SharperDingaan

The reality is that good engineers only get to do engineering for a very short time. You very quickly end up managing other engineers, or managing engineering projects, for which you have zero training; hence the PEng->MBA migration. Do well, & those business skills combine to produce very strong hands-on owners, who grow their businesses from the ground up. Linear process, but investment knowledge is just a by-product picked up along the way. To know the investment side you really had to have worked in the investment industry, got your CFA along with your PEng & MBA, & then moved back to engineering. You aren't going back as a project manager, your intent is to buy out retiring partners, & your aim is to expand an allready established but limited business. Your Wall-Street/Bay Street time was purely to teach you the skills & funding techniques by which to do it. Zero interest in PM management. Very different engineering game. Most investors will never see this 2nd group of engineers as almost always they will work for private firms. They only become visible when their firm IPO's & then only untill they get bought out by somebody bigger & the interim emloyment contract runs out. Then it is rinse & repeat. SD

Started life as a petroleum engineer, opening up the arctic during the Dome Petroleum days. Then the bottom fell out of the petroleum market, & we all became masters at applying Albertas depression error laws - & using sheriff sales to flip our houses to our neighbour for $1, & screw the bank. Agreed the appeal of hard numbers & higher order math has its attractions - especially arouund derivatives, but it is the geologists & resource industry engineers handling risk every day - that have the real advantage. To us, rocks covered in dirt all look the same; but show us a seismic - & we can make it dance. Circles of competence. The downside of engineering is insistance upon elegance; every bridge has to be a masterpiece in elegance, form, & function - & testimony to future generations. Russian & Chinese bridges usually have no such pretensions, & the uglier they are - the longer they usually last. That ability to conceive, & build, over such a wide range is extremely valuable. SD

..... hence the Jockey brand !!!! SD

Entitlement only prevails because shareholders permit it, & it is cheaper than more frequent C-suite replacement. The more ruthless firms typically have their top 6 execs on staggered 18-24 month contracts with everything spelled out. Change the brass like the underwear they actually are, every 3-4 strat plan update cycles. Pay very well for the time they are there, grant no share options, & have no hesitation in cutting throats. Call all bluffs. It means the share price is more volatile, but that is why there are option markets. There will always be a mercenary & ruthless bastard at the top, & shareholders have darwinism working for them to ensure that he/she does not overstay their welcome. Get rich by delivering the promised result, & keep it by disabling your competitors from stealing it. Notable is that the approach is also a favourite of many of the worlds leading criminal organizations; where competition is often more intense, brutal, & gaming is everyday business practice. They have the same business problem. Shareholders can be bastards too ;) SD

Lot simpler than you would think ... - Prospects for significant dilution/BK 6 mo out? If not good - sell. - What is your EMV for XYZ coy 6 mo out? P(x) x Price(Optimistic) + P(y) x Price(Realistic) + P(z) x Price (Pessimistic) - Higher than price today? Dont hedge - Lower than price today? If there is a compelling reason to stay - 50% hedge; if not - sell & move on. Just keep in mind that you are taking the long view, & coining it by market making against crowd sentiment & investment horizon. As long as the underlying doesn't BK (ie: buy quality) you should essentially steam-roll to a successfull result. Not textbook, & not what your advisor wants you to practice ... SD

We see ‘value’ primarily as a function of marketability, sentiment, & liquidity; other than as a basic screen, CF generation is pretty far down the list. Very little of this, is something that XYZ coy actually controls. We see the cost as what we paid, less any capital recovery to date. MOS may also not be readily extractable. The small, private, partnership of professionals with a dominant share in a great niche business – that trades at a 40% liquidity discount; if/when a buyer can be found. Extraction is by working for the business & taking annual dividends, not trading. MOS is not static. To reduce your cost base you must replace the market maker during liquidity events. But to work for you, you also had to initiate your position at/near the bottom of the business cycle. If value & cost base are both falling simultaneously - there may be little difference. Corrosive risk measurement. Buy 10,000 XYZ for $1; sell 5,000 XYZ for $2 to recover the 10K investment, & retain 5,000 XYZ worth 10K. MOS remains 10K, but how you view it - is now radically different; ROI is no longer 100% - it is infinity. Realized MOS, is expressed as a rising fixed income position - if capital recovery is reinvested in risk free treasuries. That initial 10K in 100% XYZ risk , becomes 10K in 50% XYZ risk (10K XYZ value + 10K in treasuries) ….. or close to ZERO risk if you hold & compound over an extended period (Coca-Cola) Commit that pool of treasures to a limited liability insurance UW group - & you have a Berkshire or FFH. SD

