woodstove

Error in my thinking ... I was ok with contract being cancelled, and renegotiated, but omitted to consider that cancellation might put SFK in default on their debt covenants. Anyway, sold the SFK.DB today, and small residual position in SFK.UN. Anticipate that JUne/09 interest on the debentures might not be paid in cash, instead turn into an accrual. May revisit when circumstances clarify (decline due to uncertainty re contract renegotiation, possible suspension of cash interest on debentures, whatever - then followed by developing clarity and comfort). Still like the company and business, but not willing to stand in way of what seems very probable selldown over next 60 days.

Just a nit, but I think Munger's remark was if one owned three diverse businesses, one would be securely rich. A bit different from owning three stocks. Wholely owned businesses do not have same exposures of delayed reporting of business info (stocks only get quarterly info), agency risk of managers/boards/control group, etc. Buffett recently wrote something about merit of Berkshire having dozens of independent streams of cash flow.

Oh, that rights issue is at $3.00 Cdn?! I hadn't realized. Even more of a discrepancy. I think it should be repriced given market price at which PD.UN has been trading. On the other hand, AIMCo wants to get their participation at agreed-upon price, and other investors have to be offered their rights at same price, so I imagine from AIMCo's perspective, they want to keep the issue price at 3.00. Probably AIMCo will be backstopping the rights issue, picking up any unexercised rights, so it will be a net gain for them. With all that going on, I cannot see how the price of PD.UN can stay near its present relative higher figure. I wouldn't short, no margin of safety given the potential for changes in rights issue price etc, but it sure doesn't seem like a sensible hold at prices well above rights price.

Two things... 1- Thanks for that Ed Clark / TD link. Good article, and looks like good news source as well. 2- Something that really struck me, and has remained long term investing guidance. Buffett said later, of the AXP purchase at the time of the salad oil scandal, he looked at the earning power, and considered the recent losses as if they had been a big dividend payout. That is, if the company had paid a big dividend, would he have stayed away? So for WFC (incl Wachovia), suppose a somewhat similar outlook? Losses are "dividend" paid out to the recipients of the uncollectable loans. Does not affect earning power as long as payout does not diminish the capital needed for generating earnings. I'm not a bank investor, prefer industrials that I can pretend to understand a bit. But very interesting discussion and resource. Appreciate the expertise of you-all.

The offsetting aspect is probably that the new financing brings in a strong backer, ensuring the company will survive with its present ownership structure (diluted, to be sure, but not taken over by debt-holders). The rights offering should almost certainly make shares available at substantially less than present market price. I don't hold any PD.UN at the present time. Besides market impact of Q1/09 slowdown in drilling activity in Western Canada, now we have the gap between 4.94 and 3.60-ish staring us in the face. The market may be efficient, but it can still be slow to react sometimes.

Be careful about liabilities. I lost a bundle on Kmart Preferred (the old KM, not KMRT), not knowing what I was doing. The company had certain assets, had $10b of liabilities on balance sheet, and per my calc there was enough assets even discounted to cover the liabilities and leave enough for bondholders and preferred. Monthly balance sheets were being posted at Edgar as part of the bankruptcy process, so it was not an old-info problem. But, suddenly, an extra $74b of claimed liabilities appeared, and that wiped out the preferred and my naive "investment". NNWC (net-net working capital) is a decent guide to floor value for a company which will stay a going concern. If you want to be more prudent, Ben Graham mentioned using only 80 pct of accts recv and 50 pct of inventory. But if the going-concern is not the case, then unless you are insider or very experienced, it's easy to lose out.

Thanks. I appreciate your perspective.

Any thoughts on how / whether ABH filing might affect SFK Pulp's supply agreement? Doesn't ABH get to void / re-negotiate contracts?

OK, this is not the right way, but I'll try something without paper. Think of situation as a bond, bought at price $50 on par $100. There will be capital gain $50 on maturity in 5th year, which is simple return of $10 per year or 20 pct/yr on $50 cost. There is also dividend (interest) yield of $5, current yield 10 pct. Hence bond returns something like 30 pct/year for 5 years, some of that being taxed as div/int and some as capital gain. Any decision to re-invest future dividends is a distinct matter. The investment decision today is whether 30 pct pretax return is sufficient, given your knowledge of the robustness of "bond", ie are they backed by a business capable of paying dividends, will the price return to par (approx value), etc. The usual "margin of safety" considerations. I know that's not exactly the question which you asked, but believe that approach, separating out the current yield and the capital gain yield, and interpreting the latter as a simple return ignoring compounding, may be useful to you. It can be done while standing in the shower, driving etc.

