Parsad

Happy Thanksgiving to our U.S. colleagues! Cheers!

We have positive working capital and no debt...why would we file bankruptcy? In this mind-numbing scenario, after everything you know and understand about financial statements, how do you believe or even postulate that bankruptcy is imminent? We also have investments in one real estate project that has broken ground and should be completed in the next 12 months (half of the 22 townhouse units are already presold), a clinic business that did over $1.4M in revenue last year and a telemedicine business that is operating in all Canadian provinces. None of which we have any funding costs that we are responsible for. You also have Zed Therapeutics coming online and Purposely which launches January...again, we have zero funding costs for Zed Therapeutics and minimal for Purposely. The question shouldn't be is PDH going bankrupt, but are we going to see an acquisition soon? On that front, all I can say is that I'm working my ass off! Cheers!

Thanks John! Yes, that is the correct answer. One of our largest partners who made up over 30% of the Canadian fund pulled out shortly after we invested in PDH...I was also sorry to hear he passed away from a form of cancer a few months later. But that hurt our liquidity when things started to go south with PDH. After struggling to reduce the position size and rebalance the fund, we realized we were doing a disservice to our Canadian partners...especially with our size and operating costs. So we liquidated the Canadian fund, distributed the assets and made four of our partners who had invested in the last few years 100% whole with our own money. All of the partners walked away with 100% of their original capital or far better...which makes us proud! We chose to close the fund and so we felt that was the right thing to do. With the U.S. fund, we actually were able to rebalance the fund as we had maintained liquidity and didn't have a large partner redeem like the Canadian fund. With capital put in by Prem and our existing partners, excellent results on our non-PDH assets for the last 3 years (averaged about 29% annualized), we were able to stay about even as we faced PDH's challenges...essentially we lost about $5M in PDH value and made about $6M in non-PDH value over the last 3 years. The U.S. fund is not going to be closed, operates at less than a 30 basis point expense ratio, and it's actually in excellent shape with PDH making up about 12% of assets and the rest non-PDH, liquid, mid-large cap equities. We believe the fund is trading presently at about 55% of intrinsic value and are more than happily accepting new partners! So, yes we threw in the towel with the Canadian fund (which was one-tenth the size of the U.S. fund), but have no plans to throw in the towel with the U.S. fund or PDH. And this message board isn't going anywhere either! Cheers!

LotsofCoke started the discussion about Marvel on this message board back when it was the MSN Value Investing board about 15 years ago. I remember he bought a ton of shares for himself and his children around 50 cents to $2. He argued that there was an enormous catalogue of intellectual property that was now going to be monetized into movies. I don't think anyone, including Stan Lee himself, imagined that the Marvel movie machine engine would be as prolific or as good as it is today. I used to run around our house as a four year old dressed up in a Spiderman outfit. Now my four old nephew runs around the house dressed up as Spiderman or Black Panther on any given day! Cheers Stan Lee!

I've taken another tack, and that is to limit myself to a modest update on the news for the first 7 days of each month. Ditto for Twitter & I found myself not even wanting to visit there this month because it's so full of inflammatory nonsense. Spending nearly a month with your head in the sand is liberating. I highly recommend watching re-runs of Rowan & Martin's Laugh In to see how nothing has changed since the 70's. The absurdities are pretty funny when framed by great social satirists. The Obamas thread was about divorce... and only highlighted the Obamas as a great example of a couple who makes it work. Nothing political about it. It was also moved over to the Politics board early this morning. I will try and make sure no political threads end up on any section other than the Politics board...that is the purpose of the Politics board...to keep that stuff off of the other boards. Otherwise it will end up there! Cheers!

