Canadian Real Estate Market

To ask whether residential real estate is a good investment to the first degree of complexity is the same as asking whether real estate prices are expected to go up or down. No one wants devaluating investments, naturally. However, the first thing to understand about real estate prices is that they’re sticky, which is why there are housing bubbles in the first place. For example, residential property sales are up again in Toronto this year, and until recently they were up in Vancouver. Ask the question of whether properties (at least in the short run) in these cities were set to go up in coming years, and you’d come up with pretty solid affirmative; but does it make a good investment? Maybe yes, maybe no, but you’d have to consider some other things.

That is, when you hear the token economist in the media referring to the housing markets as “red hot” you’d rightly say he was speaking pejoratively, that the properties are likely overvalued and that housing affordability in Canada has been fueled at least in part by record low interest rates, among other things. Vancouver, it turns out, is the most expensive city in Canada to own a house in, with shocking carrying costs. Eventually, it will cease to be the most profitable city to sell a house in. In fact, home prices have already dipped sharply (figured range from 10-15%) in the past year as residential property sales slowed to a crawl. This sort of thing on its own is a good thing in the long run; cooling markets are better than a nuclear winter, slowing sales are better than foreclosures. And the CMHC tightening its lending policies is a good sign too.

Ah, but nothing is certain in life. Where major banks decline mortgages that the CMHC won’t insure, subprime lenders will. For these and other reasons, prices continue to rise in Toronto. Sooner or later they’ll stop going up, and whether they’ll go down a lot or a little is anyone’s guess.

The good news is that there are still robust urban real estate markets in Canada, where property values are rising in a measured way. Ottawa is one such place, so is Montreal. Montreal condos are continually seen as a good buy if you’re in the market for such a thing.

Last Updated: 06/2012.

Short Selling vs Long Puts – Strategies for Value Investors

Long puts are bought on the expectation that there is a good chance for the stock to go down in the short-term, allowing the investor a chance to profit from that directional outcome. The maximum upside occurs if the stock price drops to zero before expiry. The maximum loss on the other hand is limited to what is committed upfront – the option expires worthless should the stock price stay above the strike price before the expiry date.

Short selling on the other hand involves borrowing the shares and selling upfront. The expectation, similar to a long put, is to make a profit from the downward directional move of the concerned stock. The difference is that it is not time limited i.e., the position will stay intact until closed. The short sale proceeds are credited to one’s account – paying the dividends is one’s responsibility. The key downside is the unlimited potential loss - there is no theoretical limit to how high a stock can go and hence there is no limit to ‘how much’ one can lose, should the stock price march higher.

Long put positions can prove beneficial to value investors in the following situations:

1. Say you own a stock XYZ at $30 per share. The price has since moved up to $50 and you still consider it a good value. However, the macro situation has changed and your analysis indicates the possibility for a sharp temporary pullback. In this scenario, buying protective long puts is a good strategy to earn additional income - should the stock drop, the puts increase in value.
2. End of year tax considerations can lead to a situation where a stock might not be sold even though all analysis point to selling as the right strategy. Here also, buying long puts as part of a collar construction can ensure that profits are locked in.
3. In situations when your fundamental analysis strongly indicates that a particular stock is way overvalued, committing a small amount of capital using long put positions is a good strategy to benefit from a probable pullback.

Short selling can be beneficial to value investors in the following situations:

1. Some value investors attempt to construct a portfolio aimed at generating absolute returns – the purpose is to generate positive returns year after year, independent of overall market direction. A long-short approach is one way to arrive at such a portfolio – hold both long and short positions although on the average, one or the other sets of positions will be more, depending on the macro assessment. The aim is to profit from all directional moves the research indicates, rather than attempting to benefit only on the long-side.
2. If the fundamental analysis of a particular stock has shown with a high degree of confidence that impending bad news (financials are questioned - fraud, SEC inquiries, pending lawsuits, etc.) will cause the company’s stock price to plummet, short selling such stocks is a good strategy to profit from the expected outcome.  In such scenarios, you cannot predict the timing and so long puts are not a good option.

Tracking George Soros's Soros Fund Management Portfolio: Q1 2012 Update

Below is a spreadsheet that highlights George Soros's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking David Einhorn's Greenlight Capital Portfolio: Q1 2012 Update

Below is a spreadsheet that highlights David Einhorn's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking John Paulson's Paulson & Company Holdings - Q1 2012 Update

The spreadsheet (47C8ZTC86B8V) below show Paulson's US long stock holdings as of Q1 2012:

Paulson's portfolio increased by over $1B this quarter to $13.87B. The number of stocks in the portfolio remained almost steady at 42 although there were some stake disposals and new additions. The huge gold related stock position was kept steady although there were some minor re-allocations between them. The one other huge position is Delphi Automotive (DLPH) which was reduced by 10% this quarter. The position still accounts for over 10% of the total portfolio value. Trades that show a clear bullish bias include his gold holdings, DLPH, Anadarko Petroleum (APC), Hartford Financial Services Group (HIG), MGM Resorts International (MGM), and Caesar's Entertainment Group (CZR). Trades that show a clear bearish bias include American Capital Limited (ACAS), Pharmasset (VRUS),Rock-Tenn Company (RKT), Suntrust Banks Inc (STI), Transocean (RIG), and XL Group PLC (XL).

