Friday, December 28, 2012

Pour Your Heart Into by Schultz

I don't drink coffee. As such, I've never quite understood the draw Starbucks has on people. Until I read this book, that is. The founder of Starbucks tells the story of how Starbucks came to be in Pour Your Heart Into It, which I recently had the pleasure of reading.

Wednesday, December 19, 2012

Paulin Buyout

The oldest stock on this site's Stock Ideas page has finally made its mark. Three and a half years ago, I wrote about a little company called H. Paulin that traded at a massive discount to its net current assets. Yesterday, the company announced a buyout that saw investors generate more than a 400% return over this period!

Tuesday, December 18, 2012

Moonwalking With Einstein

Journalist Joshua Foer was writing an article about memory when he came upon a couple of people professing to be able to teach an improved memory. Until then, Foer had figured (as I had until having read his book) that people were born with good memories. In Moonwalking with Einstein, Foer proves to the world that a better memory can be taught; indeed, having employed some of the techniques of the book, my memory has already improved! So can yours!

Monday, December 17, 2012

Looking For A Book That Interests You?

The book section of this site has been revamped to make it easier to find what you're looking for.

Friday, December 14, 2012

Human Evolution

I recently had the opportunity to read Roger Lewin's Human Evolution, which is an excellent introduction to the adaptations and possible behaviours of some of our immediate ancestors.

Thursday, December 13, 2012

Value Conference Without The Cost

Value conferences are prohibitively expensive for the average investor. Not only do you have to pay a fee to cover the cost of the venue and its staff, you need to pony up to fly there, and deal with the financial and non-financial costs of disrupting family and work considerations. Therefore, to meet the needs of this market, Value Conferences is presenting its Best Ideas 2013 conference fully online!

Tuesday, December 11, 2012

Surging to a Large Discount

Shares of Surge Components (SPRS) are extremely cheap. The company is profitable, but still trades not much above its net cash level. I first came upon the company following this tweet from value investor Paul Sonkin:

Monday, December 10, 2012

Meade Loses 1/3 of Market Cap Due To Mistake?

Meade (MEAD) shares fell by almost 30% today, seemingly on news that Hummingbird Management has cut its stake in the company from 7.63% to 3.24%. There may be reason to believe the filing is a mistake and that Hummingbird hasn't actually cut its stake, however.

Previously Unavailable Stock Info

Value investors know that the most inefficient part of the market at any given time is likely in the smallest companies. But getting the info on these companies that you need in order to make an investment decision can be hard to come by. Over-the-counter stocks don't always publish their financials; sometimes, such info is only made available in hard copy format to current shareholders, which is undoubtedly a small group. One site seeks to change all that!

Friday, December 7, 2012

The Innovator's Solution

The Innovator's Solution is one sequel that doesn't disappoint! Christensen follows up the popular The Innovator's Dilemma (previously summarized on this site here) with this new book that helps deepen the reader's understanding of technological disruption in business.

Thursday, December 6, 2012

Get Notified When A New Transcript Is Available

Thanks for all your feedback regarding the conference call transcript site. To provide an update, I have added some more functionality to hopefully make it more useful.

Tuesday, December 4, 2012

QLogic: Likely Undervalued

Shares of QLogic (QLGC) have been thrashed over the last couple of years. But this is a well-capitalized company in a growing industry that is a market leader in many of its product segments.

Friday, November 30, 2012

The Black Book of Communism

I've known for a while (through understanding economics and some history) that communism lowers a society's standard of living, and thus kills unintentionally. What I did not realize until reading Panné's The Black Book of Communism is how much Communist leaders have killed intentionally!

Thursday, November 29, 2012

High Digital Marks

Digimarc (DMRC) has seen tremendous stock price volatility in recent quarters, which is generally par for the course for most small cap companies. Currently, the stock trades almost 60% below its 1.5 year high, potentially offering value investors an opportunity.

Tuesday, November 20, 2012

Bridgepoint: An Education In Cash Management

The for-profit education sector has taken a huge beating over the last few quarters. But mitigating this opportunity is the fact that many of the business models of these companies will have to change significantly in order to cope with new rules designed to ensure they do not abuse federal loan programs. But there is one company among them in particular that trades at an exceptionally low level despite the uncertain future: Bridgepoint Education (BPI).

Monday, November 19, 2012

Conference Call Transcripts: Now All In One Place

If you're like me, you find the info divulged on company earnings conference calls to be of great value. At the same time, though, you find most of the call to be a complete waste of time. (e.g. A lot of time is wasted practically reading out what has already been issued in a press release.)

Conference call transcripts, on the other hand, let you speed-through the agonizing legal disclaimers, the repeated sections of the press release, and the answers to questions in which you had no interest. Switching to transcripts from the audio calls themselves could increase your productivity by saving you about 45 minutes per call, especially if you've taken my speed-reading tips to heart.

A problem I've found with transcripts, however, is that there is no single location where you can find them all, until now. There are some sites that publish a bunch of transcripts, like Seeking Alpha, Morningstar and Thompson, whereas others have to be googled to be found. Some companies (e.g. Kirkland's, Dorel) even provide their own. Some sources are free, whereas others charge big money. So to find a company's transcript at the price you're looking for, you have to check all of these sites, google around, and check company pages. If you're looking on earnings day itself, you may have to perform the necessary steps multiple times per day if you're waiting for the transcript to become available, which eats into your productivity gains!

So, I decided to create a website that does all the work in scouring the internet for conference call transcripts, and lets its users retrieve these transcripts by company at the click of a button. No more looking for transcripts across several sites, no more googling, no more navigating through awkward investor relations sites. Just go to http://www.conferencecalltranscripts.org, enter the company name or ticker, and voilà, an updated list of the company's conference call transcripts (if they exist) appears.

Thursday, November 15, 2012

Dorel: Worth The Wait

Dorel is one of the oldest stocks on this site's Stock Ideas page, but its time to join the Value In Action page has finally come. Having fallen to as low as $16/share in 2009, the stock now trades for almost $40/share, offering investors who buy when sentiment is negative and sell when sentiment is positive an extraordinary return.

