PlanMaestro

This is a question for the old timers. I am currently analyzing a small cap that by coincidence is in Fairfax portfolio since at least 2007... but FFH only has 10,000 shares. I see that most of the equity portfolio is concentrated in around 20 large positions, but there are several of this tiny investments, at least fifteen, that have stayed there for years. What is the goal of having these small positions? Are they placeholders? reminders? training ground? experiments?

I have not posted on MMPIQ for the last 4 months but things took a turn for the best with everything indicating that the Charlestown/Hartland plan will get approved. That means that we will get diluted of 50% of our shares at $0.35. There is a silver lining though, Dirty Ricky is losing his company and the new team will try to accelerate the realization of MMPIQ's value. There has been substantial interest in even marginal properties (non-Southpark) at valuations close to book value. With book value close to $2 per share I can wait for this company to emerge. Here is a summary of the current stand of the proceedings End of an Era for Meruelo Maddux Properties DOWNTOWN LOS ANGELES - Meruelo Maddux Properties, the biggest private land owner in Downtown, is poised for a shakeup that would see the ouster of its top two executives, including founder Richard Meruelo. After two years of often bitterly contested Chapter 11 bankruptcy proceedings, U.S. Bankruptcy Court Judge Victoria Kaufman is expected to rule soon in favor of a reorganization plan from shareholders Charlestown Capital Advisors and Hartland Asset Management. Kaufman approved the plan, which would infuse the struggling real estate firm with $23.6 million in equity from two investors in addition to replacing the firm’s executives, in May. A Meruelo motion asking the judge to reconsider her decision was denied on Monday. The court is slated to consider revisions to the Charlestown plan this week, but Kaufman is expected to finalize the plan in July. According to court documents, the Charlestown plan would use some of the new equity to pay for physical improvements at several MMPI industrial properties in order to reduce the firm’s vacancy rate. Despite an industrial vacancy rate in Downtown of approximately 3%, MMPI’s vacancy rate was nearly 40% in December, according to court filings. The plan could involve the sale of several Downtown properties. Ted McGonagle, a former MMPI employee working with Charlestown, who would serve as COO under the firm’s reorganization proposal, told the court in December that the new company would aim to sell holdings including the property that houses J Restaurant & Lounge, the Union Lofts and a 32,000-square-foot produce facility at 788 S. Alameda St. Nothing in the Charlestown plan binds the new company to actually sell any properties, but reports of assets coming on the block have created somewhat of a broker frenzy in the market, according to multiple real estate sources. Meruelo Maddux declined to comment through a spokesman. It remains unclear whether the firm will pursue an appeal. The situation marks a profound defeat for Meruelo, a politically connected investor whose real estate empire grew out of his mother’s Downtown dress shop. He has received praise from some community leaders for providing storage for homeless people to store their belongings in one of his vacant Skid Row warehouses. Meruelo also earned criticism for an array of dealings, including the un-permitted demolition in 2006 of buildings he owned near Union Station (the Department of Building and Safety banned Meruelo from building on the site for five years). The firm, for the most part a buyer and holder of industrial and warehouse properties in Skid Row and east of Alameda Street, went public in 2007 as Meruelo and partner John Maddux began pursuing development projects. Its first housing effort, the adaptive reuse Union Lofts on Hill Street, opened in 2008. Its follow-up, the company’s most ambitious project, a 35-story high-rise initially known as 717 W. Ninth St., couldn’t have been timed worse — the project was financed out of pocket when an initial loan fell through, and work temporarily stopped before the company secured an $84 million loan in 2008 at 12% interest. It was sold out of bankruptcy last year to Watermarke Properties. While the reorganization of MMPI, which will likely come with a new name for the firm, is bad news for current company officials, it could be good for the Downtown market, said broker Mark Tarczynski, senior vice president at Colliers. “The resolution brings fresh capital into the marketplace and frees up stagnated properties and so now there’s a chance that something will be done on pieces that before were just languishing in court,” he said.

PlayStation/Xbox or at least that is what I've heard

I am not American, and I know and love them both!

Where is that towel, I am swimming in sarcasm

And the Generalissimo Francisco Franco is still dead http://en.wikipedia.org/wiki/General%C3%ADssimo_Francisco_Franco_is_still_dead http://www.youtube.com/watch?v=HX_-faiNTVU&feature=related Let me add, military coups all across Latin America and Vietnam ... and how could I forget Watergate.

It looks like Jamie's whining had an effect. However, does it all really matter when some of these companies are priced at 2x-3x PTPP. How bad can it really be?

Harry, No hard feelings? In general, I am not sure what you meant with BEST banks and considering the opportunities out there they do not look particularly cheap either.I did not get to your second list, but the first ones do not have particularly good profitability ratios (ROE, ROA, PTPP/Equity, PTPP/Assets, all time high ROE) that are considered a measure of "quality" for banks. If it is about credit ratios, there is at least one bank that is very compromised in that list (PKBK). There are a couple with good deposits growth (ie: PFIS, HIFS, CNBKA) but with that kind of profile there are big banks that look better not to mention SME banks.

From the distance, I also think that Visa is more exposed to debit card legislation. Debit cars have been a substantial part of its recent profit growth.

There is this little problem that the company has to have at least a $1 billion market cap. I started preparing this great write-up for a $100 million cash flow positive Graham stock with a dividend triggering event that I am not sure now what to do with it :). It looks like I will have to post it in the blog, but it is not the same thing. Does somebody have Prem's or Francis' email to send it them?

