SharperDingaan

Couple of observations ... The financial press is paid to 'set' storylines for the masses .... but do any kind of a 'back-test' on the accuracy of those predictions? Almost always, the better outcome is a bet against the prevailing story of the day. 'Storylines' are time-sensitive, meaning days - not weeks, or months. A story-line that persists over any length of time, has to be 'pushed' by someone - either 'unwinding', or building a book of business for later disposition. Selling against the storyline, puts you in good company. Size matters. Stay small and you cost more to remove than you are worth. It's just the cost of doing business. Then look around you ... Trump didn't achieve much when he had control of the US Senate; why do you think he'll do better now, when he no longer has that control? Trump creates 'crisis' and 'distraction' to enable a deal - but to get 'deals' done he needs movement; no movement, and sharks drown. Trump remains implicated in a criminal organization, and all the 'distraction' in the world, doesn't change that. We know the man is thin-skinned, and how long can it really be before Senate controlled investigations start to seriously cook the frog - 6 months, maybe 1 year? And if the 'wall' gets stymied, Iranian sanctions prove ineffective, and the 'rate' at which US troops return 'home' significantly slows? Isn't the smarter bet against the press stories, and in favour of greater Trump distraction? SD

What it's really doing is replacing the DL mining process with a version of algorithmic data-base validation. Most would expect 3 selected validators, and a comparisom test as part of the 'proof of stake'. It doesn't just reduce the power requirement, it also gives them a way to circumvent extortion through the sudden witholding of CPU power, and speeds up the validation process. One of those validators will be themselves, and it will affect anyone using the ERC 20 token standard. Enough cummulative critical mass to also make it happen. Clever. SD

A quick 'management accounting' example. Imagine you are a 'public' hydro-electric producer with lots of concrete dams, custom built turbines, electric generation facilities, etc. Why is the depreciation expense so low relative to the size of the facility? and why does that matter to you the investor? Concrete doesn't wear out, there is usually a deep 'stock' of turbines in 'stores', and current turbines are routinely pulled out of service and repaired as the facility generates. The life of these capital assets essentially becomes 'infinite'; meaning that if you use straight-line depreciation methodology, you will be dividing by infinity, and the resultant depeciation expense will be zero. Operating income is a lot higher than it should be, and so is the dividend payout. A lovely way to 'asset strip' ;D Mangement accounting has come a long way since its manufacturing cost accounting roots. And in the hands of a good operator ..... SD

Hate to tell you this, but you'll need to be more specific. If you expect to be looking at primarily the financials of US companies, you'll need to learn US GAAP. If you're looking outside the US, you'll need to learn IFRS. While mostly the same, there are some very material differences between the two standards. And it would be a very bad mistake, to believe that after only a course (or two) you're comparable to a CPA. If you expect to be looking primarily at a few companies, in specific industries, and in detail; you'll ALSO need to learn management accounting. If you're looking at manufacturing, extraction/mining, processing, supply-chain, etc. you will have no idea as to why things are as they are until you fully understand the incentives this accounting creates. Good luck to you! SD

Take a page from the investment world. The 'long straddle' was a great invention ...... ;) https://www.investopedia.com/terms/l/longstraddle.asp The volatility is the mass disruption/displacement of blockchain, smart-contracts, and artificial intelligence. Short-side gains from work displacement (education, employment agencies, consulting). Long-side gains from royalty/special purpose implementations, proof-of-concept start-ups, and buy-outs. All nice and private, very limited/zero reporting, and little real risk. The typical long-side JV is 2 coders in an incubator, and 1 day a week of your time, for a year, to supervise and prove concept. Repeat for a year to prove scalability, and negotiate/sell into the buy-out. Partner puts up the funding, you put up the results. SD