Thursday, November 8, 2012

Why We Buy By Underhill

I recently had the opportunity to read retail consultant Paco Underhill's Why We Buy and I'm smarter for it. The title is misleading, however; it's not so much about "why we buy" as it is about "how we should sell". Underhill shares a number of in-store methods retailers aren't using (but that he has proven successful for his clients) but should.

Monday, November 5, 2012

Selling In Vancouver

Frequent visitors to this site will recall a series of articles a few months back examining whether Vancouver, Canada is indeed in the midst of a real estate bubble. Those articles weren't just for your benefit; they were primarily for mine! You see, as a Vancouver home owner, I wanted to know if I was sitting on an asset that might soon be worth a lot less than it is currently. My conclusion was that we are in a bubble, and so I took action!

Thursday, November 1, 2012

Fooling Mr. Market

Yesterday, shares of TSR Corp fell almost 20% as Mr. Market probably believes the company's shares no longer trade with the massive 30% dividend yield the company plans to pay out. But this is no ordinary payout! As we saw three weeks ago, on large payouts the normal relationship between the record date and the ex-dividend date goes out the window! Mr. Market moved that stock in error, in my opinion. If I'm right, investors who sold shares of TSRI yesterday thinking they had the dividend in the bag will be very sorry!

Monday, October 29, 2012

Hopefully, It Deswell!

The following is a guest post written by Phil Kazmaier, who has written for this site before:

Deswell Industries (DSWL) owns and operates a factory overseas specializing in production of plastic molded components (such as the casing your remote control) and precision electronics (like the sweet surround sound system your remote control operates).

The company recently suffered from the often fatal disease known as customer concentration as evidenced by the fact that in year ending March 2011 major customers (with >10% sales) accounted for 42% of total company sales. However I say "recently suffered" because during fiscal 2011 they went through invasive surgery to remove the disease, as their sales to major customers in year ending March 2012 fell to only 12%. (And all the small cap growth investors said "OUCH"). The question we must answer is, will the patient survive?

Fortunately for Deswell, they carry no debt and 44M in cash reserves and short-term investments against a market cap of......only 44M?

Wednesday, October 24, 2012

Artio Assets Offer Opportunity

Artio is a money-manager on a bad run. The company is still making money (the major costs in this industry are salaries, which can become variable when the need arises!), but assets under management (AUM) have fallen dramatically over the last several quarters. The stock price, however, has fallen even more. But at some point, the company's strong balance sheet must provide protection for the equity investor, even if AUM continues to fall. That time may be now!

Thursday, October 18, 2012

The Essential Drucker

Peter Drucker is often called the father of modern management. Many of the management books of today have borrowed from or elaborated on the ideas Drucker set forth in earlier decades. I recently had occasion to read The Essential Drucker, a compilation of many of the articles he has written spanning topics such as management and what a post-capitalistic society might look like.

Wednesday, October 17, 2012

Meade Out of Focus

What a turnaround at Meade, and not in a good way. When Meade was brought up on this site as a potential value investment just over a year ago, its net cash position matched its market cap while its cash flow was positive. Since then, its market cap has fallen, while its cash position has fallen even more. As of its latest report a few days ago, Meade's cash position is now just $670K, down from $5 million 1.5 years ago, putting this company's future in doubt.

Tuesday, October 16, 2012

New Frontier Media Finally Sells

New Frontier Media (NOOF) has been on the Stock Ideas page for more than two years now, but it's time has finally come. The company received a buyout offer (that its board is on board with) for $2.02/share.

Thursday, October 11, 2012

Net-Net For Sale?

A common criticism of investing in net-nets is the lack of catalysts. Sure these companies may be undervalued, some say, but how many years will it be before that value is unlocked? But occasionally, net-nets stay net-nets even after a catalyst is encountered. TAT Technologies provides such an example today.

Wednesday, October 10, 2012

Alco Goes Big On Buybacks

Today, ALCO Stores reported that it has purchased 12% of its shares in one fell swoop. If you haven't looked at this company already, you may wish to do so. This is a profitable net-net that traded at a 58% discount to its net current assets. Following this large repurchase, that discount now rises to 62% by my calculations!

Tuesday, October 9, 2012

Sycamore: Beware of Ex-Dividend Date

I received a question from a reader who must be interested in participating in Sycamore Networks' (SCMR) massive special dividend. When it comes to dividends and special dividends, investors are trained to look for the ex-dividend date (the demarcation date that determines which shareholders receive the dividends and which do not), which is two or three days before the record date. Not in this case!

Monday, October 8, 2012

Asta Receives Uplift

Just 15 months ago, shares of Asta Funding could be had for $6 and change. At that time, the stock was brought up on this site as a potential value investment. Since then, the shares are up some 50%, offering investors the opportunity to exit after a quick but monumental rise.

Friday, October 5, 2012

Karsan Value Funds: 2012 Q3 Results

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

Thursday, October 4, 2012

Acme Rises With The Tide

One of the oldest stocks on the Stock Ideas page is that of Acme United, a supplier of knives, medical kits and other items to retailers. As the market has risen over the last few months, many stocks have been lifted out of the doldrums. Acme United is the latest, and therefore now makes the move to the Value In Action page.

Wednesday, October 3, 2012

Inefficient Markets, Gangnam Style

Efficient Market sympathizers will have a hard time explaining this one. Shares of Korean firm DI have shot up 185% in the last three weeks. Was there any company news? Nope. But there is an identifiable reason for the run-up: DI's chairman is the father of a music artist's whose song has become a global hit. The company does not benefit from this, making the share price rise all the more perplexing.

Style: The Art of Writing Well

With the Value Investing Conference having wrapped up (see notes here), investors will be pouring over the ideas offered up by some of the premier thinkers in attendance. The ideas that appear to gain the most traction appear to come from those who know how to communicate well.

