valuecfa

That was Schiller, not Schilling. That was Shiller, not Schiller ;D

I don't know their AUM, but they seem to be betting the farm. Take a look at the size of the put option they have on the SPY. Yikes! That is half their non-cash equity portfolio. http://sec.gov/Archives/edgar/data/1327388/000139834410001467/fp0002250_13fhr.txt

The 13-G is for when you cross the 5% mark. The form 4 is for 10%. On the 13-G, shares reported as beneficially owned include shares issuable upon conversion of certain convertible securities (it seems, even though they are below conversion price). The form 4, i believe, just lists the plain old common. That appears to be the discrepancy. Correct me if i missed something.

13-G has them at 44 million shares. Form 4 has them at 15.4 million shares. Both filed the same day. :-\

I'm not sure how they pulled this one off, or if there is an error in the filings. Last 13-F showed only 3.9 million shares. Last Form 4 shows 15.4 million shares. The one form 4 filed recently noted 2 transactions for 1.2 million shares. Pretty big gap there.

prices paid: http://sec.gov/Archives/edgar/data/915191/000120919110054282/xslF345X03/c08266_4x0.xml

Hello Tom. Welcome to the board. There are many different ways of finding value in companies, as you likely know being a near graduate. I would personally relax some of those assumptions you mentioned and find what investing style makes sense to you, and not necessarily what someone else recommends, no matter how popular the book. If the share price of your company declines by a significant amount, it is only then that you will feel comfortable in the analysis, when based on your own analysis and investing style. There are many talented investors that have drastically different styles for making out-sized returns. You mention authors Greenblatt and Pabrai as recent book purchases. Their books are very simple to read that I found very enjoyable, and very much suit my usual stlye of investing. In fact, 2 of the 5 books i gave my nephew when he graduated from college were The Little Book that Beats the Market and Dhando Investor. I would not strictly follow any rules or checklists that any particular book recommends, but find what makes sense to you based on your own growing knowledge base, and adapt your own valuation factors when choosing an investment. You found a good board to learn from here that has many individuals with different styles. The quality of discussion is usually higher than the majority of other investment forums that i have come across. Hopefully it stays that way as its membership grows, though that is usually not the case. There are a few particular persons here that i really enjoy reading and sharing ideas with. Cheers.

I was talking to a an industry guy the other day who suggested to me a simple idea for the current economic situation that could help, and which was streamlined at the real problem, unemployment. He suggested giving employers a tax credit of a certain amount (say $5,000) per employee they hire. He said if he knew he would get $5,000 back per person, he would hire more people, and i think many other businesses would as well. If you are going to dole out money any way it seems to me that it should go towards a remedy that addresses the unemployment issue. Putting people back to work is what the government needs to do, and this simple solution seems like a great idea. It would give incentives for businesses to rehire, which would help out the individual business as well as the employee, as well as the overall economy.

Let's not forget that there is a difference between saying that the market is undervalued, saying that the economy will not go into a double-dip, and predicting where the market will be in the short term. Buffet was dead right when he said to buy in October 2008. He wasn't timing the market, though. He was saying that based on what he was seeing, the entire market was undervalued, a call he rarely makes. I hope he is right about the economy. It is just as presumptuous to suggest the economy will not correct in the near term, as it is to suggest the market will not correct. No one can predict this, though one can make an educated guess, and i'd say Buffett has earned his reputation on educated guesses, based on sound principles. It is one thing to say that he is not currently seeing a double dip in the economy, it is far another to suggest that we won't have one. If the market falls 20% (not saying it will) for a period of time, then the economy will contract for a period to reflect that, in job layoffs, corporate hesitancy, and consumer restraint to spend. The market does follow the economy to a certain degree, however the economy also follows the market to a certain degree. I think it is highly unlikely we will ever see the 666 market lows again in our lifetime, or see the economy contract as far as it did in the recent past, but i don't necessarily think that we can't see unemployment jump a few more percent, or see GDP contract further, or see housing prices fall a bit further, or see a whiff of deflation over the short term. Of course to say that i know any of these things will happen is foolish. Over the long term it is a safe bet (IMO) to be bullish on America and the US markets, but to suggest that i know (or anyone else knows for that matter) that the market will do this or the economy will do that over the next short period of time is silly. If one is inferring that Buffett is suggesting the economy (or market) won't dip again from this point, then i disagree on that not being possible. If one is inferring that the economy (or market) won't dip to the same extent in the near future, i would agree, though I wouldn't entirely rule out the possibility. If one infers from this that the economy is very likely to be in much better shape in several years, then i would agree. I always have to roll my eyes when someone suggests that they know for fact that something will or will not happen in the near future. Which is why i am surprised to hear Buffett appear so definitive (since he usually chooses his words fairly carefully), unless his intention is to simply imply the economy will improve from its current standing over the long term, which is what i think he is probably saying.

