SharperDingaan

Pick your time horizon (in years) - & the commodity. Yes, NA is awash in gas (short-term), but not so much in the medium to long-term. Were that not the case, the McKenzie Valley pipeline would not be going ahead. Pick your sector, & know how it works. Land or off-shore? Specific oil/gas field? Operator, distributor (wholesale, retail, futures trader), or servicer? (drilling, transportation, catering, shelter). What are the production methods, depletion rates, etc?. Define your expectation. What needs to happen to get there, what you think the odds are on it occurring. Double, or triple? Sell assets, or drill for it? Buy someone else & hold for gas price increases? Operational efficiencies? Very basic research before you even enter the sector. SD

Re: RBK Mills They are a good business, but the structure of the industry ensures that margins will almost always be low. Add in the FX volatility they generate because of Cdn parent ownership, & you get poor quality earnings. The good news is that they are effectively recycling utilities - so over the long term they should generate at least a modest positive return on investment. More valuable to a US parent, which will not have the FX risk. Additional value if they can find a market for some of their byproduct (heat, electricity co-generation, etc.) SD

The basic premise is that where multiple outcomes are possible you draw out a probability tree of events over a given time horizon, determine the value of the stock under each outcome and assign a probability to each outcome. Multiply the value x the P(x) to arrive at the probability weighted Expected Value for that branch. Sum the Expected Values of each branch to get to the Expected Market Value (EMV) of the share overall. Bayes ? Theorem. WEBs bridge example. Some of the values will be based on liquidation, others on P/E multiple, & still more on BV multiple. Multiple valuation approaches are part of the framework. Efficient Markets To hold a security I expect to get paid, & the more risky it is the more I get paid. Therefore I need to PV the EMV back to today to determine what price ‘X’ I should be willing to pay to buy the stock – inclusive of all my expectations. For a 1 yr horizon, & 20% discount rate, multiply the EMV by 1/(1+.2)^1. Risk/Return theory. If todays price P(0) is < X, I should be a buyer as I can capture an arbitrage gain of [X-P(0)] x # of shares. If P(O) > X, I should be a seller. If P(O) = X, I should be neutral & therefore 50% hedged. Algorithmic formula. If P(O) hits X & subsequently falls, you can repurchase the hedge at a permanent cash saving. If P(0) goes through X & keeps rising, you need to sell more. The decision becomes how much of the overall portfolio should be in this stock Move forward 1 quarter. Discount multiple is now 1/(1+.2)^.75, & EMV has changed as the P(x) of each branch has changed. The value of each outcome may have changed as well. There is a new X, & a new decision to be made. We deliberately speak cryptically in order to make you develop your application skills, which maybe 1 in 4 will do. You can teach a monkey theory, but it becomes a gorilla when it learns how to apply. Here endeth the lesson! SD

Cwericb: Keep in mind that one needs to think in terms of P(x) x EV within 1 Yr - then discount the EMV back to present day at some appropriate rate. ie: [P(no change) 25%, P(higher margin net of FX & inflation) 45%, P(Asset Sale) 15%, P(Merger) 15% x best guess for various outcomes]/(1+discount rate) Obviously as information becomes public knowledge the P(x), EV, time horizon, & discount rate will all change - which will alter your decisions. Multiply the range of posters ‘values’ by each posters P(x) of occurrence, & we’re all probably within 10% of one other. SD

Very good year. - Significant positions in securities that almost doubled. PDS - Capital redeployment. $ taken off the table to reduce the base - Intelligent hedging. FBK SD

3 reasons. - AGM's are to formally present the audited year-end financials - until then we're all just taking managements word that the numbers are actually representative. If you have a choice, you want to start from independently confirmed numbers. - The AGM is a formal coming out party, where management will present its vision & announce its major changes. If its your last one you want it to be a good one, & if you have any material forthcoming transaction you'd like to formally announce them. Counterparty transactional details, due diligence, etc. will of course have been worked out well before then. - Lot of friendly schmooze gets done at AGM's - but you have to press the flesh, show some class, walk the talk, etc. If you want to be fair & friendly, some of those friends may well turn out to be future partners - & how you act will have an impact as to whether they would want to do business with you. SD

