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What's your Fat Pitch?


valuecfa
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Given the incredible fluctuations in the markets, many are likely finding unique investment opportunities. For those that have finished acquiring their position and are willing to reveal their "fat pitch" I think this is a good forum to share ideas (unless you are hoping for undervalued corporate buybacks :-\)

 

A simple ticker symbol and 2-liner may be appropriate, yet if you wish to expand on the case for the investment (be it equity or debt) a bit more that would be great!

 

I think there is a fairly unanimous conclusion that ORH and FFH are below fair value, so other ideas would be preferable.

 

I am a bit embarassed to only have one fat pitch, yet i can not share at the moment do to its small market capitalization and still acquiring of the position.

 

Understandable if you want to keep your best ideas close to your chest, but if you care to share i think there are many here always looking for a good idea, that would appreciate it.

 

Cheers

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CHK

 

The risks are vastly overstated, the non-productive assets are valued at zero, and they are going to be the low-cost producer of natural gas in this country for years and maybe decades to come. They have the best people, technology and land to make this very low risk over the long term. In the short term natural gas prices are low so no one cares.

 

obviously this is just my opinion and do your own d/d, but I consider this a safe, cheap, long-term great business on par with the opportunity in FFH (as far as current risk/reward, and my expectation of future performance over 5-10 years).

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i'll oblige.

 

iaac.

 

i'm not sure i'm finished buying, but for now i want to keep about 15% cash at the ready. so i probably wont consider adding more unless & until iaac declines to under 12. my avg cost right now is 13.75. i think there's a good chance it goes lower, but at this price i'm content with waht i own.

 

briefly:

 

i'm tipping my toe back in the iaac waters after a long hiatus. this acquisition of fcsx looks like a potential gem a couple of years out.

 

i used to keep an occassional eye on fcsx when i was an iaac shareholder because their biz was the closest to iaac's commodities & forex divisions i could find. i never could warm to them tho...i was never comfortable with their risk profile. and voila! iaac says fcsx will continue as an independantly run division of iaac, with only the risk management component ceded to iaac. if that's the case then iaac has made a sweet deal at a sweet price. without iaac's risk mngt expertise & the agreement between them to give it over to iaac its not a deal i would have liked at any price! its no wonder fcsx has had its share of funding problems & iaac has credit relationships that would make the competition green with envy.

 

it looks the the combined post merger iaac will have a net worth of 252 mil & a book val per share of 13.40 or there about. thats based on 18.85M post merger shares mil shares outstanding post merger. ofcourse, there could be some asset/goodwill writedowns from fcsx & significant merger related expenses that takes my est of book val down. but also according to the iaac/fcsx presentaion given, fcsx is due 54 mil in tax refunds. that would take post merger book val up to about 16 a share.

 

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=6698739-7591-122009&type=sect&dcn=0001193125-09-149046

 

i'm generally not enamored of co's whose fortunes are tied too closely to the whims or buoyancy of the capital markets, but iaac has a large & growing larger physical commodity trading business in addition to international equity market making, forex, & debt divisions. and importantly they are truly customer driven. iaac is fully hedged & does almost no trading for their own account, unlike just about all the other big guys. thus conflicts of interest & exposure to directionality of the markets are minimal. they are sensitive to the geaneral direction of economic trends, however.

 

iaac also conducts its business with less risk in terms of the avg assets to equity ratio. it fluctuates, but is generally around 5 to 1 (last Q 365 to 79). return on equity has been outstanding since o'connor & branch, pres & vp respectively, assumed control in 2002. if anyone has read this far, you can look for yourselves...i'm all thumbs at the keyboard.

 

last note & a caveat: iaac is subject to some screwy fasb accounting rules due to the physical component of their commdities div which essentially forces them to mark to market their derivative hedges (puts, forwards, futures) at all times while carrying their physical commodities inventory pending delivery to their customers at the lower-of-cost or market. as you can readily see this creates a disconnect in a rising price envirement...accounting wise, not economically. keep this in mind when reviewing their reported headline no.'s. you'll need to adjust for the unrealized but unaccounted/unreported carrying val of their inventory, which you'll find in the footnotes of the 10Q's.

 

 

 

 

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I think the best opportunities were presented to us in late 2008 and Q1 2009 (especially March) of this year. A substantial part of my networth has gone into BRK/a/b in that Feb/March period:

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=161" data-ipsquote-contentclass="forums_Topic" 991#msg991

 

I think at current prices, BRK and ... equity markets in general ... are quite fully valued depending on earnings going forward. It can still go up, but the margin of safety is not as meaningful as it was back in Q1 2009.

 

If you have the expertise and access to the services via your broker, I think there are, and have been tremendous opportunities in the below-invest grade debt market (high yield/junk bonds). 2008/2009 will go down in history as probably the best time ever to be invested in distressed debt, even better than 1990/1991 and 2000/2001.

Although the yields during the Depression were probably higher, reliable statistics on high yield debt haven't been available for that period and markets were not as well developed (monetary policy in particular), resulting in a prolonged period of bankruptcies that should not have happened.

 

Here is a recent interview on Martin Whitman talking about the distressed debt market:

http://seekingalpha.com/article/149267-marty-whitman-looking-for-trouble

Has the biggest money in distressed debt already been made?

 

MW: In my adult life, I’d never seen the kinds of prices and yields that were out there last fall and earlier this year on debt for which we saw minimal default risk. We weren’t buying into performing loans that we thought would remain performing unless we could get an annual yield of at least 25%. That bogey is down a bit today, to 20%, but that’s still high relative to what we’ve been satisfied with in the past. Given what’s going on in the economy, we expect to continue to have plenty to look at for some time.

 

In addition to still-performing debt, the other area in which we’re most interested today is direct capital infusions into companies that need it to be made, as they say, more feasible. We made such a capital infusion into MBIA, which so far hasn’t turned out well, and we currently have offers out to make similar investments in a few other companies.

 

Credit spreads have come down dramatically and unbelievably. Bond yields during Q1 2009 and late 2008 were about 25%+, and that is not including any capital gains. Junk bond indicies have been up about 30% year to date, and I think there's still more upside. In total that's a return of about 50%+ on average thus far if the bonds will be held until the end of this year, and assuming no default ...  with more upside to go.

 

But this is probably to be expected in a "credit crisis" of this magnitude.

 

Other than that, I been looking at either commodities, real estate, and probably some tech. Nonetheless, I still think on a risk-adjusted basis, the high yield debt market is probably the most attractive of all asset classes right now.

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If you have the expertise and access to the services via your broker, I think there are, and have been tremendous opportunities in the below-invest grade debt market (high yield/junk bonds). 2008/2009 will go down in history as probably the best time ever to be invested in distressed debt, even better than 1990/1991 and 2000/2001.

 

 

Nonetheless, I still think on a risk-adjusted basis, the high yield debt market is probably the most attractive of all asset classes right now.

 

Hi - thanks for the very detailed thoughts.

Any specific opportunities that you're aware of after the recent big run-up?

Thanks.

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