Patmo
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Posts posted by Patmo
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There are some great GARP businesses here in the states. But I'm wondering what are some abroad. I found some great ones like Constellation Software (CNSWF) and Computer Modelling Group (CMDXF) in Canada. That's about it. They're pretty difficult to find, especially using a screener.
Any other hidden gems floating around out there? Thanks. :)
Tim Hortons was the ultimate Canadian GARP until it got acquired. You can still own it as part of QSR, it's a significant chunk of it too. Not sure how valuation looks as part of it but the show runners are 3G capital so I bet you'll be paying a premium compared to before.
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Bound and determined to find way to piss away their S/H capital, I mean grow into new areas. Awesome thing is dual voting structure means its even easier for them to tell outside S/H to go get stuffed.
+1
Yes it's easy to say let's piss away some capital I have plenty anyway. You do that enough times and you won't have that much anymore. The dual voting structure comes back to their attitude that shareholders aren't smart enough to understand the amazing stuff they are doing and they're gonna hurt themselves by voting on stuff they don't understand.
Being on the other side of the fence, I love the simplicity of choice that Google's structure gives to investors: You either buy the story or you don't. You don't have to worry about some random activist running in with their amazing insights and breaking things that may or may not be broken, depending on opinion. I happen to buy the story entirely, thus I'm satisfied that Google gets to do what it does uninterrupted.
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92 years old means he grew up during the Great Depression. We've all heard stories of how that generation, and their children, can be frugal to a fault (slicing off the moldy parts of a bread loaf, etc.)
That said, I wonder how much confirmation bias might be operating here. Maybe someone is aware of a survey study out there, showing what proportion of Depression-era folks have the opposite reaction and go for the opulent lifestyle when good times return.
They are a pretty interesting lot. My grandfather used to walk the whole town over visting all 3 grocery stores to save 10 cents on a can of tomatoes, then turn around and donate the shirt on his back to his community, always behind the curtains.
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http://i.imgur.com/MnJqbMX.jpg
I'm kind of disappointed nobody mentioned the 4th option yet...
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I think Andrew Wellington's interview is also a very interesting read.
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My biggest misses weren't in what I bought or didn't as much as when I bought them and the kind of size I made them. All of my positions I still believe are great bets even at the price I initially bought them at, but could have been made way better as I have a natural propensity to invest in stuff everybody else hates, and share price has a propensity to reflect that hate given just a bit of time. Why would I invest in a double when I can get a 6 bagger? Let the market make a bigger mistake is what I tell myself now.
So as I saw price get cheaper and cheaper I felt compelled to buy more and more of the same, resulting in positions that are too large for me. Even if it works well I don't want a 5-7 stock book, I would prefer my dome to start showing AFTER my 20's are gone.
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For micro caps, Bruce at Pink Sheets never disappoints (but he rarely posts) and John at shadow stock is brilliant.
2x shadow stock. Don't know who John is but he gave me the only idea to date that I picked up from a blog. It was so straight forward and simple that I bought a few shares just after reading his writeup. Kudos John.
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Finished building a 10% position in AIQ. 2015 will be my concentration test year, i have now 50% in 3 stocks and 80% in 6. I am still under the impression that i am sufficient diversified.
Let's see how you react when 2 of your 3 positions go down 50-75% in price. Are you ready to stand such volatility?
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There was a thread just a week or 2 ago about gold miners. Since gold miners require some of the tougher valuation work out there, I mostly looked at the qualitative side of things to identify potential stocks to acquire as I knew all the gold miners were cheaply valued as a whole so I just wanted to make sure I got some form of quality back for my buck. Sometimes you just gotta let go of the models and numbers and put your faith in your judgement.
Mine led me to Mandalay resources, which if you look from a bird's eye view is a gold miner with a value investor's philosophy: They acquire underperforming projects in the safest jurisdictions for a discount, then bring them up to speed with their operational expertise. The company has showcased outstanding capital allocation skills (god I hate that word, it sounds like kewl kids saying kewl kid things, only for investors) and is as shareholder friendly as you'll get in this industry. Although that's not a huge achievement given how low the bar is LOL.