It's useful to keep in mind that 'Crypto' grew up in the 'techie' silo - isolated from everyone else. A great many people take the view 'I'm good at technology, and I do it very well' - but this 'society' stuff I'm not good at, and it's not my problem to solve. We often hear the same argument on this board - I'm good at 'investment' - but not this 'macro' stuff that generates it. It is just another version of Oppenheimer's (the bomber) approach when he brought the atomic bomb into the world; it's not the technology, it's the users! Of course, we know from law that even if you drive the getaway car - you still abetted the crime, and therefore share responsibility. But in 'crypto' ..... actions and responsibilities are particularly poorly correlated. It is begining to penetrate that the implications of blockchain/smart-contract technology goes well beyond the immediate application solution, but it is still well below the 'tipping-point' (Gladwell) of the general NA population. Different 'sectors' will hit the 'tipping point' at different times, and the early evidence is that 'tech' is fairly far down the list. By-and-large, the more 'EQ' involved the sooner the 'tipping point'. The long-term bet is against industry (screws-up its CSR), and with company specific applications. If only because you don't put a blockchain solution in a company unless you have a business plan, and know exactly how much, why, and when this application is going to make money for you ;) SD

The real power is that this allows governments to link various departmental data bases via a common data field. Tax, property, family, health, bank account, etc. All at the Oracles (the state) touch, and in live time, and no hiding behind maiden names, changed spellings, or recent deaths in the extended family. Works great on voter fraud, but makes it harder to fix an election. Therefore very limited use for the US! SD

Look at Estonia, where this has been in place since at least 2007. The key 'technology' is Keyless Signature Infrastructure (KSI), which runs on blockchain. https://en.wikipedia.org/wiki/Electronic_voting_in_Estonia SD

The 600,000 bpd is oil, not gas. Like any miner, oil-sand profitability is primarily driven by through-put; to drive the fixed cost/unit down as low as possible. Hence the bigger you are the lower your cost/unit, and the more 'clout' you can apply over allocated pipeline space. If you also refine (IMO), whatever you 'lose' on the upstream you make back on the downstream refining. Your growing monopoly/oligopoly can be 'controlled' a number of different ways; but ultimately there will need to be a new 'arrangement' - once pipeline constraints ease. There's lots of o/g in NA, and no need to develop the Alaskan North-Shore any time soon. Alberta bitumen will be pelletized and shipped west in open railcars well before Alaskan oil starts to flow. Japan and China also have material reserves of near-shore methyl-hydrates (substitute for natural gas), severely limiting what the North-Shore could export. https://www.theglobeandmail.com/business/article-cn-pushes-ahead-with-puck-sized-bitumen-for-rail-transport/ https://www.scientificamerican.com/article/should-the-world-tap-undersea-methane-hydrates-for-energy/ Politicians will do whatever neccessary to get, & stay, elected - for the least amount of ongoing effort. Sadly, until the Alberta 2019 elections are over, we aren't likely to see any significant 'change on-the-ground'. Lots of kissing babies, and stealing lolly-pops, but no new pipeline construction. Alberta has tremendous long-term opportunities, and the forced 're-set' has been a long time coming. But it will be to Albertans to decide. Nothing wrong in that. SD

SD sorry for my ignorance but what’s the capacity that’s coming back? Enbridge Line 3 replacement comes on-line at the end of 2019 (760,000 bpd), and the first of Alta's rail-car fleet starts arriving (120,000 bpd by mid-2020). The existing aged Line 3 does roughly 380,000 bpd. With 600,000 bpd of net new capacity becoming available, the current shut-in will end, differentials should further decline, and o/g properties currently listed for sale should start to move again. Then add to it that at current valuations it's far smarter for new money to simply buy P2P reserves at cents on the dollar, versus drill for them. Yet the oil-patch isn't talking about it? Our own view is that it's being 'squashed' until Alta's 2019 election gets going ;) https://ca.reuters.com/article/domesticNews/idCAKBN1O203A-OCADN https://www.enbridge.com/projects-and-infrastructure/projects/line-3-replacement-program-us https://www.mprnews.org/story/2018/11/19/line-3-oil-pipeline-moves-closer-to-construction-in-northern-minnesota SD

Heresy ... but pretty much any intermediate in the WCSB (WCP, OBE, PD, etc). With pipeline/rail capacity coming back by 2019 year-end, it's pretty hard to see how some of these do not at least double. SD