It surely sounds like Argentina 2000. And the Money Kept Rolling In ... and Out (great book)

What about capital destroying R&D?

These are comments from several miles away, looking for a reaction from the people on the ground. My opinion is that when bubbles are not propelled by leverage, the dumb money may suffer but the effect on the general economy and the stock market should be minor and sector specific (aka Internet bubble). My question to the Canadian friends is how involved are the banks and the shadow banks in this bubble. My understanding is that they are very conservative and LTVs very low. Also my understanding is that most of this price increase has been in urban centers (mainly Vancouver, but also Toronto) so it is not like there is suburban oversupply that will not be sold for years to come. There is a real trend to rent in cities that only will be more pronounced with higher oil prices and increase in the number creative economy jobs. Prices will come down but without big real effects in the general economy (New York, Los Angeles are doing just fine, Seattle not so much but it was not a disaster)

Look for high dividend yields (or even better reestablishment of high dividends so you can buy them cheap) with pricing power. I have a distressed REIT that I think will do well in either scenario. I think banks would also do fine in a mild deflationary scenario, and would kill it in a recovery. Also, some exposure to emerging markets could help as a defense to a deflationary scenario.

They were authorized but only by the letter of the law but with strong recriminating language leaving the open the door for other actions. There are two things I do not understand: 1. Why they keep underwriting at a loss in a short tail business? 2. Why they have not been more aggressive in buying back their debt at a discount with their large cash horde?

I think this one is easy: AIG. Forced seller, cheap, in his area of competence.

From the horse's mouth: It was a historic day for us on the last day of February – but not in the way we like: one of our positions declined by 80% in a single day. You might think that such a decline is, ipso facto, proof of a mistake, but we’re not so sure (and that’s not just because we had a good day and month). Allow us to explain... LECG is a specialized consulting firm that “conducts economic and financial analyses to provide objective opinions and advice that help resolve complex disputes and inform legislative, judicial, regulatory and business decision makers.” Our investment was based on the belief that LECG could successfully integrate recent acquisitions into a profitable business structure. Given the company's market capitalization of approximately $40 million, we felt that we had a reasonable margin of safety imbedded in the company's $109 million in Accounts Receivable, offset by $26 million of net debt. The company's distressed stock price, under $1, was due to a default on the existing debt. Given the quantity and quality of the receivables, we believed that the default was a short-term issue and that LECG would be able to refinance debt on a secured basis, supported by the Accounts Receivable, in which case the stock could easily be a multi-bagger. Much to our surprise and dismay, however, LECG instead announced what is effectively a plan of liquidation. We don’t know why the company pursued this path, though it is possible that this route preserved compensation agreements for employees at the expense of existing shareholders. Given the rapid execution of the liquidation, we believe the equity will end up being worthless so we sold our entire position. In light of this permanent loss of capital, why aren’t we certain that this was a mistake, as Netflix clearly was? Because it’s possible that we made a high-expected-value bet, but just got unlucky. Investing is a probabilistic business so it does not necessarily follow that every time you lose money, you made a mistake (and, conversely, every time you make money, you made a good investment). This is very simple and, to us, obvious, but is very poorly understood. Read more: http://www.businessinsider.com/whitney-tilson-february-letter-2011-3#ixzz1GKo1xrDB

Thanks for the great info...

I did, but I would prefer to read what you guys thought at that time. Deep Capture can be nutty sometimes.

Do you have links to posts from that past to get up to speed on that story? Specially I would like to know the roles of Hempton, Loeb, Cohen and Einhorn. I also wonder about B. McLean role: loved her book on Enron but I wonder if she is too close to some of the hedgies.

As far as I remember some refinancing did not go through at the last minute. There was insider buying with reassurances that financing was OK before. Investing is always risky, but if you are right more times than you are wrong ... things work out.

After reading and hearing Klarman for quite a while now, I would recommend as a rule to skip his macro comments. His business is based in stable funding from conservative institutions that in turn gives him the opportunity to buy when everyone else is selling ... and he has to pander to these institutions misconceptions. Can we keep the discussion in this board to bottom up investing? My cynicism is dripping.

Let's hope he has read Orwell's "Shooting an Elephant" and does not fire just to avoid looking like a fool. "When the white man turns tyrant it is his own freedom that he destroys". http://en.wikipedia.org/wiki/Shooting_an_Elephant

You can use $/room for hotels on the same price category. For example, Las Vegas Hilton is probably worth more than $150K per room but a Super 8 with luck would fetch $50K. The use of rooms instead of sqf tend to isolate the effects of location, given that a similarly priced hotel in a good location would probably have smaller rooms. You may try to use comparables with similar properties publicly traded and do a back of the envelope. Another metric widely followed is RevPAR, that gives you an idea of the capacity utilization overtime including discounts. http://en.wikipedia.org/wiki/RevPAR

Please burn and bury this thread Prasad. Now we have to endure misspellings of famous economists last names, false paternities of voodoo economics, and misuses of insights on monetary phenomenon. This is too much for me an MIT graduate and I am on the edge of start firing sarcasms a la Rudy Dornbusch. Guys, I have not tried to enlighten you, please do not try to endarken me. Let's leave macro discussions for people that we really hate.