kyleholmes

Great post... was waiting for this as well, out of curiosity largely. Is there anyway to find out about Fairfax's investments in Canada (ie- The Brick, etc.) or elsewhere.... I haven't heard of any way before and maybe is a stupid question, but figured I would see if anyone knew where to look. Thanks for the help, Kyle

I was wondering if anyone had access to any of Eddie Lamperts letters to partners with his hedge fund ESL? Thanks, Kyle

One key thing that Leucadia said at there annual meeting was that over the next two years they will focus on buying companies with durable underpinnings as it is eaiser to run durable companies ...... which they said for them it was a strategy tied to there succession plan. Getting businesses even an 'idiot' can run as Buffett says is important as there is less dependence on the brilliance of management! Buffett understands this and has been trying for year's to get Berkshire to a place were it has numerous businesses even an 'idiot' can run which helps Berkshire as they have the wind at there backs, not in there face! Anyone who has struggled in quick sand running a poor business and then switched to owning one with great economics knows how true this is, as the difference is incredible! Boardmembers are right that Buffett can't be replaced on the investing or the business side, which even he has mentioned many times when he talks about the CEO's biggest job being getting the 'goodwill' so to speak that he has with businesses that Berkshire owns and ones that they could potentially own in the future. You can be rest assured though that Buffett has thought longer and harder about these questions than anyone in the world and that his answer to these questions will be a good one!

Does anyone know at what price it is economically for other countries to start shipping in LNG. Thought I had heard someone mention a price but forget now. Thanks, Kyle

Great post, was waiting to see what he was going to do with that hoard of money!

Think people should spend time reading what Bruce Berkowitz has said about Sears. Can be found on his website in his talk to OID. Is the old 80/20 rule with 20% of the properties being worth 80% of the total amount. If you study Lampert, and get a good understanding of Sears you will understand that the odds are high in 5-10 yrs that it will turn out to be a great investment(especially at $25 share!). Wisdom is knowing what to overlook as intrinsic value is not all science, but art as well! Handicap what Warren Buffett was going to do when he owned the textile mills... would have looked pretty bleak and most people probably would not invested due to many reasons(poor business, value trap, etc, etc). People that valued it differently have made a significant amount of money over the years. Don't be surprised when you actually begin to understand Sears inside and out that you see many things that you like and are similar to what Buffett did.

The debentures that Fairfax purchased bear 10% per annum(payable quarterly) and are convertable at $10.73.... Prem and team sure are working wonders with that float!! You are right Uccmal that it is a A-1 company with very knowledgeable people on the board with tons of experience in the industry(Example- Pat Powell- His Bonnett Energy Services might try hitting up Fairfax as well!!?). Living in the area, and knowing many of the companies that it owns, I am quite familiar with the company. A small example is one company that they purchased a year ago in R.E Line out of Coleville, Saskatchewan. This company likes to own the trailers instead of the truck as there are much better returns, and they let the owner operators own the truck, run the wheels off it, spend there time going to work everyday and essentially in the end make very little money, with R.E line making boat loads of the trailers that take quite a long time before repairs. The reason they can do this is due to a small moat that they have in the area, as it is to a degree a 'club' that you have to be accepted into when a person is talking about the oil and gas industry. R.E line gets numerous different contracts and owner-operators are forced to work under them if they want guaranteed work, or they can go about it on there own which can be more rewarding, but is difficult for most(Safety standards, finding work, getting buried by old employers,etc). Just a small example but something that is not well known in my opinion is the high rates of return that can be earned in this field, and the niche moats that people have developed over many years of hard work.Almost like a mafia type situation out there(Alot of consultants in bed with friends as well.. not good to see but reality) Alot of goodwill on the books, but this is again due to the high rates of returns for various different subsidaries. Boom, bust type industry that debt can kill you in though so have to be aware of that. Not sure if Prem invested in the equity at all, but the investment in a solid company that will pay it's bills(barring a complete melt-down)at 10%, and convertable is what I like to see!! If we want oil and gas, fluids got to be removed from tanks and hauled, etc, etc so should be able to keep decently busy. Just a quick two cents on the company for whatever it's worth!

