bci23
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Posts posted by bci23
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Basically anything that portrays capital allocation as the end all be all thought process instead of anything to do with growing the business/making stuff happen/customer focus is a good way to sucker in a value investor. Capital allocation is overrated imo in that it doesn't take much thought to say "hey lets only do high return investments!". In my experience it only takes 5% of your time to answer the question "is this project worth doing?" and 95% of your time is spent figuring out "how do we make this project come to life?". Capital allocation is also worthless if the underlying business is deteriorating.
While I would agree that having a framework for making good capital allocation decisions is somewhat intuitive or even obvious, getting organizations to consistently operate in this way is much harder than it looks in my experience. At a decent size manufacturing company, I was involved in the capital planning process for 2020 and the projects people proposed were often not very imaginative or did not move the ball. A project like investing in automation that would allow multiple smaller lines to remove at least a few people from the lines who were doing very manual labor was viewed with some disdain. This is in a relatively commoditized industry where cost determines 80% of success and technology/marketing/relationships is the remainder.
Getting everyone to understand the importance of reducing inventories and not yelling at the buyer if, during the transition, things don't go smoothly, is hard. Getting people to understand the trade-offs of such decisions and having thoughtful conversations about why trying to optimize inventories opens up capital for us to grow faster is challenging.
Talking with people on the floor about scrap and the cost of the raw material they're throwing away is another example. You would be shocked how many people don't have a basic understanding of the trade offs involved in their jobs. Most people in lower level jobs operate in some state of fear about some past event that scarred everyone. "Oh, well we could keep less inventory of that raw material but we keep 3x as much because we don't want to run out because one time that happened and I got my head ripped off."
Even at the Board of Directors level, I doubt how many people really get it. They constantly pay each other more every year, they reprice options lower for executives who have failed miserably, they sign off on acquisitions at prices that would be hard to justify and often don't create value, and the list could go on and on.
All that is fair but I think we're referring more to Investor Relations and how the companies talk about their business. IR presentations that just spew on about how important capital allocation and how they only do 20% IRR projects and have little discussion of the actual business are how you sucker in the value investors.
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Basically anything that portrays capital allocation as the end all be all thought process instead of anything to do with growing the business/making stuff happen/customer focus is a good way to sucker in a value investor. Capital allocation is overrated imo in that it doesn't take much thought to say "hey lets only do high return investments!". In my experience it only takes 5% of your time to answer the question "is this project worth doing?" and 95% of your time is spent figuring out "how do we make this project come to life?". Capital allocation is also worthless if the underlying business is deteriorating.
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How did you go bankrupt?
Two ways. Gradually, then suddenly.
( Ernest Hemingway)
Yep, hard to predict the timing of when the fed hits major problems but no doubt it will happen very suddenly and the sentiment will flip on a dime!
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The BOJ’s balance sheet is already above 100% of Japanese GDP and their economy/markets are not blowing up, so I imagine the Fed can keep going for a while if they want to (and Congress supports them). I don’t know how far they can go though. I would certainly keep an eye on Japan for clues if this interests you.
Theres an argument that since the US Dollar is the reserve/strongest currency that we should be able to go higher than anyone else and not blowup. 100% didn't kill Japan, so could the US go to 150 or 200%? If so the Fed still has lots of "ammo" and we might have 5+ years or until the next recession in 2030 before we have to push the envelope again.
Theres also an argument that because we are perceived as the reserve/safest/risk free currency we don't have as much leash before people start questioning our reserve status. In that case we are going to run into problems in the next 15 months at current Fed runrates as the fed balance sheet will approach 100% by that time.
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Potential blowup in the crude market (again) with the June but more likely July contract due to USO. Could be a mess.
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If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.
I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.
But he also said that unlike the 25 years of going nowhere from 1929 to 1954, the Fed now has FDIC and other tools. I actually got the opposite impression that it will be much shorter than a 25 year depression because of what the government is doing.
I guess if you were thinking this would be a 25 year depression than yes Buffetts comments were optimistic. But if you were thinking this would be a V Shape recovery or some small speed bump in the economy than his comments comparing us to the Great Depression are very bearish.
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If you can read past the normal fluff optimism I think this was the most bearish Buffett has been. Heck, he started out the meeting talking about comparisons to the Great Depression. Combine that with the fact he has essentially bought nothing so far I think that tells you all you need to know.
I also liked this set up for Q&A much more, the quality of the discussion was soo much better. The only truly dumb question was the one from the guy that didn't know you could convert A shares to B shares.
