jawn619
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Posts posted by jawn619
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I had this thought when thinking about how much a bottle of water costs while at a Broadway show. When at a club/event/show, Water can cost up to $8.00/bottle. I've seen prices for a bottle of water range from $1-8/bottle. How much does it cost to buy if you get it at Costco in bulk? Around .25/bottle. If Costco is selling it for .25/bottle, their cost is probably closer to .20/bottle.
How does this relate to investing?
I, like many others, view investing as valuing something, often times a business, and then buying at a discount leaving a margin for error. Then I thought, as the absolute value of anything goes up, there are less likely to be inefficiencies. For example, it's not uncommon or impossible for you to buy water at .25/bottle and sell it for $2/bottle, an 800% markup. How likely or possible is it that you are able to buy GM cars for 1/8th of their price and sell it for 8 times more? What about the company that makes GM cars? What about billion dollar wonderful companies with competitive advantages and sustainable margins? How likely is it that you are able to find that at a discount?
My point is that we should all be closer to the water bottle side than the fortune 500 side when looking to invest. I doubt forum members have billions of capital like Buffett that they need to park. By focusing on cloning Buffett/Pabrai/etc, we individual investors give up our biggest advantage, our size.
Fun Fact: Buffett's partnership returns were higher than his returns at Berkshire.
From 1957-1969 Buffett Partnership returns were 29.5%
From 1964 to the end of 2011: Berkshire's record was 19.8%
Both records are out of this world, but the first one is still higher, by 50%
Buffett is the greatest pound for pound compounder like Floyd Mayweather is the best pound for pound fighter. But if you put someone 5x the size of Mayweather in a ring with him, he is at an inherent disadvantage.
Individual investors have size at their advantage in the opposite way and it's a shame they don't use it to their advantage.
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Amazing thank you!
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Assuming you have the standard finance & accounting knowledge and have read the oft-cited value texts (Graham, Buffett, Klarman, Marks, Greenblatt, etc.), I think your best bet may be to propose investment ideas and receive feedback and criticism. You will learn quickly by this process (and even more by actually putting money at stake).
My most impressive learning experiences from COBF was having generally positive feedback on certain ideas proposed and then having those ideas flop. A cheap tuition for a valuable lesson.
+1.
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I think Emeco Holdings counts as a speculative idea right now. Scyamore networks SCMR is another.
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I read about 2 books a week. 10-Qs and 10-Ks all look the same after a while and I just focus on a few sections.
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General Growth Properties.
http://faculty.chicagobooth.edu/joseph.pagliari/files/IS/GGPCaseStudy.pdf
Uploaded a case study for GGP. It really helped me get a general picture of how bankruptcies work. Pershing made over 100x their money. Thanks to Dougishere for the suggestion!
www.raritancapital.com/casestudy/ggp/
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I understand market making but I didn't realize that trading could happen for 0.0001 (i.e. a hundredth of a penny?) or that the reaction between me thinking and almost pressing an order and the adjustment of the bid price to 0.01 to top my order.
HFTs aren't mind readers. When you put in your limit order, it is lit for the entire world to see. If you don't want to this to happen you can route to a dark pool... But then it would be harder for your order to get filled. Either way... The money that you lose to HFTs is insignificant in the long term, a tiny tax.
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I used to work at a proprietary trading firm and this would happen to our orders all the time. The answer is yes. This happens to most lit orders in thinly traded stocks. I'll give an example of what I believe happens.
The bid/ask is 300/310.
You put in a bid for 302.
The HFT quotes 302.01.
If a seller comes in sells enough to fill both the HFT and you, the HFT gets filled and quickly sells what he bought to you for .01 loss.
If the HFT gets filled and the price rises, he is on the offer an makes the spread.
To be clear, this is not explicitly illegal. We used to do a version of this by hand in the old days. For example say a stock is 300 by 310 with 10,000x on the bid. We would bid 300.01 and if we got filled, wait to see the 10,000 go down to like less than 1000 and then sell to the bidder. The HFTs are doing this except much faster and smaller size.
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This sounds like enough money to feel like they can do anything, but not enough that they feel like they can do nothing.
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OR vrx now
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Have you thought about creating a website where people can share their own case studys. So you can add it to the website including your own. Obviously you would approve it to ensure quality standards.
haven't thought about that. Will PM you about it though.
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Or you could buy when prices go down. Usually VIX increases as stock prices decrease.
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I'd like to keep the writing of them to myself but I would appreciate any suggestions of interesting ideas that would make for good case studies. I'm thinking of looking at Valeant and the Liberty companies as I don't understand them at all right now. Would love obscure/smaller companies and the lesson learned is more important than the result. I actually prefer looking at losing investments more so know what to avoid in the future.
