All the negative news

[Parsad]

Parsad calling Sprott "nuts" (tongue in cheek or not) just because "he does the opposite of what I do" (Buffett bought silver once and the Br Real another time - did you call him "nuts"? C'mon.)

 

Methinks thou dost protest too much!  Oec, do you know Sprott?  Do you believe I offended Sprott?  If I said something like that to someone on this board, that would be one thing...and a God-awful thing to do...but we aren't are we.  How many people here have been critical of Mohnish during 2008...and he's a good friend of mine...who reads the board.  There have been people who have taken shots at Francis or Tim McElvaine as well...also friends...who also read the board.  

 

I think the outcry over the Sprott comment, is like the over-reaction to Professor Greenwald when he said that Buffett "has lost his mind" regarding the price paid for Burlington Northern.  Do you think Greenwald actually meant that Buffett was nuts?  Of course not  Here I'll demonstrate...Buffett is nuts...Prem is nuts...Mohnish is nuts...I'm nuts!  I don't know Buffett but do you think he's offended?  How about Prem, or do you think he would understand that this was tongue in cheek as well?  I'm sure Mohnish is going to clobber me in the head when I get to Chicago next month.    ;D  Lighten up guys...life is too short!  Cheers!  

[Guest ValueCarl]

Hear, hear, Parsad!

 

I love a man who calls it as he sees it, especially when it's not exactly a "crowd pleaser!" That's probably why I relate to Mr. Munger, most of the time!  ;D His wisdom in the flesh will be missed starting next year.  :'(

 

Then again, with all the partial criticisms I often like to imply towards Mr. Buffett, it's a damn good thing he doesn't read this board or, he'd probably send a scud missile after my IP address.  ;D

 

With all the "FUNCTIONING PSYCHOPATHS" who permeate this VENUE, you can be sure we're ALL NUTZ!!!!!!!!

[roughlyright]

I agree with Munger (the poster), that the trend now is deflationary. Fairfax has been in business for a long time, but never purchased the derivatives to protect against deflation. Today's WSJ news shows Prem thinks this is the trend going forward. So, indirectly Prem supports Munger's position  :)

[arbitragr]

I haven't posted in a long time.

 

But I just had to come on here and post because of the values we're seeing out there.

 

Now is the time to build up some positions.

 

Really depends on what sort of an 'investor' you are. Are you a orthodox Buffett/Graham investor? Well, you can ignore the macro and things look pretty interesting.

 

Or are you a new age investor, who takes into account some of the macro and maybe some technicals?

 

There's a constant battle between global macro and fundamentalists, and at a certain point in time, one outweighs the other. Right now, the fundamentals look attractive so much so that I think now is worth building up positions.

 

I like to wait for when the fundamentals and technicals  line up.

 

But just like in July earlier this year, and also at other times (i.e. March 09) ... it is always darkest before dawn.

 

"Be greedy when the world is fearful" ... that line of thought has always worked for me time and time again.

 

Of course there are long term issues surrounding some of the well developed economies in the west, and this may mean that current 'investments' may turn into a trade to avoid long term realities.

 

Howard Marks' recent memo:

 

"Markets are safer when fear balances greed, and when worry about losing money balances

worry about missing opportunity. We don’t like it when fear rears its head and stocks drop,

but certainly that creates a healthier environment in which to be a holder, and one which should

offer better buying opportunities. Over the first part of this year it was easy to say prices

had gotten ahead of fundamentals; all things being equal, that now seems less true.

 

The current positives for investors include moderate valuations, rising corporate earnings and

the likelihood we’re already in a recovery. On the other hand, I continue to feel consumers are

too traumatized to resume spending strongly, and I see unpleasant and rarely contemplated

long-term possibilities including those discussed above. In particular, conservatism, austerity

and increased savings are good for economic units individually but bad for a stagnant overall

economy. Bottom line: anyone who invests today in a pro-risk fashion out of belief in the

recovery must be confident he’ll be agile enough to take profits before the long-term

realities set in."

 

Hope this helps add clarity of thought.

 

 

[Munger]

The point of emphasis from Howard Marks verbatim:

 

Bottom line: anyone who invests today in a pro-risk fashion out of belief in the recovery must be confident he’ll be agile enough to take profits before the long-term realities set in.

 

I know for certain I'm not that agile...I'll happily wait for the fat pitches/great margin of safety, fully recognizing the market could go up while I wait for the long term realities to set in...  In the meantime, I do search for great investments...tough sledding on that front right now.

 

Further -- can't recommend the Howard Marks memo enough...outstanding -- a must read.

 

Best.

[rick_v]

Great post arbitragr! It sounds like you have been in the market for a while...

