Cigarbutt

The underlying theme here is that PG&E or equivalent have to pay what they have to pay but there has been a wildfire problem oversimplification. There is a lot of useful data coming from "the deep state" which is partially unavailable these days due to shutdown issues but my thoughts about the insurers' role in the past are negative. Federal assistance for disaster relief and subsidies to lower insurance premiums have been major factors behind the quasi-exponential rise in property value exposure in the high risk areas of the wildland interface and I feel that a new "wildfire relief" federal insurance program modeled on the national flood and terrorism program would only compound the wrong incentives issue. With the growing resurgence of interest (research, public awareness etc), I assume that the right people will come together but some (like Fukuyama) lament at the fact that the Forest Service, which used to be a source of pride, has become a shadow of itself, representing a typical example of a dysfunctional democracy and failed governance. As with most things, believing in cycles helps. If interested, here are some useful references: https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?referer=https://www.google.ca/&httpsredir=1&article=1681&context=elr https://fas.org/sgp/crs/misc/RL30755.pdf https://www.nap.edu/read/24792/chapter/4#22 The last link shows (page 20, fig.3-3A) the to-be President in 1961, doing his part to suppress a fire.

Whatever scenario going forward, a key variable will be the estimation and allocation of wildfire costs (prevention, mitigation and damage liabilities). While there is a clear increasing trend in the last 20 to 30 years and while expectations of continuation of this trend in the near future is reasonable, it appears that the costs attributed to PG&E need to be discounted and whether continuing as oldco or newco, it is reasonable to expect that relevant players (federal, state (definition of risk zones, improved forest risk management), local authorities (zoning etc) and the regulator (CPUC vs PG&E, property insurance etc)) will coordinate an improved plan and determine a more appropriate allocation procedure. Interesting to note also that taking the recent trend (that has appeared since the 70's) within a larger perspective shows that there was larger acreage burned of US forest lands earlier in the 20th century followed by a relatively quiet period and some suggest that the relatively quiet period was due to improved but non-specific suppression efforts, suggesting also that what we see now (because of fire consequences easing conditions) is a return of the pendulum around a rising trend, pretty much like the stock market at times.

Could be a good case for Cali legislating for black swans, which this appears to be. From an insurance catastrophe modeling perspective, a rising trend had been defined in the last few years before 2017 and 2018. The most important variables seemed to be 1-property development at the wildland interface (40% of new homes, typically more expensive properties) and 2-the length of the fire season. The models tend to be historical (trend following) and include variables that are very difficult to measure precisely (ignition by lightning, ignition by human activity etc). Despite the rising trend, the 2017 and 2018 fire seasons were clear outliers. From an insurance perspective, going forward, could the premiums related to wildfire exposure be a fonction of the location of the property, the bulding materials and a reasonable obligation of the owner to maintain a minimum level of protection (branches, debris etc)?

^The filing made in response to federal Judge Alsup is interesting and relevant on many levels. https://www.eenews.net/assets/2019/01/24/document_ew_03.pdf The process is a consequence of the 2010 San Bruno pipeline explosion and the ensuing probation period that is ongoing during further safety (and now firm survival) concerns. In a do-whatever-it-takes way, the multi-component solution proposed does not appear to be workable. In its response, PG&E likely exaggerates but they say that, in order to comply, they would need to hire (now) 650 000 workers and cut 100M trees which would theoretically result in the utility bill being multiplied by 5 for 16M Californians. There are risks, negotiations during bankruptcy will expose more risks but a workable solution can be reached. When PG&E (sub) went under in 2001, their position, on how to come out, was markedly different from the CPUC's position but they worked it out. For the Tubbs fire, a gross way to evaluate the liability is to use the number of structures damaged by the fire (about 5640) over the total number of structures damaged by the relevant 2017 fires (about 10 800). For the cumulative preferred dividend question, I would say that this becomes an issue only if prefs and commons survive and if/when the dividend on the common is reinstated.