We hedge extensively, & pretty much the same way as LC. Sale & repurchase of up to 50% of a holding has the advantage of capturing both downside, & downside estimation error (more valuable), & doesn't expose you to the risks of shorting. Reinvesting the proceeds in high quality corporate bonds also gives you liquidity, CF, & a 'flight to safety' gain on exit - to offset portfolio drag. The cost is 4 commissions + possible loss on share repurchase - interest earned/saved(debt repayment) - flight gain on bonds. The benefit is the loss avoidance + possible short gain on share repurchase. Almost always, this is higher than the premium you might have earned had you sold calls instead. The major advantages are no requirement for an option market, & commission as a % of total transaction value rapidly declining as transaction size increases. Were we institutional we would overlay a short benchmark equity index & long bond index. SD

If you are relying on a DCF model, you are trying to substitute #'s for experience & confidence. Walk away. Intuitive means you think first. #'s just confirm/refute if it makes sense, & you're in the right place. If you cant explain how/why the investment should work, in < 5 short paragraphs; walk away. SD

swq.es/.../Letters%20of%20a%20Businessman%20to%20his%20Son.pdf

We would also suggest Porter: Competitive Strategy .... already proposed by somebody G. Kingsley-Ward: Letters of a businessman to his son. Letters of a businessman to his daughter. SD

These will only appeal to engineers, but are well worth the time... Avinash Dixit, Barry Nalebuff: Game Theory. Taleb: The Black Swan, Anti-Fragile SD

Assume a bonus paid in stock vesting over 5 yrs. When the stock is granted the firm will Db B/S liability & Cr owners equity at the days value, to record existence of the liability. 1 year later the firm will Db P&L expense & Cr B/S liability, to record that 20% of the bonus has now been earned. If you are no longer at the firm, the firm will Db owners equity, & Cr the B/S liability to remove it. Investors adjust earnings by charging the entire unearned B/S liability to earnings, & dividing by the stated FD share count which already includes the total number of shares that the Bonus entails. Buffet approach. Lower EPS. If the bonus is paid in phantom shares (common practice) the B/S liability will not be set-up & the firm will just pay out the vested share value at that point in time; Db retained earnings, Cr comp expense. This is no set-up because it is not possible to adequately quantify the expense, but there may be a disclosure note. Investors adjust the expense by the total value of the bonus, & increase FD share count. Lower EPS. Good analysts will routinely adjust for these; the poorer ones - not so much. SD

In simple terms you are looking at a note explaining the deferred tax on the BS, which is the cumulative income difference since day-1 between the P&L and the tax book, times the tax rate. The firm pays people to ensure that the tax rate, and taxable income is as low as possible, & the consequent deferred tax as high as possible. A good result is a tax bill lower than that of a secretary. The balance itself is an interest free loan from the taxman. It does have to be repaid, but in the meantime the deferred liability is recorded as the asset that it actually is. In most cases if the firm BKs tomorrow, the loan comes due immediately, & the tax bill will rank ahead of most trade payables. It is a good place to go shopping ... but if you don't know IFRS & tax accounting, you will hurt yourself far more than you will benefit. Manipulation of timing differences & transfer pricing is everyday fare. SD

ALS!

IFRS-US GAAP conversion is voluntary as of Jan 01 2015. Voluntary has different meaning in different sectors. BIS capital requirements drive off IFRS, not US GAAP, so that everyone speaks the same financial language. BIS itself sets the global rules for banks, but has no force of law - each sovereign takes the BIS requirements & codifies it into its own legal structure. If you claim to be a global bank you have to be using IFRS, or suffer wanna-be ridicule. Hence, every major global US bank will cut over Jan 01; because if they don't convert - & their competitors do, they will have just proved that they actually are a wanna-be - & 2nd rate at best. IFRS is more stringent on valuation. Many US GAAP asset valuation practices do not qualify under IFRS, & the valuation differences (write-offs) will be transitioned over 5-10 years (10-20% write-off/yr) for regulatory capital determination purposes. If you have more of this junk than your peers (BAC), or there is an expectation that you will be slower to convert than your peers, you will be penalized. SD

This is a very broad area, & the accounting in some sectors (banks, o/g, mining) is unique & extremely specific. IFRS - not US GAAP, is the global standard; & has been in place in many countries for many years. Reviewing US GAAP case studies is also not very useful as US GAAP switches over to IFRS next year - you would be making decisions based on obsolete understanding. Focus on just your sector of interest. SD