 

I personally can't understand emotional investors. If things are so clearly getting worst, than make an investment in THAT direction. We are investors because we all want to make lots of money by generating significant returns. Watsa put on a nice trade to that effect per the WSJ. I assure you that if Graham was alive today he wouldn't be sitting there crying about what may or may not happen he would be seeking a value proposition even in such an environment.

 

Again for the group that feels so strongly about the "day of reckoning" approaching: Why don't you all put on a trade to that extent? A large one too if you are so sure things will unfold this way. Otherwise how can you be so sure that valuations are UN-attractive and as a whole the market is not providing sufficient margin of safety.

 

Also want to apologise if I offended anyone on this board by being a bit aggressive in my responses, I just felt that the other side had been overly negative with a little too much confidence and was also called crazy!!

 

 

 

 

[oec2000]

Seems like this discussion has turned into a kind of slugfest where people are taking punches at anyone who's view is different from theirs.

 

...and all done tastefully and respectfully, which makes this community great!  Come to the annual Fairfax shareholder's dinner and meeting and you can do it in person.

 

-O

 

I do attend both and find that they are, sadly, somber affairs unlike the highly charged discussions here.  ;D

[Hawks]

Just got back from golfing with my gal in Niagara Falls these past few days. Didn't think about the market, and the market didn't worry about my golf game!  so we are even on that count.

 

When I first posted "all the negative news", I was pretty sure that some of the individuals on this board would respond with their insights and opinions. Never, in my wildest imagination, did I ever expect to see and hear so, so many intelligent, factual, contradictory (a good thing I believe), sincere and convincing arguments and points in response to my post.  I want to thank each one of you for your responses; you have provided so much in the way of "food for thought" on how to proceed in this investing environment.

 

And Parsad, I want to especially thank you, not only for the insights you have provided re your investing prowess, but especially for starting this board and providing a forum for intelligent conversation with so many "savy"  and "wanna be savy" individuals (like myself).  I know my mind is richer today because of what you have provided to all of us here.

 

One further point. When I mentioned "blood running in the streets", "maximum pessimism", etc., I wasn't suggesting that today is comparable to the Great Depression or late 2008/early 2009. Those periods in my opinion were far, far worse and unsettling than today.  My late Dad, who lived thru the Depresson, would certainly testify to that.

 

What I was trying to say is that right now,  all we seem to hear most of the time is negative, bad news; and that at times like this, it is better to commit to some very solid, enduring companies which offer "good value" than to sit only in cash. Yes, their stock prices may go down from here, but I believe the value of their operations is increasing as their weakest competitors fare far worse, and especially if things get worse.

 

So, I will continue to "prune my weeds and try to help the healthy flowers grow". With some luck too, and contrarian thinking, this hopefully will happen.  I will "eat my own cooking", and time will tell.

 

Thank you so much to all board members for taking the time to share your insights and perspectives. You are the best.

[Smazz]

Hawk, where are you from?

 

I live about 1/2 hr away from Niagara Falls! ;D

[Hawks]

Smazz

I live in Guelph.  Raised in Waterloo.  I  was in business, then taught in University/College towns in Canada and Europe.  The thought process is so vibrant in those environments. How is your golf game?  (I know,  a slight distraction comment from all the serious, insightful comments on this board).  But what a wonderful forum it is.

[Smazz]

Smazz

I live in Guelph.  Raised in Waterloo.  I  was in business, then taught in University/College towns in Canada and Europe.  The thought process is so vibrant in those environments. How is your golf game?  (I know,  a slight distraction comment from all the serious, insightful comments on this board).  But what a wonderful forum it is.

My golf game, not so good - I dont have the patience.

 

I will start a new thread on "investors other interests"... 8)

 

Edit, Here it is the "other interests" thread

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2836.0

[oec2000]

Methinks thou dost protest too much!  Oec, do you know Sprott?  Do you believe I offended Sprott?  If I said something like that to someone on this board, that would be one thing...and a God-awful thing to do...but we aren't are we.  How many people here have been critical of Mohnish during 2008...and he's a good friend of mine...who reads the board.  There have been people who have taken shots at Francis or Tim McElvaine as well...also friends...who also read the board.  

 

 

Hi Sanjeev,

 

Maybe I should have just minded my own business! :) I may have overreacted because this is too good a forum to be marred by ad hominem "attacks". They detract from the value of the discussions because people get defensive and dig their heels in. We learn more when the discussions are cooler.  

 

I do know Eric Sprott (not very well but I don't see how this is relevant). It's funny but I used to think of him in similar terms to you until I got to know him. His blunt style and controversial views do sometimes create the impression of a "kook" and I have told him that myself (not in those exact words, of course. :)). Even his managers say that he is both his own best and worst advocate.

