Liberty

Wait, so you're saying that the NPV of far off royalty revenues is worth very little. Is that correct? The way coal is going all around the world (even increasingly in China), under huge pressures from cheap fracking natural gas that is much less carbon-intensive and doesn't cause smog, and solar and wind relentlessly going down in costs year after year, as well as storage becoming more and more viable with each passing year, I'd be very surprised if any coal plant in Canada was safe for very long. There'll be pressure from the federal government at some point too, and Trump won't always be in the White House. When he goes, you can probably expect a big pendulum swing the other way, and any carbon regulations in the US can influence things here. We'll see. Anything can happen, but my money would be against coal doing very well in the coming decade or two.

No, the "who cares" was literally "who cares if I mis-calibrated or not how well known Shrodinger's cat's thought experiment is?" It's really not important at all. Everybody here understood what I meant in the context of the surrounding sentences. I didn't start quoting Assyrian poetry in the ancient greek translation surrounded by pages of advanced algebra equations like Taleb would do. Now that would be pretentious :D

No sure what tone you read into what I wrote, but I don't think it was the intended one (always a problem with text..). I was just trying to bring things back to what I thought was a more important point. No retrenchment here :D

Well, maybe well known in well-read circles, which I assume is most people on this board. Who cares? Focusing on the cat is a great way to miss the point, which was that it's not good for investors to have a one-way ratchet when it comes to positive vs negative information flow, and that it seemed to me like the ALS thread was too focused on every little positive detail and too dismissive of anything negative, despite plenty of it in the past decade. Nobody's immune to this and I've been guilty of it in the past in big ways and I've lost lots of money because of it. When you fall in love with a company, it's too easy to duct-tape the rose-colored glasses to your head.... I think it's healthy to have push back in discussions that are too one-sided, but not everybody sees it that way. https://en.wikipedia.org/wiki/Schrödinger%27s_cat_in_popular_culture

If one of the best known metaphors in the world, part of pop culture, threatens your fragile ego, you have other problems. He's right, linealdin. It's extremely well-known. Some people have said it's the most well-known. You should see the ratings it gets. Probably the greatest ratings. Very big in pop culture. Lennon told me that cat was bigger than Jesus...

If one of the best known metaphors in the world, part of pop culture, threatens your fragile ego, you have other problems.

Just for fun, I went back in the thread to see the discussion about Altius writing down the coal assets by $70-75m dollars, or about 15% of the market cap at the time. http://www.marketwired.com/press-release/altius-write-down-of-genesee-royalty-on-alberta-electrical-policy-change-tsx-als-2193238.htm The above quoted post is the only thing at the time. That's on feb 3. I scanned the rest of the month of February to see if it was discussed further and didn't see it. I'm guessing it probably was down the line, but I'm not sure. Doing a quick scan for the word "coal" in the thread I found plenty in previous years about how the coal deposit was high margin, how use of coal would go up because of high oil prices and nuclear restrictions, how this was going to be a big winner, the safest bet, etc. I find it interesting that many small and speculative bits of news are discussed when they are positive, but a write-down of 15% of the market cap, almost twice what they paid for CDP, gets just 6 words and a URL. This makes me think that maybe the discussion is too focused on the positive and not enough on the negative. Some balance would be better for investors and would-be investors. As I said previously, I'm not even negative on Altius. There's a chance that right after I write this, the stock will get out of it's 10-year trading range and double or whatever (which would be great for new buyers and merely not terrible for long-term holders), I'm not making predictions. I just felt like maybe there isn't enough skepticism here. We could probably do the same exercise with Alderon/Kami/Julienne Lake. Hundreds of posts about how it's going to be worth billions, the team running it is the same team who built some other mines, China has thousands of airports and cities to build and iron ore just has to keep going up, etc. But then it fizzles out and it's "aw shucks", but I didn't see many people change their estimate of ALS intrinsic value and decide to sell or cut their holdings at the time. Maybe I missed them. But maybe it means that people are prospectively valuing things when positive, but not valuing them when negative. Either the value's there or it isn't, it can't be Shrödinger's value. I understand what optionality is, but changes in the likelihood of outcomes on an option changes its value...