Systematically spend some time outside the gilded gate. Once/month in a soup-kitchen, secret-santa, etc. Once every few years; a few weeks in a 3rd world country, touring around in the back of a truck. Laugh at yourself, & often. Nothing cures arrogance faster than friends in low places, or darwinism; but you have to expose yourself. Be an a-hole & you will get spat in the face - because you should know better. Throw your weight around when it isn't warranted, & you WILL sleep a little earlier than intended. You are being taught humanity, & by experts in the subject. You cannot fully appreciate what you have untill you see what disease, maiming, & poverty can do; smell it, hear it, & see it first hand. Then in all of that, some kid will come running past you, completely content! Suddenly - you're not so special. Notice how that colourfull 5% always seem to have a wicked sense of humour? Of course, the trick is to not be in that 2-3% where the crazy's are - Larry, Curly, & Moe! Not for everyone, but hard to ignore. SD

Usdtor: You might want to look at this a different way. LT economics dictate that you upgrade on-site. The plants to do it are incredibly expensive to build, but once built .. inflation, increased throughput, & technology upgrades consistently give them year-over-year cost & market advantages. They are core utilities, provincially backstopped, allow development that could not otherwise take place, & should be viewed as utilities. There are not many, & they are well known. Dilbit. Takes up a lot of space & exists solely to transport heavy crude via pipeline - so long as the pipelines have spare capacity. Restrict pipeline space, or significantly raise the price of dilbit - & dilbit use gets priced out of the stream; shutting in those heavy crude producers reliant upon it. Costs are materially reduced if you can recycle that dilbit. A simple google search will tell you who the vulnerable are. Rail. Outbound dilbit goes by pipeline, inbound dilbit arrives by railcar, outbound railcars return full of crude. Returning railcars substitute for the space that dilbit occupies in the pipeline. Rail carriers are a very short list. Lots of ways to invest. Good luck. SD

This is a long term game, & this is not the right company. SD

To us - it looks like they are just shifting portfolio allocation from Bank of Ireland, to NBG, for no net change. Higher potential return, lower net risk, & a bump in the Sharp Ratio. Were they adding/removing $ from the table, we would have a different view. They are also buying NBG for just .30 Euro/share. At todays price, NBG would have to fall 90%+ in a mother of all collapses - & even HW is not that pessimistic SD

"This is what puzzles me - and sorry I am not as up to date on all the stuff Prem has said -- on the one hand he sees deflation in europe, china, and a recession for 10 years....... and on the other hand he pumps in $500M into a Greek Bank & also a few years ago in Bank of Ireland.... " Look a little closer. We would put it to you that they have a repo on part of their Bank of Ireland position, which has released some of their gain as cash, & raised their cost base. That cash gain is what is being reinvested in NBG, & hence their original $ investment remains largely the same as it was. They are doing a bar-bell with Bank of Ireland & NBG; & lowering the cost base of their NBG. Most would anticipate that NBG will fall further in the coming weeks as the extent of the dilution becomes fully recognized, & they take write-downs reducing their capital ratio. We would also expect a systemic quarterly recapitalization to maintain the capital ratio, via a SAN type cash/scrip dividend, starting sometime later in the year. NBG is never going to be a Royal Bank (comparable capital ratios), but it is a lot cheaper, not as risky as it was .... & not in NA. Hard to knock from a diversification POV. SD

It will take you about a year to decide on what you are comfortable with. Bring your ideas .... & don't be afraid of looking stupid. Everybody puts their pants on, one leg at a time. Good luck! SD

Just keep in mind that the World Cup is over July 13, & the build-up has been a big stabilizer in Brazil. When it is over, a temporary slowdown is pretty much a given; & when Brazil is one of the major BRICs there will knock-on effects. Add in Ukraine/European Gas supply instability, & amplification would seem to be on the cards as well. http://www.telegraph.co.uk/finance/alex/?cartoon=10753488&cc=10735525 Most would argue that it is pretty hard to see how Q4 will be better than Q2. SD

Keep in mind that you don't have to borrow shares to short. You could just sell some of your existing long position & buy it back later; hedging is just shorting with another name & technique. SD

The message to take from this is that you first need a hedge, your debts paid; & then the balls to do your own thing. Accounting, Audit, Finance are just hedges; temporary jobs until you get back on your feet again. Preferably contract, & using outsourcing as a part of your business model. You are with XYZ coy only because it is more rewarding than what you can currently do on your own. For most folks maybe 2-3 years, & then it is just a part to some other plan. As with anything, hedges have a cost. Time, tuition, & the experience necessary to get the sheepskin; but thereafter that is pretty much it (baring P&I on any school debt). As long as corporates expand/contract, or screw-up, fairly regularly; there will always be a temporary opportunity for you. You might even get some travel out of it as well. Long-term, you really need to own the business that you work in, and you need to work with partners/associates to spread the various business specific risks. With todays corporate structures, & government funding available to start-ups/small business, there is little to lose. Value investing just adds another few arrows to your sheath. Once you know how to value something, & exploit public company seasonal & cyclical changes, you are well on your way. You also become very valuable to the corporates that you are trying to escape, improving the return on your hedge ;) Good luck to you. SD