if you're a fan of Prem Watsa

the contrarian perma-bear CEO of Fairfax Financial FFH... yes, the company that made 1 BILLION dollars in profit on a single large bet against the mortgage market using a complex derivative called "credit default swaps" and who's stock has run up from $180 to a high of $343/share recently then you want to invest with Francis Chou.

He's largely undiscovered and his quiet little funds are almost certainly going to revert to the "Chou Mean" sooner than later IMHO. Chou and Prem use a similar approach to investing.

Read the recent G & M article about Chous and his methodology here


My wife and I hold about 30-40% of our entire portfolio in his Chou Associates Fund and to a lesser extent in Chou Asia and Chou Bond.

An analysis of AIG, advice about DELL and mandatory reading from Tweedy Browne

Read Paul Price's article here. I do agree with his main points. I do find his articles to be, well, "ebullient", lol.

DELL is ramping up after a decent Q1 beating estimates. Michael Dell states that the company is finally executing the turnaround in all areas. For reasons that I don't really understand, analysts still are underwhelmed by these results. I'm holding my position (in at $19).

Tweedy Browne's letter to shareholders. If you're pressed for time, read pages 3, 6, 7 and 8. It's interesting that they have accumulated stocks in many of the companies that I have reviewed here. (note that Browne was one of Buffett's comtemporaries, in the same biz class at Columbia taught by Ben Graham, so it shouldn't be surprising that they see the world through a similar lens).

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Why dividends are awesome

The chart above speaks volumes.

A summary of the best long term dividend payers is here.

My favourite by far is LYG Lloyds TSB group-- a UK based very large, very conservative bank that has be beaten down along with its foolish peers undeservedly during the "credit crunch". It's write downs are relatively minimal, its cost controls are excellent and its fundamentals are compelling. With a 10% yield, tax treaty with Canada to help protect those dividends and an excellent chance of the share price returning to FMV when the crunch eventually ends (it will, you know) the opportunity for capital gains along with very good dividend income/tax benefits makes this stock very interesting. I think that the downside is 10% and the upside is 50%+. Morningstar thinks along my lines with a recently stated FMV of $49/share and a "wide" moat designation (size, scope and high customer switching costs).

Do your own research. I think that this is another example of a beautiful and extremely boring investment. The two adjectives seem to run together.

I suspect that the summer and early fall will harbour a few nasty surprises for the markets worldwide. I am planning to have a bit more cash on the sideline to take advantage of new bargain basement type deals. I'm also cutting a loose a few of my more marginal and speculative equities like Georgia Gulf and possibly BPOP. I think that now, more than ever, it is time to be particularly picky-- particularly about balance sheet issues and debt/capitalization.

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Some insight regarding Clarke Inc. (CKI.TO) and George Armoyan

The Globe and Mail article

The Chronicle-Herald article

Clarke's balance sheet remains favourable and its liquidity will allow it to take advantage of bargains that may emerge over the next 6-18 months of this bear market.

I like the fact that he is investing more cautiously and is executing on his plan to take more of these companies private in order to clean up their financial problems.

I intend to hold for the long term. If the share price drops less than $6/share, I'll buy more.

Don't buy right now

I'm a bit bewildered at how much equities have snapped back since I started this blog early last fall (2007).

My concern is that Benjamin Graham's "Margin of Safety" for the majority of the S & P 500 stocks in the USA and almost all of the TSX equities has now become negative.

The way you calculate it using Graham's method is very simple. You look up the rate of return for a 30 year treasury bond (4.375% today-- I just checked). Then calculate your earnings yield by inverting the P/E ratio of the equity of interest. For example the current P/E for the entire S&P 500 is about 22 today. 1/22 x 100 = 4.5%. The margin of safety is compared to the bond interest rate: 4.5- 4.375/4.5 x 100 = 2.7%. That's not much. Essentially your protection for future earnings dropping off below projections and maintaining your capital outlay for this stock is just under 3%. You better be darn sure that you're correct and the analysts are correct in their guessing game of future performance or else.... you're gonna lose money.

Now repeat this exercise for BBSI Barrett Business Services. P/E is 10 therefore there is 150% margin of error (or safety). This helps investors sleep better at night.

Think about this next time you buy a "hot" stock with a P/E of 100+.

Today Warren Buffett and George Soros both stated that they felt the credit crunch was far from over. Mr. Soros' opinion doesn't mean much to me as I consider him to be a day trader and I have a hard time following his economic reasoning. Mr. Buffett says that there will be secondary and tertiary after shocks which are likely to shake down the market sooner than later. In simple language: the market is likely to get cheaper as a whole than it is now, and soon.