The reality is that nothing is going to occur unless FFH iinitiates it, which is unlikely until the year-end AGMs are over. That it will occur, is largely a foregone conclusion. In the meantime you get to trade off a rising valuation, that will suddenly spike at some point. SD

$4-6 base, plus something for the liquidation variables. 1) Lot more if the buyer can pay in a mix of stock &/or cash 2) More again for a decision on the US plants. Sell for a gain & merge FBK into the buyer - or sell St Feliceon & keep FBK (either as a US coy, or as the Cdn sub of a US parent) SD

"Still, today I have a pretty crafty friend, a self-made scrapper with a few million of net worth, who has a bid in on a 4 bedroom waterfront home. It has its own pier, boat ramp, pool, patios (covered ones too), etc. Appraised for $775,000 in 2007 (rediculous) and he thinks the 90 day process is about up on this short sale propery and that his bid of $125,000 is going to be successful. It has an in-law suite where he plans to stay and he says he'll rent out the 3 bedroom part." Your friend is hoping to get the property at a low enough price such that most of the cost of ownership is what he/she would otherwise have paid out in shelter costs for him/herself. He/she can afford to wait a very long time for house inflation to occurr. If he/she is willing to live there year round, & can actually do the property management side they will seem to do very well. Then ask yourself how many mom/pop motel/B&B owners do you know, who 10 yrs later, would probably have been better off ($ &/or quality of life) if they had never bought the place to start with? And didn't they all see a similar business logic? Your friend may not be considering all the relevant metrics. SD

Use a 5yr fixed rate mortgage, & you're really hoping that either 1) the market rate in 5 yrs is lower/same as it is now 2) inflation takes hold in a big way, 3) the rental income increases dramitcally (rate/week, or more weeks rented), 4) or there are minimal upkeep costs over the holding period that will not change much. To achieve it you're willing to go back to the same place for each of 5yrs. 1) & 2). If refinancing costs go up significantly (european 1st half 2011 debt roll-overs crowding out the market), the NPV will materially decline unless there is significant offsetting inflation in house prices. Very high inflation may eventually happen ... but most people would expect a time lag untill it does occurr - & if you cant hold until then you're dead. 3) & 4). Additional rent would be primarily because you to rented more weeks, vs more rent/week -& unlikely to occurr for at least 2-3 years - people need the money to spend, & everyone else in your area has to have allready rented out their extra weeks. One significant repair bill & your property could give you a negative carry cost. Why be another seller when everyone else is also selling - isn't it better to be the buyer & have the flexibility to go wherever you want? If you want the investment why isn't a REIT with a geographic concentration in the area not a better choice ? (liquidity, positive income, diversified risk, etc.), & why would you not you roll in over time to exploit the expected rate increases that will drive down the REITs price? SD

We don't buy common unless we can reasonably see at least a double within 3-5 yrs, & when there are no opportunities we're in fixed income instead. The upside is that it forces profit taking & makes you more conservative as valuations rise. The downside is bias to larger than normal opening positions. Example. FFH at 70 was a great investment, simply because the outcome was virtually certain (collapse or recovery) within 1 yr, & you could limit your loss with an option (call, or LEAP). At 140 it was still good, but to get a double was going to require at least 2-3 yrs & some changes in the corp approach/structure. At 280 it became iffy - simply because to get to 560 (ie: double) there would have to be some very big wins, & a potential acquisition (assuming no increase in div). While 'Churn & burn', & margin, could improve your return - it can not change the reality that another double within 3-5 yrs is far less certain. At present, almost every pond is crowded with doubles; they just aren't as cheap as they were, & their price stability is uncertain - which is why averaging & hedging was invented. But not all doubles are the same ... ie: FFH @ 70 is very different from FFH @ 140 & very different again from FFH @ 280. Show us some long dated zero coupon euro guaranteed sovereigns though, & we might change our mind! SD

