kevin4u2

Hi Biaggio, I'll respond but I simply do not have the time right now. Valuetrap raises a few good points. For me I would suggest looking at the balance sheet and compare the "cost" to the "value" in the reserve report. Second what is the value the company has created? The bankers could care less about the cost, they want to know the value of the proven producing reserves are. Reserve reports are accurate, based on the assumptions made. You just need to understand the make up of the assumptions. More later. Kevin I really respect your opinion. You are of the same opinion as value trap, another knowledgable poster here I am just wondering how you go about looking at these reserve reports? For others here, here is a report on reserves starting at the bottom of page 14. http://www.lightstreamresources.com/files/pdf/investor-relations/2013/2013%20Annual%20Information%20Form.pdf It seems that reserves are estimated by Sproule, who seems to evaluate most O&G properties that I have looked at. Maybe thats my problem I am looking at the wrong properties. Are these professional engineering groups in collusion with management similar to the financial auditor pre 2008. With the way things are working out I am really doubting myself. I have a very small 1% position but was thinking of adding. The whole reserve report seems to have a lot of estimates. Estimate for future prices, operating cost, etc...I understand how the NPV number can be BS . How accurate are the estimate of actual reserves in barrels of oil. i.e. if they say that they "probably" have 176 million of barrels of oil in reserve, do we care if its 125 or 200 million barrels....Ok I care, I would rather it be 200 but if you're buying all 178 million barrels for $2.26B ($1.5B in Debt + the rest in equity), that works out to ~$13 per barrel..that seems inexpensive. If they end up having 125 million barrels then that ends up being $18 per barrel...still ok assuming that they can still turn a profit I had assumed that the estimates were roughly accurate +/- 20%. The way I see it they are too good to be true. Yet I want them to be true. I really appreciate Kevin4u2 and value trap introducing some skeptism. Hoping to learn something. Hoping not to lose money.

LTS is crap. I completely changed my mind after reading the last reserve report that came out in Mar/Apr. The net present value of the assets will be worth less than the debt at $80, it was borderline at $95 oil. Bankers will be worried, fortunately for them the credit facility isn't up for renewal until June 2, 2017. I suspect they will be gone before then. Applying a multiple to a CF is very dangerous for a business who production and thus CF naturally declines over time. The CF isn't a perpetuity. The Canadian oil patch earns very low returns. Here is the government data for Q2 ROE and ROIC by industry. Only mining is worse than O&G. http://www.statcan.gc.ca/pub/61-008-x/2014002/t031-eng.htm

That is what they said about shale gas too.

Bigger thing is happening here. Can anyone think of a reason why someone would take the opposite side of your trade? Here is why I wouldn't touch the sector with a ten foot pole. Reasons: 1) starts with a C and ends in a hina. 2) The industry has horrible returns on capital. Just look at the government of Canada data for the sector. 3) shale oil... we are only in the first inning and change is the enemy of a value investor.

Don Gray has come out with some pretty harsh words for MEI, and other companies that have recently raised capital promoting land grabs. For those who don't know who Don is, he started Peyto, perhaps the most successful company in the Canadian oil patch over the past decade and a half. I believe Peyto has had 38 consecutive quarters of profits, unlike many other oil and gas companies that dupe investors into focusing on CF. He has always been vocal on the crap going on in Calgary. The full article is in the globe, entitled "Chairman rewrites sales pitch for oil and gas" for those with access. Here is a quote:

Rk, are you absolutely sure?

I would also read Nina Munk's book, The Idealist - Jeffrey Sachs and the Quest to End Poverty. The book is about the success/failures the millennium village projects. Nina Munk presents a very different picture than that of Jeff Sachs. If want to listen to some very good interviews on the topic, I would listen to the Econtalk episodes where Russ Roberts interviewed Nina Munk and then the follow up interview with Jeff Sachs. Russ made some comments in the Nina Munk interview that Jeff Sachs really didn't appreciate. SACHS - (quoting Russ Roberts) "And yet, in many ways"--and you concede that the program had some positive effects--"but in many ways it's one of the cruelest things in the world to come to a group of people, set their hearts on fire saying I'm going to change your life; there's magic coming--it's the magic of expertise and wisdom and money--and your lives are going to be different. And to take that dream, which every human being has of a better life, especially for their children, and to smash it, and through your own hubris--it just, it's so depressing partly because those arguments tend to win." That's what you said. http://www.econtalk.org/archives/2014/01/nina_munk_on_po.html http://www.econtalk.org/archives/2014/03/jeffrey_sachs_o.html Enjoy!

