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Devil Takes the Hindemost - Edward Chancellor Packer

I agree that Facebook is tyring to replicate community online with a platform. This has never been financially successful except for earlier investors who sold thier shares to buyers who were willing to buy into the hype. Remeber all those on-line communities during Net 1.0? In my mind this a sophisticated version of those. How many of those are still around? None. They had to merge with other firms who could make money on the web (search engines) to survive financially. Facebook will survive financially but once you try to monitize your community in a large scale way, I think you lose a sense of community and question what is the community about - to monitize me? Packer

This will be an interesting test to see the markets reaction to spending to solve a solvency versus a liquidity crisis. Prevalou what is your take on Hollander in terms of his rhetoric versus his policies. Do you have a concern that since he has not held a major office before his rhetoric may be more closer to what his policies versus a play to get votes? The press and others seem to be convinced of the latter. Packer

I agree with you that it needs to be done but a good number of the tangible projects are on the bleeding edge of technology and cost alot of money. The cost of carbon being one today. I think there are incremental things that are achievable and can be done for reasonable incremental cost like increased fuel efficiency. If a list is compiled, then the technology focus can be on reducing the incremental cost. The large scale change everything approach rarely works, costs alot of money and causes folks to be skeptical of even viable projects because some of proponents make unsupportable claims (like terrible weather catastrophies, etc.). Just my pragmatic view. Packer

I think you have misinterpreted the liberal/conservative position on climate change. Assuming that man made climate change is occuring what can we do about it within the resources we have? Spending trillons on alternative energy subsidies in my mind versus the alternative uses of that money for social welfare or solving more pressing human needs is the real trade-off. Bjorn Lomborg provides a pretty good framework for spending versus results. If somehow the cost of reducing CO2 emmissions is reduced dramatically then the bang for buck may go up but today the bang for buck spending on climate change is pretty small. Packer

15 percent should be doable. They need to make 8 percent on investments or lower cost of float with correspondingly lower investment returns. They seem to realize bonds will not get them there but stocks and real estate could do the trick. The 8 percent number is based upon the current level of float and debt to equity of 3x and cost of float/debt of about 3 percent. If a hard market happens this gets easier. The historic investment returns have been about 9 percent and BV growth of 19 percent. Packer

If you look at the data he draws his conclusion from its a pretty broad range of value funds. Since most of these funds require diversification, the effects of value bets are diluted by other less valuey bets that need to be made for diversification. From what I have seen, the excess returns do not come from the value approach alone but the ability to concentrate your bets into specific firms and not purchase less valuable bets and from buying in small niches that others are not looking into that become recognized. It would be interesting to see the results of focused value funds versus value index funds. Packer

The Five Rules of Successful Stock Investing - Dorsey The Little Book that Builds Wealth - Dorsey Profit Patterns - Slywotsky & Morrison

Unless I missed something, hasn't Argentina gone through a number or nationalizations through its history? It appears property rights are not that important or are selectively important and the country (unlike the US) does not have history of property rights protection over long periods of time (especially for foreigners). If that is the case, how can you feel comfortable the value you find will not be expropriated? Chavez began with oil and gas and eventually ended up taking other assets. I just do not how to handicap such risks unless you think things will get better for property rights. Packer

The one data point I keep in mind for emerging markets is the largest decline in value for emerging market stocks is from expropriation. If a country does not show respect for large foreign corporations, how do you think they will treat small foreign minority shareholders. Unless you have an edge in terms of political connections, in my mind markets like Argentina, Venezula and Russia aren't worth spending time on because your value investment could be expropriated for the good of the people. Just my 2c. Packer

I owned it a few years ago and the biggest issue I had was the gov't control. At the time they sold much of their gas at below market prices into the Russian market and to friends of Russia (Belarus and some of the other previous Soviet states). They would use gas as a political weapon of the state at that time against the Ukraine. In the end I sold because I had a small profit and could not see how I as a foreign minority shareholder was going to get a fair return on the vast reserves Gazporm had. At the time I think the current President was the head of Gazprom and I think many high gov't officials are part of Gazprom's management team. Packer

I agree with personal investing and the conflicts. That is why I stay away from certain types of firms in my investing. However, you can still analyze the firm with a perspective of an insider that others may not have and can provide you a competitive advantage versus other candidates when looking for a different job. There are inefficiencies in all markets and if you can identify ones in the market you are getting paid to study/work in you become more valuable all around. Packer

