Liberty

New shareholder Q&A from Nov 5: http://www.csisoftware.com/wp-content/uploads/2018/11/QA-Nov-5-2018-Final-1.pdf

Very sad news indeed. I really liked his socratic approach to running his business, almost being more a teacher than a boss, teaching people metrics and how to think about the underlying economics, putting the right incentives in place, and then giving them a lot of control over operations.

https://arstechnica.com/gadgets/2018/11/intel-announces-cascade-lake-xeons-48-cores-and-12-channel-memory-per-socket/ This should be able to run Crysis.

Q3: http://ir.bookingholdings.com/static-files/2238f5fb-918c-41de-81b7-d33f8fdfd0e3

Actually, he sold Paypal to eBay in 2002 and he went through hell at both Tesla and SpaceX during the GFC and because of early rocket failures when he was all in. It's not like he's just ridden a bull market up and has never seen problems. His behavior, I think, is better explained by the fact that on top of having gigantic risk tolerance, he's mission-driven, and he thinks that time is of the essence to try to move things forward and deal with large problems (clean energy, making humanity multi-planetary). So he could've milked the Model S for a while before moving on to a new model and a while longer before building the gigafactory (if at all) and so on, and that would've been a lot less risky and probably profitable a LOT sooner. But if you're goal is to make a dent in the transportation sector's reliance on oil, you need a high-volume EV and you need to show to buyers and competitors that it can be done so their speed in their plans.

I'm sure there's some of that too. Retail has always been a competitive business, but in this case, what Amazon and Walmart and maybe a few others can do, not many others can do nearly as easily. In cloud there's more than enough TAM for AWS, MSFT and GOOG. In retail, there's more than enough TAM for AMZN, WMT, COST, etc. Tiny niche players can do well by specializing at being the best at their niches. It's those in the middle that should get the squeeze.

https://www.wsj.com/articles/amazon-plans-to-split-hq2-evenly-between-two-cities-1541446552 Probably a shrewd move on many levels.

Free shipping for everyone in the US during holiday shopping this year: https://www.businesswire.com/news/home/20181105005293/en/Amazon-Expands-Free-Shipping-Holiday-Season/

https://stratechery.com/2018/apples-social-network/ Also on the new iPad Pro: https://daringfireball.net/2018/11/the_2018_ipad_pros

It's not a tactic, and that you can't see it is the sad part. You're the one using tactics like arguing against things I haven't said or to push my arguments to extremes and then argue against those extremes (hurdles in the 15-20% range aren't that high for a risky industry and a small cap, because if you're looking for 10%, why not just buy Berkshire or the SP500? If ALS ever becomes a huge multi-billion company with lots of capital to deploy, lower hurdles make sense, but if you're deploying a few hundred millions in a multi-trillion industry, you shouldn't aim low.). You seem to be content to never do the math and figure out what kind of returns you're getting, and to count your chickens before they're hatched, predicting higher commodity prices all the time or looking out some cumulative amount over a century just because the numbers look big (everything looks big over long periods, the same 240m invested in the SP500 would also be huge, and it's meaningless to predict that far out, especially without knowing commodity prices and inflation and geopolitics and the situation at royalty partners and a million other unknowable variables (management might do stupid things or not even be around anymore)). I bet if we go back in this thread and see what you were saying about the coal royalties a little while ago, we'd find a different tune, but it doesn't matter, because whatever happens you just rationalize it. It's kind of pointless, because by questioning your beloved company, you feel personally attacked and basically don't even consider anything I'm saying. At this point I'm mostly saying it for others who might be reading this and looking at both the pros and cons, like a good investor should do.

You can't help yourself, can you? I say something, then you say "nonsense, here's a different thing that you're wrong about". I said the company has been around long enough. They were founded in 1997 or something like that (from memory). Then you attack a strawman about a recent royalty. Ever looked at a long-term chart of potash? I found one from 1900 onward. Except for a spike during WWI, it's been basically going down for a hundred years except for the little spike in recent years (the commodity "supercycle" because of China that everybody was talking about). Historically, commodities have mostly fallen in real terms over time.

What were they saying about the coal stuff at the time? I seem to remember them praising it as a safe thing that wasn't impacted by the coal commodity price and that was long-lived and safe and such. Seems revisionist after you take a $70m write-down to say "oh well, we didn't care that much about it and only did it to get something else". "If the co-firing thesis plays out I expect" Yeah, but you also expected it to last for decades originally, so that shows how hard the future is to predict.

Strawman again. Who's saying it has to grow at 20% for 100 years? But if a half-a-billion market cap company isn't aiming for returns on its invested capital of at least 15-20%, why not just buy an index fund? Of course the returns are never smooth and can be back-loaded, etc, but I think Altius has been around long enough for us to get an idea of the full-cycle returns on some of their deals. They've had some really good ones, and some not so good ones, and combine all those together and you can't say that the actual returns have been too terrific so far.