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I miss all the posts about gold. Today, GLD is lower than it was 5 years ago! I suppose that explains why it's out of favor.
Which is really ironic for a value investing board. Some miners trading for less than cash, mines closing, extreme negative sentiment.
Do you have some names that trade for less than cash?
kobex, ryan gold
Not gold, but Karnalyte resources, about half cash
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This event has you compete with the most well known investors and enthusiasts alike in the name of charity. Choose your own 5-stock fantasy portfolio and duke it out in the name of a charity org of your choice.
https://portfolioswithpurpose.org/
Anybody done this before? Looks like fun.
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Novagold is an interesting miner that has a 50% stake in a huge gold mine. Klarman also has a stake.
http://seekingalpha.com/article/2782045-novagold-resources-and-its-elephant-sized-gold-deposit
That's a stock you should short. Barrick passed on the project when the price of gold was much higher. They greenlit a lot of questionable projects. If we assume that Barrick is somewhat sane and greenlit all of their better/less-mediocre projects, then that means that Donlin Creek is even worse than the stuff that they greenlit. So... Donlin is likely hopelessly uneconomic at current gold prices.
Barrick is definitely not somewhat sane, it is nuts. Not that it matters though.
The 2 issues I see at first glance in this article are that the DCF uses 5% as its discount rate and that estimated project costs use a less than 20% contingency. I'm no expert on construction and whatnot, but as far as I'm aware the tendency is to plan out with much larger wiggle room than that, and everybody still gets massive overruns anyway. Case in point, here is an excerpt from that very article:
"Barrick said that the capital cost for their Pascua-Lama project was estimated to be 50-60 percent higher from the top end of the previously announced estimate of $4.7-$5.0 billion"
So essentially you would probably be best served to factor in a 50% overrun on Donlin's estimated development cost, including current contingency. Tag on that a 10% discount rate instead of 5% and see where that goes.
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I think the diversification into the US for most will ultimately lessen the blow but the market has to drop by 40%+ (whether in a year or over a period of years).
Schwab, which market will drop by 40%? Housing, energy stocks, tsx?
Housing prices have to correct by 40% over time in real terms. If there's a 10% drop over 5 years with 4% growth then we are 30% of the way there. Just about every metric for Canada points to housing being 100% overpriced and the average of the metrics implies 40% drop is necessary. Unless money leaves these housing prices can persist but lending is dropping for a reason (which makes the problem worse faster). EDIT: To go with this, the US housing market is still overvalued because numerous interferences stopped the market from dropping. We will likely see flat housing prices with fast GDP growth to finish the correction while Canada may not have the luxury of positive GDP to save them.
Also, the point of maximum pessimism is not even close for the Canadian housing market. If anything, this is maximum exuberance.
Yeah no kidding, don't know what this other guy is talking about with his maximum pessimism. Everybody's still leveraging themselves up the ass for crappy homes at 10x their salary, and singing about it.
Back on topic, I picked up a few more shares of KRN Karnalyte. Keeping it a small position, but pretty excited about the prospects of a company trading at 55% net cash, with a catalyst in early stages of ignition. It's like a net-net on steroids...
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MND Mandalay just released production/sales results, stock went up a few %. I'm just collecting dividends and plugging along for the ride. One of my more comfortable bets, but more highly valued too. I can understand why some people enjoy paying up for "quality" (well that's as quality as gold mining will get), it might earn less money but it sure is soothing.
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I have several investments in gold miners...also copper & silver & iron.
This is a difficult industry for sure....
I try and focus on miners with very solid balance sheets, profitable operations, AND PAY A DIVIDEND!
Most mining companies have a bad habit of continually putting money back into the business. You've got to be able to pull some out, otherwise when the mine plays out, where is your investment?
Some of the names I've been working with are; Mandalay Resources (MNDJF), and Caledonia Mining (CALVF).
Caledonia is interesting, as they pay a huge dividend and have good potential to significantly increase production...but it has some issues.
Mandalay is very, very well run. I sleep well at night with these guys. I'll be looking to put some more $ to work with them.
Another interesting one is Rambler Metals (RAB.v).
