Blessed by the Potato

I didn’t think I’d have any internet access out here: my new computer doesn’t even have a dial-up modem, and this part of PEI has traditionally been a black hole for cell phone service (when we could pick up a signal, it was often from a New Brunswick tower across the water on a clear day). They seem to have put in a new tower because I’m getting pretty decent access via my blackberry, at least right now tonight. I tried checking this afternoon and it would work in fits and starts and many addresses wouldn’t resolve (but that may have been an unrelated problem as there was a service notice on my mail provider’s page).

The weather is still unseasonably cold, but at least it was somewhat sunny today. I finally put the bike back together and went for a little ride down the highway. I only did 10 km round-trip, but I was pretty tired at the end. Not only am I out of shape after the last few weeks of being chained to my desk, but PEI is much hillier than London, and the wind was just killer. The headwind on my way back was severe enough that I couldn’t hear cars coming up from behind at all, and at one point going uphill I swear a gust stopped me dead in my tracks for a moment despite heavy pedalling.

The colours seem impossibly vivid today. I don’t know if it’s just the late spring, or the contrast from the first sunny day after over a week of grey skies, but the soil is really red, the fields are popping green, and the sky was bright blue. Wayfare remarked that she thought it might be an anneurism, but we both thought it looked like that today. As a testament to the accumulated stretch of wet weather, when I rode my bike across the lawn to get to the laneway the ground went “splurt sploosh” underneath me, and the trench my tires pressed into the ground could still be seen at the end of the day — I think it may be permanent.

I’ve been trying to relax, play some games, enjoy the outdoors, read some books, and sleep in… but I can’t help but check my email before going to bed. It never seems to have good news these days. On the markets, I saw tonight that my Capital Power is going to be acquired at a non-existent premium ($19.40 when it was $21 just a few months ago), which I guess isn’t terrible news since I was looking for something to sell anyway (still no jobs lined up), though I really thought it was worth more than that. Also, I just got the news that Paulson has sold all his Sino-Forest, which, rightly or wrongly, is probably going to close the book on that story. Though I’ve taken my all-too-painful lumps on that one, I know at least one person took a small speculative position after the MW story broke, in part on my “analysis” of the situation.

On the science side, I just got an email that my paper was rejected. Again. I don’t know what I’m doing wrong with this paper. Well, I do know: I have a whole list of things from the reviewers. But I don’t know why they’re flat-out rejecting it based on that list, when all kinds of other crap gets published. Nothing there seemed like it couldn’t be fixed in revisions. Ugh.

Still no date set for my exam, either.

Anyway, I installed Portal 2 on my laptop a fair while back, and hadn’t had a chance to play it at all. Finally on vacation, I burned through it over the last two days. Good fun: the writers for that one are top-notch. There were one or two points in the gameplay where I started to get really frustrated by how particular the portal gun was about which surfaces were suitable for creating portals — and one or two where the lack of portal-able surfaces made a puzzle perhaps easier than it should have been (“well, I guess I have to put a portal there since it’s the only damned spot on that whole side of the room that’ll take a portal”).

I also brought Assassin’s Creed and Fable 2 with me, but I think the next few days will be spent with books since we brought about two dozen of those with us, and because Wayfare wants silence, and unlike my laptop, the TV doesn’t have a headphone jack. Speaking of headphones, I borrowed Wayfare’s Sony earbud ones and was really impressed with how ergonomic they were. The little straight bit sticking out of the buds for the wires is asymmetric and fits perfectly into the little gap between that little bit to the front of the ear (I keep trying to call it the preauricular point, but that’s at the base of that little projection) and the rest of the outer ear. I don’t wear headphones that often: I have the earbuds that came with my blackberry just in case I do want them at some point, but none of the 3 sizes of earbud insert stays in my ear very well, and then I also have a large set of noise-cancelling headphones that I remember to pack for plane trips, but not road trips. I may have to invest in a good set of earbuds.

And remember: while I’m gone comments are disabled. Feel free to email me though!

What makes a good investment? I would say we can all agree on a definition along the lines of something that will be worth more in the future, finding some balance between maximizing return while minimizing the risk of loss.

There’s lots of room for discussion about which asset classes best meet those definitions, how to go about finding them, and how to balance the potential returns with the risks.

But, is the ability to touch an investment a quality that makes for a good investment? I’ve heard many times about how real estate is an attractive investment because it’s tangible. Yet I’m left wondering, how does being able to touch it make it improve my future returns? Maybe it can be seen to reduce the risk of loss since it’s unlikely to be worth nothing in the future (313 excepted), but a liberal sprinkling of leverage eliminates that benefit.

And of course the grand counter-example: was real estate in the US in 2006 a good investment (hint: the answer is no). Was it any less tangible though?

I’ve heard that about gold now, too. I’ve got a 1-oz silver coin here. There, I just touched it. I don’t think that helped the value any. Indeed, I also have some cash, and having it here in my wallet so I can touch it makes it a worse investment than making it intangible in a HISA.

