Uccmal

BVH, This is a repeating theme on this board. Every few months someone argues that they are going to wait until the market retrenches to some insanely low level before they invest. The last time we went through this was in August. The board member who was persistent that he/she was going to wait for markets to inevitably retrench missed out on an 11% overall rally from then until now. The problem with the "I am not going to invest until something specific event" is that people miss out entirely. Go into the boards archives, back to February/March 2008 and see what people were saying and doing. There were those then who decided they were going to wait until markets really got low while a few of us were buying hand over fist. The second part of your thesis of choosing good, cheaply valued companies, makes more sense. In that realm you can easily find companies trading in your sub 10 PE or < 1 BV realm. In fact I have an entire portfolio stuffed with such gems right now. To counteract your Berkowitz quote I offer you one Walter Schloss who stayed in the market for over 40 years, often with more than 100 stocks at a time, and still achieved relatively consistent results of 21% annually to the general partner.

Shalab, It is certainly not undervalued. As for overvalued I have no idea. I have few problems with car companies and GM: 1) Business is intensely political - we saw how the US government and friends took out Toyota last year 2) Labour at NA - UAW/CAW plants is crippling - It is only a matter of time before success at Ford and GM is met with strikes and unreasonable demands. 3) IPOs are generally not very lucrative, excepting certain tech providers. 4) Car business is cap ex intensive and brutally competitive. 5) How long before dirt cheap Chinese cars hit the market and take down prices and margins. Asia/Pacific is a major market for GM and a hinge in their success. Dropping margins there could put a major dent in GM 6) Now we have environmental regulations squeezing margins as well. 7) It is a high tech business but without the first mover advantages of an Apple, or a Google etc. I could go on and on and on about my dislikes. For now I will watch the sheep as they line up for their feed.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aQW.7B2UVOAY&pos=1 I am glad that value investing is still safe from the maddening crowds. They are all busy drooling of GM issuing stock. Is it just me or does this seem like an extremely risky investment.

I think FFHs' bond duration lengthened due to the Zenith takeover. I am betting that in the past few weeks FFh was selling some of the treasuries out of the Zenith portfolio in favour of something more lucrative. I am pretty sure that FFH has thought through the possibility of inflation. To that end I dont expect you will see interest rates rise much for years yet so this shouldn't be an issue. The greater issue is going to be for insurers who are doing poor underwriting and getting no yield.

I'm guessing that someone is real sick of government bashing. FWIW, I completely agree with him. Its amazing how quickly people forget how bad things were in November of 2008.

At an average daily trade of 30000 shares cdn+Us and being only able to buy 25% of that - 7500 shares it will take a generation for FFh to meaningfully reduce the share count. So I wouldnt' get too hung up on the possibility. I dont think Prem gives a hill of beans about share buybacks. He is in company building mode these days. Far more lucrative to build up the Polish, Indian, African, Brazilian, and Mideast subs.

The analysis of the deleveraging process in itself is interesting. I was looking at Shilling's comments, Naill Ferguson's, Richard Koo's, and the premise that FFH operates a substantial part of their portfolio on. If interest rates stay very low for a long, long, time what is the best way to invest? To my mind keeping cheap debt, that cannot be quickly called, makes the most sense rather than rushing to pay it down - i.e. Mortgages and Heloc. Buying stocks that raise their dividends regularly and gently leverage their own balance sheets with cheap bonds: JNJ comes to mind, or FFH for that matter. Another possibility in this environment is banks (those with sound balance sheets). They get the deposits for insanely cheap in a low interest rate scenario. Whether they can lend at reasonable rates is another matter.

precisely, short or get a put on a geared long bond ETF. Everyone has this one figured out now. I completely missed this concept a couple of years ago when I held a leveraged short ETF on Oil. If I had shorted the opposing ETF - the leveraged long on Oil my outcome would have been far better.