But most of us are poor communicators. Fortunately, better communication is something that can be learned, to some extent. I recently had the opportunity to read Style by F.L. Lucas, a book that teaches certain tricks and follies of the communication trade.

Monday, October 1, 2012

Paulson Is Quite Attractive!

In the title, I refer to the company, not the person. Shares of Paulson Capital (PLCC) trade for less than one-third of the company's net current assets, offering investors an opportunity to buy a Nasdaq-listed company for 30 cents on the liquid dollar.

Friday, September 28, 2012

Tempur-Pedic Buys, You Sell!

Earlier this year, shares of premium mattress maker Tempur-Pedic fell from a lofty $87 to just $20, at which point the stock was brought up on this site as a potential value investment. Yesterday, investors were offered the opportunity to sell these same shares for a 50% premium to the price on that day.

Wednesday, September 26, 2012

Net-Net Solitron's Bizarre Behaviour

Communicating with management is something many shareholders like to do. But it's not always easy. My belief is that if you're not calling on behalf of a name-brand Wall Street firm, most managers have little time for you. Consider the treatment experienced by a value investor who tried to communicate with the CEO of Solitron Devices, a company whose shares trade at a large discount to its net current assets.

Thursday, September 20, 2012

Manhattan Bridge Update

Readers may recall that last week an interview with Manhattan Bridge Capital CEO Assaf Ran was carried here. In our conversation, I implored Mr. Ran to buy back shares at the large discount to book value at which the company trades, rather than continue to invest at the company's current rate of return. Mr. Ran promised to take my request to the board, and publicly announce the board's decision. That decision was announced yesterday.

Human Action: Laissez-Faire Capitalism

As central banks have continued to employ stimulative measures, proponents of Austrian economics are sounding the alarm. To the latter group, policies such as quantitative easing distort market prices, resulting in malinvestments that will have consequences (e.g. a housing bubble fueled by low rates that shifted too much capital from productive uses into housing, the effects of which we have been feeling for a few years now). To understand this philosophy better, I recently read Human Action by Austrian economist Ludwig Von Mises.

Monday, September 17, 2012

The Dolan Company: Monopoly Businesses

The Dolan Company (DM) operates what appear to be several high-margin, monopoly-type businesses. And yet the company trades for a P/E of just 5! What gives?

Thursday, September 13, 2012

Negative Momentum

Though it might seem absurd to value investors, there are market participants out there who buy (sell) securities only because they have gone up (down). They profess the superiority of momentum investing. Are they right?

In decades past, making such a determination was a laborious undertaking, available only to those academics with the time and inclination, and the financial firms with the scale to be able to profit from such an effort. Today, however, the proliferation of powerful computing tools has democratized this process. Below I discuss a quick test of momentum I conducted in the shares of a highly liquid (Apple) company, and one that isn't so liquid (Manhattan Bridge Capital).

Tuesday, September 11, 2012

Interview With CEO Of Manhattan Bridge Capital

I recently spoke with the CEO of embattled firm Manhattan Bridge Capital (LOAN). Mr. Assaf Ran and his company have been discussed on this site before, mainly due to the large discount at which the company trades relative to its book value. The firm has had a tumultuous couple of years, involving a rejected buyout offer from a disgruntled shareholder, large restricted share grants to its majority shareholder, and shareholder lawsuits over some of the company's actions. Assaf Ran and I discussed these topics and more.

Sunday, September 9, 2012

The Innovator's Dilemma: Chapter 10

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Saturday, September 8, 2012

The Innovator's Dilemma: Chapter 9

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Friday, September 7, 2012

Stacked Deck At Full House Resorts

Full House Resorts (FLL) has all the makings of a great value stock. With a market cap of only $50 million against double-digit millions in free cash flow and a strong net cash position, the company looks seriously undervalued.

Thursday, September 6, 2012

Extreme Value Hedging

Activist investor Chuck Gillman recently recommended the book Extreme Value Hedging to me. In Chuck's opinion, making predictions about the future is incredibly difficult, so his preference is to profit from changes that can be made to improve poor capital allocation decisions. The book was a good introduction to many of the opportunities and challenges facing activist investors.

Monday, September 3, 2012

The Innovator's Dilemma: Chapter 8

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Sunday, September 2, 2012

The Innovator's Dilemma: Chapter 7

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Saturday, September 1, 2012

The Innovator's Dilemma: Chapter 6

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Friday, August 31, 2012

Investing Longer

Accumulating large amounts of wealth via investing takes a combination of strong returns and investing over a long period of time. Practically all articles related to investing (including those on this site) are focused on getting those returns; this one post, however, is dedicated to prolonging the number of years in which you will be investing.

Wednesday, August 29, 2012

Free G. Willi

Value investors may want to have a look at G. Willi-Food (WILC) , a Nasdaq-listed Israeli distributor of specialty foods. The company is profitable, and yet it trades for about its cash balance, despite the absence of debt!

Monday, August 27, 2012

International Sentiment and Predictions

We've seen that the PE10 can be used to loosely forecast long-term (e.g. 10 years) market returns in the US. But what about internationally? It turns out that this intuitive (to value investors, at least) concept does indeed extend out to international markets. Greenbackd highlights two studies that demonstrate this empirically.

Sunday, August 26, 2012

The Innovator's Dilemma: Chapter 5

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Saturday, August 25, 2012

The Innovator's Dilemma: Chapter 4

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Thursday, August 23, 2012

Conventional Wisdom: The Falling Knife

I've talked about the opportunities that falling knives (aka large stock price drops) can create for value investors here. But I had no empirical basis for such statements. I was only making the case that buying a company at a dramatically lower price makes for smarter investing than paying the previous price; in other words, I was ignoring the price action itself. But it turns out the price action appears to be beneficial when it comes to falling knives!

Wednesday, August 22, 2012

Market Sentiment

To gauge how expensive the general market is, investors will often look at the market's overall P/E. Unfortunately for investors, however, the market's earnings can fluctuate dramatically. For example, S&P 500 earnings were 66 in 2007, 15 in 2008, 51 in 2009, and 77 in 2010. With earnings in a constant state of flux, how can the investor rely on the market's P/E when it is subject to such dramatic change?