Tracking Prem Watsa's Fairfax Financial Holdings - Q1 2012 Update

The spreadsheet below show Watsa's US stock holdings as of Q1 2012:

 The portfolio remained largely unchanged although the total portfolio value increased by around 21% due to a combination of performance and a significant stake increase in Research in Motion (RIMM). The only new holding is Novadaq Tech Inc (NVDQ), a very small ~0.6% position. Dell Inc (DELL), Level 3 Commn Inc (LVLT), and Atibitibowater (ABH) were changed only marginally and so do not indicate a clear bias. LVLT had a stunning performance vaulting by over 50% during the quarter. Wells Fargo (WFC) was decreased by one-third indicating a bearish bias.



 

Tracking Iam Cumming's portfolio - Q1 2012 Update

This article is the first of a series that provides ongoing analysis of the changes made to Ian Cumming’s Leucadia National's (LUK) US stock portfolio on a quarterly basis. Ian Cumming is the chairman of Leucadia National (LUK) since 1978 and he along with Joseph Steinberg built the company into a $5B market-cap entity with interests in a diverse set of establishments that include real-estate, wineries, mines, etc.Their focus is on turning around financially distressed companies and selling it eventually for huge returns. As such, their US long portfolio has just four names.

The spreadsheet below show Cumming's US stock holdings as of Q1 2012:

 The investments in Jefferies Corp (JEF) and Mueller Industries Inc (MLI) represent very large 68% and 30% of Leucadia's ~$1.2B portfolio. As such, the positions indicate a clear bullish bias. Jefferies (JEF) currently trades well below the price range Cumming could have bought itat - it was purchased in 2009 and his average cost basis was $22.61 with the stock currently trading around $13. MLI was purchased last quarter (Q4 2011) when the share price varied between $35.50 and $46 and the stock currently trades at around $41.

Tracking Carl Icahn's holdings - Q1 2012 Update

This article is the first of a series that provides ongoing analysis of the changes made to Carl Icahn’s US stock portfolio on a quarterly basis. Carl Icahn consistently figures prominently in the list of the greatest investors of all times. He is known for his ability to spot public companies that will benefit from changes at the top and relentlessly going after them in his role as an activist investor. His style of operation is pretty intimidating and usually starts out by taking a minority stake but that can quickly escalate to a proxy battle, if management fails to go with his demands.

The spreadsheet below highlights changes to Ichan's US stock holdings in Q1 2012:

 The US long portfolio shrunk by ~16% this quarter from over $11.65B to ~$9.77B mainly because of a couple of liquidations as a result of deals that paid-off handsomely: Carl Icahn made over 55% in a period of less than six months on his $1.2B investment in El Paso when Kinder Morgan offered $26.87 per share in February 2012. Previously, Motorola Solutions (MSI) bought 23.7M shares of its own stock that Carl Icahn held for $49.15 netting a large profit for Ichan - Motorola stake was established in 2009 - he was instrumental in splitting up Motorola into two - Motorola Mobility Holdings (MMI) and Motorola Solutions (MSI).

Bullish: Ichan increased his stake in CVR Energy Inc (CVI) by over 230% this quarter. Since then he acquired an 80% stake through a $30 per share tender offer in May 2012. He has plans to sell the company at $36 per share and has hired Jefferies & Co (JEF) to assist in the process. Icahn kept his large stakes in Federal Mogul and Forest Labs (FRX) steady indicating a bullish bias. The WebMD (WBMD) stake was also modestly increased indicating a mild bullish bias. 

Bearish:  Icahn's portfolio shows modest reductions in his Commercial Metals (CMC) and Motorola Mobility Holdings (MMI). The ~10% stake reductions indicate a mild bearish bias.

British Guiana - Travel/Philately/Numismatics/Memorabilia Profile

British Guiana is the area of present-day Guyana located on the northern coast of South America covering 83,000 square miles. The area was originally settled by the Dutch at the start of the 17th century but eventually became a British colony by 1814. It remained a colony until May 26, 1966 when it became the independent country of Guyana.

