Xerxes
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Posts posted by Xerxes
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Dividend vs. buyback
Scenario:
- market cap: $100,000
- 5 shareholders with equal %
- company plans to return $20,000 to shareholders
Return of capital through dividend
$20,000 returned as cash dividends and split equally so each partner gets $4,000
One of the partners pulls out her Robinhood App and uses the $4,000 cash to buy some fractional shares
So in aggregate she has now $24,000 worth of stock and another partner who sold and kept the dividend in cash has less (i.e. $16,000)
So now she has 24% of the company. Other partners have 20%, 20%, 20% and 16%.
Return of capital through share buyback
$20,000 returned as share buyback with 1 of the partners being bought out completely by the company.
There are now 4 partners each with 25% share of the company.
What's wrong with this math ...
Is this correct ? if so, it appears you get more with share buyback
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1 hour ago, bearprowler6 said:
Unrealized losses on the Long Equity Exposures of $442 million? How is this possible?
maybe due to the 8% drop on FFH share from July 1st to close of quarter. re: the derivative that they put on themselves,
Though that is a lot for an 8% movement.
Blackberry also dropped 20% in the quarter. so ...
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wow ...I just remembered this. Time flies. That was 5 years ago now.
Swiss Chalet owners Cara buying St-Hubert for $537M | CBC News
Back then i had zero investment in FFH. Was just a curiosity to read about now and then. I am optimist by nature, I could not square investing with someone so bearish back then.
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The body language says it all
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I watched Dune last night, great stuff but now agree about the 'acquired taste' comment. Watching it i could really feel the vastness of the Dune universe. The scene when they land on Dune was breathtaking. The sadistic Baron ! the prison planet etc. Was hoping to see Count Fenring, but he was nowhere to be seen !!! and am not too sure i agree as to when Dune part 1 ended.
They could have gone a bit further.
I downgraded "Foundation" to watch only when i am doing my laundry, and replace it with Deadwood on HBD, which is more fun to watch.
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37 minutes ago, modiva said:
If they done buybacks, instead of shorting over the last decade, they would have retired half of their stock. Hindsight is everything. But it's not too late now. Wouldn't it be nice to announce a $5B buyback over the next 5, 10 years? That would be great way to win over the investors, new and old alike.
Sorry, but i got to push back on this view as well.
Had they retired half of their share, and the market had plunged, collectively we would have complained why could they not have bought back their share at a distress price and how they wasted so much dry powder on buybacks pre-market crash.
Going all in hedging (+90% of your positions), or going all in buying back one's stock, means that you assuming there is an extremely narrow set of different outcome in the future. I think with the things we have seen in 2020 and 2021 (i.e. Tesla, pandemic, negative oil WTI price, etc.), it has been more rewarding for a capital allocator to be humble and assume that anything is possible.
There is a recent interview with the previous CEO of Goldman Sachs on Bloomberg Front Row. I highly recommend for folks to watch it. He says it best:
He spends 98% of his time worrying about things with 2% probability ... most of the planning is about contingency planning, not what will happen, but what could happen ,,,, and given enough time, not only everything can happen but everything will happen
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Anybody has suggestion how to get Barron's in print in Montreal.
Before we had some newsstands the magazines but some of those went away with Covid.
And Dow Jones doesn't do print delivery to Canada for retail. Period.
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2 hours ago, glider3834 said:
I can't think of one successful investor that hasn't had a serious f*** up and Prem is no different - I guess that makes him human. I loved Buffett's reply in response to comment around his unsuccessful airlines investment & he replied our company still has more net worth than any other company on the planet....so true
And not just in world of investing but even in sport, I still can't get over (for football fans) Zidane's headbutting incident in the world cup final against Italy - one of the greatest footballers on the planet making an absolutely worst possible decision at the worst possible moment - during a world cup final! But hey he is still one of the greatest footballers of all time.
Prem & Fairfax's record will be judged by the investment community in the fullness of time - we're all lucky we don't have our records (and dirty laundry) on public display
i dont think anyone here has any problem with the CEO doing what they thought was right. After all they (investors) are free to not own the stock. It is not doing what they committed as a CEO of a publicly traded company .. that is concerning.
Another sport analogy: can Maradona scoring the win for Argentina in early 1980s be considered like scoring the bet against the housing in 2008-09. It was an asymmetric play-gamble that paid off in both cases.
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i recently bought this book (link below), which have not read yet, i think Fairfax deserve a chapter in that book, both the positive aspect of it and the negative aspect of it.
But FFH is not alone. I recall Harold Hamm's Continental Resources had hedged oil price risk via put option prior to the 2014 collapse in oil price, and comically remove the hedges (exactly at the wrong time) when oil plunged, leaving a lot on the table. (if i recall the story correctly).
