niels12think
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Posts posted by niels12think
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Niel, I'm curious, how did you find the exact coordinates/address of the properties? Did ONP provide that info?
It took some investigation on my part to find the coordinates. i then verified the site by cross checking with the video and photos from onp site to make absolutely sure i found the correct spot. Everything fits.
Cheers!
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Niels, Satellite photos, I am impressed. Can you tell us where a person can order satellite images as I have trouble getting up to date imagery of areas I am interested in.
I used mapmart.com - they have a large number of different options and sattellites available. The cost differs significantly among the options. I went for the plain old high res black and white, which was among the cheapest.
Cheers!
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This was a classic "Short & Distort" campaign that should be used as a case study within exchange commission classrooms. Carson's errors in his Orient Paper analysis are so glaring (not even verifying he is commenting on the right subs) that I can only consider them extremely clumsy or purposeful. I side with later given his business model was to provide this report for "free" and make money by shorting.
Now, with that background .... think about Sino.
Barely anyone wants to touch Orient, even though there was nothing wrong. They can file suit against MW, but what is the probability of a reasonable outcome, and how much would they have spent to fight the case. How many millions has Fairfax spent, and they are a much larger company? These guys have them by the nuts, and unfortunately there is little anyone can do about it. Cheers!
Hope not to attract too much flame, but just want to share a little of my experience and thinking. I was also originally thinking that there was nothing wrong in Orient Paper and went long, but continued to do due dilligence and discovered a number of issues that made me change my mind. It was relatively costly to me. I no longer have any position in ONP.
I ordered satellite photos of the factory, and from these it seemed evident to me that
1) the progress on the new line was no where near what ONP was claiming
2) the logistics of the factory was awful, making it a bad place to produce so much paper (missing roads, water access, room on factory site, to little waste paper, ...). Additionally, no trucks could be seen, as was expected on this time of the day, if it was really a very busy paper factory as claimed by ONP.
3) ONP according to themselves molested an old line to make room for the new line. Later they claimed that an audit (after the molesting) showed the old line *was* capable of producing what they claimed.
4) the machinery in the original video is very old and outdated - notice the old communist writing on the machine. This writing was then removed and do not appear on new photos from ONP web site (either the pictures from ONP was photoshopped, or ONP actually painted the old machine ...)
5) you only have ONP's word that MW tried to get money for issuing a positive report. MW themselves deny this. Now, if - and this is a speculative if - it's really ONP who are the crooks, then why wouldn't they lie also about this aspect.
6) ONP bought (or rather long term leased) a lot of farmland around their factory. This was in order to build the new line. But when allegations against their old lines emerged, then ONP instead tore down the old line in order to build a new on the existing premesis even if this supposedly would adversely interfere with the ongoing production.
7) ONP did an audit involving externals, but kept the actual result of the audit internal. Basically, ONP just issued a report saying that they found nothing materially wrong. But they did not say much about where and how deep the investigation was in detail. Nor did ONP disclose any evidence.
Cheers!
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Please let me know if there are any of these rent-free houses in the New England area. So far I have not been able to find one.
If you cannot find one for me, then I think you have to include rent in your long-term return calculation.
The rent, of course, is there allright ;)
What I'm trying to say, is just that for an owner occupied home, this advantage comes in the form of consumption: You consume the "rent" by living in the house. And consumption is not investing.
If you buy "more" house than what you need (and live in the house), then this is really just equivalent to consuming more. So it should be compared to other consumption. And you should value this consumption it based on the utility it has to you.
Cheers!
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It's only if you would have paid the rent anyway, that this "rent" should be included in the equation for the owner occupied home.
So it's 100% of the time -- unless you have found houses on the rental market where the rent is free?
:) It's more like saying: "what is saved is earned", and go on to buy more of X than you needed just because there was a rebate and then kidding yourself that you earned a lot of money.
But then we are not really looking at real estate as an investment, but rather as a place to live.
Well it's both at the same time really. You can either own the investment and have it throw off cash which you use to pay your rent, or you can just skip that step and buy the house.
Now, it's exceedingly difficult for the average Joe to find investments that will reliably throw off enough income AFTER tax to pay his rent. Which is why it's the better investment for most people to own the house before investing elsewhere.