Philatelic Profile:

The British Guiana postal service came into being as early as 1796 when privately run packet service was the modus operandi. The services used postage stamps of Great Britain at the time in the areas of Essequibo-Demerara and Berbice. An inland mail service was established in 1850 with a minimum rate of 4c based on distance. The first stamps were printed locally in 4c, 8c, and 12c denominations in 1850 and were followed by a 2c denomination in 1851. The imperforate stamps (Scott #1 to #5)  printed by the Royal Gazette newspaper in black on different colors were known as the “Cottonreels” - a reference to their circular shape and resemblance to the labels found on spools of cotton - as part of an effort to prevent forgery, all stamps in this simple set had to be initialed by an official at the Post Office of Georgetown. The first issues are very rare and fetch between $10,000 and $100,000. The rarest among them is the 1851 2c stamp printed on rose paper (nickname “pale rose” came from this) of which only around 10 are known to exist. Cut-to-shape varieties are cheaper. The rarest stamp of British Guiana is the 1c black on magenta (Scott #13) - it is considered unique and can fetch well into the millions if it is ever put up for sale. It was part of a set of four stamps (Scott #13 to #16) that were printed locally in 1856. These stamps were also initialed before being issued. The other issues in the set are also quite rare and fetch between $8,000 and $80,000.

Issues printed in London first appeared in 1852 with the release of a set of two stamps in the “Ship and Motto of Colony” design. The set (Scott #6 and #7) is very rare and fetch upwards of $10K for Mint and around half that for Used. A “Seal of the Colony” design was the mainstay of British Guiana stamps during the period from 1853 to 1859. Those stamps (Scott #8 to #12) are also rare fetch into the 1000s. The colony continued to have intermittent problems with stamp availability due to delays of shipments from London. As such, locally printed issues were used in 1862 and again in 1882. Those issues (Scott #35 to #43 and #103 to #106) are rare and very valuable. Meanwhile, the Seal of the Colony issues along with several overprinted varieties continued to be issued from London till around 1898.

British Guiana issued a set of five stamps (Scott #152 to#156) in 1898 to commemorate the 60th anniversary of Queen Victoria’s accession to the throne. The set is valued at around $150 Mint and around $50 Used. The designs show Mount Roraima and Kaieteur Falls. KGV and Seal of the Colony themes dominated the scene till 1931 when a set of five stamps commemorating the 100th anniversary of the colony’s formation was released. The set (Scott#205 to #209) catalogs for around $40 Mint and around $60 Used. The designs show Plowing a Rice Field, Indian Shooting Fish, Kaieteur Falls, Georgetown Public Buildings. This was followed with a longer local scenes set (Scott #210to #222) on October 1, 1934. That set catalogs for around $130 Mint and around $150 Used. Similar sets were released in 1938 and 1954. The sets (Scott #230 to#241 and #253 to #267) are popular among thematic collectors.

A set of three stamps were released on October 23, 1961 in the “Clasped Hands” design promoting self-government. They had the “One People - One Nation - One Destiny” inscription with a QE head on the top-right and was issued to mark the fourth annual history and culture week. The set (Scott #268to #270) is surprisingly inexpensive and can be had for under a dollar MNH or Used. A set of three stamps to mark the 18th Olympic Games in Tokyo was released on October 1, 1964. The set (Scott #290 to #292) is very beautiful and inexpensive at under a dollar.

Numismatic Profile:

Guilders were the currency of British Guiana from 1796 when it was known as Essequibo and Demerary. The first coins in circulation in British Guiana were overstamps on Brazilian pecas issued between 1798 and 1799. Holed Spanish 8 Reales was also in use since around 1808. The first coins (KM#1 3 bits) with “E & D 3 Bt” countermark on serrated center plug design catalog around $3500 in XF. The holder 3 Guilder versions on 8 Reales host coins (KM#2) catalogs for roughly double that and was issued in 1791, 1796, and 1803. Essequibo and Demerary started issuing regular coins in 1809 denominated in guilders. In 1836, British Guiana introduced a new series of guilders simultaneously with the issue of 4p coins by the British Royal Mint for use in British Guiana - they did not have any indication that said it should circulate in British Guiana with the result that they were in circulation in UK as well (Maundy sets). Groats and the seated Britannia types originally issued for use in UK was circulated in the colony as well later on. Private token copper stivers were also in use in British Guiana in the late 1830s. The most collectible issues of British Guiana are the 1836 0.8160 Silver with an ASW of 0.2039oz reeded edge Guilder proofs that are valued upwards of $1250. Plain edged versions can be had for around $600 and regular guilders with a mintage of 57,000 go for around $400 in UNC. The issue had a mintage of 336,000. The 1830s also saw the issue of papermoney denominated in joes and guilders. Colonial era proofs from the later period also have low mintages and fetch a premium upwards of $100.

Collectible Memorabilia:

Slavery related original memorabilia from British Guiana from the early 19th century is very collectible and fetch a huge premium. Postcardsand government documents from the period also fetch a premium. Artworkfeaturing the mining industry, sugarcane industry, and native Indian portraits are also very collectible and fetch upwards of $20. Original 19th century maps of the area fetch upwards of $60. 

Last Updated: 12/2015.