Blessed by the Potato

Sold my BRK.B today. Not that I don’t like Berkshire, I think it’s a great long-term hold, but I needed to raise some cash and it has been defying the downturn of the last few weeks so it looked like the least under-valued thing to sell. Plus, when I bought it in January, it had been underperforming the S&P500 for a few months; now, it’s been outperforming by an even wider spread than I had anticipated. Plus, the Canadian dollar’s down almost 2% today, making selling something in USD slightly more attractive (though my effective transaction costs on selling US equities is 3-4X higher than the effective commissions on Canadian stocks due to the hefty exchange fees TD charges).

Sorry Warren, it’s nothing personal, and I’ll probably be an owner again in the future…

After last night’s crazy heavy rain in Toronto, we found a fair bit of water in our basement. Muddy water (pics to come?).

It was a very disheartening discovery, since it was very late when we found it, and since we were basically driven out of our last house due to water issues in the basement and mould. One of our only major criteria for our new place was that the basement should stay dry. Both Wayfare and I had basically lived in the basements of our parents houses, and we fully intended on making the below-grade rooms part of our usable living space — workout room, office, play room for future kids, we hadn’t quite decided exactly what form that would take, but the basement had to stay dry, damnit. We even came to visit the place on a rainy day in December while what snow we had was melting, and it was fine.

Perhaps the recent earthquake opened up a crack, or maybe the rain was just heavy enough to overwhelm the gutters and weeping tile. Either way, we had to clean it up in the wee hours of the morning. We didn’t even have a mop on hand, so I had to run out to the 24-hour Metro and pick up a mop before we could commence cleanup operations.

The ordeal was made all the worse by the giant bugs that have invaded the basement. Being the brave warrior that I am, I smooshed the hell out of a giant centipede that was trying to blend in with the furnace. I then turned around to see two large, black legs poking out of the grate to the drain in the floor. The slender black legs were comically long — they don’t really make spiders that big, do they? — I figured it had to have been one of our prop plastic spiders from the Halloween box lodged in the drain.

Then it turned, and looked at me. It followed my movement across the room. This werewolf spider had my scent, and all eight eyes were locked on target.

I knew then that I was going to die.

The centipede was but a pawn in this war, trapping me on the wrong side of the drain from the stairs and freedom. Wayfare then bravely rushed to my defense, using her shoe to shear off the creepy legs with a mighty battle cry of “Bwaaaaaahhhhhhh!”. Outmatched, the spider retreated back down the drain. I quake in fear though at the idea that her mighty blow did not finish it off, and that down there in the darkness lies a 6-legged horror plotting revenge.

And I have to wonder: what the fuck is up with these giant, terrifying spiders? I thought they were a London thing, since I’d never seen them before in Toronto, but they seemed to follow me back up the 401, plotting my ruin the whole way. Centipedes and the tiny little transluscent house spiders I’m used to dealing with, since they were endemic at my parents’, but these monstrous, dark spiders terrify me beyond all reason. Where did they come from? Why are they in our basement? Both the spiders and the centipedes are top-of-the-food-chain predators in the bug world, but aside from the odd potato bug, there are no other bugs for them to eat down there.

Are they eating my fear?

I can’t begin to get into the heads of the anarchists at the G20. I doubt many were local, so what good did they think they were doing by coming to our country and messing the place up? Cop cars on fire, windows smashed… it achieved nothing, and hurt completely innocent bystanders.

Many of the businesses who found their storefronts destroyed weren’t even all that close to the security zone. Some were independent shops, many others were franchises even if they had the logo of an “evil multinational” on their banner.

To try to undo some of the wrongs done by the anarchists, Wayfare is going to be shopping down Yonge, Queen, and College whenever she needs something that those stores provide (hopefully, not shopping for the sake of shopping) to support the stores that were victimized by the vandals.

I still don’t get why this event was held in Toronto. Huntsville was apparently deemed too small for the G20, even though the G8 fit there (they couldn’t find 12 more suites or even trailers? How big an entourage did the leaders really need?). We were talking about the cost and inconvenience for security (which obviously did not protect much of the city), and figured a small town could be purpose-built for such an event, or an island. Then we discussed why so much space (the convention centre) was needed — what about using a large portion of the money to build a facility on an island somewhere? Or why not hold it in a place like Davos, designed and equipped precisely for such summits?

Diet was terrible again this week, and I felt pretty ill and headachy on a few days — the humidity outside seemed to put me right on my ass, just couldn’t breathe out there. Nonetheless, I did get two good long bike rides in for the week, and feel pretty good about that. I gained weight though, which is bad bad bad, so I’ll have to get better about the diet next week!