After the predictable short term reaction of the market to these comments boils off, I would take the opportunity to sell weak positions (sitting at or above fair market value) and keep cash on hand for some possibly excellent buying opportunities over the next 6 months. I certainly wouldn't buy now unless the individual equity you are interested in already has a large MOS.

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Anticipation

Recent Lampert Article Gives Insight Into Activity

May-19-2008

A recent article by Sears Holdings (SHLD) Chairman Eddie Lampert gives some insight into recent buying activity. The article, entitled "The Best Advice I Ever Got" said:

"Almost every weekend when I was 7, 8, 9, 10 years old, my father and I would toss a football in the yard or play basketball in the driveway. When we played football, he'd say, "Go out ten steps. Turn to your right." The ball would reach me just before I turned, and it would hit me right in the chest. Why would my dad do this? He told me, "If I waited for you to turn, you and the defensive player would have an equal chance to get the ball. Your opportunity is gone."

This idea of anticipation is key to investing and to business generally. You can't wait for an opportunity to become obvious. You have to think, "Here's what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?" The plays my father designed for me helped me learn to think ahead. Lots of days I asked him, "Why can't we just invite kids over and play a game?" In order to do something well, he explained, you have to keep practicing and preparing."

My guess is that when one looks at Lampert's recent buying spree in shares of AutoNation (AN), the above statements are the genesis. For instance, Lampert has held shares in the company since the turn of the century and is extremely familiar with it and its machinations.

That being said, while other investors are fleeing the retail auto sector Lampert has been buying about a million shares every other week for the past few months. Why?

Perhaps he sees that CEO Mike Jackson has expanded the retailer's dealership pipeline with Mercedes and BMW (BMW) dealerships, more resistant to economic downturns and much more profitable in good times than your run of the mill Ford (F) or GM (GM) one.

Perhaps he sees, that looking ahead leases on vehicles still expire requiring the leasee to either lease or buy another one and that the current stock price reflects the poor environment now, but now the upcoming surge in activity down the road?

Perhaps he knows that while credit is tight now, all that does is to suppress demand, not eliminate it. He knows the demand (desire) for a new vehicle does not "go away". The desire to get rid of an old car for a new one stays and when credit does loosen a bit, the spigot will open and the pent-up demand becomes a flood of buyers.

Also, he knows CEO Jackson manages the business for the long term. During the sluggish auto environment in 2001, many dealers responded to deteriorating demand by offering 0% loans which after even small credit losses meant the loan portfolios eventually lost money. Jackson said at the time he did not see the reasoning for "losing money on loans just to move metal". Shares tripled from then levels.

It is clear that Warren Buffett from Berkshire (BRK.a) sees it as he has purchased shares of CarMax (KMX) another auto retailer. The boys over at Leucadia (LUK) also see it with their 30% investment in auto finance company AmeriCredit (ACF) along with Bruce Berkowitz and Bill Miller who have also taken stakes in ACF.

Disclosure ("none" means no position): Long SHLD

More on Alleghany Corp

Alleghany Corp Y

is a holding company with subsidiaries that provide property and casualty, and surety insurance, commercial and residential land management in Sacramento and as well engages in long term deep value investments, including private and public businesses at deep discount to fair market value. It has been a solid performer for shareholders ever since 1929. At a 3 Billion dollar market cap, its conservative management and investment style has lead many in the industry to compare it to Berkshire Hathaway at a much earlier stage (remember, BRK has a 200 B $ market cap!).

The market is leery of insurance companies now because of the general deterioration of the economy world wide and also because of the reversion to the mean phenomenon that Buffett referred to in his annual shareholder letter I posted earlier: the party is nearly over for insurances companies who haven't had big claims since Katrina... as it's inevitable that some sort of disaster is right around the corner. As well, the insurance products have become less profitable due to competitive pressure on insurance pricing.

