SharperDingaan

Forget the stock market measures determining bull/bear status, & look at the quality of the major business in those indices. After 5-6 years of 'crises', the majority are doing very thank-you, and at today’s very low growth levels. Most have also maintained total leverage by increasing operating leverage (CM/NOI) at the expense of financial leverage - and it has largely been by scaling up to reduce variable cost/unit; ie: size matters. Increase growth by a small amount (ie: 1.00% to 1.25%) & the CM on those incremental sales flows straight to the bottom line - & if your market share is already large, that total incremental CM will be massive. But …. only if you have scale, .... & are therefore a high quality large cap. Look at the real companies, with ‘real’ (little transactional trading) businesses, & you will be very surprized. Some of those beat-up Greek, Spanish, Irish, & Icelandic banks are actually very attractive - simply because of their high DOL, and market share in markets that are at multi-generational lows. Most would argue that we’ve been in a European bull market for a few months already …. SD

"The greater trick is to identify decent companies not in secular decline these days" Look at those with a high DOL & demographic/economic trend ... there are at least one/two in Canada that you wouldn't expect ;) SD

Keep in mind that quality from a business perspective is very different than that from an investment perspective. Generally speaking, the higher the quality of the business, the easier it is to run - so quality matters. Whereas in the value world a fallen angel (ie: sh1te business), dirt cheap, is nirvana. And after a while .... you learn that putting up with the sh1te while you are waiting for changes - is not worth it. Looking at quality vs metrics is just evolution. You have begun to look at the businesses that you own - as an actual businessman. You don't need the metrics as a substitute for experience any more. SD

To each his own ... just keep in mind that long dated Treasury's and Canada's also exist; you could just buy a series of different maturities & clip coupons every 6 months. SD

We aren't the same people at 80,that we were at 60; & that assumes ongoing perfect health. Is she really going to be able to do this, if she contracts any of the stroke &/or mental diseases that come with age? ... & really the biggest part of the annuities zero investment risk. SD

Agreed re annuities, but they do serve a purpose ... & at a very low cost You are dead - when the annuity is paying out. The recipient gets a 'pension' of $X every month for life (possibly even inflation indexed). Zero investment knowledge required, or investment risk undertaken, for life. It is highly likely that on death, there will be a forfeited stub residual - but so what; you have already provided for the heirs, & the payouts were higher than they should have been during the living phase (re actuarial adjustments). The recipient could just as easily choose not to linger, as outlive the annuity; & you can do nothing about either. Your best defence really is to live life to the fullest, while you are still able, & ensure there are no regrets. SD

Involve your heirs in the investment process. If they take great, if they don't - pay off their mortgage on passing, & leave it at that. Buy your wife an annuity that runs to zero over 15-20 years. SD

"They win more often when the favorite errs, not from their own transformation. The favorite is the favorite for a reason!" The favorite lost because they drank the cool aid, & got addicted to the public adulation; to keep the adulation coming they progessively stepped further out on the risk curve - & eventually overstepped. Identical to feeding an addict; except that its ego versus herion, & the fall from grace costs 'status'- not your life. The effect, & consequence, has been well known for a very long time. The traditional solution has long been the periodic beheading, head spiking, & burning of publicists. Permanent solutions were preferred over humiliation to prevent retaliation, & it was usually the 3rd or 4th most prominent publicists whose head graced a spike. The message was very clear ..... Unfortunately we're not allowed to do that any more .... though a Putin or Stalin might disagree! SD

It would seem that you do not have to wait 1 year to get a 25%+ gain on the dog of the month. There would also seem to be some other people who read this board ;) SD

We had to make a very similar decision when we withdrew capital from our portfolio to buy a property in London (UK). It has worked out very well, & the property is already worth 30-40% more than what we paid for it. Use the opportunities. Mortgage rates, the word over, are at record lows - & likely to remain below the norm for a good many years; foolish to not take advantage. Governments are also giving some very rich incentives; & it requires very little deal structuring to take advantage of it. Think risk reduction - not elimination. Assume you could withdraw 100K from an equity portfolio, or withdraw 50K from the portfolio & incur a 50K mortgage. You reduced total risk by 50K (DP) & swapped 50K of equity risk for mortgage risk. Given the typical casino effect that equity portfolios generate, & that you control the mortgage, there are major benefits. ..... and there is nothing to prevent you from doing multiple withdrawals from your equity portfolio over time to deleverage the property. Think usage. Living in it, renting it, planning to be there a long time, significant others consideration, etc. Our London property is leased for its first 5 years, nephews will then live in it (& charge rent to flatmates) for 3-5 years while they attend university in London, & then it will be sold for a tax free gain. Over the 10yr holding period we expect at least a triple on the property itself, & that total nephew education costs will be minimal as much of the COL will be eliminated. Nothing new to this approach, & the highest & best usage (to us) is not to lease it out for the entire 10yrs Remind yourself that money is the slave, not the master. There is no point to investing unless you intend to use the gains, & do it within your lifetime - while you are still able. Life is short, & it should be as well lived as you can possibly make it. SD

