Investment Q&A

Q: In regards to the comments of another subscriber's about HCG.

The investment thesis made perfect sense: management navigated well through 2008, the greatest financial crisis of the modern era. The company had good capitalization ratios, valuation, and track record. David Baskin, Barry Schwartz, Jason Donville, Martin Ferguson/Jeff Mo thought so, and they have great track records and returns.

Judging the outcome of one company outside of the context of the whole portfolio is not constructive. This company was also dropped from the portfolio before the crash even happened. At the end of the day, 5i has provided market beating returns EVERY year since inception with the BE portfolio. These sort of events happen in the market every now and then and we shouldn't be ignoring the gains on our big winners.

Also, should we criticize Buffet for investing in United Airlines? How was he supposed to predict the self inflicted PR nightmare that the company suddenly got themselves into. Educated estimates based on disclosed information is the best we have.

By the way, I'd rather swing for doubles and triples and average market beating returns than swing for singles with vanilla names to get the market return. No need for soul searching here.

Keep doing your thing.

Elliott

Q: I have made a lot of money by following 5i and avoided losing a heck of a lot more. No one is perfect or bats 100......
A lot of far bigger Advisory Co's got caught in this. I'm a member for life with 5i.
:)

Q: Isn't it a a bit too coincidental that we learn that both Royal Bank and BMO are selling uninsured mortgage backed securities, a few days before the Home Capital death spiral? You have an optimistic bias, and typically trusting towards management, so I speculate that you will answer that there is nothing much to think of it, but could you take a distrusting view on this (without being paranoid) and guess what could have motivated them to do that?

Q: In regard to HCG I am on the wrong end of the stick with this one.
In your defence, I did notice a change in 5i's opinion of HCG around the end of March, here is an excerpt from one of your replies "Unfortunately, there is such a cloud hanging over the company right now, the fear and uncertainty surrounding it make it hard to be excited about in the shorter-term. It could still do quite well if they can get past all of the concerns but actions such as letting go of the CEO are not overly helpful in terms of boosting confidence. We would note that it has been profitable every year since 1999"
Fear and greed rule the markets, investor sentiment affects market value in the short term way more than fundamentals.
At this point, I want to learn what I can from this situation. What would you say are the take-away's from this debacle?
Thanks in advance for your continued excellent work.
Randy D.

Q: HCG has hired BMO and RY as strategic advisors and have now secured a 2 billion LOC. Thoughts please??

Q: With the demise of HCG there is plenty of blame to share. I am disappointed with 5I continuing to maintain its rating of B+ right to the end. You extensive experience in the field did nothing for your subscribers. As with most other advisory services your tune only changed when it was far too late to make a difference. I can add DH to the comments. It was only my own common sense and intuition that protected me in both cases. I hope 5I does some soul searching and simply does not write this one off as another miss.

Q: With the information provided, it seems that the company has no choice but to use a LOC with a very high funding rate. How come they can t offer GIC with well above market rates to fund their current needs and stabilize the situation? Would there be no buyer with cdic protection ? Also, why do they need as much as $2B ? Thank you.

Q: what I have learned is that some of these short sellers are very well researched. that cohodes likely knows more about this stock than 99% of the long investors. fundamentals looked good. do you think home capital will go bankrupt or ..

Q: Wow. All that selling. My question is who is brave enough to be on the other side of the trades? How does HCG get itself through 2008 etc with its history and falter like this?

Q: Hi 5i Team,

Do you know who or what APP Research is? The person BNN had on this morning certainly did not hold back on HCG. In case you missed it, he mentioned liquidation as a distinct probability. Unfortunately, I still hold the stock.

Thanks for your comments.

Q: Does the $2 billion LOC that HCG is hoping to secure today completely negate the run on deposits? It looks like the deposits were roughly $1.4 billion. Are these the only deposits taken by HCG or are there other subsidiaries that are also about to get the same treatment?

Thanks, Peter

Q: Hello, My wife and I have GIC's at Oaken Capital and Oaken Financial (not the exact names but the two banking divisions of Home Capital). We have slightly less than 100K in each of the two laddered GICs. Thus, we assume they are insured. Would Home Capital's fate have an impact on Oaken? Should we be worried? Guess there is not much we could do about it now anyway. Hope we don't have to make an insurance claim. Your thoughts?

Q: What would you do if you were invested in this stock?

Q: I don't own HCG, so I think I'm objective. Don't you think this is a big black eye for the Canadian market? Why doesn't the regulator step up and make clear that the violations committed by management does not mean the company is not viable? Or do they know this, after what, a year and a half of investigating? Instead it allows a publicity-seeking chicken farmer to spread innuendo and essentially create a run on the bank? Just a complete screw up by all involved, IMO.

Thanks,

Alex

Q: I'm looking at it down 45% today. Buying opportunity? Thanks.

Q: Please comment on this. We have 2 companies in the past 9 months that are mis- managed , or overvalued (or both) yet receive 'B' ( or better) ratings in your evaluation system.
I'm not complaining, but I'm wondering about your thoughts on this. Could there be some ' grade inflation ' at 5i?

Q: Home Capital has given many billions of loans over the last 4 years. In the event that a large number of loans were fraudulent, and the executives have covered-up the truth, I imagine that at this very moment, thousands of borrowers could be running behind in their payments, and eventually default. If that happens, who would take over those mortgages? Big-banks don't deal with those profiles, so which financial would absorb those loans?

Q: Is there any chance that HCG will be taken out?

Q: As a place for short term cash I have the max amount in Oaken Financial, that is covered by CDIC. Being that it is owned by Home Capital, and the news from there seems to be mostly negaive lately, would it be better to move to another high interest savings account for a holding tank. I don't want to have to go through the CDIC to get my money.
Do you have another suggestion?
I really do appreciate your service, and have begun to rely on it, so Thank You.

Q: According to the TMX. Insiders at HCG bought more than 200 thousand shares on Friday, Does 5i see this from your sources ? Thx