rohitc99
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Posts posted by rohitc99
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To the Fairfax India Investors,
I just recently started doing work on this. I wanted to get your opinion on something.
I really like the idea of buying into a company that has a strong board and good investors partaking in a really fast growing region of the world. But why do they focus on change in book value as a proxy for their success? You don't see Markel or Berkshire or others focus on change in book value for their private businesses. I know in general they have focused on it for the insurance side and MKL still does for the insurance operations because the majority of it is still liquid and marked to market, but for the private pieces they do not really emphasize that. Certainly you don't see them do a level 3 valuation for the private businesses. You see them disclose earnings.
Fairfax India do a subpar job of disclosing earnings trends for their private businesses, so you have to trust their internal valuation. But the way they value stuff - at first glance - is so incredibly subjective and for them to reward themselves based on this is really odd.
As an example of why it could be goofy, Let's assume I bought 100% of GM stock at 6x earnings ($6.00 per share/ $36 dollar stock). And then I turn around and say using a 10% discount rate , i value it at $60. Well, that may be fair, but something seems a bit off about that to me. Isn't that some of what's going on at Fairfax India? They're buying both public and private businesses, but then they're re-valuing upwards the private businesses..which may be justified by improved earnings power, increased capital retained and an increased business outlook, but it also may be a valuation arbitrage.
The stock is now trading at a 35-40% premium to book value, which already bakes in some of the upside from the private businesses because the investments are getting valued upwards on their books. They may have great assets but it seems like not a great buy.
Just trying to get your food for thought. Thank you.
I would actually say they are being too conservative in their valuation. for example, in case of BIAL their DCF assumes a growth of 3% or something like that. i think thats the case for almost all the private holdings where they have assumed such low single digit growth rates.
they may sound right in NA, but in india (where i invest), this way below par. inflation itself is 6-7%. on average 10% is the starting point and finding companies growing at 15%+ in not difficult. for example IIFL is growing 30%+ and thats not extra-ordinary ..par for the course in this sector for well managed companies.
BIAL has been growning passenger traffic at 20%+ and i have travelling via that airport for ages. that part of the city is expanding the land around airport is going to far more valuable in the future.
that does not mean the stock is fairly priced or something like that ..just that these companies have very good growth opportunities ahead of them
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If you look at china and india, where a lot of incremental demand is coming in - ICE vehicles are simply unsustainable. you have visit a bejing or new delhi during the winter months to believe it. you cannot breathe in the open. both the countries are already putting plans in place to move to EV/ Solar due to these issues. In a lot of these places, it has gone beyond the point of cost - the externalities have become huge.
I can share a personal example - when india went from gasonline to natural gas in cities, the drop is pollution was quite big. moving to EV is becoming critical in a lot of cities
also all these countries have very high population densities. so the problems of low population density in midwest (where i live) is a non issue in these places
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there are parts of the world such as rural india or africa, where you dont get electricity with any reliability or sometimes none at all. in such places, even an intermittent power source is better than the alternative (firewood which causes cancer, lung disease , expensive kerosene or nothing)
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In terms of consumer behavior, is it reasonable to compare an ipod/iphone to a car. the first one costs 200-650 dollars and the worst that will happen is that one can replace it in a year or two. In contrast a 35K+ purchase will be far more involved. To ditch a fully depreciated ICE engine car and upgrade to a EV will be a bigger economic decision than changing your phone. also at 35K and higher, not everyone would like to pay too much of a premium for the brand/ emotional appeal, especially at the lower end.
i dont have an answer, but will it not be tougher for a tesla to disrupt other car makers compared to the cell/ electronic industry where there have been several waves of disruption (motorola, blackberry and then apple) compared to auto
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I wrote to clarke inc and they have confirmed they are mostly likely not a PFIC. ofcourse, there is always the disclaimer to check with your accountant
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I don't think anyone said it was easy to outperform. I also think that if Horsehead hadn't gone broke this thread likely would not have come up.
Why don't you ask Uccmal via private message?
That was certainly a catalyst to my thinking about it. I wasn't picking on him. It just occurred to me it is really difficult. Bill Miller performed spectacularly until he didn't and much was lost. You can find dozens who have crashed badly enough their long term records reverted to the average. Lampert did great until he met Sears - then he ran into himself and the Peter Principle.
Its awfully hard to recover from a really ugly pick(s). Walter Schloss kept up high returns for decades by sticking to a tight formula, and never doubling down on anything. John Neff did the same, with similar results as Walter.