Peter Munk, when he was alive and leading Barrick, he sold its future production and pretty much cap the upside for the investor.
Lastly, there was the infamous case of Delta Air Line buying a refinery 10 or so years ago to hedge its exposure. Made a lot of noise about forward thinking ... what happened after that. Was that really worth it. My memory is 5 years out of date on that story.Of the few examples i gave the first three, (FFH, Continental Resources and Barrick), the founder was the CEO and the operator. So one can deduct that there was a case of wanting to protect's one baby. BUT, if what is the value for the investor if the upside is fully hedged.
Folks here often complain who FFH sold J&J and the other quality names too soon. But if you look closely you will see that those 4 high quality name were sold exactly in the same year that FFH booked a major loss on its shorts position. Therefore, the high quality names were sold as an offset to close the shorts at a loss.
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To own gold, one must be very long term, if and when it goes parabolic you will feel it.
In the short term though, higher interest rate will be a headwind to all commodities.
The Goldman commodity chief had a nice saying when asked about super cycle phase in oil : "name me the currency, i will tell you when was the super-cycle"
Implying that the boom and bust in the commodities happen at different time when viewed through the lens of different currencies, but we tend to view everything through the USD lens.
Gold may be flat in USD terms, but how it is when viewed in local Asian currencies ... are they getting their needed so-called hedge.
Oil was peaking in the summer for 2008, when viewed in USD terms, but I bet emerging economies like India really had their super cycle in late 2018-19, when US dollar reigned supreme, making barrel expensive for them in their local currencies.
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^^^ agree
There is a clear point where hedging becomes a directional play on the market.
Viking,
A comment on your post: FFH first committed in 2017 (not 2021) (post Trump presidency + rate moving higher + animal spirits being unleashed) to not do any more shorting. And that is when I started buying small positions.
But I agree that the no-short mandate is now more serious.
Can you guys imagine if they were truly short Tesla in 2020. In this very forum earlier in 2021 and late 2020, people were hoping that FFH was shorting Tesla which was grossly overvalued at the time (which itself was probably $400 billion ago in Tesla's market cap)
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I dont know much about these 3 European companies, but recommend reading the article. It is interesting. Basically making the case of how the dash toward de-carbonization would mean a more a secular shift toward a joining the national electricity markets across seas (i imagine it is already connected across land in developed economies).
The booming business of knitting together the world’s electricity grids | The Economist
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** shushshsh ** I guess we are in the q-u-i-e-t period before earning release
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Lockheed needs to re-assess its 5-year plan. I will post if there are any interesting podcast/articles from AW on this.
Stock down 10%
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19 hours ago, Viking said:
@Thrifty3000 was re-reading some older posts (you were providing context for the Mosaic Capital take private deal) and i really like your big picture assessment that Fairfax has been building out for years a diversified “collection” of very good asset allocators to manage their large investment portfolio. This demonstrates very good strategic thinking / long term planning and execution. And it provides clarity around succession planning at Hamblin Watsa as the old guard ages out. And yes, interesting to compare Fairfax’s approach to Berkshire’s; VERY different.Some examples:
- Burton/Chin in-house team at Fairfax: managing $1.5 billion of equities and increasing to $3 billion
- various limited partnerships managing $2.1 billion: BDT Capital Partners is one example (a $630 million position Dec 2020).
- India team managing $1.7 billion (Fairfax India, Quess, Thomas Cook, IIFL triplets): this group has been delivering stellar results for years
- Kennedy Wilson/real estate managing billions in real estate and fixed income investments: very successful decade long partnership
- Atlas/Sokol is $1.8 billion position: great start to relationship. New build growth is locked and loaded.
Much smaller examples include:
- Helios/Africa: early days here; New team looks promising but we will see
- Mosaic Capital taken private in June: focus on small to mid-cap Canadian companies
And then you have all the individual equity holdings:
- Stelco: very good capital allocation decisions post bankruptcy
- RFP: very good capital allocation decisions last 3 years
For the individual equity holdings good ‘capital allocation’ is a key input in assessing the overall quality of a management team. Grading each of the management teams of Fairfax’s various equity holdings would be an interesting exercise
If someone truly believes the "“collection” of very good asset allocators" theory, they ought to have a significant % of their wealth in FFH and for the long-haul, because that "collection" by definition diversifies away the top man risk, and one is outsourcing to Prem Watsa who in turn is outsourcing to that "collection". And you need time and space for the whole thing to play itself out and for that BV to grow and compound.
If one is playing the "closet-the-discount" to BV trade, as most people are doing here, than that "collection of great asset allocator theory" is largely irrelevant, since BV is where it is right now, and you are just riding the closing toward it.
