calonego

nodnub - I just got off the TransSiberian! Spent a little over 2 weeks touring (and visiting companies) in UlaanBaatar, Beijing and Shanghai. smw397 - Is the surf and food that good that far up in NorCal??? (your email address gave away your location...) I've been through most of Cali and am always impressed by the agriculture, etc. What do you think holds for the future of the state WRT to budget issues, etc?

Sanjeev, Will somewhere like the Royal York do a room with a meal for 50-75 people on a per person rate? Like $40 each for dinner (simple, but with a couple pre-order options), but no added cost for "renting the room". So you just charge us for the meal (the rental is built in) and anyone that doesn't want to eat/pay just comes later for the cash bar and potential Q&A session (like others have mentioned). I always have a ton of fun that night... Not sure if I count in the 1st year number, or if I count for 0.5, 1, 1.5 or 2 of the 9 people! ; ) I recently tied the knot with my very accommodating partner from that evening...

The PR with the 29%/yr record stuff with the "*" is the best part... "* excluding other public investments." or something to that regard... Regards, Superman* (* excludes my lack of superhuman strength/flight/ability to save the world)

ERICOPOLY, Didn't Warren give Bill a Carnegie biography a few months into meeting him ('92 or '93?). I recall that gesture taking place only a year or so before the founding of the Bill and Melinda Gates Foundation.

Do you think he knows how to get a 10k or 10q? "call the company" is a horribly inefficient way to get a K or Q... I do it once in a while to see their glossies, if they do that... or for really old stuff. But it's a pain. Just go to SEC.gov yourself, takes 5min per company...

http://www.insurancejournal.com/news/national/2010/06/01/110319.htm

http://www.insurancejournal.com/news/national/2010/06/01/110319.htm

Myth, There just seems to be a much better supply/demand relationship in deep water drilling (there aren't any rigs). RIG has a ton of these, the others don't seem to. I have to look at them all again though (for the valuations), things are changing so fast - RIG has some liability, maybe, but it doesn't seem like much to me. They seem to have merely leased the unit to BP, with a crew, but no one calling the shots. And it sounds like the BP guys were pushing the RIG operators to do things that they weren't in agreement on. But I can't cite where I got that from, forget. What's odd is that the CEO mentioned that exact rig and job for BP in the annual as something that was highly technical and difficult...

Guys - I was thinking about bonds vs stocks with a colleague. He's trying to think of it from the perspective of a widow, say with a 50:50 usual equity:bond split. There are some good companies with attractive earnings yields and dividends, so the divi brings the duration down abit, makes everything a little more bond like. For taxes the divi is better here in Canada too. Volatility is up, but if it costs about 3%/yr to buy slightly out-of-the-money puts, would you attempt to do the stocks vs bonds arb by selling the govies and corporates, plowing it into conservative, well-run, undervalued companies, and paying maybe 1.5%/yr to hedge half that portfolio, or the portion that is no longer in bonds???

TWA - I went over his recent 13d's and g's... from my guesstimate, 25% of his capital is in these nano-caps. You can't say he made 50%/yr or more by pumping micro-caps... And there were sales in there, go to the SEC and see the sales mixed into the 13d's (DAC Tech, International Absorbents, etc). It's not a fair conclusion to reach, that someone cheated, just because they did well. He had a fair number of securities at any one time... I remember his owning NICK coming out of that '02 period, IBA back when I owned it as well (was at 2 or 3x E). All kinds of smart stuff. Different companies that held massively undervalued inventories and real estate. He also knows and understands accounting better than 95% of the people I know in this business... far better than most CPAs. Most of his holdings are a little different and don't follow under the "value" model of say Francis Chou or Wally Weitz... it's just different. And his wording is a little off - if I were a buyer of RIG last week at $53, hoping to sell it for $70-90, would you call that a trade? and me a trader? He does for some reason... (the basis of the valuation of RIG is grounded on fundamentals, replacement costs, where most of the profit is generated (non-GoM ultra-deep)). I'm in this field to make money and understand businesses - this isn't a religion. You need to be a little agnostic and judge something based on what it is, rather than what it appears like on the surface or the language used (look at the language of the "Hamburglar"... his holdings were mainly trading around BRK over the years...) People enjoy reading about an Australian safari and currency fluctuations more than they do about the competitive advantages IBA has over Mississippi chicken companies... or the fact that RIG looses employees every year (this one was worse obv), but that most of their rigs are very mobile and already located in non-US waters... plus PBR is close and doesn't give a shit about what Obama thinks - they drill deep! I'm tired of defending him, he shouldn't need to be defended. Just check back in 10yrs, I'm sure he'll have done well. And for anyone that likes his writing style, I'm sure there'll be some gems in his blog over time...