I only have to look at the fact that they originally estimated it to last until 2055 and already took down a $70m write-off on it for a previous change to 2030 to know that they aren't getting what they thought they were getting. The original price was negotiated with one thing in mind, but they're getting something quite different. You always tout how much cumulative revenue they made from a royalty, or how much they're supposed to make in the future, but I rarely see you do much math to see how good a return that is. If you're investing $240m in something (more than that actually because of the subsequent $65m investment in potash this year) and your hurdle rate is decently high (15-20%), then it's normal to want to see $35-50m of FCF out of it (not revenue) per year, especially if it's a depreciating asset that is subject to commodity price fluctuations and political changes and such. You can't just slap a multiple on those streams since they are depleting (even if slowly). If you look at 240+65m, at 15-20% you'd expect to see around 45-$60m/year just to meet that hurdle, but even with that you wouldn't actually have 15-20% in your pocket since you have to put some aside to eventually replace the depreciating asset. Since 2013, the SP500 in CAD is up 138% and ALS is up 7.6% (though it's been basically flat around $10-13 for 10+ years). The stock could double and it still wouldn't have caught up to a simple index fund. So I'm certainly hoping that they're creating value underneath the surface, because it's selling at 1.62x book and 20.5x P/E, 20x 2018 EBIT and book value per share has been almost flat for 5+ years (actually, at 8.66 it was higher in 2014 than today at 7.70). I know management is smart and they have a good model - that's why I looked at the company in the first place and owned it for a while - but sometimes that's not enough to have market beating returns over the long-term...

Strawmen and putting words in my mouth. I really don't care, I'm not invested either way. In fact, that's not true, I wish you all the best. But I point things out as I notice them, and I've noticed some things in this thread. If you decide to not listen or get defensive, that's your choice. In the past you've touted some "amazing" deals that when we did the math amounted to single digit returns and such...

???

Very sad news. Obit: http://www.legacy.com/obituaries/heraldtribune/obituary.aspx?n=brian-jellison&pid=190642046

I see you're getting into your manic phase again. I won't get into ROIC and IRRs again, that's been done... btw, the potash royalty was purchased in two phases, not all in that original royalty, and I said that the seller had the better end of the bargain on coal, I said nothing about potash--see how you're changing the subject?

More defensiveness. I just pointed out the capital one report and the original royalty deal which expected 2055 phase-out. If you feel so threatened by that info that you have to go into full-defensive mode, maybe you should stop to think about whether maybe you got too emotionally attached to your investment. If they're lining up nat gas supply for a full conversion in 2020, I kind of doubt they'll wait 9 more years to do it. If they feel like they could make more money by converting, they'll do it. If politicians feel pressure on coal, they'll expedite the process. And deciding that it takes X years to do an environmental impact study with a sample size of N=1 is risky; nothing says that Transalta's conversion date is held back by the time it takes to do the study and that it couldn't be done faster, especially a second time around. But what I really want to know is, am I your buddy or a fear-monger? You're giving me whiplash here...

Because you don't have an agenda, here? You can't stay on topic if that topic is negative, and with investing, it's very important to find the negative things because that's what can hurt you. I'm under no obligation to discuss the positives here, you're doing that quite well on your own. It's always been clear that the upside on royalties can be high when things go the right way, and some have done quite well (as you'll point out all day, posting more news about this one small cap than people post about Berkshire Hathaway). But from the start, the story has been that the downside has been low, that long-term cashflows were predictable, and they were the smartest guys in the room making the smartest deals. I think that if a royalty gets cut by decades, that's something worth discussing, which is what I was doing before you got defensive and started talking about other things.

I'm not your buddy. And I wasn't talking about Altius as a whole, but about one specific investment of Altius, which originally was supposed to be one thing, but over time is turning out to be quite something else.

Wow. From Altius' site: "The units were originally expected to be decommissioned in 2039, 2044 and 2055 respectively, but the government decision to shut down coal-fired electricity generation by 2030 impacted our Genesee royalty most. In 2016, an impairment charge of $72 million was recognized, as the expected cash flows from 2030 onward were no longer to be realized." So from 2039-2055 to 2030 to maybe 2020 or in high likelihood within a few years of that. There's more uncertainty in these royalty than might appear at first, that's for sure. Looks like those who sold the coal royalty to Altius might have gotten the better end of the bargain. Fact is, coal is going away because it's not competitive with other cleaner fuels. It's simply too dirty to keep around, voters don't want to burn coal, so politicians will always be a risk to coal and the pressure will go up year by year. Utilities have to make plans for decades down the road, and when they look forward, they don't see having coal assets as being a good idea.

Good thread by MarAzul about Buffett's investment in Kraft-Heinz:

I'll make a note on my calendar to look again in a year. As I said, it could spike up... or not. I don't see where the "reliable" part is, since people have been saying what you're saying since the beginning of this thread 4 years ago, and at the time it was considered already really cheap because it had just fallen 60-75%... To me that's more speculation than investment, hoping the volatility will go your way.

https://www.recode.net/2018/11/2/18049504/elon-musk-tesla-spacex-kara-swisher-interview-recode-decode Podcast interview with Kara Swisher. I haven't listened yet, so don't know if it's good.