This book (story) was worth reading on many levels: how to build and maintain moat, value of competition, entrepreneurial culture, independent thought etc

DIP financing secured. Some posters above suggested that the newco securities may constitute better entry points. I'm not so sure. Recently, AEP Texas filed to regulators recovery measures to restore transmission and distribution assets that were damaged after Hurricane Harvey. One of the tools suggested was securitization of "restoration bonds" (similar to rate-recovery bonds used in California in conceptually similar circumstances in the past, for PG&E and others) with bonds backed by surcharges to customers. At this point, the best comparables may be the following two: 1-PG&E during 2001-4 where the entity (bonds and equity) emerged with new bonds but old bonds and old equity maintained. 2-El Paso Electric (Texas) that went under from 1992-6. In that case, secured had 100% recovery and unsecured had 85% recovery. Preferreds got 12% of the new prefs and common shareholders got 3% of the new common shares. The 2019 PG&E seems to fit between the two and maybe closer to 1-.

shalab, Thanks for your post that made me realize there was a conceptual flaw in my argument. A comforting thought may be that I realize, at times, a certain level of unrecognized stupidity. :) Just disregard what I wrote.

Just a comment about the issue that comes up at times about the growing irrelevance of book value as a valuation yardstick for the carrying value of consolidated subsidiaries and its effect on the P/B ratio for BRK. According to the blog, purchase price in 2009 was 34-35B and market value now (relative to Union Pacific) is about 105B whereas carrying value now is reported at 43B, suggesting a large and growing gap. While this gap is significant and growing, BRK has collected about 31B over the years (capitalized value of this cash flow stream at about 47B, using 10%) so 47B has found its way in retained earnings elsewhere on BRK balance sheet. 82B (35B + 47B) is still short of the 105B equity present valuation according to the blog and Mr. Buffett paid a control premium at acquisition but valuation now will tend to look favorable to 2010 which was pretty much a cyclical low for earnings and valuation. In 2010, CNR, a railway I know fairly well, had a PE of around 8-9 and, since then, earnings (fundamentals) have grown ++ but valuation now also reflects a higher PE (14-15) reflecting also stronger sentiment, typical of where we are in the cycle. I guess this multiple expansion also applies to BNSF. The point being that there is a growing gap between book value and intrinsic value but taking into account retained earnings makes the size of this gap relatively small.

In terms of the need for the government to "step in", when thinking of the Lehman event, powers that be supported Bear Stearns, AIG, the GSEs but drew a line with Lehman. Why? "They" said that legal authority was lacking and decided that the collateral was too risky but, especially in retrospect, an argument could be made that the decision was much more political than economic. I agree with the line of thinking but PG&E has a checkered past and the Californian case law for investor-owned utilities exposure to inverse condemnation is extensive, is based on the constitutional definition for the exercise of eminent domain and these legal trajectories can show tremendous inertia. https://www.npr.org/sections/thetwo-way/2015/04/09/398571726/pg-e-hit-with-1-6-billion-penalty-for-2010-calif-pipeline-explosion https://www.mercurynews.com/2017/01/26/pge-gets-maximum-sentence-for-san-bruno-crimes/ http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M250/K897/250897740.PDF https://law.justia.com/cases/california/court-of-appeal/4th/74/744.html Odds evaluation along the capital structure is challenging because 1-the defining variable is political, 2-PG&E has been a quite poor corporate citizen in the public arena, 3-the wildfire recurrent episodes that bring public scrutiny have large price tags and 4-of the fact that PG&E considering filing constitutes a signal that they are getting negative messages from legislators and regulators or at least perceive difficult negotiations. PG&E have to show that they were competent and prudent. :-\ I understand that the powers that be will look at alternative models such as the cooperative business model and members can achieve low rates and perhaps (evidence?) better risk management but low electricity rates rest on various public loans, subsidies and grants and PG&E is the major player with scale. So, what's the point?

