debentures issuance a while back was not doubled, to reduce debt load - that was greed at the time, we all liked the leverage implicit in that - and now we suffer the result. Looking forward, my belief is that SFK must issue more equity or possibly income participating debentures, replacing fixed costs and future constraints of callable bank debt, with financing which is willing to assume the risks and opportunities of being in a volatile commodity business, and has a longer term outlook. At 165m debt + 20m debs + 20m units, the company is valued at about $205m, and it is likely worth that as a business. But it would be best served, as a business, by finding non-bank ownership rather than suffering from unusual conditions, high interest rate raises from credit agreement renegoiations, and most importantly, the steady drawdown of working capital via interest charges on debt. Operationally, a decently run company, in an ok line of business with volatility due to economics, government subsidies, etc etc. Great for those who can live with volatility and uncertainty.

Hi 20ppy... There's no formal option to convert B's to A's, but rational value investors tend to keep the A-to-B ratio within 30:1 to say 2 pct overage, 30.6:1 range. Mr Buffett discusses that in one of the annual reports shortly after the B's were issued - see 1997 perhaps. Also, besides the actions of investment professionals, there are individual shareholders who trade the A-to-B ratio: when A/B goes higher than usual, sell A to buy B's; and vice versa when A/B goes lower than usual. You can find some old posts about what is usual on the Motley Fool BRKA board, which is readable without joining I believe, and more recent discussion on the Yahoo chucks_angels group, which is worth joining for coverage of precisely that sort of topic. Trading the A/B ratio gives some almost-all-Berkshire long term holders something to do, to keep them from dabbling in murky waters.