I don't know if he was misquoted or not, as is often the case. However, Buffett has no idea if the market will double dip or not. Nobody does. He has often in the past stated himself that he never has any idea what the market will do in the next month or 12 months. This is a very presumptuous statement to say now, regardless of how the Berkshire subs, etc. are doing. Recall that Buffett wrote his famous NYT op-ed titled, "Buy American, I Am" back in October 2008. And we all know what happened next...One of the greatest market free falls all the way through March 09. The market fell through the floor, all the way to the infamous 666 on the S&P. Now to be fair, the market is currently higher than when he made his previous call, yet it fell precipitously shortly after he wrote the op-ed. While Buffett is the best, he can't predict where the market will be over the next few months, be it 20% higher or lower.

What did you buy at? I don't think it is done running yet, should be higher. It was at 23 pre-SEC pre-flash crash, and credit spreads have narrowed since then and the SEC issues are behind them. I can't remember the purchase price, but i think i purchased the day after you mentioned it. I've still got it, for income, and possibly a bit more appreciation. If i recall the capital gain is somewhere close to 20%, plus interest. It was, and still is, one of my largest fixed income positions.

is watsa_is_a_randian_hero really that confusing with watsa? Super confusing. You had me going there. :D I dont think its that hard for people to copy the full name when referring to me - or do something like hero - i've seen that. I think i'll go with randian. lol. By the way, that Goldman pref worked out pretty nicely.

I am a traveling fool. That is my big vice and hobby. Member of the million miler club, but am a train fanatic too. Used to be a hardcore backpacker back in my younger days, traveling for months on end. About to soon embark on another 43 day trip to Asia with an old friend who has a phd in finance and used to work for Goldman, but believe it or not he is a technical trader (he loves the currencies too). Will make for interesting conversation on long transit journeys. I love to experience new cultures. I am a big foodie too, but not that great a cook. Enjoy golf, but am terrible at it. Enjoy fishing, but haven't been in a long time. I run 3 miles a day. I am a movie fanatic. Like to watch Jersey Shore (i can't help it). Perhaps even more fun than traveling is hanging out with my 2 nieces, that bring me incredible joy. I don't get into sports as much as i used to, except for the rare pickup game in basketball or tennis with a few ex co-workers. Other than that, i tend to only read books nowadays that are travel or finance related. Like to keep up with current events in the financial media. Like to pour over the Q's and K's. I manage a friend and family account on the side with about $4-5million in AUM. I was recently laid off as an investment analyst at a middle bracket firm, covering the REITS. Have also held brief positions as a banker, and a corporate trust officer. Former half-owner of a small gym/tanning salon, which failed miserably when a massive gym opened up nearby. Might soon be a new part owner of a small spa and/or pharmacy in Lima, Peru with my best friend and his Peruvian wife (so might have another little side business to keep me busy, still looking into it). I like to read the investment related message boards, but find very few that are worth my time.

I think there is hardly blood in the streets. And this comes from someone who was recently laid off. They were painted red back in March 09, but not now after a massive rally since that time. The tail risk of credit seizure, money markets, derivatives, etc. have largely gone away thanks to intervention. The risk to the market now is a valuation adjustment. Stocks are trading at a premium to historical levels, on a 10 year average basis. I don't think that premium is justified given the levels of uncertainty in the markets regarding low growth, and deflationary pressure over the near term. I think valuations are likely to revert to a lower multiple to adjust for the period we are in. This may not happen soon as markets are, of course, not efficient. If you think that the market deserves a 15 multiple than the market is slightly over valued. If you think it deserves closer to a 10 or 12 multiple given the environment, then it is richly valued. If you think growth we be relatively higher than everyone is forecasting, then it is fairly valued. I find it hard to argue that they are however cheap. We see headlines now that say, same store sales are up 30%, earning up 45%, etc... but people forget that they are comparing results to one of the worst economic years in history. Of course earnings are higher! It took a great deal of fear (myself included) for the markets to correct to the depths of the March lows. If you weren't terrified you didn't know what was going on. I don't see that happening again. I feel confident that we will not see those lows again. I think the next fear (or catalyst for a correction) will be valuations, which i perceive to be on the slightly rich side. There are other external shock possibilities in European bank debt, and China which is an overheating monster, but i think if there is tail risk to the system that those respective governments will intervene if necessary, which of course will remove a large drop in the markets, yet also has the effect of prolonging the recession. Personally, i would likely cover all hedges on approx. a 15% drop from current levels. As the markets creep lower i would slowly remove hedges, and not necessarily time the exact bottom. There are still some reasonable valuations out there in individual companies, but as a whole i think the market is still a bit rich, and not properly reflective of the economic environment.

