KCLarkin

MKL probably goes on the too hard pile. Operating earnings are highly volatile, so trying to normalize ROE is hazardous. Compare MKL to BRK, which has relatively stable earnings and is also growing BVPS in low double digits. I KNOW BRK's BVPS is greatly understated. Partly because Buffett and Munger tell me so, but also because I know GEICO and BNSF are worth multiples of what they paid for them. You could use Munger's valuation method. Is MKL a more compelling buy than your best idea? Is MKL at 1.25x better than BRK at 1.3x? Disclaimer: MKL is on my too hard pile so the above is purely theoretical. I haven't done any in-depth research. Based on historical valuation, MKL looks compelling at less than 1.1x BV.

Not many of the people on this board need to file a 13F. They also tend to be more deep value and risk tolerant than I am. WEB and tepper have too much money. I like small, concentrated, quality-focussed portfolios. KCLarkin- which other investors do you follow that fit your criteria? I follow Pabrai and Ted Weschler at Berk. Unfortunately, not many fit the size criteria. I like Ted and Todd but they are hard to follow due to the commingled portfolio. I like Eric Khrom but I don't think he is big enough to file a 13F and doesn't seem to disclose positions in his letter anymore. In Canada, I follow Jason Donville and Mawer New Canada. I am in awe of Munger's 13F. Pabrai would be higher on my list if he hadn't experimented with diversification after the crash but I should probably take him out of the penalty box. His 13F is a thing of beauty too.

Not many of the people on this board need to file a 13F. They also tend to be more deep value and risk tolerant than I am. WEB and tepper have too much money. I like small, concentrated, quality-focussed portfolios.

Does anyone have any insight into why he is buying Alleghany now? He must be seeing some hidden value that I can't see.

This assumes that price is the key competitive dimension. I would argue that for many customers who are spending $100/year on printing, pricing is mostly irrelevant. They will go with the company they have heard of. Vistaprint's scale let's them outspend their competitors on advertising and marketing. I suspect that this realization is what caused VPRT to shift their strategy. Shipping out crappy, free business cards gets you scale but doesn't build your brand. The key metric I'm watching is Net Promoter Score. Customer satisfaction is going up, which should be a leading indicator.

Don't confuse cost with price. They are still the low cost producer IMO. Because of their margins and scale, they can outspend their competitors on marketing and service. I think GEICO is probably a better comparable than WMT. GEICO uses some of its cost advantage on advertising their lovable Gecko. GEICO got into real trouble when it shifted it's focus from it's highly profitable target niche of safe drivers and started underpricing insurance for all comers. Buffett had to bail them out...

Looking at Ycharts, RRD has had ROE pretty close to zero over the last five years. RRD also has a lot of debt, which would also artificially inflate ROE. RRD is facing major headwinds. A big portion of their revenue is for catalogs, etc. I used to run a digital catalog business and I can tell you the big catalogs (Crate and Barrel, Restoration Hardware,etc) are cutting back on their mailings. RRD has 21% gross profit margin versus 65% for VPRT. VPRT is forecasted to grow EPS at 20%. I think it is pretty obvious that VPRT deserves a significant valuation premium to RRD. But for a value guy, the bet is that current earnings aren't normal and that they will revert to historical trend. I am very comfortable with this bet and I like the widespread scepticism. If I am wrong, I won't lose much. As a long-term investor, I am very concerned about the capital intensity of the business though.

Based on his portfolio, I think Mecham is more focused on earning power than book value. He might be willing to pay a significant premium for a company with high ROE and promising reinvestment opportunities (AKA "compounder").

:D Glad to hear! (assuming you are referring to VPRT). This is why I like the stock so much. Superficially, it is terrible and I want all the bad news to be priced into the stock. The bear case is pretty obvious (at least superficially): Broken growth story: Negative 76.60% Q/Q eps Expensive: PE = 30 (ttm), EV/EBIT = 11 Terrible quarter: Huge earnings miss, revenue miss, big write-off, bad guidance No momentum: Stock has went sideways since 2007 Horrible industry: Print is dying. Marketing is going online. Low margin. Capital intensive Bad execution No dividend Small cap, tech stock in the midst of a small cap, tech correction Poor sentiment: Most analysts rate it hold or underperform, huge short positions No moat: printing is a commodity business Who would buy this dog? And if nobody is buying and everyone is shorting, wouldn't all of the above be priced into the stock? With the huge short position, it wouldn't take much for the stock to pop. So let's use some Howard Marks / Charlie Munger second level thinking to see if there is something we are missing: Terrible business? Actually seems like a terrific business (if it weren't so capital intensive): - ROE of 20% for most of the last five years. - Operating EPS growth at 20% since going public - 65% gross margins - Have bought back 25% of stock since 2010 Expensive? Need to normalize earnings (this is where the J-curve comes in): - Earnings temporarily depressed due to investments in product, service, pricing - Earnings temporarily depressed due to investments in asian markets - Revenue temporarily depressed due to shifts in pricing / marketing - Net Income Margin fell from 10% to 2.5% due to these investments - If NIM rebounded to historical 10%, 2014 normalized GAAP EPS would be $3.78, PE = 10.5 Broken growth story? - Hard to tell, but results from Canada (where they tested the new strategy) are very promising - Anecdotally, my wife works for one of Canada's largest hospitals. Their charitable foundation ($120M revenue) used Vistaprint for a recent small project (even though Vistaprint is targeted at much smaller companies). Seems like there is some combination of convenience / cost that current large printers aren't providing. No Moat? - Vistaprint specializes in low cost, small batch printing - Traditional printers can't produce small batches cost effectively - No other small batch printer has Vistaprint's scale (5.5 billion business cards per year, 90,000 orders per day) - Vistaprint is the cost leader in small batch printing (each business card pack only takes 10 sec) - Economies of scale allow VPRT to make investments that no other printer can make (e.g. national TV ads) Gannon took a pretty good first stab at describing their moat: http://www.gurufocus.com/news/161898/vistaprint-vprt-the-makings-of-a-moat How was Nucor anything but a steel company? How was Southwest anything but an airline? How was Amazon anything but a low margin book retailer? Not saying that VPRT is in the same league but if you can find a misunderstood company in a terrible industry, the payoff can be huge. At 12x forward earnings, I'm willing to make the bet. P.s. If Allan can lend his stock out at 10%, then the risk/reward becomes more compelling.

I suspect his thoughts on VPRT are similar to Eric Khrom's: http://www.scribd.com/doc/148405390/Eric-Khrom-of-Khrom-Capital-2012-Q3-Letter J-Curve: VPRT is investing heavily in upgrading their products, service, and pricing to appeal to a larger, less price-sensitive market. This is temporarily suppressing both revenue and earnings. Stock Lending: Short sellers were paying double digit rates to borrow the stock (as of 2012) Glenn Greenberg at Brave Warrior Advisors also has 6% of his portfolio in VPRT. I have 3% of my portfolio in VPRT.