I dont agree or disagree with this but I do question peoples assumptions. A couple of examples: 1) Where is the evidence that QE1 didn't work? There isn't any because it can neither be proven nor disproven. 2) Have stocks really rallied due to the possibility of QE2 or are things slowly improving. Brings to mind the wall of worry concept. That being said I have no idea what is going to happen next. The only working indicator is that we are starting year 3 of a presidential cycle and markets have never gone down in year 3. But history doesn't always repeat itself. I personally think that QE2 was more of a political move than an actual necessity at this point.

Finally, that's something! Nice catch Gordoffh

thanks Barminov, very helpful. A.

Barminov, Grenville, Can you explain the mechanics of what they have done with these holdings in terms of the derivative transactions and why they no longer show up on FFHs 13f? A.

Thats a really good point. Board members are NA centric. GM has operations around the world. It was the US division that needed restructuring. That said car companies - you can have them, all of them. Too competitive and capital intensive.

They have been moving money toward private deals that are not reported such as Kennedy-Wilson. There is also the Canadian side which is not reported. How much more RIM might there be held at the Northbridge group. Then there are overseas investments. The 13f is not very representative of their total holdings any longer. Its just a curiosity.

Maybe companies should just stop playing the game at all. FFH sold the bonds and preferreds this year without any ratings. The ratings came out after the private placements were done. Not related to the debt ratings - at least not directly: The only use I see for FFH is the insurance side ratings. Undoubtably, alot of their clients require some sort of external rating before buying P&C insurance. Not every company has the internal ability to assess the strength of the insurance they by on their own.

So now that management skillfully delivered all the good news, is anyone buying at our new lower prices? I have been standing pat for now to see how pricing shakes out. That will really be their only saviour. At this point they need enough cash on the balance sheet to cover the closure of those US plants, and see St. Felicien through the next price crash. What a fiasco. Remind me to let someone else do the recapitalizing in the future. This is the second time I have been stung participating in a recap. Actually, I am still above break even on this but nevertheless.

I have never worked in the mutual fund industry or the I-bank industry or with equity analysts. For those who have could you give me some colour as to their level of specific company knowledge: i) Do analysts in general actually read AR and QR documents? ii) Do the same analysts understand what they are reading? What are your experiences? This comes about after listening to the SSW call, and reading about the comments for the FBK analyst questions. This is probably rhetorical in nature but I am still interested in commentary.

Indeed Viking, I have at least two holdings in my portfolio that have done nothing for a year or more and suddenly went up and there is no way I could have predicted it ahead of time. SSW and CFP-T (this one from lumber futures). The same thing will likely happen with FFH, WRB and their ilk the moment the smell of a hard market is about. In general, right now, - we know from WRB and FFH that many insurers may be under reserving. - we know they are making nothing from bonds - some have probably done okay on the equity side this fall but that could be fleeting. - I am unsure about the inflationary effects on the claims side but it probably would only take minor inflation to tip alot of the P&C insurers over the edge since there is no coverage from interest yields.

FFWatcher, This was in the same report you referenced: The NBSK pulp sales volume totalled 73,920 tonnes in the third quarter of 2010, a decrease of 20,919 tonnes when compared with 94,839 tonnes for the corresponding period of 2009. The reduction in sales volume was mainly due to a strong recovery quarter in 2009 and an increase in world supply in 2010. Around page 15 I think. I believe I read the report hence my disbelief. I dont want to keep harping on it but 20000 at 1000/tonne is 20 M in revenues missing. My concerns remain that fbk will get a certain amount of debt paid down before the real gravy hits, and then end up running up debt again, when the world pulp prices drop. And then the birth of a value trap. The reduced fibre costs should help. Too bad they cant get rid of those RBK mills. Thank their predecessors for that gift that keeps on giving.