You might want to look 'up', not 'down', and ask what has suddenly changed? It would seem to us that the Fed credibly believes that Trump is musing 'firing' the Fed Chairman, after just 'firing' the US Secretary of Defense, declaring the war against ISIS won, and ordering the immediate withdrawal of troops from Syria. Zero consultation, and not exactly 'stabilizing'. The US markets are currently down how much this year?, the US Fed is supposed to be independent of politics, and the US government currently doesn't have the authority to pay its bills. What do you suppose happens when millions of government workers don't receive a pay deposit to cover their christmas bills at the end of this month? Do you really think Trump and the senate are going to agree on the spending bill anytime soon? The man merely asked the banks about their liquidity, and arguably has very good reason. We just didn't like the answer. SD

The report cited is 6 1/2 years old, and the world today is a very different place to what it was in mid 2011. Past results are also not a reasonable predictor of future activity, especially when the future conditions are very different to what they were. Vancouver real estate is a hot-spot for money laundering, and widely believed to be corrupt. Costs are set by the international buyer, and not the local trying to live there; and we have seen repeated market actions to diminish the influence of foreign buyers (foreign resident taxes, LOC rule changes, mortgage rule changes, etc.). The influence of foreign buyers it is also a common experience elsewhere (London). Most banks will not lend if the mortgage payment exceeds 1/3 of take-home, corresponding to a house value of roughly 3x salary (1/.33). In low rate environments, house values are higher and banks lend more as the lower interest cost permits a higher borrow. Floating rate mortgages issued over the last 12 months+ have also been subject to a 200bp stress test at time of issue. Comes renewal time your banker can either demand payment in full, only offer a fixed vs a floating rate loan, or demand a partial principal repayment; hence if you're a sh1t credit, you can become someone else's problem. It's a numbers game, the banker has deeper and better quality historic information than you have, and the bankers need fresh foreclosure examples to show others. We would suggest that while the 'Canadian' banking system has been reasonably prudent, it's borrowers have not been; and the chickens will come home to roost as interest rates progessively climb back to historic levels. It is not the BoC's job to protect the dumb from their own actions, and they will let the market solution prevail. People will get hurt, as they should do But it's not going to result in a systemic crash of the Canadian banking system. SD

Always keep in mind that banking in Canada is an 'oligopoly', that operates at the pleasure of her majesty. Her majesty has also been in the thieving busines since at least the 1500's, and is very 'old school' in the practice of 'good governance' :D https://en.wikipedia.org/wiki/Privateer As european banks are essentially too big for their sovereigns to control; one bets on them screwing up, & ultimately receiving some kind of bail-out. In Canada they get 'broken-up, and the pieces merged into others' ... arguably a similar discussion to the one that Deutsche Bank and Commerzbank are currently having ;) https://www.pymnts.com/news/b2b-payments/2018/deutsche-commerzbank-german-bank-merger/ SD

You might want to keep in mind that had Alberta NOT shut in production early this month, we would be reading about widespread mass lay-offs in Alberta today - and mass non-recourse mortgage foreclosures at the Sched-A banks by the end of March; with a number of o/g firms following shortly thereafter. Hence, most would think that at least some of the money going into those railcar purchases, has a BoC guarantee ;) You might also want to remind yourself that Canada has reverse mortgages. The borrower can borrow up to 60% of the equity in their property by taking receipt of a monthly 'reverse mortgage' payment. The premise being that if today's $1M of home equity declines to 400K by the time you're in your late 70's, the forced sale will clear your debts & give you the money to down-size to something smaller (& at a time when you really need to). If you then continue with the reverse mortgage, there will be near zero equity left by the time you're dead, & your heirs will essentially inherit nothing. A rude awakening for many heirs. Problem is 'what if the value of the property suddenly drops 30% to 700K?, from the prior $1M'?' Mom/dad get down-sized early, adult stay-at-home kids start getting evicted, & all those 700K houses suddenly start being listed for sale. What used to be a 'rarity' (& therefore higher priced) now becomes 'common' - reducing prices further. However, most would expect that at least some of a Sched-A banks capital being used to keep these houses off the market, would have an OSFI/BoC 'understanding' ;) There will not be a 'collapse'. Much more likely is a market driven 'controlled descent'. But there will be quite a bit of forced 'reckoning', and of course - the social disruption that goes with it. Versions of today's protests in Paris move to Vancouver, Calgary, and Toronto. Change. Not a bad thing. SD

