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investor-man

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    New to investing and looking for some direction

    in General Discussion

    Posted

    By cloning you mean copying the big guys? Also by 55% IRR you mean just on test portfolios you've made or actual money you've put in? Sorry not too keen on some of the more technical terms. Will check out Mohnish Pabrai. Thanks!

     

    Yes, copying the big guys. Well, copying other good investors. I think a lot of people on this board are every bit as good as Pabrai, Einhorn, Tepper, etc.

     

    Check out these threads:

    http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/your-returns-in-2013/

    http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/your-highest-conviction-idea-for-2014-why/

     

    My favorite idea for the year is FIATY. It's trading at a very cheap EV/EBITDA multiple, and despite the recent run up in price, it's still very cheap. Checkout the video on this blog post: http://www.gwinvestors.com/Main/Blog/Entries/2014/1/4_F_IM_.html

    New to investing and looking for some direction

    in General Discussion

    Posted

    Hello value investors! I only recently started looking into value investing and reading up on people like Graham, Buffett, Lynch, and Greenblatt. While value investing seems like the best way to go for me I still have plenty of questions. There are tons of stock screeners and guides out there. I know some of the basic ratios such as P/E, P/B, P/S, PEG, etc. I'm also familiar with the basic ideas of profits such as gross, net, EBITDA. So basically I can look at an income statement/balance sheet and have a general idea of what's going on. While I do have a general understanding of these statements and big businesses, my test portfolios in the past have not performed as well as I wanted them to. I did learn from some of my mistakes but I am still not confident enough to put any of my own money out there. I am currently a college student majoring in Accounting with about $1000 that I want to put into the market hopefully by the summer. I know diversification is key to investing but since my budget is pretty small I am looking to buy and hold no more than three stocks at a time. I'm not looking for anything to be handed to me or just to copy someone's portfolio. What I'm asking is to be pointed in the right direction. Which valuing formulas and approaches have worked well for you in the past? What screeners do you use? Any advice for someone like me starting out?

     

    Here are some of the screeners and tools I use:

    http://www.valueexplorer.com/ (This one is probably my favorite so far)

    https://valuemystock.com/screeners/ (Seems pretty sophisticated but not too sure about this one)

    http://seekingalpha.com/ (Pretty much a must have for any investor)

     

    Some formulas I had questions about: Yay or nay?

    http://www.buffettsbooks.com/intelligent-investor/stocks/intrinsic-value-calculator.html (Interesting to me)

    (Seems pretty basic)

     

    Daniel

     

    P.S. I have been browsing through some of the posts before I signed up to this forum. The posts are very high quality and civilized. Love this forum so far, thanks in advance for any replies!

     

    As a newb myself (less than one year of investing experience) I'm finding "cloning" to be pretty successful. I'm at 55% IRR right now by picking up several suggestions I feel comfortable with on this board and looking over the super investor's filings. Watch all of the Mohnish Pabrai videos you can get your hands on for more info.

    Industry Background of People on This Forum

    in General Discussion

    Posted

    I'm going to nominate this one for best post of 2014 thus far! I'm curious, infinitee00 - what's in your portfolio?

     

    Since many here have provided some insight into their industry, here's a few unsolicited comments/advice and biased observations from a semiconductor industry non-expert ( an industry analyst may be able to provide much more insight than us engineers)

     

    > The semiconductor industry is very broad and finding experts who understand the entire industry is almost impossible (sometimes even finding experts in each segment is difficult). Moreover, the industry dynamics change very fast and the industry as a whole is quite volatile. I would be careful about listening to any industry insider who claims to be an expert on the industry and even more careful in using their advice as a basis for my investment decisions. Working in an industry doesn't make us experts. In my experience, sometimes a vast majority of employees are clueless about their own company's strategy or financial condition, leave alone the entire industry.