Re the moratorium & regulatory capital: As most of these mortgages are currently non-performing, they have very high amounts of regulatory capital attached to them. When those mortgagees start paying again, their mortgages will require less than ½ the regulatory capital currently attached to them, NBG will not require any additional injections of capital to meet rising BIS standards, the bank will start earning a spread on its mortgages again (income), & some of their very high provisioning levels will start getting released. Then remind yourself that one of the ongoing German financing conditions is the ending of the moratorium; nothing but tailwinds. Re spreads: Apparently it is not possible for NBG to earn the average 50bp spread of a Mediterranean bank, or even the average 70-80bp spread of most western banks. Then keep in mind that over the last 5 years the mortgage portfolio was not contributing (moratorium), & that the average professional life of an analyst is around 3 yrs. Todays analyst was still in college, 2 years after the moratorium started, & has no experience in NBG with anything but moratorium. We are sure NBG is crap, solely because it is Greek. Yet their capital level is almost 1.5x better than most UK banks, & they have not had the corruption or capital scandals of a Barclays, RBS, LLoyds, etc. Where is the real crap. SD

Re: 5 Year Mortgage Moratorium http://www.businessweek.com/news/2013-09-22/greece-needing-to-meet-bailout-plans-foreclosures-mortgages%20 One obstacle is a five-year ban on foreclosures that prevented thousands of Greeks from losing their homes after the economy went into free-fall. The government is now considering a plan to ease the restrictions by the end of this year to satisfy its creditors’ demands. Finance Minister Yannis Stournaras said last month that banks face serious problems if they’re not allowed to repossess and auction homes of people who don’t pay their mortgages. “At the moment, even people who can afford to pay the mortgages do not,” National Bank of Greece SA (ETE) Deputy Chief Executive Petros Christodoulou said in a Bloomberg Television interview on Sept. 6. “When the new law is passed and officially foreclosures are allowed over a certain benchmark, we will see that the credit ethos will return.” SD

Wax in our ears; 'cause we know better than EVERYBODY else! We would like to think that we have finally cured it ... but every now & again it makes an appearance - kind of like the clap! SD

The argument for NBG is almost entirely business case, not valuation. Domestic mortgages are under a moratorium, they are around 40% of NBG total assets, & the moratorium is coming to an end. If 40% of your book of business suddenly started generating additional NI, we are pretty sure your sock price would go up. A $1 rise in the share price is a 25% appreciation, when the cost is only $4! SD

..... & the proceeds from writing puts on fellow tech firms. Sorry, it was late when I posted. Stock options were part of his comp, often the lions share of it by the time the next reset came around; but totally illiquid - as he had to be publicly seen as supporting the firm. So to ensure no surprizes he would regularly use part of his bonus to BUY puts on a number of the firms direct competitors. When his firm imploded; he got to both keep the funny money - & multiply it many times over as the industry as a whole deflated. Just everyday cunning. He was also very well paid, & did not need the money; so every 2 weeks he would send his mom down to a local bank to buy a few wafers. She would stuff them in her handbag, bring them home, & being somewhat old world; hide them under the floorboards. After she died the wafers mysterious migrated, but were not cashed in until after he died. One of his last requests was that 2 of us open a very expensive premier cru that he had put with the stash, count them up, & value them. We were being sent a message. SD

We were being taught the dark art by a very cunning bastard at the time, who is unfortunately deceased today ...... He was a senior exec for a telecom & used 1/2 his salary, most of his bonus, & the proceeds from writing puts on fellow tech firms, into the purchase of 1 oz gold wafers. At the time, gold bullion was at ridiculous prices & you got snide remarks every time you went into a bank to buy a wafer or two. When the tech sector imploded the puts made him a millionaire a few times over. When he died, there were 6200 wafers under his bed at $2800 a pop! The forms of investment might differ, but the sectors do not. SD

They are probably not thrilled at our suggestion that they should be systematically shorted; & is a reminder that if it gets out of hand they will squeeze - by buying some of their stock back. A healthy thing overall, & just the discipline of the market being enforced. SD

