TRE - Sino-forest put.

[Hoodlum]

TRE will be volatile for a while so take advantage of it.  I sold half what I bought when it was above $7 and just bought back the same shares again.  Still a very small amount of my holdings.

 

Most of TRE's Debt is due after 2013 so there is lots of time to clear the air on this.  Here are some comments on the Carson Block Conference call.

 

http://www.canadianbusiness.com/blog/business_briefings/29215--skepticism-mounts-against-sino-forest-short-seller

 

[alertmeipp]

Seems more likely that when it was up yesterday you let the market confirm your thoughts that it would be proven to not be a fraud so you jumped in and now that it's down big today you have changed your mind.   

 

Just saying :)

 

 

 

Thanks buddy. ;D

[ValueBuff]

I think a lot of this gets settled after their earnings on June 14th.

 

The company and execs are in a blackout period currently with earnings coming up.

 

If at earning they anncounce a share buyback, and then execs start to purchase share as well...I can't see this things staying this low for much time. 

 

IMO, we would doulbe up and float in the teens until TRE can prove MW's allegations.

 

alternatively, if they cannot prove MW wrong, we have a Zero.

 

 

This is basically a call option with no expiration, from current prices you have basically 0 or 5x return

[ValueBuff]

One thing that has always bothered me about the MW report is their use of all the offshore accounts and holdco's as a negative.

 

I think every single international business runs with a similar set up as a part of business operations.  This allows the company to segragate risk on different assets, without ruining other company assets.

 

Look at barrick gold.  They have barrick gold corp.  which is a parent company and trades on the TSX.  They own barrick canada, barrick USA, barrick Africa, barrick south america.  Then they go further for developmental companies and regional mining.  Such as homestead mining in nevada.  Homestead is owned 100% by barrick, but has 1 development mine in it.  This way if something goes wrong, barrick isnt fully liable for it.  It just makes sense.

 

All these sub comapnies listed by MW for Sino, could easily be justified.  Each differnt county that they have lumber/trees in should have its own incorp. to protect the parent company from risks.  I would be shocked if they didnt have that setup.

 

To me, that isnt not a negative....it is proper planning of a corporate structure being used against them.

 

[ValueBuff]

I also picked up some shares today in the low 4's$.  

 

 

the way I see this one is this.  

 

Worse case scenerio is TRE is a $0.  I offset the loss with some other cap gains and I only loose half what I put down.

 

If Sino is correct here, I will have a clear picture of this company and what they do...plus (over time) it will go back up to 26$+.  600% + upside.

[given2invest]

Worse case scenerio is TRE is a $0.  I offset the loss with some other cap gains and I only loose half what I put down.

 

Now that's some faulty logic if I've ever seen it! 

 

 

[ValueBuff]

your correct as cap gains/losses are 50% discounted, so its 20 something %...but its an off-the-cuff calculation.

[given2invest]

your correct as cap gains/losses are 50% discounted, so its 20 something %...but its an off-the-cuff calculation.

 

No, it's faulty logic because the worst case scenario for any investment is 0 and you could invest in anything, lose money, and have it to write off against your gains. 

[ValueBuff]

then it is correct logic as I said 0.

[given2invest]

then it is correct logic as I said 0.

 

It's factually true what you said it's just a terrible justification for making an investment. 

[alertmeipp]

buying with great uncertainty is tough but often how big $ is made. Too bad I don't know Sino enough.

a report with clear errors can take Sino down like that. Hope no one lost their life saving on this.

[given2invest]

buying with great uncertainty is tough but often how big $ is made. Too bad I don't know Sino enough.

a report with clear errors can take Sino down like that. Hope no one lost their life saving on this.

 

Anyone who has their life savings in one stock had no business investing in the stock market, yanno?  But I'm sure there are some employees with a lot of money tied up in it that even if it is a fraud had no idea.  Very sad.  Still early to throw in the towel, lots of innings to be played out here yet.  But I doubt there will be a happy ending  :-\

[cwericb]

At this point TRE is pretty much a gamble. It is quite entertaining as it can bounce up or down 10-20% in minutes.

 

I like the odds here and have been picking up a little as it drops below $4.00. Maybe it's a poor investment and perhaps a lot of people wouldn't touch it today - but you know, there was a buyer for every one of those 27,000,000 shares that changed hands today - so I think that there are more people than ValueBuff and I that are buying.

[T-bone1]

I haven't done any work on this, but I don't really see a reason to be buying here.

 

Does anyone who is buying have any thought on what this company is worth, other than its previous trading price?