The Fukushima disaster raised questions about governance (regulatory and government) and it became clear that regulatory capture had become a revolving-door norm. When black swan events hit, it tends to get messy and the populace want to assemble in front of burnings at the stake. It looks though that real blame needed to be attributed. However concerning the failures (before, during and after the Japan disaster), this is not Tchernobyl in 1986, that eventually had more to do than Perestroika and Glassnost in precipitating the Soviet Union downfall. Similar issues are at work in California and some have been quite vocal about it but also have an agenda($). https://media.sandiegoreader.com/news/documents/2017/11/30/CPUC_Malfeasance_Report_Update_10_Nov_2017.pdf FWIW, I think Japan and the US, in general, continue to have reasonably good governance. Both continue to score high, on a comparative basis, on the regulatory competence and control of corruption fronts. Hoping for a fair and reasonable outcome for PG&E means that one expects that cooler heads will prevail and that key participants will be able to see the forest for the trees during the temporary and more than usual transparent period that they are about to go through. And yes, the Big One will happen one day but San Francisco is such a great place (for some of the population).

Given rising wildfires costs, as well as legal and regulatory uncertainty, an interesting transition point has been reached. You may be interested in reviewing what is happening to Sempra Energy’s San Diego Gas & Electric utility who tried to have customers pay $379 million for 2007 wildfire liabilities. The case is going to the California Supreme Court. In essence, the inverse condemnation rule (strict liability regime) was applied by the courts and the regulatory body refused to let the utility pass on the costs to the rate payers because of the “prudent manager standard”. The courts basically said that they have to apply the law and rely on the regulator to spread the cost to rate payers and the regulators said that they have to act prudently and that the law should be changed… The inverse condemnation rule reflects the tension between many doctrines and makes sense when you think of public agencies needing to share private space for public good while exposing the private property to damage and relying on a mechanism to share the costs of those risks with the “community” that benefits from the resulting services. The issue in California is the stringent application of this rule for investor-owned utilities. Entities such as PG&E are, in a sense, quasi-public entities and the application of the rule may potentially make sense to incentivize investments for fire prevention but recent events show that the system is broken. The outcome for PG&E seems to be related to the resolution of this conflict. The law can change but the process is likely to be contentious and long, perhaps explaining the need to consider formal restructuring. Parallel developments at the California Public Utilities Commission to relax rules allowing the transfer of costs to rate payers appear to be more promising but recent decisions have not been favorable. California is at a point where large investments are contemplated in energy and, for private partners to play a role (quantity of capital and cost of capital), clearer guidelines need to be established for prevention investments, exposure to wildfire liabilities and fair/reasonable ways to “share” the costs. Wildfire costs have risen and a significant part of this rise has been linked to significant housing developments (property values) in at-risk areas (wild land-urban interface) with present regulations not allowing for clear electricity price signals in these same areas and with state-mandated insurance plans when the private market cannot supply cheap enough coverage (responsibility sharing needs to be redefined with state and local government as well as property owners). There's more to it than raking, cleaning or hiring private firefighters to save celebrities' burning homes.

2 comments: 1-Your post reminded me of the 2008 TARP bailout. From Mr. Buffett: "If I didn't think the government was going to act, I would not be doing anything this week," (after investing $5 billion in Goldman Sachs) "I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly." A cynic may say that Mr. Buffett was a contributor in an interesting triangle with the Treasury (who himself happened to be linked with the previous employer) but anybody could tag along if they felt that "the best thing to do" was the best of the worst options {at that time}. 2-The Russian roulette is an odds game. Interesting to note that a way to prevent wildfires (and there will be a lot of discussion about that during the negotiation process, in terms future costs), in some places, has been to apply "prescribed" burning as a useful way to prevent wildfires in future years and I would say that nature, in the last two years, may have contributed to lower odds of wildfires in the future, at least in certain areas. What are KYJ And EC? Hoping for input from BG2008 but KYJ may mean Know Your Jurisdiction or Know Your (Thy) Judge. If I'm right, KYJ indicates that the outcome of the restructuring may go beyond what the financial calculator shows and may involve contextual specialized knowledge and even character assessment. For EC, environmental claims or compliance?