I've seen audited numbers. TWA - let me go over the filings and figure out what portion of their capital was in those microcaps (won't be hard to do), I dont think it's that much though. I'm pretty sure he still has an international fund, there seems to be some errors in reporting and information out there. He did get some crazy redemptions in '08 though.

biaggio, If you find something at 30-40% of IV, a double or triple should make you happy in the common... If you start doing these complicated things and leveraging up, you have to babysit your holdings incase there is a problem and you could miss the return due to a dividend/cap structure change or timing. And even then, an intraday blip like on May 6th could wipe you out on a very bad margin call. Getting a little leverage on a good idea by augmenting your common with some cheap calls is low risk... ericopoly, if the writer of the put is wrong on the valuation of the security and something happens with the market or their portfolio, it could end poorly. But your premise was that the individual just had to use leverage... the problems with this strategy are due to the leverage, rather than the actual put selling.

Best return on the Planet - may have been a little much... He had the best return I had heard of, from a professional that used good logic. But I don't know anyone that has done over 60%/annum for that period. 1000 fold is pretty insane! Didn't know about the Cornwall track record... I bought the book - from your comment, I should read it. Sanjeev, he's done better than what your source is stating - by a large margin.

What I've said here is entirely true. Cannot comment on his exact returns, it's not public. Most of his positions do not show up on an SEC filing and his historical 5 and 10 baggers won't show in an SEC filing... some of the small ones that do obviously haven't worked too well (International Monetary Systems, the competition to your ITEX... etc). They used to file on International Absorbents, which is the smallest company I've seen on an FFH 13f... He usually owns a mix of micro-cap and some larger stuff, but at the base of the collapse in '08 he had some micro-caps that effectively went no-bid, most have bounced back and the fund has tremendously as well. I'd hazard to guess he lost more from shorting good shorts (puts and shorting) from '04 on, than from his gains on it in the collapse. The majority of their portfolio is value or distressed - the cash has generally been used in a small insurance operation and some trading. But the trading is more valuation based than anything. Sanjeev, that article is from over ten years ago, so 1999! ; ) Let's just say he doesn't fake trade 50 times a day or speculate like that anymore... He's learnt a lot since he was 18 - found Buffett - etc. What do you think is the break for the top 0.1% of managers during '02-'10?

I'd add that as someone that has done this before, you should be inclined to just buy the common. Selling puts is really scary and risky. But, if the person on the other end is willing to really pay up for a put (like the volatility they are using in their formula (blah blah) is really high) it is usually because the stock is hard to borrow to short and buying the put is the only way most people can attempt to participate in the company's failure. So you writing the put at a high premium, compounded with a great discount to IV may be very profitable... but it's not advisable to write options for most people (say anyone without over 10yrs of experience, a good understanding of derivatives and the math, and have lots of cash).

