jfan

Agreed that how people value things doesn't have to be fully rational to have worth something (eg non-transactional relationships are for the large part emotionally based). Wrt to using gold/crypto for coffee. Certainly a valid point that the friction and costs are too high for this use case. Lyn Alden was prolifically written on this subject. Her "What is Money" piece is good overview on this broad topic. I found a couple concepts such as the layers of money and bearer assets useful to think about the potential for Bitcoin specifically as well as how it compares to government legal tender. Also agreed with the point that the Bitcoin pandora box is open and it is less likely to be able to be put back in. I did ask at the Helios Fairfax Partners meeting about their view on crypto in Africa and found their response to be more open than I expected. They said that digital currencies have potential given that lack of stable infrastructure and general distrust of their governments. They also surmised that CBDCs won't likely have massive adoption due to their low confidence in their politicians. That said, historically, governments will probably do all that is in their power to limit the adoption of private money, China being a good example. Will BTC be a 3-5x in a few years? Maybe or maybe not. Drunkenmiller quotes in a recent interview with John Collision that Gold will do well in a stagflation but BTC will do better in an inflationary but growing economy. Longer term who knows but there are possible outcomes where it could be worth a lot more. For those willing to expose themselves to the right tail of outcomes, it could provide a meaningful return. Finally, as to the volatility, don't value investors keep themselves that the price charts wiggles and beta coefficients, don't necessary represent intrinsic worth and that the things should be evaluated on a 5-10 year time frame.

It is rather interesting that the debate about Bitcoin specifically is so polarizing. Inevitably it seems that one side says its a ponzi scheme and the other side will say it is the hardest form of money. Similarly, intelligent and respectable people in the investment world have similarly polarizing perspective (Buffett, Munger, Watsa vs Stahl, Miller, Drunkenmiller). Money is ultimately just a social construct. It's value is dependent on other people valuing it as well. And because of this, it can change with time and space with varying degrees depending on who ultimately has control of the broader psyche/trust of the community of individuals and its value chain. Parsad, you often quote that Bitcoin is backed by nothing. Yet it does take energy, computer infrastructure, land, and people and their belief in the concept. This is likely not dissimilar to government legal tender. The only difference is that the price volatility is visible with Bitcoin and the volatility in purchasing power is hidden with respect to legal tender. I'm just trying to keep an open mind to the possibilities. Is it not the credo of value investors to find nuances in reality that conventional wisdom brushes aside? Perhaps viewing Bitcoin from only from a financial lens is incomplete and that integrating it with a sociological/behavioral and non-developed world perspective would provide a better understanding of its potential. Just my 2 CAD cents (or 92 satoshis).

https://www.veritascorp.com/events/webinars-fact-finding#05052022 Veritas hosts talk on why Bitcoin is "bad". I've also attached F.A.Hayek's book that often is mentioned by some as why Bitcoin could be money. Denationalisation of Money.pdf

Thanks everyone for the great advice. In other words: 1) Got to be right on the business first 2) Patience 3) Spread out the orders over time 4) Create a liquidity event at a price above market (as long as you are happy with the price) using limit orders Much appreciate your insight!

I've been digging in the wastebasket of illiquid stocks recently and was wondering how to best establish a position in these businesses without 1) affecting the market price and 2) without incurring significant trading costs? Hoping to get some advice from experienced investors. Thanks

https://www.whitecase.com/publications/insight/africa-focus-spring-2021/private-equity-africa-trends-and-opportunities-2021 https://thecapitalquest.com/2022/01/14/meet-the-most-active-private-equity-investors-in-africa/ Helios gets a mention in the 2nd article.

