Myth465

Same situation but with TOS. First I couldnt participate, then I showed them the prospectus and form, and wanted them to sell the rights, then I was told I didnt have the rights and there was nothing they could do. I dont have enough capital to worry about it or justify the switch to IB, but definitely something to keep in mind.

Honestly I dont have a target (I guess 50% annually by swinging at fat pitch small cap ideas with the 40 - 50% of my portfolio not in owner manager well run value companies). I am not sure how I have done thus far, due to leverage, losses, and inflows. I know there is a much bigger pot then 2 years ago though. I had a good 2006 and 2007 (minor successes and honestly had no idea what I was doing). Levered up prior to 2008 (was down quite a bit but learned an enormous amount, just worked, read, worked, read, worked, and read). Paid back all the losses and worked down all the leverage. Not a huge amount of money but a great experience. Had an amazing 2009 like everyone else, fully unlevered. Thus far am having an amazing 2010. I now feel very comfortable and fully understand Buffett when he said he could do 50% with small amounts and small caps. ATSG common, KSP options, FFH Leaps, have all really juiced my returns. ATSG and KSP still have alot of value inmo and I see FBK and hopefully ESV Leaps continuing that trend. My new plan is to go into deep value using options / leaps to limit my losses, while maintaining an economic interest. Once all of the risk are gone (FBK after the equity raise, ATSG after the DHL contract was resigned, KSP after the covenant waiver), I will finally push in heavy using leaps and common. Due to my small capital I should be able to get a good size position without moving the stock. Reading about Micheal Burry got me thinking - They say his stocks go down 50% then move up 300%. If one can limit the down 50% then double / triple down and capture the 300% they can do quite well. Thats what I am hoping to do with deep value, going forward. I now have 3-4 workouts and want my next big idea, thats still moving down. It seems that a few board members have retired off FFH leaps. It shows all you need is a decent cash pile ($100k to $200k), guts, and a fat pitch. If you dont have the guts maybe a diversified basic of 2 - 4 fat pitches. I think I can do well in a Bull or Range bound market, but would be hard pressed to survive a depression. That right now is the biggest risk inmo.

I am right behind you. I dont want to cut my winners and right now have 1 holding which is about 35% and another which could take up another 25% should things work out. I will have to after the next quarter and will likely switch to options to maintain the same economic exposure without the huge risks. You have a much higher quality name though in FFH. I sold mine due to the Hurricane season and look forward to making it a 10% position very soon. I think a big cat would be main risk and a BP situation with my holding would be mine. My goal is $2 million. $1 million in FI generating 7.5 - 10% to live off and $1 million for equities / junk bonds. No where near there but I would sleep like a baby at that point.

More thoughts from Ferguson - He asks where's Uncle Ben - http://www.gurufocus.com/news.php?id=99899

That may have been a prudent move actually. The spill has changed the nature of the debate and you are correct we are at the tail end of a roaring cycle. Its similar to Shipping. Do we have a big crash with massive declines in utilization and tons of scrapping or a long u shaped recovery where excess capacity is absorbed overtime? My guess is these guys are firmly tied to oil prices but will a bit of protection against volatility due to the longer term nature of the contracts. If oil hangs around $75 we get a U. If oil spikes to $100 we get a V, and if oil drops to $40 we get a W. Deep water, and tar sands have to be where the marginal production is and they will likely be the first to cut and have the highest break-even. Oil will go up in the long run due to peak oil, but in the short run its a slave to the world economy. The drillers minus the bounce they will have once the spill passes are a call option on either the world muddling through or rebounds.

Honestly I can understand the pay differences. Jordan, Kobe, James, and the greats in Baseball, Football, and Soccer are truly one of a kind and generate a large return in entertainment value and revenue. Aside from Buffett and Prem most CEOs are interchangeable, and just climbed the corporate ladder.

Greenlight has voted with their wallet. I may have to buy more options. http://www.thestreet.com/story/10804370/1/greenlight-capital-buys-5-stake-in-ensco.html?cm_ven=GOOGLEN

His legacy will be determined by whether they win or not. Kobe's was in the dumps when he had the rape charges and now he is back on top. I also feel that James gave the Cavs all he had and 7 years is a long time. Nothing sadder then a great without a ring.

Thanks for the great and quick responses. I will try to add a bit more color. Say one had options on SSW which worked out amazingly well, but wanted to exercise them. He had more options then he could exercise. Does he 1. Sell and hold what he can, 2. Exercise using margin on the SSW position allowing him to hold 50% more, 3. Margin his portfolio to take as much as he wanted or could hold considering the risks. Lets assume the yield is much better then the margin costs. Would you all do it? I got burned fairly bad with margin in 2008 so I know the dangers of playing with fire. Right now just weighing options for the future.