Interesting, I created a post for both of these gold miners but neither got much traction. I agree with the sentiment on both of those, although I feel more comfortable owning MND and just trade Caledonia for a sliver of my book. Last time I bought in the 60's and sold in the early dollar. I intend on repeating this time, although I am prepared for a wide range of outcomes. Caledonia does warrant a hefty discount in its share price with Mugabe and his little buddies pillaging at will, and Blanket looking like it might be on its last breaths.
Also take a look at Karnalyte resources which is not a gold miner but owns a large potash project in Saskatchewan, an idea courtesy of shadowstock. Currently trading for a little more than half of net cash as of last reporting date. Has a 2mil/q cash burn, trading at 24mil, cash is 43mil. Monstrous upside if things work out, relatively limited downside if they don't. I expect not to go to 0 if things don't work out but I think money would be lost.
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Itt Educational Services, Enviromental Clean Technologies, Esi Group? Which ESI? What's the thesis, can you share?
Educational services. Thesis is simple, market believes the company will shut down but it's not going to happen. Not a single party involved in this situation would benefit. The most likely scenario is that ESI will be forced to play nice and be useful again. Which is what is already happening, albeit at very early stage. The only question is whether the co will be able to sustain through further fines and settlements. Currently in good position to do so.
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ESI has a 10-year average net income of $7.5 and is trading at $10 (was at $4 for a few months).
The question is what will be it's net income, going forward...
(I haven't researched the idea, but based off of your post, why should 10-year avg net income matter, given how the industry has been in a flux since the last few years...?)
It's just to show how cheap it trades now compared to how it has performed in the past. You won't find this kind of discrepency anywhere else. The co will end up doing better or worse than this average, but will not deviate by an incredibly large margin. Will not pump out 500mil year in year out but will not do 10mil either, let alone run sustained losses. Current run rate normalized EBIT and cash flows are both about 80-100mil currently, I think the co will end up doing much better shortly with the housekeeping that's going on but that's my opinion.
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ESI has a 10-year average net income of $7.5 and is trading at $10 (was at $4 for a few months). The co is poised to start hitting an upwards trend in a couple years with its reform initiatives. Crazy valuation gap should start closing when SEC issues get cleared out. Even at $30-40 the stock would still be traded at a very conservative valuation.
I swear I end up talking about this co in every thread I enter... Too bad nobody else has much interest :'(
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I think if you boil it down, packer never seems interested in stocks that trade at >5x earnings or FCF multiples. He is only interested in stocks that trade cheap right now.
You buy something when it trades at a cheap multiple, that is worth much more right now, not 3 years from now. And usually the cheapness has to be kind of non obvious, or it is simply a pessimistic market that prices everything down. Or it is lack of liquidity. And the discount has to be very big. Often i see threads here of things trading at like 10-15x earnings. That is only going to give you massive outperformance if it grows really fast, and it has a really solid moat (so maybe google or something). Or if some special siuation type event reveals true earnings power 2-3x as much.
It seems like 10-15x is the magic multiple number. If you buy far below that, when it is priced cheaply for no good reason, you make great returns. If you are right a lot, and it goes from like 4x to 12x, and you sell it, that is a 200% return. If that rerating happens in a bit less then 3 years on average, that is a 50% IRR. If you always buy stuff at close to 10-15x multiples, you will likely not outperform much unless it grows like 30-40% or margins expand. And you find those things by looking at hated or ignored area's.
If I read about buffetts early days, he bought obscure stuff at really really low earnings multiples. Sometimes less then 1x earnings. And I notice that he focussed quite a bit on catalysts (graham too). No wonder he did those returns buying at those huge discounts! I always see statements here like 'better buy a great business for an ok price then an ok business for a great price'. But that is only really the optimal method if you dont spend a lot of time on investing or if you have billions of dollars to invest. Buffett only adopted this mantra after he became too big for those obscure cheap companies.
Why was BAC interesting? It was trading at 3-4x earnings. And it was somewhat conceiled (if you spend only 2 minutes on the financials) and it would be revealed within the next few years what it's true earnings powers was. Often see that those multiples are ignored a lot on this board and everywhere else. Because in the end that is what drives return, 3-4x multiple returns to a 11-12x multiple = 200% worth more right now and not 5 or 10 years from now.