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Exxon is reporting this week i believe. Had own it pre-Covid, have added it throughout 2020. if i read correctly expectation is that they will book around $4 billion in earning compared to last year's Q3, which was around minus $600 million. The power of operating leverage.
I would push back on the comments oil futures vs. oil companies. The assumption is that people would buy the likes of Exxon, to capture the rally in prices. Sure, there is a subset of investors going for that, but a lot of investor owns Chevron and the Exxon's of the world as a long-term play on infrastructure. Now it is true we are no longer in the secular bull market in oil as we were in the 90s and the BRIC rally of early 2000s, but it does not make the un-investable either.
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I have not seen it yet (although have the read the books several time) so my opinion on the adaptation is of no value, just because i have not seen it. Just as a side note: David Lynch work also had a four-hour running extended edition that came years later of the theatrical release. And people who have seen both, usually don't recall the difference from the theatrical version (which you should be gauging Villeneuve work against) and the extended edition.
On Jackson's adaptation of LOTR, i think context is important. LOTR trilogy (super-packed in a 3 year release) came at the turn of the century, 9/11, wars, dot.com bust, bear market etc. And it is my belief that it created an outlet for people to remove themselves from their worry etc. And there was no competition when LOTR came out, since George Lucas went all Jar Jar Binks with the prequals. To this day, when i go hiking with people, i hear the analogies between Hobbits gone on an adventure and hiking. Right away you know which generation they are from: the generation that saw LOTR live in the theaters.
Sure, Jackson's adaptation was (i think) fantastic. I was studying my mechanical engineering undergrad those years. And I very proudly went to watch The Two Towers on the matinee show right after it came out, while have a major 3-hour long end of the semester final exam on fluid mechanics in the afternoon of the same day. I got a C+. Didnt bother me.
But what if Peter Jackson's adaptation of LOTR came today in 2021 in this very crowded fantasy/sci market. Will that leave you with all fond nostalgia for the next 20 years, till say 2040. The answer is no. Peter Jackson has been riding the bull market on low interest rate for the past 20 years. It came at the right time. For instance, the adaptation of the Hobbits did not leave people with the same nostalgia. Same director, same book author (yes yes totally different book, but does your average movie goer knows this), and with the benefit of an enlarged fan base and with Dr Strange as Smaug the Dragon. I puked when I saw the part 3 of Hobbits, and did not watch it again until about 10 years later and puked again. The original LOTR, i had it memorized line by line.
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On Dune, I thought this was interesting. Earlier above i pointed to parallel with middle eastern history and the novel. Some how i failed to make that connection between Paul Atriedes and Lawrence of Arabia. Looks like Villeneuve is also a big fan of Lawrence of Arabia.
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Last Nov Q3 results send the stock price on a rally from deep sleep. It is possible that the samething will happen here and the window might get shut. Looking to add to FFH in 2022 in CAD terms ... as i am planning to get out of FIH and flip the US dollars to Exor.
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6 hours ago, Spekulatius said:
I agree with this take. I was a huge SciFi fan as a teenager and devoured pretty much anything I could get my hands on, but Dune never hit the spot for me. Too much is just about the athmosphere while the action and the characters seem unrelatable. I tortured myself through the book and never touched anything else from Herbert again.There is a lot of good Sci Fi material out there. Classics from the 40‘s and 50‘s, sometimes even just short stories with interesting characters and story lines. Stuff like Larry Niven’s Ringworld universe is much better screen material than Dune for example. The tech and CGI is now good enough to bring it on screen in a credible manner. I am looking forward to much to come.
Or just imagine what you could do with the Tolkien Universe using the Silmarillion as a foundation.
Spek,
Have you tried reading the Game of Thrones books ... or Tolkien's original LOTR.
They are no different than the original Dune book.
I agree that Dune Book 2 and onward, it drags and gets more philosophical.
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12 hours ago, Parsad said:
Dune is not Star Wars or Star Trek...not even LOTR. It's a much more acquired taste.
i would disagree with that. (the acquired taste part).
It has all the elements to make it an engaging story upfront. What has been working to its disadvantage has been the Lynch movie in the 1980s. If people were exposed to Dune for the first time by watching that movie, that makes it acquired taste. Given Lynch's style. I would add though in making the Harkonnens, Villeneuve probably borrowed a lot of 'brutalist' like style from Lynch.
As an interesting anecdote: Dune was written in the time when OPEC held sway over the oil market. So spice is really oil and CHOAM in the Dune universe was really OPEC and interested parties. The Empty Quarter described by Frank Herbert in the book are not dissimilar to the Empty Quarter in Saudi Arabia. The Mud'adib is really Mehdi. The Sardaukar, the emperor's elite crack troops in Dune, trained on the harsh prison planet of Selesu Sedunus, are probably modelled after the famed Ottoman imperial guards, the vaunted janissaries, who were a slave army. When the emperor comes to Dune to deal with the situation, this is probably no different than when Ottoman send their armies to Arabia in the 19th century to quell the rebellion from the first house of Saud (which ended with their leader brought back to Istanbul and beheaded). The current line sitting on the throne in Riyad is the 3rd incarnation of House of Saud, and to this day they see Turkey as an imperial oppressor. In the book Dune that ends differently.
