The Mortgage Crisis
Whitney Tilson and Glenn Tongue of T2 Partners kicked off day 2 with a sobering look at the mortgage crisis. For his part, Tilson believes that we have not yet seen the worst. His extremely detailed presentation (“The Latest on the Mortgage Crisis and Implications for Certain Financial Stocks”) paints a very bleak picture, suggesting that all things housing and mortgage related will get much worse before improving. Tongue and Tilson put their money where their mouth is with short positions in monoline insurers AMBAC and MBIA, Washington Mutual, and a long position in Fairfax Holdings (which has gained and may gain further in the mortgage crisis due to its credit default swap holdings).

Glenn Tongue gave an excellent overview on Berkshire Hathaway, making the bullish case based on:
• Over –capitalization
• In a great position to take advantage of opportunities this market presents
• Remains the premier capital allocator
Tongue Valued Berkshire on:
• Investments/share ($90,342)
• Plus PV of future pre-tax eps (excluding investments)
• Intrinsic Value of $156,000- $159,000, a 20% premium to current price
We can only hope that Whitney and Glenn are wrong on the depth of the mortgage crisis (wishful thinking) and right on Berkshire’s valuation.

Aaron Edelheit- Sabre Value Management
One of the very pleasant surprises this year was newcomer Aaron Edelheit, whose passion for value investing was very apparent in his presentation. Edelheit pointed out the outstanding returns from the small cap value area of the market since 1970 (16.2% annualized), but noted the disinterest here from many investors. He cited the following reasons for this situation:
• Small Cap Value can be very boring to investors
• There may be long periods with no news
• Illiquidity associated with SCV companies scares investors
• Too much volatility
• Little or no analyst coverage
One of Edelheit’s favorite ideas is Hemisphere GPS (HEM CN), formerly CSI Wireless. This misunderstood company is his largest holding.
• Hemisphere operates in the agricultural GPS arena, offering “auto steering” technology to farmers, which allows for more efficient use of tractors and thus their acreage, seed and fertilizer
• Pricing of HEM’s products are very favorable
• He forecasts rapid sales and earnings growth on the horizon

Jonathan M. Heller, CFA
*Author does not own any securities mentioned