Sandridge

[Luckyone77]

...."PS: as for “Rule #1: Don’t lose money”. Horse Apples! That’s a nice “goal” but if anyone has been able to put that into practice 100% of the time they must be invested in GIC’s at 1%."

 

 

 

Of course, some investments go down and you often times may lose money if you decide to sell at such point that it's below what you paid. I'm referring here to a potentially permanent lost of ALL your investment. That's VERY different than the Buffett approach and very doubtful that Berkshire would have ever put their toes in the SD water. I doubt it ever would have entered his universe. No matter how you want to spin this one it's totally baffling considering just how many signs there were that this company had serious issues. Surely there were much better and safer places to allocate the money than to a company that had the possibility of zero in the equation.

 

I certainly don't discount the fact that maybe many of you are right and that Prem is making some chess moves so far beyond my ability to perceive that I'll look like an unwashed heretic for questioning his rationale. I have so much money with him for that very reason. But I'll never be so star struck that I won't always question anybody with my money.

 

Here's hoping he puts egg all over my face. I like making money while I get embarrassed. It's more palatable than just being embarrassed.

[nodnub]

Lucky, you are really starting to repeat yourself the same points again and again.  That doesn't tend to create productive discussion.

[Cardboard]

Regarding Sandridge, I invested in it thinking that it would get sold. Bottom line is that someone got greedy and asked for too high of a price: Prem, TPG-Axon or management. Or the assets are truly not interesting at all.

 

It was cheap at $100 oil but, not so now. This is about the worst company you would want to invest in for a declining energy market and it sure did!

 

It has too high debt and leverage and management acknowledged that in their latest conference call. It has high costs: salt water disposal, electricity generation, etc. They have worked hard on that or to reduce these costs along with well costs, but it is not like they are operating in a well developed infrastructure area like the Permian, Eagle Ford or in Alberta. And the reservoir has high natural gas content or just above 50% and pricing for that is not looking to improve any time soon with more coming from the Marcellus and severe restrictions on liquified natural gas or to help exports.

 

What I don`t get about Prem is that if he is convinced that we are entering some kind of depression or that the risks are high, then you don`t touch Sandridge or even Exco. He keeps on talking about the possibility of commodities collapsing in his annual letter, but then buys two companies that require very high energy prices.

 

The problem here with the approach is that you can hit not one but, two zero`s: CPI derivatives turn worthless if the economy doesn't implode, but just slows down. Sandridge equity turns near worthless if oil remains in the $50 to $60 range for a year or two. Both of these investments seem to only work well at the extremes.

 

Buying BP would seem more adequate. It is certainly cheap so it meets the value criteria and likely can survive a depression. SD surely cannot.

 

Cardboard

[Parsad]

...."PS: as for “Rule #1: Don’t lose money”. Horse Apples! That’s a nice “goal” but if anyone has been able to put that into practice 100% of the time they must be invested in GIC’s at 1%."

 

 

 

Of course, some investments go down and you often times may lose money if you decide to sell at such point that it's below what you paid. I'm referring here to a potentially permanent lost of ALL your investment. That's VERY different than the Buffett approach and very doubtful that Berkshire would have ever put their toes in the SD water. I doubt it ever would have entered his universe. No matter how you want to spin this one it's totally baffling considering just how many signs there were that this company had serious issues. Surely there were much better and safer places to allocate the money than to a company that had the possibility of zero in the equation.

 

I certainly don't discount the fact that maybe many of you are right and that Prem is making some chess moves so far beyond my ability to perceive that I'll look like an unwashed heretic for questioning his rationale. I have so much money with him for that very reason. But I'll never be so star struck that I won't always question anybody with my money.

 

Here's hoping he puts egg all over my face. I like making money while I get embarrassed. It's more palatable than just being embarrassed.

 

First of all...Prem is not Buffett.  No one is Buffett, except for Buffett.  It's a moot point, because there is no one like him...period! 

 

Second, Buffett no longer invests like he did when he was younger...Charlie had a lot of influence on him...he's no longer a pure Ben Graham investor.  Can anyone say that BNSF was an investment Graham would have made when Berkshire bought it?  Yet, it has turned out spectacularly well.

 

Fairfax and their team are pure Ben Graham investors.  They will buy out of favour, distressed assets that other people don't give a damn about.  They will make 10-12 investments and 1-2 of those will go to zero or there abouts.  But they will hit home runs on another 4-5, while 4-5 will be modestly higher, lower or flat.  That's how they operate...average in, average out...and hopefully your analysis was correct on a good chunk of your ideas.

 

There's nothing complex or hidden that you are missing.  They have a team of people who invest the capital...some of those team members will get their analysis right on an idea, and some will get it wrong.  No different than Todd Combs or Ted Weschler looking after some of Berkshire's portfolio and getting things right or wrong relative to Buffett.

