watsa_is_a_randian_hero

I actually dont think that is that bad. Most large companies have "art" and other interior design features that would cost just as much. If you put an antique map on the wall, then you don't have to put a painting. Further, the art/painting isn't "necessary" shareholder spending, but for a company that size that can benefit from having a corporate headquarters that isn't just walls and paint. A better looking atmosphere will increase employee attitudes and not turn of clients/outsiders when they come for meetings. Plus, they will probably be used for 50+ years. $12 million/50 years $240k/year, which is a rounding error to a company with 647 shares outstanding. In addition, CHK probably didn't get a bad deal; I know their CEO had huge financial problems (I think he margined his stock & was forced to sell during crisis). He was probably in a position where he had to sell.

from wsj: Billionaire hedge-fund manager Steven Cohen's ex-wife sued him and his firm SAC Capital Advisors on Wednesday, claiming that he engaged in insider trading during the 1980s and hid assets during their divorce proceedings. The lawsuit, filed in U.S. District Court in Manhattan, accused Mr. Cohen and his Stamford, Conn.-based firm of a long-running racketeering scheme. Patricia Cohen, who married Mr. Cohen in 1979 and separated from him in 1988, is seeking at least $100 million. "Defendant Cohen's fraudulent concealment of his activities from Ms. Cohen was consistent with a pattern of highly secretive conduct that has long characterized his business and personal affairs," the lawsuit alleged. Some of the money concealed by Mr. Cohen came from trading in General Electric Co.'s 1986 acquisition of RCA, the lawsuit alleged. Mr. Cohen allegedly told his former wife that he received inside information about the deal in late 1985, but that it was not illegal. "These are ludicrous allegations made by a former spouse that are entirely without merit," said Jonathan Gasthalter, a spokesman for SAC. Mr. Cohen is one of the hedge-fund industry's most successful investors, and his $13 billion firm is under scrutiny for links to an expanding insider-trading case against New York hedge fund Galleon Group and that firm's founder, Raj Rajaratnam. SAC has ties to a number of individuals involved in the Galleon case. The most prominent one stems from an October plea agreement signed by Richard Choo Beng Lee, a former SAC trader who is a witness in the Galleon case. Mr. Lee, who hopes to receive lighter penalties for cooperating, has agreed to provide information to the government about the activities of other SAC traders during the period he was employed by a division of SAC, from 1999 until 2004, people familiar with the matter said. Mr. Lee's lawyer said Wednesday that his client is cooperating with investigators, and declined to comment on what information Mr. Lee has provided or will provide to the government. SAC hasn't received subpoenas in the case or been contacted by authorities, according to people close to the situation. Mr. Cohen's firm has faced questions from investors, and some big clients have discussed the possibility of pulling money from the firm, though it is unclear whether withdrawal requests have been submitted, people who have talked with investors said. Mr. Gasthalter declined to comment about investor matters. In her lawsuit, Ms. Cohen claimed she learned that Mr. Cohen may have been concealing assets following a profile of Mr. Cohen by the television program "60 Minutes" in March 2006. She claimed a subsequent investigation by her and others acting on her behalf revealed by 2008 the existence of bank accounts, real-estate transactions and other facts not disclosed in their divorce filings. Patricia Cohen alleged her ex-husband was later investigated by the Securities and Exchange Commission in 1986 and declined to produce some documents, citing his Fifth Amendment right against self-incrimination. The lawsuit alleged Steven Cohen's statement to the court in regard to their divorce proceedings in 1988 "was materially false and misleading," including failing to disclose a bank account in Miami and that SAC Trading was an active entity. She also said a later affidavit Steven Cohen filed in the divorce in 1991 was false and misleading.

2.5% fixed sounds too good to be true. Does this encumber other assets of yours? If not how is the rate 2.5%?

what is the rate?

may be forced selling from margin calls - no longer marginable

I like the strategy though - you could probably earn 5 - 10%, maybe slightly more, with very low risk.

Unless they gave you different privileges on your IRA than mine, I don't think you will be able to actually trade on margin. They offer the IRA in "margin" vs. "cash" but it is not true margin (or at least mine isn't). It is margin in the sense that If you sell a security on day T, you don't have to wait until T+3 for actual settlement to use the cash. In other words, you can sell a security and IB will "lend" you the money to buy another one prior to actual settlement. However, this is not true margin, and is normal business for other brokers. I actually made the mistake of signing up for a cash IRA first, and thats how I know this, because I had to change it to margin so I could sell a security and use the funds the same day in order to buy another.

The interactive brokers IRA accounts are rather interesting -- they let you use margin. You can write deep-in-the-money index puts covered by TIPS. I think that ought to beat inflation! Eric- Can you elaborate? You're writing in the money puts on TIPs? Are you covered by shorting? I've been writing calls on the 30 year treasury bond futures (betting rates don't go back below 3.85%). The code in IB is ZB. If the contract goes above 122 or 123 I would write out of the money calls.