Pardon the long and rambling post. Just trying to reason in my own head about the value? of BTC. 1) BTC is too volatile to store value. But as value investing disciples, we all believe that asset volatility does not eliminate the fact that it can potentially still preserve purchasing power over a "long term". Just because BTC was $60K last year and $30K this year, doesn't necessary mean that it will not serve this function 10-20 years from now. Volatility and price discovery should go hand-in-hand. A stable currency like the USD may just be an illusion and could be particularly fragile to unknown unknowns. 2) BTC is valueless because it does not generate free cash flows and not amendable to a discounted cash flow model of intrinsic value. But at the same time, governments are threatened by BTC's ability to challenge its authority and monetary control, and people in low trust environments find BTC a better way to protect their savings than their local currencies. How can something be completely valueless if there are population subsets that find it useful or very threatened by it? 3) BTC is used for illegal activities, money laundering, tax avoidance and gambling. But these activities all preceded the invention of BTC. These activities will occur whether money is in the form of fiat, gold, BTC or seashells. Swiss bank accounts, counterfeit bills, shell corporations, stock market speculation are all elements of our financial system. Does this mean that dollars and stock markets should be banned too? 4) If the reason why investing in stock xyz is a good idea is because its money generating capabilities is predictable and growing over time. What happen if the money it generates is not trustworthy at scale to store the value of the work this business performs? Money, being a social construct, can change over time from one form to another. It would also be hubris to believe that only 1 type of money (or monetary technology) would be valuable at any point in time. Why does the USD have to have a monopoly over the world? Metcalfe's law, Lindy effect, utilization of market forces, very low probability event of a coordinated global ban, and lack of a centralized decision-making body in my mind makes BTC an interesting form of insurance. However, that said, I'm still worried about the incentives for developers to maintain and update the code base, the ability of the general populace that run nodes to understand the value of various upgrades and adopt appropriately, the centralization of mining activity, and the transition from block rewards to transaction fees to maintain network security.

https://first10em.com/monkeypox/ A quick clinical review for those interested

I guess I just enjoy self-flagellation and the prospect of throwing more good money at bad investments. At these current prices, it seems that we might be getting an opportunity to buy a (decent? good?) African asset manager at very reasonable price with the downside backed by FFH and Conlog assets (from their CIG investment). Almost everything else has been written off or some collection of debt has occurred already. The demographic trends seem right. Access to private capital is limited but improving. Seems like fertile ground for a decent asset manager to find opportunities. The structure seems about right with alignment between Helios and FFH. The questions are: 1) can they raise enough 3rd party capital and get their AUM to $6.9 billion (roughly double of their AUM pre-merger) and achieve 40% pre-tax operating margins (pre-merger margins at Helios Investment Partners were ~ 18-20% assuming a 25% tax rate)? 2) How much better is Helios at achieving decent returns? So far they are raising capital for Fund IV, invested in Trone and NBA Africa, and I assume as well as rejigged their public market investments (Not much disclosure here but the portfolio is above costs). https://qz.com/africa/2158408/private-capital-flow-into-africa-more-than-doubled-from-2020-to-2021/ https://www.weforum.org/agenda/2021/05/study-shows-virtual-capital-for-african-startups-is-steeply-increasing/ https://www.brookings.edu/essay/africas-economic-recovery-financing-robust-post-pandemic-growth/ Can someone talk me down from the edge (again)?

FB, FOM.V

Sold a quarter of my cco.to position to lock in some gains and to raise some capital

Interesting article by Lyn Alden https://www.lynalden.com/what-is-money/

How valid is this Eric Nutall claim --> demand destruction occurs ~ 5-6% of global GDP which suggests WTI of $130-140/bbl? https://financialpost.com/commodities/energy/oil-gas/eric-nuttall-making-the-case-for-an-oil-bull-market-that-lasts-five-or-six-more-years#:~:text=What then of,become a problem.

Thanks @SharperDingaan and @Gregmal for the insights! Much appreciated.

I understand your use of long-dated warrants and moving out on the risk premium spectrum to maximize your returns. Why did you choose this strategy instead of using margin or personal leverage to purchase the equity of the royalty companies especially those who are overcapitalized.

Just curious why the producers and not the associated royalty companies?

