Friday, September 30, 2011

Shorting Gold "Safely"

When the cost of a commodity is well below its asking price, something is amiss. Such is the case with gold, as major producers are able to dig it out of the ground for around $500, and sell it for $1600. This has encouraged majors like Barrick, Newmont, and Goldcorp to increase production and increase exploration. As a result, they have about 15-20 years (and rising) worth of proven reserves left at current production rates. As the price of gold continues to rise, that process will accelerate, increasing supplies.

Thursday, September 29, 2011

Debt Adjusted For Income

One of the reasons many market observers believe this recession will be a long one is the growth in consumer debt over the years. As consumers now focus on paying down debt levels, they won't be able to spend to the same extent; thus, fewer goods will be produced, acting as a drag on GDP. But what is worth mentioning is that this argument is used in every recession by those who anticipate a depression, so are things really that different this time?

Wednesday, September 28, 2011

The Golden Age Of Investing

A few short years ago, major media outlets would post daily articles reporting the price of oil and how demand is far exceeding supply. Not long before that, these same outlets were saying things like "they're not making any more land" as housing prices rose through the roof. A few years before that, the rising stock prices of technology companies were making daily headlines as the stock market had entered what was claimed to be a "new paradigm shift, where traditional methods of valuation no longer apply". Today, it's the price of gold that is the talk of the town.

Tuesday, September 27, 2011

Benchmark Electronics: Liquid and Discount to NCAV

So many of the net-nets discussed on this site are illiquid, and therefore shunned by you, the investor. But when the market takes a dive like it has over the last couple of months, even some relatively large companies start to trade at discounts to their net current assets. Once such example is Benchmark Electronics.

Monday, September 26, 2011

Take The Hint

In the current climate, there is no shortage of potential value investments. Unfortunately, certain managements are eroding that value, rather than passing it on to shareholders. Recent examples of that appear to be taking place here and here.

At the same time, there are other potential value plays where it's a little less clear as to whether value will be eroded or whether it will eventually accrue to shareholders. In these companies, management may be doing a little bit in order to appease shareholders, but could be doing a heck of a lot more. Examples of this type of company are discussed here and here.

Finally, there are the value plays where management doesn't just talk a big game...they deliver. These managements have a history of making great capital allocation decisions, resulting in a business with strong returns on capital, and a record of returning cash to shareholders when investment opportunities aren't there. Usually, such companies trade at expensive prices, but in an environment such as this one, where fear rules the day, stocks in such companies are available at very attractive prices.

Sunday, September 25, 2011

A Short History Of Financial Euphoria: Chapter 6

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

Saturday, September 24, 2011

A Short History Of Financial Euphoria: Chapter 5

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

Friday, September 23, 2011

HP: Evaluating Meg Whitman's Track Record

Hewlett-Packard's former CEO Leo Apotheker was essentially fired from his position yesterday after only 11 months on the job. He was immediately replaced by Meg Whitman, because (according to HP's press release), she is a "technology visionary" and "a strong communicator who is customer focused with deep leadership capabilities". Clearly, these are rather subjective attributes, and no effort was made to back up these claims.

It strikes me as odd that the board made no effort to justify the hiring on the basis of the metrics that should appeal most to investors: the manager's ability to generate returns on capital. The media's reaction has been no better; the articles discussing Whitman's hiring appear to be focused on HP's languishing stock price and regurgitating the subjective criteria attributed to Whitman in HP's release.

Often, it can be difficult to evaluate a manager. If the manager led a private company or led parts of a public company but in a subordinate role or led a company for only a short period, we may not have enough information to determine the manager's effectiveness. But in Meg Whitman's case, we have a plethora of data at our disposal. This is because she was the CEO of eBay from 1998 to 2008, which can give us great insights as to her effectiveness as a chief executive.

Thursday, September 22, 2011

Netflix's Awful Buybacks

Corporations can be pretty poor allocators of capital. (As an aside, Warren Buffett's ability to allocate capital towards its most efficient use is one of the major reasons his company has risen to the top. While every other company at the top had to invent something brilliant to get there, he got there just by properly allocating capital!) This chart provides an example of just how poor at allocating capital corporations are:

Wednesday, September 21, 2011

L.S. Starrett: Cheap, And Owned And Operated By Employees

For long-term investors, the ideal corporate manager is one whose financial interests are aligned with those of shareholders. This occurs when managers have a substantial portion of their net worth tied up in the company's common stock. But there are cases where it's not just the executives that own shares, but the employees as well.

Tuesday, September 20, 2011

Telltale Signs Of A Lying CEO?

On this site, some time has been spent discussing how investors can tell if management is behaving in a questionable manner. There are some tip-offs based on EPS rounding, as well as some clues based on management candor. But recently, two researchers pored over conference call verbiage and determined that conference call discussions can reveal whether there is a greater likelihood that management is being deceitful.

Monday, September 19, 2011

Tandy Not So Dandy

Tandy Brands (TBAC) appears to trade firmly in value territory. While the company trades for just $11 million, Tandy has net current assets of almost $19 million. But it's very easy to see that management is not being candid with shareholders. As such, investors have no reason to believe that management will stop its destruction of shareholder value.

Sunday, September 18, 2011

A Short History Of Financial Euphoria: Chapter 4

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

Saturday, September 17, 2011

A Short History Of Financial Euphoria: Chapter 3

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

Friday, September 16, 2011

Economic Indicators Brightening

There are many indicators which attempt to gauge the health of the economy. They are broadly divided into three categories: leading (e.g. building permits), coincident (e.g. retail sales) and lagging indicators (e.g. employment data). Focusing on a single indicator, or even a single category, does not give the analyst a good enough gauge of the future of the economy. For this reason, many (including value investor Ken Fisher) consider the ratio between the coincident and lagging indicators to be the single best measure of the direction of the economy.