If you the home is exactly what you need, then the basic question should be buy versus rent?
If the home is for the long term, then a buy would most likely be attractive.
Only if people has additional funds should the investment perspective enter the equation. And then I find it likely that most people would be better off with stocks for the very long term.
Cheers!
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The really long term real return on real estate is more likely approx. zero percent as documented in this very thorough study covering the period 1628-1973:
The real return on businesses is zero if you disallow their earnings.
Similarly, real estate offers no returns when you disallow the cap rate.
But neither scenario is realistic.
For some reason though, perhaps it's the real estate crash, it is becoming popular to pass around articles suggesting that real estate offers zero returns.
It's only if you would have paid the rent anyway, that this "rent" should be included in the equation for the owner occupied home.
But then we are not really looking at real estate as an investment, but rather as a place to live.
Beyond this point, the "rent" should be disregarded.
It's really two different questions:
1) suppose you have found the home that you will live in. Should you rent or buy?
2) for any additional funds, should you buy "more"/"better" house to live in or should you buy e.g. stocks or bonds or X for the additional funds?
This is different for businesses, where the business earnings should be included in the equation no matter the size.
Btw, the studies were also around during the boom times, but people dismissed them outright. People would rather believe the fairy tale than face the historic facts.
Cheers!
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The really long term real return on real estate is more likely approx. zero percent as documented in this very thorough study covering the period 1628-1973:
http://arno.unimaas.nl/show.cgi?fid=10696
Problem is, there are larges swings along the years, and it's very easy to get caught in thinking based on just a single lifetime experience. For all of us living now, the personal experience is likely somewhat different higher than zero, but unfortunately this doesn't change the really long term propable real return.
Cheers!
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Nope, only the goodwill is for sale. Martians have landed in Toronto and have taken over the head office. They decide they could boost Fairfax's earnings power by selling off some assets that aren't performing well. The goodwill doesn't seem to be throwing off any cash so they figure it's #1 on the chopping block.
Maybe it's like this: perhaps I want to mark the goodwill asset to market. Look, they could pay "fair" arms length value for a common stock on the market, but when it falls in price they're not allowed to keep it at that value. Goodwill is similar to marking those assets to model. You buy a portion of a company and your balance sheet goes up and down with the market value of that stock. You buy the whole company and it no longer fluctuates. Useful!
Marking the stocks to market also tells you pretty much nothing about their future earning power, yet it's commonly done and nobody questions the practice.
Problem is, the assets can't be sold without disregarding real life - the other thing is impossible fiction. None has ever promised that an asset could be sold independently just because it's listed in the accounts.
The only most realistic way to sell the goodwill asset is to sell the subs, and then buy tangible assets for the proceeds.
In this case, you might even realize a value above the stated book for the subs ;)
But on the other hand, you would remove more tangible assets (caused by the float) than the proceeds of the sale. Of course you would also loose a lot of claims reserves, recoverables, etc. in this sale.
In short, neither book value nor tangible book value of a company represents the real value of the business. And this is true even if a lot of intelligent persons has spend a lot of time trying to set up rules for how to determine book value - both generally and in each specific company. And it's also true even if companies employ a lot of people that uses their skills and time on the bookkeeping in order to make it very accurate and elaborate and with no errors :o
Even in a liquidation situation, you would propably find that insurers can have a very different value than the tangible book (loss reserves, etc.) ...
And after all, it's better to be approximately right than precisely wrong.
Cheers!
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Suppose some idiot payed them dollar for dollar for the asset called "goodwill", but let them keep all of the ORH operations. Now FFH is exactly the same, but instead of goodwill they now have cash. Dollar for dollar.
Should they take the deal?
Sorry to quote myself.
But lets say the offer is only $1 for every $2 of goodwill. Should the still take the deal? Of course!
Or how about only $1 for every $5 of goodwill. Should they still take the deal? Of course!
Even at $1 of cash for every $100 of goodwill. Does it still make good economic sense to make the deal? Of course!
So that's why it's worth practically nothing -- compared to the other components of book value, such as CASH!!!
Sorry to continue, but I see the goodwill as the price to be paid in order to take over the (remaining) insurance operations, which include (minority interests in) insurance contracts, organisation, management, claims reserve, float, brand, customers, etc.