Thanks also for the librivox.com pointer. Gutenburg I knew of already or I would say thanks for that too! Some great stuff on the internet. Just yesterday, found a spark plug equivalence chart with Champion plug number for my lawn mower, whereas Briggs & Stratton only list their own part number for plug. Saves lots of trouble. That must make for real business efficiency. I know ... sounds like dot-com ... but it is real, just the hype ran ahead of the real benefits. Now we are getting the positives. So the view that economy is down rat-hole is short/medium term, and what we are seeing laid in are basis for long term prosperity. Say another 100 years, another 7x increase in standard of living? Seems unlikely, how can we use 7x more in western world. Maybe means number of people worldwide who benefit from middle class lifestyle can increase 7-fold. Would be great. Off topic from books even, I guess ... so ... end of soap-boxing. Thanks again for book resource pointers.

Thanks. I went there and downloaded a book I've been wanting.

Doesn't he write that every year? Is the wording meaningfully changed? Seems like parsing fed-speak. His comments about Precision Steel were curious. I gather he thinks the business is declining in terms of customer potential long term, but I'm not clear why that should be. Seems to me an economic recovery should create steel demand and Precision should again get it's share of that business. I realize Precision is a drop in the bucket for Wesco - the steel service centre industry itself interests me and just trying to figure out Charlie's outlook.

Whatever state of archives, everything is quite clear on record now. Hardly needs further elaboration. Discussion / debate does not convince. It merely presents some info, maybe new persepective, useful for those who wish to consider it. Water for the horse. Drinking is own responsibility, not presenter's. You're all each correct, in sense of sharing good view with others. If you were bland, rough spots rubbed off on one another, would not be nearly as honest in your opinions or helpful with thoughts. Nuff said. Sorry for soapboxing. Have my own behaviour "features".

I like Sharper's idea for combining operations. Well, if happens, would be great if BRK had window on it. About dependence on oil ... went today with grandson to the Oil Museum in Oil Springs, Ont - very good museum. They are a lot more hands-on than most museums. Oil tank car there, and grandson climbed up on it - I've never had opportunity to climb on rail cars myself (only got a can of spray paint recently, designed my "tag" so I can take up defacing election signs in future). They have a hand pump, used at old gas stations for dispensing motor oil - bring your own jug, pump motor oil into it. Really worked, dispenses oil - kids could get really dirty (but did not). Grandson was very interested in fact that road surfaces are made mostly of oil (asphalt).

Ford - not GM - is what I'm wondering about. Ford seems to have taken a sensible approach - lock in credit availability some time back, draw down credit lines recently to protect against reluctance of banks to follow thru, buy back debt at substantial discount, and continue to focus on operational business. Whether they can survive is an interesting question. Particularly if GM gets special cased by Fed govt - but I'll bet that Ford can negotiate corresponding benefits at a later date, without having to go thru the meddling in company operations that GM is now enduring. A decade from now there will be at least one US major auto manufacturer. It seems to me that Ford might be the best candidate of the three. But financing from Berkshire to strengthen balance sheet, perhaps retire more debt at discount to par, may be helpful. Berkshire's participation might not necessarily be via common shares. Maybe a preferred such as was done for Goldman Sachs and General Electric. I think Berkshire's ideal would be to have a substantial exposure to operational earnings of Ford over long term, with a protection for downside if Ford common gets substantially diluted, and maybe also a protection against nationalization of the industry being extended to Ford as side effect of the GM restructuring process.

Would Ford make an appropriate opportunity for Berkshire? Curious what others think. Emotive overview ... we may have reached max pessimism re US domestic auto industry. Share prices are up from lowest, but optimism is down, and this feels like capitulation regarding possible bankruptcy filings for GM and/or Chrysler. Imagining that there will be a US auto industry going forward, and Ford is essentially family controlled, this seems an opportunity for Berkshire to provide capital and take a meaningful share, say 15 pct of the operating business's future earnings potential, with an option to acquire larger / control block should the Ford family want to sell.