Bull case:

1. great long term record. Share price has increased 26 fold in the last 25 years.
2. Y has increased book value by 16% yoy for the last 20 years! This is not sustainable even at Alleghany's relatively small size but it's very impressive nonetheless.
3. Despite above, Y is only trading at 1.1 times book value. This may actually be a gross underestimate of the company's true book value as the real estate holdings in Sacramento are being marked down far below historic values.
4. Attractive fundamentals P/E 11 P/CF 11 ROE 15%
5. Virtually NO debt, very well capitalized
6. high insider ownership. The Kirby family owns 35% of share float. Senior management each own about 1% or more of outstanding shares. Compensation is indexed to a watermark of increasing book value of 7% y-o-y---> very shareholder friendly IMHO.
7. Deep value investing approach that is conservative and long term in scope. One dramatic example is the large stake Y took in Burlington Northern (railway) some time in the 90's, long before Berkshire got its hooks into the company. Y made 5x it's original investment.
8. Share buybacks are underway with $300 Million authorized (about 10% of the float).
9. 5 star Morningstar status. FMV estimated at $475/share and trading as low as $330 (my entry point for my RRSP). This 31% discount provides an acceptable margin of safety for my investment.
10. being debt free and a large pool of liquidity available, the management has indicated that it is interested in buying private businesses in distress for the "right prices" (which the company's cheapskate track record shows would be bargain basement or no deal, lol).
11. conservative underwriting policy at the RSUI subsidiary has kept them out of trouble and is likely to do so by avoiding high risk deals.

Bear Case:

1. Recent S & P downgrade from BBB+ to BBB status. This move has mystified the analysts and CEO of Alleghany. Apparently S&P didn't even talk to any officers of the company prior to the downgrade.
2. no dividend
3. Narrow moat. Y's performance is highly dependent on management's expertise which is not ideal. I believe it was Charlie Munger who said that the best business to invest in is one that any idiot can run because sooner or later one will be.

I think that this stock will be an excellent and safe long term performer, best kept in an RRSP or tax free savings account. As mentioned above, I own a few shares in my RRSP and I think that any price less than $340 is an opportunity to increase the position.

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License to print money or "Why I love owning Insurance companies"

When my wife and I were in New York City last week I met a man who gave me a bit of advice that rings true. He said that I should always buy companies that I hated in my daily life. Not hated because of incompetence or shoddy products but hated because I had to pay those companies exorbitant fees/prices and didn't really have much of an alternative.

Companies that I love to hate include:

• insurance companies
• asset management companies
  
• banks (particularly the big banks)
• Telecoms (particularly here in Canada where the competition is either nonexistent or nearly so)
• Oil/gas companies
• Stock Exchanges

The reason why insurance and asset management companies are amongst the best performing and lowest risk wealth generators over the long term include the following:

• no inventory nightmares
• no risk of obsolescence
• large cash float to invest (wisely I hope)
• brand name power
• flexibility to decrease underwriting in risky times and when the margins aren't favourable (the "umbrella" effect where the umbrella gets taken away by the insurer when it actually rains, lol)

There are 2 insurance companies that I particularly like now: AIG and Alleghany Corporation.

AIG-- because it's current woes attributed to the failed Credit swap business and dilution of shareholder's stake through an undervalued equity secondary offering has knocked the stock down to a price that ignores it's excellent brand, dominance in emerging markets and long term track record. Morningstar calls the fair market value (FMV) at $76 and it's trading at $39. I own some in my RRSP and have a bid for more in at $38. I have no doubt it will drop more.

Y Alleghany Corp-- a full analysis is coming but this co has high insider ownership, conservative management with a superb track record (shareholders have made 26x their original investment in the last 25 years) and a great deep value investment philosophy (the discarded cigar butt approach... more on this later). It's also trading well below FMV $344/share v.s. $475/share.

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Caution on two VCI stocks and a comment about Legg Mason's terrible quarter

BBSI Barrett Business Services: As I've mentioned many times before, up until recently there's not much to find to fault this company- strong management, high insider ownership, rapid growth and a strong business model, decent dividend and compelling fundamentals. I posted a month or so back that I found in the 2007 annual report a concerning letter from the Auditor stating that the internal controls at Barrett were inadequate and as such, the reported numbers could be not indicative of the financial health of the company. That wasn't bothering me much, particularly since none of the analysts even asked about it at the conference call and the remediation was well outlined in the report. What bothers me much more is the timely resignation of the well respected CFO James Mulholland from the company for "family reasons". I'm not concerned enough to sell my position; however, I will not add to the position regardless of how enticing the price gets until the significance of these events becomes clear or a few quarters go by. I will watch this very carefully and am planning to write a letter to the investor relations person at BBSI. Accounting voodoo still goes on in the US for sure although with SOX and unbelievable penalties (i.e. life in prison) at stake, it's certainly much less of a problem than it was pre-Enron and World.com.

