AMA (Ask me anything)…

The irreverent (but not irrelevant!) Nelson has linked to me in the past, so I will link to his post on something non-finance related and repeat the theme here.

I’m compiling the year-end (as today was the last trading day in the markets for 2016) and doing some year-end reflections, in addition to some projections of what we will be seeing in 2017.

In the meantime, I invite readers here to “ask me anything” via the comments below, and I will endeavor to answer in a timely fashion.

Happy New Year.

27 thoughts on “AMA (Ask me anything)…”

  1. Not sure where to start – I’ll just throw out a bunch of random questions.
    Do you still see a lot good ‘value’ in the market? If so, what sector / instrument?
    What is your take on the chance of a Trump-induced / rising interest-rate induced recession in the next 12 – 24 months?
    Are beaten up rate-resets / floating rates prefers a good risk / reward situation? What about CAD/USD – going to 65 cents?

    Merry Christmas and happy new year.

  2. What does your magic ball show for MIC this upcoming year? You should really consider starting another DB blog of random musing. Bonne année!

  3. “Do you still see a lot good ‘value’ in the market?” – No. That ended last February/March.

    “If so, what sector / instrument?” – In general, biotechnology, drugs, some apparel, and solar stocks have been hurt this year. Don’t know if regression to the mean will apply here.

    “What is your take on the chance of a Trump-induced / rising interest-rate induced recession in the next 12 – 24 months?” – Ask me after Trump’s first 100 days!

    “Are beaten up rate-resets / floating rates prefers a good risk / reward situation?” I don’t believe so. I haven’t found anything when scanning the entire CDN pref market.

    “What about CAD/USD – going to 65 cents?” – I predicted this in an early 2016 post, but it never quite got there. There’s a good chance of it happening if oil recesses below US$40 again. Energy is Canada’s #2 export, behind real estate of course.

  4. @Nicolas: The only certainty I have is that mortgage insurance premiums will rise. As for DB, that was a long, long time ago. The internet has sadly changed since then.

  5. I live in a city nearby you. Would love to get a cup of coffee and discuss stock market. Let me know if you are up for the offer. Either way, Happy new year!

  6. @Rj: E-mail me at sacha@divestor.com, but please be warned that I am probably the most boring person on the planet to talk about stocks with since most of my answers will usually be “I have no idea.”

  7. Yeah, I have a question. How does it feel SHAMELESSLY stealing an idea from me? Which I stole from Reddit. Which they stole from someone else. And so on.

    Okay, real questions time:

    1. What’s your prediction for Toronto/Vancouver real estate prices in 2017?

    2. Largest holding?

    3. Have you ever considered investing in some of the super cheap stocks in Europe or Asia?

  8. Thanks for a great year of posts Sacha.

    What confluence of factors will move the market to price KCG Holdings above book value?

  9. @Nelson:
    1. I don’t know anything about Toronto. In Vancouver I’m guessing we’ll see around a 5-10% decline for SFD. If China’s economy crashes this will accelerate.

    2. Genworth MI. Pretty bold considering #1 above.

    3. No. For the most part I stick with Canada or USA simply because I know more about their regulatory climate and have a better intuitive feel of how life is over here.

  10. @Stusclues:
    Some demonstration they can make money in lower volatility environments. Other possibility is Leucadia (via Jefferies) is now their #1 shareholder, and they do have pockets deep enough to take them private again. It would make sense – they could probably get away with US$17/share or so.

  11. Hi Sacha
    I own a very small position in GCM.DB.V…….which is a straight forward debenture.
    Can you explain GCM.DB.U…to me. I found this…..
    Coupon: 1% Cash / 2% PIK rate
    Maturity: 08/11/2018
    Ratings: NA
    Pays: Monthly
    Price: 58.29
    Yield to Maturity: ~25.75%
    (price is out of date)
    Ok, this is USD… YTM is straight forward…..but 1%….what is 2% PIK rate….and it pays 1% /12 each month?
    I remember reading that you and several others preferred the 6% debenture and felt it was more secure….but the US is a much shorter term…..care to elaborate.
    Thanks
    Marc

  12. Marc, for the 1% coupon debenture. GCM has the option to pay for it at maturity with shares issued priced at $0.13 USD. If the avg trading price of the shares prior to maturity is below $0.13 USD, 19% must be settled in cash, with the option to settle the 81% with shares issued at $0.13 USD. With shares trading below $0.1 CAD, hence the significant discount.

    The 6% debenture does not contain redeem with share clause and consider secured debt. The 1% is considered unsecure debt.

  13. This might be slightly off-topic, but –

    What advice would you give to a 26 year old guy with no formal background in finance/investing that just inherited US$1 million cash?

    Buffett says just dollar cost average index and forget about it. Is this what you’d recommend?