I suggest you work on your comprehension skills. "Not just a bear market": You should just stand by your words. You think that the bear market could be a permanent or near-permanent condition. Correct? No. I was pretty clear, you just missed my meaning. Oh well. ¯\_(ツ)_/¯

I suggest you work on your comprehension skills.

https://www.bloomberg.com/view/articles/2017-10-13/the-case-against-bridgewater-isn-t-proven Matt Levine on Bridgewater.

Are you talking to me? I've done no such thing, so I don't have to defend myself.

‘Priceline Group CEO Glenn Fogel at Skift Global Forum 2017’

Thanks for sharing your thoughts, Tripleoptician. Very good introspection. I almost said that it's good to know you're going in with your eyes wide open, but that's probably not the best phrasing to use with an optician...

Google or Apple. Google already tried to buy Tesla in 2012, and Musk and Larry Page are close friends.

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/tsla-tesla-motors/msg311666/#msg311666

Best of luck. Obviously you are highly convinced if you have 100% of your portfolio in it. I was just trying to slide a bit of a different perspective in between the drill hole reports. Maybe some others reading this will have gotten value from it even if you haven't.

I mean you're riding the operational businesses underlying the royalties, not the stocks. Someone has to mine the ore for you to get that royalty, no? Exactly my point. This one went the right way, so now it's worth more. The coal and iron stuff went the other way, so now they're worth less. And maybe next year, or the one after that, copper will go the other way. You're not that isolated from the underlying commodity market and companies even if your downside is capped by the royalty model. Capping the downside is great, but you also have to compound value over time at high rates to be an attractive investment. You can always say that everything's an option that might pay off later, but at some point, there's the value of time to take into account. A big payoff after 10-15 years might give you a pretty sad CAGR even if at that moment it seems like a big move. Drill holes and promising exploration results are lifeblood of this very promotional industry, there's a steady stream of those to keep people hooked and dreaming about future riches, but until the money's in the bank, I wouldn't hold my breath.

I get the attraction of the merchant bank model, I'm a former shareholder, so it's very attractive on paper. And I get the attraction of the volatility. "Hey, let's be value investors, buy low and sell high, or buy low and hold forever." But the problem, and probably the reason why you don't see many big value investors in the commodity space, is that you can't really pin down an intrinsic value on most things, so it's very easy to make mistakes. And the industry is truly terrible, it eats up capital like nothing else, so time is usually not on your side. When you're looking at a bank or an aerospace company, you can look a the value of the financial assets and the cashflows and look at ROIC and ROE and FCF margins and estimate what you think the business is worth. With companies in the commodities space, there's always a "it's worth X at Y commodity price" and you have no control over commodity prices and not much practical ability to predict them. If you're a buyer, you always think commodity prices should be lower, and if you're a seller, you always think they should be higher, but in practice, you don't really have control and are speculating on a roll of the dice.

I think they're relevant to help think about the situation. Royalties are typically based on percentages of revenues/production, right? Then if revenues/production are affected, that'll affect royalties, no? If there are royalties with upside if mines expand or new mines are built up, whether the underlying companies can do these things will affect the royalties, right? If your goal is just to have any royalties paid, then that's fine, I'm pretty sure there's always going to be some money coming in. But if your goal is to get really good rates of returns that compound over a long period, then it gets a lot more uncertain, because you're still riding on top of these mining companies that are operating the mines and these volatile commodity prices, and there's a lot of uncertainty in the reinvestment opportunities. That's why I'd need a really high hurdle with this kind of setup, and I can't really get there with ALS (and the past 10 years haven't sufficiently reassured me).