I find it quite interesting that you misquoted me. I never said, "There is something more important though that is happening here. The question "Do I have enough?"". Sorry I should have been more clear. When I refer to knowing what meets my "needs" I don't mean physical needs, I mean psychological needs. That is why I went on to talk about happiness and self actualization and tap dancing to work. Everyone's physical needs in North America have long been met. I like what Dinesh D'Souza says about why Indians from India want to come to America... because even the poor people are fat. So we've long met base physiological needs, but have long failed at psychological needs (Belonging, Esteem). That is why 4 out of every 10 people are on anti-depressants. Now as to your question of "Do I have enough?" My question would be how much would be enough? Why is the figure even important? To me it is only important if you want validate yourself by some sort of external standard. External validation will block anyone why tries to achieve a high level of self esteem. That is why in Buffett's autobiography, The Snowball, it talks about how he operates by an internal scorecard. This isn't just important for his investment process but why he is so happy in life. He's happy because he validates himself internally. To quote Nathaniel Brandon from the Six Pillars of Self Esteem (a fabulous book), "If my aim is to prove I am "enough," the project goes on to infinity - because the battle was lost on the day I conceded the issue was debatable. So it is always "one more" victory - one more promotion, one more sexual conquest, one more company, one more piece of jewelry, a larger house, a more expensive car, another award - yet the void within remains unfilled." I value invest not because I love the process but because I love the results. I value invest because I'm competitive and value investing is the best, easiest process for me to use to produce above-average results. In terms of the question "Do I have enough"...I would interpret this similarly to how I would expect Buffett would. I will keep my competitive drive for more long after recognizing that I have enough. For me having enough is only part of it. I want to do the best I possibly can and earn the most I possibly can, and see how well I can do. I will probably end up donating much of it in the end of life (similar to Buffett), but I still have a competitive drive to see how well I can do in the interim...And viewing the results of a NW poll is part of measuring how well I am doing so far.

I totally agree. Most of us value invest not for the proceeds but because we love the process. Big difference. We know what meets out needs and what doesn't. I think if you focus on the process, the results will take care of themselves. You can have just as much happiness investing 500k or 5 million. How about a happiness poll? How about a self actualization poll? This is the stuff Buffett talks about all the time in his talks with students and is why he keeps repeating himself. How about a "do you tap dance to work poll?"

I have to disagree. I think it is clear that some segments of this market is overvalued if not in full out bubble territory. First, the Russell 2000 at 100x trailing P/E is overvalued, period. I don't care how many "high fliers" are in the index. Next, I agree with David Einhorn that we are witnessing the second internet bubble in 15 years. Third, biotech sector is out of control. Here is a link on the trailing P/E for the Russell 2000. http://online.wsj.com/mdc/public/page/2_3021-peyield.html On the flip side, I believe many large cap stocks are at market or below market multiples.

I agree with the comments here. The money is a great byproduct, but not the primary reason to invest. I'm the same person when I started with my -20k line of credit. I have even commented to a friend how it would be fun to go back to zero and try to do it all over again. I actually don't enjoy spending money, I am a value guy in more ways than one. I get just as much joy out of a bargain at the grocery store where I will buy multiples of what is needed. You either love the process or love the proceeds. I love the process, I love learning, and know what meets my needs.

Same problem. Looking forward to the new interface. Cheers!

I took a quick look at the financials last night. Looks like the book business is worth the current valuation and you are getting the paper business for next to nothing. Torstar is perhaps the most valuable newspaper in Canada. Although the newspaper industry is currently in flux as the delivery methods are changing, there will always be demand for news.

Last time Watsa was wrong for that many years, he made an absolute killing on credit default swaps. How long was Watsa with the CDS before the crisis hit? I'm trying to remember, like 4 years? First mention of MBS and ABS risks were in March 2004. First mention of CDS was Mar 2006. Likely purchased in 2005, so 4 years.

Last time Watsa was wrong for that many years, he made an absolute killing on credit default swaps.

If I buy a piece of farmland and rent it out for 10% cash on cash and then sell it 28 years later for 5x my investment, it will have returned 16.6% with zero reinvestment. It is entirely reasonable if purchases at opportune times. I could have purchased farmland close to where I live for 7-8% yield a few years back, but not today though. It also depends if you take straight rent or sign a crop sharing agreement. Typically you can earn an extra point or two return by signing a crop share agreement. All Buffett did was look at normal earnings when the market was depressed. He bought the farm from the FDIC, or basically at the point of maximum pessimism. Same goes for the piece of real estate he bought near NYU. Neither were earning 10% on the asset immediately. "Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake."

Your analysis makes no sense. Here is how you should look at it. 1) The farm has returned approximately 10% annually from crops grown. 2) The price of the land has gone up "five times or more" over a 28 year period. Sum 1+2= 15.9% or more annually on his investment. Given that Buffett's earnings are only up 3x while the investment is up 5x over the period suggest that valuations are getting stretch in agriculture (only a 6% cash return on investment today). Nebraska farmland is up over 60% in that last two years alone. Time to sell the farm.

That's right. Facebook is an advertising company. They pay for eyeballs and nothing else. This deal is no different. I have the same gut reaction, but just to play devil's advocate, how many Whatsapp users are non-FB users currently, and how many will become FB users after the acquisition? That's worth something.

Those who have a better long term track record can cast the first stone. All I know is that they have a fantastic long term track record and in the past have made many fantastic market calls. To comment on current strategy is futile as the story will be written in the future. Another point is that we often employ all or nothing thinking. Bbry is a all or nothing bet, etc. Reality will likely show that they will muddle through and results will likely continue to be slightly above average.