Tuesday, August 21, 2012

A GAAP Between Earnings and Cash Flow: Intangibles

As value investors, we are trained to look at the "Goodwill" and "Intangibles" lines on a company's balance sheet with great skepticism. After all, these supposed company assets are not hard assets like equipment or land or receivables and therefore can't be used to generate cash flows and furthermore they have no salvage value. But the future cash flows of companies with large intangible assets listed on their balance sheets can often be underestimated unless those intangibles are taken into account.

Monday, August 20, 2012

Speculative Contagion

For years, value investor Frank Martin's returns suffered relative to the market as the tech bubble grew to epic proportions. Value stocks were getting clobbered. In 1998, the S&P 500 returned almost 30%; in the same year, Martin Capital Management returned minus 7.4%! His book, Speculative Contagion, reproduces his correspondence with clients during this difficult period.

Sunday, August 19, 2012

The Innovator's Dilemma: Chapter 3

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Saturday, August 18, 2012

The Innovator's Dilemma: Chapter 2

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Friday, August 17, 2012

Value In Staples

Shares of office supplies distributor Staples (SPLS) fell almost 20% at one point Wednesday following the release of its second quarter results. But is the company worth so much less today than it was just two days ago? The company reduced its 2012 earnings growth estimate from high single-digits to low single-digits. Considering the company's competitive position, it now trades at a very attractive P/E of 8, which may provide for an excellent entry point for long-term investors.Read more...

Thursday, August 16, 2012

What Goes Up, Must Go Up Forever? Commodity Prices

There appears to be a prevailing market belief that commodity prices can only rise in the long-term, despite short-term fluctuations. Inelastic demand from developed countries and unremitting demand growth from emerging markets are the most commonly cited reasons for this. As a result, investors are putting companies in this space on a pedestal, taking recent earnings growth of such firms for granted. Value investors must be careful not to get caught up in this game of rising commodity prices leading to rising earnings expectations; it can result in portfolio disaster.

Wednesday, August 15, 2012

Show and Tellabs

It's unusual to see a large company where a net cash position makes up the bulk of its market cap, but such is the case with Tellabs (TLAB), seller of switches and other networking equipment to telecom providers. Tellabs trades for just $1.2 billion, despite a net cash position of more than $900 million.

Tuesday, August 14, 2012

Improve Your Productivity: Read Faster

In this age of information, a great number of people spend most of their waking hours reading. Value investors are no exception; we need to read articles, books, 10-Ks and all sorts of other filings. The benefits to reading faster, therefore, are massive.

As I recently learned, speed reading is no myth; it can be done! In the last two months, I've tripled my reading speed. While comprehension is a difficult thing to measure, I have tried to measure it anyway, and I believe my comprehension has not suffered as a result of my faster reading. I'm convinced that with a little practice, you can improve your reading speed as well.

Monday, August 13, 2012

Janus Rises

Just 9 months ago, Janus was discussed on this site as a potential value investment. Last week, investors were offered the opportunity to sell the company following a gain of 47% from its November 2011 price. As such, Janus becomes the latest company to move from the Stock Ideas page to the Value In Action page.

Sunday, August 12, 2012

The Innovator's Dilemma: Chapter 1

Companies are susceptible to losing their customers as a result of disruptive technologies. In The Innovator's Dilemma, Christensen demonstrates that companies are overtaken despite doing everything right - listening to customers and investing in the highest-return projects. By studying the disruptive process, Christensen shows how companies can defend themselves from disruptive technologies.


Saturday, August 11, 2012

The Halo Effect: Delusion #9

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Friday, August 10, 2012

2 Big-Box Electronic Stores, 2 Different Strategies

Electronics retailers are at a crossroads. The flagship products they made so much money on in the last decade, namely flat-screen tvs, are no longer as lucrative as they once were. Consider how differently these companies are choosing to react to the new environments they are facing.

Thursday, August 9, 2012

Value In Twitter

The title does not refer to Twitter as a value investment, but rather as a tool for value discussion! It has been two years now since I joined Twitter, and in that relatively short amount of time it has become an important part of my investing life! Value investors have a lot to gain from Twitter, which is why I recommend that all readers join Twitter if they haven't already.

The Allmighty EPS Number During Earnings Season

As earnings season continues, investors are keeping a watchful eye on their favourite companies' quarterly reports. Stocks become highly volatile during this period, moving several percentage points up or down based on a company's reported earnings per share (EPS) numbers. But too many investors blindly incorporate earnings per share (EPS) as a primary component of their valuations. EPS gets multiplied by a P/E multiple, or it is used as a base for growth rate multipliers to be discounted back to present value. However, for several reasons, investors must avoid using such short cuts in company valuations.

Wednesday, August 8, 2012

When Management Matters Less?

Value investors can spend a lot of time evaluating the quality of a company's management. We look at management's track record, and attempt to gauge the level of management's candor in providing information to shareholders.

Tuesday, August 7, 2012

Operating Leases Not Created Equal

As value investors, we're conditioned to immediately capitalize operating leases as debt. While that's the simplest way of handling them in order to derive a credible valuation, it leaves a lot to be desired. For one thing, the maturity of the leases can be a huge determinant of how large a "debt load" the leases actually represent. For example, compare the lease obligations of these two electronics retailers:

Monday, August 6, 2012

Gladwell's Tipping Point

Lending credence to those who believe history constantly rhymes, financial bubbles pop-up again and again. Sometimes the asset class that has been gripped by speculative mania is a familiar one, and sometimes it is not. From tulip bulbs to real estate, however, every bubble eventually gets popped. To keep the mania going, a growing amount of money is needed to support it, and eventually there isn't enough.

In the non-financial world, there appear to be bubbles as well. But the currency is not money, but rather opinions and actions. As there are no shortage of those, such bubbles can persist for thousands of years. But what causes such bubbles? Enter Malcolm Gladwell's Tipping Point, which I recently had the opportunity to read.

