Uccmal

I'll take this up Tariq. I want to stress ahead that I am in no way a technology expert, just a user. I hold a small amount of BCE that I bought around $26 about a year ago. Here is the reason: My family has two Blackberries, Internet Service and a phone line, all with BCE. I got so irritated paying the company every month that I bought enough shares to offset those expenses with the dividend. In addition, my employer uses BCE sticks, and BCE cell service, and BCE Blackberry service. At the moment in Ontario BCE has a wrap on local phone, shares Internet with Rogers, and Cell with Rogers and a few smaller players. Cell service with BCE is by far the best and can be used all over Ontario. BCE is a cash flow machine. This is where my analysis becomes weak. The government recently auctioned off cell frequencies to other companies who are setting up discount services. These discount services only work in the urban corridors from say Montreal to Hamilton so are only partial competition to BCE at the moment. BCE and Rogers have first entry advantage and no matter how irritating they have been in the past people tend to stay with what they know. The moment the discount carriers, Wind Mobile comes to mind, came on the scene BCE and Rogers and Telus started their own discount brands. Try competing with that. The only way they will be unseated is a compelete tech change and the likelihood of that happening so rapidly they will be caught off guard is remote. As for value, BCe probably is a good long term value but certailnly not a G&D play or even a Buffett buy.

FFH got rid of its life division a few years ago. I am beginning to understand why. I am not sure on this but Berkshire doesn't have any significant life exposure either. That got me to thinking about how one values an MFC. FBK has a few moving parts: pulp chip input, currency exp., output price, power and labour cost. KO has similar moving parts as FBK - more elaboarate with more middle men HD is also similar: buy products, move them around, and resell them. Credit division for extra punch; same with WMT JNJ moves up the complexity chain with the drug divisions and the R&D but it is still relatively simple; as is KFT. Then we have BRK, FFH, and MKL - the P&C business is fairly straight forward but involves some convolusions such as re-insurance; IBNR claims etc. Somewhere above these in complexity lies MFC, and SLF. The straight up life biz is the same as the P&C biz with longer tails and less precise actuarial assumptions. The mutual fund and wealth divisions are also fairly clean. The health divisions are also fairly easy and have a quick turnaround. The complexity with MFC arises in the black box section which is dependent on stock and interest rate levels. It is completely incomprehensible and you are totally reliant on management. And not only does present management appear to be somewhat not up to the task but past management now appears not to have understood what they were doing. And if D'Allessandro didn't know what was going on after a lifetime in the biz what chance do I have? I am moving this to the too hard pile....

That is a nice summary Sharper. The stock price is playing off the perceived future pulp prices. The lack of trading is interesting. 240000 shares is only 3 times my total holdings.

I have a tiny position in this now and getting smaller all the time. I am disappointed with management who are disappointed with their earnings. Alot of this is mark to market losses which could have been avoided had they put in more hedges this past spring. They appear to be floundering in the dark right now. All things being said though they still have an incredible franchise.

However, Fairfax better keep an eye on these guys before they go after some so called really attractive acquisition and blow a bunch of this very hard earned capital that they just raised. My sentiments exactly. Companies with dubious acqusition records should be deprived of excess cash ASAP - to the shareholders.

Just thought I'd point out that actually their fixed income investing is probably more impressive than their equity investing. Their outperformance there is outstanding considering the divergence of performance between the best and worst bond managers is much smaller than that between the best and worst equity managers. Yes, their bond record is probably the very best in the world, without including the CDS. Company is trading too cheap by half - at least. They have 20 years on Buffet and worldwide bench depth far greater than Berkshire in investments.

Imagine if it traded up to 1.6 times book like cfx.un. $7.00/share. Just imagine. I feel like Peter Lynch and Cajun cleaners.

I don't follow this company closely, but it was my understanding that the $42.5m of cash is before the rights offering. The new loan and facility are for $153m which more than covers the old loan and facility (roughly $143.5m). So, wouldn't you add the $40m from the rights offering to the $42.5? That gets you to $82.5m of cash or $0.63 per share plus whatever they have earned since the end of Q2. That seems reasonable. Probably close to 90 m cash as of today. I expect they are not using the revolving credit lines as much as expected which of course will add more to cash flow directly. So as of yesterday you could have bought this company at 20%. I am sure of one thing. FFH's adjusted cost base is about 3.50 per share, so dont expect them to let this go below $6.00 to someone else. My major concern is that FFH will try to take it out but they could have done it anytime in the past year for cheaper so they wont likely now. So that leaves a dividend. I would guess about 0.02/quarter to start. These guys are playing it safe so it will be awhile.

As an individual investor without an insurance credit rating to maintain I have been addressing these issues by buying dividend growers who have already successfully weathered the last crash. These include FFH itself, BCE, PWF, SSW, SLF, GE, HD, KFT (again), JNJ, RUS, KO. The only significant holding I have right now that doesn't pay a dividend is fbk. I have given up on buying puts, selling puts, or buying calls for now. Each is too expensive in its own way right now. There is no way to predict the markets even for Prem. He is just doing the conservative thing that was drilled into him by the near death experience FFH had a few years ago. If things dont unfold as he suggests FFH may sacrifice 2 or 3 % on returns. Being in the insurance biz these guys know and have access to far more cheap hedging methods than we as retail investors do.

Munger made use of leverage and margin in the early days of his partnership. One time he borrowed a million dollars from a bank to do a short term arbitrage on BC Power shares - to make a spread of around 10%. As a member of the Pacific Coast Stock exchange he could borrow up to 50%. (Schroeder, Snowball) I am not arguing whether broker margin is good or bad. There are valid comments about the safety of brokers. Anything can happen at any time so one has to draw the line somewhere on the risk they can handle and their particular situation. Witness the ABCP freezeup in Canada were people thought they were in perfectly safe commercial paper and found in some cases that their life savings was frozen for over a year in total uncertainty. This was supposed to be a short term liquid investment and no leverage was involved.