 

It's not about questioning someone who looks after your money.  Everyone cares about their own money as much as you do.  But I've noticed that the ones who usually say that are the ones that sell at the wrong time and buy at the wrong time.  It's like mutual fund investors...they generally put capital in at the wrong times and pull it in a panic at the wrong times.  The average investor's time horizon is relatively short...a couple of years at best.  How much of an impact will SD have on Fairfax?  We'll find out at some point in time, but I bet it is heck of a lot less than this discussion is suggesting it will be.

 

Cheers!   

[Eye4Valu]

Didn't Buffett lose all of his investment in two Irish banks during the financial crises? As in "going to zero." Seems like his record is still intact. I agree with Parsad on this one. Sandridge doesn't keep me up at night.

[Parsad]

Didn't Buffett lose all of his investment in two Irish banks during the financial crises? As in "going to zero." Seems like his record is still intact. I agree with Parsad on this one. Sandridge doesn't keep me up at night.

 

+1!  If anything should perturb investors, and I think to certain degree this was a royal f**k up because they were so conservative, but the hedges cost us a lot. 

 

They were just way too early with them.  Equity prices were cheap, the hedges had limited upside at the time, and the only reason they needed them was because any significant drop in their equity/bond portfolio would have been magnified by the amount of asset/equity leverage they use. 

 

You can't fault them for their conservatism, as the world was falling apart...but They would have been better off holding more cash and no hedges, or maintained a lower ratio of leverage.  Cheers! 

[petec]

Didn't Buffett lose all of his investment in two Irish banks during the financial crises? As in "going to zero." Seems like his record is still intact. I agree with Parsad on this one. Sandridge doesn't keep me up at night.

 

+1!  If anything should perturb investors, and I think to certain degree this was a royal f**k up because they were so conservative, but the hedges cost us a lot. 

 

They were just way too early with them.  Equity prices were cheap, the hedges had limited upside at the time, and the only reason they needed them was because any significant drop in their equity/bond portfolio would have been magnified by the amount of asset/equity leverage they use. 

 

You can't fault them for their conservatism, as the world was falling apart...but They would have been better off holding more cash and no hedges, or maintained a lower ratio of leverage.  Cheers!

 

+1

 

I'd add that Buffet also lost all his investment in some of the whole companies he bought...including one discussed in the last letter (shoe company, name escapes me for now).

 

Also, accident year underwriting for the last 10y has been profitable and getting better.  Abilyi's post reads like something from 5 years ago imho.

 

All in all one of the oddest threads on the site!  No offence intended to anyone - all questions are useful - but I think we are barking up the wrong tree here.

[petec]

But I've noticed that the ones who usually say that are the ones that sell at the wrong time and buy at the wrong time.

 

 

+1.  My approach to Buffet, Prem, Gaynor, et al is to figure out whether I trust them at the start and then place my capital with them permanently (so long as the companies are fairly valued).

 

Some people find that hard.  For some reason, I find it easier to do that than trust my analysis of operating businesses.  That's one of the reasons I have a lot of money in (very carefully chosen) jockey stocks: I manage not to buy and sell at the wrong times (by and large) because I just go back to "I trust this guy to build value".

 

So far that's worked out pretty well!

[Guest Dazel]

 

Fairfax, Berkshire, Markel are all very leveraged because of their insurance float/liabilities...their investing records reflect this. When you are leveraged and make 10% on money that is for future insurance claims/liability your returns look/are remarkable. When you lose on an investment and the market tanks you have the possibility of going underwater in a hurry. Hence, the Fairfax hedges...

 

If you want to have fun...take a look at a theoretical company with excellent underwriting ...and substitute in S&P index and a bond index for the float.....it is ridiculous how well that company would have done in the same period as Fairfax has been around....

 

don't ever compare your investment record against these guys or try to copy them as they have many moving parts. What Buffett has always said is buy the index and that is what most people should do....unless of course you find someone like Sanjeev!

 

*I can not find a single investment in the oil sector worth buying....their cash flows were fiction...laughable almost. "funds flow" is the new scam...apparently there is a capex fairy that pays for all the drilling and equipment. I owned a junior producer that luckily got taken over but during the exercise i realized that there was 'No" money to be made. at $90 oil..great for the economy not the shareholders. If you want a lesson...take a look at market darling Crescent Point and their presentation on their funds flow...No where can you find their  capex!!! They are Cash flow negative...after capex and dividends are taken out with $3b in debt. Yet every analyst out there calls it a blue chip...

 

for all we know Fairfax could be short a basket of these companies to off set their SD exposure...If you like Fairfax buy their stock don't try to copy them.

 

Dazel