But you can't get chewing gum there. :) I can't remember the last time i chewed gum anyway...Actually, my little mini-vacation to Hong Kong has turned into a big 2 month vacation touring most all of SE asia, along with Hong Kong, and Macau with an old college buddy. I now have the free time, so i might as well make the most of it! If i like the Singapore, who knows!? We are trying to arrange flights around mid September (right in the thick of monsoon season).

Packer16, since Supermedia recently emerged via chapter 11, they adopted fresh start accounting, which makes year over year comparisons irrelevant, and complicating the accounting a bit over the near term.

I appreciate the positive comments. I do think it is for the best since I have wanted to move for awhile, and this must be the kick in the butt I needed. Barclays, BAC, and CS just announced a round of layoffs too, so at least i have some company. :-\ I love the company i have worked at since i pretty much could work my own schedule, with no micro-managing whatsoever, yet the city was so boring and uneventful. I needed a change of environment.

I can't believe it. I just got "let go." :'( This sucks, but honestly it is kind of liberating as i have wanted to move for some time. This is the first time i have ever lost a job. One of the things i really hate about this industry is how fickle job security can be, even if you have been with the firm for a number of years, and done well by the firm. Oh well, c'est la vie. Next chapter. I have been looking for a change of scenery anyway. I'm gonna go to Hong Kong to get some new suits made for upcoming interviews and to cheer me up, while taking a mini-vacation thanks to some frequent flier miles, and then off to job hunting. I've been looking at a map all day today, trying to decide where i would like to live that has decent sell-side analyst opportunities. I'm willing to wait a while to move to a place that has a good quality of life and reasonable cost of living (vs an immediate job opportunity in a location i won't like and better salary/position). I was curious if anyone on this board happens to live near the St. Petersburg, Fl area or has ever visited there. I would love to live near the beach, and it sounds like an interesting place to live. Raymond James has their HQ there and i have a friend there that thinks i could get a position there fairly easily, but perhaps covering a different industry. I'm thinking it might be ideal location for me, when an opportunity pops up. Has anyone ever visited the area that has any opinions on it? Vancouver has also always struck me as a fine place to live, and would be in my top 2 or 3 choices. I fell in love with that area a few years back, but have only spent 2 days in the city. I know there are a few Canadians on this board. Do you like living in the Vancouver area? Those are my top 2 locations as of right now.

T-bone pretty much summed it up. I spoke to 2 BB analysts today covering the company, and they are both pretty bullish on valuation, yet cautious on long term nat gas prices and SD's leverage. Costs were a little higher in the Q than expected. Both commented that costs were higher this Q than modeled. They couldn't reveal too much till they updated their reports, so i'll give them a call back if they write anything worthwhile, I'm not aware of. IMO, the oil production switch is a no brainer. It's more profitable. With nat gas prices so low and the hedges off, there is quite a bit of optionality based on future nat gas prices, that can quickly swing the reserve value, once they switch back production to nat gas. The ceiling impairment of the past few years has really hit the company hard (and is based entirely on lower nat gas prices). This caused their equity value to turn negative, wiping out a couple billion with the stroke of a pen. Century plant expected to ramp up in 4-8 weeks too. Their plan is just to keep making high roc oil production until natty prices steadily come back up, and then move more rigs over when they do. The option to switch from nat gas to oil at their choosing is quite an underrated benefit.

An interesting development in the highly debated shale fracking topic: http://www.bloomberg.com/news/2010-08-04/new-york-s-senate-approves-drilling-moratorium-on-natural-gas-from-shale.html