Im not v experienced though, but this is what I make of it when I study these high return guys.
Very much agreed, that is the essence of value investing.
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1) I think of position sizing in relation to the opportunity cost of the diversification. If I have two stock ideas that have similar return profiles, estimated 50% upside over 12 months, for example, buying those two stocks would be better than just one. I gain the diversifying nature of two stocks instead of one, but I haven't added any opportunity cost. If I had two different stock ideas, the first had an estimated 80% upside over 12 months, the second had an estimated 20% upside over 12 months, my net is a 50% gain if I'm right on both ideas. If I'm right on both stocks my realized opportunity cost is the difference between a 50% average gain (half of portfolio +20%, half of portfolio +80%) and an 80% gain if I had bought just the stock that gained 80%. This cost is very real - starting with $100k 12 months ago, I now have $150k instead of $180k. In other words, I would have physically lost $30k by not allocating the whole portfolio toward the stock that increased 80%. But what about the added risk? The riskier stock is the one I expect to go up 20%, not the one I expect to rise 80%. The reason is because I am buying the 20% returning stock at a 17% discount (the inverse of 1+20%) and the 80% returning stock at a 45% discount (the inverse of 1+80%). You can buy a put for catastrophic individual stock risk, and avoid the extraordinary unseen risk of the opportunity cost. You can physically lose the $30k in our example and overlook it because your account statements never reflect what you should have had. When you lose money you already have, you will notice. However, one dollar of opportunity cost is worth the same amount as a dollar currently sitting in your brokerage account. I think of trimming positions in relation to any new ideas and the taxes as well. When a stock gets near fair value I get nervous because that means I have more to lose with no expected gains remaining. If I was a couple months from long-term gains I would likely wait, but if a stock was near estimated fair value within say four months after I bought it, I would likely sell it and absorb the short-term tax. Lost potential gains on your next best undervalued idea factor into the discussion, and how large you estimate the discrepancy to be. Another way to think of it is how long, on average, will it take me to make up the forfeited capital due to the tax.
2) I look for a catalyst yes, but somewhat indirectly, meaning I first focus on estimated compounded return, which forces you to estimate a time frame. For example, an 80% total return over two years, (which is obviously a great nominal result) is a dramatically worse long-term compounded result than 60% per year. The shorter time frame catalysts are desirable for a few reasons. First, I wouldn't call myself good at figuring out what great businesses looks like. The longer I have to hold a stock, the more risk I am taking that a business will deteriorate without recognizing the probability up-front. The so-called catalysts I have had the most success with were financial statement related. People hate companies that are losing money or doing poorly, uncertainty, etc. I'm trying to buy something where the value/earnings are already there, but hazy for the moment. A company spinning off a money-losing business would be a 'hard catalyst', but management closing the segment would have the same effect after the losses were gone. Catalysts are almost a necessity for me because without one, I would have lots of trouble estimating a compounded return. They come in different forms though.
3) Yes - paying a couple percent or so for a year of 50% downside protection could be reasonable if you had one idea you liked much more than your other ideas. The key to the put being relatively cheap is demanding that the stock has lots of upside, otherwise 2-3% is quite expensive. Meaning your results after buying a bunch of stocks that you thought would rise 15% all with a 3% put premium at a 50% loss strike would probably ruin your results without eliminating much risk. But buying a stock you think will rise 80% in one year can make up for the cost of the put, and allow you to feel okay about taking on the individual stock risk to offset the risk of opportunity cost. How much to pay and which strike price to buy is far from an exact science, at least from my standpoint. For instance if it is January 2009 I wouldn't be that interested in paying the high volatility premiums, but today you might find a cheap put even though multiples are somewhat high.
4) I have not become more diversified because of the discussion regarding opportunity cost - I expect to become more diversified when I cannot buy as much of a stock as I would like.
5) I owned IDT in early 2008 at $5/share and held it to an 80% loss. As that was happening, I sold some other stocks at a smaller loss and averaged down to a $2.75/share cost and sold it after a two-year holding period for $14. That was the only stock I held during the crash. The first stock I owned was before that, from late 2007 to early 2008 that I sold for a 60% gain - it was a biotech. I consider buying that stock a mistake. Thankfully the result was good. I moved into financials about a year or so after I sold IDT in 2010. I bought a few spinoffs in the middle.
