The legal system often doesn’t work the way you think it works

The legal system is rarely about having an incredibly nuanced understanding of case law or spending a lot of time carefully reading the law as written.  Rather, it’s about politics, strategy, judges being human beings, and the art of convincing others with good storytelling.  What this means is that somebody who knows enough about how the legal and judicial systems actually work can get away with doing things that they really shouldn’t be doing.

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The automatic brain

Our brain will automatically leap into action when it senses danger.  If we are in physical danger, it will trigger our ‘flight or fight’ response.  If we are in social or emotional danger, it will message us through feelings such as anxiety so that we avoid that situation.  Unfortunately, this system doesn’t always act perfectly and can cause us to behave irrationally.  For example, we may feel a sense of dread when faced with an unpleasant task.  This leads to procrastination, an irrational behaviour that many of us wish we didn’t have.

This post will look at:

  • How our brains nudge us towards irrational behaviours.
  • How we can get rid of those irrational behaviours.
  • How we can use it to understand narcissists and how to deal with them.

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Pretium Q4 2018 update: management is crazy but the mine did generate a lot of cash

Firstly, I should admit that I was wrong about Pretium.  I thought that the situation would be like Rubicon Minerals where the resource modelling issues would cause the stock to immediately blow up.  That did not happen.  The company has generated a substantial amount of cash that it has used to pay down debt and interest.  I was surprised that the grades did ramp up to high levels and that the mine did generate substantial cash.

Going forward, management hasn’t provided a serious guidance as the range is unreasonably tight at less than ±4% (see slide 25 of the earnings presentation).  This is fresh off of missing its previous guidance and (rightfully) blaming that miss on the variability of the deposit.  Bizarrely, it seems that management hasn’t learned from its past mistake.

My takeaway is this:

  • Management is guiding for a weak first half of 2019 (presumably below 10.4 g/t), as indicated by their remarks on the conference call.
  • Beyond that, I don’t think that management / Pretium’s geologists have a great idea as to what grades will be.  If there was good news, such as the mine consistently producing grades in the 10g/t range or higher, it would make more sense for management to behave more normally.

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LSXMA is trading at a discount

Liberty SiriusXM Group (LSXMA/B/K) is trading at roughly a 27% discount to its NAV.  The latest investor presentation discusses the discount:

As LSXMA is actively taking advantage of the discount by buying back shares, the discount should resolve in due time.  In the past, LMCA traded at a discount to the DTV (DirectTV) shares that it owned and that trade worked out well.

My Google Sheets calculations are here (it is updated with LSXMA/B/K’s latest share prices).  Use File –> Make a copy to edit it.  I own LSXMA shares.  This is a bet on the NAV discount narrowing as well as a bet on Sirius XM (SIRI) itself.

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AMD and the death of the crypto-mining GPU

(AMD stock and its options are extremely liquid as AMD is one of the top 10 most traded stocks.)

Previously, I’ve written about how AMD’s profitability has been inflated by the cryptocurrency bubble.  This will likely come to an end in the coming quarters as the market for video cards will shrink thanks to the emergence of ASICs for top cryptocurrencies.  We are already seeing the effects of this as prices of video cards continue to normalize at the retail level.  From PC Part Picker:

Most investment bank analysts anticipate that AMD’s earnings will go to the moon.  While that type of behaviour may help their employer earn underwriting profits if AMD chooses their employer for an equity raise, these optimistic projectons are unlikely to materialize.

I/B/E/S estimates for AMD, courtesy of Sentieo.

In my opinion, AMD is a compelling short as its earnings will likely shrink rather than grow in the coming quarters.

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