The rational thing is a rolling long term out-of-the market put on bullion. Buy as cheaply as possible, & keep rolling it forward every 6 months to minimize the decay cost - essentially the poor mans CDS More gold is produced than used each yr, & unfortunately the stuff recycles - so there's a growing cummulative supply overhang. Stop the buying & we will get a rapid drop as the hoards come out of the woodwork - unless developing nation central bank(s) switch a portion of their $ holdings to bullion (the traditional position). Lots of volatility. Culturally the (mostly) rural populaces of both India & China have used gold as their store of value - & its that growing marginal wealth that is pushing prices. More savings to invest, & the growing value of your existing hoard, producing a nice wealth effect - not unlike the Tech bubble. Given that you can margin against your hoard to support spending, there is probably quite some way to go yet. SD

A little biased, but you might want to look at the following: To know the mechanics as to how P&C insurance works, look at the industry professional designations. Within Canada you would be looking at the CIP &/or the FCIP. http://www.insuranceinstitute.ca/ProductCatalog/ChartOfProgramOfferings.aspx?pg=Canada&lu=1. As with everything, the principles involved (ie: UW of marine, hazmat, specialties, reinsurance, etc) are more important than the actual legislation. Learn from the bad. Look at the financials & press releases for the last 5-10 years of KFS (TSE listing), read the various comments that were made on this board (content & time). Look at the loss triangles on their final AR's, what the coy was saying 9-12 months before the losses occurred (short-tailed business), how you can delay the enevitable, & what bad UW can do (assumptions & staff retention) to you ($, & time to break-up/bankruptcy). Then look at the WED transaction. If the business showed 3 yrs worth of 'real' triangles how much more would it be worth over the purchase price - simply because the uncertainty was removed ? Very patient shareholders, & at 580M shares o/s - a 120M loss is only 2c/share. ie: The how you fix it. Watch & learn. SD

.... bit more than steady as she goes. http://www.foex.fi/ Look at the NBSK forwards, the overall change during November, & the bump around Feb-2011. Then look at the BHKP (limited substitute for NBSK) change over the same period. Somebody needs a lot of (additional) NBSK over Feb & can't substitute with a lower grade. Who has lots of celebrations during February? SD

Hold a global dividend &/or bond fund. Sell out the position around mid-late Dec, & buy it back 32 days later. The fund administrator/broker will scream, but keep in mind that they actually work for you ..... the 'investor'. Witholding liabilities incurred by the fund over the entire year, are typically spread over all unit holders as at year-end, with each unit holder receiving a hit on their tax forms. If you're not there at year-end there's no hit, & if you re-buy > 30 days there is no frequent trading penalty. Target a smaller (& often US) fund with weaker support systems, & in most cases you'll also get full fund value for the dividend (vs 85%). Of course it is not fair, but very little about a funds administration is actually fair. ie: Soft $ comp on deal flow to brokers, legal, etc. SD

http://books.global-investor.com/books/293746/Curtis-Faith/Inside-the-Mind-of-the-Turtles/ Focus on fully understanding the lessons, not the hype. Then look at 2-3 stocks this board has followed over time, & how you would have applied the lessons (had you known about them) to those stocks at the different points in time. SD

The point is being missed: - The government doesn't give you a EI (or other social benefit) cheque - it credits your debit/credit/ID card electronically (at a big savings) - & you spend it. No credit involved, no net debit, & no purchases unless you have the money on the card - ie: entirely spend centric. The government interest is in your back office processing capability, & you'll take the deal because you will be able to update & modernise your IT essentially for free. - To get the money you have to use an ATM machine or a merchant. With 1 card/per person (170 Million cards?) there are not going to be any withdrawal fees, and there is going to be an electronic record of where every $ was withdrawn from the card. The government gets an electronic copy of each card statement at maybe 2c a pop? & Homeland Security perhaps pays you a visit if your spending is suspicious ? - Cheque cash stores exist primarily because patrons cannot get credit, a position that most Americans who have had to walk away from their houses are in. Want a government guaranteed loan ? give me your card number, electonically apply standard underwriting principles based on documentation, & verify acceptance with a code (everyday underwriting practice). If its too slow for you, or you dont like the idea, go elsewhere - as you clearly have better options. But a lot of new enterprises will start because they can now get the credit that they could not get before. Choosing not to consider alternatives because its too 'radical', can cost you. Best of luck to you SD