We have no dog in this, but a couple of observations ..... Everything capitalized on the BS is on the premise of the entity remaining a going concern; if the going concern premise is no longer valid ..... Inventory has to be valued at LCM, patents at the PV of future cashflow, provisions & pensions adjusted for the mass layoff, supplier termination penalties recorded, etc. Whatever is not in tomorrows release, must eventually come out as an adjustment against the $9 offer .... The offer is essentially for just the BB assets, some of which are people. Tech can be licensed & the CF put toward investment payback & the new product development that those people assets excel at. You don't fight the tech gorillas, you make them work for you. Were the game plan rip & tear, FFH would have to have well above 10% of the partnership; & the risk that goes with it. The smarter way is to do what you can to recover your outlays, & reduce your go-forward exposure in both time (yrs) & $. Put the whole thing out of sight, hire a Lazarides to rebuild it, & leave them to it. You don't fight competitors, you partner with them. It promises to be a bumpy ride .... so make your decisions accordingly. SD

Add the NBG:US ADR (National Bank of Greece) After everyone is done laughing; keep in mind that NBG only has to rise $1 in 12 months, & its 25% return is going to outperform many of the names listed. Of course when your cost base is under $3, there may be a little bias! SD

..... but if you reset your option strike at the market price on the day you closed ($20), you recognize the lower risk AND get the right investment signals. ..... and if you apply the Kelly formula concepts, most of the sizing issues dissappear. Unfortunately though; if you're buying dogshit (BB), you're still buying dogshit! SD

Assume 10,000 shares bought @ $10 with 50% margin, $0.25 dividend/year; dividends = interest expense on the margin. 50K Equity, 50K Margin. The share price rises 100% to $20. You sell 5,000 shares for 100K & repay your margin, leaving 5000 shares & your original 50K in cash. If you record the proceeds against your cost base (payback approach); those 5,000 shares have zero cost, pay a dividend of $1250/yr, & are a zero cost long-term option with a strike price equal to the $10 you originally paid for them. As long as the share price remains above $0 you do not really care; you have your $ back, & you are getting an infinite yield ($0.25/$0.00) of $1250/yr. You recognize the lower risk, but get the wrong investment signals If you retain your cost base (tax approach) you still get your original investment back, a dividend of $1250/yr, but you also get an unrealized gain of $10/share - & if the share price falls below the current $20 you will suffer a loss. To avoid the possibility of loss you would hedge your position by selling ½ your position at the current $20. You get the right investment signals, but fail to recognize that the position is nowhere near the risk it once was – you have a $10 unrealized gain to cushion any adverse price shock. That 5,000 share position @ $20 is 100K; to get both the right risk recognition & the right investment signal, you need to mix both investment bases, & you need to arrive at the right sizing for the nature of the investment. Not simple, but it can be done. More problematic are the opportunity costs, & behavioural effects, which take more gymnastics. SD

Are multiple people sharing your account? We are a private investing partnership with direct family & relatives. It is 1 of 3 partnerships, each is run by a family member specialized in the areas their partnership can invest in, & I am the FCSI holding GP of the Cdn partnership. The other partnerships are in the UK, & Iceland. The partnerships exist to make money, train nephews & family members in investment, & provide funding for new ventures. Same sort of operating structure as the mob, but without the blood & guts. As GPs we would see it as a failure if our nephews end up as fund managers. No disrespect to others! Works very well, we are always in areas where we have local expertise, & it allows us to spread our risks. SD

Different strokes for different folks, & we wish you luck; but a story for you ..... When XYZ junior is trying to raise funds for their next project, the UW will get paid a 4-7% commission; & to get the deal done the UW will often agree to take all/part of the fee as stock, at a deep discount (40%) to the issuing price. That 10M share offering at $1/share may result in the UW taking their 600K fee as 1M shares. The UW was paid to support the issuance & did it by keeping 10% of the new shares (their fee) out of the market, & agreeing to initiate/maintain coverage of the stock for a minimum period of time (1 yr). During the next 4 quarters the UW will sell off their inventory, using each report as marketing. They are clearing inventory, & have that inventory only because they could not get paid in cash - & you are buying it. And this is a relative benign example .... securitization C tranches are orders of magnitude more toxic & abusive. How lucky do you feel.

Once you realize how toxic these are, who created them, & why; you will have a very different view. You are also competing against junior debt tranches (C tranches on securitization financings), & put/call options on real companies. Ultimately, do you really want to be buying from a GS (or equivalent), & who do you think is most likely to have the better experience. SD

Many years ago I started off as a Petroleum Engineer, & spent my first 2 summers in the North opening up the Beaufort sea. As with most of my engineering year, I transferred to business when the bottom dropped out of the o/g market. Things had become so bad that Calgarians had began to use the depression era laws, to avoid bankruptcy - by selling their houses to each other for $1. Risk assessment is very similar, except that consensus techniques result in an almost 100% error rate. 'Over-engineering' concepts are seldom applied, except in long tail insurance; & even then - only if folks with some actuarial knowledge (loss triangles) are part of the discussion. I would direct you to the FFH & Lancashire discussion threads. SD