     

    > There was a McKinsey study I read some years back that claimed that in the last 15-20 years, the semiconductor industry as a whole ( excluding Intel) has been a money losing industry. If I remember the report correctly, it mentioned that Intel has created more value than the entire semiconductor industry combined. I cannot vouch for the reliability of that study but just from being an insider, I can say that sounds about right. 'Promising' companies that raise millions from venture capitalists but then fail to make any money for shareholders are a dime a dozen in the semiconductor industry ( true for most of tech sector I guess). For every Intel, Qualcomm, Analog devices, Texas Instruments, Micron there are hundreds that folded or sold out at a loss. The thing to remember here is - be extra cautious when you invest in this industry.

     

    > The cost of building a fab and researching/modelling new processes has grown significantly with each new process generation ( almost 2X for every halving of process nodes i.e say going from 65nm to 32 nm). In the future, very few companies will be able to build or invest in new fabs as processes shrink, since they will need a certain amount of revenue and profitability to justify such an expense ( I have seen estimates that the cost of building a fab for a 300mm/22 nm process can cost upwards of $7Billion and needs sustainable revenues of ~$10 billion to operate the fab. There aren't many companies in the semiconductor industry that generate that kind of revenues). There maybe only 4-5 companies in the world that can build and operate a fab beyond 22nm as the revenues won't be sufficient to sustain such an investment. (other than dedicated foundries, I don't know any company other than Intel, that generate revenues to build and run a 14nm fab ).

     

    This maybe seen as a moat for those companies, although that doesn't mean companies that work on older process nodes cannot compete, but it's an uphill battle. This also means that dedicated foundries/fabs like TSMC and Globalfoundries can have huge advantage and pricing power in years to come. If that happens and more and more companies continue to move to the fabless model, there might be capacity and time to market issues in the future. Unless the industry moves to a different type of basic device, material or process engineering altogether, it's difficult to see how smaller companies can compete effectively with the giants as we move to smaller process nodes. Looking at the flip side of the coin, one can see that if and when the industry moves to some other type of material or basic device ( e.g FinFETs, although who knows) , companies that have invested heavily in the previous gen fab will be left with billions of losses and will either have to retool their fabs at considerable expense or close them down. Some of those companies may not survive.

     

    > R&D expenses as a % of revenue has been high throughout the history of the semiconductor industry. It is not uncommon for semiconductor companies to spend 12-15% of their revenues ( or higher) on R&D. R&D spending as % of revenues has actually been going up in the industry. This makes it even more difficult for smaller companies to compete directly with the large players. Since R&D expenses are always made with the goal of generating future revenues, one way I measure the effectiveness of R&D spending for a company is by looking at next few years of revenue as a multiple of R&D spend and looking at the long term trend.

     

    e.g If a company spent $100M on R&D in 2010,  and earned 1B, 1.2B and 1.4B in 2011, 2012 and 2013 respectively. I would often calculate the effectiveness of their R&D by dividing the revenues from 2011, 2012 and 2013 by R&D expenses from 2010 ( in this case the multiples will be 10,12 and 14) and continue doing it on a rolling basis. One can possibly also calculate the 2 year and 3 year averages of this ratio. This is probably not a very scientific method to measure effectiveness of R&D, but I use it to get a trend and compare across different competitors.

     

    > Like any tech company, the best resource of any semiconductor company are it's leadership team and engineering talent. Salaries are sometimes the highest cost in a tech/semiconductor company. Unfortunately, there isn't a good or objective way to directly measure engineering talent and the return on that investment. I tend to use # of patents, design wins/employee ( if available), revenue/patent and patents/employee as rough proxies to gauge the engineering talent of a company. This method is somewhat flawed as # of patents don't tell you the quality or revenue generating ability of the patents, but in the absence of a good metric, this is a useful workaround.

     

    > In spite of the maturity of the industry- semiconductor industry is still growing rapidly ( projected anywhere between 8-15% annually for the next decade). Till about the 2000s, the Americas, Europe, Japan and Asia-Pac ( ex japan) were close to each other in terms of revenues. Since the 2000s however, semiconductor industry revenues in Asia-Pac have grown exponentially. Today Asia-Pac contributes close to about half the total worldwide revenues and almost 3 times more revenue than the Americas or Europe. However, the high growth has also been accompanied by high volatility, which is not a bad thing though as it allows knowledgeable investors to invest during those temporary downswings.