I said "not just a bear market". When the dot-com bubble burst in 2000, was it just a bear market for the dot-com companies of the time? Did they bounce back up to previous levels or was the bubble the abnormal level and the crash brought things back to a more sustainable level (removing many companies that could only survive at bubble levels), from which there could then be more normal fluctuations both ways. What I'm saying is that if the commodity "super-cycle" that everybody talked about a few years ago was actually a commodity bubble, we might not go back anywhere near these levels, at least not for a very long time in real terms. We're in a "bear market" compared to those years, but compared to the longer-term for those commodities, inflation-adjusted, we're not particularly low right now, and in real terms, commodities tend to be flat to down over time (with volatility), as mechanization and technology reduces costs. For example, here's copper, inflation adjusted. Where we are now doesn't exactly feel like such a bear market when taken in context.

You do realize that higher supply means lower prices, right? That's the thing with commodities. When prices rise, for a while everybody thinks they'll get rich, but then the high prices attract a bunch of marginal supply online, and prices go down again and everybody's stuck paying for capex they approved at much higher prices. I don't think POT's performance is irrelevant, as a scaled pure-play potash company and proxy for the industry. But if you think so, that's fine. I know people always have a hard time understanding nuanced arguments, so I'll spell it out again: I'm not saying they made a bad deal, I'm not saying performance going forward will be bad, I'm not saying commodities won't go back up (or down, or sideways). I'm just raising questions about past performance and the assumptions I'm seeing on the future. That's a misrepresentation. My argument is: You don't know, and when you don't know, you should have high hurdles and discount rates. And the current bear market might not be just a bear market if the previous level that people anchored on was a bubble and we're now back to a more normal plateau. For all we know, the next move could be down rather than up (that's the "we don't know" part -- back in 2011 everybody was so certain of the next move, any day now, and they're still waiting).

What I'm saying is that the sellers of those assets didn't give them to ALS for free. They are baked into the price paid, heavily discounted because they are not producing yet, might not be for years, will require capex to get going (even if ALS isn't paying for it, they are dependent on someone doing it, with all the uncertainty that this brings) and who knows what the commodity prices will be for long periods of time. Maybe they sold them too cheap, maybe not, time will tell. But I'm pretty sure the sellers weren't completely incompetent and didn't give away the shop. Something that's off in the future and uncertain deserves a high discount rate, so the NPV might not be as big one might expect from looking at the size of the resource on paper. It might pay off big in the coming years, or it might trickle out slowly over decades and be worth less than buying SPY, we'll see. But I suggest you do DCFs with various rates and see how little something far off in the future is worth at higher rates. According to Morningstar, POT's 10-year total-return CAGR has been -1.23% and revenue is now lower than it was 10 years ago. Who knows what the next 10 years will bring for potash as a commodity? Seems like returns are never as certain as they might seem with any commodity -- I remember articles back in the day about POT being a takeover target and being one of the best performing stocks at the time and being a world champion for Canada and everything...

It doesn't mean they caught it at the bottom of the price of the asset, though. As the POT chart shows, it's only when the market realizes that prices are staying low for an extended period that the they're more willing to discount the future at lower commodity prices than the original models coming out of the much higher period. How do you get that, though? Altius exchanged a bunch of cash/equity in return for an asset that is generating certain cashflows. If you discount those back at a decent discount rate (10%? what's your hurdle? For a commodity small cap my personal hurdle would be closer to 15-20%, otherwise why not buy BRK?), I'm not sure if the market isn't giving them a value that isn't somewhere around what ALS paid for them, probably a bit lower. That might be a mistake, but that's not zero. Granted, I'm just eyeballing it, but I'd certainly be curious to know how you're doing it.

Are the potash holdings being ignored by the market, or are they being priced like other potash players right now? Potash Corp hasn't been doing so hot lately: ALS closed CDP in april 2014. If you look at POT since then, it seems like ALS didn't exactly catch it at the bottom of the cycle for that commodity... You never know when it might turn again, but I'm not sure if saying that the market is ignoring it is entirely fair. I think the market is valuing it lower than you do. The market might be wrong, we'll see.

Splitting itself into three public companies: http://www.prnewswire.com/news-releases/honeywell-announces-planned-portfolio-changes-300533696.html