Not much volume. Smaller holders panicking out of the stock trying to catch what little gain they have? Management is sort of sloppy. I agree that I would like them to tell me how they are going to improve shareholder value not just giving me a BS line about it. I am still not happy with the answer as to why they sold 20000 tonnes less pulp in a high priced market. So what if they ran out of inventory. I think they lost a major client and dont want to say so, which is not very forthright. I am all for a takeover if it cleans out this group. I am not figuring out why it is so difficult to run this business. Buy wood chips, sell pulp to a few long term clients at prevailing market prices. Renegotiate labour and supply deals every 3 years. This is not a complex affair by any means. My big worry is that pulp prices will collapse and this gang will never figure out how to "add shareholder value".

Manualofideas, I find that really strange as well (pulp volume). I am wondering if a key customer delayed an order or something? I would ask the question on the conference call but cant attend. Hopefully someone else brings it up.

Long Term FFH shareholders who'da thunk that FFH could raise another companies credit rating: A.M. Best Places Ratings of First Mercury Financial Corporation and Its Subsidiaries under Review with Positive Implications 4:12PM ET on Friday Oct 29, 2010 by Business Wire A.M. Best Co. has placed under review with positive implications the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of "a-" of First Mercury Group (First Mercury) (Chicago, IL) and its members. Concurrently, A.M. Best has placed under review with positive implications the ICR of "bbb-" of First Mercury's parent holding company, First Mercury Financial Corporation (FMFC) (headquartered in Southfield, MI) (NYSE: FMR). (See below for a detailed listing of the companies.) The rating actions follow the announcement that FMFC and Fairfax Financial Holdings Ltd. (Fairfax) (Toronto, Canada) [TSX: FFH and FFH.U] have entered into a merger agreement whereby Fairfax will acquire all of the outstanding shares of FMFC's common stock. The under review status with positive implications reflects the perceived benefit to First Mercury of being ultimately owned by Fairfax, which offers the group greater financial flexibility and resources. A.M. Best plans to resolve the under review status upon the completion of the transaction, which is expected in the first quarter of 2011, subject to shareholder and regulatory approval. The FSR of A- (Excellent) and ICRs of "a-" have been placed under review with positive implications for First Mercury Group and its following members: First Mercury Insurance Company First Mercury Casualty Company American Underwriters Insurance Company

Omagh, Sanj., Thanks for all the metrics, articles, and thoughts. It has been a long haul for OSTK holders although I know some who have profited by trading in and out - not me. It is an interesting exercise in valuation at the very least. Omagh, It is true that customers keep going back to the same locations. I have noticed this with Amazon in Canada even though Chapters/Indigo can be cheaper here. My wife bought a set of DVDs from Amazon about three years back and had to send them back after we realized that there was a couple that were visibly damaged. There was no issue with the refund including shipping and handling that I recall. I have always had success with them. The free cash flow numbers are increasing, and I can understand where everyone is coming from.

News Flash : Fibrek has a new website up...although it looks to be somewhat temporary as well. An improvement, none the less. Just ahead of the conference call. You've got them on the run FFHWatcher...

Omagh, I guess the problems I have are two or three fold: 1) Discounting: The online presence of all retailers is leading to price leveling across the board. We just went through a home reno and added several appliances. We product and price compared online and then went to a couple of B&M stores and ended up buying all the products from Sears Can. (SHLD shareholders take note). They price equalize to any retailer you can legally buy from. I dont see how OSTK can compete in this space and actually make much or any money. 2) Online retailing: I go back to the 90s to address my concerns. Everyone recalls when there were hundreds of ISPs. In a few years the upstarts got whittled down to one (AOL) and then big cable/phone providers with their deep pockets took the space from the hundreds of ISPs. I see the same thing happening as online retailing matures. You have two online only survivors in Ebay, and Amazon, and sevaral B&M stores who will move in and excel in the space. 3) Loyalty: Combining the above is the notion of loyalty to OSTK. Pure conjecture on my part but when you can move across multiple retailers in a matter of minutes comparing the prices of a Samsung LCD 34" TV, you may well take the lowest price, period, including shipping and handling. I would bet that WMT, Costco, and BBY will equal or beat OSTKs prices everytime in the near future. I still dont see a margin of safety. The brand is not strong enough to provide it. There are no tangible assets to back up the stock price.