Also where would you all consider using margin? When is it advantageous? I am considering it further down the line for an investment, but had some fairly bad experiences with it prior. So far I have avoided it. What do you guys think?

I think it opened them up. Removed the liability and opened them up to more investors. --- It was a very interesting history lesson. I like the way the Tisch guys think and also believe they are onto something with the MLPs. I could see a Highmount MLP spinoff at some point. The IDRs for Boardwalk and Highmount would be cash flow machines. DO has done quite well and I believe if they can pull off a big buyback or do something strategic it will work out great. The main weak link is CNA, Hopefully the new CEO can turn it around. Thats some nice float. It would be amazing to watch someone like Prem working with it.

This is what I do http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2102.0 and this helped me a few years back. http://www.designs.valueinvestorinsight.com/bonus/bonuscontent/docs/2007VICW_ashton.pdf Good Luck

Thanks I have subscribed.

Honestly I really dont put much stock in the liquidation valuation. KSP operates in the Jones Act and the ships which operate in those markets are very expensive (I have heard up to 2-3 times more then non Jones Act ships). Also 1 competitor just went through a reorg and I think another one just filed as well. The assets in my opinion dont have a large market and my thesis has always been that the company is worth more to the banks alive then dead. Everyone in the market was hurting, and companies were removing tonnage by retiring the single hulls early to bring supply and demand back in order. For me its a pure EBITDA / Cash Flow play. Here is a Presentation from K Seas website - http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzYyMTQyfENoaWxkSUQ9MzU1NzU2fFR5cGU9MQ==&t=1 As you can see on Page 2 and 3, KSP was growing EBITDA, Fleet Capacity, and Distributions at a fast clip for the last 10 years. The growth has been through new builds and acquisitions, and piled on debt. KSP's sponsor really wants those IDRs (They kick in at 55 cents) and KSP worked hard to increase distributions. KSP was paying out $3 in dividends and hit $46 per share in stock price 2007 The market is tight for Jones Act Barges so rates went up as well. KSP is driven by Refining Utilization. When the bottom fell out of the economy, utilization also went in the tank. KSP typically had long term contracts, but refiners stopped signing contracts and started doing month to month. They also opted not to renew contracts at all which crashed utilization. Rates went down, utilization went down, and cash flow went down. It all hit bottom last quarter when KSP had to cut their DIV. They had seasonal issues, one time charges, record low refining utilization, and no visibility due to the contracts. The lack of cash flow also would eventually trigger a covenant. They decided to sell all single hulls and many were worried about them raising capital due to the covenant. They had already raised twice and with no yield the market reacted fairly hard. I thought most of the bad news was out at $9 or so, but the quarter didnt go as planned. ---- Fast forward to BP. The spill hit, refining utilization improved, and things look decent. The spill is useful for 2 reasons. 1 it provides relief work for pretty much any sort of ship in the Gulf (KSP has put a few ships and tugs to work due to it), but more importantly it tightens the market and provides visibility. With ships moving towards the Gulf and refining utilization at highs, refiners are forced to sign contracts or be stuck without ships. The Jones Act only has so many approved ships so this should help out quite a bit. The new barges will be very profitable. Similar to SSW, contracts were entered into during the boom period. I dont have exact numbers on either. Management was in the process of selling the single hull ships. I was hoping they passed on that and could contract them out. The ships were written down to zero and everyone was phasing them out due to the weakness in the Jones Act barge market. My guess it is better then the sale price and pure profit due to the lack of depreciation. If the barges are holding oily water, or tied together to block oil they may actually have no operating costs to them. ---- I hold a decent number of $5 and $7.50 contacts. I hope to exercise a chunk of them. I think Management has learned that debt cuts both ways and will look to be a bit more prudent going forward. Rates are down 15% from highs, but look quite good vs 2003 (page 4). The company had EBITDA of $80 million in 2008 and 2009, though a good chunk of that will go towards interest and debt payments. The assets are long lived and if you look at page 7 a significant number of the Jones Act assets (Single Hull Ships) will be pushed out by 2015. When those are forced out supply will not be able to meet demand and growth via new builds or rate increases will resume. I want to exercise my shares and ride things up. ---- The biggest risk now is Repel of the Jones Act which has been in the news due to the spill. I think its a useful law from a Military / Defense perspective, but it does drive up costs. The Senator from Hawaii hates it (rightfully so, it probably hurts them most), but who knows where the political winds will blow.

