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?

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