Spekulatius

Electric cars have electric components that will fail. Even nowadays, the electric and electronic components fail more often than the mechanical ones in many cases. I also don't think that the number of 18 moving parts is correct. I count 4 wheels, 2 axles, one engine, 4 motors to open windows, a couple of motors to adjust seats, 4 breaks, pedals, steering wheel, suspensions . Each of those has several moving parts if you think about it. Elon Musk has a different definition of a movable part than I do. The trend to do repair at dealerships is a long term threat, I think. Dealers will generally not get from third party wholesalers, but from their own (manufacturers ) supply chain, I think.

I was the one posting about buying AZO in the "What are you buying today?" thread. However, said it is not a high conviction idea at his point and I am aware of rhe "amazonification" risk. I do think that AMZN right now has other fish to fry. Also there are a lot of SKU's and some technical knowledge is probably necessary as well as developing their own products and supply chain. it may not be that easy to break I to the AZO, GPC, ORKLY Oligopol. Also, keep in mind that AZO owns about half their stores, which puts their leverage a bit into perspective. I do think that AZO is one of the better retail bets it there.

If the mortgage is non-recourse, would always take a mortgage. Owning a property with a mortgage is safer than buying for cash in a sense, because you have the put option to give the property back to the bank, if prices fall a lot. If you take out a fixed rate mortgage, you are also protected against higher interest rates, If interest rates were to go much higher, your property would be worth less, but so would be the fixed rate mortgage that you took out. Most likely, your cash flow would increase, because rents would rise due to higher inflation and owning being too expensive for prospective buyers because of increasing interest cost.

On the topic of great investments they may have done in the past, what are some names they've held for their entire existence? Or even >10/15 years. Akin to Berkshire holding KO or AMEX. Prem talked about that sort of holding was what they wanted to get into with their 2009 windfall. Mentioned JNJ and such. I know, they're not Berkshire and all that but their investment approach has been head scratching. Nothing to show for. Bonds, absolutely done great. Trying to get my head wrapped around the stated 15% rate goal. Edit: I've been on the sidelines for about 5 years now and price down to where it was then. At this valuation, great investments are not necessary any more for FFH stock to do well, just not screwing up will suffice.

Bought FRFHF today (add) and dipped my toe a bit into AZO as well (starter position in one account).

Same here. If they just invest like any other insurers (mostly bonds ), then the stock should do OK. If they do some smart investments that pay off like they have done in the past and continue to shoe good underwriting, the stock should do very well. F they blow their surplus cash flow and subpar investment, then we probably will look at a stagnating stock going forward. In other words, it's getting closer to a "heads I win, tails I don't lose much" type of investment. I am in and buying more as the stock goes down.

@ thelads - thank you for sharing your experience and taking time for detailed answers. I very much appreciate the "insiders" look into workings of the machinery. It does appear that the book - " The big Short" captured many essentials of what was happening in these markets at that time correctly. Fascinating!

Interesting story. My general question arelsted to above is how well do the decision or even the creators of these products understand them? Do they actually do diligence and reading/studying the prospectus or run their own models, or do they tend to rely on the reputation or relationships to make a decision. I mean, who can read a 500 page plus prospectus, especially for something that is new/complex and you don't even know what to look for?

The new information is the disclosure in CBI's 10q and 8-k. As I see it , the unapproved change orders have mushroomed from ~$100M to more than $500M in just one quarter, the disclosure about CBI reaching their debt ceiling intra quarter is now. My own take is that this business is not as good as some make it. FLR for example, which appears to be better managed, is struggling too with profitability, although they do not seem to have the issues with cash flow that CBI does. At $15/ share, there is certainly opportunity here, if they get their ship in order. I personally wait for new management to make to clean house, before making any investment decision.

I am not expert here, but in my opinion, these small public investment holding companies like PDH and SYTE just have way to high fixed cost relative be to their assets to be viable. In additional, the C-corporations structure is not that tax efficient either, at least at that stage. I don't think that there is a margin of safety in those stocks, they are more like moonshots and should be treated as such.

