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Five for the Weekend #43

The weekend is here (counting Friday evenings), and here are five items for your review between now and Monday.

• Portfolio holding Capital Southwest (CSWC) has just released its annual report. This is yet another company in my portfolio that is trading at a loss. And I couldn't care less. Unlike some of my blowups, Capital Southwest looks to be a long-term winner and I always enjoy Gary Martin's letters to shareholders. They don't quite have the zing of the late Bill Thomas, not to mention the folksy stuff you-know-who pens every year, but well worth a bit of time nonetheless.

• Bloomberg columnist John Wasik examines some recent comments by historian Niall Ferguson, and mixes in his own views, about what individuals can do to protect themselves financially these days. One bit we can all agree on: "Don’t wait to deleverage. While this may be the age of diminishing expectations during a recession, those with little or no debt and comfortable savings will enjoy greater affluence."

• Speaking of Niall Ferguson, he pens a thought-provoking op-ed in the Financial Times. It's posted on RealClearMarkets.com so it should be free to non-FT.com subscribers. A part: "The policy mistake has already been made – to adopt the fiscal policy of a world war to fight a recession. In the absence of credible commitments to end the chronic US structural deficit, there will be further upward pressure on interest rates, despite the glut of global savings. It was Keynes who noted that “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist”. Today the long-dead economist is Keynes, and it is professors of economics, not practical men, who are in thrall to his ideas."

• Aidan Hartley's "Wild Life" pieces in The Spectator never disappoint, and his latest is no exception. It's about a couple in Zimbabwe who bought a farm AFTER Robert Mugabe came to power, and the hell they go through. These types of stories have been flooding out of the former Rhodesia so often over the years that one almost becomes numb to the tragedy of life there.

• Sticking with Africa, readers recalling Controlled Greed's days as an investor in ArmorGroup International know that Nigeria is a mineral-rich country. One that can be very deadly in more ways than one. Africa Confidential details the government's military offensive in the Niger Delta.

Have a great weekend. See you soon.

Bull Market in Distressed Debt?

Looks like it. Tim McElvaine reported looking at distressed debt in his latest shareholder letter. Today Bloomberg reports Marty Whitman is more than just looking:

Whitman said he’s finding “huge, huge opportunities,” in distressed debt and may launch a new fund for those investments. “We’re very heavily in,” he said.

Whitman said he increased the limit on distressed debt that the Value Fund can hold to 35 percent of its assets and that his firm hopes to launch a new fund focused on those investments.

“In the last six months it’s practically all the investing Third Avenue Value Fund has done,” he said. “I got so spooked by the stock market and the terrible performance in 2008. If I buy a performing loan with 30 percent yield to maturity, I don’t have to worry about the stock market.”

Further down the article Whitman says his fund has 40% of assets in Hong Kong stocks. Why? Because he believes those companies have the best combination of financial strength, discounted prices relative to net asset value and potential for growth.

Among the stocks he owns is Cheung Kong Holdings (CHEUY), which I bought earlier this year.

Thomas Donlan's Excellent Point

I'm sure Tom Donlan wasn't thinking of Dambisa Moyo when penning this week's Barron's editorial. Yet one line brought the Zambian economist to my mind:

China's adoption of capitalist methods has lifted more people out of poverty than all the world's foreign aid since World War II.

Reading the Financial Times this weekend, I see that backers of the failed Aid-model are increasing their attacks on Moyo. Even going so low as to make their attacks personal. Oh well, so much for honest, open debates.

She seems like a brave and courageous lady from what I've seen. That she has the facts on her side is even better.

Steinhardt: Rally Will End Amid "Scary" Economy

Count Michael Steinhardt among those thinking the stock market rally is ending (HT: Maoxian):

“The economy is still a scary place,” Steinhardt, 68, said in a Bloomberg Television interview. “My net feeling is that this rally doesn’t have all that much more to go and the dangers out there remain consequential.”

More:

“Can the stock market do well in a muddling period in the economy, where at best it grows at a percent or two for a period of time? Maybe,” Steinhardt said at his estate in Bedford, New York, where he keeps lemurs and zonkeys, a cross between a zebra and donkey, in a private zoo. “But it’s not a period where you see an effusive stock market.”

In Portfolio Management, Small Can Be Beautiful

This week's Barron's interview is with the two managers of the Delafield Fund, a $480-million mutual fund applying the value style.

I frankly don't know these gentlemen or their fund. But there interview is a reminder that there are advantages to not-running multi-billion dollar portfolios -- though that's a problem I'd certainly like to have:

What kind of companies do you look to invest in?

Sellecchia: We are looking for misunderstood companies where, in our view, we have identified a potential catalyst that hasn't been priced into the stock -- and we think it can make the earnings power step up and make this a company that could be perceived in a better light. It doesn't have to be a very good company becoming a great company. Normally those aren't the type of companies that we would have in the portfolio, because their multiples are too rich for us. Instead, we look for what could be an average company becoming better than average, and the market will reward you as if the same rate of change happened with a good company becoming a very good company.

Delafield: While we go across all spectrums and all sizes of companies, it is highly unlikely that Vince or I are going to discover a change taking place in Procter & Gamble that nobody else knows about it or in Texas Instruments before somebody else knows about it. But if you get down to a large middle-size company or a smaller company -- and we spend a great deal of time with them -- you have time to think about these companies, study them and consider everything, from the board of directors to the control of the company to the management. So there is a greater chance that we may perceive a change that is taking place for the better before the rest of the world perceives that.

