Monday, November 19, 2018 3 comments ++[ CLICK TO COMMENT ]++

Real Vision's Stanley Druckenmiller interview (2018)

Thanks to Liberty for pointing me to this excellent interview with hedge fund superinvestor Stanley Druckenmiller, conducted by Real Vision. Druckenmiller is a macro investor so anyone who is macro- oriented should definitely check it out.

As he makes clear in the interview, he made most of his money in interest rates and currencies and doesn't do much equity investing, so small investors like me who are focused on stocks won't find much practical insights. Nevertheless, you can glean some thoughts about global macro issues. Of note, the interview covers loose money policy over the last decade and potential trade war with China. In my opinion, these two are the most important issues, not just in the immediate future but also over the next 25 years.

Druckenmiller also gives the most important investing lesson he learned: one should always know whether they are on a hot streak (doing well) or if they are on a cold streak (bad). You should realize what streak you are on and act appropriately. Don't be like a gambler who, on a losing streak, bets everything in order to make it back.

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Tuesday, October 23, 2018 5 comments ++[ CLICK TO COMMENT ]++

Purchase: WesternOne (TSX: WEQ)

WesternOne (TSX: WEQ) is being liquidated and it seems like an attractive investment so I took a position in it. I came across the idea from Sculpin at Corner of Berkshire and Fairfax (thanks).

You can read the official press release but basically they are winding up operations and expect to pay out $2.20 to $2.43. It will be adjusted up or down by working capital but hopefully no negative surprises emerge. Initial distribution in Q1 2019 with another one upon liquidation.

A shareholder vote is required but about 38% is held by insiders who approve the deal. So I think risk is low.

The return is going to be driven by how much is paid out early. I'm hoping most of it will be paid out by end of Q1 2019.

Purchase price (TSX: WEQ): $2.10

Return Expectation

Liquidation price (conservative, low): $2.20
Return: 4.8%

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Friday, October 19, 2018 8 comments ++[ CLICK TO COMMENT ]++

Purchase: Nevsun (NSU)

I took a position in Nevsun (TSX: NSU) which is being bought out by Zijin Mining, which is one of the largest gold mining companies in the world. zijin is a chinese company that trades in Hong kong and there should be no risk with financing and the like. I owned Nevsun about 10 years ago and this buyout would bring closure to one of my earliest stocks.

Since the spread is so small, this deal is not worth it for you if your holdings are in a different currency and you don't hedge; or have a US$-denominated account. C$ currency fluctuations can wipe out any gains.

NSU also trades in USA but company is Canadian and all my dealings are in C$ and on TSX.

Purchase price (TSX: NSU): $5.72

Return Expectation

Takeover price: $6
Purchase price: $5.72

Probability of success (my estimate): 99%
Return on success: 5%
Probability of failure (my estimate): 1%
Return on failure (my estimate): -56% (assume it drops to $2.50, the multi-year low from early 2018 (it has traded between $3 and $4 over the last few years) (however, the price before another hostile offer (from Lundin mining) was $3.82 and Lundin hostile offer was for $4.75)
Expected Return: 4.3%

Buffett's Four Key Questions

(1) How likely is it that the promised event will indeed occur? 

No buyout condition and Zijin Mining is listed in Hong Kong and is a large company so low financing risk. Unlikely to be blocked by China or Canada (asset is in Africa so Canada should not have any concern and Canada does not generally block mining takeovers--it will hurt the mining industry and future foreign investments).
(2) How long will your money be tied up?
 Companies expect deal to close by end of 2018

(3) What chance is there that something still better will transpire - a competing takeover bid, for example? 
None -- already went through prior hostile offer from Lundin at a lower price of $4.75.
(4) What will happen if the event does not take place because of anti-trust action, financing glitches, etc.? 
Although not ideal, wouldn't mind owning business if deal fails. Gold exposure is likely attractive given rising trade wars and geopolitical risk (from a fairly peaceful era).
Owned Nevsun about 10 years ago so somewhat familiar with it.  midstage junior operating in very risky African country.

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Saturday, July 14, 2018 9 comments ++[ CLICK TO COMMENT ]++

Sold: Monsanto (merger completed)

Have been busy, and probably not efficient with my free time, so haven't blogged much... Need to get into a rythm and dedicate more time to investing. I think I'm going to give myself to post once a week and maybe just do a roundup of things I did that week, articles I read,etc.

Anyway, the Monsanto buyout by Bayer successfully closed a month ago and I just got around to reviewing it. As with most mergers, it took a bit longer than initially forecast--this is why if you are into risk arbitrage, you should always factor in a longer closeout process which lowers your annualized return. As I remarked a while ago, m&a is getting riskier with potential USA trade war with China, and likely followed by escalating trade war with Europe, so deal breaks are likely to become more common. Already several Chinese and high technology deals ran into issues.

Overall return wasn't that spectacular but I was satisfied with it. Dividends added about 1.8% which is always a positive with delayed deals (not all deals pay dividends when deal agreed).

Price Sold: $128
Total Return: 11.5% (annualized (estimate): 11.8%)
Total Return (C$): 12.34% (annualized (estimate): 12.5%)

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