Execised my rights today. I am told it will take 10-15 days to settle. Seems strange. So here goes nothing.... no margin used on this one:-).

Further to this discussion. I consider my personal non-rrsp holdings to be a business that I run. Most businesses borrow money. I borrow money. Via my margin accounts I had more available capital than most businesses could borrow (proportionately) during the credit crisis. I simply dont understand the difference between me borrowing 30% of my businesses equity, and Fbk borrowing 30% of their equity except there are fewer conditions on mine than theirs, and my interest rates are a fraction of theirs.

Absolutely, I have used margin for about 12 years. I have used up to 40% Debt to Equity at times. The only time I got hit with margin calls was in Oct/nov 2008 and March 2009. Both times I had written puts. I think I would have been okay had I not written the puts. One thing about using margin is that you cannot be loading up on illiquid stocks. Two things about my personal circumstance that make it easier to contemplate: 1) I have had two good jobs during that time period - relatively secure. 2) I have enough in my RRSPs, where you cannot use margin, to retire on (in 20 years) even if my other accounts go bust. I am also not adverse to selling losing positions and capturing a tax loss and then buying them back after the wash out period should I still want them. Right now I hold enough dividend paying stocks to cover my entire margin interest about 4 times over after tax. Interest rates on the margin account are around 3% and many stocks can be bought that pay 5%. That to me is adeal.

Well said James. Given the choice for safety would you rather invest in a country that is self sufficient in nearly every way: food, resources, education, energy (incl. Canada), and has a history of always paying its debts or one of the others, and a history of tech and financial innovation. I am a very proud Canadian but you can provide me with any other investment on Earth and I can show you something wrong with it that makes it worse than US debt. Japan Debt: close but doesn't have the demographic or resource backing Eurodebt - close but energy and resource backing is problematic. Demographics working against you except perhaps UK. Canada debt - too reliant on US for prosperity. So what left?

Dazel, I am not sure I am following you here. Is this what you are getting at: - FFH owns Abitibi-Bowater and management operates at FFHs allowance. - FFH controls 19.9% (perhaps more fbk) so they have a strong sway on the company plus alot of influence with the other senior shareholders - i.e. Cundill Fund So: 1) Will FFH sell FBK at a discount to ABH? 2) Will FFH get a premium for FBK assets from ABH? 3) Will FFH have to get a third party opinion on FBKs value and take that price to avoid accusations of a conflict of interest? Will said 3rd party opinion at least reflect BV for FBK? 4) Will ABH be able to finance a purchase such as FBK right out of the gate? Thoughts, Al.

No, about 36-37 cents per share profit. Had it have been a loss I think I could demonstrate to Revenue Canada that there was no issue. In practice I already owned the shares via the rights issue before I sold the extra shares. Nevertheless I would not have sold the shares if they were at a loss. I didn't want to be restricted by our 30 day rule in any case.

So far this investment has been a disaster. I think some are selling because of the additional subscription options as well. You are right on the money on that one Alertmeipp. I sold 10000 shares yesterday to make room for the newer shares (at a profit I might add). The stock price is not going to work itself out until the rights are all exercised. I didn't want this position getting too outsized on me relative to others in my own holdings. Prior to selling the shares I had bought additional rights before I realized I was overdoing it.

Cardboard, That's entirely reasonable. I was just curious. Yes, I worry about a round trip, hence my earlier grumbling. I know of no real way to hedge out the risk on this. Thats part of the deal. I have practiced a fairly disciplined sell program earlier but this rights issue has me perplexed. The couple of times I have participated in rights have been a disaster - financing a sinking ship. I dont think that is the case this time but who can know ultimately. FFH backing it gives me no confidence since one of my prior rights experiences was Lindsey Morden and we all know how that ended up. FFHs history is littered with the carrion of dead companies. I'll never forget Prems 2/5 rule - 2/5 of their investments will be failures.

Cardboard, I dont know if you didn't read back a few notes but I basically asked you why you are still holding if you think the prognosis is so lousy on this company? I think that once everyone receives their rights and makes their decisions then you may see a rebound in the stock. It takes a while to absorb what is essentially a 50% stock dilution. So I will hold for now.

At the moment with all the warrants outstanding the stock is not going anywhere. After July 15th or the second quarter earnings it shouldn't take a whole lot of good news to send it higher.

Cardboard, Just curious, my average cost basis for sfk/fbk is 0.68/share. If I sell today I am still up almost double my money on what I still hold. Why dont you just sell out or are you hoping for the greater fool? I am not meaning to be flippant or sarcastic. I am planning on exercising my rights because I think fbk is worth more than $1.01. If someone thought it was worth over 1.50 as recently as three weeks ago, with the same apparent information, as we have today, then it is very possible that someone will think it is at least 1.50 in the coming month or two. Maybe alot more.

For awhile today we have actually managed to turn profitable on the warrants that I have not yet received.

I will be subscribing and may over subscribe if I can. I reduced my position in order to do this within my comfort zone (took profits). I think at the very least the improved balance sheet and conservation of cash should make them a good target, perhaps in the price range FFH paid ($4-5).

The rights should appear in your account. That has been my experience. And then the offering prospectus and conditions should arrive. Nothing Yet... Someone with IB said they had theirs - I expect them to appear sometime today or tonite - TD.

There is nothing out of the ordinary in a small offering like this. I wouldn't read anything into it.