ExpectedValue
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Posts posted by ExpectedValue
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I think Amazon made a bad precedent on Zappos and I did not expect Amazon being so naive to believe they can buy every problem out. It is like paying for the blackmail and expect nobody will try it again. It is this expectation that Amazon will pay leads to even more ventures in the future.
We will see. As I said, AMZN is not worth the multiples trading at now.
I don't know about that, there is nothing inherently wrong with acquiring companies, as long as they are not overpaying. Being able to take out verticals like Zappos (shoes) and Diapers (babies) might make sense if they can integrate them into their supply chain and use their buying power to bring down prices (a la Walmart).
I don't know what Amazon is worth, but I do know that I wouldn't short it. They are run by a great operator and can have a nice runway for growth going forward (esp. if their cloud initiatives pan out... most of my friends in the start up community are using Amazon cloud services).
For me, I'd rather short based on more substantial metrics - financial fraud with catalysts in place. Valuation-based shorts always seem like a sucker's game to me.
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Looks like they really did fear Diapers.com:
Amazon to buy Diapers.com for $540 million
http://finance.fortune.cnn.com/2010/11/06/amazon-to-buy-diapers-com-for-540-million/
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Thanks!
Great questions everyone. I'll try to get them answered soon.
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BeerBaron, what do you mean by "colibri in the mine"?
Tariq, do you mind sharing the link for your blog? Thanks much.
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I'm going to be interviewing a value investor that focuses on insurance companies for my blog. He runs managed accounts and also has 18 years experience in the P/C insurance business.
I know that a lot of people here are interested in the insurance business and thought that if you guys wanted, you could submit questions and I would try to use them in the interview.
The only thing is - I really prefer to ask stuff that's more process related than specific stock ideas. I think in the long run you will get more value out of learning how to fish.
So feel free to post your questions in this thread or shoot me an e-mail at TariqTX@gmail.com
Thanks!
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The biggest impediment, IMO is the fact that to get enough control of a company that can be used as the shell of the holding co / provide the float, you are basically forcing your investors to accept a pretty concentrated position. So I think that having the right investor base is really important and it's hard to get.
Look at how difficult it is for Biglari to acquire FMMH. There aren't a whole lot of great insurance businesses that can be acquired by a small fund and in insurance, you usually need to find a great company.
The people who come closest are also ones that made their money outside of the funds they run. Carl Icahn and Loews come pretty closest (Loews more so than Icahn). Nelson Peltz has a holding company of sorts.
Greenlight instead seems to have started a reinsurance business which they then have contracting them to provide the investment expertise.
Bill Ackman tried to have a public vehicle back when he ran Gotham and investors balked because they were going to be left with a combination of illiquid companies (golf courses + others).
Mark Schwartz of Newcastle has his fund controlling an insurance biz (HALL) which then controls a fast food franchise biz (PZZI)
I've probably missed some people, but those are the ones I can recall off the top of my head.
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The main difference is valuation. JNJ, PFE, MRK, etc are all being valued at PE ratios in the mid 30's. At an earnings yield of less than 3%, poor returns are baked in at those prices. Even using conservative normalized earnings, some of the bank stocks are at PE of about 6. At an earnings yield of greater than 15%, unless you run into some really severe economic/company specific issues you should have a satisfactory return.
Vinod
Not really.
JNJ forward earnings yield = 7.7%
PFE = 13%
MRK = 10%
You cannot just break down a case for investing in a bank because of its P/E ratio, it's far too simplistic. That's the kind of mentality that got people killed when they were investing in seemingly cheap banks on backwards looking metrics during the financial crisis.
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Like Myth, I also like to listen to a lot of CCs or read the transcripts while doing something else.
To me, the Q&A part of a CC is very helpful when you are studying new industries. You can hone in on the metrics that analysts are looking at and figure out what drives a certain business.