EZPW. Here is the write up I put on my blog. http://canadianvalueinvesting.blogspot.ca/ Ezcorp had an unusually bad year in fiscal 2013 for a couple of reasons. The biggest reason for this was the huge drop in the price of gold. Gold started 2013 at around $1700 per ounce and ended around $1200 per ounce. That 30% decline contributed to some really tough business conditions. In the pawn business, gold and jewelry are the two most common forms of collateral. Moreover, unless you’ve been living under a rock in recent years, the gold scrapping business has been big business. Conditions in Mexico were extremely tough for the company in the gold pawn business. On the latest conference call they discussed how competitive it has gotten down there. The industry got so competitive that everyone was posting the price of gold they were willing to pay for scrapping. That squeezed margins. This also led to the closure of 57 gold only stores in Mexico. Now to add more insult to injury, the company recorded a $43 million ($29 million after tax) impairment charge on its investment in Albemarle & Bond. The UK pawn lender had a very tough year and was delayed in releasing their financials. This wrote off the majority of their investment in the company. Albemarle is now for sale. Lastly, the company’s operating expenses have gotten way out of line. In 2011 operating expenses were 33% of revenue and in 2012 they were 34%. In 2013, operating expenses rose to 41% of revenue. This is obviously not very good performance but leaves lots of room for improvement. So what does all this mean? Basically EZPW was still profitable in 2013, albeit marginally. Earnings have risen every year since 2002. The company sells for 70% of book value. Book value has grow at 17.5% over the past 10 years. Debt is only 19% of total capital so they are not heavily financed. Interest is well covered. There are a few weird quirks with this small cap but I won't bother you with them here (read the 10-k and listen to the conference call for details). If you exclude the one-time expenses that occurred in 2013 the company would have earned around $1.70 per share. That works out to a current P/E ratio of 6.5. Now if you, like me, assume that the gold scrapping hay-days are over (no recovery of this business) but they can reduce operating expenses by 3%, then EPS will rise to $2.35 per share (P/E = 4.7). If operating expenses can get back down to historical levels of 34% of revenue, EPS will rise to $2.95 per share (P/E = 3.7). It doesn't take an advanced degree in math to see that EZPW is worth at least double the current quote (at a minimum) and up to four times the current quote (at a maximum). Let's call fair value roughly $30/share. It currently sells for around $11.50, down from the $30 level a couple years ago.

Hi, I have done this type of thing before with an older family member who was earning nothing on savings. I felt it was a win-win. As for interest rates, ignore the nonsense about if you are worth x bps over treasuries. If they agree and you agree that is the rate. One thing I kept in mind was the scenario where I did lose money. I asked myself if I did lose it all could I pay the individual back and under what type of time frame. After determining that I borrowed the money. That said I do earn a decent salary and could easily pay the money back. Unemployment in my profession is near zero. It did work out well for me, but I was fully prepared to take full responsibility for my actions good or bad. Good luck. My only other advice is make sure you know what you are doing. If you are young and inexperienced I wouldn't recommend it. If you can consistently out perform the market, are independent and have firm convictions then do it. PS BRK is undervalued. Not hugely but it is undervalued and well positioned for the housing recovery in the next 2-3 years.

You also can't buy a car without a catalytic converter or run a coal plant without lots of emission controls. Horror! http://www.theatlanticcities.com/arts-and-lifestyle/2012/06/what-pittsburgh-looked-when-it-decided-it-had-pollution-problem/2185/ If someone's externalities cause you harm take them to court (individual or corporate). That is the purpose of a rule of law. You don't need to infringe on someone's freedom. Why not hold those companies accountable for the pollution in Pittsburgh? If these light bulbs are such a great idea, why can't the exchange be voluntary? Why is forced coercion required?

I'm sorry SJ but I have to disagree with you. Banning incandescent is a sensible policy because of the sheer volume of energy wasted in lighting. There are equivalent solutions on the market that not only last longer but also reduce the energy bill. Think of the amount of coal wasted because most people just don' know the more efficient solutions are worth it. Also, I have not looked at the detail of the law but it's probably aimed at the retail market. Nobody stops you from buying from a distributor or online. BeerBaron “No tendency is quite so strong in human nature as the desire to lay down rules of conduct for other people.” William Howard Taft

Don't know. That why i think its too hard but if it is economic i think there should be a increase in flow over time as cap ex increases. beyond that is above my pay grade. I think those who see the value and buy it, will make quite a bit of money but it is beyond my abilities to see it. Asset value plays make me uncomfortable, maybe one day i will have the understand for these and i can buy a lot. Cheers Gk Anyone still see value in this sector? GK, I would recommend looking at companies that actually turn a PROFIT. That is how you can determine if the company is economic. Everyone who likes to focus on cash flow are simply trying to distract you from the fact that they don't make money. Also remember that the single largest factor that influences these companies is the price of oil (or gas). I'm going to start reading up on a few of these companies given the big drop over the past few weeks.

No. Tangible book is meaningless in analyzing these assets. A company can spend a lot of money on drilling wells that are sub economic. There assets are tangible but not worth the cost. Thinking like an owner, if you bought all of PWE, you would earn roughly 8% before tax on your capital. That doesn't come close to the hurdle rate I use. LTS is 15%.