Viking

I will probably spend 10 to 15 hours on a new idea that looks promising (quarterly reports, annual reports, analyst reports, conference calls & blogs). I pay a fair bit of attention to management conference calls and try to understand if they are any good and if they are shareholder friendly. If 'the story' still looks good after this time and the price is good I may establish a position (2 to 3%). Then I do it all over again. If over a couple of months the story still looks good and the stock is still cheap I may increase my position (5 to 10%). My largest positions (more than 10%) are normally reserved for stocks that I have followed for years and where I am comfortable with management and where the stock sells off a great deal. FFH in past years and BRK last year are good examples. Every year I try to add a few more companies into my circle of competence. It may be a couple of years before I actually buy a meaningful amount (as I wait for the stock to get cheap enough). What is great is once you have discovered companies that you really like it does not take as much time to keep informed; when they go on sale you are able to quickly review the story and purchase in quantity if it checks out. Pretty much everything was on sale in Sept/Oct of last year. The part I really enjoy is finding and researching new opportunities. It is a little more stressful when buying beacause it does take years really get a good understanding of a business. Two recent examples for me are SNC.TO and DWA.

Last year Buffett also gave one more input when valuing stock of a company: how well management does with retained earnings. BRK has excelled at this in the past and this is why the company commanded such as large price to book premium valuation. My read is today Mr. Market is not giving BRK a premium at all for this skill. Should BRK continue to make wise decisions with retained earnings in the coming years the stock will likely appreciate nicely from current levels.

This purchase is shaping up to be one of his best of the last 10 years. I think the BAC warrants will also be a gold mine for BRK shareholders looking out 10 years. BRK looks like a coiled spring to me. Insurance, banking, home building... all sectors that have likely bottomed. As earnings increase in the coming years BRK will generate crazy amounts of cash.

I think Buffett would like Canadian banks. As has been stated, they are essentially an oligopoly and they all 'play ball fairly'. I would go so far as to say this results in a sizeable moat. Bottom line is the group should continue to grow earnings at a 6 to 8% clip pretty easily. I view Canadian banks as a reasonable trade to holding a bond; much higher rate of return and moderately more risk. Their growth in their Canadian business will be low moving forward. As a result each bank has picked a different growth vehicle: RY = global wealth management TD = US BNS = Latin America & Asia BMO = US midwest CIBC = ? National = small and ? Laurentian = small and ? Canadian Western Bank = very small and growing in West Because the Canadian banks are expanding internationally (and this is where much of the growth will come from in future years) it is difficult to compare to Wells Fargo. Rather than try and pick 'the winner' my decision recently has been to buy a basket of Canadian banks: BNS, CWB & BMO (cheapest when I bought a month ago). Late last year I did purchase RY and sold as it ran up. I also view these holdings as a trade (i.e. buy when cheap and hold for dividend and sell when they run up 10 or 15%). BMO looks to be the cheapest (of the big 4) right now; their US aquisition is looking to be a steal (purchased at the bottom of the market). However, their Canadian business looks to be slowing...? They release results tomorrow AM and I will be following closely. If the results are good (no weakness in Canada and the US business is getting better faster than anticipated) then I will consider adding to my position.

I have read Garth's stuff for the past 10 years. He certainly is entertaining (must have been fun sitting beside him when he sat in Parliament as an MP in Ottawa). I think he is generally correct in his assessment (i.e. housing is at historic highs) but I am not sure about his conclusions (a bust is just around the corner). Will Canadian residential real estate be a great investment moving forward? I doubt it; with prices at historic highs there is no margin of safety. My guess is real estate prices go sideways for the next 10 or 15 years. With inflation running at 2 or 3 percent per year, real prices will correct over time to a more reasonable level. Should China get ugly (causing the resource part of the Canadian economy to tank like 2008 & 2009) then Canadian real estate could be in for a hard landing. Should the Canadian ecomony sputter along the next few years I am not sure what the catalyst would cause a precipitous fall.

Grantham is his latest quarterly report says natural gas prices are crazy low (compared to their historical spread to oil) and suggests some serious thinking needs to take place.

Interesting read, as usual. Surprised a little to hear that he feels stocks in general are fairly valued. His one pick to avoid at all costs: long term US treasuries (this call has a 10 year time horizon). He also says he has no idea how Europe/China/US recession risks will play out (and it could be ugly) and he struggles with how to incorporate these risks into investment decisions today.