 

Does anyone have a thought on what it is worth now if these accusations materially damage the business even if it isn't a fraud? (which seems likely, regardless of whether or not its a fraud)

 

I think there are other opportunities in the market to triple your money over time without risking losing it all . . . if you really want a triple or nothing, I would rather buy a call option on a good cheap company than speculate here.

 

Either way, best of luck

[SFValue]

if the allegations are not true, why would the biz be permanently damaged? just curious.....

[cwericb]

Question. Given that there has been a huge number of shares traded over the past few days, would anyone care to speculate as to who has been buying?

[cwericb]

SFValue. "permanent" is a bit strong, but just the accusations and doubt would tarnish their reputation for quite some time to come.

[given2invest]

Question. Given that there has been a huge number of shares traded over the past few days, would anyone care to speculate as to who has been buying?

 

Enron had an absurd number of shares trade the weeks before it became a 0, all the way down...

 

I'm sure a lot of that was "smart money". 

 

Just cause there is a buyer doesn't really mean much.

[oec2000]

Have we moved suddenly from the corner of BRK and FFH to the corner of Cramer & Cramer? What happened to Buffett's Rules Nos. 1 and 2?

 

The only justification buyers seem to be giving here is that the upside is many multiples of the downside. This is fine if the bet is a 50:50 bet. But, is it?

 

I haven't done much work on TRE or read the actual MW report but these are some of the things I gleaned from this TRE presentation: http://www.sinoforest.com/pdf/presentations/SFC-IR-ppt-Q410.pdf.

 

1) Poyry Consulting (independent valuer of TRE's forest assets) has, after a recent "internal risk assessment" decided that their valuation reports to TRE may no longer be made avaliable in the public domain. Red flag?

 

2) Anyone wonder how a commodity company like TRE has a 15-year track record that looks better than MCD, FFH and BRK? Phenomenal growth rates with hardly a stumble? CAGRs of 23% diluted EPS, 36% revenue, 43% net income! Redder flag?

 

3) This company generates 50+% gross margins simply from buying and selling standing timber. What's interesting is that these margins are higher than the 30-40% margins they get from felling and selling logs. We're wasting time arguing about whether to invest in TRE or not. We should get into the timber trading business. Even redder flag?

 

4) They report gross margins of 35% overall, yet their EBITDA margins are almost 60%. Net margins are around 20%. My flag just turned brigtht crimson.

 

There may be prefectly good explanations for these things and I do not know the forestry business at all so I may just be revealing my ignorance but it seems to me this is not a 50:50 bet.

 

 

[given2invest]

Not at all surprising and I figured they did this but...

 

 

Muddy Waters 'Pre-Marketed' Report to Funds, Dundee Says (1)

2011-06-07 20:13:21.204 GMT

 

 

(Updates with analyst's comment in third paragraph.)

 

By Matt Walcoff

June 7 (Bloomberg) -- Muddy Waters Research, the firm founded by short seller Carson Block, "pre-marketed" its June

2 report on Sino-Forest Corp. to hedge funds for the past five weeks, said an analyst at Dundee Securities Ltd.

Shares of Sino-Forest have tumbled 78 percent in Toronto since June 1, the day before Muddy Waters said in its report the Hong Kong and Mississauga, Ontario-based forestry company misled investors about its land holdings and production. Block stands to make money from declines in Sino-Forest's shares.

"Muddy Waters pre-marketed this smoking-gun report on Sino-Forest to hedge funds over the last five weeks," Richard Kelertas, an analyst at Dundee in Montreal, said today in a conference call with investors and reporters.

Kelertas changed his recommendation on Sino-Forest to "under review" from "buy" on June 3 following the Muddy Waters report. He said the report was inaccurate and there's nothing fraudulent about Sino-Forest "to the best of our knowledge."

Dundee was among institutions that helped Sino-Forest sell shares in December 2009 and also in May 2009.

"These hedge funds got involved with Sino-Forest in a big way," he said. Kelertas declined to name the funds or say how he obtained the information.

"The short position almost doubled in two to three weeks," he said.

 

Shorted Stock

 

Short selling, or selling borrowed shares with the hope of profiting when they fall, more than doubled to a record 35 percent of Sino-Forest's outstanding stock as of June 3, up from

17 percent at the beginning of May and 13 percent at the end of 2010, according to Data Explorers, a New York-based research firm. Sino-Forest is the most-shorted stock in the Standard & Poor's TSX Composite Index, which has an average short interest of 4.8 percent.

Sino-Forest dropped $2.15, or 35 percent, to C$4.01 as of 4 p.m. on the Toronto Stock Exchange.

The shares will recover "much faster than people suspect," Kelertas said.

No one immediately responded to telephone and e-mail messages for Block seeking comment.

