I am analyzing Methanex (MX; US: MEOH) for my personal portfolio. Although it has had positive FCFF for the last 5 years, even in 2002-2003 when net income was basically zero, and although it has good corporate governance, still its gross margins are dependent on methanol prices. Its customer mix is about 40% North America, 30% Europe, 20% Asia, and 10% Latin America. The last price was $25.14/US share. I estimated the following:

• If average 5-yr methanol price recovers to $310 US/tonne, the value would be $62/US share.
• The ROE implied by company’s 2007 guidance of $2.78/share is 22%, implying methanol of $270/tonne. If this ROE persists for 5 years, the value would be $37.
• If average 5-yr methanol falls to $200/tonne, the value is only $13/share.

I was wondering whether any of you have any insight on future methanol trends based on (1) natural gas prices (2) demand for chemical manufacturing and (3) demand for methanol-based fuels (although MBTE is being phased out in the U.S.). Thanks in advance.

In the "comments" section I will present a thesis for Bexil Corporation. I am presenting this not as an investment recommendation but rather to elicit feedback on my presentation. Thanks in advance for any constructive criticism.

Bexil (BXL) highlights:

• Trading at a discount to cash & equivalents
• Scenario analysis suggests company trading at a significant discount to present value
• Effective management fee of 5% and significant stock option grants

Mohnish Pabrai, The Dhando Investor: The Low-Risk Value Method to High Returns. Wiley, 2007.

(Apologies to those who have already read or reviewed this book.)

Written by a self-described shameless copycat of Buffett, I found this book a good introduction to qualitative analysis. It is a very easy read and details several examples of undervalued securities. On the analysis side, he discusses such topics as moats and competitive advantage; on the investment side he discusses portfolio allocation (bet big and infrequently) and the discipline of selling. He does use numbers in this book, but the emphasis is on the concepts, not the numbers. 2 minor points: "Arbitrage" in this book seems to refer to a type of competitive advantage. He mentions DCF models to the extent that you can understand his valuation examples, but to actually use DCF or other models you'd probably have to read up on them from another source. All in all, recommended.

I will post my Q&A notes under "comments" so as not to take too much space on the main page. Enjoy

Notes from Wesco 2007 NOT verbatim; my comments in parentheses
I use "BRK" to refer both to Warren & Charlie, and to Berkshire-Hathaway stock (BRK.A and BRK.B)

Charlie could never have predicted that he would become the assistant leader of a cult. (Laughter from audience)
Prepared remarks:
Learn vicariously whenever possible.
Why Buffett was successful: confluence of factors
 1. Mental aptitude (but didn't have to be the very smartest)
 2. Not nutty (see below)
 3. Interest
 4. An early start
 5. Learning: lifelong, continuous, never stopped. Warren improved immensely as an investor AFTER age 65. Charlie said later on that for instance Warren learned to use currencies and derivatives at a late age.
 6. Work concentrated in one mind (not investing by committee). Cf. Wooden deciding to play 7 instead of 12. The 7 then got more playing time and experience that wasn't diluted by the practice squad.
 7. Objectivity: discipline and rationality
 8. (Positive) reinforcement: get rewards such as admiration, trust, or happy employees: fun
 9. On trust: all these compliance checklists are not as important as trustworthy people
Nuttiness (when smart people make dumb mistakes)
 1. Asinine decisions
 2. Ideologue
 3. Mozart: depressed and spent beyond his means
 4. Self-pity: thinking the world is unfair: there's no worse way to live life.
 5. Revenge
 6. Cheating and self-delusion: Enron accounting, abuses of mark-to-market accounting of derivatives
So be a mental adult and get rewarded.