The best managed companies move at moderate pace, towards meaningful goals. Tortoise vs hare, with T-sprints. Distinguishing perhaps between goal (long term, hard to be precise) and objective (get done next year or two). So for instance, Berkshire goal is widen moat in operating companies. Cannot quantify goal except likely "better". The specific objectives are open new furniture outlet in new city, or replace printing press, etc etc. Thus with paying off mortgage. Nice objective, part of goal of financial independence / security. But don't have to race to do it. There are stretches for opportunities, eg Couche-Tard takes on debt to acquire Circle K, or Empire takes on debt to repurchase Sobeys shares they don't already own. But sometimes stretch is overstretch, pulls muscle - eg Precision Drilling acquires Grey Wolf. Even if work way out of difficulties (and I am betting they do so), have hurt prior shareholders bad, by need to issue shares, accept high interest rate financing etc. Fairfax last year paid off some debt, retired some shares, and paid out dividend approx 10 pct earnings (current consumption). Still lots to do. But don't want to repeat self-inflicted errors of 10 years ago.

This is a good discussion, but I have trouble wrapping my head around it. Perhaps the trouble is that Jack thinks the young man looks like himself, but I think he looks like me! Whoa ... too many warts & wrinkles. Anyway, on a serious note ... maybe the concept of finding cost, eg in oil & gas, comes in. If there are say 20 punches, ie about one great opportunity every year or two of investing, then having identified one, there should be a substantial threshold before swapping for uncertain alternative. Nonetheless, if there is a new alternative, and you're really sure, then swap ... sort of Phil Fisher's rule ... sell if have made a mistake, or if current investment has permanent change for the worse, or if something really better appears and you need the extra capital. Fisher wrote that he examined about 250 companies to find one investee, so his finding costs were very high. So ... say have an asset worth X (uncertain number, distribution really), whatever it may have cost initially is irrelevant at this stage as the purchase has already been made. Someone comes along and offers 1.2*X (uncertain, same distribution, but they offer cash = 1.2 * median or other average of distrib). Only question is which is worth more... present value X (distribution), or cash = 1.2*X (median of distribution), which with investment of Y finding cost/time, can be turned into another X-distribution.

I don't think there is a standard answer, it so much depends upon personality. But for what it's worth, here are a few I use: - Own house, no mortgage - house is considered outside the "investments" category, no valuation assigned, not for sale. - No debt, other than credit card transactions, balances paid off monthly. - Pay immediately for services, eg plumbing, resulting in getting prompt service response whenever need. - Some investments outside of the brokerage system, eg farmland (for income), local municipality debt. - Some LT stock holdings registered to certificate form, so cannot easily trade on mood swings - eg Fairfax, Berkshire. - Keep cash and cash equivalent reserves outside of brokerage accounts. - No use of margin, except on a straight transactional basis eg buy something, deliver funds within 3 days, but if there were delay of an extra day or two in funds delivery or processing, margin account would not create problem. - Establish "no regrets" prices for buying and selling, at which I am going to be happy no matter what happens after. Those are of course chosen with value as primary consideration, but psychological positioning is most important part. - Wait for opportunities. If nothing is appealing right now, just wait a couple weeks and market will decline again. Usually the feeling "there's nothing to buy" is a pretty good indicator that the market is too optimistic. - With many holdings, sell enough of it on price rise to retrieve original capital, let the rest ride for dividends/value. I realize it is irrational anchoring to prior transactional price, but it nonetheless is one of my coping techniques, reduces enotional exposure to fluctuations. - Structure holdings so that can take a several weeks vacation anytime, without prior notice - eg, illness, or opportunity to do interesting project. Don't get involved with time-sensitive investment transactions. 2008 was not a good year for my stock portfolios - down 35 pct - so don't claim that the above is good technique. But at least above approach leaves me able to cope with psychological pressures. Income from farmland did not go down, and I don't get quotations, have no real idea what it's worth for resale, so don't have to worry about it. Ditto with other investments held outside of the brokerage accounts - Fairfax shares are same business regardless of what the quoations are doing. One problem I have is that I want to believe the business story, like the operational aspects of a business, and sometimes get overly enthused despite the financial structure or the personalities who are involved. Compensating risk management is to be a quiet cynic, keep some distance. Can take years before really get comfortable with a business at the stock holding level. In meantime may have bought and sold one or two times.