I thought on a Sunday afternoon to glance through their most recent quarterly report. Here are some observations (no specific order). First of, all I can say is what a disaster. Almost all of FAH's legacy investments have been impaired. 1) PGR2 Loan --> written down to zero 2) Atlas Mara 11% convertible bonds --> written down to zero 3) CIG common shares --> written down to zero The following looks ominous: 1) Atlas Mara Facility --> according their their "Models" --> expected recovery estimate 40.7% (down from 71.3%). One saving grace is that the sales of Atlas Mara Botswana to Access Bank subsequent to Sept 30, 2021 allowed them to recover $11,325 out of the original $39,507 loan. The other saving grace is that Helios negotiated a guarantee from Fairfax to cover this mess before merging ("Atlas Mara Facility Guarantee"). The following if you believe them: 1) Atlas Mara 7.5% Bonds --> estimated recovery 99.5% 2) Secured Philafrica Facility (with AGH's pledge of its Philafrica equity interest) --> expected recovery 100% but currently not being paid because it is subordinate to other 3rd party debt 3) CIG Loan (with Conlog equity pledged) has expected recovery of 100% with an "orderly" sales process of Conlog. The following had a small impairments 1) GroCapital Holding Ltd's 9.6% ownership of Access Bank (where the majority 90.4% interest was bought by a publicly listed Nigerian bank validating its value. 2) Nova Pioneer Bonds and Warrants were converted to Ascendant Learning Ltd equity (HFP now owns 56.3% of Ascendant) --> small impairment of the original bonds ($9 million --> small?) HFP has 3% unsecured debentures from FFH totaling $100,000,000. This gets adjusted downward if the reference legacy investments of AGH, Philafrica common, Philafrica facility, and PGR2 loan is lower than $102,600,000. (as above, the PGR2 loan was written off). <-- this is the "HFP redemption derivative" 82.3% of their cash and investments are Level 3 fair value disclosures. The big turnaround investment is in TopCo LP Class B LP Interest. This is the management fee portion of Helio Holding Groups of some of its investment operations. These are their assumptions: - 52.2% pre-tax profit margin, FCF growth of 4.5%, with discount rate of 21.7%. - the current AUM is $2.3 Billion (down from $3.6 billion because Helios Fund I is closing). The 8 year CAGR of AUM is expected to be 18.7%. So they are aiming for ~ $10 billion in future AUM. The other portion is in TopCo LP Class A LP interest. This is the carried interest portion. - They've tightened their target exit multiples of invested capital to 2.5-2.6x from 2.1 - 2.6x. There is some description of Helio Fund investments. Major themes include: 1) fuel distribution 2) electronic payment processing 3) telecom 4) financial services 5) agricultural distribution 6) consumer goods 7) insurance Helios fund IV has 3 investments (consumer good, insurance, and electronic payment processor). Reflecting on this, my past decision making was poor. FAH was an abject failure. HFP on the other hand has a much better chance. At least, I don't think it will go to zero. Just have to figure out, when to incur my losses. That being said, if I was looking at it today, might be worth a small position (aka lotto ticket) for African exposure. Alternatively, could just invest with Helios Investment Partners instead.

I am glad you enjoyed the writing. Thanks for the encouragement. It is very much appreciated. I must admit that, although I believe ancient philosophy and history is full of useful pearls. Both subjects seem daunting for me. But perhaps I'm just afraid of spending time reading, sitting, and thinking because there is not enough action, nor is there an end goal, and its really hard work. The fun thing about the Principles You test is that you can share it with your significant other and compare your similarities and differences. It certainly worth do even if it is for a good laugh.

I wrote a short substack on some of my random thoughts on portfolio construction for a novice investor. I thought I would share with all you experts. Thanks for your time. https://thequestionableinvestor.substack.com/p/portfolio-construction-part-2?r=981jm&utm_campaign=post&utm_medium=web&utm_source=copy

It is on his website. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pbvdata.html

Pete Hamblin-Watsa along with the holdco investments and debt +/- any non-insurance businesses (like KitchenPlus? William Ashley?) out of Fairfax Financial the insurance business. It would make FFH a pure insurance platform to which they can access the capital markets with and reduce the complexity of FFH holdco and their investments. Damodaran's price to book value for P&C is currently 1.5. I wonder if this would help the market recognize the value of the insurance business they've built. This would allow the insurance business to expand their surplus since we are in a favorable market at better multiples. Also, Hamblin-Watsa could become an asset manager (if they desire) or use it as a platform to seed other talented asset management businesses (eg Mosaic, BDT capital partners). Broaden the talent pool and investment abilities, new funnel of investment ideas for the insurance companies to put into the portfolio. With a $40 billion investment portfolio, 1% management fee, 80% earnings margin, 20x multiple, it would be worth $6.4 billion less $4 billion debt = $2.4 billion. This might also give them the capability of discarding their turnarounds which undoubtedly consumes alot of time and energy. Berkshire tried buy operating businesses from family and founder operators that didn't require turnaround activity. They could just seed operators like Mosaic and BDT to do it for them. disclosure: as my kids often tell me..."Daddy...you don't know anything."