Partly I am tired of my own crappy results the last couple of years. My portfolio is Now 90% in dividend payers, except pdh, and pwt. I am trying to pick companies that will maintain, and raise their dividends regularly. I am willing to take lower total returns to have downside protection. And I am trying to get them on sale, at least somewhat.
there seems to be some link between concentrated portfolios and trouble. most of the spectacular highs and lows seems to be with concentrated portfolios. you keep doing well for some time and then a few bad picks cause the returns to revert to the mean. in contrast the likes of schloss never went for home runs ..so their highs were not as high, but the lows were not as bad.
i guess unless one has the skills of a buffett/ munger , a few % outperformance with a diversified portfolio has a much better chance
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HDFC Bank
-Very well run
-They have been growing earnings at 30%+ for the past 10 years and more
There has been a change in the competitive scenario in india. New licenses for payment banks and small lending banks have been issued. HDFC bank may find it difficult to maintain these growth rates in the future
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Looking at the bell-curve from the votes, I wonder whether the average return of the COBF community is better or worse than that of the hedge fund community (e.g. the HFRI index?). Looks a bit better.
different investing styles, different currencies and ofcourse different countries if not continents. are these results representative of anything ? on individual basis maybe, but we dont know what is getting aggregated in the graph
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maybe the difference if someone who is still a bear on the prices or does not know which will it will go (like me) will miss out on an opportunity (among several other possible opportunities). this fund manager has bet his reputation and possibly a lot of his own money on being right ..so he better be right for his sake :)
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is it not also the case that countries like Russia, Saudi, Iran etc will have to produce no matter what the price. A canadian or US producer reduces production if the price start falling and remains low
Except that the lenders would rather extend the debt than own the companies where ever possible, especially if the companies can meet their debt obilgations. Arx, and wcp, are having no trouble meeting their debt and dividend obilgations, and pwe may be headed there shortly. With each succeeding day at these "new low prices" the producers are bringing costs down in NA.
In the non capitalist countries there is no incentive to bring costs down. I can only imagine the difficulty for Russia's, or SA's state oil companies to cut costs. Russia and SA are dependent on oil and gas to finance government operations. NA is not. In N. America's diversified economies something else picks up the slack.
If the prices rise, the surviving NA producers will become very profitable very quickly.
Packer, thanks for the chart. Nice summary.
Not if that US or canadian producer has a ton of debt obligations he/she needs to meet!
The hypothetical US or Canadian producer with a ton of debt has a finite amount of time in which they can produce at a loss, as does Russia, SA, etc. But, the US/CDN producer has a much greater finite amount of time.
-Crip
Not necessarily, the US/CDN producer has creditors who can declare it in violation of debt covenants anytime. Russia has gunz.
The Russians and Saudis have no incentive to cut costs. Their economies and social programs and bureaucracies are incentivized for the opposite. If they cut costs people lose jobs, and there are no alternatives. Can/Us have much more elastic economies.
Lenders are never in a hurry to take on the expensive dog's breakfast of CCAA or Chapter 11, if there is any chance they will get repaid at some point. We have seen lending agreements modified over and over in the Canadian west over the past year.
The survivors in NA will come out of the low price environment in very good shape. If the price remains steady they will continue to cut costs as needed. Eventually the other countries will be forced to capitulate. This didn't work out according to plan.
+1
this is close what i have been thinking. The saudis/ Russians are not rational economic actors in this ..for them it is about revenue and keeping their spending afloat. if we apply game theory it makes a lot of sense
lets say, OPEC reduces production to prop up price, price goes up, NA and Canadian producers with marginal cost increase production and the price goes down. So the OPEC and other countries lose market share without gaining anything
OPEC increases production, price drops ..everyone suffers equally.
this almost looks like the prisoners dillemma - atleast in the short run. In the long run, it all comes down to whether oil demand keeps growing, or solar/ alternates caps that. on that count, it is even more confusing (for me)
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Well, I am not the Board.... and I also cant predict the direction of oil...
Alot of unexpected things have happened. The biggest one I am noticing is that the price of production, due to technological advance, in the US is coming down fast. Presumaby this overflows to Western Canada. This is an unintended consequence of OPECs actions, not that they had any choice in the matter - this is a battle to the death.
The more expected side is the increasingly rapid development of renewables. At some point in the next few years the growth in the use of oil will stall, and start to reverse, regardless of price. That doesn't mean that oil cant be profitable in the long term for those who can produce it cheaply: such as Russia, NA, Saudi, Kuwait, Iran, and Iraq.