 

[cwericb]

"it seems to me this is not a 50:50 bet"

 

No, it is not. The downside is the loss of $4 a share. The upside may well be $10-20 per share or more. As far as working out the numbers on TRE is concerned, I don't know how anyone can do that with any certainty when the numbers themselves are being questioned. As I said before, this is more of a gamble than an investment. Many people buy lottery tickets. I like the odds better here. I hope no one bets the grocery money on this, but I think my chances are just as good or better here than dropping a few dollars at the local casino. Time will tell, but if this drops back a little more tomorrow I might find some more loose change.

 

Just because there are some very good investors on this site doesn't mean that some can't take the odd gamble now and again. Anyone who invests in the market is a gambeler to a certain extent, it is just a matter of degree. I know of no stock that is 100% assured to increase in value. Sometimes there is nothing wrong with taking the ocassional longshot.

 

 

[Guest Hester]

CCME anounced a share buyback, and a dividend, and their was consistent insider buying in the months leading up to the halt.

The problem is, when your dealing with criminals, they will dart around the rules to fool you. If spending 3% of the cash you looted on share buybacks will get everybody off your ass and allow you to sell more worthless paper in the future, they do it.

 

If they're willing to commit massive fraud, they're willing to not report they're stock sales, and report stock buys to make it appear that they are buying when really they are just buying and then going right around and selling to reinstill confidence. Insider buying is a completely worthless metric for detecting fraud, because it's easier to cheat here than to fake an entire company.

I think a lot of this gets settled after their earnings on June 14th.

 

The company and execs are in a blackout period currently with earnings coming up.

 

If at earning they anncounce a share buyback, and then execs start to purchase share as well...I can't see this things staying this low for much time. 

 

IMO, we would doulbe up and float in the teens until TRE can prove MW's allegations.

 

alternatively, if they cannot prove MW wrong, we have a Zero.

 

 

This is basically a call option with no expiration, from current prices you have basically 0 or 5x return

 

 

[Guest Hester]

I also picked up some shares today in the low 4's$.  

 

 

the way I see this one is this.  

 

Worse case scenerio is TRE is a $0.  I offset the loss with some other cap gains and I only loose half what I put down.

 

If Sino is correct here, I will have a clear picture of this company and what they do...plus (over time) it will go back up to 26$+.  600% + upside.

 

:o :o And we're on a board named after two insurers!

 

You should read Fooled By Randomness by Nassim Taleb. You will learn the faultiness of this logic if you do.

By the way, for just $10,000, I'll sell you the right to win $100,000 next year. But it only has a 1% chance of winning

 

Would you do it?

[Guest Hester]

Have we moved suddenly from the corner of BRK and FFH to the corner of Cramer & Cramer? What happened to Buffett's Rules Nos. 1 and 2?

 

The only justification buyers seem to be giving here is that the upside is many multiples of the downside. This is fine if the bet is a 50:50 bet. But, is it?

 

This is a good comment. Don't forget the justification that "The guy shorting this mentioned John Hempton off handedly once."

 

Nobody on this board should be buying or selling this stock. As far as I can see, there has been little research. Has anyone gone through the 40 page MW report line by line and refuted everything? Has anyone tried to dig up any dirt on management, good or bad? Has anyone combed through Sino's financial statements and compared them with peers to see if they are accurate/realistic numbers? I know few if anyone has because ya'll are buying before this kind of necessary research could even be completed if one were working day and night on it. How can anyone possibly handicap this thing?

 

The only thing management has refuted is the timber shipments mistake MW made, in that they didn't need to truck out what is standing timber. This is more speculative than a spin on a roulette wheel, only there you get free drinks and maybe a free room when you lose all your money.

 

The logic is just getting crazy.

the way I see this one is this. 

 

Worse case scenerio is TRE is a $0.  I offset the loss with some other cap gains and I only loose half what I put down.

 

Is that how Buffett or Watsa would think about an investment?

 

"Hmmm, if I lose everything on this, maybe I'll just make up some of the losses with gains from KO."

I'm all for taking high risk asymmetric bets, but you can only do that when you do research and know the odds.

Unfortunately there has been more posts saying "I'm buying here" than posts talking about or refuting the substance of the report. Worries me a bit.

 

Investing is all about knowing the odds and investing when they are massively in your favor. How can any of you possibly have an edge when all you have done is argue about Herb Greenberg this whole time?

[cwericb]

"Is that how Buffett or Watsa would think about an investment?"

 

I'm no expert on either one but I know very few, if any, buisnessmen who at one time or another didn't make some high risk investments and I doubt Watsa and Buffett are exceptions.