Great pick, Jeff! You'll do well! You may know the man, the capitalist with a soul, well but thought the following reference could instil some inspiration: http://www.philly.com/business/john-bogle-dead-vanguard-obituary-20190116.html "While Mr. Bogle was facile with numbers, he was much less interested in counting than in what counts, and his intellectual range was broad." I would say his impact was mutual in nature.

Above in the thread, it was mentioned that PG&E's troubles in the 2001-4 reorg were due to extrinsic causes. However, a strong argument could be made (some pushed hard for that line of thinking) that there were significant intrinsic causes (aggressive acquisition strategy, high leverage, questionable capital allocation for dividends and buyback) leading to filing. Despite very significant internal issues and despite being quite a poor corporate "citizen", PG&E was able to negotiate and influence policymakers to the extent of obtaining very favorable terms for future rate changes: http://articles.latimes.com/2004/apr/13/business/fi-pge13 In addition, the bankruptcy settlement provided that the California Public Utilities Commission establish a “Regulatory Asset” of $2,21B in order to reach investing-grade status and obtain market access for debt, being the equivalent of state (tax payer) funding, to be amortized in PG&E’s electrical retail rates over nine years. In the most recent financial squeeze, the basic underlying question is: who will pay for the wildfires? and I wonder how this may not be redefined at least partly, as consequences of natural disasters, implying taxpayer support to faciliate restoration out of bankruptcy without outages and unreliable electricity services.The regulators may have to try to negotiate increased oversight and commitments to more sustainable and secure infrastructure for the surviving entity. Seems like a reasonable path but the size of the claims is the wild card. A near-certainty conclusion is that electricity rates are about to go much higher in California.

Hi muscleman, I enjoyed exchanging info with you in the last few months and commend you on this conclusion as it helps compensate the survivorship bias that is implicit on this Board. You often finished your posts with questions and I will do the same in this post: Are you switching from value investing to investing in values? Good luck to you ----- CorpRaider's post caused me to reflect on the relevance and timing of some comments and morphed into the following exercise: -capacity to deliver excess returns -incapacity to deliver excess returns -indexer A=waste of talent C=realistic assessment -aiming for excess returns B=investing nirvana D=over-confidence issue I assume that the B group is over-represented on this Board but would like to submit that, in the real world out there, about 85 to 90% of investors aiming for excess returns do not achieve their objective, making the C category perhaps a better option in some instances. Interesting to note that "Jack" Bogle (RIP) started out being ridiculed (by some) and ended up as a hero (for most). Time is your friend if you end up in the right category.