Bitcoin is the ONLY shitcoin that is fully hedgeable (Chicago exchanges). Trade in the 'light', and along with the angels - you can quite safely short this sucker into the ground. Trade on the 'dark' side and you wake up next to a horse's head ;) A little research into the DL hash process will also take you a long way. The hash is little different to coke, the miner is essentially a dealer, and the P2P business model is addiction. Addict your business to high-speed miners executing rapid hashes, and at any time they can take their CPU power away - unless you pay the 'new' fee ;D Of course it's a toss up as to who makes the most the first time it happens .... the criminal extorting, the shorters on Chicago, or perhaps they're both one and the same! Welcome to Bitcoin SD

It's useful to recognise that cryptocurrency (Bitcoin) grew out of the cyberpunk manifesto of the 90's, and was located primarily in the former USSR states as the republic was breaking up. Anarchy was good, it was your only protection, and widespread state corruption was the norm. To many, central bankers were perhaps the biggest thieves there were; and there was a lot of objective evidence to support that. To these folks, there is nothing one can say that might change their view; just as there is nothing one can say to the goldbug fixated on the pecious metal. Nothing wrong in that, but it's not going to be the everyday reality in most applications. There will be central bank issued digital currency (E-Krone), it will become increasingly common, and frankly it does many things better than the fiat cash equivalent (ie: AML/ATF tracking). Like any venereal disease; Bitcoin is probably going to be with us for a very long time, and impossible to eradicate. ;) Except that this one gives you the ability to evade corrupt central bankers, & makes it very difficult to follow. Insurance against seizure, valuable to just about everybody. In the shipping world, it's customary to pay a 'fee' to ensure safe transit of your goods through some of the most corrupt ports in the world (& in everyone's interest). If 'breakages' exceed the agreed fee it's to the recipients to 'resolve' it, no questions asked. Bitcoin performs a similar function. Just a different POV. SD

If you want the better asset (Bitcoin vs Gold), responsibility for your actions is the price. It's that simple. You lose your private key, you compromise that key, you screw up - and you wear it. There is no 'un-do', no 'cancel', or correction of 'fat finger' error. And there shouldn't be. We know that there are at least 1,040,000 BTC that are lost (creators Baltic boat-cruise story). There are a great many more that are essentially locked (the wallets that all those BTC computer ransom payments were going to), or were simply forgotten. Derive your own number. But it does NOT mean they are nullified. To get the money out, Mt Gox just has to be able to pledge them as loan collateral. Which Mt Gox can do, because it was the Oracle that originally issued those wallets - and the keys that went with them. Welcome to the world of cryptocoin ;) SD

After-tax cost of financing that you're going to use for the project. If you're looking at an investment, look at their bond rating and the market yield on their 5 year bond, & calculate Beta. Thereafter plug the variables into the CAPM model to obtain the discount rate. Just keep in mind that you're calculating off of historic rates, and that this works best with stable companies - not small, or unstable ones. It's also not particularly good, but it will at least give you a ball-park number. SD

Good point. The implication is that this is essentially an estimate as to the aggregate global QE (resulting from the crises?) that has yet to bleed out into the main-street economy (CPI inflation measure). SD

If you think Bitcoin is the digital equivalent of gold, you are comparing 1 'unit' of Bitcoin to 1 'unit' of gold. Rkbabang has the right valuation approach. 21M total token/total available gold in troy oz (6,703,960) The limitations are that not all 21M token are accessable (lost the wallet private keys), and most gold does not 'trade' in the market 1 Bitcoin (gold equivalent) = 3.132 troy oz (6,703,960/21,000,000) = 3.132 x 1,222 gold price = USD 6,647 1 Biticoin (market price) = USD 4,701 More realistic estimates of 'tradeable' gold, would be (1) aggregate quantity on offer in open derivative positions, and (2) aggregate quantity of bullion in various vaults. If 50% of the 6.703,960 troy oz typically does not trade, the Bitcoin (gold equivalent) is maybe USD 3,323. SD

