From the Globe and Mail:

Star hedge fund manager Eric Sprott admits he was taken aback by his company's less than stellar stock market debut Thursday, and figures short sellers were behind the massive trading volume.

"I have to believe or think or conclude that there must have been some significant short selling," Mr. Sprott, the founder, chairman, chief executive officer and controlling shareholder of Sprott Inc. [SII-T], himself a short-seller of no mean repute, said Friday.

"I can't believe that on a 20-million-share issue that 12 million shares, approximately, should trade - it's ludicrous, " he said in a telephone interview before stock markets opened Friday and the shares fell again.

...

Mr. Sprott said this depends on whether investors believe in the strategy of betting heavily on precious metals, energy and other resources his firm has used to generate sparkling returns and a reputation as one of Bay Street's brightest shops.

"It's certainly a robust valuation if you don't believe in what we do," he said. "If you do believe in what we do, it's not that robust."

He also argued that market players who think the resource and energy boom may already have peaked are dead wrong.

"Everybody in the world is trying to call the end of resources," he declared. "They're just wrong every day and every day they look worse."

Mr. Sprott also cited his firm's rapid growth and strong returns in defending the IPO price.

"We've done well for a long time, we're doing well this year and we think we're well-positioned," he said. "If we can repeat our former performances, we will, I think, more than substantiate that valuation."

This Boone Pickens interview was a great watch. I liked it so much I watched it twice! My favourite part was where he tells about how his hedge fund lost 90% of its capital and then subsequently made it back and MUCH MORE. He said, almost jokingly, the difference was that for the first time he wrote down the steps to how he made money as he made it and then just kept doing those same ones over and over again; whereas in the past when he made money he would forget how he did it.

Buffett bought BNI, KFT, M&TBank, SNY and sold Ameriprise, and reduced Iron Mountain.

- Vooch

JOSB

I bought here 15/6/2006 JOSB and I paid 25.18 for a stock. Now almost exactly 2 years later the JOSB costs 25.8.
No change you say ? Maybe, in a mean time the stock went from 25 to 46 then to 18 and now back to 25.

As you can see stock market is really efficient especially if you take company with no debt and nice free cash flow

 

CMZ

I bought  CMZ here 26/6/2006 for 11.02 and now almost 2 years later CMZ costs 11.8. No change again,but in a mean time company went from 12 to 7.5 and back to 12.

 

HANS

I bought here HANS 15/8/2006 for 29.76 now HANS costs 30.24 . No change, but in a mean time company went to 70 so it could fall back to 30.

 
There was a time when I thought I can play deep value games the result is I can't.  None of them worked out.
DFC,TUES,APNI

I also tried to play  turn arounds (TBL) and macro bets they didn't work out as well.

It means I should focus on easy businesses with good balance sheet and I should leave turn arounds,deep value plays and macro bets for someone else.



PS: I know Warren you warned me.....

How is it that these guys can always raise money after blowing themselves up?

Bill Miller on the credit panic and commodities:

For planning purposes, here is my forecast: I think we will do better from here on, and that by far the worst is behind us. I think the credit panic ended with the collapse of Bear Stearns, and credit spreads are already much improved since then. If spreads continue to come in, the write-offs at the big financials will end, and we may even have some write-ups in the second half instead of write-downs. Valuations are attractive, and valuation spreads are now about one standard deviation above normal, a point at which valuation-based strategies usually begin to work again, and momentum begins to fade (there is no evidence of the latter yet, as the old leaders continue to lead). Most housing stocks are up double digits this year despite dismal headlines, a sign the market had already priced in the current malaise. I think likewise we have seen the bottom in financials and consumer stocks, but not necessarily the bottom in headlines about the woes in those sectors. Although the economy is likely to struggle as it did in the early 1990s, the market can move higher, as it did back then.

The wild card is commodities. If commodities break, or even just stop their relentless rise, equity markets should do well. If they continue to move steadily higher, they have the potential to destabilize the global economy. We are already seeing unrest in many countries due to the soaring prices of rice and other grains. Oil has rallied $30 per barrel in the past 8 weeks on no fundamental news, save only the same stories about fears of supply disruptions. The typical fundamental drivers at the margin, such as global economic growth, miles driven, and seasonality, would all suggest prices similar to those that prevailed in early February. But none of that has mattered. I agree with George Soros that commodities are in a bubble, but it also appears he is right when he describes it as one that is still inflating, and we still have the summer driving and hurricane season with which to contend.

The weak dollar is another culprit in the commodity cycle. Oil began to rise in earnest when the dollar index broke down sharply in February. The Fed could help a lot by halting its interest rate cuts. Real short rates are now negative. It is not the price of credit that is the problem, it is its availability. If the Fed stopped cutting rates, that would help the dollar, which in turn ought to stall the commodity price rises, and thus also help the inflation picture. More technically, the Fed, in my opinion, needs to focus on the value of collateral and not on the price of credit. It appears they are beginning to do this, which is a very healthy sign. This is a topic for another letter, but anyone interested in it should consult the work of John Geanakoplos, a distinguished economics professor at Yale and an external faculty member at the Santa Fe Institute, who has written extensively on this issue, and presented to the Fed on it as well. He and Chairman Bernanke were grad students together at MIT.

I bought a book SOLD SHORT written by Manuel Asensio issued 2001 and I have to admit history repeat itself and Manuel knows that.

You can check www.asensio.com and its links on Timminco (TIM.TO) . I couldn't believe my eyes how similiar it is to his other famous bets.

I think Timminco will be very painfull for investors in Eric Sprott's IPO and Timminco itself. What a shame.