Tangibility can play into the importance of understanding an investment, but really comes down to satisfying an emotional need. Being able to touch your investment, to sit under its roof, to improve it with your own hands, or to clutch it tight and whisper “my precious” can make you feel better, but it doesn’t make it a better investment. And as we’ve learned so many times already, emotions are best left at the door in investing.

Arrived in Halifax in record time. That was due in part to traffic being good, with hardly any construction along the way (Montreal, of course, being the permanent exception). But it was mostly because we hardly stopped. Normally I stop about every hour for a pee and strech break on a long trip, and one or two longer breaks through the day to take my eyes off the road. But this time I just powered right through. It’s especially surprising that I made it that long without needing the washroom breaks — that never happens. I think I must have been severely dehydrated, indeed, on Friday I was so dehydrated I stopped sweating. I don’t know why, it wasn’t like I ran a marathon or anything. Just weird, but I’ll reap the benefits.

The weather here has been pretty dreadful — rainy, cold, windy. The conference has been pretty good though. The social event featured a lobster supper, and I always find that weird. When else do you get into fancy clothes just to put on a plastic bib for dinner? I always figured we somehow tricked mainlanders into eating lobster as a way to take care of our beach pest problem.

I can’t really think of any other stories to share, so here’s a little mini link round-up:

Housing bubble linked to restrictive development rules. Yes, over the last 8 years when I drove into Toronto and saw the massive developments of condos in downtown and North York, the unending and constantly expanding sea of McMansions along the 401, 403, and 400, I thought “wow, Toronto has some really restrictive development rules.”

Another article on just how crazy Vancouver’s valuation is: Vancouver primed for housing correction: BMO.

A MacLeans’ piece on the Vancouver housing market gets it right: “In short, Vancouver is increasingly being seen as a no-go zone for top talent. This is very bad. Worse arguably than if house prices crashed. As Vancouver develops a reputation as a place where only the uber-rich can afford to buy property, it could seriously undermine the economy.” So many stories suggest that a crash is a bad thing. For sure, it’s painful for the unprepared who get caught up in it, but the problem is not the crash, but the bubbly high prices in the first place. Downturns are also called “corrections” for good reason: lower house prices will mean fewer talented young people being driven away by the costs of living, fewer house poor people, fewer household balance sheet dangerously levered to the 5-year interest rate, and less rampant speculation on concrete and granite, and more investment capital for everything else that makes the world turn.

The market’s been pretty nasty, beyond Sino-Forest. Kind of glad I don’t have the time to worry about it.

And speaking of not having time, the spam levels have increased of late to the point where it’s almost 100 spam comments per day. I don’t and won’t have the time to figure out a captcha or better spam filter, and while I was home it wasn’t a big deal to clear out (most of the messages are so blatantly unreal that a quick skim is usually all it takes to find the real messages and let them through — though there have been a few false positives lost in the sweep). But now that I’m off on conference and then vacation and internet access is becoming spotty, I’m just going to turn commenting off so I don’t come home to a spam filter filled with 10,000 spam comments and 2 real ones (and that’s about the ratio). I do still welcome comments, so if you have one feel free to email me (address in the sidebar) and I’ll add your comment manually.

I keep following it thinking I’ll dive back in, but I haven’t yet, and likely won’t until after the results are released next week at the earliest.

I liken it to when you’re afraid there might be a spider in the shower: before you get in you shake the towel and have a scan around, and it looks clear, so you get in. Once in, I might have ignored banging at the door or the water turning cold, since I wasn’t afraid of the Psycho or broken hot water tank scenario, but if I so much as see a black hair that might resemble a spider leg poking out of the drain, I’m running out of there screaming.

So before I bought Sino-Forest, fraud was my biggest fear, and I didn’t allay it by obtaining first-hand concrete knowledge, which would have given me the confidence to see something like this as a buying opportunity. Instead, I relied on weak heuristics and an analyst report that claimed the governance was good.

Then the MW report hit, alleging fraud, and it all fell apart: exactly what I was afraid of. MW had a good hit rate (~3 for 4) with these Chinese RTOs, and I had heard of them before this broke, so I wasn’t about to just dismiss them as a short-seller with dreams of market manipulation.

On the other hand, MW is the noisy kid brother of the cottage industry that is exposing RTO frauds. I don’t want to just attack the source, since that’s not a strong foundation for investing, but he strikes me as someone more interested in market manipulation than justice. His reports haven’t seemed as thorough or solid as say John Hempton’s*, and so far the frauds have been low-hanging fruit. Sino-Forest, if it is a fraud, is a step up. His best part of the analysis (both playing to his strengths and making SF look bad) was the one about how impossible it was to harvest all those trees Sino-Forest sold… but that was smacked down with the first release that said it was a sale of standing timber. I’m not sure tracing related party transactions and capital flows into and out of the country is really his forte. Then the paper reports that he spouts off about having all this other evidence on the analysts’ conference call he hosted, yet he hasn’t released it. Maybe waiting for another Chinese holiday for maximum impact.

I still don’t know what to think. The company has released some documents (though it took a few days). The bank statements look real enough, complete with hand-written notations (presumably linking transactions to entries in the ledger/accounting system). But we’ve learned with other frauds that the companies can and do fake bank statements: you have to get an auditor to go down to the bank and confirm with the bank that the money is there as specified.