If you sell the goodwill, then logically you have to also to include in the sale,
- the (tangible) assets that were part of the float
- the loss reserves
- the organisation, customers, management
- etc.
that were bought for this goodwill.
In other words, you will sell a future income stream if you sell this goodwill.
And I, for one, would be very happy to buy what effectively is 25% of ORH's future income stream at US$ 1 ;D
You may even argue that the goodwill part should in reality be "more valuable" than the tangible assets.
Example: which is best ?
- buy tangible assets for $100, which yields maybe $6 a year
- buy a minority interest in an insurer for $100, which may be composed of $50 goodwill, $250 tangible assets and $200 loss reservs and debt earning $15 a year
apparantly, the goodwill part of $50 was in reality earning $9 a year in the example (the earnings over the non-levered tangible asset) and compunding very rapidly.
Or rephrased, would you sell for $50 (or 50 cents), an earnings stream of $9 a year, compounding at 20%?
Or in other words, is the goodwill worthless?
In my mind - of course not, in fact there should be a lot more goodwill than what appears from the books, and it is compounding at a very nice clip ;)
Cheers!
- the (tangible) assets that were part of the float
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Float => 23 billion From Watsa's talk. I put the float at 10B but had clearly underestimated the actual amount
Market cap => 15 Billion
From 2011Q1 report: "Common stock effectively outstanding – end of period. . . . . . 20,425,132"
Which, at a closing price of US$ 403 per share, comes to a market cap of US$ 8.2B.
Cheers!
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I agree with ERICOPOLY. For insurance companies comparability you need to use tangible book to measure historic growth and to measure a premium to BV. This helps to identify and show the relative value of insurance cos.
Even in tangible book, the loss reserves may turn out to be over or under what is eventually necessary to cover the claims. Loss reserves are not like ordinary debt, where the amount is known with certainty.
Also, the tangible book doesn't take into account, the risk in the underlying business, nor the earnings potential. Reinsurance adds to the uncertainty. Example: Even if two insurers has exactly the same tangible book value, then the worst case (and best case) scenarios for the two insurers in case of natural disasters, "black Tuesdays" and sensitivity to political, macro or other risks may differ significantly.
So especially for insurers, it seems to me it's not possible to do an "apples-to-apples" comparison by just looking at tangible book.
Cheers!
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I really don't mean to imply anything by writing off the goodwill. I just want to put apples-to-apples.
You could be accused of undervaluing the first 80% of ORH by not demanding to upvalue the goodwill by 5x.
The goodwill is just a balance sheet tombstone: "Here lies the premium to book paid for 20% of ORH. RIP." It tells me nothing of the value there... just as the lack of goodwill on the first 80% of ORH tells me nothing about the value.
The book value of companies can be rather meaningless, so maybe we shouldn't try to attach meaning to it?
From my point of view, the intrinsic value is much higher than the book value - and it's the intrinsic value - and the change in intrinsic value - which is important for investment purpose.
The book value is more or less just an artifact which is determined by the way a company has grown and the management judgement used in determining a number of things, including loss reserves, accounting policies, write-offs & impairment, amortization plus the prices at which the company stocks were issued and/or bought back.
Just because the book value is determined very elaborately and accurately doesn't mean it's all-important.
Let's put it this way -- the cash premium paid reduced potential statutory capital. Can we agree on that? When the hard market hits, intangible asset cannot be used to grow premiums. Therefore, the combined companies can write less business than they could before... so keeping that intangible asset around at full value as if it were still cash is hard for me to swallow.
Hasn't Fairfax issued new shares in order to take over (minority interests in) companies?
Further, the cash paid is from the holding company, which doesn't write any insurances and therefore doesn't really have statutory capital. Changes at the holding co shouldn't directly affect the business that the subs can write?
cheers!
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So all Canadians are scrampling to become mutual policy holders in a hurry?
Preferably taking out similar policies in as many mutuals as possible?
Cheers :o
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>Indeed, for insurance companies, it would be considered irrational if all the work effort of thousands of people, experience and investments in building up the insurance (and investment) organisation should be considered to have zero value
You can look at AIG as one example from insurance where the work effort of thousands of people was nullified by a few. There is also the example of SUNW ( later known as Java ) and NOVL whose value has declined dramatically from their peaks.