The problem with above example of a 100% ROE is that the company usually cannot reinvest the profits with the same ROE in the business again. It is quite obvious with the car dealership example - if a car dealer really has 100% ROE and they could reinvest with the profitability in the business, it means that they could double the business every 12 month. Realisiticaly, a car dealership is not a business that can double in 12 month - where should all the growth come from? There are some business that can theoretically double without much capital spent (internet business like FB), but there are of course other limitations for their growth (law of large numbers, addressable market, ability to grow organization)

The US groceries are very fat compared to German Grocers. I am a German transplat and was surprised how inefficient US grocers operate (except Costco) relative to their german counterparts. We don't have public numbers for Aldi and Lidl, but for all we know, they are very profitable. They are simply very cost efficient, run their operation well and source their products at low costs. Note that WLmart folded in Germany because they simply were not cost competitive in their stores (I visited some of their stores while they were still in Germany and prices were surprisingly high). As for AMZN, I think their game is to their prime membership even more sticky and expensive in the end, by offering groceries now as well. They will break even on goods sold and the money is going to be made from membership fees, just like Costco.

I think it is clear that between the entry of the German Discounters (Aldi, Lidl) and Amazon's entry, the grocery business is getting mixed up. Since I am a German transplant, I cannot fail to notice, how inefficient most regular grocers are run in the US. Walmart tried to get into the German market, but failed. I was in one of their stored and prices were middling and not cheaper than a run of the mill superstores groceries, much less The Discounters. They simply could not reproduce their advantages that they have in the US in Germany. Note, that the Trader Joe chain is owned by Aldi. Aldi in the US is very competitive pricewise, but I don't think the stores hit the sweet spot yet. I think some middling grocery stores like Safeway, Krogers, Albertsons and Public have their work cut out for them and I don't think all of them survive. If I could, I would short Bagger and card handler jobs. AMZN entry is interesting and I think they will use Whole Foods stores as a jumpstarter for their grocery business and blend bricks and mortar with online. The whole thing seems to be negative for commercial retail as well. Notice that many shopping centers rely on grocery anchor stores now to keep traffic, because they are considered internet resilient.

Agreed, I missed the comment in the annual report on the bottom of page 4: (1) Amounts in this letter are in U.S. dollars unless specified otherwise. Numbers in the tables in this letter are in U.S. dollars and $ millions except as otherwise indicated. So, now, I can reconcile this. Pretty stupid of me, I always assumed that a Canadian company has their balance sheet in Can $, but that is clearly not the case. I do agree that this makes FFH at least reasonably priced, if not cheap.

Not sure that FFH trading cheaply at this point. From looking at the Y2016 annual report, Shareholders equity is 8,484 Canadian $, which at 23M shares leads to roughly $370 Can book value. now, I understand we have to adjust for fair value ofaffiliates - those were (3,267-2,633 or another 634 Can $($28/share). Even if this increased to $57 CAN/share, the book value is now $427 Can $ and at $570 Can $ (where it is trading now) we look at 1.33 book value. I don't understand how OP can look at the consolidated balance sheet and get to US$7.048 in book value for the insurance component. There are minority interests here that need to be deducted, so starting from the common stockholders equity as stated in their filing seems more appropriate. I have to say, for a value investment and compounder, I find FFH's annual report very hard to read and it is quite difficult to understand the financial results as they relate to prior years. The disclosure seems to be all there, but it is much harder than for most other companies to put them together and get and deal how the company is doing.

XAZP- I agree there is pot. value there and I'd like to see your write up. My concern is the Ashermann has severely mismanaged the company and the current balance sheet may not represent to real financial condition of the company yet. I would want the new CEO give some time, to do the housecleaning, and find out if the concerns about their change orders and credit amendments as well as cost overruns are warranted or not. I would wait at least until the next 10-q is filed, before making a decision to invest. Right now, it seems pretty much like a crapshoot to me.

Brad Thomas writes a lot of articles on Reits and most of his analysis is somewhat shallow, imo. He also recommended at some point to swap SRG for WPG (when WPG was much higher) and then later changed his opinion and put a sell on WPG. He has a sell on SRG because of Sears exposure.