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT. If you did that, the numbers would look even worse for Ford and GM automotive. The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow. I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP. Cheers! I'm not sure how you can simultaneously hold both these positions: (1) automaker in-house financing is a "cash cow" and (2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different. It is about adjusting to get a better look-through of the financial comparisons of the respective companies auto operations. Yes, that's exactly the point I'm trying to make. (1) The presentation by ADW compares the valuation of FCAU versus the automotive and finance businesses of F & GM. (2) Adding in-house financing to FCAU would only make FCAU look even cheaper than already presented. ADW's point is that FCAU is cheaper than it's competitors already. Cheers! We're still talking past each other. I have divided your comment into two parts: 1) Yes, the chart in the letter lumps Ford and GM's auto EBIT and financing EBIT together. My point is that I don't think it's appropriate to do so. Instead, as financials, the in-house financing companies should probably be valued at some multiple of tangible book value. I already threw 1X TBV out as a valuation for Ford Credit. 2) It takes lots of hard work and capital to build or buy a financing org of this scale. Way back in 2010 GM paid $3.5B to acquire its way back into this line of business. If it were easy FCAU would already have done it. 1) You could take the financing business for GM and F out, but then they would look even more expensive than FCAU than they are by including them. In other words, FCAU's auto business is more profitable and efficient than GM or F's auto business. The mispricing of FCAU becomes even more egregious! 2) Adding a finance business is actually not that difficult if you have a captive audience through in-house sales. It would be simply extending financing to existing retail and commercial customers. The reason FCAU has not done it yet is because they were deleveraging and trying to get the automotive business fairly valued...both by markets and credit markets. Now that the heavy lifting is done, the auto business simplified, and credit quality expected to increase, they would have a lower cost finance business than if they had launched years ago. You have to be competitive in the finance business, and if your credit offerings are not comparable to the best competitors, buyers will find financing elsewhere and you'll be stuck with lesser quality borrowers that completely skew your expected loss ratios. Cheers!

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT. If you did that, the numbers would look even worse for Ford and GM automotive. The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow. I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP. Cheers! I'm not sure how you can simultaneously hold both these positions: (1) automaker in-house financing is a "cash cow" and (2) FCAU's lack of a significant in-house financing division somehow advantages its valuation relative to F and GM If (for the sake of argument) one valued Ford Credit @ 1X tangible book value, the chart presented in ADW's letter would look quite different. It is about adjusting to get a better look-through of the financial comparisons of the respective companies auto operations. Yes, that's exactly the point I'm trying to make. The presentation by ADW compares the valuation of FCAU versus the automotive and finance businesses of F & GM. Adding in-house financing to FCAU would only make FCAU look even cheaper than already presented. ADW's point is that FCAU is cheaper than it's competitors already. Cheers!

I didn't see the original email reminder, but just saw it in the one today. Mohnish's lunch is at a dirt cheap price today of $11,300! What do you get...a lunch with a fantastic investor for you and 7 friends. All proceeds go to the Dakshana Foundation. Only 22 hours left to bid: https://www.ebay.com/itm/Power-Lunch-with-Mohnish-Pabrai-Founder-of-Dakshana-Foundation/123460245966 Cheers and good luck!

IMO the chart needs to adjust for FCAU's lack of an in-house financing division to be truly apples-to-apples. The #s look quite different if (for example) you separate out Ford Credit from F's automotive EBIT. If you did that, the numbers would look even worse for Ford and GM automotive. The finance business is a cash cow, and it would not be difficult for FCAU to add that component with their strong balance sheet and cash flow. I agree with virtually every aspect of ADW's letter...especially the low hanging fruit of just filing in US GAAP. Cheers!

Analysts and investors are so worried about tariffs and another slowdown, that they can't see the money piling up in cash flow and earnings. Cheers!

I'm more interested in what they will announce they are doing with the $7B! Cheers!

That's the point. This culture has been changed for good and for the better. Marchionne was so close to this management team, they're not likely to let him down. Plus you have an owner that is largely aligned with his shareholders. How much more can you ask for? Yup! And Manley's leadership of Jeep has been stellar. Look at what he's done with Jeep in the last decade. I think both Jeep and Ram could sell for nearly the entire market value of FCAU. Powerful brands with huge consumer loyalty. Cheers! Plato tutored Aristotle who in turn tutored Alex the Great...from master to student, material philosophical divergences emerge! Agreed that Manley did a great job at Jeep but his deal prowess may not be at Marchionne's level? It could be that this was Marchionne's plan all along, but initial assessments indicated that MM might have been worth more. Then again, Marchionne was a master in sales... I think we'll have a better idea on October 30th. Reuters originally announced the deal as $6.2B Euros excluding debt. Perhaps there's another $500M to $1B in MM debt that Calsonic took on. In that case, the deal would look pretty damn good. We'll find out next Tuesday. Cheers!