-Few random points. This will likely evolve over a few years. -A comment above was made about the Washington Public Power Supply System (WPPSS) investment made by Mr. Buffett. There may be lessons in that story but the plot was different. WPPSS was a municipal corporation or a public authority. The bonds that defaulted (1983) were for the so-called nuclear plants #4 and #5, which were separate (although legally debated for a while) from the bonds (bought by Mr. Buffett) linked (revenue bond type of arrangement) to plants #1, #2 and #3 which did not default. In fact, WPPSS did not file for bankruptcy. The bonds that Mr. Buffett bought traded at a moderate discount because of the uncertainty (munis defaulting was very rare then and the WPPSS fiasco had reached significant and very public proportions) but were backed by a regional federal power agency (although there was some legal noise too at that level) which had alternative sources of revenues that could support those bonds. Perhaps easy to say now but the situation then was markedly different from PG&E and Mr. Buffett chose the bonds that sat quite high in the fulcrum structure. Bonds were held for close to or around ten years and returns were good (especially given the tax-exempt nature of the interest) but returns were not spectacular. Potentially useful lessons for the PG&E evolving story are that 1-most of the legal noise went away and eventually settlements were reached with the #1,2,3 bonds back to par and the #4,5 bonds settling between 10 to 40 cents on the dollar and 2-even if the entity was public, there was no federal bail-out because the "injured" parties were mostly the bondholders and maybe some felt that moral hazard was worth a lesson. Remarkably, WPPSS went back to the muni market to refinance the worst bonds in 1989 and got investment-grade from the rating agencies (which graded the #1,2,3 bonds triple A until looking into the abyss (what else is new) and until a few months before default of the #4,5. -A comment was made above concerning the chapter 11 episode in 2001-4 for the PG&E entity. Just from my notes, it seems that the causes of distress were different (regulatory uncertainty, market manipulation, unstable markets) but the severity of the liquidity and solvency issues were comparable in intensity. The publicly-traded shares of the investor-owned utility continued to trade throughout and never dipped below 6$ and creditors were paid in full. This was a very complex process but I came away with the conclusion (opinion) that the surviving entity had benefitted indirectly along the painful restructuring from a not so clearly defined bail-out (state financial support) and from implicit support with higher expected rates in the future (support from the rate payers). -It looks like PG&E will file shortly and the issue has to do with the wildfire claims (2017 and 2018). There are expectations for the usual legal noise and for a lengthy process. The odds are very difficult to establish now and there is a defining and challenging feature that seems to be particularly significant. California has quite stringent laws covering the inverse condemnation rule which has to do with the exposure to liabilities regardless of negligence, which means that PG&E is liable to damages when their equipment is simply "involved". If this definition is maintained as is, I guess it may be difficult for a bankruptcy judge to let a phoenix entity emerge as there would great uncertainty to continue as a viable entity. I would guess that there is potential legislative leeway that would make the restructuring less painful without causing outrage from the moral hazard crowd. PG&E has a long history and survived (financially) the 1906 San Francisco earthquake and fire. An interesting entry point may be defined at some point because of expectations of more frequent wildfire-related losses which may be related to a perception in line with a recency bias. -Interesting to see Baupost involved in a distorted case of averaging down. At the end of Q3 2018, Baupost had 873M invested in the equity (ouch!). Apparently, they recently bought (about 30 to 35 cents on the dollar) for about a billion (face value) of insurance claims against the utility (subrogation claim with the right to sue) which may be a way to recuperate some losses or may simply be a way to be a heard voice in the restructuring process in order to maximize equity recovery. I'm not sophisticated enough to invest directly here but look forward to further interesting discussions in the following years.

As far as I know, Mr. Buffett never included a clawback provision to his partnerships contracts. The fee structure evolved though with, at first, a guaranteed minimum 4% return which would have theoretically required him to fund the shortfall (return 0 to 4%) in addition, at some point, to take 25% of the downside. I understand that when he moved to the 6% hurdle rate, it became no longer guaranteed, the downside became no longer shared (again theoretical!) and there was a typical high-water mark before fees above the 6% hurdle become payable again by the limited partners. Possibly incomplete knowledge on my part, but I think that Mr. Buffett has mentioned the potential advantages of clawback provisions for executive pay contracts in order to better align incentives with shareholders and in order to counter corporate greed. Hope that helps. http://www.scmessinacapital.com/blog/2015/03/what-was-the-fee-structure-of-warren-buffetts-first-investment-partnership-started-in-1956 https://hurricanecapital.wordpress.com/category/buffett-partnership/

Is this "insider buying" or issuer repurchase activity? Looking back at the last 6 months or so in the canadianinsider reports, most to all share purchase activity is corporate repurchasing, including the last part where the maximum (25% of volume per trading day) number of shares is repurchased for eventual cancellation. https://www.fairfaxindia.ca/news/press-releases/press-release-details/2018/Fairfax-India-Holdings-Corporation-Intention-to-Make-a-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares/default.aspx The only insiders I see in that period (# of shares): -J. Cloutier -6350 -D. Bonham +800 -B. Bradstreet net +28500 Note to "gfp", since your name modification: what's changed: I used to picture you as an international executive and now I think of Grandmothers For Peace. what's the same: the level of interest I have for your posts.