Buffett has consistently said that when housing gets better the general economy will improve. Earlier in 2011 he said housing may get better by the end of 2011. I am looking forward to reading Buffett's letter on Saturday to get his take on things (and I think he is doing a few interviews next week). My guess is he will be positive on a turn in housing happening sooner than people expect. I do not expect housing to become a huge jobs engine moving forward. However, I think we may have hit bottom in 2011 and we may start to see a slowly improving housing market contribute in a positive way to GDP moving forward. The consensus view is housing is a train wreck and will continue to be a mess for years... this trade is so one sided right now that I wonder if the opposite view is not a profitable way to go.

The BC government has a web site with lots of great information on the Mouintain Pine Beetle http://www.for.gov.bc.ca/hfp/mountain_pine_beetle/faq.htm#10. Here is a map of BC showing the devastation: http://www.for.gov.bc.ca/hfp/mountain_pine_beetle/maps/BCMPBv72009Kill.pdf For those who have driven in central BC (worst hit area) it is freeky to see entire forests coloured a solid red (as all the trees are dead) instead of the usual green. This area also has extreme forest fire risk as forest fires hit the dead timber. The key question is what the useful ecomonic life (in years) of a dead tree is... fortunately the lumber companies are smart and with improved technology have been able to still get good value out of older dead trees. FYI, as the dead trees age they get more brittle making it more difficult to extract quality 2x4's. Much of the #2 AND #3 quality 2x4's going to China is pine beetle trees.

Hester, of course anything can happen. If this was 2006 and the Canfor CEO said they would ship 1 million board feet of lumber into China in 2011 he would have been laughed at. The fact that BC producers were actually shipping more volume into China than the US at one point in 2011 is amazing. Given that CFP and WFT say they will ship more volume to China in 2012 than 2011 (and this has been the case every year since 2006) then this is what leads me to say that I expect shipments to China to increase in the coming years. Here are 2011 softwood lumber numbers from the BC government for China: http://www.newsroom.gov.bc.ca/2012/02/softwood-lumber-exports-to-china-shatter-record.html If you look at slide 8 of the Canfor presentation you will see details of volumes they have shipped into China: they have gone from zero in 2006 to almost 1 million board feet in 2011 and they are forcasting 1.2 million board feet in 2012. The CEO for Canfor was actually in China during their earnings conferencye call last week with the Canadian gov't meeting with senior Chinese officials. Canfor has been in China for the past 10 years trying to grow the wood market (this is not something they just started). Slide 9 of their presentation summmarizes the Chinese opportunity well. If you look at slide 17 of the West Fraser presentation you will see details of volumes they have shipped into China: they have gone from zero in 2006 to more than 2 million board feet in 2011. The growth each year has been consistent. During the WFT conference call today the CEO said in Q1 they have once again resumed shipping significant volumes into China and prices have started to improve (from Q4 lows). This is very good news as total volumes and prices into China dropped in Q4. To get a little more perspective on China I suggest you listen to the Whistler conference link below. The bottom line is China is a very difficult market to predict with any certainty for any commodity. And for some reason products get stock piled, orders disappear and prices collapse which result in some wicked price swings from year to year. What I learned with pulp is to trust that the China story, once established, is real. My only prediction is lumber volumes in China will continue to increase in the coming years as their economy continues to grow. China does not have the fibre to supply this market. BC producers appear to be in the best position to satisy this growing demand. Here is a good summary of what the current outlook is for China: http://www.evri.com/media/article;jsessionid=o15ojyi7tmsn?title=Lumber+sales,+prices+rise+as+Chinese+buyers+return+to+B.C.&page=http://www.vancouversun.com/business/Lumber%2Bsales%2Bprices%2Brise%2BChinese%2Bbuyers%2Breturn/5889231/story.html&referring_uri=/organization/west-fraser-timber-co.-0x70abf%3Bjsessionid%3Do15ojyi7tmsn&referring_title=Evri And, yes, lumber is wickedly cyclical. Volumes and pricing move a crazy amount. My point is I think we are at the point in the cycle where demand is low and prices are low. As US demand picks up in the coming years (housing recovery) and if demand from China continues to grow (current trend continues) we will have very strong demand for lumber. In the coming years we will also see pressure on the supply side with fibre supply actually shrinking. I think Resulute communicated lately that the Quebec gov't will once again be reducing the allowable timber harvest in the province. In the BC interior the allowable cut will be shrinking in the next few years as the pine beetle logs are depleted (see West Fraser presentation page 20). Growing lumber demand at the same time wood supply shrinks. I wondered why Jimmy Pattison was purchasing Canfor starting years ago. I think this is likely what he has seen all along (with the recent China growth being a bonus). Jimmy is a long term, value investor (similar to Buffett). His Canfor investment could end up being one of his best ever. And like Buffett's best moves it plays out over a 5 to 10 year period.

