bennycx

Sure, but it is not so simple like that. A company paying a consistent dividend vs one not paying a dividend when it can impacts the psyche of management. Management becomes overconfident of its ability to grow the company looking at the excess cash flow it has and proceeds to continue, overpaying finally for further acquisitions. Paying a dividend disciplines this management team. They could be good people or trying their best to reward shareholders, but they are still humans, affected by behavioural biases. This is akin to putting every month X% of your salary into an index fund vs accumulating a ton of money and trying to "time" the market. Also one more point: most management teams get there because they're good operators, not capital allocators. I'd rather them run the company efficiently or grow the company with some creative marketing ideas with LESS money to play around.

I'll definitely take my money in a dividend. Management are almost always 1) overconfident about their abilities to grow the company, 2) lousy at capital allocation or 3) don't really work for shareholders. At least when dividends are distributed it gives them cash flow discipline. Otherwise all that excess cash flow will go into overpaying a big acquisition or a "growth" initiative.

Mettler-Toledo

Then I just name my asset management firm as a "Fund" and there you go :)

Put it this way.. if a asset management firm makes 30% profit margin a year.. is it a fund that makes 30%? or is it a business?

If I am not wrong, what he is trying to say is that they're doing market making like trading in a bank. The appropriate returns calculated should include i.e. costs of the machines, hiring people, etc. It is like reporting revenue numbers and not "net earnings"? Traders in a bank also have very low down days like 1 out of 30 days anyway

His public funds are not known to be doing well. So there may be something fishy there.

Using the XIRR function, you get the compounded return while depositing and withdrawing cash in between. How would you compare against a benchmark return similarly, i.e. DCA / monthly payments into S&P, instead of point to point return?

Obviously he doesn't look at all or puts really little weight into the macro/commodity factors, otherwise he would have sold POSCO by now.

I don't think there is much to read into this. I guess he sold because "there was better uses for the money". Only after oil collapsed did he say he was less enthusiastic about oil... a little bit of Captain Hindsight there.

Am a Camtab here. I would say although you would have an easy time getting some interviews if you work hard at it, it will still not be an easy task as most managers do not value a degree that much over prior work experience. I'm sure you will make the transition into the industry but it is no easy task to get the "first choice" job.

Well those companies are the companies that I like. And there are 4 possible things that the owner operators can do: 1. like you say they pay themselves egregious salary to extract cash 2. they try to expand the company and make a name for themselves 3. they sit on the cash and do nothing 4. they return the cash 4. - I have rarely seen, but one such owner told me that the IRS would scrutnize the company if they hang on to the cash and do nothing with it; the idea is that the IRS wants dividends paid out so they can get a cut; can someone confirm if this is true? 3. this is the common case, and I am ok with it because the companies that I invest in are also doing quite well minus the cash, I just expect to get the benefit from the cash either by payout or by higher stock price to reflect the cash 2. if that is the case is it really that bad? if you don't think the owner/operator is comptent then you shouldn't invest in the first place no matter how much cash 1. this doesn't make sense; lets assume the owner can do this because they own 60% of the shares of a $10M company, if he pays himself $1M bonus one year he'll get a tax hit, say his marginal rate is 40%. His take home pay is going to be $0.6M and the market cap should correspondingly drop to $9M. So now the owner has $5.4M in company stock plus $0.6M cash or a total of $6M. If he didn't pay himself the $1M bonus he would also have $6M stock. hmmmmmm, looks like the only person that benefits is the IRS...... this is not to mention that the owner will no doubt face a lawsuit...... I agree with you on 3. Some companies like these I invest too. On 2. I usually mean they would invest in random new opportunities which might or might not work. This becomes like VC investing style and you can't predict what would happen so normally I would pass. On 1. taking into account what I said above, that is why they pay themselves salary. Because they do not know whether their company would fail going into this "new" venture. By paying salary they can extract the cash. Normally they would also be selling stock/issuing stock to themselves at the same time but at a gradual pace in order not to spook the markets.

Problem with all these kind of "balance sheet" analysis where X% of market cap is cash and no debt is how the company is going to use the money. If it is a micro-cap it is likely that management is also the founders of the company - imagine if you were them what would you do? I would pay myself lots in salary to "extract the cash" while at the same time invest the cash in opportunities to build the business to make a name for myself. Find me a company where it is trading at market cap = cash AND where management is actively returning that cash to shareholders. That is the margin of safety I want to find

If your partner had 15% compounded for past 30 years, wouldn't he have enough to set up a hedge fund straight? Or would have >25 mil in assets already?

Many of this board argue that there are more price inefficiency among small cap stocks compared to large caps as there are much less research analysts covering them. However in my experience most small caps I have looked at seem pretty efficient and only very few of them are truly undervalued (probably estimating 1 in 50). Furthermore one has to put in much more effort by sieving through thousands and thousands of small caps to find a gem in the haystack. Turning the typical argument around, if large caps are efficient due to hedge funds and institutions looking at them, wouldn't small caps be just as or more efficient as the only people buying them are small time value investors and insiders who actually read the whole 10Ks and Qs? Where do you find all these small cap undervalued stocks?

I've been investing in "net nets" and "great companies at reasonable prices" for the past 6 years and in my experience I don't see one strategy significantly outperforming the other. One of the toughest problems I have is how do we compare a net net to another company already in your portfolio? To put it concretely, suppose you have 3 great companies and a basket of a 10 net nets and you find another net net. Would you invest in the 11th or would you add more to the 3 great companies assuming they are cheap as well? People tend to be in one camp or the other and no one has really given me a good answer to this. I find that focusing on the great companies tend to be better as it takes away reinvestment risk of the cigar butt

Even if research says unprofitable net-nets outperform profitable ones, I will still select the profitable ones and the ones with normal compensation and not excessive. Just using some common sense thinking here...

Hi All, I've been looking through a couple of net-nets in declining industries and I keep seeing the same pattern over and over again. The companies have a pile of cash sitting in the balance sheet and the market is trading near net cash where you get the business for free, however the business is earning negative to zero earnings. Compensation is large part of expense with the executives earning huge salaries relative to the market cap. CEO does not want to return cash as they want to use it to grow or expand. So finally I inverted and thought if I were in the CEO's shoes what would I do? I would do exactly the same! If I knew the industry is declining I would pay myself as much salary as possible so that shareholders get zero. Why would I take the risk of owning the shares when I can be guaranteed income by paying myself a salary. I also wouldn't return cash to shareholders otherwise I will be out of a job. Anyone else has the same experience looking through net-nets? I find it really hard to find a good one to invest in. They all seem cheap but are really not that cheap.

For oil, we know that earnings are going to go down, but how would you take into account the eventual rebound (if it happens)? Or rather what would be the "normalised" earnings?

"If an investor’s entry point into Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares have occasionally reached – it may well be many years before the investor can realize a profit" Buffett thinks double book value is expensive and he will buy back stock at 1.2x book value so you can already figure out what he thinks the fair value range is..

i live in singapore with no cap gains taxes and i don't trade that much.. i think there are alot of "hidden" frictional costs involved which even though they are tiny they really stack up quickly once you trade alot e.g. fx fees, broker fees. In a passive account they might add up to 0.1 - 0.3% but once actively traded it could easily be up to 1 or 2% which will eat into returns

Wells Fargo (in comparison to other banks) National Oilwell Varco

the upside of the stock portfolio is limited...? i don't think it is a good idea to short DJCO unless you're also long the underlying portfolio..

For investing purposes, I would just assume they are bad/mediocre unless they prove otherwise. You don't have to invest in so many companies.

Cool I'm also from Singapore and now in London... :)