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Man that performance is awful....
You know the wheels are coming off the bus when you have to start quoting Dr. Seuss in your investor letters.
I LOL
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Recently got my site up where I share case studies of investments made by successful investors. I originally did it for myself and looking at these companies with the benefit of hindsight has helped me immensely.
www.raritancapital.com/casestudy
I try to break down what some see as hard to understand companies such as MU, SUNE, and IDIX. All comments and thoughts are appreciated.
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My best guess is YUME
Decent shout. Worth looking at this.
Best,
Ragu
would love someone to send a writeup on this if anyone has.
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Hey guys,
I have hit an accounting roadblock that I can't seem to get my head around. Can someone help?
If we have a company that provide long term services to customers (say 3 or 10 years) which are paid upfront in cash, but recognize the revenue and incur expenses ratably over the life of the services....how should one think about the cash balance? Say the company operates in a 90% tax regime (always good to push theory to the limit to test it).
I would think the EV of the company is artificially low because that cash in the balance sheet is needed in the future for expenses and tax outflow. If the company has a 100% margin...dont we have to cut that cash balance by 90% (tax) as that cash is not actually excess and is required?
How would it impact the 3 statements? Is it sort of like an off balance sheet liability?
I would really appreciate some insights as there is this company that has such a characteristic and I can't seem to crack it.
I think about it like this. I count cash collected as real cash. The company can spend it or do whatever it wants with it. Then when I look at deferred revenue, I almost ignore it. While it is a liability because the future services are owed to the customer, It's not like debt where it has to be paid off with cash. Owing services and owing interest and principal are very different. For example, take Rosetta stone. It has deferred revenue from it's software and recognizes the revenues with the memberships expiring. If the company you're talking about isn't as asset light as a software company and has service contracts that require expenses, i would probably adjust for future earnings to be lower to account for the added costs required to provide the owed services. Either way, cash up front is great for the business.
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I added to MFC industrial (MIL). It's still hanging around at 52 week lows.
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any other than against the gods? textbooks are good too.
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water, the essence of life
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I read nothing in your post about buying business in relation to what they earn, just in relation to their past prices. Show me the value
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Most of my favorite books on valuation are mentioned above.
The books mentioned above cater to different sets of needs and provide different perspectives.
Damodaran's investment valuation is most comparable to McKinsey's book, in that they do a deep dive on the minutia of valuation. Except for the part about using beta to estimate required returns, it is useful to know almost all the other facets of valuation covered in these books. You might not actually make LIFO to FIFO adjustments or currency translation adjustments in real world valuation - it is one thing to know how these are impacting the financial statements and consciously ignore them for simplification and not knowing what is going on and if it is a positive or negative or if these effects cancel out over the long term. Even if you end up just using multiples, knowing the underlying assumptions behind them helps you to think more clearly. I found out I had been abusing the DCF method before I read Damodaran's book in depth - one of many many but this is most glaring.
I personally liked Damodaran's book much better than McKinsey. Perhaps because I started with Damodaran's book and breezed through McKinsey as they cover very very similar material with a slightly different terminology.
I also like Jeffrey Hooke's book and Greenwald a lot. They provide a completely different perpective, Hooke's a high level overview and how to value different types of businesses using industry specific methods. Greenwald comes about from a completely different angle based on moat vs. no moat and reinvestment opportunity.
I think reading Damodaran or McKinsey's book and both Hooke's and Greenwald provides a nearly comprehensive valuation toolkit for investors.
Vinod
If you had to chose between the McKinsey book and Damodaran's book, which would you chose?
McKinsey's. I enjoyed both but got more out of McKinsey's
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i have a question for the group... when you are reading an interview with a well known investor etc and they talk about XYZ spitting of $ABC in free cash flow, do you assume that they are talking about operating cash flow - all cap ex? or do you assume that they are talking about operating cash flow - maintenance cap ex?
obviously every case is different, but i have noticed that very rarely does what an investor say line up with what the financials actually say if you go by a strict definition of FCF...
so what do you assume?
I use operating cash flow minus maintenance cap-ex. A lot of times cap-ex isn't broken down into growth and maintenance, so I use capex but know that some of it is allocated for growth.
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I bought Sunedison (SUNE).
I see SunEdison got smashed today. http://www.bloomberg.com/news/articles/2015-08-06/sunedison-posts-11th-straight-loss-amid-global-expansion-effort
Is this a classic case of short termism by fickle investors?
Aaaand...it's gone
Size, Mispricing, and Buffett
in General Discussion
Posted
My point was that not that you can't make money buying mega-caps. Just that it's harder. I own some Apple as well but as a rule i try to stay below a certain threshold. Size is an edge, just like value is an edge or quality is an edge.