Good little write up done by Mullen Groups CEO and Chairman Murray Mullen in this years Chairmans Message to their unitholders. Thanks Fairfax and Prem for there support and are pleased to have them as long term investors. Quick little read. I am sure that Prem loves the decentralization of the Mullen Group, much like Fairfax is run! http://www.mullen-group.com/pdfs/Chairmans-Message-09.pdf

Just because you are not accredited should not eliminate Chou Funds, if you go through a discount broker that is. Example- I know many people that own Chou Funds that aren't accredited and that bought it through RBC Action Direct. Not sure if you can do this through your employee pension fund or how that would work, but know that you don't necessarly have to always be accredited. Hope this helps

Sorry, never saw the link... thanks for the heads up... This man is quite interesting, that is for sure!

Are we sure that this is not a Lou Simpson investment, or has Buffett acknowledged that it was him? Just curious Kyle

Here is an older piece done by Mark Sellers, that I thought other members might enjoy.... if you have not already seen it before elsewhere. Is quite relevant for what we have seen lately and why it is very difficult to be a 'true' value investor... got to be a little messed up! http://www.manualofideas.com/files/sellers.pdf Kyle

http://www.centman.com/PDF/2009/IsInflationInOurFuture.pdf Kyle

Using that DCF calculator scares the pants off me, and in my opinion is very dangerous! Using a paper and pen, and sitting back and thinking makes you think about the inputs your putting in more clearly and will help a person avoid the 'false precision' those nice calculators provide! Mohnish says that when he reaches for excel, that is a huge STOP sign for him! There is so much more to a company than just those inputs that go into the DCF used, and the inputs that you are using can be incredibly flawed numbers, which would lead to a flawed valuation. Finding normalized, sustainable free cash flows in a company,after looking at many years of reports and studying the industry cold, that also is financially solid and has an absense of liabilities makes the most sense to me. Then I discount with very conservative assumptions(no growth, 10% discount to internity is a approx 10x multiple) and take a margin of safety to find a comfortable intrinsic value. Not all companies are valued the same, but for an earnings power approach this makes the most sense to me. In October of 2003 Charlie Munger gave a lecture to the economics students at the University of California at Santa Barbara in which he discussed problems with the way that economics is taught in universities. One of the problems he described was based on what he called "Physics Envy." This, Charlie says, is "the craving for a false precision. The wanting of formula..." The problem, Charlie goes on, is, "that it's not going to happen by and large in economics. It's too complex a system. And the craving for that physics-style precision does nothing but get you in terrible trouble." "This is terrible not only in economics, but practically everywhere else, including business; it's really terrible in business—and that is you've got a complex system and it spews out a lot of wonderful numbers [that] enable you to measure some factors. But there are other factors that are terribly important. There's no precise numbering where you can put to these factors. You know they're important, you don't have the numbers. Well practically everybody just overweighs the stuff that can be numbered, because it yields to the statistical techniques they're taught in places like this, and doesn't mix in the hard-to-measure stuff that may be more important. That is a mistake I've tried all my life to avoid, and I have no regrets for having done that."