Sunday, August 5, 2012

The Halo Effect: Delusion #8

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Saturday, August 4, 2012

The Halo Effect: Delusion #7

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Friday, August 3, 2012

Alco Stores: Net-Net Buybacks

Stocks trading at discounts to their net current assets often look cheap. But investors fear what the the company is going to do with its capital. Companies often trade at such large discounts when they have made poor acquisitions or can't control expenses relative to revenues. But what happens if a company trading at such a discount buys back its shares at the discounted price? Such a company offers the potential for great returns for shareholders.

Thursday, August 2, 2012

Blowing Your MIND CTI

MIND CTI (MNDO) is a volatile stock, even though it's a profitable company where most of its market cap is made up of cash! The company currently trades for just $32 million despite a net cash position of $17 million and earnings above $4 million in each of the last three years.

Wednesday, August 1, 2012

Telefonica Jumps Following Dividend Cut

Conventional wisdom in the stock market offers that a stock will go up when a dividend is announced, and will go down if a dividend is cancelled. Bucking that trend last week was Telefonica (TEF), which is up some 10% since it announced the elimination of its dividend. I'd have to agree with the market on this one - the absence of a dividend makes this a more appealing stock for investors, for several reasons.Read more...

Tuesday, July 31, 2012

Crisis Economics

I recently read Crisis Economics by economist Nouriel Roubini. For financial experts and non-financial experts alike, I recommend this book to anyone looking to understand the various causes that contributed to the recent financial crisis, the policy response that likely saved the economy from a depression, and the steps that need to be taken going forward to lessen the blows from future recessions.

Monday, July 30, 2012

Companies Are Getting Smaller

Frequently reading about layoffs occurring at [insert large company name here]? Though these types of events happen more often during recessions, they also occur rather frequently during all parts of the business cycle. This has always been a trait of capitalism; small, innovative, growing firms take business away from large, bureaucratic behemoths. But there's more to it lately.

Sunday, July 29, 2012

The Halo Effect: Delusion #6

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Saturday, July 28, 2012

The Halo Effect: Delusion #5

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Friday, July 27, 2012

Goldratt On Operations Management

Author E.M. Goldratt recently passed away. For those interested in operations management, I highly recommend reading his work. I read his first book, The Goal, a few years ago and it remains one of my favourite books of all time.

Thursday, July 26, 2012

Accounting As A Second Language

I’m often told by visitors to the site that this content is rather advanced for the investing beginner. As such, a question I often receive is “Where do I start?” or “How do I become proficient enough to understand what makes for a good investment?” The answer is to learn and understand accounting.

Wednesday, July 25, 2012

Double-Hammered: Lexmark

It appears Lexmark has been hammered twice for the same result. Last week, the company pre-announced that it would miss earnings this quarter and next due to weakness in Europe, and the stock fell 25%. Yesterday, the company more-fully announced its earnings, and the stock was among the biggest losers again! Might this provide an opportunity for value investors?

Tuesday, July 24, 2012

Profitable Segment Gives Value To SuperValu?

After much pestering from investors, SuperValu is finally separating its Save-A-Lot business from the rest of the company in its financials. While the entire company as a whole is having trouble meeting expectations (earnings per share in its most recent operating period were just 19 cents against an estimate of 38 cents), there is a growing albeit small segment of the company that is quite profitable.

Monday, July 23, 2012

The Dreaded Auditor Change

When companies change auditors, it spooks investors. Shareholders wonder if an accounting disagreement between managers and auditors is the cause, which can indicate that shareholders are being mislead. Look no further than shares of Alco Stores (ALCS) last week, which fell as much as 14% during the day following its announcement that it has chosen a new auditor. Should shareholders be concerned?

Sunday, July 22, 2012

The Halo Effect: Delusion #4

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Saturday, July 21, 2012

The Halo Effect: Delusion #3

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Friday, July 20, 2012

Primed

Let's face it, readers of this blog are big sissies. Yes, I'm talking to you!

According to recent research, the above may have primed you to take short-term risks! Threaten a man's masculinity, and he becomes a short-term risk taker.

Thursday, July 19, 2012

Housing Shills

In 2005, the chief economist for the US National Association of Realtors told The Washington Post that "there is no national housing bubble. Any talk about the housing market crashing is ludicrous."

Since then, this man has admitted that in that job, he was pressured by executives to issue optimistic forecasts, and then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he argued.

The lesson here is an important one for investors. Industry trade groups and company managers tend to put a positive spin on things. If you believe them without doing your own objective analysis, you are bound to become a sucker at some point. Consider a potential parallel in the current Canadian housing bubble.

Wednesday, July 18, 2012

USMO Purchases, MO' Problems

US Mobility (USMO) is a cash cow. While paging use is in definite decline thanks to mobile phones, there are certain niche segments (e.g. in healthcare) where customers count on its reliability and low costs. As such, USMO generates free cash flow of over $70 million per year, against a market cap of just over $300 million. The company is also debt free, with a net cash position of almost $35 million.

Tuesday, July 17, 2012

Retail: Is It Different This Time?

Many large, recognizable retailers are trading as if their business models are dead. For example, among others, Staples, Best Buy, and Office Depot all trade at P/E's under 10 (in some cases, quite a bit under!) while the 45-year old RadioShack sells for barely more than its net current assets. Investors appear to have abandoned ship on the fear that Amazon is going to take all of these guys (and others) under. I'm much more pessimistic about our ability to make such predictions.

Monday, July 16, 2012

Value Investors At RIM Meeting

Two value investors who happen to be regular readers of this site headed to Waterloo last week to take in Research in Motion's annual shareholder meeting. Here's what these shareholders had to say about what they heard:

Sunday, July 15, 2012

The Halo Effect: Delusion #2

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Saturday, July 14, 2012

The Halo Effect: Delusion #1

Nassim Taleb calls it "One of the most important management books of all time." The Halo Effect tells us why much of what we believe about business is quite likely false, thanks to a number of delusions. Author Phil Rosenzweig doesn't mince words as he attacks a number of the most popular business books of all time for failing to account for simple and foreseeable errors in drawing their conclusions.