I think the markets will severely correct then move up again. Basically sheer greed, then fear. By Range Bound I think we will be trapped between 8k and 12k for a number of years, while everything is digested / sorted out. When it was going up I was thinking things arent this good, though with Greece / EU issues I do think we have a bit to worry about, but dont think the world is falling apart. I think its a value traders market, and nimble players can make alot of money. My heart does go out though to those entering the work force now, they are at a severe disadvantage vs those 4-8 years ago. ---- Auctually these are probably more hopes.

Thanks alot. Very interesting post.

Interview with James Tisch, provides a very good summary of Loews history and philosophy. http://feedproxy.google.com/~r/trillianmedia/JVWE/~3/eZQnn1VqnAA/WealthTrack_702_07-09-10.mp3

Thanks for the link. The guy has some great posts and answers email. This post is a gem - http://adventuresincapitalism.com/post/2010/07/09/Just-A-Little-Patience.aspx Also I really like a few of his small cap ideas.

I think the guys kind of a bum. He needs to recognize that we arent in a bubble economy and most people dont do what they love. Put together a plan and get there. No one is looking for a Liberal Arts major who graduated 2 years ago and has done nothing of value but build a fence. What I do is menial, boring, and adds very little value. I am paid ok for it and dont plan to do it for the rest of my life. Those who graduated from 2008 till probably 2012 are hosed and will suffer due to the economic shift. Outliers discussed this phenomenon. Its not fair, but one has to work with it / around it vs. against it. There are people with 4 - 8 years of experience without jobs. He needs to ask himself why one would hire him over them?

I have read several Econ books and heard several interviews. Some call for a V, some doom and gloom. The one that makes most sense to me is the New Normal by Pimco / The Range Bound Theory. I think we will muddle through with long term unemployment at 9%. The market will be range bound until this shift is digested. The days of bubble driven growth are over and we will have a paradigm shift hopefully followed by some new technology. I think it will be 3-4 years. The Fed will fight off Deflation, and the world will eventually suffer a bout of inflation to make things easier to digest.

Here is an interview with the guy. I think he is about a year or 2 late based on his rationales. http://www.gurufocus.com/news.php?id=99364

Sorry about the lateness. I have mentioned it once or twice in another thread, but didnt want to post too much because I was taking a beating in it. I plan to open up a thread to discuss special situations because I believe we can make some serious money buying crippled stocks (or even better options / leaps) after the catalyst has hit or once the material risks are gone. I hold quite a few options and hope to exercise them in December should the stock hold up. If we can get $2 in dividends on a $6 stock in an MLP structure then we should all do quite well. Here is the VIC writeup. http://docs.google.com/fileview?id=0B89aDBuS41jGNTAzMTViYzAtOTZkOC00ZWQyLTg1MmMtNTJhM2UyMDA2YTFh&hl=en My thoughts on the stock are listed below. Investment Thesis ○ I am hoping that the downturn in utilization is temporary and that KSP can properly renegotiate it's covenants. These two bits of news should stabilize the stock price. Risk Analysis ○ Risks which may cause Permanent Impairment of Capital. 1) An Equity Offering (Due to Options). 2) Continued weakness in earnings / utilization. Potential Catalysts / Upside Potential. ○ Value is its own catalyst but, its nice to have others. 1) Positive Covenant News. 2) Better Quarterly Results. 3) Economic / Refinery Utilization Recovery. ------------------------------------- Buffet's 4 Filters We make quick decisions because we have filters before we get to the point of making a decision. Filter #1 – Can we understand the business? ○ Yes, this is another commodity business. It s a shipping business which operates under the Jones Act. Filter #2 – Does the business have a durable competitive advantage? ○ The company operates under the Jones Act which provides some measure of protection. The company also has access to the capital markets which some of its smaller competitors lack. Its still in a commodity business though and is primarily a price taker. The one positive thing is once single hull ships are gone the market should tighten quite a bit. Hopefully KSP's equity and BS can hold up till then. Filter #3 – Does it have management I can trust? ○ Management thus far has not been very good. They have been very effective at growing the company, but have recently hit a rough patch. They raised money at $25, and at $19 and then promptly cut the dividend and had to renegotiate covenants. These recent moves have created a lack of trust in KSP, which is probably deserved. I am hoping that their burn is my gain, but I may be burned as well. Filter #4 – Does the price make sense? ○ In 2009 KSP paid out about $3.02 in distributions and traded as high as $31.75. In 2008 KSP traded at $45. Now KSP trades for $4.74 or $90 million dollars. KSP currently has debt covenant issues and had utilization sink into the 71% range from 84% in Q1, CY. Rates appear to have held up and the fall seems to be a serious of unfortunate events. They are scrapping their single hulls vessels, see utilization picking up, have new ships coming online, and are renegotiating their covenants. If they can get through this rough patch without issuing shares then the investment will workout. The VIC write-up has estimated distributable cash flow to be $25 Million for 2010 and $43 Million for 2011. This leaves plenty of room to pay down debt and pay distributions. If CF hit $43 million and we put a multiple of 6 on that due to the debt we get a total equity value of $240 million vs. a market cap of $90 million. One could also simply hold the shares and collect the dividend. The price seems to make sense, especially considering the options. If KSP's Management is correct (that Q1 was a series of bad events) then the stock should rebound / recover. If Management is incorrect then the options expire worthless and I take my losses. I will continue to watch the stock and may buy more on good news.