I ballparked the magnitude of the oil spill at about 50k barrels per day a while ago, choosing to believe the image analysis guys (and taking something of the midpoint of their estimates). The media kept reporting smaller numbers (and early on the reported estimates were, to my eyeballing and logic, way low). Last week though I started hearing 60k barrels per day as a new estimate in the news, and cost estimates above my $50B started appearing. I thought after my first post on the matter that I might have been pessimistic assuming the well gets capped in early August. Now I’m wondering if I might have been too optimistic! The stock is already well below my “attractive” price…

Of course, it’s hard to take the plunge on BP when some of my other calls have gone so badly. RIM released results today which looked ok to me (and to TD’s analyst), but the stock was hammered by the market, down over 10% today (and down almost 20% from where I bought it). It’s trading at about a 12X P/E now — the territory of stodgy retailers and banks, not low-debt, growing tech stars like RIM! I just can’t wrap my head around why the market isn’t more positive on RIM — their slice of the pie is undeniably getting smaller thanks to Apple and Google, but the smartphone pie keeps getting bigger (heck, now even I have a crackberry). Their EPS is growing, and should continue to grow for years to come. I think what they need to do is start issuing a dividend, since it doesn’t look like they need all the cash they’re generating for growth anymore.

I own some Freddie Mac (preferreds), even though at the time I bought it, I figured the odds were good that political risk would sink it. Yet I couldn’t resist a little nibble since if the government managed not to kill it, the payoff would be huge. So it’s only a very small portion of my portfolio. It now looks like political risk is indeed rearing its ugly head, as the government overseer has announced that FRE will be delisted from the NYSE. This is a strange move since on such a huge company, the listing fees can’t really save them all that much, and Freddie wasn’t at risk of being delisted anyway (just the opposite, Russell was about to add them back to the Russell 2000 index). Internet chatboard speculation is that this is the first step to the government canceling the private ownership of the GSEs. I can’t really refute that, since the government has definitely taken a different stance on the bailout of the GSEs than of the banks. The bailout money for Freddie comes with a 10% interest rate attached, which is rather punitive to begin with (AFAIK, the naughty banks that more directly helped cause the credit crisis woes got interest-free loans, or money for common equity). The government is also making them keep cash reserves on hand, and reserve loan losses in advance — which costs them 10% — which is ludicrous in my view, since the idea of capital reserves goes out the window once you’re already under government conservatorship.

One scenario I’ve held out hope for is rather than waiting for the company to turn around and conservatorship to end, for the government to tender for the preferreds at a discount. While they are not currently paying dividends on the junior preferreds, in theory that capital costs them ~5%. The government could have Freddie offer to buy back the preferreds at say 25 cents on the dollar, and even at the 10% rate that they’re charging Freddie, it would still end up being a cheaper source of capital for them (and a massive return for speculators like me who bought the preferreds at something closer to 5 cents on the dollar — today they’re closer to 1 cent on the dollar).

If you do decide to take a gamble on Freddie Mac, please do read John Hempton of Bronte Capital’s (long) series of blog posts explaining why he thinks they can be worth something down the road if given the chance to recover (I just bobbed my head and hummed along to his analysis). And note that the political risk means that the most likely scenario is that these things go to zero. They’re basically lottery tickets, so don’t spend more on them than you would at the casino or other gamble — it’s not a sound investment for your retirement!

Finally, on the indexed side of my portfolio (which I don’t talk about too much since it’s purposefully boring — remember, boring is often good in investing!) I saw that the Euro has gone down relative to the Canadian dollar recently (~10%). For my international portion of my indexed portfolio I originally chose the “currency neutral” version of TD’s e-series fund, not really knowing the differences or hidden costs of hedging. Fortunately, that has worked out for me, as that currency hedge helped prevent the international fund from going down quite as much. I’ve taken advantage of that and switched over to the plain C$ version.

On the TFSA SNAFU, Ottawa has decided to be lenient, and all the people who couldn’t figure out this relatively simple tax-shelter will be given leniency for over-contributions in 2009. You still have to respond to your letter from the CRA though, it’s not automatic! The deadline for responding though has been pushed back to August.

Back when I had summers off and didn’t care about what time I went to bed or woke up, this used to happen to me quite by accident, my body just seems geared to run on a longer day… though I didn’t have it quite figured out to mesh up to a regular week rotation, it was more of a sleep-14-hours-stay-awake-16-hours-and-see-where-we-end-up sort of thing. I think the only time I ever saw the sunrise in the summer was when I stayed up late for it.

Of course, part of it is that, for computer nerds at least, a 24-hour day doesn’t seem long enough. We’re eternally drifting westward.

In particular lately, I have a number of late night experiments & analysis which is playing havoc with my sleep schedule. I keep drifting onto a longer day, moving my sleep time back by a few hours each day, until I get hit by a meeting and have to painfully reset.

It’s much easier to extend the subjective day than it is to snap back!