6) Anything with 10x potential upside is intriguing. Short of a market crash environment, I would question the probabilities involved. Meaning 10x in five years is interesting of course, but I would probably whiff. 10x in one or two years I would definitely buy if I could find reasonably priced options to own. I think I am much more likely to be wrong about one five-year prediction instead of the average of five one-year predictions/valuations. The farther out my analysis goes, the more wrong I become. This goes back to why I attempt to minimize any business projections, instead buying a stock that appears to be undervalued based on a multiple of today's earnings, or a conservative estimate of next year's less-hazy earnings, rather than a 20-year net present value or something like that. The catalyst being what will make the earnings more blatantly obvious, which ideally would force the market to revalue the stock.
jmp8822,
I have tried different things in my retirement accounts in the past few years. As I get older, I have come to realize that backing the truck up on your best ideas tends to be the easiest and safest way to compound your money at rates that are eye popping (above 25% CAGR). I have out performed in the last 2 years mostly because I have simply concentrated in my best ideas. In addition to owning something cheap, both of us seems to share a commonality in that we look for a catalyst or some sort of event that will unfold and reveal to the market that a specific name is cheap. I would love to hear your thoughts about some questions that I have.
1) How do you think about initial size of an investment? How do you add/trim position as they grow larger? Does taxes and the associated short/long term rate play into the equation?
2) Do you actively look for a hard catalyst?
3) Do you actively buy puts to hedge out catastrophe risk? If you do, how do you think about what strike price and % premium that justifies the price?
4) As your assets have grown, have you grown more diversified? I've had a conversation recently with someone who mentioned that he sized positions much larger earlier on because the absolute dollar amounts were smaller. As the absolute dollar amounts have grown bigger, he did start to diversify more.
5) Since you were 100% invested, how were you positioned going into and coming out of 2008/2009?
6) Do you own "probabilistic names", intelligent speculation, or whatever you want to call it? 10x upside, 0 downside type of names? If you do, how do you think about proper sizing within the portfolio? I am always looking for a LEAP on my favorite ideas that might provide a 10X upside 0 downside return. Sizing on that could be 5-10% depending on the stock and cost of the option.
Would love to hear your thoughts on this.
BG2008
Very interesting stuff. The diversification vs. concentration discussion is fascinating, both sides have very compelling arguments. Honestly it seems harder to be more diversified as you need to keep track of more names, and at some point there are only so many materially mispriced stocks. You have to be really skilled to get mind boggling returns, but you also dramatically reduce the chance of your portfolio blowing up. I bet the number of people in the world that can do 40% a year on anything more than 15 stocks can be counted on one hand if at all. The number of people that can do that on 1 stock is without doubt much larger. But also the number of people who went to 0 is exponentially larger as well. One mistake and it's game over. Hell, a mistake is not even necessary, sometimes you make a good decision and the result doesn't follow.
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I'm really excited for the airing of grievances. I've got a lot of complaints about you all this year
Ah, the airing of grievances. The highlight of the celebration. Here's several.
1. If you're part of the seemingly every growing contingent of younger posters still living at home, please don't offer life advice.
2. For newer posters, please don't feel the need to weigh in with your views on every single thread.
3. If you post about how much angst you have with your investments and you don't know if you're investing properly, etc, please don't then 5 minutes later offer advice to someone else who asked an investing question.
4. If you're under, say, 30, please feel free to get rid of the world weary tone like you've seen and done it all.
Ah the good old sarcastic holier-than-thou tone, every time I look up for the poster's name it ends up being the same guy. Do you ever contribute anything besides complaining about other people's posts? This board is free to leave if it's such a drag on your life, you know.
New around here? Search Kraven's post history. He's crushed the market investing like Schloss. While most around here are doing 20-30% with 10 stocks or leverage Kraven is doing similar numbers with 100+ stocks and 20-30% cash.