Great minds think alike I hope, or we both like the same value traps. LOL. I am just happy my thesis is playing out. First time Yahoo message boards were useful. I got the tip from an article about hated stocks, it was in there cause of the dividend cut. Someone on Yahoo pointed out that barges were being used to stop the gulf leak and that millions of gallons of oil water was sitting in barges in the gulf, that plus increases in refinery utilization caused me to buy over the last 2 - 3 weeks. Dont let the 25% up scare you. It dived 20% over the last 3 - 4 days. I missed the first 10% and bought after but got caught by the second drop. It dropped because they provided no details on the covenant. I feel pretty good about this one, though my timing could have been better. I found it at $10. Today I bought alot of December $5 contracts today. Hopefully I can hit break-even. If it hits $8 I will be a happy man. If they stick to the $1.90 in div after they sort out the debt issue, I will be a happier man. I think the next 2 quarters will be decent, and am hoping for a reinstatement of the Dividend in December though looking at my luck and their financials it will likely happen in March or June next year. The sponsor though probably wants their IDRs.

Now would be a good time to seriously look at KSP. I have mentioned it in other threads, but today most of the material risks are gone. Still leveraged but increased utilization should allow them to restart the div sooner rather than later. They thought $.45 a quarter was possible. I have been killed in it, but believe I will do well overtime. My loss your gain. They operate in the Jones Act, and Charter Barges. They sold off because they got overlevedged and had a very crappy quarter, they also cut their dividend and had covenant issues. They cut the div right after raising capital. the street hates them. Also very large insider sells over the last few weeks. Appleseed owns 10% and they appear to be a smart value fund. The covenant issues have been resolved today and utilization has gone up due to refining utilization. They are also benefiting from the spill and have chartered single hull barges to help. Many places in Louisiana have tied barges together to fight the spill and their is millions of gallons of oily water sitting in the Gulf. I bought at $9, then $7, then $5, then bought options at $5 and $7.50. Now is the time to get in. Many of the risks are gone. There is a very good writeup on VIC. Let me know if you all have any questions. The $5 Dec options should be safe. I look to exercise them, and hold the common to collect the dividend once its restarted. The $7.50 options look great if you are a gambling man. From todays press release --- Additionally, President and CEO Timothy J. Casey stated, "As we mentioned in our last conference call, EBITDA in our June 2010 quarter will exceed the inordinately low number we reported in our March 2010 quarter. In addition to the normal seasonal rebound, owing to the oil spill in the Gulf of Mexico, we believe that approximately two dozen coastwise tank barges, as well as a number of inland tank barges and ocean-going tankers have been chartered. While this employment has to be viewed as temporary, it is likely that many units will be employed until the spill is cleaned up. Accordingly, we expect the market to tighten during this process and there is some evidence this is already happening. K-Sea has chartered out five single-hull barges and three double-hull barges along with eight tugboats to assist with the clean-up effort."

Very true, but it has worked well for most of his other investments. The issue was in the implementation and not soo much with the strategy. Plan A didnt work well with Freddie, Fanny, or AIG for some who thought they knew what they were getting. With that says Loews should be bought despite CNA, not because of CNA. At least those were my first thoughts. CNA has a horrible record, but I think its fairly cheap bought via Loews and has a good chance of turning. 1 PC is doing pretty well, though the other one and investment side still need work. DO, BWP, and the Cash pile will drive growth. CNA is a nice kicker which may workout well. --- A wiser man said, there are no bad assets, just bad prices.