GCC Georgia Gulf: This company teeters on the verge of bankruptcy, mostly due to an ill-timed acquisition of Royal Group here in Canada. The mgt has taken steps to scale down production and eat away at the massive long term debt. So far all the debt covenants are ok. If the chemical sector recession continues or gets worse, the cash flow crunch will kill them. I do see a potential for a large scale recovery reflected in this deep value stock (the P/E ratio is 4!) but the risk: benefit ratio is unacceptable. I plan to sell on a rally-- hopefully over $6/share but that might be wishful thinking.

LM Legg Mason: Mutual fund investor withdrawals (12 Billion in outflows!) and a $151 million noncash impairment charge slammed earnings such that for the first time since its IPO in the early 80's the company's EPS has dropped yoy. Legg has maintained margins with good cost control. It has approved a convertible security issuance that will have a dilutive effect on our shares; however, the new CEO feels that the proceeds will most likely be available for more European asset manager acquisition and not be needed to provide further support to the money market funds/SIVs that have collapsed of late. I will definitely hold on to my shares of this great company and if the share price drops less than 50, add to the position.

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Cheap high quality retailers with virtually no debt

I own a fair amount of COLM but none of the others: read the analysis here

Watch out for the bull!

I've been away in NYC this past week. I notice that all of the stocks have done well since I left. Unfortunately OCX.to hasn't fell to my target acquisition price of $30 and I'm wondering if I'm being too cheap (!). I'm convinced that this is a great company but I see thunderclouds on the economic horizon in the near term that may still produce a fantastic buying opportunity as soon as this summer.

I'm doing an indepth analysis of the following to be posted soon:

1. Alleghany Corp Y-- a mid cap conservative undervalued insurance and investment holding company with high insider ownership
2. TSX Group Inc. X.to-- the most undervalued stock exchange in the developed world. 15% average yoy compound growth over the past 10 years, in the top 5 cash flow generators in Canada, no debt and merger syngeries with MXX as well as 4% dividend. Gross margins of 70% are luring the big 5 banks into setting up a rival exchange which may lead to a duopoly situation--- hardly a reason to worry about upstream profitability.
3. CCL Industries Inc. CCL-B.to-- boring supplier of labels bottles and squeezable tubes to global manufacturers of drugstore/grocery products. A mid cap cash flow monster with a P/E of only 7.5, P/B of 1.5 and P/CF of 4.9 hovering over 52 week lows.

more soon....

Paul Price's analysis of UNH

UNITED HEALTH-- I agree with him: this company has been unduly punished for the short term and a reversion to the mean, albeit the lower end of the range of P/E multiple, is quite likely.

IMHO this is a lower risk intermediate term investment and I will do a bit more research before I put in a bid for $30/share.

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Maybe you should be a vulture too

See the G&M article from Reuters below.

Whenever WB says that there is an "unusual amount of money to be made" I think we should take notice...

I'm still trying to get my head around the bond market and am coming to realize that small retail investors are at a considerable disadvantage v.s. institutional investors concerning research and opportunities to buy and sell distressed debt.

I'm taking the opportunity to invest in expertise in this area by buying Chou's Bond fund. He is a well priced and highly practiced vulture with an amazing track record. I've discussed Chou's management style in prior posts. He keeps huge cash reserves (up to 40% of the fund!) to take advantage of times were in now. He is extremely conservative and I like that.

Onex OCX.TO, another Canadian mid cap company also discussed before, has set up an entire subsidiary arm specializing in investing in distressed debt. They have a pile of cash to mobilize and apparently have been since last August. They are moderately aggressive and moderate risk management style.

Finally, Prem Watsa, the highly profiled CEO of Fairfax Financial FFH made a massive fortune for the company over the last year (1.1 billion in Q4!!) betting against the mortgage insurers with credit default swaps-- these derivatives pay when debtors default. His aggressive, high risk management style is a bit too much for me and I don't like his inflexible hyper-bear outlook; however, it's a bit tough to argue with his results-- both long and short term. The valuations of the company are interesting although may be distorted by this one time huge windfall.

I can anticipate the question, "Why not just buy Berkshire?". It's a reasonable thing to do. The only downside is that BRK has gotten so huge that the law of large numbers presides. This opportunity will hardly budge the needle on BRK's amazing performance.