I don't care for his returns, he literally just whines like a bitch about other people's comments on every post I see him make. He could return 100000% a day he would still be as useless. Maybe it used to be different eons ago, I don't know but the 2kewl4skewl act just derails threads at best. There's a lot to learn on this board from and for members of all skill levels, if he doesn't want to deal with the lower-skilled among us he can stick to VIC, apparently it's all big boys pants there.
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I'm really excited for the airing of grievances. I've got a lot of complaints about you all this year
Ah, the airing of grievances. The highlight of the celebration. Here's several.
1. If you're part of the seemingly every growing contingent of younger posters still living at home, please don't offer life advice.
2. For newer posters, please don't feel the need to weigh in with your views on every single thread.
3. If you post about how much angst you have with your investments and you don't know if you're investing properly, etc, please don't then 5 minutes later offer advice to someone else who asked an investing question.
4. If you're under, say, 30, please feel free to get rid of the world weary tone like you've seen and done it all.
Ah the good old sarcastic holier-than-thou tone, every time I look up for the poster's name it ends up being the same guy. Do you ever contribute anything besides complaining about other people's posts? This board is free to leave if it's such a drag on your life, you know.
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86%in the margin account, thank's to Alimentation Couche Tard.
Canada has a lot of tasty GARP stuff for those who are into this kind of investing. Off the top of my head Couche-Tard, Tim Horton's (pre BK), Jean Coutu, etc.
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10% - 15% over a long period of time (10 - 20 years)
<snip>
. In my opinion, most wide-moat stocks are extremely undervalued by the market (such as GOOD, JNJ, WDFC, MKC, ect) at 15x - 20x P/E based on the formula above.
None of the stocks above have a chance in heck to compound sales/earnings at 10-15% for 10-20 years.
GOOGL might have the highest growth rate in next few years, but they also have the highest risk of growth falloff. And their market cap with such growth would cross 1T really fast.
This is the biggest issue with wide moat high growth investing. Unless you get in early, no trees grow to the sky and the 25 -40 PE is not really undervalued.
In case people doubt this, please look at KO and the financial shenanigans it had to resort to to maintain the illusion of wide moat high growth.
Buffett has realized this long time ago. That's why cash flow from See's is not invested in See's. Unfortunately, for most companies the money is either invested in diworsefication or in overpriced share buybacks.
So, yes, buy wide moats when they are cheap. But don't expect great returns by buying them at inflated multiples.
Nevermind that it's also way easier to spot an average business that's selling for cheap vs. a company that has a sustainable competitive advantage...
Construction and Engineeing Firms
in General Discussion
Posted
Japan fiancial reporting is weird as hell, apparently they can choose from USGAAP, JPGAAP, IFRS or J-IFRS (not even kidding, J-IFRS..... What's the point of IFRS if every country modifies it to their own taste???). Their rules are really ambiguous, basic rule is revenue s/b recognized based on the realization principle which is the accrual basis we're used to but I bet there's a clause somewhere in the JP methods where they can use cash basis accounting in some situations and recognized this cash as revenue earned instead of deferred until services were rendered. So essentially you'd have to back out whatever your estimate of cash balance is deposits from revenues in whatever year and dump it into a deferred liability. Hopefully someone else can confirm as I am talking out my ass a bit here...
https://inform.pwc.com/inform2/content?action=resource&id=0000000776625338.pdf and https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=8&ved=0CDEQFjAE&url=http%3A%2F%2Fwww.shinnihon.or.jp%2Fservices%2Fifrs%2Fissue%2Fifrs-others%2Fother%2Fpdf%2Fifrs-jgaap-comparison-v30-E.pdf&ei=M438VJ-9D9PUoATy3oHgCw&usg=AFQjCNGnN3LeLPgxT3jCAdMYi8oe3BR-RA&bvm=bv.87611401,d.cGU are the only two sources of info I could find from a quick googling...
On another note there's a new revenue recognition rule that was put out in mid 2014, effective 2017, which if I understand correctly will be used by both US GAAP and IFRS, and features a 5 step guide for companies to follow. http://www.iasplus.com/en/standards/ifrs/ifrs15 and http://www.mnp.ca/media/documents/Financial-Reporting-Library/IFRS/01_Hot-topics/MNP_A-Summary-of-IFRS-15-Revenue-from-Contracts-with-Customers.pdf for some info.