Over the past couple of years it has been clear that insurance pricing was in the process of shifting from a soft to a hard market. Investors who have taken the time over the past couple of years to get positioned in the best run companies have done pretty well return wise. More importantly, as pricing continues to harden these investments should do even better as profitability improves and the multiple the market assigns to the sector increases... we will get a double whammy and this often results on a stock doubling in price in a very short time period. We are still in early days for insurance with the big money still to be made. My learning is the key is to get exposure to the best run companies when pessimism is high and to simply sit and wait (yes, perhaps years) for the opportunity to play out. I have also learned that trying to 'time' things too cutely (trade in and out depending on macro events) is not possible. Stocks will increase in price when you do not expect and then you sit and wait for a correction before investimg and the stocks continue higher as fundamentals improve and you get left behind. Do your homework; establish a position in the best companies; do not sell due to short term factors; hang on for the long term (years). Another sector that I am spending more time on are the BC lumber producers (WFT, CFP, IFP-A). Looking out 5 years I see profitability improving dramatically and I see Mr. Market giving the sector a much higher multiple. This is not a 3 month or one even one year play. Why do I like lumber producers so much? Demand for lumber is growing again (thanks to China) and will spike when US housing starts return to normalized levels. Supply of (quality) lumber will be shrinking in the coming years as the allowable cut in the BC interior shrinks (as Mountain Pine Beetle volumes shrink and what wood is left is much lower quality). US housing: I have followed Calculated Risk blog for years. His read is we have reached the bottom in the US in terms of lows for single family housing starts. Now we may stay at a very low level for another couple of years. Or we could be closer than people think. When forcasting the future most people overweight what has happenend in the recent past. My guess is the turn in US housing will catch people by surprise. Regardless, US housing starts are much too low and will need to increase materially in the coming years. China: I have not been following the China story too closely the past few years. The Chinese governemnt is now embracing wood in construction. The result has been an explosion in volumes (for BC producers shipping to China) from pretty much zero a couple of years ago. How big are we talking? Volumes to China actually exceeded volumes going to the US at one point in 2011 http://www2.news.gov.bc.ca/news_releases_2009-2013/2011JTI0091-000888.htm. Think about that for a second. Volumes to China are expected to continue to increase in the coming years. See pages 8 & 9 of the Canfor presentation, page 17 of the West Fraser presentation or pages 25-28 of the IFP presentation linked below for a little more information on China (or listen to the CIBC Whistler Roundtable linked below). Softwood Agreement: was recently extended from 2013 to now end in 2015. This was a great move for Canadian producers as the agreement will now be re-negotiated when the demand/supply relationship will be much more in their favour. BC Lumber Companies (WFT, CFP, IFP-A): 1.) profitable today: business is not great; it is good enough to allow the companies to continue to invest in their operations, buy out weaker competitors and muddle through until better times come. 2.) low debt: 10 to 15% of market cap is debt; these companies are not leveraged plays. 3.) low cost operations: they have invested heavily the past 5 years and the BC interior is recognized as the lowest cost operators in NA; higher prices will make them free cash flow machines. 4.) consolidation: the strong players continue to get bigger by purchasing the smaller/weak players. This should result in more 'rational' behaviour on the part of producers in future years and improve industry profitability (with less destructive competition). 5.) ownership: Jimmy Pattison has been buying CFP for years and now owns 38%; Mackenzie Cundill owns 14% and Jarislowsky Fraser owns 11%; three players control 63% of CFP shares. Ketcham family owns a bunch of WFT. Fairfax purchase IFP years ago and I am assuming they still hold their position. These players are long term holders. The supply of tradable stock for BC lumber companies is low; when investors and analysts jump on the bandwagon there is going to be a big demand/supply mismatch in available shares. CIBC Whistler Forestry Roundtable (Jan 2012): http://webcasts.welcome2theshow.com/whistler2012/forest West Fraser: http://www.westfraser.com/news/docs/Investor-Presentation-October-2011.pdf Canfor: http://www.canfor.com/documents/webcasts/Investor-Presentation-2012FINAL.pdf International Forest Products: http://www.interfor.com/pdf/Investor/Presentation/Investor_Update_2012_Jan.pdf If anyone has come accross any presentations they found informative on this topic can you post? Thanks! ;)