     

    > A consequence of maturity of any industry however, is that the industry is no longer fragmented. There are very few segments and sub-segments within the industry ( processor, memory, wireless, power, test equipment,materials. and even EDA or manufacturing equipment) that have more than 2-3 players who control the bulk of the market i.e 60-80% of revenues go to the top 2/3 players. If you can find a #4 or #5 player in any segment of the semiconductor industry that is consistently profitable, chances are high that they would be acquired in the next few years. Maybe other industry insiders can point me to any segment they know that is still fragmented so that we can look at those opportunities.

     

    > As someone mentioned in this thread, patents are over-rated and most do not make money by themselves. Probably 10% ( or even less) of patents generate 90% of the royalty/licensing fees. However most companies continue to pursue expanding their IP "Portfolios" aggressively. There is also a perverse incentive for senior engineers to file as many patents as possible, since promotions and bonuses are based on no. of patents filed - not the quality of patents or revenue generated from patents ( although some companies may be trying to change this culture).

     

    > Like other high tech industries - Operating margins, Cash flows and ROICs are very important metrics. Although stability in this industry may be fleeting,  relatively stable companies with good competitive advantages will have GMs > 50%, Operating margins > 15%  and high ROIC numbers over an entire business cycle ( e.g Texas Instruments, Altera, Analog Devices etc). In spite of this, investing in the semiconductor industry has it's pitfalls as it's often difficult to see the danger lurking around the corner and one needs to know where the puck is going ( information about those are not always as readily available). The best companies tend to lessen this risk by constantly shedding low margin businesses/ products and buying or investing in high margin businesses/products that can grow at a decent pace and also by trying to maintain leadership in a few segments of the industry ( e.g a company that is # 3 or #4 in 5 different areas will not last very long in this industry).

     

    That's all I could think of right now - not exhaustive by any means. I am sure others will have different and valuable perspective on the industry and can fill in for anything that I have missed.

     

    Before you take the above info seriously, just remember that we engineers can dish out intelligent sounding BS very confidently, so - verify, verify, verify !!  ;)

    Dear Sanjeev...

    in General Discussion

    Posted

    i just joined the board to share my ideas, get feedback and source new ideas.  may be time to bail if this is the path forward...

     

    Haha.

     

    On a less dramatic note, it is totally within Sanjeev's rights to say as much or as little as he wants. There are a number of fantastic posters here. No need to pressure anyone to do anything - that's not what we're all about.

     

    Sanjeev created this ecosystem. That's more than enough for me.

     

    +1

    What financial website do you use the most?

    in General Discussion

    Posted

    I feel like gurufocus is a bit buggy. Check out the "Current" year EV-to-EBITDA for FIATY.  It says 5.6 and Yahoo says 2.8. I think Yahoo is closer to correct.

     

    I've found and reported bugs to them in the past. They are quick to fix them, but I definitely feel like they could use a full time QA staff. Getting financial data right is pretty tough.

    What do you want for Christmas?

    in General Discussion

    Posted

    I want to be able to read as many books as Shane at Farnam Street.

     

    I would also like to have half the intelligence as some of the posters on this board.

    Parsad, Ericopoloy, Giofranchi, Kraven, Luke,Bmichaud, Uccmal, muscleman, racemize, Cardboard, jeast, oddballstocks, packer, liberty, plan maestro, onyx, hyten, SharperDingaan, myth, valuecfa, merkhet, bargainvaluehunter, berkshiremystery, MrB and many more….

     

    Thanks for all the help this year.

     

    +1 -- also doing my part to learn as much as I can to give back what I take

    Why Hold Cash?

    in General Discussion

    Posted

    In his most recent video at BC it seemed that his rational is that holding cash offers downside protection and then the ability to capitalize on those downsides when they occur. He was badly burned in the financial crisis and probably now has a higher preference for protection over performance.

     

    If I were as wealthy as he is that would be my preference as well. For now I think I'll do as racemize suggests and invest up to my hurdle rate.

     

    Now I'm curious - what are your hurdle rates?

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