
Xerxes
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Chen has a fiduciary duty to do what is right for his shareholders. Doing a giant stock offering is not in those interest, agreed, but i think there is happy medium where he can re-fuel his capital allocation tank and that would serve his shareholder and himself just fine. And that would greatly benefit Blackberry, its sets of optionality, and by extension its long term holder. At current valuation of $7 billion, he can raise $1 billion or less at current price. That would ~60 or so million shares. I think BB outstanding shares is 562 million. So 622 million post offering. 10% dilution for additional optionality is worth it. Money needs to be raised when you don't need it (And i think BB needs it) and when cost of equity is lower, ... not when you really need it and desperate for it. If the latter, than Prem Watsa is going to get more good deal with more convertibles. That would make me, a FFH shareholder and no longer a BB shareholder, happy, but at the same time there is limits to that, given that Prem is also a long term owner of the common shares as well. And if he really believes in that, his intention shouldn't be extracting more cash flow in interest payment to the detriment of Blackberry. There is a point i think, the long term ownership comes into conflict with short term ownership. And I think we saw that when the convertibles were re-priced/re-structured in 2020. Long point made short, and quoting Buffet (perhaps butchering a great quote}: "[bB] should be so well capitalized that it shouldn't even rely on generosity of friends [FFH], let alone strangers [sharks] in times of need" PS: I think the current support on BB shares are encouraging in the market, assuming it is not a short covering.
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I fully expect the Omaha team to keep buying at a higher and higher price. The pandemic re baselined pretty much everything, and we are now on a trajectory that will see the world economies (Western anyways) open up late 2021 and 2022. A lot of money has been piling up in the consumer wallet pushing up saving rate to the highest. Supply is expanding given the billions that the Governments is ploughing in aids while demand being pushed to the right with the shutdown. Net effect: very high saving rate and hundreds of billions bubbling up. Late in the year, those hundreds of billions will come out of deposit accounts and frothy financial assets and will hit the real economy when it opens up. Driving the mother of all GDP rebound, igniting inflation in goods and services and so on and so forward. The longer the shutdown (Western economies compared to Eastern economies), the mightier the rebound and the pent-up demand. With that logic in mind, that GDP rebound will drive the real economy and its locomotive will start moving, and with it the other 495 companies in the S&P500, while the FANGS take a break as their earning catch up to valuations. Berkshire and Fairfax (more so FFH due to its international exposure) will both do well, which makes their respective pre-"GDP rebound" valuation cheap compared to what is to come. Berkshire may be huge, but a broad-based giant GDP rebound will move needle on that beast and will awaken the sleeping giant. And what could be a better bet for Berkshire than itself in that type of environment.
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That would probably be few hundreds million of realized gains on shorts and good amount of unrealized on the common and converts if the current price holds up till the end of March 31. BB next quarterly result will be in March, so more actual data point then.
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Fear not my 'value' brethren, BB is still up 50% since early Jan !!!
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Agree .... ^^ My question to myself would have been, knowing this is a bubble in the BB name, who would want to take the counter-party risk to those put options and sell those to FFH. But then i figured it must be a market maker that would be short BB at the same time as it would be selling puts to FFH. And i think this is absolutely way the right way to use derivative for FFH, use them seldom and against individual name that you know deeply well on isolated situations. Precision is the key. What is always back of my mind is the following nightmare and specifically what happened in 2013, where i think the long bets (J&J, Bancorps etc.) were liquidated to offset the realized losses. Even if the shorts worked, than those gains would have been offsetting the longs that were crushed by a downturn. A broadly applied short on a long portfolio just puts you in a trading range. No gain and no losses either. A precision short can deliver good return on some occasion, more than enough to to offset the times it didn't. Realized Shorts 2011: zero 2012: $6.3 million 2013: ($1.350) billion 2014: $13 million 2015: $126 million 2016: ($2.634) billion 2017: ($553) million (almost all of it in Q4 2017!) 2018: ($248) million 2019: ($20.7) million 2020 (through Q3): ($327) million Realized Long 2011: $703 million (equity) + $424 million (bond) 2012: $470 million (equity) + $566 million (bond) 2013: $1,324 million (equity) + $65 million (bond) 2014: $596 million (equity) + $103 million (bond) 2015: $818 million (equity) + $26 million (bond) 2016: ($184) million (equity) + $648 million (bond) 2017: $200 million (equity) + $419 million (bond) 2018: $1,326 million (equity) + $106 million (bond) 2019: $792 million (equity) + ($55) million (bond) 2020 (through Q3): $371 million
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When i am buying something that i really want, but that takes liquidity but has a limited-time deep discount, i use my line of credit, then pay it back a month later when the paycheck is coming. Cash flow management is nothing new. Nothing stops FFH to do its buyback using its credit line and pay it back when the cash is received from Riverstone's sale, if buyback in Q1 is their intention. If it is not, then it is not. In exactly 2 weeks time, FFH shares will either get really cheap (i.e. cheaper) (if perceived that management screwed up its diamond-hands when it came on BB) .... or FFH will soar a lot if perceived they put the right trade in place. It is one thing for Prem Watsa adhering to deep value and not giving up on that framework ... it is entirely another thing for the same deep-value minded person choosing not lock-in profit in some fashion (partially at least). In my opinion, public investors while they can have an opinion, they cannot complain about Prem use of deep-value, after all, they can chose not to buy FFH shares, .... but if Prem would fails to lock in profit in some fashion, than i think public investors have a right to be really concerned. After all they all chose to come to FFH and get a seat in the Deep Value Church, and not the YOLO/#NeverSell Church.