There is no reason to go to Detroit. Sure, real estate is cheap there, but that is true in a lot of other places as well, that aren't as dumpy. Michigan is no tax haven either. I work in the NYC area in engineering and the company Of work for inshore to upstate NY. we can hop in a car and be there in 3 hours. The wasteland begins ~ 1.5 hours north of the city already. Same applies to Nevada if you are in CA. The problem is that human capital does not want to move. If you try to do so, many will just take the packet and find a job elsewhere. So you will lose the employees with the best skills or those that are the most underpaid. Aalso, from my somewhat limited experience, these jobs at the new o shored locations are not very safe either, as companies shut down these new locations rather quickly, if they don't work out, or the business goes bad, despite being in a low cost regain. Then you can be stranded in a location with not that many other jobs, and need to move again. So for employees, the prospect of moving is not too enticing. I think the sunbelt state are more likely benefit from onshoring than Michigan. The states are more business friendly and probably better run, demographics are better and there not really much difference between cheap and dirt cheap.

Yes, I know about the sale. I think they sell it for 12x operating earnings. FWIW, Their backlog is now 85% fixed cost. In the 2012 annual report, the breakdown was as follows: The Nature of Our Primary Contracting Terms for EPC Projects, Including Cost-Reimbursable and Fixed-Price or a Combination Thereof, Could Adversely Affect Our Operating Results. We offer our customers a range of contracting options, including cost-reimbursable, fixed-price and hybrid, which has both cost- reimbursable and fixed-price characteristics. At December 31, 2012, the distribution of our backlog was approximately 55% cost-reimbursable, 38% fixed-price and hybrid, and 7% Lummus Technology.

I have yet to see an investment thesis for SCI - FCF yield? The valuation metrics don't look compelling to me. The pre-need accounting is funky, since the funds don't belong to the company (they are in a trust fund) until the time comes. STON is a case study of a funeral MLP, which distributed cash Bernie Madoff style, based on very questionable accounting for a long time. I can get better DCF yield with pipeline MLP's or similar C-corps in the pipeline business (KMI, ENB) and I think their accounting is much more straightforward and the growth profile better.

Headwinds are increased life expectancy and the trend towards cheap cremation "turn and burn". My guess is that the latter is secular and probably accelerating as I see that baby boomers and the generation that follow care much less about funerals than those before.

What specifically do you find worth buying in Emerging market equities?

There is no question that CBI could double from here, but I think there is a chance that it's a zero as well and I am not sure which one is more likely. My take is that the business performed well in a huge secular commodity boom, but now that the boom is over, the addressable market is much smaller, but more importantly, the margins are down, perhaps permanently. Even more importantly, it seems like CBI is deep rooted execution issues and/or is more aggressively bidding on risky projects to retain market share. Their balance sheet has a fair amount of debt and at some point, this and the above will make it very difficult for CBI to get new contracts. I certainly would think twice to give conract to CBI if I were decision maker for a multi billion $ project, since you can just go to FLR or Bechtel and sleep better imo. I would not be surprised, if they were to make a share offering to get rid of some debt and get their balance sheet in line with the competition more. While I agree that the debt load isn't really too excessive, there is reflexivity at work here, if you think about it when you handle multi billion $ projects, where a customer has to out down hundreds of millions just to get work started, you absolutely cannot afford any doubt that obligation will be met in any case. That is the reason why these business need to carry huge cash balances around. You need to look at these from a customers POV, since the customers want to be sure that obligations are met.

Fixating on metrics is at least an investment thesis. The worst is fixating on your purchase price, which is irrelevant for anybody but yourself.

I agree with Ben here - so many red flags here, that it looks like a red army parade on Victory day in Moscow in the 50's. This business with huge contracts is a difficult one that has felt many companies over time. The fact that they are managing their balance sheet to look good at the quarter end, is just one of many. I agree that you really need to know the game very well and better than the management that left to make a sound investment case here. I don't think there is going to be anybody who can make a good guess on the intrinsic value of the business here.