As at 10am (EST), the spot price of an oz of gold is USD 1,222. A Bitcoin sells for USD 4,701. If a buyer believes that Bitcoin is a substitute for gold, is it really rationale to pay today - 3.85x (4701/1222) the price of an oz of gold for it?. If most folks would think 'no', wouldn't you expect the price to fall further? https://www.kitco.com/gold-price-today-usa/ https://coinmarketcap.com/currencies/bitcoin/ If cryptocurrency as an asset class, were to rise in value, what would it require? We would suggest that until the regulatory space catches-up, and implements pro-active policy, it doesn't look good. Then look at what higher education is teaching in those cryptoclasses. Most of it is to 4th year and MBA students, very basic, and culminates around the ICO. Todays students may well become a significant chunk of future demand, but they are unlikely to have any significant impact for a good while yet. Hence, one has to ask if an investment today, is perhaps too early for this party? The answer should depend on the purpose of that investment. SD

Agreed a swing trade isn't for everyone. Just keep in mind that if you only repurchase the quantity you sold, the $ difference is a partial return of your capital outlay. You can benefit through either (1) having more shares for the same outlay, or (2) the same number of shares for less outlay. When our focus is on capital recovery we're almost exclusively (2), and only progressively shift to (1) as outlay declines to zero. For us this is risk management. Per full disclosure. Swing or not, should be based on systematic periodic assessment. If you want to keep the stock, is next quarter likely to be better than this quarter?, if no - sell up to 1/2 your position, and buy it back later. Make your decision, live by it, and no new capital outlay. We find that at best a swing trade will extract 20-30% of the potential value, and will go our way maybe 3 of every 5 times out. It is not sell on a double and you're done; it's a process, there will be a number of iterations, but persistence should eventually get you there. We voluntarily post as a courtesy to others, and where relevant, try to suggest 'higher level' practical solutions to identified issues. We are not publishing a text-book of 'how-to' examples, and we are not a substitute for due-diligence. We apologize if posters have interpreted our comments beyond that intended. Hence, the disclosure. SD