Given the complexity and difficulty forecasting all the volatility, I use a much simpler model to predict as few things as possible. I use their long-term geometric mean for total investment returns (which includes interest and dividends, share of profit from associates, realized and unrealized investment gains/losses and underwriting profits, interest expense, corporate overhead). I know I lose the granularity but with such variability in each factor, I would prefer to reduce the error in predicting each item and be more robust over time. ** The geometric mean since in inception is 7.7% with the most recent business cycle/10 years between 3-4%. This is on a base of $43.2 billion (2020) investment portfolio. This gives a ~ $48 - $125USD/share Earnings attributable to FFH shareholders and Minority interest after paying out preferred dividends. With minority interest at 23%, FFH shareholders own ~ $37 - 97USD/share earnings. Personally I believe it is not a stretch to think that they can keep it at 3-4%, the normalized EPS to FFH shareholders, should be ~ $37 - 50 USD/share. At today's market price, this is about 9-12% earnings yield. Layer on their historical tangible BV per share growth of 2.8% and a median 3.2% stock dilution drag, I think I'm looking at a 9-12% total return. Things I would like to see from them: 1) reduce their debt before buying back shares 2) stop making concentrated bets on deep value turnarounds (recognize that they don't have operational turnaround expertise or be effective activists) 3) Be more like Howard Marks and recognize that value investing doesn't have to be confined to their narrow definition and be more flexible and creative as they can be with building insurance start-ups. 4) simplify their corporate ownership structure and spin-out some of their holdings to shareholders 5) Stop using their shares as acquisition currency ** they have changed their presentation of their average total return from prior years (2019 onward) Viking - thanks for all your granularity and spreadsheets! Much appreciated

https://oilprice-com.cdn.ampproject.org/v/s/oilprice.com/Energy/Crude-Oil/Worlds-Recoverable-Oil-Resources-Shrinks-By-9.amp.html?amp_gsa=1&amp_js_v=a6&usqp=mq331AQIKAGwASCAAgM%3D#amp_tf=From %1%24s&aoh=16262691500785&csi=0&referrer=https%3A%2F%2Fwww.google.com&ampshare=https%3A%2F%2Foilprice.com%2FEnergy%2FCrude-Oil%2FWorlds-Recoverable-Oil-Resources-Shrinks-By-9.html For my confirmation bias

Thanks SD. I was getting worried that I would have to get rid of my truck and switch to a Tesla. So forecasting oil prices is a bit of a mug's game. If I could summarize: It ultimately depends on the supply:demand balance. The demand is fairly consistent over time (maybe declining over time) with Electric vehicle adoption. But the supply is driven by nation state politics, the ease to accessing capital, and difficulty finding new supply or squeezing out any extra from producing fields. Nations need $80-90 oil to fund their spend. Efficient producers need $40 oil to be cash flow break-even. I've read a bunch of white papers by Goehring and Rozencwajg. They do a fairly decent job explaining commodity concepts. Are there any other good sources to learn more?

Can someone please point the error in my thinking? (I'm not an expert in anything) If the historical relationship between Gold and the total Monetary base is ~ 0.001, and Gold to WTI fluctuates somewhere between 10-30, and Oil to Natural Gas is ~ 10:1. IF we still believe in mean reversion of these relationships, the current Gold to Monetary base is 0.0031 with the price of Gold at $1800. Assuming the Monetary base doesn't contract and stays steady....are we talking about $5800 Gold, $290 WTI (assuming 20:1 ratio), and $29 Natural Gas prices in the future? I know this is a very superficial understanding and ignores all the supply-demand dynamics and geopolitical posturing, but am I crazy that there is an alternate reality where commodity prices might be sky high?