FCF is great and all but ultimately, certain businesses trade on certain metrics. A bank or insurance company is going to trade based on earnings and book value but an operator of skilled nursing facilities will trade on beds/occupancies and on an EBITDA or EBITDAR basis. So it's hard to just know that without diving into the call and finding out what analysts are asking.
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I think a good way of starting is to pick out a couple of successful value investors, look at all the stocks in their portfolio, and start researching the companies you find interesting. Then, if you find some you understand/like and they seem undervalued (provide a significant margin of safety) based on your independent calculation, buy some shares. It is a bonus if you can buy them cheaper than what the value investor you are following paid. This makes it easier (psychologically) knowing that the investment has already passed through a professional's robust checklist.
My problem with this approach is it can sometimes lead to lazy analysis, especially with novice investors.
I recall seeing a lot of people follow notable value investors into certain stocks like Delta Financial or Ambac because they saw Pabrai or Marty Whitman buying -- and extrapolated that because they were getting in at a lower price and that Pabrai/Whitman had great track records, they would be safe. And that ended up tainting whatever analysis they did. Even if something was too complicated or over their head, they would still defer and think that since it passed the smell test of these great investors, they would be okay.
And instead, they lost their shirts. So you have to exercise a lot of self-control when taking that approach and I don't think new investors have that.
What I would instead suggest is that you start by trying to value small, simple businesses. Maybe even businesses that are near you. I regularly will sort industries by market cap and then jump into the financials of the smallest players. They tend to have less moving parts and are easier for new investors to value.
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Read books (accounting, valuation) + reverse engineer investment ideas off of VIC.
That's the best way to do it. Really you dont need to read more than maybe 1 or 2 value investing books (they are almost all theory with little practical knowledge).
Get good at modeling businesses in excel too.
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"Mr. Combs was one of hundreds of people who responded to an unconventional "help wanted" request Mr. Buffett made in early 2007. But his initial inquiry didn't distinguish itself.
Undaunted, the low-key father of three, who lives in Darien, Conn., recently sent another letter to Berkshire Vice Chairman Charles Munger asking for a meeting. Mr. Munger said in an interview that he gets "hundreds" of such requests each year, but "something in his request piqued my interest."
The two soon met for a lunch that extended well into the afternoon at the California Club in downtown Los Angeles. Mr. Munger later phoned Mr. Buffett and told him, "this is a guy I am sure you are going to like," Mr. Munger recalls."
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Can we infer then, that Buffett is 1 for 3 in his recent efforts to recruit capable investment managers? While I would love to think there are 2 or 3 seasoned and capable managers waiting in the wings who will be perfectly happy to join Berkshire in the near future, I have some reservations about this given the Combs appointment and the Lu / "mystery manager" news.
As yudeng points out, Buffett is hoping for quite a lot from an established pro to come into Berkshire. Perhaps finding the proper motivation and ego to fit the situation is harder than Buffett may have thought three years ago.
I have to admit, I'm feeling more uncertain about this process now than I have in the past 3 years.
Maybe Buffett/Munger had a change of heart on the previous candidates. By letting them say that they withdrew from the race, they are able to save face.
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I feel as though I am getting older and technology is passing me by. I need some sort of device and am thinking of getting a netbook for planes, car rides, and what not. I dont read enough away from the computer to justify an ereader though maybe it would help on the eyes. Really an Android device that played movies, surfed the web, and what not would be perfect.
What do you all think of netbooks.
Not really a netbook but the new Macbook Air looks pretty awesome as a secondary PC for the kinds of tasks that you described.
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WSJ reported that Li Lu turned down the offer from Berkshire.
http://online.wsj.com/article/SB10001424052702303467004575574630162624198.html#articleTabs%3Darticle
I wonder what happened there. Seems strange to have had such a change of heart.
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I have an iFrame with his portfolio and its most recent changes at the bottom. Plus a link to a Google Docs sheet if you would rather work off of that. Hope that helps guys.