I solve this problem by never averaging down... This is very smart. I have wrestled with this a number of times. Nearly every time I have averaged down in the last few years I have gotten stung. Stock A looked real good at my buy in price, therefore, it must be better at a cheaper price. The problem arises when the position gets bigger and bigger, and keeps dropping in price. And then it drops way beyond any expectation I could have dreamt up. At this point I should buy more after all: "there is blood on the streets, we should buy at the point of maximum pessimism, If it was a good buy 50% higher then its a great buy now... etc." ... A case in point for me is Whitecap Resources (WCP-T). On this I have averaged down. It was all well in good when it was trading at 7.50 to 8.50 but it is now at 5.50 and I have too much in it. In order to right size the position I will end up selling a good chunk on the way back up when I hit break even. The position is just too large to carry for very long comfortably. I still believe that WCP is a great company but I dont want to hold the whole company. When I really crunch the numbers honestly the amount I will make on the way back up from averaging down will not be very much, IF there is a back up. By averaging down I have reduced my aggreagate purchase price from perhaps 8.50 to 7.20. Is it really worth it to get trapped in a position, for who knows how long, to make a spread of 1.30. I have concluded that it is not. For me position sizing is the most important thing now. Its a tricky thing to figure out but I try to do the best I can. Once I figure out the right size for a position it is best to stop and ignore it. Its hard and takes discipline... My experience with averaging down has been quite consistently satisfactory and I wonder why. From FFH AR 2011, experience with International Coal: As an example of our long term value investing approach and the need to be patient and calm through adverse market fluctuations, in the table below we show you the results of our purchase and sale of shares of International Coal. This is a company of which Wilbur Ross was Chairman and owned 16%. Our Sam Mitchell, who originated this purchase idea, joined the Board in 2008, after we had acquired 13.8% of the shares. -Purchases of International Coal Sales of International Coal Number of Shares (millions) Cost per Share Total Cost 2006 1.4 $4.58 6.4 2007 19.7 4.39 86.3 2008 9.1 1.81 16.5 2009 15.0 2.87 43.1 Total 45.2 $3.37 152.3 -Proceeds per Share Total Proceeds Number of Shares (millions) Cost per Share Total Cost 2010 22.6 $7.26 163.9 2011 22.6 14.60 329.6 Total 45.2 $10.93 493.5 Total realized gain: 341.2M The table shows how we averaged down from our initial cost of $4.58 per share to an average cost of $3.37 per share. We sold half our position at $7.26 per share (a 115% gain) and only five months later, there was a takeover offer for the whole company at double that price. In spite of not buying only at the low and not selling only at the high, we earned $341.2 million by selling at over three times our cost. Our experience with International Coal is exactly what we have done over 35 years of investing – average down when buying and average up when selling! An added advantage in this case – we got to know Wilbur and he is an excellent partner. Obviously the excerpt is a selection of a selection bias but I could put up similar tables for my gradual involvements in Fairfax, OdysseyRe and The Brick among others, including some cyclical stuff. Maybe it's just luck and I agree with others about checklists, slow thinking, writing down etc but I wonder if the factor you mention about position sizing may not be an important determinant ie deciding in advance about a potential maximum percentage of portfolio with quantitative triggers (price vs intrinsic value) on the way down and up, hopefully in that sequence. I think Newton did the opposite once with his South Seas investment but that's another story and maybe by quoting the difficulty of quantifying the madness of men, he was the father of behavioral finance. A clear potential disadvantage with this strategy is the implicit need to have available fire power and this perhaps ties in with what SharperDingaan is trying to explain in a different thread (house money etc). Take the above with a grain of salt as I seem to become more and more confused in today's markets. Cigarbutt, I generally like your posts: they are smart, and well thought out... you know a refutation is coming :-). Averaging down: works until it doesn't. Do yourself a favour and read the entire Pennwest post. There was thesis drift through the entire thing. Initially I got caught in it but realized that and got out with some loss. Maybe SharperDingaan has somehow managed to trade in and out and make money along the way. But read carefully what they write. It is often dishonest in how they define their results. They never come straight out and admit that they lost money on a situation. Maybe they never do... but there is no honest disclosure so how would I know. Using a Fairfax example to dispute this is all good unless you look at the situations where they have lost huge: Invested 500 million in Canwest weeks before it bankrupted and they lost everything. Blackberry, Torstar, SFK-Fibrek, Resolute, the market puts that cost hundreds of millions, or billions. Without their bond desk they would have been gone long ago. Invested (got lucky) in Sandridge because they liked the sleazeball in charge? If you want an exercise in studying cognitive biases you need only look at FFH and all the threads. The thesis drift in the threads is pervasive. For a long time it was about great investment results but crappy insurance underwriting, then it switches to great underwriting but lowsy investing. Prem wrote for years how they were targeting 20% annual returns, then dropped it to 15% which they have never come close to meeting. He wasn't going to give the company to his family but he has. Then there are the nasty tricks along the way to maintain control of the company. Investors on this board are blind to FFHs foibles. I made my decision to sell the stock in and around 2012 and never look back. I agree with you that Writser has created a great checklist. Mostly it involves writing down your thesis, initiating and starter position, and then sitting with it. I am endeavouring to work with the sit with it portion, for years if necessary. Cheers, Al Just for completeness. We have made money on PWE/OBE, but it hasn't been enough for the risk we've taken. It was also primarily made by repeatedly selling up to 1/2 the position at a higher price, and reinvesting the proceeds at a lower price. We averaged down our cost base, got a higher share count, and did not have to put up new outlay. On earlier occassions when we've spoken to the technique (hedging via a synthetic short) we've been criticised for it. We materially reduced our posting on OBE, because we know folks are hurting, and it's not helpful. A lot of Albertans are in very real danger of losing their livlihoods, I know some of them, and the coming change will very likely cost some of them their families. SD