KJP
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Posts posted by KJP
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I'm fairly dumb when it comes to energy, but I would think low oil prices have little to no effect on businesses that primarily transport non-associated gas. Moreover, low gas prices may help them by increasing demand for gas, and thus volume of it that needs to be transported. On the other hand, I assume a natural gas transmission company could be hurt if it has invested in gathering associated gas. And, of course, a slowdown in economic activity could affect volumes.
So, what natural gas midstream company is least exposed to a potential decline in associated gas? Is it Williams, despite some of its gathering assets?
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Rosetta Stone
FRP Holdings
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Rosetta Stone
Bank of America
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I just don't understand why midstream is getting hit so hard.
I've also been intrigued by this. Enterprise Products and Magellan Midstream, for example, are approaching 8% current distribution yields (and higher DCF yields). And, needless to say, spreads between midstream MLPs and Treasuries are getting quite wide.
What midstreams, in particular, most interest you now?
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Rosetta Stone
Black Stone Minerals
Tandy Leather Factory
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bought back some msgn
I have to admit, it is looking very cheap at these levels. Something like 5-6x fcf if I remember the numbers correctly. Do you have any insight into what has sparked the selloff?
Look at MSGN sub losses over the last few quarters and look at, for example, Comcast's recent commentary on its expected video sub losses in 2020. Then look at how MSGN earns revenue versus how it pays MSG for rights and see how MSGN would be squeezed in the event continuing sub losses overwhelm the per-sub price escalators built into its contracts with video providers. You can see a scenario in which FCF isn't what it used to be. Of course, there are also potential upside scenarios as well.
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Taleb talks recently about ergodicity, which in terms of math and physics is a pretty tough chew, but in terms of investing is somewhat easier to understand: how best to avoid ruin is to compare two $100 bets on a flip of coin, over a non-infinite time series of flips. investor #1 puts all $100 on the single coin flip...and if wins doubles bet and continues with the single coin flip..and eventually faces certain ruin. investor #2 gives $1 each to 100 participants, and asks them to make same bet strategy. at end of a certain equivalent series of flips, investor #2 is much more likely to have better result than investor #1.
you can say that this is diversification but it really isn't in the sense that all bets are the same...a coin flip, doubling bet, same payoff odds. what is different is the effect of the time sequence. I have been thinking about investing in terms of diversification over time rather than over diversified investment metrics/factors, and the notion of sizing multi-bagger bets over time sequence may be more meaningful than allocating to different exposures in accordance with industry/risk profile etc.
put another way, in the case of every multi-bagger opportunity, there will be a reason not to invest...ie the monster beverage short writeup. think less in terms of the certainty of investment merits (which in the case of a multi-bagger opportunity is always daunting since that is why it is a multi-bagger opportunity) and more in terms of being exposed to a time sequence of acceptable opportunities
edit: I looked over some notes and found this which is a not bad look at the concept in the investment context: http://squidarth.com/math/2018/11/27/ergodicity.html
Thanks for the link. Interesting concept that I had not heard of before. But have you found it to have any practical application to your personal investing? (This may be too off-topic for this thread.)
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Another recent example where you can see the thesis develop over time is Cambium Learning Group (ABCD).
First VIC writeup in 2010 at $5/share: https://www.valueinvestorsclub.com/idea/CAMBIUM_LEARNING_GROUP_INC/1068846465 (extensive comment thread through 2014)
Second VIC writeup in January 2015 at $1.90/share: https://www.valueinvestorsclub.com/idea/CAMBIUM_LEARNING_GROUP_INC/8176075446 (another extensive comment thread)
CoBF thread started August 2017 at ~$5/share: https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/abcd-cambium-learning-group/msg307030/#msg307030
Taken out by private equity for $14.50/share in October 2018.
Part of the opportunity in Cambium, I think, was that the business transition from print to digital took longer than expected. There seems to have been exhaustion with the thesis down at the 2015 lows, even though the transition was taking place.
Another relatively recent example was Hawaiian Airlines following the bankruptcy of its main Hawaiian competitor. That massively changed the economics of inter-island flying, which one clever analyst foresaw and turned into a ~10-bagger: https://quinzedix.blogspot.com/2012/07/hawaiian-holdings-air-transport.html
As for a potential multi-bagger right now, I see that potential in IDWM, but the actual economics of its TV business are too unknown at this point to model anything.
