Uccmal

Precisely - I intended to raise that issue in my original post. There was nothing in the Q1 report that rationalized the mediocre results versus the quickly improving operating conditions; in particular, no discussion regarding the nature and longevity of the substantial pricing discounts they seemed to have in place; and no interim guidance since, even around the rights offering. I got greedy on this one and let that outweigh my more rational instinct to sell at a couple points post Q1 results. No question the assets are heavily undervalued, but management should be doing far more to address their high cost structure and indicate their plan (if any) to change it. I hope their plan isn't simply to keep people employed while they wait for the dollar to sink to 0.85. Unfortunately it's now a difficult decision whether to increase my stake via the rights offering. If pulp prices begin to turn quickly, then even stellar Q2 numbers will have little effect on valuation. The nightmare of 2008/2009 is too recent in mind. I think that shareholders would benefit greatly from some type of management communication. The way its sits right now it looks bad. As pointed out above, the nightmare of last year is fresh. They have had a complete management change in the interim and are raising money. We are no where near any kind of blackout period. The rights issue price is settled, so now is the time for management to talk a bit about their plans and this quarters results, and the pricing they are obtaining, going forward.

Good points both ways. Myth, the rights price is 1.01 which is why we are trading at that price plus 20%. I honestly dont trust that FFH has any plan or even gives a damn about fbk. This is chump change for them and has probably landed on some analysts desk as a learning experience. They are just applying the 2/3 rule. Which brings me to whether I want to waste my money subscribing to this or not. I need to sit down and work out if I have made all my initial investment back or am at least close to it.

This situation is ticking me off. The deal is in place and the stock is frozen at 1.21-1.22. Talk about the law of unintended consequences in action. So prepare for the rights once they are issued to trade at exactly $0.00. With all of these pulp price increases I am left wondering if things wouldn't have been better off by not having the equity issue at all. Management is not looking super bright on this one. All these guys do is buy feedstock and sell pulp. You would think they could apply some brain power to raising money.

I think this spill is evidence that peak oil has passed. The easy oil drilling has been done. What's left is expensive, high-risk projects like deepwater drilling and extracting oil from Canada's oil sands. I can only imagine the cost to find oil increasing over the next 10-20 years. If you define it as an easy and cheap source of oil then absolutely. At what point do we cross over to where cleaner/safer energy sources are also cheaper? I would suggest probably today, when the cost of externalities + E&D becomes greater than the cost of an alternative energy source.

Translation: It's only fair that somebody else pays the costs if I make a mistake. Just let me keep all the profits! I'm liking what Obama said tonight -- it's time we accept the external costs of our fossil fuel society and get serious about finding new energy sources. Ericopoly, I thought a lot about the above comment and the clarity you bring to it is remarkable. Of course you are correct! That is the reason insurance exists. If something is uninsurable then that should tell us something. If a privately held Nuke in the US melts down the company will be wiped out. Washington Power Supply took a major hit when 3 mile Island had its event. Why should it be any different for an oil well?

Of all of the above I would be most likely to side with Buffett vs. Soros, Sprott, or Rosenberg. Everyones talking their book but I would suggest that Buffett has by far the most access to main street intelligence through his daily reviews of all his companies numbers. If the economies improving, albeit somewhat slowly, then the stock market will at least hold its own for awhile yet. Especially high yielding blue chips, since yield is so hard to come by elsewhere. It also appears that the Democrats want to give money to the municipalities as further stimulus. The US is not appearing to be interested in pulling back stimulus yet.

Crip, I love your new tagline. Congrats. A.

I am interested to see if we get some upward price action once the rights are put into our accounts. Then all the unknowns are known... :P

There is no dilution unless you dont exercise your rights. If you exercise your rights you own the exact same thing you did before - transactional fees at the FBK level : on a book value basis. The only inconvenience is having to pony up more money without knowing whether or not management is taking advantage of the good pulp market and increasing book value. In the meantime this transaction has caused the stock to tank. The worry among board members seems to be that the stock will never recover prior to pulp prices moderating. I share that worry.

It seems that you two easily pass the test of critical thinking. I am particularly curious about number 6 "Free trade..." Taken to its logical extreme where everyone in Canada and the US has full labour mobility it will make no difference. It is only in the middle stages that there is a positive effect. No employment or housing laws leads to exploitation of all types. Too much gov't intervention stifles economies. Its just a matter of finding the sweet spot.