Thursday, September 15, 2011

Best Buy Should Easily Outperform Amazon

Best Buy (BBY) and Amazon (AMZN) appear to be companies headed in different directions. While Amazon has seen steady revenue and earnings growth over the quarters and over the years, Best Buy's revenue has been flat, with its earnings actually declining.

But what makes a stock attractive is not simply the trajectory of the results of the underlying business. If this were the case, stock prices wouldn't matter, as a growing business would be a "buy" at any price. In the cases of Amazon and Best Buy, the stock price differences between these two companies have become so extreme that it has become highly likely that Best Buy stock will outperform that of Amazon in the coming quarters and years.
Read more...

Wednesday, September 14, 2011

Global Railway's Liquidation

If you're a value investor who likes to buy companies undergoing liquidation, Global Railway Industries (GBI) may be for you!

Tuesday, September 13, 2011

Value Investors and Stops

Stop-loss orders are often recommended to investors of all types, especially when the market is as volatile as it has been lately. For value investors, however, the benefits of stop-loss orders are not as high as they are for other market players

Monday, September 12, 2011

Omnivision: Seeing Value

Omnivision Technologies (OVTI) designs and sells chips that capture digital images. These chips are used in cameras, smartphones, tablets, PCs and a slew of other devices. In just the last two months, the company has lost half of its market value, even though it is well capitalized and trades at a single-digit P/E.

Sunday, September 11, 2011

A Short History Of Financial Euphoria: Chapter 2

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

Saturday, September 10, 2011

A Short History Of Financial Euphoria: Chapter 1

While there is no doubt that free enterprise gives rise to recurrent episodes of speculation, the features that are common to these episodes are rarely analyzed, according to the author of A Short History of Financial Euphoria, John Kenneth Galbraith. This book from 1990 offers perspectives on bubbles that are still useful today. By paying attention to the signs, "there is a chance - a slim chance, to be sure, given the sweeping power of financial euphoria - that otherwise vulnerable individuals will be warned."

Friday, September 9, 2011

Hart Stores: The Value Trap

As value investors, we gravitate towards the most shunned investments around. The most hated stocks often make for the best investments. But no matter how disliked a company may be, if it possesses certain attributes, it may still not make sense as a value investment. Hart Stores (HIS) provides such an example.

Thursday, September 8, 2011

SuperMedia: The Fixed Cost That Won't Go Away

SuperMedia (SPMD) trades for just $35 million despite a cash balance of $180 million! The company has also been cash flow positive for years, having pulled in a total of about $1.25 billion in free cash flow over the last four years.

Wednesday, September 7, 2011

M/I: Whatever You Prefer

It's not often that preferred shares are discussed on this site. For one thing, there aren't as many preferred securities nowadays. Furthermore, this site tends to focus on established, profitable small-caps and/or companies with low debt-levels; preferred shares don't have much use among these kinds of firms, and therefore such shares are not encountered often. There is an exception to this in the form of the publicly traded preferred shares of M/I Homes (MHO-A), a company whose common equity was discussed on this site last week.

Tuesday, September 6, 2011

Manhattan Bridge: Radical Share Issuance

Manhattan Bridge Capital has been discussed on this site because its stock trades at a large discount to its net assets. But while the company has just 3.3 million shares outstanding, this week shareholders will vote to give its CEO, Assaf Ran, 1 million shares. Because Ran owns half of the company's shares already, this looks like outright robbery of minority shareholders!

Monday, September 5, 2011

Boombustology: Chapter 12

Asset bubbles are frequently popping up, and back down. They are easy to spot in hindsight, but we appear to lack the tools to recognize them ahead of time. Vikram Mansharamani aims to rectify that with his book, Boombustology. He applies a multi-lens approach to understanding bubbles with the aim of giving the reader the ability to identify bubbles, and thereby avoid being caught unaware.

Sunday, September 4, 2011

Boombustology: Chapter 11

Asset bubbles are frequently popping up, and back down. They are easy to spot in hindsight, but we appear to lack the tools to recognize them ahead of time. Vikram Mansharamani aims to rectify that with his book, Boombustology. He applies a multi-lens approach to understanding bubbles with the aim of giving the reader the ability to identify bubbles, and thereby avoid being caught unaware.

Saturday, September 3, 2011

Boombustology: Chapter 10

Asset bubbles are frequently popping up, and back down. They are easy to spot in hindsight, but we appear to lack the tools to recognize them ahead of time. Vikram Mansharamani aims to rectify that with his book, Boombustology. He applies a multi-lens approach to understanding bubbles with the aim of giving the reader the ability to identify bubbles, and thereby avoid being caught unaware.

Friday, September 2, 2011

Activism At GTSI

GTSI Corp has been discussed a few times on this site, most recently as a company trading at a discount to its net cash balance! An activist looking to realize this value for shareholders recently contacted me, and agreed to do an interview and share for publication a letter he sent to GTSI's CEO Sterling Philips.

Thursday, September 1, 2011

M/I Homes vs Book

The other day, the idea that home builders should trade near their book values was discussed on this site. Seeing as how sentiment in the industry is such that many builders trade at discounts to their book values, an opportunity for profit may be present for value investors with a long-term outlook. M/I Homes (MHO) is one company that fits this description.

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