Watsa no stranger to betting on perceived value

[Ben Graham]

Keep in mind that we're value investors looking at a busted mo-mo darling, & one of our biggest weaknesses is buying too early. It is highly likely that declining market share & marketing miss-steps - driving headline news, is going to trump the value metrics for at least the next 6 months or so.

 

Hard to believe that we not see at least one additional manic 1/3 sell off by late summer. There's no rush.

 

SD

 

The problem with this notion is that it is very difficult to predict how the market will react to either good or bad news in a situation like this, unless you have "trader's sense."  Therefore, it's best to rely on the concept of MOS and prepare to average down if there is a manic sell off.  In other words, don't buy a full position unless it's going to be a small one.

 

Edit: I suppose you can buy a full position if you really believe it's very undervalued, for example, if you think RIMM sells well below liquidation/runoff/break up value, but I'm not there yet.

 

The problem with this notion is that it is very difficult to predict how the market will react to either good or bad news in a situation like this, unless you have "trader's sense."  Therefore, it's best to rely on the concept of MOS and prepare to average down if there is a manic sell off.  In other words, don't buy a full position unless it's going to be a small one.

 

Edit: I suppose you can buy a full position if you really believe it's very undervalued, for example, if you think RIMM sells well below liquidation/runoff/break up value, but I'm not there yet.

 

txlaw, You have an excellent approach to value investing. Prem Watsa needs to hire you.

[SharperDingaan]

If you're buying RIM today, you do so in expectation that it will be a venture capital J-curve investment. Some now, 2nd round later at a lower price, 3rd round later still .... with the whole position accumulated over maybe 1 yr. If RIM falls 30% the day after you buy it, it's not that bad a thing.

 

With retail you're small & obscure enough to be able to pick your spots & buy-in at anytime - without moving the market. For FFH, not so much - best they can do is start at around 2.0-2.5%, double down, then double again if needed. At the 4th round, change to convertible debs.

 

Each round is a reassessment. Sometimes the decision is no, you bite the bullet & move on. We wish FFH the best of luck, but for us, it is a pass that we can afford. In FFH's shoes it is more likely a pass on a strategic investment that they cannot afford.

 

SD

 

       

[Liberty]

The scariest thing about RIM's future, IMO, is the culture inside the company. I have no first hand experience with it, but what I hear is not very good. Tech companies live and die based on how many A players they can get and retain (and those in turn make the place attractive for other A players that can then be hired - it either becomes a virtuous cycle or a vicious one, it rarely entirely stabilizes one way or the other).

 

What I heard is that RIM is losing many talented people and they are becoming a second tier choice for talented engineers and designers (might go there if they can't get into Apple/Google/Facebook/Amazon/etc). This isn't farming; top level A players don't just do 3x the amount of work that B players do, they do things that no quantity of B and C players put together can do. You can't fake technical genius or taste.

 

So if I was a RIM shareholders, I'd try to get as much information as possible about the state of the culture and recruitment at RIM. But that's not easy, because most non-technical people cannot distinguish between A and B players (B players can be great at what they do, come from the best schools with the highest grades, etc.. maybe the X factor is just having a totally unbalanced life and spending every waking moment obsessing over the quality of what you're working on to the point where you would almost do it for no pay? Maybe it's the only way to truly reach the top, kind of like how Buffett was smart to begin with but he also focused his whole life on investing)

[txlaw]

The scariest thing about RIM's future, IMO, is the culture inside the company. I have no first hand experience with it, but what I hear is not very good. Tech companies live and die based on how many A players they can get and retain (and those in turn make the place attractive for other A players that can then be hired - it either becomes a virtuous cycle or a vicious one, it rarely entirely stabilizes one way or the other).

 

What I heard is that RIM is losing many talented people and they are becoming a second tier choice for talented engineers and designers (might go there if they can't get into Apple/Google/Facebook/Amazon/etc). This isn't farming; top level A players don't just do 3x the amount of work that B players do, they do things that no quantity of B and C players put together can do. You can't fake technical genius or taste.

 

So if I was a RIM shareholders, I'd try to get as much information as possible about the state of the culture and recruitment at RIM. But that's not easy, because most non-technical people cannot distinguish between A and B players (B players can be great at what they do, come from the best schools with the highest grades, etc.. maybe the X factor is just having a totally unbalanced life and spending every waking moment obsessing over the quality of you are working on to the point where you would almost do it for no pay? Maybe it's the only way to truly reach the top, kind of like how Buffett was smart to begin with but he also focused his whole life on investing)

 

One could make the same argument about MSFT, although I'd be willing to bet that MSFT reverses that trend slowly going forward.

 

Actually, some of the problems inside the company have been fairly well publicized.  There were a bunch of employee letters that went around criticizing the bureaucracy and reactionary nature of the organization at RIMM.  You have to take that into account when valuing the company.