Friday, July 13, 2012

All Companies Not Created Equal

Two months ago, a reader's Value Investing Club investment idea was discussed on this site. Since then, the stock is down some 10%, but a catalyst has emerged that leads the author to believe shares of that company have an expected six-week return of a whopping 47% to 57%, with downside protection in the form of assets. You can read his full write-up at Gurufocus.

Thursday, July 12, 2012

Ryder All The Way Up!

Ryder System (R) saw its stock fall significantly after lowering its 2012 earnings estimate from a mid-point of $4.07/share to a mid-point of 3.75/share. As a result, the stock now trades at a P/E less than 10, despite the fact that the company may have a durable competitive advantage.

Wednesday, July 11, 2012

Cover Your Backside and LookSmart Doing It

The main problem cited with stocks trading at discounts to their net current assets is that there are no catalysts on the horizon, so presumably the stock price can stay there for a long time. The trouble with merger arbitrage is that the downside is large, as if the deal falls through, the stock could fall big. But at Oddball Stocks, Nate appears to have uncovered a favourable combination of these two circumstances.

The stock is a net-net, so the downside may be protected. But at the same time, a buyout offer has been made above the current price, which provides the potential catalyst. Read the full article here.

Tuesday, July 10, 2012

Simple But Not Easy

An excellent essay by Toby Carlisle of Eyquem Investment Management is available here. Carlisle breaks down the performance of value stocks over the last several decades, compares it to value fund returns, and discusses recent research into behavioural biases that are likely to explain the difference.

Monday, July 9, 2012

Hints Things Aren't Going Well?

Until a company reports its latest financials, investors are usually anxious to know whether business has been strong or weak in the months since the last report. Sometimes, however, there are hints investors may be able to use to answer this question. RadioShack investors may have received such a hint last week.

Sunday, July 8, 2012

Thinking, Fast and Slow: Chapters 37 and 38

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Saturday, July 7, 2012

Thinking, Fast and Slow: Chapters 34, 35 and 36

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Friday, July 6, 2012

Karsan Value Funds: 2012 Q2 Results

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

Thursday, July 5, 2012

Insight Into Dun & Bradstreet's Switching Costs

As Pat Dorsey argued in his book about competitive advantages, one of the strongest advantages a firm can have is high switching costs. Recently, Dun & Bradstreet (DNB) was discussed on this site as a potentially cheap company with what appears to be a strong moat. Thanks to a find by Taylor, we can get a pretty good look at what perhaps the company's largest (at over 1% of DNB's revenue) customer sees when it ponders switching from Dun & Bradstreet.

Wednesday, July 4, 2012

Thinking, Fast and Slow: Chapters 31, 32 and 33

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Tuesday, July 3, 2012

Goldman Sachs' Discount

Goldman Sachs has consistently increased its book value in the mid-teens annually. Nevertheless, it currently trades at a 30% discount to its tangible book value (much of which is marked to market). Despite cyclical headwinds in the company's lucrative investment banking operations (low IPO and M&A activity), the company has a P/E of just 13.

Monday, July 2, 2012

LGL Group: Upside with Protected Downside?

Just over a year ago, electronic component maker LGL Group (LGL) issued shares at a price of $20/share. Today, shares of the company sit at under $7! Because of the dramatic fall in the stock price, investors are potentially offered an opportunity to invest with limited downside risk.

Sunday, July 1, 2012

Thinking, Fast and Slow: Chapters 28, 29 and 30

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Saturday, June 30, 2012

Thinking, Fast and Slow: Chapters 25, 26 and 27

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Friday, June 29, 2012

RIM: Just Not Forthcoming Enough

Long-time readers of my site know that I purchased shares of Research in Motion before the sh*t hit the fan. I'm a satisfied Blackberry user, thanks in large part to BBM and the keyboard. While I thought it had enough competitive advantages (network, BBM, security, corporate integration) to hold its own until its software caught up to that of the competition, I was dead wrong about this. Though I am happy with the product, clearly others are not, leading to a miss on my part.

But that's an old story now, as Rim's failures have been clear for a while now. What irks me about the company now is how despite a management change, the company's culture of obfuscation when it comes to investor communications does not appear to have changed. Yesterday's conference call provided a number of examples.

Thursday, June 28, 2012

Cockroaches At Cheseapeake

Shares of Chesapeake Energy are cheap enough nowadays to attract a number of new investors. But for so many years, this company was run like it was CEO McClendon's personal slush fund.

For some of its egregious practices, Chesapeake has been featured a number of times on footnoted.com. The company has also been featured here on this site, thanks to what appear to be enormous wealth transfers from its shareholders to its CEO. While outside investors including Icahn have now improved oversight, investors should heed Buffett's warning: "There's never just one cockroach in the kitchen."

Wednesday, June 27, 2012

Assets Change, Earnings Power Changes

As demand fluctuates, companies with variable costs can scale up or scale down their operations as neccessary. Companies with fixed-costs, however, have tougher decisions to make. While they can cut costs by disposing assets in the face of waning demand, this ends up reducing capacity, which can bite them later. Over the course of this recession, many companies with high fixed costs that have earned tremendous profits over the last several years have had to dispose of assets at fire-sale prices in order to better align expenses with revenues. For the investor assessing whether a company's stock price trades at a discount to its intrinsic value, how is he to determine a company's earnings power in the face of such asset impairments and plant shutdowns?

Tuesday, June 26, 2012

ClearOne's Future A Little Blurry

A few weeks ago, frankvoisin.com featured ClearOne Communications (CLRO) as a potentially undervalued stock. Check out that article for a great rundown of why the stock might be cheap and what some of the risks may be. While the company's price is certainly enticing, I'd like to add one more risk that ultimately stopped me from buying this stock.