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But it's possible he's also a really bad investor.
It's possible, but remember that back in 2004, when Morningstar named him Fund Manager of the Decade, he had a nice 27-year track record of 11.5% annually. That's a long time.
So, I guess the most likely things that could explain the discrepancy are:
[*]He got lucky for 27 years, and unlucky afterward
[*]He got brain damaged and nobody said anything
[*]He changed what he does
[*]His value investing style is really out of favour, leading to bad returns
[*]The world has changed and what worked for 27 years no longer works
My best guess is it's mostly #4 with a spattering of #1.
The world has changed and what worked 27 years ago no longer works. I see many value funds who used to crush it 10-20 years ago who have lagged the market big time over the last 10 years ago. The markets are dynamic, they are always changing and you need to stay close enough to it in order to recognize when that has happened. You have to keep evolving as old things die and new opportunities present themselves.
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I don't understand peoples love for Thinking in Bets. Maybe its because I come from a poker background myself but I found it very elementary and basic even as applied to investing.
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Does anyone know a good resource to track Net Debt:EBITDA over time for the SP500? Some googling gives me charts over time but they are always old (2016, 2017) and don't provide anyway to continue monitoring up to today. Anyone have a good source they like for this stuff?
https://www.zerohedge.com/news/2016-08-04/debt-ebitda-ratios-are-now-highest-history
https://www.topdowncharts.com/single-post/2018/03/18/Weekly-SP500-ChartStorm---18-Mar-2018
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How about zero interest rates driving the out performance of growth vs. value? When interest rates are zero, the terminal values of DCFs become much more valuable. When interest rates are high, the terminal values are worth much less. Growth company typically implies low current earnings but high hopes for big future earnings far in the distance. Zero interest rates keep those future high hopes alive and well in investor's minds. Thoughts?
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I am an independent operator now and don't want to be affected by any group thinking.
It is always dangerous to follow any herd, including the herd in VIC. :)
What really matters most for your performance is:
1. Independent research by yourself.
2. Assume full responsibility for failure.
3. Have supreme confidence in your own ability to make money.
+1
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The strategy to get into microcapclub is pretty simple imo. Bring some unique research to demonstrate that you have put more effort than just summarizing publicly available information. The most obvious example would be insights, stories, or other tidbits learned from discussions with the CEO/CFO that give glimpses into what is going on at the company that might not be obvious from just reading the filings. Add a personal touch to the write up, it seems to be received well. Macro and industry projections/forecasts and TAM arguments are normally not received that well. I've never applied to VIC as I don't see the point/benefit of being a member there, way too much junk. Its also more focused on large cap names which don't interest me when I play mostly in Nanocap/Microcap names.
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Some people (not in this thread but elsewhere) saying Munger is being ignorant in his comments on bitcoin. Reminds me of when everyone thought he was misguided in calling VRX a "sewer" or that "Valeant is like ITT and Harold Geneen come back to life, only the guy is worse this time." He was saying this when everyone was drinking the VRX cool-aid. Now everyone is drinking the bitcoin cool-aid and here we are.
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Agree with the critics that people's personal lives and especially the personal lives of their family should be off limits. Kleinfeld did a decent job for Alcoa, but his downfall to me was overpaying for a few deals that didn't materialize. Maybe at the end of the day they do. Regardless, I think that's the lens that should be used for a CEO, not creeping into their personal affairs.
The flipside argument is that when billions of $ are on the line, nothing is off limits when it comes to personal lives.
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PBSV is another PR company that has gotten crushed since the hurricane.
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I would like to tap the wisdom of this board about the following:
I have family immigrating to the USA. They are in their late 50s, physicians in their homeland. So, they cannot practice medicine here as the clock is running out for them to recertify, etc.
But they are young and inclined enough to start a business. Any suggestions on what kind of businesses are available? A franchise would be preferred. I do not have the foggiest idea where to start looking. Any directions to help them start this search would be appreciated.
Best thing to do is land and start the immigration process and work in their home country part-time if they need the money, if they don't need the money early retirement or get a hobby.
With some contemplation, they should not be taking on risk at this age so allocation should be below 20%. I don't think you should give be giving advice on this topic if it doesn't work out it will create real human misery.
He asked for advice on where to start their search not advice on whether they should start a business or not. OP, bizbuysell.com could be a place to start to look for business broker listings in your area.
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Anyone know the easiest way to get your shares from being held in "street name" to being a shareholder of record?