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How to make money from this crash - Lessons from 2008
Xerxes replied to ukvalueinvestment's topic in General Discussion
When a crash happens, it is always (I think) a liquidity shortage event. So that is why all stocks and even gold go down and US Dollar goes up (followed by Japanese Yen due to the carry, Swiss Frank (the haven)). Even Bitcoin will go down, specially now that it has been institutionalized (meaning there is leverage at play). A cross-asset correlation of well diversified portfolio goes straight to 1. I think one's best bet is to be provider of liquidity in a market crash, but on the way down, i don't there is something that will soar in value (short of a put option that is extremely well times or one of those insurance type black swan product that we only talk about it when bad things happen). -
Last year on Jan 31, it announced the date for Q4 conference call which was in mid-Feb. So tomorrow there will be the date announcement for Q4 results but that is it i think. Not sure if there is black out period before which they cannot say more than that. I am half glass full type of person, so i am thinking he is busy with the buybacks, so he cannot really announce anything on BB that would tip his hand, either way. :-) Unrelated, i saw on the news that OMERS used the Reddit rally as an opportunity to exit on a shopping mall investment that was underwater. And said: "We’ve been a long-term investor with Macerich and throughout this relationship they have been a valued partner,” Dan Madge, a spokesman for the Teachers fund, said in a written statement. “Moving forward, we are focused on scaling and diversifying our global real estate platform, and growing our existing Canadian real estate business." https://finance.yahoo.com/news/reddit-fever-ignites-mall-stock-020810263.html Right on !
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Hold the Door, Hold the Door, Holdroor, Holdoor, Hold'or, Holder, Holdor
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How likely to deploy in a prolonged bear market of 50+%? I'd say the odds are VERY high. Not comparable to 2020 because 1-month of being down only 35% from the peak before a massive recovery despite incredible earnings and balance sheet damage hardly screams "deal of the century" to me. But in a prolonged 50% draw down over 12-18 months, similar to 2008/2009 or 2000-2002? Yea, I think they have red the time to assess the outlook and who is cheap relative to that outlook, and put money to work. And i think BRK/FFH shareholders would need to stomach 40-50% drop, but a sharp rebound if and when it deploys its fire power to fuel up on opportunities. But the market has to fall enough. Just listened to RTX conference call, although their are bearish for Q1, for Q2, Q3 and Q4, they are seeing compounded 10% increase quarter over quarter in the Aftermarket. That tells me that at least for industrial the reflation trade is very real, eventhough some segment of the market has gone crazy.
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How do you know they missed on Monday? apologies; typo i meant to put "if they missed"
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Thunder strike twice for FFH They missed to sell some on Monday .... Today is your day
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In fact, John Chen will hit his compensation and can retire early without finishing the job.
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Assuming the cost base of $10 USD in 2013 as an approximation for cost (not including convertible), it would take a 10% compounded year-over-year to bring it to $21 USD in the current year. 10% compounded would mean $21 USD by close 2021 15% compounded would mean $30 USD by close 2021 20% compounded would mean $42 USD by close 2021
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Thanks While i agree with the view that when this happen correlation will go to 1 on any diversified portfolio, i think to your point value should fall less. How likely it is that FFH, BRK and for that matter BAM or ONEX, will deploy their firepower in a potential prolonged 50% drop in the stock market. That is what i was expecting in the bear market in March 2020; i can understand now why that didn't happen given how the pandemic did/might affected their insurance and some operating businesses. But a classical market crash with a prolonged bear market with a 40-50% drop is what these capital allocators live for ? would you say equity allocation of say FFH's $40 billion will grew beyond a $4-5 billion that is today ?