Monday, June 25, 2012

Oil 101: Tough Predictions

Those of you who follow me on Twitter know I recently read Oil 101 by Morgan Downey. Downey is clearly an expert on all things oil, as he provides a detailed analysis for the reader on a wide range of oil-related topics from oil history to refining and drilling processes to transportation to storage to regulations. But to regular readers of this blog, it should come as no surprise that even an expert's predictions can be significantly off the mark.

Sunday, June 24, 2012

Thinking, Fast and Slow: Chapters 22, 23 and 24

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Saturday, June 23, 2012

Thinking, Fast and Slow: Chapters 19, 20 and 21

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Friday, June 22, 2012

Predicting Sustainable Earnings

Investors spend a lot of time trying to determine a company's future earnings. For stable companies in mature industries, the best clue to future earnings is often the earnings record of the past. But past earnings records are full of line items that obscure a company's true earnings power. As such, investors are often left wondering what components of past earnings are sustainable, and which elements are non-recurring or "one-time" in nature. Penman and Zhang sought a systematic way to identify sustainable earnings, and the results suggest they have succeeded.

Thursday, June 21, 2012

Dun & Bradstreet: Wide Moat, Low Price?

Dun & Bradstreet (DNB) has been discussed on a few value sites in the last couple of years, including Magic Diligence and Gurufocus. As recently noted by Geoff Gannon, however, the company's stock price has taken a recent dive, which could make for a good buying opportunity.

Wednesday, June 20, 2012

The Guardian Of Your Money

Guardian Capital Group (GCG) is in an unfavoured industry, which could offer long-term investors an opportunity to profit. As discussed previously, the market has soured on the business of money-management. A recent article in a mainstream newspaper discussed Guardian as a potential deep value play, noting that it's substantial assets plus its operating business are worth substantially more than what the market is willing to pay for them at the moment.

Tuesday, June 19, 2012

Buffett's Housing Effect

Warren Buffett has said on numerous occasions that what is preventing the US economy from recovering to its full potential is the housing overhang. Let's take a look at what he may mean. Consider this chart depicting US construction jobs as a percentage of total employment:

Monday, June 18, 2012

Old Tricks For NewLead

Investing in a company that is managed by the person who controls it is a bit of a mixed bag for investors. It's great when management has skin in the game, but not-so-great when management abuses its control at the expense of minority shareholders. Consider what happened in the case of NewLead (NEWL), where management not only controls the equity, but also has a significant stake (in fact, larger than its equity stake) in the company's debt.

Sunday, June 17, 2012

Thinking, Fast and Slow: Chapters 16, 17 and 18

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Saturday, June 16, 2012

Thinking, Fast and Slow: Chapters 13, 14 and 15

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Friday, June 15, 2012

Buffett On Quarterly Fears

Warren Buffett has stressed many times that investor focus on quarterly earnings beats/misses is bad for both investors and companies. Rather than focus on the long-term, managers with such shareholders are implicitly encouraged to take all sorts of actions (e.g. cutting R&D expenditures) that increase short-term earnings at the expense of the company's future. At Berkshire Hathaway annual meeting one year, Buffett pointed to a study (titled "Quadrophobia") that provides statistical evidence that suggests that the focus of management on short-term earnings is rather pervasive.

Thursday, June 14, 2012

SigmaTron Spends Its Margin Of Safety

A couple of weeks ago we saw a company that was trading at a deep discount to its net current assets lever up to buy a company for more than the acquirer's own market cap! A reader alerted me to another net-net that just did the same thing!

Wednesday, June 13, 2012

Value Fail: Qiao Xing Mobile

This fail should come as no surprise to anyone familiar with the name, but only recently was Qiao Xing Mobile somewhat officially outed as a fraud. Though I sold my shares months ago when the hints of fraud started coming out, I held off on this post-mortem in the hopes that this company turned out to be one of the good ones. Alas, it doesn't look that way, making Qiao Xing the latest addition to this site's Value Fail page.

Tuesday, June 12, 2012

Overstock.com Oversold?

Shares of Overstock.com (OSTK) are held by value investor extraordinaires Prem Watsa and Francis Chou. But the stock has languished as of late, having lost 2/3's of its value since 2010 and half of its value over the last year. As a result, you have a chance to get in on this stock at better prices than have these wise gentlemen.

Monday, June 11, 2012

George "Not That Much" Risk

George Risk (RSKIA) has almost as much cash as it does market cap (no payday loans required here!). Furthermore, this maker of burglar alarm components is profitable and stayed profitable throughout the recession, despite the huge pressure (much of which still remains) on the housing industry. There isn't much more for me to add about this company, however, as it has been written up concisely yet eloquently at these fine sites:

Rational Walk
Whopper Investments
Oddball Stocks

Sunday, June 10, 2012

Thinking, Fast And Slow: Chapters 10, 11 and 12

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Saturday, June 9, 2012

Thinking, Fast and Slow: Chapters 7, 8 and 9

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Friday, June 8, 2012

'Sup, Dude!

Superior Industries (SUP) designs and manufactures wheels for car, truck and SUV manufacturers in North America. But while auto sales have bounced back in a big way from the depths of the recession, shares of Superior are in the dumps, near a 52-week low. But this is a company trading for just $430 million despite net cash of $193 million and free cash flow of $50 million last year alone!

Thursday, June 7, 2012

Tempur-Pedic Stock Crashes

Shares of mattress maker Tempur-Pedic (TPX) fell a whopping 48% yesterday after the company lowered its guidance for the quarter and the year. This consistent generator of high returns on both equity and capital now trades at a P/E (based on its newly-lowered expectations for the current year) of just 8! Does this represent an opportunity to buy a company with a competitive advantage at a great discount? Read more...

Wednesday, June 6, 2012

Here Are My Puts...So $CALL Me Maybe?

MagicJack (CALL) made an interesting move with respect to its share repurchase program last quarter. As reported by the Wall Street Journal, the company actually sold puts on its own shares. As a result, it increased its profits (through the sale of the puts) some 20%! (If you're not a subscriber to the WSJ, just Google the article's headline and you should be able to avoid the pay wall that way. The WSJ doesn't want you getting full article access when you click through this site, but will provide the full article when you click it through Google! I look forward to the day the WSJ breaks this anti-trust story!)