The next couple of weeks will be interesting to watch. The Germans could be the big losers as it looks like they are being made out to be the bad guys in the Greek press. With all the WWII references (and Nazi Germany) one has to wonder just how bad relations could get. And as austerity spreads to more countries I can see historic scabs getting picked. Perhaps the Euro will survive a financial crisis and get brought down in the end by a social crisis. Greek elections in April will make the current US situation look like childs play. Makes one thankful for our boring Parliamentary system (Canada). I am also thankful to Paul Martin when he was finance minster under Jean Cretien for having the brass to get our finances in reasonable shape when the opportunity presented itself (and yes, the CAN$ dropping to $0.66US helped as did a commodity boom).

I hold a chunk of BRK. At about 1.15 to 1.2xBV I am thinking it is still cheap. May not be the cheapest and it continues to diversify its business (not a pure insurance play). Given the floor that Buffett has put under the stock as BV grows it looks to be a pretty safe long term hold even if purchased at current levels - limited downside and reasonable upside.

Politics in the US is a blood sport. You need very thick skin. The fact she went to Washington, intending to or not, she has now entered the ring on this debate. My advice be to turn down these sorts of invitations and to exit gracefully. No one needs this kind of attention.

The more I read about Wells Fargo the more I like their management team, business model and competitive positioning. Good 'back up the truck' type stock.

I am happy to lighten up on equities and book some decent gains. Should stock markets continue to go up (especially financials) I will be happy to sell more and move to the sidelines. I am a little surprised BRK has not moved much the past couple of months given that insurance and especially financial stocks have done very well recently. Perhaps the buyback has put a floor under the stock and it will take much better economic news to get the stock moving. I would expect markets to continue to be quite volatile. 'Long live the rally'... until the first sign of trouble, that is. Markets look to be quite bi-polar (euphoric or suicidal). The closest thing to what we are going through now was the 1930's or Japan recently (debt deflations). Lots of volatility over many, many years with the averages not really going anywhere.

I was up about 1% this year. Key learning: stay away from statistically cheap stocks and stick with the best of class. Overall, I am not disappointed as I was very cautious (for a second year) sitting on very large cash balances for most of the year (currently cash = 75%). Lots of good lessons...

There look to be lots of cross currents currently swirling around: 1.) year end window dressing by funds 2.) low volume due to Christmas holidays 3.) year end tax loss selling Bonds again are at multi-year lows and stocks continue sideways... I wonder if Europe is burning people out, given all the noise since Sept and lack of progress. Perhaps time for the patient to receive a little shock therapy (complements of our hedge fund friends)... :)

A couple of years ago my neighbour's kid was selling boxes of chocolate covered almonds to raise money for his hockey team. The items were to be sold for $2.00 each. He sold them for $5.00 each, pocketing the difference (there was no selling price on the chocolates). Until his parents found out. They made him go around the neighbourhood and return the money to all families. Yes, my wife had bought a box for $5.00! This kid has the entrepreneurial spirit and moral compass to be a standout on Wall Street... (And we still laugh our asses off over some of the creative things this kid has done over the years.)

Regarding scarcity, I think the example you set as parents is important. We have everything we need in our house; however we are never 'early adopters' when it comes to the next must have gadget. We buy one nice thing for the house each year (this year it was a big screen TV). We will go to a few garage sales during the summer. Each kid gets a set amount to spend ($2.00 when they were really young). If they spend it at the first stop they are done for the reat of the day regardless of what they find later in the day. This has been a great learning vehicle for the kids. My kids play hockey/ringette and they still get used skates every year from the local used skate shop or Craigs list (mind you, I know skates; we find $300 Graf's for less than $100). Their equipment bags need to be replaced. My oldest daughter recently got a great desk from Craig's list (she knew it was used). We can afford to buy them the best brand new but do as we do not want them to develop an 'instant gratification' mind set. This also teaches them how to be smart with how they spend their money. We talk about money and 'business' stuff but in a way that is relevant to them to start to get them familiar with concepts. I used to work for Kraft Foods and Saputo; their products are all over the house and make for some fun conversations (and lots of interesting questions). When they are older I want to have them start to invest a small chunk of money in companies they are interested in. Learning math is also very important in our house (along with reading & writing). My wife spends extra time with our two daughters to ensure they are learning all basic concepts (as many girls at a very young age decide math is not cool and fall behind). My wife also plays lots of games with the kids... this may be one of the best ways to help teach them math stuff. Bottom line... be a good role model, make it relevaqnt to them, work your ass off to help them... and then hope that Buffett is wrong when he says (about value investing anyways) that you are likely born with it (or not). I have now been managing our family investments full time now for about 5 1/2 years. By far the best outcome has been the quality time both my wife and I have been able to spend with our three kids (starting when they were young). We have been able to raise them how we want. We just finished parent/teacher meetings and all three are excelling in school; they are also great athletes. Most importantly, they are good people. The quality of our family life is very good; and my wife and I both recognize that we are living the dream.