So Dune has enough analogies to real history to make it an amazing movie and highly adaptable (far adaptable than Foundation). If today's audience could keep track of all different warring houses in Game of Thrones (itself modelled on War of Roses and rise of Tudors in England), they can keep track of 3 houses and the few warring factions in the Dune universe. The issue is that Peter Lynch version in the 1980s created a data point that to this day has biased people's opinion (and possibly Warner Brothers) if Dune can really made in a movie.
I should add that 'adaptability into a movie' breaks down with Book 2 (Dune Messiah) and Book 3 (Children of Dune). Book 4 (forget it). Books 2, 3, 4, 5 and Book 6 can be made into a short TV series, based on the flagship first book set by Villeneuve.
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Just went through another grueling session of watching Foundation. I am becoming more and more irritated by this so-called adaptation of Foundation on Apple TV+. Villeneuve should have been the one making this series for Apple TV+. Maybe it is just me but i loved his work on Blade Runner.
Have not seen Dune, but it will be epic !!!
Sadly, i found it that Warner Brothers have not green lighted Dune part 2 (and it has not been back to back filmed like Peter Jackson's LOTR trilogy). Who the hell is running Warner Brothers !!! In this day and age of chasing eyeballs, free money and bidding up valuable franchise, that says something about Warner Brothers ability to comprehend how huge Dune could be for them with Villeneuve at the helm.
Foundation has been more or less turned into Star Trek as far as i am concerned. With the Emperor (i am sorry is that The Empire) going on-away mission on distant planets to meet locals without violating prime directive (ala Cap Picard).
I will give it till end of season and will cancel my Apple TV+.
I just hope Prime's new Lord of The Ring series (whenever that comes), wont be grueling like Foundation.
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1 hour ago, StubbleJumper said:
@Viking Thank-you for investing the time to meticulously quantify those holdings. Followers of FFH knew the rough importance of each, but such a systematic coverage is an excellent resource for all of us.
Sometimes when I see a list, my mind jumps to what is not on the list. In this case, your size-ranked list made me think a bit about where the Toys R Us holding would fit if it were publicly traded. Recently, FFH astutely unloaded the operational element of Toys, but retained the real estate (I say "astutely" because I am guessing that Toys is getting its ass handed to it by Amazon...). When FFH bought Toys for CAD$300m in 2018, the story was that the real estate alone was worth the purchase price, and now FFH has effective severed the real estate from the operations. So, given that real estate prices in Canada have gone absolutely bonkers over the past three years, what are those properties worth today? Has big-box real estate tracked the insanity of the residential real estate market? Is it possible that those real estate holdings are worth something similar to FFH's holding in Recipe (ie, US$336m) today? If anyone has any insight on the value of big-box sites, I'd love to read it.
Thanks again for the excellent work.
SJ
I do not have any comments on the real-estate, but if memory serves, Amazon obliterated Toy' R Us side that is based in the U.S. The Canadian operation was profitable, but was being used by the parent U.S.-based Toy' R Us to subsidies its losses in the U.S. So, when FFH bought the Canadian side of the business, they bought a profitable business.
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23 hours ago, MMM20 said:
I think this is in reference to my post. So, round numbers, FFH is up 15x on Digit. It now represents ~20-25% of FFH's market cap. Digit is growing like a weed in a huge and rapidly growing market. Dyed in the wool deep value guys like Prem and his loyal followers are notoriously terrible at recognizing this sort of opportunity. Ironic then, isn't it, that nearly 3/4ths of Digit's ownership happens to be embedded in FFH? What if Digit does, in fact, have a better mousetrap and ends up a massive low cost operator in the not-too-distant future? Where might that put the Digit piece vs. the hypothetical FFH stub? Maybe it ends up just a thought exercise but my point was that I don't dismiss the possibility of it playing out that way, especially after Sequoia's investment. And yet FFH trades at an all-time low valuation. Fun. I'll take the gift from Mr. Market and see how it plays out.
I actually like the Naspers analogy and it might apply Atlas as well, if it goes multi-fold from here [big if].
[sarcasm starts] What we need now is validation of Digit by Masayoshi Son plunging in by throwing money at it [sarcasm ends]
Crappy Canadian Brokers
in General Discussion
Posted
my experience has been that most Direct Investing branch of the Canadian big banks do not offer foreign investing outside North America