On an individual basis I think the only way to do this is to pick those that will be survivors. To that end I have invested 4% in each of Whitecap (WCP), Arc Resources (arx), and PWT(pwe) respectively. I also have much larger positions in Mullen Group, and Russell Metals, both of which are partly leveraged to oil and gas. All of the above, including Pwt's present management, have been through down cycles before. Arc, mtl, and rus came out of the 90s glut. I also have a sizable position in Brookfield Renewable Energy... call it hedging with benefits.
I dont follow US e&p companies at all.
is it not also the case that countries like Russia, Saudi, Iran etc will have to produce no matter what the price. A canadian or US producer reduces production if the price start falling and remains low, but what option do some of these countries have
Just as a thought experiment, lets say by post 2020, alternative forms of energy reduce the demand for oil and the price gets stuck at say 50, production out of US and canada could reduce and only the efficient producers keep producing. but dont the other countries keep producing to the max just to maintain their revenue and support their economies ..they really dont have any other source of revenue. and anytime the price spikes, the marginal barrel of oil in NA comes online capping further upside.
i dont know the answer..but wanted to check what others think of this
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That is who I had in mind when I was talking about Graham and Schloss. Schloss' record was incredible - he ran a fund almost 50 years, trounced the market and I think he only had a double digit loss one year. For those two years in the early 70's Munger had over a 50% loss and Schloss was down around 15%. IIRC Tweedy Browne who followed a similar style to Schloss also did relatively well during that period. If Munger had had those two bad years at the beginning of his investing career instead of the end his investors might have lost faith in him.
From what i recall from the book, munger felt quite bad about the losses. he did not mind losing his own money, but was upset that he was losing his investor's money although he rationally know that it was not a true loss and the value was still there.
very few can lose 30% two years in a row and still operate rationally. a concentrated makes sense only if you are both smart and rational ...i am not and hence diversification makes sense for me -
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Drillers Unleash ‘Super-Size’ Natural Gas Output
Applying newer fracking methods to existing field offers potential for more and cheaper fuel
The U.S. may have far more natural gas than anyone imagined, all reachable at a profit even with today’s bargain-basement prices.
Experimental wells in Louisiana by explorers including Comstock Resources Inc. and Chesapeake Energy Inc. are proving highly lucrative thanks to modern drilling techniques and the sheer volume of fossil fuels that can be coaxed out of the ground.
http://www.wsj.com/articles/drillers-get-super-size-natural-gas-output-1441127955
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another FDA approval to do tests outside the lab
http://fortune.com/2015/07/16/fda-clears-theranos-to-do-test-outside-lab/
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But as I said, a billion here or there isn't what really matters to me. I'm just glad to see young entrepreneurs tackling really hard problems that can make the world a better place, rather than all follow the bandwagon and do things that if they were hit by a bus, someone else would do the exact same thing 10 minutes later (one more messaging app, etc).
+ 1 ..they deserve the success and more, though the likes of holmes and musk dont seem to driven by the money. who would really work 7 days a week for 10+ years for an extra billion ?
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Agree with her brilliance, however the concept behind this company deserves some scrutiny, extraordinary claims require extraordinary proof in my view. The most important is obviously if the tests they have developed match up well with current ones. Point of care testing has existed for a while in the ICU environment, with extremely small blood volumes, specifically for ABG assessment. However the problem is that it only gives a rough approximation of the true values, and is not as accurate as a regular ABG. I actually hope it works out, but the thought that she is worth 4.5 bil based on a valuation assigned by PE is funny. There was an article a while back that talked about valuations being chosen not based on value, but based on the ability to attract more investment. Here is a good article with some of the questions that have been raised about the company.
http://www.businessinsider.com/science-of-elizabeth-holmes-theranos-2015-4
i think this is a good start on validity of the claims. the company got recently got some FDA approvals for their system and hiv tests
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Even on this forum people have a tendency to spend (in my not so humble opinion) far too much time and energy on controversial stocks & calls like BH, AMZN, VRX, ASPS, OCN, a Grexit or Japan macro-economics. These discussions are fun and I participate in them too but the average poster would probably be better off looking at all the obscure micro-cap threads with 5 replies. And this forum is actually a pretty nice place, on a site like SeekingAlpha people spend even more time proving how smart they are.
Disclaimer: I love chess. And videogames. I probably suck at investing.
writser
I agree with your point a 100%. i have been guilty of the same thing often. To give a brief background, i have invested in india for 15+ years focussing on small and midcaps and done fairly well. However in an effort to 'feel' smarter i decided to try my luck in options, oil stocks and other commodities and got my head handed to me. Instead of feeling smart, i ended feeling dumber.