Some top level numbers : BV= $3.94/share ($97.7m) yielding about 5% on a pre-tax basis from investments with $4.5b AUM generating about $5.3 m/yr EBIT from AM and servcing fees. AM on an after-tax basis is about $0.51/share. They also have $250 million in NOLs. With a market cap of $78 million there is upside to the assets plus the possible Zell premium of providing assets to fully utilize the NOL (like he did with Covanta/Danielson Holding). I have a started position at about $2.40 but may add more if some of my other positions approach FV. Packer

Why not use some of your structured finance experience to look for values in that space? CT is an interesting place to start along with GKK where PlanMeastro has a good handle. I know there are probably dozens of publicly held firms that hold this type of paper as a primary asset. As for your SA articles they appear to focus on shorting which in my mind is very difficult. Why not start with some long ideas? Just some ideas. Packer

One thing you can do is to focus your area of reserach is to pick an out of favor sector and dive into the 10-Ks and data from investor relations briefings. Also look at the proxies and how the top dogs are being compensated. If you find some smaller firms you can request to speak with CFO and many times they will speak if you have a focused list of questions. I have done this a few times. Once you start looking at firms data and events, you will be able to see what is going on. Once you have picked your industry, it easier to filter out data and build a circle of competitance. Packer

Rochester, NY

Interesting that both the US and UK were able to pull out of deflationary spiral only by devaluing after trying everything else. Packer

In my mind it increases the degree of difficulty as there are more decisions to be made and is more reflective of speculation as defined by Graham versus investment. I have no problem with trading funds you just have to know what you are getting into. Packer

But where is it low? I agree you can trade around positions but with the low turnover being greater than 100% I think this is a trading/speculating value fund not an investing fund. Packer

I would agree if it was one year but every year has a turnover greater than 100 percent. I just think with that type of turnover the probability that it is not chance goes down. Most of the long term value investors I know have low turnover. We will see but if the fund is like the Prasad fund the this will be an upside blip. Packer

With an annual turnover of 132% to 420% per year this on the surface sounds more like a momentum or trading fund than a value investing fund. Just an observation. Packer

I think he will keep rates at 0 until the debt to GDP goes below 150 to 175. It is already on the way down. At those levels folks will borrow and increase inflation. Packer

An interesting articles by one of the folks who have studied how we get out of debt biuld-ups: http://www.bloomberg.com/news/2012-03-11/financial-repression-has-come-back-to-stay-carmen-m-reinhart.html It implies negative interest rates for bonds for awhile as inflation eats away at the principle. This will prevent deflation and appears to be less painful way to deal with the debt. Packer

I am not adding but may add some 2014 LEAPs as some my other ideas approach fair value. I don't have as great a record using LEAPs as I have with stocks because of the timing aspect of the trade. The 2013 LEAPs sure are cheap but will the market realize the value before Jan 2013 is the bigger question given the abundance of NG is NA which is driving down electricity prices. I thought once the merger arb pressure was gone there would be a jump but I guess I was wrong. The 2014 LEAPs are more expensive but still have alot of leverage and give you another year for nat gas to recover. Packer

I have recently (last Fall) put a good portion of my retirement account with Fairhome. I think his portfolio has many of the characteristics that Howard Marks hightlights as key to outperform the market, namely: little known or not fully understood, fundamentally questionable on the surface, controversial, unseemly or scary, deemed inappropriate for "respectable" portfolios, unappreciated, unpopular and unloved, trailing record of poor returns and recently the subject of disinvestment, not accumulation. I probably should have put more in. I think the most we can ask of these managers is consistency to strategy so we can invest in that way. Both Fairholme and Chou provide this. Both Chou and Berkowitz are great analysts and have been right more times then they have been wrong. An interesting constrast in Berkowitz and Pzena. Berkowitz stuck to his guns and Pzena changed his concentration strategy at the bottom falling victom to Mr. Market. These types are not for all investors as some will panic once they see underperformance. So when I recommend these funds to others, I tell them that this fund is volatile and you should not invest wth money you are going to need in the next 3 to 5 years. Unfortunately, I did miss out on the rally in some of Farholmes biggest names link SHLD, AIG and BAC as I was invested elsewhere. Packer