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I have a new entry from someone, from the forum, that just crushed it in real estate. IRR north of 60% over a 10yr period. While it is a different asset class I think there still are many similarities with our other high performers.
In this case the investor identified really cheap assets. He used a clever approach, and a tonne of leverage to buy these assets as quickly as possible on a small amount of initial capital. Doing all the work himself he was able to conserve as much cashflows as possible that he could then reinvest.
Much like the other stories, this investor is extremely patient and only buys a very small portion of the deals he does deep due diligence on. Then he swings massively.
So, path to great returns is still identify something very cheap, swing large, and hold. In this case, the willingness to get your hands dirty and do all the work yourself was a tremendous part of the success.
To those that are thinking the leverage here must have been huge. It was, however the mortgage payments are covered 3x by rent. That is already more conservative than anyone buying a house in Ontario these days...
Where in the world does he find properties with those kinds of rental yields??
Probably very unsexy areas. Somewhere like Detroit (and surrounding suburbs), Kentucky, West Virginia, rural Texas.
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When i saw this my first two thoughts were:
1. The major airlines must be soft colluding on prices and staying out of each others territories
2. consolidation in the industry and FAA/TSA regulations have made the barriers to entry so high going forward that there are unlikely to be new entrants into this industry.
I know nothing about the industry.
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Duracell is a duopoly with Energizer thats why he wanted it.
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I did some work on this and it is very cheap strictly from a valuation perspective.
Free cash flow (defined as CFFO-capex) is as follows:
FY13: $1.2mm
FY14: $2.7mm
TTM: $1.4mm
Given a current market cap of 4.5mm, this equates to 3.6x, 1.62x, and 3.11x reported free cash multiples.
FY11 reported (0.4mm) FCF which was due to $1.7mm in capex. Capex has since been lower and consistent going forward: FY12 $0.8mm, FY13 $0.5mm, FY14 $0.8mm, TTM $0.8mm.
FY12 reported (0.3mm) FCF which was entirely driven by a seemingly one-off drop in recycling revenue
(recycling revenues have been as follows: FY11 $33mm, FY12 $25mm, FY13 $41mm, FY14 $46mm, TTM $40mm).
D&A are also consistently more than capex spend. Additionally, they are trading at about 1/3 book value which is always fun.
Qualitatively, there are two main unknowns that are keeping me from pulling the trigger - the companies reliance on utility companies and the fact that I do not understand the competitive landscape of the market. Both of these kind of go hand in hand.
Revenue generated from recycling is the key component of the business that makes this company attractive (the retail segment has very low margins and has been losing a little bit of cash). The company generates recycling revenues primarily through short term contracts with utility companies energy saving programs (e.g. utility company wants their customers to use more energy efficient appliances to lessen capacity requirements and therefore hires ARCI to pickup the old appliance... and sometimes replace with a new energy efficient appliance).
I'm concerned about the companies ability to continue to enter into these short term contracts with utilities companies. The FCF is only as good as their continuous ability to win these contracts and I'm just not well versed enough in the industry to understand how competitive the industry currently is/will be in the next couple of years. Additionally, as someone has already pointed out, they disclosed in Q3 2014 that one utility company comprised of roughly 40-50% of these types of revenues - not sure how great the FCF looks if that drops.
Do you have any insight into this?
what you are missing is the massive debt load they have and the potential outstanding tax liability of $4m. They are also reliant on scrap commodity prices. Further, the activist who got a board seat last spring and was buying at $2.75+ less than a year ago is now selling for $1 after he had gotten to open up the hood? Not a good sign. I thought this one was potentially interesting too but seems like a better Ch. 11 candidate now. If they can somehow sell the Retail division for $10-14m (.15-.2x sales) they could hold this together. I don't know how likely that is though.
I also thought this was an interesting one and i looked at it last spring but once i saw Isaac Capital selling for $1 after getting on the board, my perspective changed completely.
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Chris Shackelton/Jim Lindstrom - PRSC
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Hubert Joly/Sharon McCollam - Best Buy
Fed Buying Berkshire Bonds
in Berkshire Hathaway
Posted
This is a serious question that I'm only looking for serious answers on.
Can someone explain to me the argument for why the fed buying the bonds of a company like Berkshire Hathaway helps the economy in any way? I can't think of any legit answer that could possibly justify it. I can at least see the argument (but don't agree with) for propping up the bonds of companies that need to tap the bond market for additional liquidity like Boeing or Delta but companies like Berkshire and Apple have zero liquidity concerns so what is the argument for printing money to prop up the bonds of companies like that?