Harry, You side stepped that one nicely. My assessment of the P&C industry. Right today, it is a dangerous area to invest. Within the next couple of years there is going to be a lot of damage to a lot of P&C companies. Only those with real strong capital positions are going to be able to write business at new higher rates. I presently hold FFH which I am reasonably confident will be one of the thrivers. In the past I have held MRH, KFS, BRK, and MKL. The reserves most companies are reporting are stretching the limits of capital adequacy. Thanks for the kind offer to visit your 'room' but as many here have said right now these can be easily written off as being in the too hard pile.

I dont think so Harry. You publicly insulted the research habits of several board members here. You can damn well defend yourself publicly as well. Stripping out my best year: 24.2% over 5 years - Leaving it in - much higher - After taxes I do mountains of research as I sure many on this board do. I must be selective. Notice I have not commented on the companies in the P&C sector on this board. I was commenting on your aggressive assumption that others do not do their research and that there is only one method. So what is it Harry, and no lies....

HarryLong, your insults are meritless. What are your 5 year results.

Now you have issued the challenge HarryLong. What are your 5 year results?

Excuses have nothing to do with anything. Did I imply anywhere in my statement that I dont study the competitors or an industry as a whole? Read the following: Often, all I need to know is that one company that I have loosely followed for years has slipped into undervalued territory. Then I can ask all of the detailed relevant questions with that company and its immediate competitors in mind. From that point I can determine if the company(s) in question really have some unrecognizable value. For someone who focusses on detail you are missing the points of several of the posters here. They are not disagreeing with you but they are proposing alternative methods of investing and you are preaching one method. I will repeat: No one can know everything about an industry or a company in an industry. There is a point at which the law of diminishing returns on research is reached. Also, as the posters have hammered at you, you have gone from saying all the 10ks and 10 qs for 5 years or more to the last 2 Q reports. Which is it?

HarryLong, I appreciate your discipline but I dont believe that reading the 10ks and 10qs of every company in an industry is a productive way to value invest. By your argument I should read and tabulate the CR trends, reserve trends etc, for some 20 or 30 companies in the P&C industry, even though I already know that many are inflated at the moment. Then I should do the same for P&P, Forestry, Industrials etc. I am but one individual. Often, all I need to know is that one company that I have loosely followed for years has slipped into undervalued territory. Then I can ask all of the detailed relevant questions with that company and its immediate competitors in mind. From that point I can determine if the company(s) in question really have some unrecognizable value. This really gets into the realm of investing philosophy and what works for each individual person. I ascribe to the philosophy of KISS. As OPMIs we can only know a certain amount about any organization. We are always required to make decisions based on limited information in a world of essentially unlimited information availability. From my perspective your level of information requirement takes away from other reading and thinking I could be doing. Your method is really just a detailed method of screening, period. And I have yet to uncover a value play by running screens after a dozen years of investing.

Me too - And I prescreen by reading a lot of general business news and commentary as well. > 95% of what one comes across is not worth pursuing to the level of a 10k. RE: MFC - it is a magnificent business going through a rough patch and it does have sensitivity to the equity markets, however, it has a huge and consistent fee based business, and the risk management has been stepped up. Doesn't the Black Box comment apply to all businesses when you are an Outside Passive Minority Investor. That is why we insist on a margin of safety.

For the price you paid for two trades I can do 150 trades. RE: advice from brokers - I would get pretty tired of hearing: "Are you sure you want to buy that right now - its on our sell list" :P

I find the public and political reaction to this whole spill rather baffling. The whole focus has been on all the horror that BP is causing. It seems to be forgotten that deep water drilling has been allowed and demanded by the governments and the public. It was only a matter of time before a confluence of events caused this sort of thing to happen. That it happened to BP is only relevant in the sense that it was a non-US domiciled company and thus makes a better target. It would seem the perfect time and opportunity to shift vast amounts of spending to energy efficiency in all its forms, and focussing on realistic large scale homegrown alternatives such as concentrated solar, natural gas etc. I would think Obama and Co. should be able to rebrand this as a potent political weapon of some sort but they seem to be caught in a reactionary cycle right now. We have reached the point where drilling for oil has become a truly absurd proposition.