Various analysts have said they’ve physically gone over to view the operations, but Poyry might have had the same problem: they can say there are trees there, but who owns them? Plus other, much smaller, less well-executed [alleged] frauds have put up the potemkin factories for analyst visits before, only for private investigators to find the sites empty or idle weeks later.

Fraud is insidious. It’s quite difficult to prove something isn’t a fraud, particularly when there is so much suspicion after all the recent cases, and from halfway around the world with a massive language and cultural barrier. You can’t believe anything the company says without 3rd party verification, and the balance sheets become useless — if it was a matter of pine beetles or wildfires, banks not lending or demand drying up that hammered the share price to a third of book value, I’d probably be buying like crazy. But book value is unreliable if there’s a chance it’s all a lie anyway.

I forget his name, but one talking head on BNN put it [approximately] thusly: “What else were they going to say? It’s like they went to I’ve been targetted by a short seller dot com and printed off the fill-in-the-blanks press release.” The company’s been doing the dance, and releasing some of the documents is a bit better than par, but it’s still not fundamentally different than the dance that an actual fraud would do. That’s partly because there isn’t much more for them to do. Offering the analyst tour in July and specifying that the analysts could pick the locations was a good step at helping to remove the potemkin element. The Dundee analysts’ comments after the close today were also heartening.

So I’m not buying yet, but I keep turning it over in my head, and think I might if there was some good 3rd party evidence of authenticity: an auditor in a bank branch verifying cash, or signing off on the annual report, or maybe a supplier of eucalyptus seeds/seedlings confirming that SF is indeed buying sufficient quantities to do the planting they claim they are. I feel close to having the confidence to buy in again.

Plus I have to bear in mind that my bias is to want to believe. After all, I bought in and lost money, so deep down inside, I want to be vindicated on that prior decision and have this one come out fine in the end. That forces the rational part of me to be extra careful before buying back in.

* – Though John did say that he “was in awe” of MW’s report, but that may just be because of the size. And he hasn’t commented at all since Sino-Forest started posting responses. With MW I read and I think and wonder if he’s wrong. If it was John Hempton alleging fraud, I would be out and gone and never look back: his track record at research and alleging fraud is too good to bother trying to second guess to find value.

I’ve been an internet junkie for a long time. But you knew that already. Whenever I go on vacation I usually sign up for a dial-up plan for a month so that I can get at least some kind of access on the go — particularly when I’m romping about Canada and not staying in hotels with free wifi, and especially for extended stays at the cottage. But my new laptop doesn’t even have a modem. My blackberry however, does have the ability to access the internet, and pass that connection along to my laptop. This seems like a really convenient option for ensuring continual connectivity to the internet while traveling, at least if there’s cell coverage (which is pretty damned spotty at the cottage).

But I’m afraid. I’ve heard too many horror stories of outrageous data charges. I don’t understand how transferring data via my smartphone is different if it goes to my BB browser vs. via a USB cable to Firefox on my laptop… but somehow it is. It’s a much more expensive transmission, according to Bell (and Rogers, for those with them [edit: though with 1GB+ plans, it’s free]). For the convenience of not having to shop for a USB dial-up modem and then getting dial-up service at the cottage, I’m willing to pay a little bit to tether my phone. But I’m having the damnedest time figuring out how much it will be. There are different numbers all over the place.

My plan includes 500 MB/mo of data. That would suffice for my needs. But is tethered data just counted towards that cap? The rates page on Bell’s website says, when you select a plan with at least 500 MB/mo of data, that “tethering is included.” Oh, included. So I would say, by that wording, yes, tethering is included at no extra charge and will simply count towards the monthly data quota.

Wait. Wait. There’s a superscript. The damned page doesn’t have any footnotes! Ah, ok, I can open the fine print, aaaaaaand footnote 3: “Additional data is $1/MB.” Additional beyond my 500 MB? Because on my plan, that’s “only” 5 cents/MB if the excess data usage comes from using my phone (again, isn’t data data?). Why the difference? If I use up 500 MB via tethering first (ostensibly free), then 500 MB on my phone, does that order matter, or will they charge me $1/MB because that’s more than $0.05/MB?

Worse yet, I’ve heard horror stories on the various fora that many Bell smartphone plans don’t include tethering, and they start charging at (5 cents/MB, or $1/MB, or 5 cents/kB which is an infuriating $50/MB) ridiculous rates right away.

Honestly, it made my head spin. I was thinking of getting a USB dial-up modem just to avoid the hassle of dealing with it all. Finally I called them up and asked, and the rep on the phone told me that on my plan tethering is not included in my 500 MB/mo of data, but is only 3 cents/MB. That was not any one of the interpretations of the rate plans on the website. I was wondering about using tethering in other cases, and how much it would be to add to the plan, and she said that the only plans she could switch me to that would have it would be 5 cents/MB for tethering, implying that the information about tethering being included on the website-listed plans is wrong.

I give up. I very nearly have a PhD and I simply cannot figure out the billing systems for Bell mobility.