I think it is really interesting that Stone Point backed Combs. They are an offshoot of Marsh and have demonstrated a good record of picking winners. They were an original investor in Dominic Silvester's fund (now publicly traded as Enstar Group) which has been a compounding machine over the last decade.
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For us ludites, what is a feed?
http://en.wikipedia.org/wiki/RSS
it's just a way to grab all the news from the usual sites you visit and access it in one place (such as a feed reader). Certain sites will give you the full feed, others will only give you a preview and make you click a link to go to their site and read the full article/entry.
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My reader only has 3 value blogs (I also subscribe to a couple of other feeds). I get an e-mail once a day that has a list of keywords I am looking to see.
Besides that I read the WSJ daily, browse sections of the NYT, and figure if anything is really important I'll see it get mentioned on Twitter (I keep my twitter follow list pretty low, around 150, and only check sporadically).
I've mostly dialed back how much information I take in these days because I figure that there is a declining utility to it. I try to spend more of my time these days reading primary documents (10-Ks, transcripts) versus blog posts or newspaper articles. I've noticed that my abilities as an analyst have benefited from this.
It's one thing to read about investing, it's another thing to actually go out and do it. So I've tried to keep my reading list more manageable.
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I would own gold if I had real money. If net worth is $100k, having $10k of gold seems pointless. You are screwed should civilization end. If its $100 million it seems stupid not to have at least half a mill in gold should S hit the fan.
This is my view on gold. I think for people who are extremely wealthy, it might make sense. If you are worth $100M, setting aside $1 to $5M in gold might not be bad. You could think of it as disaster insurance if we enter into a really bad period where you need to bail out of the country and start a new life somewhere.
But if things really got that bad, maybe you would be better off investing in firearms, ammo, survival training, and canned food.
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I don't know much about Michael Price but... Seth Klarman is a great value investor who underperformed during the 90's. I don't think it matters much because at least Klarman runs his fund more like an absolute return portfolio. He's usually able to protect his clients well during periods where the market has a sharp downturn -- which is why I think clients have given him $20B to run right now.
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Has anyone tried out the Nook and found out how it handles SEC filling type documents and PDF's?
SmallCap
I don't own a Nook but from the looks of it - any small sized e-reader like a regular Kindle or Nook will be somewhat problematic when displaying SEC filings. This stems from the fact that their screens are smaller and not designed to display content that's printed on 8.5x11 paper.
So you can of course still put those filings on it, but you would have to constantly zoom in and out to see things like charts which might be annoying given the fact that e-ink requires the screen to re-draw.
Larger E-Readers like the Kindle DX or tablets such as the iPad should not have this issue.
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On VIC, even if you just have a guest account you can read the write up for EDMC which serves as a comprehensive look at the industry as a whole and the headwinds that they face. ESI is one of the companies that is described in the write up as facing substantial headwinds.
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I think ultimately, VIC trumps SZ in terms of quality, but SZ is good for making connections with others.
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JOE has always reminded me of TRC and a few other land companies that certain investors adore. They are great if it turns out the land is actually worth something but until then you are often left with negative cash flows and no identifiable catalysts to really test your thesis.
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You should just focus on finding special situations that are more independent of the movements of the overall market, or look abroad.
Amazon.com’s secret retail empire
in General Discussion
Posted
http://venturebeat.com/2010/11/08/amazon-com-multibrand-retailer/
To me, this is really interesting. Some people have expressed concerns that Amazon might be facing a decline with books and DVDs shifting to digital distribution models -- for books, I think the Kindle is enough to keep Amazon in the game. DVDs, eventually they might get cut out of that business (I think Blu-Ray will keep them in for a few more years, bandwidth is not there yet for most people in the US).
But the article points out that Amazon has been acquiring verticals in retail and allowing them to operate in a decentralized manner. I wonder if Amazon is shaping up to be a holding company of different retailers, run in a fairly hands off manner.
I am not long the stock or anything like that, I just think the business might be worth studying.