The WSJ basically sees this as a risky move for MagicJack, for if the company's share price had moved south, not only would the profit on the puts have disappeared, but losses on the puts could have been high. Fear is justifiably evoked when companies play around with their own stock or derivatives thereof, as it can lead to trouble ranging from price manipulation to insider trading to financial statement shenanigans that can topple companies (as seen at Enron, where company shares were used as collateral to guarantee the worth of the company's own assets, as described in The Smartest Guys In The Room). But I would argue that the sale of put options for MagicJack doesn't have to be particularly risky.

Tuesday, June 5, 2012

Symantec Looks Cheap

Shares of software security firm Symantec (SYMC) have fallen considerably over the last month, bringing the company's price to a two year low. As a result, the company trades just a few percent away from its March 2009 lows even though the company's revenues and profits are considerably higher now than they were then. The company now trades at a P/E below 10, despite having more cash than it does debt and despite a return on equity in the mid-teens over the last few years. Read more...

Monday, June 4, 2012

Hang In There!

It's well understood that value investors prefer the stock price to be as low as possible before they buy in. But what isn't so obvious is what is desired of the stock once the investment has been made. The natural inclination for almost all investors is to hope that the stock price rises immediately after purchase. But is that in the best interest of the value investor? Perhaps not!

Sunday, June 3, 2012

Thinking, Fast and Slow: Chapters 4, 5 and 6

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Saturday, June 2, 2012

Thinking, Fast and Slow: Chapters 1, 2 and 3

Nobel Prize recipient Daniel Kahneman authors this book on the behavioural sciences. Combining his own lifelong research with that of many other leaders in the field, he discusses some of the systematic mental glitches we experience that cause us to stray from rationality, often completely unbeknownst to us. Thinking, Fast and Slow is full of illustrative experiments and examples that you can even try on yourself!

Friday, June 1, 2012

Ridiculous Explanations of Market Movements

Next time you are frustrated that the market's direction is being driven solely by events in Greece, consider that your premise may be totally incorrect! Every day, the media seeks to explain why the market moved in the direction it did (e.g. "Market rises on confidence in Euro plan to avert crisis" or "Market falls on Greek contagion concerns"). But does the media really know why the market has moved a certain direction?

Thursday, May 31, 2012

The Magic Commtouch?

As discussed at ShadowStock, Commtouch (CTCH) has all the makings of a stock trading at a discount to its intrinsic value. The company trades for $65 million despite net cash of $22 million and net earnings of $16 million over just the last four years, resulting in an average ROE of about 20% over this period. Commtouch remains profitable, having earned another $1.2 million in its latest quarter.

Wednesday, May 30, 2012

Value Fail: Blonder Tongue

When I buy a company trading at a discount to its net current assets, I don't expect operational miracles; obviously, the company is trading at a discount for a reason. But ideally, a company is that not earning a decent return on its capital does not continue to invest and try to grow. In that respect, Blonder Tongue has become an investment of nightmarish proportions, forcing me to sell all my shares at a loss.

Tuesday, May 29, 2012

Xerox On Lexmark: Ahead Of The Pack, But Not Us

Both Xerox and Lexmark have been discussed on this site as potential value investments, and their stocks continue to languish. Investors looking to learn more about either or both companies should take a look at Xerox's latest conference call.

Monday, May 28, 2012

The Little Book That Builds Wealth: Chapter 14

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Sunday, May 27, 2012

The Little Book That Builds Wealth: Chapter 13

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Saturday, May 26, 2012

The Little Book That Builds Wealth: Chapter 12

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

Friday, May 25, 2012

Governing Appropriately

In a previous post, the potential pitfalls of investing in companies with poor corporate governance structures were discussed. But how can an investor protect himself? There are two basic ways. First of all, the investor can become knowledgeable about what makes for good corporate governance, and then study up on each company in which he is interested in order to make sure it follows practices in accordance with sound corporate governance. The second method is to take advantage of the information published by the companies that specialize in rating and reporting on the governance practices of public companies.

Thursday, May 24, 2012

Running Into A Duckwall

About a year ago, Duckwall-ALCO (DUCK) was discussed on this site as a high-risk, turn-around situation. Since then, the company's value has stabilized while it's price has fallen some 30%. As a result, it trades at a 50% discount to its net current assets and is therefore much more compelling from a value standpoint.

Wednesday, May 23, 2012

Mailbag: Transat A.T.

The idea that airlines make for lousy investments has been broached a number of times on this site. But what about a tour operator that trades for far less than its cash balance? Transat AT (TRZ) will be of interest to many value investors, thanks to its $190 million market cap versus its cash balance of $640 million. In addition, the company has more than $75 million (after write-downs) in ABCP! Furthermore, the company is generally profitable and free cash flow positive (though last year was an exception).

Tuesday, May 22, 2012

Paulson's Earnings Surprised Somebody

Paulson Capital has been brought up a few times on this site because of how cheaply it has traded relative to its current assets. Last week, shareholders were rewarded. Immediately following the company's earnings announcement, shares almost doubled; as a result, this company becomes the latest stock to move from the Stock Ideas to the Value In Action page.

This result re-enforces a number of lessons value investors should already know:

Monday, May 21, 2012

National Presto Continues To Fall

National Presto Industries (NPK) now trades with a P/E under 10, having dropped 50% of its share price in just the last year and a bit! Instead of discussing the company further, I'll point you to someone who has already done so at GuruFocus, but come back here when you're done because there are a couple of issues with that article that I want to dissect.

Done reading it? Okay good!

In my opinion

Sunday, May 20, 2012

The Little Book That Builds Wealth: Chapter 11

Morningstar's equity research director authored this book on identifying companies with competitive advantages. Dorsey separates competitive advantages into four categories, providing a framework for understanding how wide a moat a company really has. The book is full of examples of companies Dorsey believes have moats, and the reasons why their moats are likely to last - or not!

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