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W. Buffett: Debt Vulture

Buffett says he bought $4-billion of auction-rate debt

JOAN GRALLA AND JONATHAN STEMPEL

Reuters

May 3, 2008 at 2:18 PM EDT

OMAHA, Neb. — Warren Buffett Saturday said his Berkshire Hathaway holding company bought $4-billion (U.S.) of auction-rate securities during the market's recent distress.

Speaking at Berkshire's annual shareholder meeting, Mr. Buffett also said his new municipal bond insurer, Berkshire Hathaway Assurance Corp., is becoming a major force, capturing higher premiums than rivals that have been strained by exposure to subprime mortgages.

The $330-billion market for auction-rate securities, which are long-term bonds whose rates are reset periodically, froze this winter.

Investors flooded dealers with paper backed by bond insurers whom they feared would lose their “triple-A” credit ratings. As a result, many municipal bond issuers were for several weeks forced to pay uncommonly high interest rates.

Mr. Buffett spoke of how debt issued by the Los Angeles County Museum of Art fetched a 3.15 per cent interest rate on Jan. 24, and 8 per cent just three weeks later.

He also said Berkshire has bought auction-rate debt with an 11.3 per cent rate from one broker, at the exact time another broker was offering a 6 per cent rate.

“Those are huge dislocations in the market. That's crazy,” Mr. Buffett said. “Those are great times to make unusual amounts of money.” He said, nonetheless, that Berkshire, whose market value is more than $200-billion, is so large that such investments won't have a big impact on results.

Mr. Buffett also confirmed that the bond insurer he created in December was rapidly increasing market share, having won some $400-million of business in the first quarter.

Berkshire Hathaway Assurance has won “triple-A” ratings from Standard & Poor's and Moody's Investors Service.

While some rivals such as MBIA Inc. and Ambac Financial Group Inc. have also carried those ratings, Mr. Buffett said some market participants are willing to pay premiums above 2 per cent. That's well above the 1 per cent to 1.5 per cent that those other insurers typically charge.

He also said almost all of the secondary business came from issuers that already had insurance from rivals.

“It tells you something about the meaning of ‘triple-A' in the bond insurance field in the first quarter,” Mr. Buffett said.

Mr. Buffett also confirmed that in the primary market, Berkshire has insured nearly $400-million of Detroit sewer and water disposal system bonds.

In addition, he praised Ajit Jain, the Berkshire insurance executive who has overseen the development of the bond insurer. Many analysts and investors have said Mr. Jain is a top candidate to eventually succeed Mr. Buffett as Berkshire's chief executive.

“Ajit has done a remarkable job in this area,” Mr. Buffett said. “It's pretty remarkable, and I congratulate him for it.”

from the G & M-- Decloet at his best

Buffett v. Schulich: The biggest bet out there

DEREK DeCLOET

Globe and Mail Update

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May 3, 2008 at 6:00 AM EDT

From: Seymour Schulich “seymour@richboy.ca”

To: Warren Buffett “warren@cheapskate.com”

Subject: The road to riches is paved with oil (and wheat, and...)

Warren,

Seymour Schulich from Toronto here. I was talking to some kids at one of the universities here, and telling them that in 46 years of investing, I've never seen anything like this market. Never. Oil, rice, potash, wheat, gold, sugar – it's a commodity investor's dream. Manna for guys like me!

So I got to thinking, I wonder what Buffett says about all this? You've never been a fan of these commodity things. Shoot, you're out there buying big chunks of Wrigley and Kraft Foods. I don't get it. These guys are going to get killed by inflation. Didn't sugar prices go up something like 50 per cent in the space of a few months? By how much do you think Kraft can raise the price of a box of Oreos? Commodities rule, fella.

Anyway, getting to my point. You like giving away your money. So do I. I'm proposing a wager. We each set aside $10-million. In two years, the guy with the best return picks the charity that gets the pile.

What do you say? A little fun for a good cause?

Sincerely,

Seymour Schulich, CFA

From: Warren Buffett “warren@cheapskate.com”

To: Seymour Schulich “seymour@richboy.ca”

Subject: You're on

Dear Seymour,

Thanks for your note. I like visiting Toronto. It reminds me of Omaha, only quieter.

Your proposition is interesting and I'll take the bet. I had my research team (by which I mean, Charlie) dig up some details. A business magazine says you're worth $1.3-billion. Not bad for a guy who made his money in oil and mining.

Those commodity producers are minting money now. But most of them have no sustainable advantage over the competition. Wheat is wheat; oil is oil. There's no way to differentiate it. There's a supply and demand issue right now, but this too shall pass. I see gold is almost back down to where it peaked in 1980. When you adjust for inflation, oil is still not much higher than it was in the late 1970s. Not much of a real return there.

