Friday, July 31, 2009
From The Mailbag: Glacier Media
Thursday, July 30, 2009
Troughing Now Or Later?
Wednesday, July 29, 2009
Volatility Offering Opportunity
Tuesday, July 28, 2009
The Mainstream Media
Monday, July 27, 2009
Usual or Unusual?
Sunday, July 26, 2009
The Psychology Of Human Misjudgement: Authority Misinfluence
Saturday, July 25, 2009
The Psychology Of Human Misjudgement: Use It Or Lose It
Friday, July 24, 2009
All Debt Not Created Equal
Thursday, July 23, 2009
Can You Trust Your Sources?
Wednesday, July 22, 2009
Value Investing Arbitrage Pays!
Tuesday, July 21, 2009
Uncertainty Can Kill You
Monday, July 20, 2009
Shipping Your Dollars Away
Sunday, July 19, 2009
The Psychology Of Human Misjudgement: Availability-Misweighing
Saturday, July 18, 2009
The Psychology Of Human Misjudgement: Stress-Influence
Friday, July 17, 2009
Concentrate...Or Don't
Thursday, July 16, 2009
Erring With Air T
Wednesday, July 15, 2009
Scared Of Debt
Tuesday, July 14, 2009
Is It Really Defensive?
Monday, July 13, 2009
Diamonds In The Mortgage Rough
Sunday, July 12, 2009
The Psychology Of Human Misjudgement: Contrast Misreaction
Saturday, July 11, 2009
The Psychology Of Human Misjudgement: Social Proof
Friday, July 10, 2009
Karsan Value Funds: 2009 Q2 results
Thursday, July 9, 2009
Building Profits One Site At A Time
Wednesday, July 8, 2009
Profits Are Profits
When companies report earnings, analysts will often focus on how profit expectations were met, rather than what those numbers are. For example, even if a company beats earnings expectations, if revenues came in lower than expected, this is often viewed as a bearish sign. Similarly, earnings misses accompanied by higher revenues are often considered positive. However, this line of thinking sorely underestimates the value of a flexible cost structure.
After all, if profit expectations were beaten while revenue came in lower than expected, this means that costs were likely much lower than expected. A company that can control its costs is a company that can outlast its competitors when revenues unexpectedly fall, as they often do in recessions.
Furthermore, higher revenues and in-line earnings suggest that margins have degraded. This could be a sign that the company has had to offer incentives to customers in order to move products. Instead, investors should look for companies that have the ability to reduce or increase costs depending on revenues. This leads to higher predictability and therefore higher accuracy in determining whether a margin of safety exists.
As an example, consider Goodfellow (GDL), a stock we have discussed on this site as a potential value investment. In its most recent quarterly results ended May 31st, revenues dipped by about 15% from year-ago levels. Yet the company showed profits of 24 cents per share versus 20 cents one year ago. How did it do this? By paying down debt (and therefore reducing interest costs) and by slashing operating expenses: gross margin actually increased which is very rare when revenues decline, as fixed costs are spread out across fewer sold units.
One thing to keep in mind, however, is that revenues are more difficult (for managements) to manipulate than costs. However, manipulating revenues is far from unheard of, and as long as the assumptions used to calculate costs are reasonable, the arguments in this article still hold.
For a discussion on various points to consider when analyzing a company's cost structure, see here.
Tuesday, July 7, 2009
Price and Book Volatility
Monday, July 6, 2009
Benchmarking
Sunday, July 5, 2009
The Psychology Of Human Misjudgement: Deprival
Saturday, July 4, 2009
The Psychology Of Human Misjudgement: Over-optimism
Friday, July 3, 2009
The Psychology Of Human Misjudgment: Excessive Self-Regard
Thursday, July 2, 2009
Doing Your Homework
"The Company is considering the potential for voluntary delisting of its common stock with NASDAQ".
Wednesday, July 1, 2009
The Fund
As it can take many years for such companies to return to trading at their intrinsic values, the investment horizon of the fund is of a long-term nature. To that end, investors will be discouraged from short-term dispositions of their securities. Investors will also be unable to sell securities to anyone other than the fund, since new investors may not fully understand the partnership's strategy, and there are certain legal restrictions.