Looks Like John Malone Wants HSN

Regular Controlled Greed readers know I own Liberty Media, meaning I own the three tracking stocks (which I consider one position in the portfolio).

Barron's reports that Liberty recently upped its stake in HSN (which used to be called the Home Shopping Network), causing HSN stock to skyrocket. John Malone and his sidekick Greg Maffei are on the prowl:

It has always seemed logical for Liberty to buy HSN and merge it with QVC; Maffei said as much on an earnings conference call in February. Under the IAC deal with Malone, Liberty can't make an offer for another year. But the writing is on the wall: HSN seems destined to be owned by John Malone. And over the past few weeks, the stock's rally suggests investors have figured it out.

Memorial Day

Here's wishing all readers in America a great Memorial Day. Controlled Greed is taking the day off, relaxing and just hanging about. But I've worked more than my share of Memorial Days over the years, believe me.

Whether working or not, spend some time reflecting on the meaning of the day, and those brave soldiers giving their lives for freedom and liberty. We can all think what we want about governments and politicians, but the history of the average American soldier and sailor is almost universally one of duty and honor. The kind of people you'd want next to you in a foxhole, as we often say.

Have a great day.

Five for the Weekend #42 -- Memorial Day Edition

Monday will be the Memorial Day holiday here in the US, making this a three-day weekend for many. I think we're in early innings still with regards to the whole bear market/financial mess. And with that in mind, here are five items you may wish to review over the next two or three days. Here we go.

• Portfolio holding Cheung Kong Holdings (CHEUY) held its annual meeting this week. Li Ka-shing, who runs the conglomerate and is also Hong Kong's richest man, urged investors to be cautious about buying stocks: “If you ask me if the stock market can go higher, it’s possible,” said 80-year-old Li, known as ‘Superman’ locally because of his investment acumen. “But be careful, the economy still has some problems this year.”

• The Michael Lewis review of Alice Schroeder's biography of Warren Buffett got wide mention on blogs this week, and deservedly so. Lewis is among the best writers out there on business and finance, and this is yet another more-than-worthwhile read. That said, I've always felt that Buffett is the greatest investor in American history. Period. His political views, personal life, and any eccentricities are really irrelevant to that.

• Speaking of Buffett, here's a look at Berkshire's recent AGM, courtesy of The Globe and Mail. It features comments by attendees Prem Watsa and Tim McElvaine: "Over time, my investment windshield gets littered with dirt," he explained. "Going to the Berkshire AGM is like getting the windshield cleaned. I go away thinking more clearly about what I do."

• Via the Can Turtles Fly? blog, I came across a detailed interview with Seth Klarman. As you know if you read blogs like mine, Klarman keeps a low profile. So this ranks as truly good stuff.

• You couldn't help but read or hear the news that Pimco's Bill Gross said the US will "eventually" lose its AAA credit rating. Bloomberg's Mark Gilbert writes an interesting column on the prospects: "It is undeniable that the U.S. government’s ability to finance its borrowing commitments has deteriorated as its deficit has ballooned. Dropping the U.S. from the top rating grade, though, wouldn’t mean the nation is about to default on its debt obligations; there’s a subtle distinction between ability to pay and propensity to fail to pay. There’s also a compelling argument that no government should be enjoying the benefits of a top credit grade in the current financial climate."

If you live in the US, have a great Memorial Day weekend. Those of you outside America have a great weekend as well. See you Tuesday or thereabouts. Stay safe.

Buying EGI Financial Holdings

As reported yesterday, on Monday I sold my Tokio Marine ADRs (TKOMY). I bought Tokio when the company was called Millea Holdings in January 2008 at $35.25. They were sold at $29.15, a loss of 17.3% not factoring in dividends.

Today I put the proceeds into EGI Financial Holdings, a Canadian property & casualty insurance company trading in Toronto under symbol EFH. I live in the US and bought the shares through my broker OTC under symbol EGFHF for USD $7.48.

EGI Financial mostly sells non-standard automobile insurance, plus some niche and specialty insurance products like travel policies. It's not a huge company, the market cap is about USD $88 million with roughly 11.7 million shares outstanding. Book value is USD $8.88 at end of the first quarter, so the stock is currently trading at a 15% discount. Those figures are based on today's exchange rate of one Canadian dollar equaling 87 US cents.

EGI Financial looks to have a strong balance sheet and top-notch management. But please do your own due diligence. Including, but not limiting yourself to, the company's fine website.

Portfolio Adjustments: Selling Tokio Marine, American Eagle Outfitters, Whirlpool and USA Mobility

I took the opportunity today (Monday) to take steps to restructure the portfolio:

• I sold my Tokio Marine ADRs (TKOMY). I'm in the process of putting the resulting funds into another insurance company, so this will be a sideways move.

• I also sold American Eagle Outfitters (AEO), Whirlpool (WHR) and USA Mobility (USMO). Meryl Witmer's firm apparently sold AEO and WHR, and most of USMO. That just strengthens the view that these have been disappointing. I'd be tempted to hold, but have a list of candidates I like better and will soon (I hope) be putting these funds to work.

All of these were sold for less than I purchased, which I will detail when time permits. This is the week before the Memorial Day holiday here in the US, making this a hectic time for my non-blogging -- READ: job -- duties.