Hey, you know my shtick. I like stable businesses, brand names, rising profits and high returns on capital. Coca-Cola's still making 30 cents for every dollar in shareholders' equity. Wrigley's making 25 cents on the dollar, and doing it with almost no debt. What does it matter if sugar is a bit more expensive? They're great businesses.

Gotta run. It's annual meeting day. The adoring masses await.

Best regards,

Warren

p.s. Is that $10-million in Canadian or U.S. currency?

From: Seymour Schulich

To: Warren Buffett

Subject: RE: You're on

Dear Warren,

Glad to hear you're taking the bet. Let's make it in Canadian dollars. I don't want my charities getting U.S. pesos!

Look, I hate to question the wisdom of the world's richest man. But as I often remind people, my family's motto is, “Often wrong, but never in doubt.” And there's no doubt in my mind that it's different this time. By the way, if you're keeping score, ExxonMobil's return on equity was higher last year than Coke's or Wrigley's.

I've seen it with my own eyes. The China story is real and could last for the next 20 years. You wouldn't be wrong to say that mining was a crummy business for a long time, and oil has had its bad spells, too. But that was when the U.S. was the world's only major customer for stuff you dig out of the ground. It ain't so any more.

You always like to talk about See's Candies and what a great find it was for you. But why? Because you could raise prices all the time without reinventing the damn thing. Chocolate's chocolate. But it's the guys producing the cocoa who've got the leverage now.

Come and see me the next time you're in Toronto. We've got to get you weaned off bridge and into poker. Now that's a man's game.

SS

From: Warren Buffett

To: Seymour Schulich

Subject: Never invite 24,000 people to your annual meeting

Honestly, it takes more Cherry Cokes to get me through this event every year.

I'm not averse to commodity companies when they're bargain-priced. We made a very large profit on PetroChina. I just don't think you'll find many like that any more.

The kind of businesses we like look as cheap as they've been in a long time. We bought almost 3 per cent of Wells Fargo last year. We tripled our investment in Johnson & Johnson. We're certain their profits will be a lot higher 10 years from now. Can you say that about your gold miners?

Best,

Warren

From: Seymour Schulich

To: Warren Buffett

Subject: Rocks beat Wrigley

Warren,

Glad to see you're sticking to your style. The university students of Canada thank you in advance for your donation.

You'd better watch out. When gold gets to $10,000 an ounce and oil hits $700 a barrel, I just might pass you on the Forbes billionaire's list! LOL.

Best regards,

Seymour

From: Warren Buffett

To: Seymour Schulich

Subject: BUD beats barley

Seymour,

I'll let Bill and Melinda know to expect your cheque in 2010. Regarding the Forbes list – to pass me, you'll have to outlive me. And I intend to challenge Methuselah's record.

Sincerely,

Warren Buffett

Volatility = Opportunity

Yes..... but I would definitely wait on some cash until the current rally fades away as it seems likely that some more bad news will need to be factored in before the bear market turns around. This could take a few months to a few years and that doesn't really matter to true long term investors.

Good advice about AVOIDING stop-loss strategies from Motley Fool.

I'm looking carefully at 4 new value equities right now:

• EBAY
• SBUX (Starbucks)
• UNH (United Health- a giant HMO in the US)
• OCX.TO (Onex-- analyzed previously--- just hasn't hit my target entry price of $30 yet)
  

They are all very interesting, out-of-favour companies. I'll post more about them soon. I don't intend to invest anytime soon-- at least until another big scare rocks the market.

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TKO for BAM

BAM Brookfield Asset Management has been discussed and analyzed fully in previous posts (use the search function in the upper left corner of the screen).

In an extremely hostile credit market long with irrationally negative views towards all types of property investment (both commercial and residential), BAM is thriving. The details are in Bruce Flatt's shareholder's letter.

The renewable power sector investment is driving the company's growth and the carefully selected commercial properties' performance has more than offset the residential property portfolio's under performance.

A 2 million share buyback was completed this quarter. The balance sheet has improved as well.

BAM's share price has reflected these observations by increasing from just above $25 to
just under $33 today. Morningstar and I agree that adding to an existing position on negative dips that are almost sure to come over the summer would be an excellent choice for a long term investment i.e. in a RRSP. I hold BAM and am planning to do exactly this in my RRSP.

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