Hugh, I'm going to start at the beginning. I know you know this stuff, but I don't want anyone thinking I have a flawed basis and make a flawed assumption. So, you've found a company... you like the business and find that it's worth "X", but trading at "0.3X". In my case, most of these instances are discovered in small, nano-cap companies. So really the only option is to attempt to buy enough common that it makes a dent on your net-worth when the thing triples to a fair intrinsic value. Rarely these companies may have a somewhat more complicated capital structure and you may be able to buy a really interesting convertible bond, quoted warrant, or do a PIPE with them on favorable terms, otherwise, just be in the market daily bidding the stock and you may get some. In rare occurrences I've found small-to-mid capitalization companies (say $500mln-$5bln market caps, which generally have options) trading at a very favorable valuation. Historically FFH in '06 at $89 comes to mind, WEN before the Tim Horton's spinoff was discussed publicly (in the $20s); and recently Telefonica (TEF) and Transocean (RIG) may be in this ballpark (ideas I'm looking at). So, the company has some options outstanding if it's large enough, and you think it's cheap. You must, as a favor to yourself, examine what's available. Morningstar.com is really good for this as it lays out what's out there on a security and the relevant info/data points, plus it's free. In the calls, you could purchase a deep in the money call, giving up dividends,etc, but you would have less capital tied up (you save on the opportunity cost of this cash) and still participate in most of the favorable parts of being a shareholder in a public company. If you purchase an out of the money call, you are speculating on the timing of the company trading up to your valuation or a catalyst playing out. In the event that a large company is really trading at 30% of what it's worth (based on really good analysis) this may not be a bad speculation for a small portion of a portfolio, the main unknown is the timing of the market and the individual company. The writer of the option is writing it based on the assumption that the company can go up or down, and almost in a equal probability, so you may do alright in time betting against that if your valuation is correct and you do this with small sums of money. In the puts you can write something out of the money or near the money. As you point out, you have a sum of capital you will receive for writing the put (think of it as an insurance premium) in return you are telling the counter-party that you will be there for them to sell the security to in the event it goes below the strike price. I like to think of it as: a) buy the company's shares for $25 (even though they are worth $75) b) sell a Nov $20 put for say $2, locking in a purchase price of $18... less the time value of the $25 being invested in short-term bonds If you were looking to buy a 20% position, the company is that cheap, selling the $20 put for $2 may be a viable choice for a portion of the position, it'll lock in a buy at $18 in the event it is exercised. However, as you rightly stated, you may give up on the upside from $25-$50, the move to intrinsic value, in the event the shares do not fall below $20, and at the right time, for the holder to exercise their option. I like to think of it this way, if I'm going to buy shares in the company at $25 for 10% of my equity (at a 66% discount to my IV), I would likely buy more at a 75% discount, say 20% of my equity. This $17-18 cost is below a 75% discount and a great forced entry point if the shares get that low. If you are considering doing this to make $2 every few months selling options, you are selling insurance policies. You better know what you are insuring and price accordingly (I have friends that do this very well). If you are doing so thinking the shares will go higher and based on the volatility going down so the price declining (etc, etc), you are speculating... If you are doing this with the knowledge that your valuation is entirely correct and that if the shares fell that low you would love to have the option exercised on you, you may be doing this per what I think Warren did with KO a number of years ago. A second reason may be due to his requirement (personally and to the insurance regulators) to hold only a certain amount of float in equities. He may have been forced to write the puts based on a need to hold cash and short-term bonds, although there was a great opportunity to invest in KO. But my recollection is that the use was for the former reason. In the event the shares do not decline and you are not forced upon more wonderfully undervalued securities, the profit will augment your returns somewhat, but much less so than having purchased more common. In a combination, you can write a put and buy a call in a synthetic long position, but this stuff gets a little complicated. So the basis of the investment is entirely founded on valuation - caveat venditor - as Uccmal has said, you may get a margin call, as the common declines and if the value of the option spikes, plus you better be willing and able to buy the common that is put on you. You better be right on your valuation. You can loose a lot of dough doing this if you are very wrong. The original info you quoted is a little odd - I'm note sure what he meant with his reference to margin of safety, but I can tell you this much, it wasn't something Ben Graham intended when he coined the term.

Hugh, I really liked your other questions on the board as well, they are some of the better ones posted over the past year so please do not take what happened here as a personal insult - How is Hamblin Watsa paid to manage FFH float? (no one here really knows exactly) What else does Li Liu own other than BYD? (no one could answer this, the lecture includes great former holdings though) Wells's cost of funding... a very important tidbit and a key in researching banks. The info on Keynes and the detailed biography. I should read this, but I'm behind, have a few books on him I already need to read before attacking a huge bio.

hpmst3 (Hugh), Thanks for posting a fair question. I'll attempt to add to it in another post. Opihiman, Could you please re-examine "hpmst3"'s original post, then look at his follow-up explaining that the part you have been arguing about was a quote from another message board and the explanation confused him. It would be more helpful to explain to him that the answer he received elsewhere was flawed, rather than to attach him and his purported error (maybe the discussion can be re-focused on the errors of the unknown party's explanation). He made no such error in logic or analysis, he merely asked a question. And good on him for doing so.