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Parsad we are barely up with FFH and/or other value names, and now you are already expecting a 50% drop from here ! :-)
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No choice, since he used up his dry powder to buy Cyient. Another way to think of it is the following: broadly speaking with FFH' portfolio doing better now than say 6-9 months ago, has enough 'pressure' been lifted off the dreaded D/E ratios, such that if Watsa chooses to either trim/keep/sell BB it will be entirely based on the merit of the investment and the right-sizing of the portfolio ... and not because he is a situation where he needs to trim/keep/sell. I think with so much treasury and cash in the $40 billion portfolio, he doesn't really need to the 'liquidity' that selling BB will provide to him, other than freeing up capital for another equity investment of the same risk profile, in which case, he would be moving money from something he knows relatively really well to a new name that he probably knows less well ... and in market that is broadly speaking very expensive by some measure and yet fairly valued by other measure (interest rate). EDIT: lastly, if he doesn't do anything about it, when he has the chance, man o man, that is going to be a huge endorsement of BB's potential. It is one thing to talk about its potential when BB is down, it is entirely another thing to have an opportunity to lock-in big short term profit and forgo it ... to me that is going to be a huge bullish signal on BB. The intellectual exercise is fascinating, and I am going to need to some popcorn for the Q4 results.
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There is a difference between Digit and BB. Digit is a FFH' brainchild in some ways. Just the fact they sold ICICI to grow Digit, shows how close Watsa is to those investments and how much he believes in it. But Blackberry is not. It is an orphan. It is a coincidence that he got himself into BB for different reasons ... and now BB is morphing into something much better. Not because of anything FFH did from a strategic guidance point of view. At the end of the day as a portfolio manager, he has a maximum allocation in his mind for a business that he may not be 100% comfortable with. Perhaps there is an in-between solution, where it keeps some upside.
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Right on !!
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Folks, John Chen is an employee of BB not a majority holder of BB. Prem is not there to please him. Prem, a value investor, at the end of the day will trade out of a highly overvalued position .... partially if needs be. In 2008-09 when he sold the swaps, he sold them when they were valuable to someone else and he didnt ride till the end. Bank of Ireland, once he made his gain, he tagged and bagged. These are the instincts of a trader and a portfolio manager. In case of BB, he literally can borrow return from the future ... pull forward by the YOLO crowd. It is a blessing but a tough hand for sure. At this point, I am ok with whatever decision he makes, as long as it is decisive. I just don't want have a repeat of the 2020 AGM, where he was explaining the mayhem in the market and how the credit spread of a blue chip like Walt Disney blowing out. In my head, I was asking so what did you do about it ...
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Thanks guys, Of course BB could go $100 (ala AMD) and FFH could be hedging 100% of its position on BB, which would cap their upside, in which case i did something dumb. I got to say this, eventhough it will be for Q4 results, i never been so excited to get to the FFH conference call, just to see how they think of the recent moves on BB and what they are doing about it.
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Sold completely all BB positions Sold UBER completely (had a 40% gain on it) I am an average investor, and when an average investor makes 40% gain on a so-so name like UBER in 14 months it is time to go. Better to sell when you can sell than sell when you want to sell. At $100 billion market cap, UBER has the same market cap than RTX. I had bought UBER few months before the pandemic, and did not add to it in March. Don't know if it is a mistake selling it now, but i needed to lock-in profit in something, and on the quality ladder in my portfolio that was close to lowest. I still like Dara and the work that he is doing, if anyone can it is him.
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This morning i almost choked when i saw BB. Ran to my computers, couldnt log in to RBC Direct Investing; some IT issue. Try different computers same freaking IT problem. Try mobile App; barely working. Was really pissed. I dont know how can RBC run its brokerage like this on a normal day. Finally took me an hour to put through 4 orders: - Sold the rest of my BB shares at $25 CAD (cost at $10 CAD) - Sold few 02/19 Expiry call option on BB that I bought a week ago - Bought more FFH - Unrelated sold Uber completely I don't know what to say about BB that is now largely unhinged, but really feel bad for the insider that sold last week. It would really suck if FFH after so many years hedged all 100% of it in a way that cap the upside.
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^^^ Agreed on comment on electrification. That is why i found him to be credible and highly refreshing. I like investors who have specific point of view and dont just say "the world will come to an end, i saw it in 1999, everything sucks". He is actually giving nuggets and i think is 100% on the money on renewables (though doesn't take a genuis to say that). The pandemic in fact accelerated it. On the comment about BRK and potential in changing tax structure, perhaps, BRK needs a large pivot into being a global player -- outside his comfort zone but cheaper on valuation work with. ala pivot into bonds in the late 1990s.