Uccmal

Leaves me wondering if SAC is one of the ultimate targets in these investigations. Drive around with a can tied to your tail long enough and people start to notice. Curious what this is doing to SAC's business, redemptions, credit, etc. No one is going to want to see their ass_ets caught trapped in a long term probe, or subject to seizure to pay off fines ad lawsuits. This is taking a long time to play out. By the time the FFh lawsuit is settled there wont be any cash left.

The other problem is the price connection with labour cost. As prices rise companies get great cash flow but then the hangover starts to set in while the binge is ongoing. Labour prices skyrocket, fuel prices tank, and cash flows compress and then we have two years of recaps. I have read that labour costs are already getting sky high in Alberta again. They are trying to get immigration to admit workers from elsewhere (where is probably a reasonable question).

My understanding is that the relative available energy in natural gas should put the price at 1/6 of oil. That implies that the present price of gas should be around $13 / or the price of oil should be about $30 to get equivalency. I am guessing that coal is cheaper than both. Economics dictates that where substitutable in NA gas should replace oil, such as home heating, transportation?, and some power gen. However, there is a huge lag time to all this. Cogen gas plants are being slowly built in Ontario but everyone has to trudge through NIMBY issues despite the reality that roads produce far more pollution. I have followed nat. gas for a long time. Long enough to know that prices are unlikely to ever go up more than temporarily. Apparently, not long enough to learn not to invest in natural gas E&P cos from time to time though. So, one really needs to determine the lowest cost producer. BTW: I am of the opinion we are more likely to see $30 oil than $13 gas for any duration. Call me crazy.

Eric, I recall the original 30% of swaps being set on the S&P at 1062 -these are obviously underwater. You are probably right about the Russel swaps - I lose track. Now that I think about it they may have had in topside SWAPs to protect on the upside as well which are likely in the money. Anyway, I dont plan on revisiting the financials until Feb.

Call it potential energy.... I have them booking alot of gains recently on CWB, Rim, gov't bonds from Zenith. Offsetting are the SPY total return swaps.

Thanks LessthanIV - interesting - Probably accounted for most of the selling yesterday.

I dont understand why people react the way they do. It has been known for months that cfx was going to become a corp again. Take the existing payout at 20% * 30% = 14% - for Canadians gross it back up and get about 16%. Reduce it to accomodate lower pulp prices at a later date and you will still get a yield above nearly anything else. Jitters due to COS.un announcement yesterday. I added some cfx shares yesterday- I had been selling indribs and drabs all year.

Oldschoolsting was asking about reading 10-K's and he said he has been doing it for only a year. People were suggesting that there are shortcuts for him, but there aren't. You have 25 years of reading Fairfax Annual Reports, No argument here. Oldschool - read those reports :-). Point of contention - I have read 25 years of FFh reports since 1998. NOt for 25 years ;D

While we can control for some variables through research we cannot control for all variables. Francis and OCI comes to mind as an example. Further to this: FFH is my largest holding and I have read 25 years of ARs.

Sanj, I have been thinking alot about this. Part of what you have created here is a collection of analysts with highly varied backgrounds. Individually, many of us cannot do the sheer amount of research required in every investment case whether it be time constraints, but collectively we can do as good or better a job than most analyst teams. Prem has a team of analysts whose jobs are to rip apart companies and create ideas. I expect he and the investment committee get a one page summary of smaller investments and grill the analyst on the details. Ultimately, they will invest without knowing everything. I'm getting a bit philosophical about this. Francis Chou has invested in BAC warrants based purely on odds. He has read the AR, obviously, but doesn't trust the numbers (his words). Ultimately, he will invest in every position he has, not knowing everything. The same with Ackman and Citi, or Berkowitz and AIG/BAC. They are making well educated guesses. Buffett would have done the same thing with Goldmans Sachs and GE in 2008 (he was not an insider in either case). I dont believe he would know more about the situation at either of these companies than their managers which isn't saying much at the time, as both were recipients of massive funding. I think there is a process of handicapping that each of us engages in according to what we are able to do and understand. This is not to imply that I recommend blindly buying a stock without research. It does imply that I will sometimes enter positions based on a general knowledge of the company and checking for basic solvency concerns. I had to do this at the bottom of the market in 2009 when I bought options in SBUx, GE, WFC, AXP, SPY options etc. There was no knowing then what the outcome was going to be on anything.

Apple makes shoes? beerbaron, Or the 95/5 rule... I wonder who at FFH read the Canwest reports? ;) Must be FFHs rogue trader...

Awesome discussion. Nice writeup about Ackman. The part I like is that he is using totally public information. Trial subscription to Moody's to save money... I think time in has something to do with it. By that I mean quality hours in rather than years of time as a mutual fund salesperson. The 10000 hours of time rule probably has something to do with it. One of my greatest hits was options on FFH. I had been a shareholder for 8 years and read or at least skimmed all of their ARs back to when they were Markel holdings. This gave me the background to invest in the options with some degree of comfort. The best investments I have are often companies where I read the AR or recent Qs, bought some stock, and got to know it over years. At times I have sold out and bought back in later when things looked better. SSW is an example of this. I have held it over two years and now have a high degree of confidence in its future success. I hold three times what I started with. I am working toward this with BAC. As time goes on and I read media articles every day I am learning more about the smallish investment I have in BAC through the Warrants. As I learn more and more unfolds I may increase the size of the investment ahead of a return to value, or may decide it is a dog and move on.

The only problem with emulating Buffett is that he read and understood thousands of financial reports before he was 30 years old. He knows exactly what he wants to see and exactly what is missing. He also has intrinsic mental advantages above us normal above average folk. Fortunately for us even he manages to goof up occasionally - Salomon Bros comes to mind - he could read the finacials but didn't understand the culture.