Of course companies can fail for a multitude of reasons. Indeed if you believe a company is about to fail, then paying anything for the stock might be a mistake. But this is besides the point.
I was talking about insurance companies in general and Fairfax specifically. In my opion, the intrinsic value seems to be quite a lot above book. Indeed, if you look at the aquisitions made then the price has been double significantly above book.
Cheers!
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I can understand that intelligent investors wish a margin of safety between intrinsic value and market value in order to invest. However, just because someone makes a wish, doesn't mean it must come true or that it is the "correct" value.
Rather, a market value with a discount to the intrinsic value should be recognised for being just a fluke of the market, giving temporarily a discount to the true, intrinsic value. It doesn't need to happen, but it may happen. If it happens, it's irrational seen on a stand alone basis - why would anyone wish to sell something below the true value. Also, even if something has happened a couple of times, doesn't make it a rule that can be relied upon to usually happen. But then again, it might happen once more.
Additionally, just because the book value is stated in an annual report, the book value is not the same as intrinsic value. Indeed, for insurance companies, it would be considered irrational if all the work effort of thousands of people, experience and investments in building up the insurance (and investment) organisation should be considered to have zero value just because it happened to be grown organically and therefore not attached any goodwill in the annual accounts. Also there are other investments carried at below fair price. And the "quality" of loss reserves must be part of the equation too.
To me, it seems that the book value significantly understates the intrinsic value and that some hedge funds and the financial crisis has previously brought down the market price to irrationally low levels. But that it should be a rule to be relied upon; that we can somehow count on external "forces" to "magically" drive irrationally low levels in market price would seem irrational to me.
Even when the stock is trading at above current book value, it seems to me to be trading at significantly below intrinsic value.
Cheers!
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Ok, take it for what it is worth as this is just top of my head computing but,
for those like me, who have owned this company (off and on) for a decade plus, the current over BV for FFH currently, knowing (estimate of course) they will prob be taking another hit on the Q1 number yet we are going over BV right now is bewildering. Ive sat on the company when they had nothing but good numbers and they were way (relatively speaking) under book.
IMO, the pension funds through the hedges funds are really reaching here - the only explanations i can up with. Im not saying paying over book for FFH wont work out in the long run, Im just saying that the majority of players out there dont have a long term plan.
This stuff just makes me say "huh?"
That is all ;D
The exchange rate rate USD/CAD has to be taken into account, but even when this is worked in, the price to book ratio has on average been over one when measured at year end.
From page 213 in Fairfax' annual report 2010 (PPS is closing price in CAD):
Year
increase in BVPS
BVPS
EPS
PPS
1985
–
1.52
(1.35)
3.25
1986
179.6%
4.25
0.98
12.75
1987
48.2%
6.30
1.72
12.37
1988
31.1%
8.26
1.63
15.00
1989
27.1%
10.50
1.87
18.75
1990
41.3%
14.84
2.42
11.00
1991
23.9%
18.38
3.34
21.25
1992
0.9%
18.55
1.44
25.00
1993
42.3%
26.39
4.19
61.25
1994
17.7%
31.06
3.41
67.00
1995
25.2%
38.89
7.15
98.00
1996
62.8%
63.31
11.26
290.00
1997
36.3%
86.28
14.12
320.00
1998
30.4%
112.49
23.60
540.00
1999
38.3%
155.55
3.20
245.50
2000
(4.8 )%
148.14
5.04
228.50
2001
(21)%
117.03
(31.93)
164.00
2002
7.0%
125.25
17.49
121.11
2003
30.7%
163.70
19.51
226.11
2004
(0.6)%
162.76
3.11
202.24
2005
(15.5)%
137.50
(27.75)
168.00
2006
9.2%
150.16
11.92
231.67
2007
53.2%
230.01
58.38
287.00
2008
21.0%
278.28
79.53
390.00
2009
32.9%
369.80
43.75
410.00
2010
2.6%
379.46
21.31
408.99
Cheers!
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Interesting poll - we have 10% of the people holding >40% in FFH. We also have 18% with 0% of FFH. 21% are less than 10% which means they may be holding 1 share of FFH also. We have 40% between 10 and 25%. We also have 10% having between 25 and 40%.
