valueyoda

Sham Gad has been abject failure at allocating capital within the firm. Clearly, he has redemptions, as his ownership stake has dwindled to 12%. Now even the core business is crumbling for 2 quarters in addition to the problems he continues to face at SED International. I am sorry that I had ever heard of him or this company.

I have taken a small short position in DJCO today, as its market cap reached $300mln today. The implicit Munger premium (market cap - (stock portfolio + net cash - minus margin debt + 4x EBITDA for the ongoing business)) has reached an unsustainable all time high at a point where he is towards the end of his career, the upside of the stock portfolio is limited and the core business is crumbling. I love Charlie, but a 30% discount to today's price (which is still a substantial premium) should be warranted.

All 3 are ok.

AIG, AIG/WT, GNW, WAC, OCN, CBI, FMC, GT, OI, QIHU, MGM, AAL, DAL, GM, GM/WT/B, CHK, NOV, PIR, TWI

Hey Tim, I will send you an email regarding the cost and process. I would estimate your first filing files to amount to about $200-$250.

The financials offer a wide array of possibilities right now: Ocwen Financial, Altisource Portfolio Solutions, JP Morgan, Bank of America (plus A warrants), Citigroup, AIG, Genworth Financial, Sberbank. Life Time Fitness, Seaworld Entertainment, Monsanto are some other names that come to mind.

What happened to Paragon technologies's website? It seems like to haven't renewed their domain name.

Added to Sodastream, also readded Delta Airlines after having sold last month. I further bought positions in MBIA, Whole Foods, HCA Holdings, Tenet Healthcare, Dreamworks, JP Morgan warrants, LEAPS in Citigroup, BofA and Genworth.

He had a lot of exposure to the Ocwen/Altisource complex that had a terrible 12 months, plus exposure to homebuilders that underperformed. In addition, he betted too early against a downturn in the Canadian housing market. Ironically, I think that most of those positions are actually very attractive now in terms of valuation.

Most transcripts can be found online for free. And even if you account for everyone that is actually going there buying one share, there is still too much volume behind the move, so that is not the whole story.

Emotionally, I am there with you, but unfortunately nothing is priceless when it comes to securities.

As much as I love the Daily Journal and Charlie, a significant deviation between market value and intrinsic value has developed. Once you back out the net investment portfolio (the portfolio is pretty predictable), the market puts an ever increasing value on a declining business. If you would regard this extra premium as the price to be in business with Charlie, it sure gets expensive, especially since he rarely changes the composition of the portfolio and less net cash is added to the investable assets each year.

I have taken a short position in Save the World (ticker: ZERO, extremely ironic). Even if you won't join the bandwagon, the company's 10ks are a fun read. This company has been a serial share issuance machine with the result that the company's market cap has ballooned to almost $150mln. The company has pulled a new rabbit out of its head, everytime the market was willing to give up on the company. Currently, the company tries to tell its AOT Technology as a groundbreaking technology, but I am fairly certain that TransCanada that currently has a temporary trial lease won't renew the contract, nor that a lot of other oil companies will follow. The current market cap, assuming no further dilution, assumes a sustainable earnings stream of $10mln, which will never materialize. I think that the end of Transcanada's lease could be the catalyst, combined with the lack of further partnerships, that could help the stock to go to zero eventually.

Coach, Altisource Portfolio Solutions, Sodastream

Ebay, W.R. Grace and Valeant Pharmaceuticals.

I shorted some Chipotle yesterday

SED International has been facing a revenue crisis for a while now, because the competition is eating their lunch and they're operating in the wrong product categories, so a recovering economy won't turn around this ship. A reduction in staff is necessary to cut operating expenses drastically, but it also hampers the company's ability to increase revenues. With all due respect to the bulls out there, there is such a minimal probability that Gad or anyone else can cut operating expenses fast enough to keep up with the decline in revenues before it runs out of cash or is in default. Operating a business like SED can often times be interesting in terms of cash flow generation on the way up, but can be disastrous when revenue declines set in. I think that Gad overestimated his turnaround abilities. I would herald him though, if he can pull it off. However, there is such an astronomical probability that this stock is going to the penny stock graveyard.

If Sham Gad wants to maximize his annual compensation within the boundaries of his fund, then he should take control of more small crappy publicly traded companies and receive compensation as chairman or CEO. I am puzzled how SED International could be turned around. It is virtually impossible with the current cost structure and balance sheet. Even if Gad resolves many governance issues and reduces SG&A by a meaningful amount, he still has to deal with a declining company with no moat that deals in the wrong product categories and has a balance sheet that is about to collapse. Dealing with such turnaround requires a 24/7 dedication from its CEO, and I don't see how he can manage to pull that off given the fact that he is also actively involved with his fund, Paragon Technologies, writing and his rental properties.

The only reason why I haven't harpooned that Moby Dick is the fear that by the time I have successfully replaced Sham Gad from the board all the residual value is gone, which isn't hard given the fact that the company's cash position at the holding company outside of its SED International holding is practically limited.

What worries me - in addition to Gad's poor character and past conduct - is that his fund, according to an investor letter previously floating around on the internet, is highly concentrated in Paragon Technologies and Sed International. Normally, this would be a good thing and shows convinction. However, his fund's poor performance and the shrinkage of his fund at the time of the letter would suggest that his ownership position is highly insecure. I applaud him for instituting a holding company structure and the willingess to redeploy corporate funds in publicly traded securities that are undervalued. Based on the few investments (the main one being SED international), he has convinced me that he is the wrong man for the job. At a time when better companies with an economic moat were available in the marketplace that could have provided asymmetric after-tax results over the investment period, he thought that SED International - a turnaround candidate with poor corporate governance, no economic moat whatsoever and a terrible balance sheet - was the ultimate candidate to take advantage of. The perverse consequence of his control of both Paragon Technologies and SED International is that he is able to extract a sizeable annual compensation at both companies, far in excess of what he is able to earn as fund manager. Therefore, he is unwilling to part with his current position. It should never be the ambition of a fund manager to earn more from governing portfolio companies - which should be part of the active investing process to earn good net returns - than from managing the fund. I am very interested in taking a sizeable personal stake in Paragon Technologies and for my fund, but not with Mr. Gad at the helm and in charge of the capital allocation process. I feel sorry for longer term shareholders in Paragon that have suffered and probably will continue to suffer a probable permanent loss due to Mr. Gad's allocation to SED international.