I have (see reply #18) and thought it was a relevant exercise as the story is fascinating and looking for discomforting evidence is a constructive analytical step. In a balance of probability way, I came away from the movie being more convinced that Mr. Browder's case is authentic. I was able to "catch" the movie on the internet but I hear that sites that make it available are rapidly shut down. :-X

"Does anyone know a blog/resource in English discussing stocks trading on Wiener Börse AG (Vienna Stock Exchange)?" Short answer: No. Long answer: See below. Just disregard if you have something better to do. My question to you meiroy: Are you trying to pull a Jim Rogers’ move here? ----- Side note #1: Sorry long post. This AM, I had to give rides to my two youngest daughters for swimming lessons etc and had some “free” time. The oldest of the two just turned 17 and she should be able get her driving license in the next few weeks. Eventually, as my kids will become more autonomous, will re-arrange my schedule and will likely have less time for ramblings such as this one and may have to resort to short and to-the-point posts on how to make money. Incidentally, the daughter who is about to obtain her license keeps complaining about the long process to get her driving permit and how much time is spent on theoretical notions concerning human nature. I disagree because I feel that a there is a lot of unrecognized risks beneath the surface. ----- Side note #2: Greetings (grüß Gott) to fellow Austrian members. Austria is a beautiful country and Vienna is a very special place. One time, I visited during Christmas Market season and recall walking along chestnut stands and stopping in coffee houses for a succulent piece of sachertorte and the best coffee I’ve tasted in my life. I still entertain the family, once in a while, with an exported recipe of Wiener Schnitzel. ----- Jim Rogers remains a controversial figure, has appeared at times more disturbed than the surrounding mass delusions, has had his share of reduction to humility but has been, on a few occasions, terribly right and certainly got the Austrian market right in the 1980’s. After splitting from Mr. Soros in the late 70’s, he continued to look for contrarian plays. In 1984, riding his motorcycle through Europe, he got interested in the German market and then the Austrian stock market. The Austrian market was cheap, obscure (less than 30 stocks trading!) and neglected. Mr. Rogers felt that the market was ripe for appreciation because of what was happening in Germany and because of consensual moves towards a more investor-friendly environment. His thesis was that the market would go from a gross and obvious undervaluation to a more “normal” valuation. He went to the Creditanstalt Bank and, after meeting a few key people, it looks like he bought most of the stocks from the exchange selecting those with stronger balance sheets (construction, financials, manufacturers and machinery) and sold in early 1987 after the Austrian stock market had gone up more than 400%, thereby completing one of his best coups. From the outside, Mr. Rogers was dubbed a magician and a Prince Charming and he obviously helped his cause by publicizing his interest (Barron’s and touring Austria as a state-sponsored market promoter and eventually being called the father of the Austrian stock market in a typical self-fulfilling prophecy scenario) but this appears to be a classic case of a tipping point situation waiting for the right trigger. From Jim Rogers reflecting on the Austrian outcome: “Now, I can’t move a stock market. All I can do is point out the reality of a situation. It was one of these things, a simple idea, but once you looked at it, it was dead clear and everybody piled in.” Looking at the following reference, it seems that Mr. Rogers’ contrarian insight was based on at least some kind of quantitative justification and perhaps explains why he has become more and more considered as an extra-terrestrian. https://fred.stlouisfed.org/series/DDDM01ATA156NWDB So meiroy (in the unlikely possibility that you made it this far), if you feel your Austrian time has come, all you need to do is to get Barron’s interested and to convince Austrian authorities to lend you a motorcycle for a tour. Being basically a know-nothing, what has piqued my interest in Austria’s financial markets is not the stocks but the bonds within the greater European picture. What we are seeing is something that, as far as I know, nobody even came close to predicting: the level of “risk-free” yields. Last quote on 10-yr bonds is 0.469%. Looking at Austrian historical yields and eliminating low-grade noise around the dot-com era and the 2007-9 episode, this is basically a downward straight line heading to zero and beyond whatever it takes. A low point was tested in mid-2016 when Austrian government 10-yr bonds basically reached zero and since then, in correlation to the excruciating tightening, rates are back to levitating levels at 0.469%. For the historically inclined, Austria used to be a major empire and has an incredibly rich history. WWI though helped uncover another tipping point and what followed could be considered instructive. With the Anschluss annexation in 1938, Austrian government bonds lost 46% in value and, when Poland received uninvited visit in 1939, those bonds lost another 46%. I would submit that there was a value opportunity after the Potsdam conference in 1945 because bonds only increased 12% after the conclusion of the meeting. It seems to me that there was a confluence of factors allowing to come to the conclusion that Austria would continue as a country and would sit on the right side of the curtain. I guess the cheery consensus was not so clear and the Marshall plan helped but bonds were back to par in 1953. Of course considering that the European Union is fragile is not consensus now and not everybody agrees that stocks trading in Europe are in for a rough ride. If you look, for example, at a document part of the package submitted by estimated fellow member John Hjorth this morning, where the authors submit that, under the guidance and support of the ECB, we may be in the early innings of an explosion of earnings and about to enter the investment opportunity of a generation. https://evermoreglobal.com/media/pdfs/Evermore_Europe_Lonely_and_Lumpy_White-Paper.pdf Austrians are rarely in the global limelight but there was another episode where, for a while, Vienna and its Creditanstalt Bank was a at the epicenter of the world. This is a fascinating episode for a different discussion but constitutes a classic example of an unrecognized tipping point that probably had its origin in the consequences of the new and incomplete world order that emerged after 1918. https://www.banque-france.fr/sites/default/files/9-macher-paper.pdf Edit: English is not my first language and do not always get the words right. When referring to John Hjorth above, I used the word estimated when I meant esteemed. :)