According to the short position, some people may actually hold less than 0% ffh, only we can't see how many ...
Cheers!
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Very likely more than a passing interest for one or two of the companies on this board!
As always, do your own DD
http://www.canadianunderwriter.ca/issues/story.aspx?aid=1000405671
SD, are you suggesting "one or two of the companies on this board" might be buyers?
My own experience suggest stock valuations increase and premiums harden when insurers demutualize by going public.
Cheers!
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...now my curiousity is piqued. but why is there always price premium of the pink sheet shares over the canadian ones? is it because they're priced in US dollars?
Yes, the price quoted on the pink sheets is in USD, where the price of FFH.TO is in CAD.
as far as the short position in ffh goes, that's a mystery to me. its relatively cheap, has a strong balance sheet thanks to their great investment results especially in 2008-2009, and it has a demonstrated history of far above average shareholder returns. the only visible potential achilles heel waiting to trip them up that i can see is their big holdings of long term US treasuries. they've REALLY gone against the conventional wisdom of the crowds on that one.
Yes, compared to the low average daily volume, the short position is significant. As to why someone would short Fairfax as opposed to e.g. short the TYX directly, doesn't seem to make sense; must be something more speculative?
Cheers
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Neils,
I cant answer your questions specifically. I have experienced the following:
I have held FFh in a US account, and sold shares out of this account since they delisted from the NYSE. That would be trades on the pink sheets. I have also transferred shares from my Us margin account to my Canadian Margin account with no fees. I am thinking that there is no actual assignment of a specified number of FFh shares to pink sheets. FWIW.
Yes, I've also transferred my shares from US to CA. In one account at one brokerage without any fee, but for shares in another account at another brokerage, there was a small fee.
I was just curious if the number of Fairfax shares on the pink sheets was forever diminishing - or if shares could also be transferred the other way. But I guess then that shares can flow freely both ways.
Cheers!
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In fact, why doesn't Fairfax withdraw from the pink sheets?
Does anybody know where to find additional information?
E.g. how many of Fairfax' shares are trading on the pink sheets?
if shares can be moved from Toronto to the pink sheets?
is the pink sheets listing mandated by Fairfax or is this listing contradictionary to the company wishes?
Thanks
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The total reported short position at 15th March, 2011 therefore seems to be 144,516
The unreported / "fail to deliver" short position should be added on top of this:
from http://www.otcmarkets.com/stock/FRFHF/short-sales: "No Reg SHO data is available for FRFHF".
History teaches us that this can be significant - even more so for pink sheets; pink sheets can be dodgy...
If anyone has a pink sheet position in Fairfax, why not ask your broker to do a northbound transfer of the position to Toronto Stock Exchange?
The rules, regulations and transparancy seems to a lot better at a real exchange instead of the pink sheets.
In fact, why doesn't Fairfax withdraw from the pink sheets?
Cheers!
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This one's pretty fresh. TSX market data as of March 15.
FFH FAIRFAX FINANCIAL HOLDINGS LTD. SV 38879 1366 T
As I understand it, this only covers the short position registered with the Toronto Stock Exchange.
There is an additional short position for the pink sheets:
Date
Short Interest ; % Change ; Avg. Daily Share Volume ; Days to Cover ; Split ; New Issue Mar 15, 2011 105,637
-9.37
10,021
10.54
No
No
from http://www.otcmarkets.com/stock/FRFHF/short-sales
The total reported short position at 15th March, 2011 therefore seems to be 144,516
Cheers
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FFH is helped by those first few years. The last few the returns have been "only" around 20%.
Depends on what you mean by the last few ;)
Shown in the table below is Fairfax’s compound growth in book value for the five, ten, fifteen, twenty
and twenty-five years ending December 31, 2010, not including dividends.
5 years 10 years 15 years 20 years 25 years 22.5% 9.9% 16.4% 17.6% 24.7% There was not always a dividend, and in the last few years, the dividend been meaningful compared to book.
Cheers!
Fairfax getting busy
in Fairfax Financial
Posted
On a look through basis, suppose one FFH share at book value is equivalent to some shares and bonds and chunk of business, etc. that Prem et. al. has already found attractive at their prices. Then which is better:
Cheers!