Mandate a industry reserve requirement of 8% & everybody can only lend up to 12.5x their capital. To do the same level of business they would need more capital, or for the same level of capital, disengage from some of their existing business. With an industry requirement there is no one concern with how any one individual firm does its business - you reserve to the industry expectation of loss, not your estimate for the riskiness of the business that you are doing. The loss of 5 I-Banks, & the move to debit card vs cash was also far-fetched at the time. What is so far-fetched about giving everybody one piece of plastic that is both a credit/debit card & also serves as ID for various social services ? - you pay by giving your card, with the charge going to your card, & no service unless you have the balance. Cheap, every transaction visible, no checks, no cash, & every card automatically recharging every month if youre eligible. Why would you NOT move in this direction ? The industry moat is not as wide, or robust, as the industry might like you to think. SD

You might want to be a little cautious. 1) We’ve all heard nothing but the housing bubble, foreclosures, unemployment, etc. But what about all the credit cards that those people were holding ? At some point folks are no longer going to be able to kite all the minimum payments amongst those cards, which can only result in tears. 2) Amex/Visa has not had to put up a reserve requirement against credit card loans, yet how is a credit card loan really any different from an ordinary bank loan ? – where there is a reserve requirement? Impose a reserve requirement, & you restrict leverage - permanently reducing the historic valuation metrics. 3) The US is not an island. Where countries cannot increase interest rates to dampen inflation (increases their FX rate), they can increase/impose reserve requirements instead (China) - to both reduce the $ available for lending & make the credit system more robust to shock. If one G-8 does it, how long can it really be until the rest do it as well? 4) Playing fields change. In a modern economy, credit is a fundamental necessity no different to healthcare, clean water, sanitation, telephone & internet. What is to stop a government giving everyone a basic credit card, & recharging it every month with whatever social benefit (unemployment, pension, social program, etc) has been earned ?. Greater dignity for all, no more paper, ability to track spending, etc - & a large part of the existing playing field permanently removed. SD

Keep in mind: - 2 seperate incidences of insider buying during the quarter - Suddenly a day of 1.25M shares trading, shortly before year end ? - CFX & UFX have both been dropping, yet FBK & ABH has remained the same and/or improved ? Enjoy the season SD

http://www.theglobeandmail.com/globe-investor/new-abitibi-head-aims-to-control-costs/article1833059/ "Mr. Garneau will also lead a management team – including Mr. Paterson in an advisory role until next summer – that will be on the lookout for acquisition opportunities, Mr. Evans added." FBKs plants use chemicals that could be obtained cheaper if bought in bulk (in combination with all other ABH pulp plants). FBK wood chips are also likely progressively cheaper the more volume taken (not a problem if you're also buying to fullfill a ABH order). Synergistic cost savings, & friendly shareholders, has to be putting FBK high on the list. SD

Keep in mind that with FFH, you should add the FBK exposure to ABH. ABH still holds the portion of FBK's St Felicion mill that wasn't sold (SFK IPO Prospectus), & FFH is a dominant shareholder in both FBK & ABH. The elegant operational solution is to merge the two entities (via an mixed equity/cash offer for FBK). With most shareholders electing to take tax-free rollovers (ie: institutions taking ABH equity); ABH could afford to pay full value, lower their Debt/Equity ratio, & simultaneously increase their very small 100M share float. How long can it really be before exactly that happens. May we all see a interesting 2011! SD

Preferably SAC gets bled white first ! SD

You're welcome. Your guiding principle should be that it is not too bright to concentrate both your wealth (investment) and your livelihood (salary) in the same basket (industry); unless you can fully hedge at least one of the eggs (ie: investment) - ALL of the time. When the environment slumps, I-Banks will fire their analysts; who are effectively unemployable untill the next I-Bank up cycle - as there is no recent main-street experience in environmental science. If the slump is severe enough, engineering firms will also fire their MSc's; but the CFA/MSc walks away with a gain as their employee share options were hedged, & has stronger job prospects as there is current main street experience, & many more engineering firms than there are I-Banks. The main street CFA/MSc has diversified the total return (investment + salary) & improved the return/unit risk (Sharpe ratio). Hedging the employee stock option simply multiplys the ratio. The smartest guy in the room is usually not the glamorous one with the flashy suit & doting media. Look for the quiet Brooks Brother's somewhere in the backround. SD

Very elegant, & very nice to see! SD