AdventuresinCapitalism.com A good friend of mine writes this, some of you know him. I met the guy while visiting NICK in ’05 or ’06, he asked some really interesting questions, had things figured out in a hurry (good and bad). We were both short the mortgage insurance and financial guarantee companies at the time and he had a really good take on commodities due to his understanding of the bad economics of building mines and the effect of inflation on mining economics (think Buffett ’81 or ’82 letter). He’s a really smart guy, a value investor that also digs deep into the macro. I believe he may have had one of the best returns on the planet from about ’02-’08, and still with the decline of ’08 and ’09 is in the top 0.1% of money managers out there for a return over the last 8 or 9 years. He’s operating his partnership as-is and not raising capital. However, he is writing about some of his ideas and travels on the website and I think many would get a kick out of his findings and learn something in the process. I'd recommend looking back to the earlier posts as well - they're really good.

people are somewhat freaked out. I used to own SO (on Toronto), check out today's chart! It took 10minutes for one guy to jump in and vote with his wallet that the 9:30 market sell wasn't due to the company failing to exist tomorrow! Not that small of a company.

doc, I'm in the self-storage business - all those $1 items end up stored in a locker/room by someone that can't afford their rent, nevermind the $100-200 a month for a storage unit... My significant other goes there for certain things; I needed two "For Sale" signs... they were $1.25 there and 3-4x that price at Canadian Tire. As for LQW - The staff at the stores I've been to seem busier lately (past yr) than before, they say sales have picked up, and the manager at the renovated store I've gone to says it's busier for sure. Their sales just don't seem to recover in aggregate, but the gross margin did last quarter. I guess the renovations have only been on a few locations and this all takes much longer than one would expect. I'll get hard data next time I'm there (the renovated store).

doc, I've followed LQW for about a decade now... What a trip. Never owned it, excluding a token position (board lot) to attend AGMs, and get annuals. Kind of like NDN - great run growing a successful operation, then the management aged a little, made a few errors and it ran off the track (LQW to a much greater extent). I've spoken to Seth a few times, he seems to know what he's doing. His buying is much better than the former team... Doesn't want to turn this into a Walmart (former management's goal apparently). They can't compete with Walmart or Dollarama, both are great at what they do. But there is a space in Canada especially in non-Winners/HomeSense markets for a BigLots/TJX style, small format store. The numbers don't jive with what I've seen at the renovated stores and my scuttlebutt from store managers, but the GM seems to be improving slowly. I'm on a wait and see WRT this one... plus the balance sheet is a little concerning IMO.

SD - you consider trading on this information illegal or potentially illegal? You can determine pricing on your own (as people have done), and drive by a mill to see the inventory... The shutdown time is reasonable to know as well. I consider all 3 data points fair scuttlebutt. I don't see any way this could be construed as insider info. Where am I wrong? An issue would be trading on the CFO telling you they were shopping it and already had 3 bids or something - (just a hypothetical example) I don't own SFK FWIW

I originally was disgusted by the board comp and the salaries. But it is a big company and not everyone gets by on the money I do... They are Brits afterall ; ) As for the warrants, not too mad... It's interesting you said what you said Twacowfca - I think this is his own hedge fund... hear me out. The guy does an ipo at 3.6p or so... and issues warrants to himself and other managers for ~15% (if I recall correctly) of the common - with the bonus of receiving any divies that accrue to the common. So in effect any value created beyond the ipo goes 15% to management! It's brilliant really. And from what I recall there is no additional warrants or options issued every year... so it's just a Corp operating in P&C, that has a (tax efficient!) HF pay structure.

The underwriting as a public company has been wonderful, but the long history of LRE's CEO in Lloyd's is much more impressive.