Using a DCF model to do your valuations can be used for some companies, BUT not all. Leucadia happens to be one of those companies(many more as well, look at Berkowitz 13-f's since his start in 1999 and will find more!) that is you use a simple DCF model you will get a wrong valuation. As Munger has said many times, make sure you have more than one tool in the toolbox, or everything will look like a nail! Essentially you are buying a company that you have to value by taking a Net Asset Value(with whatever adjustments you want) and then ask yourself how much are they going to add in the future and if these assets used in your NAV are undervalued(example is are some of the assets like pushing a ball down in water, that they are going to come back up and fast? Spring loaded double dipping here!). This is actually the way that they say to value there company as well and the reason that Ruane, Cunniff have never owned Leucadia is because they don't like buying companies that you can't place a multiple on it's earnings power.... but if they have an absense of liabilities, are solid financially, and great management with a paper trail of success you don't need to know the future clearly if you have reason to think they will continue to do what they have been doing in the past in the future! They say wisdom in investing is knowing what to look past! Being in there vehicle, out of there own self interest, will in 5+ years look, with hindsight like a very nice place to have been! The folly of people using only one tool is what causes these prices, and also people saying 'they have lost it'! The same mistake was made in an article on Sears Holdings, where all the analyst did was compare P/E's between Sears and other companies..... absolute stupidity!! Income statements can be made into essentially whatever they want them to be, and is forgetting about the amount of quality and quantity assets on Sears balance sheet, the absense of liabilities, and the fact that it has Eddie Lampert running it(who is not as dumb as everyone thinks he is, or was not as smart as everything used to think he was!). Is you deconsolidate Sears Canada, they have tons of cash and marketable securites, very little debt, lots of quality assets, and quality management with a big incentive to do well!! And yes everyone knows that they have headwinds facing them, but if your a value investor and buying something cheap, there has to be something that has caused it to get there.... and in my opinion it is just short term noise on these two and others!! But out of my own self interest I hope the noise gets louder! Kyle

Interesting Link http://www.deepcapture.com/wp-content/uploads/2009/04/shld-nss.png Kyle

http://www.deepcapture.com/the-short-heard-round-the-world/ Sure most of you have already seen this but thought would post anyways, Kyle

Berkshire is very miss understood, and articles like this make it worse. Alot of people claim to understand how Buffett thinks, and how Berkshire operates, but as Mohnish said "it's like peeling an onion" and it takes time to get layers of that onion to come off.... alot of people have not got past the first layer! Attend the Berkshire meeting and you probably know what I am talking about! An example would be the "playing the tax code like a fiddle!" part of the article. Well Buffett said a couple years ago in his annual report(which I am surprised at how few actually put the time in to read it, but claim to know whether it is a good investment or not, or whether he is telling the truth or not.... laziness and ignorance) that he must not be doing a very good job as Berkshire Hathaway pays an incredible amount of tax a year! Just one example of the many, that are false and completely misleading in these article about Buffett and Berkshire! If a person looks back in history though this should not come as a surprise. But again, Toronto Stars business is to sell newspapers, whether they are factual or misleading is irrelevant! My favourite is still the article on Berkshire being on the hook for 45 billion, from the indices puts they sold.... they forgot to check that they had a notional value of 37 odd billion and for it to cost the full notional amount, they would have all had to go to zero! Complete stupidity! One good thing about it is it gets Mr. Market fired up, the bad thing about it is alot of those people are very good people, that these kinds of misleading articles get them confused and scared causing them to make mistakes. Kyle Thanks for posting this though, always nice to keep up to date on the 'guru' bashing.... and laugh at the ignorance!

Crip 1 and Scorpion Capital.... really like your focus on buying cheap, well run, owner capitalism type jockey positions. Being in these guys vehicle is not a bad idea!

If you want to truly understand the oil/gas supply/demand problem I would suggest listening to Mathew Simmons... he has a great book out called "Twilight in the Desert" that I am sure most of you know about. Here is a couple links that I think are important: http://www.simmonsco-intl.com/files/Commercial%20Club%20of%20Boston.pdf http://www.simmonsco-intl.com/ Went from wood to coal to oil... not sure what future brings but know that it will not be for awhile and that even with the addition supply brought on from other forms of energy, the declining supply of oil/gas will make it so we need everything we can get! I however don't make macro predictions or invest that way but if you don't have to pay for any of that upside that you think there is a good chance of happening, and you got your downside protected, you got great odds of success!