PS: I short Timminco myself




  

 

A lot of investing books will tell you that "buy-and-hold" is far superior to actively trading stocks.  Buy-and-hold investors purchase their stocks and hold it through the ups and downs for a longer-term profit; whereas active traders buy and sell stock regularly, attempting to capitalize on the volatility of the stock market.  Research has shown, however, that most buy-and-hold investors do better over the long-term because of the additional transaction costs of constant trading, not to mention how hard it is to time market volatility.

Yet despite what history says, there are always exceptions.  The Globe and Mail recently had an article featuring Noah Blackstein, manager of the Dynamic Power American Growth Fund, and how his portfolio turnover rate has been greater than 740% over the past four years.  In 2003 alone his turnover was 1,265%!!  Still, regardless of all the trading, he has beaten the S&P 500 total return index by over 9%.

The article also highlighted Peter Hodson, portfolio manager of the Sprott Growth Fund.  His turnover has been over 335% over the past two years and he too has beaten the index by a large 12.8% margin.

Sure those are only a couple of exceptions, you may be thinking.  But actually there are a lot more.  While reading that Globe article I remembered last year reading about a couple of other stellar performers with high turnover.  Rohit Sehgal, manager of the Power Canadian Growth Fund (of which I am a unit holder), had turnover of 180% in 2003 and 244% in 2002.  And super-star manager Normand Lamarche, who manages the Front Street Special Opportunities Fund, says his average turnover is 100% to 200% a year.  In case you were wondering about my definition of "stellar performers", the Power Canadian Growth Fund has a 5-year 27.63% rate of the return, and the Front Street Special Opportunities Fund has a 5-year 37.09% rate of return.  No too bad for actively trading.

So there you have it.  Even though almost every book I have read on investing tells you to buy-and-hold, obviously that is not the only way.  The more I learn, the more I realize that there is no set formula for success in the stock market.  All that really matters is finding a winning strategy -- and sticking with it.

Because of the collapse in subprime mortgages, the last 9 months have been generally unpleasant in the financial markets.  The bond markets have been hit the hardest, but stocks too have been difficult for those like myself invested in small caps.  Yet, regardless of my stocks being down, what has actually been more on my mind - almost to the point of obsession - was my inability to profit off the turmoil.  Despite the fact that I have posted dozens of articles on my blog over the past year and a half about the coming real estate crash, and despite the fact that it was completely obvious to me and my friends that subprime real estate owners would never be able to pay adjusted rates (otherwise they would not have gotten a subprime mortgage in the first place), I still did not make a dime off the situation.  Unlike these folks:

• Julian Robertson earning a 76.7% return in 2007.
• Lahde Capital making 1,000%.
• Hayman Capital Partners up 240%.
• John Paulson's funds up $15 billion.

Mr. Paulson's returns were perhaps the most impressive.  Not only were his funds up $15 billion, according to the article, he himself went from $100 million in net worth to over $3 billion.  This was my favourite quote:

During the [real estate] boom, however, many were so blind to housing risk that this "default insurance" was priced very cheaply. Analyzing reams of data late at night in his office, Mr. Paulson became convinced investors were far underestimating the risk in the mortgage market. In betting on it to crumble, "I've never been involved in a trade that had such unlimited upside with a very limited downside," he says.

Let's face it, I would never have thought of betting against the housing market with credit-default swaps.  And even if I did, as a regular Joe from Canada, I would not have had access to swaps, nor would I have had access to those hedge funds above.  But I am sure if I looked around hard enough, I could have found some sort of other vehicle to bet against the U.S. housing market.  Instead, my best idea was to short the Nasdaq which didn't work out so well due to my impatience and lack of shorting experience.  Heck, I could have even made money in Fairfax.  I remember reading last year that Prem Watsa had invested in credit-default swaps and was shorting the S&P; I remember thinking that Fairfax's stock, which is like a Canadian Berkshire Hathaway, was somewhat undervalued as well because of a bear raid.  However, in spite of all the thinking, I did not take the time to look into what credit-default swaps were, nor did I investigate the Fairfax stock any further.  A huge opportunity-cost.

Hopefully I will still make money indirectly from my holdings in gold and other commodities, for Eric Sprott says the only things you want to own from here on end are hard assets.  However, as I am a very competitive individual, not profiting from the housing-bust, despite having the foresight, urks me to no end.  This has caused me to re-think my approaches to investing.

My biggest mistake was not the recognition of opportunity, but rather coming up with poor ideas, or even lack of ideas, to profit from it.  I believe this was a result of always trying to do everything myself.  When I saw the opportunity, I looked around my circle-of-competency (which is the stock market), and I looked at the instruments at my disposal (which is limited to stocks, mutual funds, and options), and then I picked what I thought was a good way to play the situation.  And yet I missed the best way.  Though credit-default swaps were not directly available to me, they were available to other funds/companies here in Canada like Fairfax which I could have invested through.

In the future, when I foresee an opportunity, before trying to construct a portfolio myself, I will look to professional managers first.  There is no shame in letting other people do the heavy lifting when possible.  Although most amateur investors like myself want to run their own portfolios (perhaps because of ego and boasting rights), sometimes one also needs to realize that there are many people out there who are smarter and better at trading.  Not only does it make sense to leverage these peoples' abilities, but it also makes life a lot simpler not having to attend to all the details.  Remember, it doesn't matter whether you place the bet yourself, or whether you pay smarter people a small fee to make bets for you, the only yardstick of success is whether you make money from the situation.

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source: http://www.greensleep.com/ ,   http://www.speedace.info/rubber.htm