 

However, once you get to know the man, you realise that he is not very different to the other investors we respect so much on this board. He is smart, yet humble and open to criticism. He is a deep thinker whose views are well thought through. He has the courage to go against the crowd and the conviction in his own analysis (yet he accepts that there's a fine line between such conviction and stubborness). He has an impressive track record (both in returns and macro calls) that puts him up there with the great investors. His compensation policies are not very different from Buffett's or Watsa's in terms of shareholder friendliness (he recently incentivised his two top executives with $30m of his own stock rather than diluting shareholders).

 

He is not a perma gold/commodities bug - he would not have made any money in the 1990s otherwise. But, he did get into gold and commodities at the time when they have possibly been the best performing major asset class. So far, it's difficult to argue that he's been wrong.

 

I understand that your comment was a flippant one not to be taken seriously but it does paint an inaccurate picture of Sprott. This board is great because of the quality of the reasoned analyses - we should maintain these standards. If someone else had made misleading statements on Prem, I'm sure you would have felt obliged to correct them.

 

Cheers.

 

oec

 

Disclosure: SCP-T is my second largest holding after FFH. (I wrote about it here during the meltdown when it was trading at a big discount to cash.). I have been buying SII-T recently (because it has similar defensive characteristics that FFH had in 2008.) but I'm not defending him because of my exposure. I would like to buy more SII if Mr Market gives me the opportunity so I actually hope that he has more detractors. 

 

 

[biaggio]

oec 2000

 

I picked up some SCP, at less than net cash after you initially discussed it on the board. I recently sold it(I am thinking it may have been a mistake), thinking that it was fairly valued + I did not like the management fee (2 + 20)-I was thinking that getting into SII may be better as it will get 2% of the assets + 20% of profits of SCP, as well as their mutual funds-

 

I am having trouble with the price SII is selling at. It seems fairly priced. It is at least a good business with a great jockey but selling at almost $500 million market cap, manages ~ $5 billion i assets + has ~ $100 million assets itself. So I am thinking that a good price would be 2% of AUM ($100mill) + net assets($100 million). or $200million vs market cap of almost $500 million.

 

I love the fact that Mr Sprott owns 102 million shares.

 

 

[Guest broxburnboy]

re: Eric Sprott as a kook, nut or just controversial:

 

It may behoove anyone who wants to get to the bottom of this to simply check out his past "special reports"

to see, in retrospect, how prescient they were:

 

http://www.sprott.com/main3.aspx?id=58

 

Now compare them with general thrust of "non-controversial" commentary and analysis over the past several years...

 

Just because the "macro" (I'm beginning to hate this cliche) environment is bearish doesn't mean that there are no areas of investing interest.

Mining and agricultural sectors look good and some foreign economies as well. Jim Rogers, Eric Sprott and others have seen value here consistently

over the last couple of years, as they shy away from levered financial plays.

Why shoot the messengers?

[oec2000]

oec 2000

 

I picked up some SCP, at less than net cash after you initially discussed it on the board. I recently sold it(I am thinking it may have been a mistake), thinking that it was fairly valued + I did not like the management fee (2 + 20)-I was thinking that getting into SII may be better as it will get 2% of the assets + 20% of profits of SCP, as well as their mutual funds-

 

I am having trouble with the price SII is selling at. It seems fairly priced. It is at least a good business with a great jockey but selling at almost $500 million market cap, manages ~ $5 billion i assets + has ~ $100 million assets itself. So I am thinking that a good price would be 2% of AUM ($100mill) + net assets($100 million). or $200million vs market cap of almost $500 million.

 

I love the fact that Mr Sprott owns 102 million shares.

 

 

Biaggio, what about my 2+20 for the recommendation?  ;D Glad that someone was able to profit.

 

I'm holding on to SCP. Not stupid cheap anymore, just cheap. Mgmt's approach to risk and reward makes a lot of sense to me. Imo, it's a good way to get exposure to the resource space.

 

I share your idea of using SII to get SCP exposure too. It's one reason I have been buying SII. (And, you get SCP upside without the downside.) It's true that at 10% of AUM, it's only fair value and I'm hoping Sprott detractors will give us a chance to buy cheaper but I think your 2% AUM target is too conservative given that normalised earnings should be in the range of 1.5% of AUM. Imo, price would only get to 2% if there was a major problem with the business in which case we might not want to buy at any price. I'm prepared to pay fair value because there is huge upside optionality in their earnings - the risk/reward is asymmetric imo. It's like holding an option on their performance coming back.

 

Meanwhile, shareholders have some downside protection in the permanent client capital that they have in SCP and other similar funds which have been growing as a proportion of their AUM. These funds also have higher margins because they pay no trailer fees.

 

It's not just Eric Sprott whose interests are closely aligned to shareholders. Senior mgmt have significant stakes in the company and their funds and for many I believe these stakes represent a high proportion of their net worth. (e.g. Kevin Bamborough's only investments are his holdings in SCP and SII.)