I think munger said this in the poor charlie's almanac to the effect, that not everyone can be the no.1 player in tennis, but if you work hard enough and focus on your area of advantage you can come the top plumber or something to that effect, in bemidji.
I am now focussed on finding my own bemidji :)
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Overall, maybe I should start a new thread about living as (maybe) above average person but seeing that you'd never be the best in anything. Interesting feeling. 8) Though might be more applicable to all INTJs here. ;)
difference between being in top 2% versus top .000001% ? i think being in the top 2% is not a bad place to be :)
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I can understand that there is some premium (3-5%) because its hard to invest yourself in india without being an indian person yourself, but a premium for public stock holdings?
For me this sounds like wishful thinking and FFI looks at the moment like a hyped investment that comes down to NAV when the first official report is public.
Can FFI only invest in public stock holdings in India?... or does their prospectus say they can also buy private businesses and do joint-ventures, etc?
Does it matter? They will certainly pay a premium for growth and that is already reflected in the NAV. A premium on FFI is like a premium on a premium. (And you pay fees for that luxury, so in reality it should trade at a slight discount to NAV.). Otherwise FFH could just setup a hedgefund on a hedgefund on a hedgefund on a hedgefund and in the end you pay a 1000x premium on the original business. The stock market crash of 1929 came through this type of packaging.
I think you are making an assumption here. Look at thomas cook - fairfax was able to buy it at 10X cash flow. IKYA was around at sub 10 levels and a lot of other tuckin accquisitions in IKYA have happened at fair decent valuations. same for sterling holiday resorts
As an indian investor i can tell you that growth may be overvalued in a lot of cases, but not always. So fairfax india can always find attractive deals
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In my opinion, and I've mentioned this on the board before, concentration is not as aggressive as it looks on paper, depending on your age. I don't look at my portfolio or net worth as the dollar value of my account. Instead I see it just as I see the value of a stock: as the present value of all of my future cash flows, which in my case is far more dependent on my career than on my portfolio, at this point in time. Which means that even if I bet 100% on one stock and lose it all, my intrinsic net worth isn't affected by nearly that much. (I'm currently in my mid to late twenties)
This is exactly the point I wanted to make. When you are young and your portfolio is relative small betting 100% on a single stock is not necessarily risky since the net present value of your human capital could easily represent 90%+ of your 'instrinsic value'. When you are older the net present value of your human capital usually drops because your are getting closer to retirement while at the same time you hopefully converted your human capital from the previous years into a bigger stock portfolio.
It assumes that if one suffers such a loss, it will not impact him/ her emotionally. I have seen some young guys lose quite a bit early on and then they were over cautious going forward. not everyone is emotionally mature to handle huge losses
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thanks for sharing these personal stories. Makes me feel better ..i was thinking i must be loser for being so paranoid about risk and not wanting to exceed a certain % in terms of concentration.
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If this is even remotely right, then oil wells will dry up in 1-2 years, and unless oil is at 80$+ or there is some hidden lost cost capacity somewhere (and the owners really hate money), oil is very unlikely to stay at these levels.
any reason why these costs - especially the non-opec ones will not change ? most of the junior O&G companies seem to be showing a 3-5% drop in costs for the last few years. will that not continue and keep pushing the cost curve down ?
if one combines this with low cost of NG and other sources of energy which are being developed (at the periphery for now), this could depress the demand at the margin too.
just thinking out loud
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When the time is right in the next week or two I will be buying:
VDE in the US - Vanguard Energy Index
and XEG in Canada - Blackrock Cdn Energy Index
I may use Leaps on these. Shall see.
Hi Uccmal
how do you use leaps on these ? do you get leaps on such indexes too ?
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I guess oil is going to 50 and all companies heading for bankruptcy. what a freefall for LTS. so i held my nose and bought yet again. perhaps capitulation day. even if management is somewhat incompetent they were addressing concerns and still have decent lands and
very high netbacks. for all us who are in oil and gas i suppose we should stay away from high windows. unbelievable
The market is pricing in atleast 80 dollar oil.
well after taking pain all week, atleast I will feel good when filling up the tank on the weekend. lose in dollars, benefit in cents !
Fairfax India Price
in Fairfax Financial
Posted
the stock is not undervalued for sure, but i think they do have some good assets on the book. there seems to be good upside in sanmar where the CPVC plant, once operational could work out well (lots of demand for CPVC piping in india). same is true for saurashtra too. in addition fairfax seems to have built a team which is getting access to good deals.
i think they should be able to compound at a good rate in the future ..i would not be surprised to see 20% compounding for some time.