"Also, these aren't options, but rather a convertible feature... and on the 5th year, the conversion is mandatory. It seems a little riskier than usual for a Fairfax investment. The PV of their proved reserves were 2.3 billion at YE 08, and the company had 2.4 billion in debt, plus a market cap of 1.5 billion. Then again, the company has been adding to reserves at a very healthy pace. I'm sure FFH has done its homework." Good call Nick - I did not see the mandatory convertibility feature here. They aren't as good as the initially looked.

The options are worth about $4.4/share, making the deal the equivalent of paying $80mm for an option and $120 mm for a preferred with a $200mm face and a 6% coupon. The option-adjusted yield is about 10%.

I'm with Houlihan Smith in Chicago. I'm in a valuation group that does performs similar services to what you described. The group performs a broad range of valuation services, but the valuation work I focus on is typically structured products. From time to time I'll do corporate valuation work as well (typically for transaction purposes, fairness opinions).

I have IB, and had them complete a "northbound transfer." All that does is makes the FFH shares I have show up as FFH.TO instead. It cost $11 for them to do, but I know FFH.TO is marginable right now day 1.

What type of work do you do? A lot of the work the group I'm in does sounds similar, providing third-party valuations on illiquid securities.

Packer - did not see this until now. Sorry. We should compare notes though. I liked Tilson, a lot. Also like Haugen (surprising, I had never heard of this guy before). I looked up his paper, haven't read it yet though. For everyone else's benefit, this has published a paper claiming to defeat EMH with a factor model. His factors have negative risk/reward relationships. Higher vol stocks have lower predicted returns; cheaper stocks have better returns, more liquid stocks have better expected returns. He has about 50+ other factors too, negating risk-return relationships that would be expected.

You guys see this one yesterday? American International Group was one of the market's biggest laggards as Sanford Bernstein analyst Todd Bault cut his price target 40% on concerns about the insurer's loss reserves that could have "major ramifications" going forward. Mr. Bault's analysis showed loss reserves were $11 billion short, with most of the deficiency in three casualty lines: workers' compensation, general liability and professional liability. One reason he offered: AIG has been using less reinsurance. The company declined to comment. That kind of shortfall could complicate its ability to retain customers and repay government debts. Shares fell 4.90, or 15%, to 28.40. Underreserved by $11 billion???

Doesn't this mean AIG owned the Davis fund, not the Davis fund owned AIG?

what is the dif between that and FFH.TO?

I don't think this is where it is going (I hope I'm not wrong). Here is my rationale: 1. FFH is now one of the countries top 10 P&C insurers by assets. Rating agencies/Regulatory bodies like to see insurers of this size with various forms of capital, such as public equity, as it makes it easier to more quickly tap those capital markets should the need arise (large loss). 2. From the 2008 Proxy: Watsa owns or controls 1.8 - 1.9 million shares. That is a little less than 10% of the company. He does not have the money to take private himself. He would need a private equity sponsor. However, the "loyal" shareholders he has include mutual fund companies that cannot hold private equity. 3. If he brought in new private equity sponsors they would not like the multiple-voting share structure that give him so much voting control.

""So if we start with Dell. Dell is going to report earnings of something around $1.50 and we’ll talk in a second about the economic sensitivity of that but if they earned roughly a $1.50 of GAAP earnings per share that would equate to $2 of real free cash earnings because most people understand their negative working capital model and their whole kind of vaunted supply chain which creates a cash conversion cycle that is better than the reported profits" Really that only works as long as the company is growing. It is like a legal ponzi scheme. You have extra cash because of the negative cash conversion cycle, as long as it continues to grow. Similar to the effect of redemptions on a ponzi scheme, negative growth would result in negative cash flows from working capital.

I have some good news for you there: I held my NBFCF (Northbridge) shares in my IRA -- traded over the counter. I currently hold SFKUF (SFK.UN) in my IRA -- again, over the counter. This is not even necessary - a good broker will let you hold direct. IB lets you hold foriegn stocks directly, so OTCBB is not necessary. Only requirement is you have to purchase FX (CAD) first, then purchase stock. This is because the IRA is a non-margin account, so you cannot borrow the CAD to buy FFH.

You can hold foreign securities in IRA. Move to Interactive Brokers if your broker will not let you.

Get an account with Interactive Brokers. They give 30% initial and maintenance margin on Toronto FFH. http://www.interactivebrokers.com/en/p.php?f=margin

Packer - I am signed up now. Theres going to be a bunch of people from my co in NYC on those dates though, may not be able to meet up as we may have "team building" activities going on

I'm on a work trip in ghana (africa). Even being here I had been checking daily. I thought the connection here may have been the problem; apparently not.

I went to the one last year in Toronto, it was great.