It is interesting to see how the next O&G rally is setting up. Drilling drops way off, gas poduction in particular drops quickly. At a certain point the price will start to rise rapidly due to low supply and drilling will come into big demand again. Uccmal your absolutely right on this... oil/gas service companies can hunker down quite fast in most situations and if they have quality assets, absense of liabilities and a solid financial situation to 'cross the desert' you have a high probability for success. The company I was talking about is one that Marty Whitman owns 22% or so percent and that Carlos Slim is buying pretty much daily(over 4 million shares now) in Bronco Drilling. Forget that they own it and digest the material yourself, but these rigs are incredible for that price, they are financially sound and have an absense of liabilities... not only that really like how the guys who are running it think. Other drilling companies that have some very good management helping them through these tough times- Nabors Industries- Marty Whitman Diamond Offshore- Tisch Brothers Ensign Drilling- Murray Edwards (Our western canadian genius!) Goober Drilling- Leucadia(Not publicly held) Oil/Gas service business is a boom/bust type business that you better build a war chest in the boom, as you are certain that there will be a time coming that your equipment doesn't leave the yard for an extended period of time. Incredible amounts of money can be made though in booms, and it's just a matter of time before prices rise due to supply problems, causing these companies to be running at high capacity again.

Sharper Dingaan, Very good post... you are very correct on alot of things. One big thing is the fact that alot of oil/gas companies paid very large amounts to acquire there tracts of land/permits that don't last forever and some are making decisions at the present time to either spend the money or forget about the sunk cost and move on. I know that time is running out on alot of them... and that this is on oil/gas executives minds! Even with the "low hanging fruit" gone so to speak, there are many places left that with enhanced oil recovery techniques people are still interested in going after. Frac Technology/ Horizontal Drilling have opened up previously unthought of reserves. These tight formations now make sense. Just ask Southern Saskatchewan! (Disclosure: I am from Saskatchewan) This is also the reason that price of oil/gas should be higher than is today as the cost to produce is much higher than it used to be to get it out of the ground. An important part of most drilling companies is the variable rate worker situation with no severance or anything else.... they work when theres work and thats it. Is not very hard for this industry to park the rigs in the yard and let them sit. Very simple thesis on a company I like right now which is a drilling/service rig company: Lots of Cash and current assets(that are good!) that will have no problem even if rigs move very little Quality Rigs- Horizantal, top drive, high high power, very new rig fleet(Small service rig and rig moving companent) No pension/severance- Laid off 37% of workers in past quarter Rigs if not being worked essentially don't depreciate(or very little) in real economic terms Debt- Not large or due for 4 yrs... very managable amount with more available Smart Shareholders- Own approx 40% of the company Management Team- They know what there doing! Works in safe market, with loads of oil and gas reserves still left.... and a declining rig count daily! Depletion rates on oil/gas wells is quite high in most cases, and finding amounts of additional supply to quench the worlds thirst is difficult as we all know. Mr. Market valuing the rigs at 100 million, when really even in todays market a rational oil/gas man would value the equipment more in the 300-600 million range Lots of cash/ receivables to cross desert, and they are hunkering down which is a smart thing to do right now for them. When companies start replacing reserves again(which they have to or they are essentially liquididating) and capacity goes back up, looking at a very attractive investment. The supply/ demand for oil/ gas is mid and long term positive for a drilling company, even if there is short term pain. Heads can't lose(asset values), Tails win big(earning power) Very cheap dollar bill Not talking my book or anything, but just wanted to let you guys know of some of the opportunities in this sector with little downside, nice upside type investments... even if oil/gas stays relatively flat and demand starts moving downwards(alternatives, etc.) Not trying to be a sector investing(disagree with this idea) but just have seen quite a bit here where you pay nothing for upside and have protection on downside! Happy hunting! Extra about drilling companies Better have quality rigs!!! This is vital

Was wondering if you guys could post the link to this information. Thanks

Leucadia also owns a small percentage of IRSA