That's the point. This culture has been changed for good and for the better. Marchionne was so close to this management team, they're not likely to let him down. Plus you have an owner that is largely aligned with his shareholders. How much more can you ask for? Yup! And Manley's leadership of Jeep has been stellar. Look at what he's done with Jeep in the last decade. I think both Jeep and Ram could sell for nearly the entire market value of FCAU. Powerful brands with huge consumer loyalty. Cheers!

I'm not sure "pales in comparison" is correct. The $6.2B deal is only $0.6B away from the $6.8B Marchionne wanted from KKR before he passed away. At that time, KKR had offered $5.8B. FCAU needed two things to happen in any deal...a reasonable price and ensure that their component supply wasn't disrupted. They got both. Could they have held out for more...possibly. But they got mostly what they were asking for and they can move forward. Cheers! They paid just over 20 times net earnings or 1.25 times revenues...that seems pretty fair. Cheers! I will have to disagree on this point. MM is probably a better business than the parent dollar for dollar with arguably greater growth prospects. Without going down that path, before his death, Marchionne was discussing spinning MM: a tax-free event is far better than a taxable one. The sale to KKR for cash should be understood to be discounted by shareholders since the net return will be lower. So the guy who worked with Marchionne for 11 years, and has been chosen to lead the company, knows less about what Marchionne wanted or expected than people sitting writing on a message board? The sale price was quite good, especially in comparison to sales/bids/deals being made for other parts manufacturers. Could it have been higher...sure. But it could have been a hell of a lot lower as well based on market sentiment at the moment. Also a tax-free event would only be better if the valuation is greater than the net value of a taxable event. Considering how car parts manufacturers are currently being valued, as well as how Aston Martin's IPO went, a spin-off may have been valued at less than $5B Euros. Whichever way you want to look at it...a significant amount of value has been made liquid, while the remaining company gets even cheaper on a P/E basis. Cheers!

I'm not sure "pales in comparison" is correct. The $6.2B deal is only $0.6B away from the $6.8B Marchionne wanted from KKR before he passed away. At that time, KKR had offered $5.8B. FCAU needed two things to happen in any deal...a reasonable price and ensure that their component supply wasn't disrupted. They got both. Could they have held out for more...possibly. But they got mostly what they were asking for and they can move forward. Cheers! They paid just over 20 times net earnings or 1.25 times revenues...that seems pretty fair. Cheers!

They own Calsonic, so they've got some experience...how you rate it, I have not idea. Can't say anything in particular about MM management...other than they've been doing an ok job at MM. Don't know enough about them. About $300M Euros from 2018 earnings of $5B Euros. So not much...you sell something worth 30% of your equity and lose only 6% of your net earnings. Cheers!

I'm not sure "pales in comparison" is correct. The $6.2B deal is only $0.6B away from the $6.8B Marchionne wanted from KKR before he passed away. At that time, KKR had offered $5.8B. FCAU needed two things to happen in any deal...a reasonable price and ensure that their component supply wasn't disrupted. They got both. Could they have held out for more...possibly. But they got mostly what they were asking for and they can move forward. Cheers!

Credit rating services are like equity analysts...looking in the rear-view mirror or looking too far ahead...never in the present! Electric and hybrid cars make up less than 3% of all vehicles on the road today. That number will definitely increase over time, but do you really think FCAU is missing the boat here, or are they actually focusing on where they should be focusing...solid financials, low cost, strong balance sheet and creating partnerships to share the burden of developing electric vehicles. Remember how credit analysts rated Fairfax as things improved...or Bank of America...they were always so far behind, like the target prices set by the equity analysts. $7B sale...nearly 30% of market cap, yet revenues will only drop by about 5% and earnings by less than 10%...and the shares barely move. FCAU should be a high-priority target...especially now that things are even more simplified after the Magnetti deal. Cheers!