My immediate reaction after hearing this news was not positive. I can understand why Buffett may feel this is needed. What if Howard Buffett exercises poor judgement in the years after W Buffett is gone? I will admit I do not understand what the purpose of this role is. And H Buffett may be the most qualified person to fill this role. Buffett has been doing MANY things the past year or two to set BRK up after he is gone. Seems to be some urgency (more so than in the past). Interesting.

For those who have been following this here is the link to a Dec 8 interview on Bloomberg. I like it because it was 8 minutes and they actually got into a little detail. Interesting comment: he said most forcasters today are calling for a 'muddle through' economy. He said this type of economy never actually happens; you always get growth or recession. http://www.ritholtz.com/blog/2011/12/ecris-achuthan-u-s-economic-outlook-labor-market/ Europe is in recession; the US looks to be slipping into recession and China looks to be slowing. Interesting times...

Racemize, I have followed FFH for years and it has been as high as 70% of my portfolio (2007 & 2008). The reason I held it in the past was becuase it was dirt cheap (selling at less at P/BV of less than 0.8) and their investment portfolio was positioned perfectly to benefit from the 2007/2008 credit crisis (via their holdings of CDS). I have never held FFH because I think they are great underwriters. I do not follow FFH as closely now as I have in the past. I do not own them today because: 1.) stock is not crazy cheap 2.) investment portfolio has increased in complexity and looks positioned for breakeven should things get ugly again 3.) underwriting, while not terrible, is not yet in the same league as others I am not saying FFH will not deliver solid to great returns for investors moving forward. But more than other insurers FFH looks to me to be a 'bet on the jockey' type stock with outperformance (of other insurance companies) tied more to investment results more so than underwriting results. Given how defensive the FFH investment portfolio is I would rather, in my portfolio, sit on cash and deploy myself during market sell offs directly in companies like WFC, DELL etc. FFH will benefit from an improving insurance pricing environment moving forward but I would expect the better underwriters to improve their results more than FFH (who relies more on investment gains to drive earnings). I like BRK, WRB and ACE as I have followed for years I think they are all well run insurers, leaders in their respective markets and their insurance businesses should do very well as insurance markets improve. I don't think the stocks are crazy cheap today (like they were a year ago). And I am not looking to back up the truck. I am just trying to identify sectors and companies that I like that I will target should markets sell off aggressively again in the coming weeks and months (should Europe disappoint and/or the US look like it is going into a recession).

I like Peter Lynch's line about how doctors like to invest in resource plays and miners like to invest in pharmaceuticals... we tend to invest in stuff we do not understand. Having followed BRK & FFH for many years many people on this board understand insurance co's pretty well. Do many investors on this board hold insurance investments today? It is clear the insurance market is in the process of shifting from a soft to a hard pricing environment. It has been happening over the past year. Insurance stocks are starting to reflect this fact and look to be one of the top performing groups over this time. As pricing continues to improve, earnings grow and P/BV multiples expand (what the market is willing to pay) insurance stocks look to be set to continue to outperform. My favourite picks are BRK, WRB and ACE (gives me some diversity). And yes, there are many more well run insurers (FFH etc). This is one sector I am hoping to increase exposure to over the next few months and then hang on for the ride.

Nice summary of Canadian Banks: http://seekingalpha.com/article/312544-sound-canadian-banks-offer-opportunity They all have reported Q4 results in the past week. RY looks to be the short term winner. In the weeks before reporting RY stock had sold off aggressively due to concerns about Euro exposure and capital markets. After reporting RY stock has moved up about 15%. The short term losers appear to BNS (concerns over capital levels) and BMO (weak results). Bottom line hard to argue Canadian banks are expensive at current prices.