Explain what? That he's using a pseudonym on an anonymous message board? So, is this a meeting place or a community? Transactional or relational? Anonymity is a double-edged sword which comes with its own sense of responsibility. For me, an investment is a partnership and maybe that's too personal.

1-Recently looked at Mattel. The toy industry used to have great economics but now participants like Mattel will likely continue their secular declines even if they keep hiring outstanding CEOs. 2-In 2009, was involved with The Brick (Cdn furniture retailer). Basically a mid- to low-end retailer in a terribly competitive landscape. Operational weaknesses built up during good times and became apparent in a tougher environment (tide moving away revealing...). Management responded by applying remedies that worsened previous operational difficulties and shortcomings. Because of financial distress, management changes were made (Bill Gregson, who now leads the restaurant unit related to FFH was made CEO and the founder Bill Comrie was asked to come back and contribute (bridge financing and expertise as a "consultant") and operational changes were made. During that time, I built a significant stake and visited several stores and relevant competitors to confirm the reported financial numbers in relation to operational changes (increased advertising, hiring of sales personnel and especially improved operational management of inventory). The turnaround happened because, in part, of financial support by key providers but the operational changes (and the level of competence required) made the difference and were instrumental in the transformation to a sustainable model (in both good and bad times). ----- Side note #1: Fairfax and others then provided a sort of quantitative ease to the liquidity crunch that the firm faced (self-inflicted injury) but like Bagehot (illustrious British guiding light of another era it seems) described, if you want to prevent stupid money from zombification, the liquidity infusion has to be, sufficient, short-lived, expensive and associated with adequate collateral (or margin of safety). The cost of capital provided was high (but I did not mind then 'cause I was on the right side of the transaction) but was clearly linked to the needed operational changes necessary to reach a sustainable level of operations and solvency. Side note #2: petec, in a FFH related and interesting thread, your inputs were appreciated but the case above described IMO is an example showing that FFH will eventually get its investment mojo back but, for that to happen, we may need an environment which is different from the last few years because I think that it is better for them to wait for the right environment instead of awkwardly trying to adapt to this era. ----- https://www.theglobeandmail.com/report-on-business/the-brick-putting-its-house-in-order/article4282184/ 3-More recently, an example that may be relevant to you petec, is the involvement with Aimia's preferred shares. Loyalty businesses continue to show a promising future in some instances but loyalty programs with an airline anchor partner should be part of the airline itself IMO. So, my take was that, in itself, Aimia had become a "bad" business. The main part of the thesis was for an effective and fair transfer of the Aeroplan brand from Aimia to Air Canada. During the process, I did not hold until the full realization of the potential of the transaction because I could never build a sufficient level of confidence with Aimia's management team (even the new generation related to Mittleman). In that specific case where evaluation of management's level of competence was critical, there was an element of expectations that management would end up doing the "right" thing which is tricky because they may end up doing the right "thing" for themselves and that may not correlate well with minority stakeholders. In conclusion, management can make a difference, even in "bad" businesses, especially in selected cases but management evaluation (competence, energy and honesty) is qualitatively hard.