Announcement on the deal: https://finance.yahoo.com/news/calsonic-kansei-magneti-marelli-press-050117413.html Cheers!

Few things: Catastrophe losses may be higher than expected...volatility in market prices...drop in developing markets and currencies like India. If so, what are the outcomes: Short term losses in catastrophe, but higher premium prices for the market and FFH...the stock market always recovers...they can buy more Indian businesses at cheaper prices. Short-term the market is a voting machine...thus the volatility and market price drop. In the long-term it's a weighing machine...if you are holding it for the long-term, go occupy yourself with something else like a nice glass of wine and dinner, a weekend excursion, a baseball game or do some chores around the house. ;D Cheers!

How long have you guys noticed this?

Alot of the income, interest, assets, etc he siphoned off offset his equity losses. He didn't come out as badly as stockholders, but he didn't do well either. Not to mention that ESL went from $15B in assets down to $1.5B...that's alot of fees that he will not be getting. And why do you always have to throw in there "MSM"...is there anything in this world that you won't make partisan? Cheers! I mean have been you seen anything anywhere that touches on the things I mentioned recently? There’s obituaries all over, and pieces rippin Lampert, but none that really hit the nail on the head and call this what it is. A failed vanity project where the culprit still walks away in his $9,000 suite to his private jet. Gregmal, I don't think you want to go down that path. You know the difference between a corporate shield and personal liability. It's a common practice, part of business and nothing worng with it, otherwise investors would not risk capital and pursue new ventures. Trump hotels and casinos have gone bankrupt, while "the culprit still walks away in his $9,000 suit to his private jet" and became President! Cheers!

Alot of the income, interest, assets, etc he siphoned off offset his equity losses. He didn't come out as badly as stockholders, but he didn't do well either. Not to mention that ESL went from $15B in assets down to $1.5B...that's alot of fees that he will not be getting. And why do you always have to throw in there "MSM"...is there anything in this world that you won't make partisan? Cheers!

1. Might have made a difference, but not the reason Sears went under. 2. Yes, definitely...or revenues didn't go up because of a lack of investment. Definitely too slow on the asset sales...I said this like 7 years ago. 3. Alot of the debt was accumulated in the last 5 years. Yes, pension obligations were rising, but alot of this could have been fulfilled through the early asset sales instead of buying back shares at over $100! Cheers!

I think there's alot to be said for Sears, that hasn't been said lately. Frankly a business surviving 130+ years is worth noting, and in it's hey day, Sears was a beast of a retailer with cash gushing from its coffers. The demise of Sears falls squarely on Lampert's shoulders. Unlike other retailers, he put in as little capital as he could into the departments stores, was turtle slow when it came to selling off underperforming stores, and didn't exploit the redevelopment of sites to unleash commercial/retail potential until it was too late. All the while, plowing cash from sold assets into buying back overpriced stock in a declining, neglected retail business. My family and I used to shop at Sears all the time 20-30-40 years ago...then we completely stopped about 10 years ago when the stores started to look like bare warehouses and you couldn't find a salesperson or cashier. I actually disagree with Warren's quote regarding a good manager and poor business when it comes to Sears...I think the good manager led to an early demise...how else do you explain Macy's, Kohls and Nordstrom's doing perfectly fine while Sears is no more. Cheers! I think the biggest issue with Sears is that it was no longer a desirable option for individual products(specialty, niche, like kitchen/garden stuff) nor was it a good enough option collectively(ala not the best at one but had enough of everything to make it time efficient). I see the same fate for JCP. JCP is definitely going the same direction, and they don't have the real estate or brand assets that Sears did. Have you seen a JC Penny's store these days...empty shelves, poor customer service, dated stores...exactly how Sears looked 10-12 years ago. Cheers!