Precision still has a large chunk of the bridge loan, which was intended to be refinanced as LT debt, but they could not get reasonable interest rates (and perhaps terms) for refinancing - comment made in recent presentation that no point to refinancing at 16 pct. Useful info at presentation - audio plus overheads http://remotecontrol.jetstreammedia.com/15947 Pages towards end of overheads have current capitalization info. Added in edit- my mistake above, it now seems to me that the capital raise was to retire the Grey Wolf convertible notes, and since there was no debt component of captal raise, the bridge loan amount actually increased. Presently $235m.

Glad to see the mention of Canadian Moneysaver, which is in my view the #1 paper publication for Cdn value investors. Particularly folks who are not going to be intense effort bargain prospectors like most of the posters on this board. It is online, for subscribers - but I've always stuck with the paper copy. Much of the stuff in each issue is not what I agree with fully, in fact some I disagree with ... but it is stimulating, provides lots of useful reminders and ideas. Website www.canadianmoneysaver.ca has details about paper and online subscriptions.

Municipal default risk is my main worry re Berkshire nowadays. Moral hazard. As you say, union contracts are not bond obligations. But the story shows a more "flexible" attitude towards contracts. Future bond insurance should probably involve only partial coverage, akin to deductible on P&C policies. If that impedes the marketing of bonds, ie higher interest rates must be paid to attract lenders, so be it. Berkshire should not absorb all the risk.

Probably should structure a company so it is robust enough to survive with BBB rating. Else don't deserve A or higher. Rating change should be non-event operationally to Berkshire, or there is something wrong with design of the enterprise. Sure a bit higher cost on some borrowings, but nothing worse than decline in economic activity. An aside ... Russel Metals is saying they are seeing 40 pct decline in demand for steel products. That is worse than the 30 pct decline I had previously heard quoted for steel consumption. So the context reallly does matter. Nothing is AAA in current environment. Not to worry. Berkshire is among the best, maybe the best of class where it is participant.

I don't think Fairfax has "gone all in to equities". What was said in late 2008, as I recollect, was that they felt it was time to start going in but that it was not yet a bottom - too unpredictable. This gets to the question of strategy - and wondering if it is worthwhile for Fairfax to follow along Berkshire style, investing in operating businesses. Fairfax has a number of investments in over-leveraged firms, which would be better if recapitalized. Essentially Fairfax's position is large enough that they are the go-to people for recapitalization, first right of refusal. So Fairfax can pick and choose among its options to place largish-sums, say $100m-ish, for decent returns say 15 pct. That's 15 pct on a business basis, not necessarily 15 pct cash flow via interest on debt. Think of Buffett's concept of equity bond. Should make for some great opportunities. And perhaps better than share buybacks.

Oh yeah some great upside potential and options for capturing value. No doubt about that. I also prefer to dwell upon the positive. It's illogical, but in my own investing I've found comfort in taking enough profits off the table to "pay for" the balance of a holding. With FFH, which is one of the larger components of my investments, the "net original cash" has all been recovered, and it does not bother me when the share price fluctuates down. Even contemplating "disaster - goes to zero" scenario, I think, "well at least I got more money out than I put in." With Berkshire, also a larger component, I've done very little trading on price movements, instead following buy and hold approach. And now I'm annoyed because the current share price is less than my net cash cost basis. I could have sat in bonds for past decade, gotten interest, and still picked up the same or larger Berkshire position now. The two are roughly equivalent sizes of holdings, roughly similar discounts to value, and yet I am comfortable with one and self-annoyed with the other. It is anchoring to past transaction history, not forward looking thinking what the investment/company might do in future. Each has his own style. Whatever makes him comfortable is possibly best - recognizing that for some people risk taking is style comfort. Just one query re ORH - would not the tax aspects be important in determining whether to go towards 80 pct FFH ownership of ORH? What is the situation? Can a reserve triangle tea-reader draw some inferences? Beyond my scope - I'm just a happy passenger.