I guess it's a matter of perspective and a matter of balance. If not useful, linking different concepts along different dimensions and disciplines is at least fun. "The real voyage of discovery consists not in seeking new landscapes, but in having new eyes." Marcel Proust

GDL is a stock I used to follow closely. Holding period was from 2001 to 2005, during the NA building boom. The decision to sell was based on a few key variables including direct comments from the Chairman, Stephen Jarislowsky, in the 2005 annual report: "It is hard to imagine a rise in construction and home improvement spending {given the evolving macro picture}". I deeply respect Mr. Jarislowsky who was Chairman for 19 years and is still (my understanding) an "honorary" director. GDL was on a watchlist in the following years but I found better alternatives after. I stopped following closely after but was aware of management hiccups. With your post, I decided to review the company, mostly for fun, because the liquidity is low and I tend to avoid public companies that are transferred from one generation to the next (also like Power Corporation). But here are a few potentially useful comments. The market price to book value has become incredibly low and expectations for a return-to-the-mean type of rebound are reasonable but: -even notwithstanding the "dark chapter" attributed to the short-lived outsider CEO (2014-5), sales are about the same level they were 10 years ago and the business profitability is based on very low net margins and GDL has not recovered the above 2% net margins they used to achieve before. In other words, the moat has declined. -IMO, a key variable here is what will happen to housing markets in Canada. In the run-up to the housing peak in 2006-7, under the leadership of the previous Goodfellow and Mr. Jarislowsky, GDL lowered debt and got ready to thrive during the following phase. In the 2009 report, Mr. Jarislowsky wrote: "It was obvious that the housing boom could not last". I understand that they then bought distressed inventory and gained market share but since 2010-1, net debt has increased ++ and their financial flexibility is low vs various potential scenarios going forward. -Their profile has evolved in the sense that they are relatively more exposed to new housing construction versus home improvement spending which is stickier in tougher economic environments. -In the 2007 annual report, Mr. Jarislowsky wrote: "The real test in life comes when times are tough." and IMO the 2019 GDL is not sufficiently ready for adversity. At first sight, the large discount to book value is appealing but I find that GDL is trading pretty much where it should. Sorry for the negativity. My 2019 resolution for involvement here is to spread less negative posts which means more absence unless the environment changes. :)

https://www.project-syndicate.org/commentary/federal-reserve-right-to-raise-interest-rates-by-stephen-s--roach-2018-12 https://fred.stlouisfed.org/series/EMRATIO Happy 2019 to all.