Hi oldschool, I have recently been learning more about US Banks. My approach is to read the 10k. So far I have read the 2009 10ks for BAC, USB, WFC, M&T, and BB&T. My whole objective is to become familiar enough with US Bank Accounting to be able to easily vet companies. The secondary objective is to add to my overall knowledge of accounting which can be applied elsewhere since banks are among the most complex entities. I have been reviewing them with Online access close by to look up terminology and methodologies that I dont understand. Obviously one cannot read, recall, and find useful 800 pages of 10k in the case of BAC, USB, and WFC. So I have learned to skim commonalities and identify duplication. For example every bank has 30 or 40 pages of risks listed by headline. The sections on interest rate risk, economic risk, and other systemic risks are generally the same for each bank. With each 10 k there are two parts: description of the business, and the AR. These are essentially the same which potentially reduces reading by 300 pages. If there is something that requires clarification I run a search in adobe to find earlier or later references. In the case of banks I have basically evolved a mental list of need to knows such as: Capital ratios, worst case scenarios (i.e. mortgage buy backs), revenue trends, deposit trends, recent acquisitions (FDIC or not). For example BAC bought Countrywide without FDIC indemnification, which is the major source of its problems. Once they are able to move these mortgages into foreclosure or modification the normalized earnings will take front seat.

Thanks everyone... Good project during the short days of the season. In Canada, we have no real equivalents except perhaps CWB.

I am learning more about banking.\ Can someone suggest a couple of small US banks with good balance sheets and one not so good, aside from Wesco. I have just read the ARs for USB, BAC, and WFC, and want something less complex to compare.

I think if anyone criticizes Bernanke they need to present viable alternatives. I think he and the FRB are trying to do the best they can with limited ammo, and incomplete information. The last worldwide balance sheet recession occurred before most of our present system existed at all. Did the FRB fuel the housing bubble. Maybe. But it started well before Bs time. I would suggest it began with the western world (average people)becoming addicted to debt when B was a teenager. It is going to take some years to reverse the whole mess. As for Rogers, he is just a noisy buffoon.

I expect to do slightly lower than the past few years. I now have much less leverage, actual and implied. This year is my worst in 6 so far, with a return of about 12% vs. S&P at 8%. I dont see what is standing in the way of at least 20% for the next 10. I would prefer markets to go sideways choppy for the next ten years - makes my job easier. 20% returns - add a zero every 13 years. Anthing better than 15% in this inflation environment is good with me.

Nice! :D That about sizes it up.

Awesome article. Thanks.

That is hilarious... I bought a junior O&G in Canada about 3 years ago. The numbers looked alright. The CEO had been buying shares for weeks to the day I bought. The day after I bought, the company announced it couldn't pay the bills anymore. I got out losing about 90% in two days. The company was totally bankrupt in days and the CEO went down with the ship. Unlike the incompetent CEO I had only a starter position. So I amended Peter Lynch's rule about insider buying to include a few other reasons such as the management is stupid and doesn't actually have any idea what is going on or the management may be drunk, on drugs, or have mental health issues, or be otherwise delusional.

Good topic; My 'Learning experiences' are too numerous to mention. A couple of the doozies where I repeated the mistake involved taking 'buy and hold' too literally. I have learned to exit positions when things deteriorate or show no improvement. In my first few years of investing I held some dogs way too long just hoping. Now, I keep an eye on each holding and if things get worse at the company or show no signs of improving I take my tax loss and move on. A few times I have bought back later - there is no harm in that since I already know something about the situation. When something I buy goes up in value quickly and significantly, for no tangible reason I will get rid of it too. Experience has shown me that they will round trip more often than not. If I have strong reason to believe that the story is improving I will stay in it - i.e. fbk. Nowadays, I only buy companies that have been around awhile and have a history that is promising. I got stung on numerous alt energy plays a few years ago, and regular energy plays, and have a dead technology horse in my RRSP that has a share value of less than 0.01. To sell it would cost me the brokerage fee with no tax break. One of my bigger weaknesses is buying too soon, before I know the full story. Counteracting this I have learned to get rid of things before too much damage is done. In the process my circle of competence is constantly growing and the choice of stocks is constantly declining.

Hi Shane, RE: buy prices for FFH - haven't bought any in a couple of years - just know when its cheap-okay right now AIG vs ffh: AIG is trading at 30% of reported book - Berkowitz thinks its cheap - He knows better than I - AIG's problems are gov't overhang and ongoing derivatives exposure.

If an investing philosophy works for me then I don't understand why that would be a problem for someone else. It's my money, right? Conversely, if another person has a certain strategy for wealth creation that works for them I have no business interfering with that person's decisions. Some wish to be fully invested in equities at all times. Personally, I don't feel comfortable risking that with my cash. I have no qualms about "missing rallies". I am mostly trying to miss crashes. The upside will take care of itself by investing SOME of my capital with solid, well-run companies. Cheers! :) Thats fair. Since Summer 2008 I have had more ideas then cash.

FFHWatcher, Awesome work! I cant dispute your inventory comparisons. We will have to see on a go forward basis how this shakes out. I agree that they likely hold inventory for long time reliable clients for times such as the shutdowns. Better to maintain those relationships than try to capitalize off short term spot price fluctuations. I have bought some shares just above at 1.03/1.04. I guess the idea isn't killable. If FBK is having trouble keeping up investories then sales must be pretty good. And each day they are building cash and the ability to build cash is compounding as the debt/debentures get paid down. We are 5 weeks from the end of the Quarter and prices have hardly dropped. At the same time they are dropping a little which should dampen new or reentrants into the market. Management is at least willing to do lip service to share ownership although only the CEO has more shares than me.