Canadian GAAP is converting to IFRS in 2011. As of now, with Canadian GAAP, goodwill is tested for impairment and not amortized. IFRS also tests for impairment and does not amortize each year. There is not really much difference. There are only small tweaks not really worth getting into in where the two differ, in how the impairment steps take place. But basically, CICA 3064 is converging with IAS 36 & 38. This is for Canadian companies. I have never had the need to learn the current tax characteristics of Canadian Income Trusts in their current form (just regular Canadian companies), so i have never bothered to study CA income trusts under CA GAAP, let alone under IRFS. So their may be some differences with respect specifically to CA income trusts, which i'd be happy to look up at a later date for you. Over here in the US (using US GAAP), goodwill (and certain other intangible assets) are also impaired, according to the rules in SFAS 142. It's now annually tested for impairment in a 2 step process. Where, basically, the company just estimates the fair value of each reporting unit to which goodwill is attributed and compares that estimated fair value with the carrying amount of the reported unit. Any excess of the carrying amount over the estimated fair value must be recognized as an impairment loss up to the amount of the goodwill. This rule became effective around 2002. There is no tax effect, or any real cash effect. It is really a non-event. The only effect is that it will dramatically effect reported earnings in the year of impairment, as the impairment decreases net income dramatically in a given year. Moving forward though, this impairment "clears the books", and the company will report higher earnings than it would if they were still amortizing, and higher ROA, ROE, P/E because of the switch from amortization to impairment. It's just your typical "Big Bath" accounting. Some intangibles are still amortized annually. Amortization of intangible assets may be based on useful lives as defined by law (e.g. patents) or regulation, or such assets may be depreciated over teh period during which the firm expects to receive benefits from them, like computer software. Companies can use either straight-line or units of production methods.

I agree there is nothing wrong with holding larger cash positions if you see some broad risks. If you hold 50% cash and 50% equities, it will certainly reduce your risk exposure vis a vis a larger equity exposure. However, it is not a true hedge of market risk as you would only lose 50% less than the other fully invested individual that holds a similar basket of securities in full. Relative performance is not really my goal. If i want to hedge against a market decline, i just short the market (take it out of the equation), while holding my basket of undervalued securities. I prefer not to use derivatives like puts, futures, swaps, or commodity hedges. Me and myself have debated the cash vs hedge proposition in the past. I rarely if ever use hedges, but there are times i think it is appropriate. Whereas it makes sense to scale the extent of the hedge relative to your perceived market valuation gap and relative to the environment, while adjusting it as the gap narrows. It all depends on your risk tolerance, forward looking views, and market weights at the time. Fairfax decided to hedge ~90% of their equities exposure. Whereas the majority of other companies (in insurance or other industries) if they had similar draconian views of the market, would likely just reduce their equity exposure to a certain extent by selling a large portion of their basket of undervalued securities, or just open a net short position. Of course, the rub is if you are wrong and the markets continue their upward path. Holding 50% cash instead of hedging would likely provide larger returns. However if you are right and the markets head south (which is what you are actually forecasting) than the opposite would be true, and you would be better off with the hedge. In these circumstances, it seems to me to make sense to hedge your portfolio, instead of raising cash and holding equities under such a draconian view. As, you are better off if the market goes lower when hedging (which is what you think is the most likely scenario), vs holding cash (and being better off only if the market goes higher, which is what you think is not as likely a scenario). If i see risks to be minimal then I would prefer to raise a bit of cash as opposed to hedging to any significant extent. If my views become more draconian, than i would choose to hedge a portion of the portfolio, to an extent that is in proportion to the risks in the market and the size of my equity portfolio. If I see few undervalued securities, i would likely hold a relatively small basket of equities and not hold any hedges. If i see few undervalued securities combined with large overvaluations or large market risks, then i would likely hold a relatively small basket of securities and hedge that basket. I need to get back to work. :-\ This board can be distracting at times.

Buy cheap, sell dear...bullish and bearish sentiments be damned! Cheers! Well, as we learned in March of 09'. When deflation, or the perception of large deflation, seemed likely all risk assets correlated to 1 (even the cheap ones), even less risky corporate bonds. Even cheap companies (low p/b, p/e) performed very poor in the US and Japan during their respective depressions (if they survived at all), and there was no opportunity to sell dear while the markets fell over 50%. Survival was the game, and leverage was the enemy. While I definitely echo your comments on Fairfax's situation with their leverage and necessity to maintain good ratings for policy writings, it may not be such a bad thing to give a large amount of thought to some of the macro factors in play. Personally, i don't think we will see large deflation. Only, minor deflation (or nil inflation) over the near term, but given current market valuation with that forecast in mind, i have appropriate macro hedges to balance the individual equities positions i have. When i do any type of macro forecasting or investing (top-down analysis) it is strictly for capital preservation and not capital appreciation, so i would not structure any portfolio in such a way that if your macro forecasts, or market valuation perceptions turn out wrong that you would loose a fair amount of money.

93% hedged is interesting. I thought i was bearish. It is a bit surprising to see nearly the entire equity port hedged and current values. I would have thought they would be at perhaps 70-85% hedged. I peg the S&P only about 10-12% overvalued (I'm curious what their perception of the market overvaluation is). They must see a bit more turbulence in the markets in the near term.

There are many red flags at this company. At least there were a few years ago and i doubt anything has changed there.