    Also since we’re 8 years into a bull market (Shiller PE ratio 27.7), would it make sense to hold off buying index now and wait until recession starts or just start now?

    Thanks.

  14. @aLuckyGuy: “Ask me Anything” includes anything. Doesn’t necessarily mean my answers will mean much!

    The key phrase of “with no formal background in finance/investing” would suggest that you should hire a trustworthy, competent and professional financial advisor to consider your financial requirements and mold a proper plan in accordance. Basically there’s no other information in your question that would suggest a prescriptive course of action.

  15. What do you use for portfolio tracking? Google Finance / Yahoo / customized Excel spreadsheet / other?

  16. @Kevin: Excel, and my watchlists are in Yahoo Finance (although I wish they’d restore the service as it was in the year 2000). Interactive Brokers also has some excellent screening utilities (esp. with fixed income) that I use as well.

  17. Thanks for the input Will and Sacha…..still a little confused…..it pays 1%/12 monthy, as well as 2%/12 shares (PIK) monthly?
    Sacha…what does “a near-equity proxy.” mean?

  18. Marc: GCM.DB.U pays a 1% coupon (i.e. 0.083333% per month). At maturity if GCM trades (as defined in the indenture) at less than US$0.13 then they’ll pay 19% in cash, and 81% in shares of GCM at US$0.13 (i.e. 7692 shares per US$1,000 debt). If they are over US$0.13 then it is a flat conversion.

    Thus it is a “near-equity proxy”, i.e. GCM.DB.U basically is equity with a few twists.

  19. In some ways, I find it amazing how close to parity with the stock that GCM.DB.U trades.

    Meanwhile, GCM.DB.V which gives you the upside optionality for over 16 extra months, while giving downside protection, a better sinking fund and decent current income doesn’t reflect much of those advantages in its price.

  20. In my less than humble opinion, anybody considering GCM.DB.U would be better off buying the common shares unless if there is an obvious arbitrage situation (where the commons are more expensive than the U’s converted).

  21. Hello Sacha,

    My name is Alexander John Fisher. My current history and general life are many and varied and uniquely like a Canadian Forrest Gump. Without going into too much detail about the details at this time, I was born in Trail (The Silver City) in ’62, grew up in Rossland (The Golden City), dropped out of a curriculum that I didn’t believe in after grade 11, and have been essentially bumbling and stumbling ever since. Fast forward to Vancouver 1990, the year I became divest. I initiated the RIDE car/vanpooling and Go Green campaigns early that year until I felt they had been left in good hands and I could go out and make some bread money. I also consulted with Blaine Culling of the Roxy downtown and now he or his associates are non responsive. I began whispering things like ‘gold’ to VSE investors and ‘salad’ to MacDonalds managers. And then I went to the Peace Camp in front of the art gallery where I was placed into a position of responsible authority. It was my initial experience with what we now know of as the First Nations peoples and cultures. I phoned the UBC Faculty of Law and asked them to research the question, “Who’s Land is it Anyways?”. I couldn’t possibly tell you the young man’s name, but after the walk from downtown to the faculty building, his response to me was that the land (Vancouver, British Columbia and Canada) are all unceded land. This gave them the legal foothold they needed to level the field in the face of colonial rule. I’ve been an outsider looking in for a long time and would like to find investors (divestors) for my biggest and best ideas as they are continually emerging. Anyways, my motivation is the environment and finding way and means of turning the machine around and fixing everything it has done to damage us. I want to go on a tour of Western Canada to promote wholistic new ways of existing and reupping my effort to shift the machine. Can you help me to find investors/divestors? I need a lot of help in a lot of areas. After all, somebodies got to keep up with Trudeau and Trump. At this point I’ll leave it to you to respond other than to tell you that I’m broker than a joker because more than anything, I’m a principalled individual and because of it marginalized beyond being able to afford my rent anymore or even a set of snow tires. I need some benefaction before being impoverished puts an end to me.

  22. @Will: One of the more fairer proposals I’ve seen as of late. Companies are in a good position to renegotiate terms of debt in the current ‘happy’ climate. Most of the value in this offer is the reduction in conversion rate to $1.25/share. This is a mild plus for debtholders. The put option offers little value.

  23. I’m a bit surprised how the common tanked on the news, unless common holder are expecting another asset sale to completely get rid of the debt – otherwise a part-cash / part-stock redemption is inevitable and the stock would be issued at like 70-80 cents area; now at least your dilution is happening at 1.25 instead.

  24. @Will: The market is adjusting for the value extraction from the higher coupon, in addition to dilution threat (which is somewhat blunted by the fact that they would likely convert to shares if this proposal fails).

    As a side note, if I owned the debt I would vote against the proposal for that reason.

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