I figure that the publication of their intent to vote against the comp package was a direct move by Gabelli's fund to completely turf Bigliar. That was a shot across the bow. To me it says you had better resign in a hurry before we launch a proxy fight and turf you with no settlement and no say in getting control of the Lion Fund back. Gabelli's fund wrote that note for one purpose and one purpose which is to solicit votes to get rid of SB. I bet SB has resigned within a couple of weeks.

Fair enough. It is a continuum rather than a defined state. As per Ericopoly above, the state where wind shear dampens Caribbean storms is the El Nino. Anything else on the continuum does not have this effect. We are no longer in the El Nino state.

After K, R, W. Fairfax adjusted their exposures all along the hurricane zones. They practice diversification by minimizing exposures to any one hazard, location, etc. The details are not forthcoming but there has been discussion in past annual reports. They also got out of the oil rig insuring business after KRW. They also practice price point exposure and limits on Re-insurance where they can (I would call it band). That being said they are in the business of P&C insurance so if they have a corporate client who wants insurance for their D&Os and their properties across the States they will have exposure in some areas. In every AR they mention that they keep more than enough cash at Parentco to cover another KRW plus a California Earthquake. Prem is implying with this statement that FFH can weather a series of massive events without raising any money, during or afterwards. Thats a hell of an advantage. The weakest insurer that survived KRW becomes the stongest. As far as hurricanes this year promises to be a doozy. The El Nino has receded, being replaced by an La Nina. The Gulf waters and waters off Africa where these things are spawned is 2-4 degrees C above normal for this time of year. There is not alot to cause it to cool down at this point. Anecdotally, I would say the accuracy is usually pretty good. When they are off they are spectacularly wrong such as last year.

Things are not silly cheap but in an environment with low yields the growing dividends of the aforementioned companies are going to start to look pretty good. Take JNJ: 3.5% - my cost to borrow is about 3.75% to 4 %. If JNJ raises its dividend at 10% per year then in 5 years I will be receiving 6% yield on the dividend. Now my cost of borrowing will likely rise somewhat but not a lot in an environment with widespread de-leveraging, and high cash loads on corporate balance sheets. This completely discounts any increase in the stock. Basically, I could afford to hold these companies for a long time. Same applies to KO for sure. I dont know the others as well.

Do you typically by Deep in the Money for some light leverage, or go for out of money expecting definite appreciation with options. I have a few other set of Leaps on some other investments. Hi Myth, Not an expert. I can only relate what I do and I have made my share of mistakes along the way. Right now I hold Leaps on GE, KO, and HD, and MFC (Montreal). The HD is a proxy for shares bought in April 2009 and coming due in January 2011. My plan is to exercise about 2/3 of my position and hold the stock. Generally I buy them slightly out of the money. I dont use any formula because I am buying with the intention of holding them for the duration, even though I may sell, or rollover, if the price is right, along the way. In every case they are serving as a proxy on the underlying (cheap leverage). One major concern is liquidity. The MFC bought in Montreal with the best of intentions I cannot get rid of now. They are still out of the money and the bid has dropped off a cliff. I had some 2010s expire worthless. Given MFC is probably the most liquid stock in Canada I wont be buying any more MX based options. I had the same thing happen with CLS (bad valuation on my part). The other major concern is stocks that do nothing. With KO the stock has done nothing since I bought the 2011s a year ago. I may get part of my value out of it or it may finally run up. It would probably be better to buy the stock in some cases such as this and collect the dividend. They work best when value investing itself works best. I have made a killing off of WFC, AXP, HD, some of the GE, and of course FFH. Overall my success rate is probably 2/3 using Leaps unlike the oft quoted - "most options expire worthless." Had I bought the underlying the rate of success would have been the same, but the returns would have been less. After 12 or 13 years of investing I find more and more that the KISS principal applies. I understand some companies and undervalued situations, but I cannot for the life of me understand Black Scholes, or DCF formulas. Anything that requires me to invent figures to make it work cannot be good. Right now in this climate I am steering clear of options. Things could go up or WAY down before January 2012. I am picking and choosing from a select list of dividend payers on the dips.

Myth, That of course is the problem with call options. I would sell a chunk of my options today if I could roll over into the 2012s. In fact, what I would likely do and have done in past years is get rid of the majority of my 2011s (save a few to exercise), and buy the next year out. But we no longer have that choice so I have whittled my 2011 position down to a size that I should be able to handle when I exercise them. By the end of the summer I will likely have parted with all the highest strike options. That will enable me to delay capital gains into 2011, or later.