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105 votes so far in the anonymous returns poll, but only 4 people have an idea they want to share?
Hopefully we get more responses here.
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31%
All in USD, pre-tax:
2019: 31%
2018: 11%
2017: 10%
2016: 22%
Several big winners this year: Quorum, Charter, XPel (sold too early), HireQuest (nee Command Center), IES Holdings, NVR (sold too early)
Also some big losers: QVC, Fortress Paper, Flybe [fortunately these were all small positions]
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I'm going to cheat and name three:
Hill International: Management will successfully grow revenue or the business will be sold
IDW Media Holdings: A lot of inventory (production costs) will turn into cash over the next 6 months and the new business model in TV business should end cash burn (Jonas is also personally involved again)
Rosetta Stone: I don't like the consumer language business or management's foolish tendencies, but Lexia is a great business and they have a new Lexia-related language learning product coming out next year.
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If you are willing to spend more or want more premuim brands, check out Lexus/Acura/Genesis. Especially Genesis can be a great value second hand.
Avoid anything German, specially premium German(Mercedes/BMW/Audi), unless you really like them.
I'm going to push back on this a bit. You have to understand the maintenance costs and what you're going to do with the car. If you're driving 25k miles per year, I would hesitate to buy Mercedes/Audi/BMW. But if you drive 7.5 - 10k miles per year, that's a different story. Go sit in an A4 with a medium or above trim versus, say, a TLX. I think there's no comparison.
If you're willing to buy used you can get a 4 or 5 year old A4 with low mileage and a good maintenance history for well under $20k. I'd take that over a TLX or Lexus. Just look carefully at (i) the maintenance history (Carfax or owner records if you're buying in a private sale), and (ii) the interior. You want to see regular maintenance at Audi dealers and a spotless interior. The best deal will likely be on Craigslist from a car lover to kept the interior spotless and kept meticulous maintenance records. Buy that one over the generic 3-year old car off lease from Staten/Long Island.
The G70-G90s are good looking cars (better styling than the prior Hyundai Genesis models), but I'd wait a few years to get some history on them and buy them used.
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What’s a good car choice for the value investor?
Not looking for the car equivalent of a cigar butt stock.
Looking for value, not cheap. Obviously looking used. Appreciate quality.
Thanks for the help!
Size? What are you going to do with it, e.g., 50-mile daily highway commute, zipping around town on the weekends, bringing a family of seven camping?
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Qurate (formerly QVC) -- It's gone downhill all year. I can't pinpoint the exact numbers given the ongoing HSN integration, struggles in the US business, and complex tax issues, but I believe it's now somewhere between 20 - 25% FCF yield and 5 or 6x EBITDA, and they buyback a lot of shares. Of course, there's also a lot of debt and the business model appears to be, to put it gently, challenged.
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e spent I've been experimenting with high-grading my ideas to invest in only the no-brainer ones over the last 3 years. Performance during this three year period has been about 25% per year.
My biggest holding by far right now is Dream Unlimited (DRM-T), a diversified real estate company. I bought it at various prices starting around 3 years ago. I think it's worth more than $20, currently trades close to $12, was $7 earlier this year. My average price is about $8. I expect to hold this one for at least another 7 years to make my total holding time 10 years or more. This one big, long term investment will probably replace 10 or 15 more average deals I could have done, so that is where the big time savings will come from.
The wrong thread to ask, but what do you think of the the Dream Global transaction and the seeming move away from third-party asset management (Dream Office restructuring, Dream Global deal, and increasing DRM ownership of Alternatives), which I thought I was the best part of the business?
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The first mover advantage is interesting because I can foresee several cases where simply being first gets you a semi-permanent position in that sub-industry. Maybe it's not particularly profitable or it's cyclical but there just isn't much room for someone else. Then your company is kind of a public service almost, at least for shareholders wanting a reasonable return.
Yes, there are industries where the same handful (or less) of companies have essentially the same market share year after year. I've never looked at it myself, but I understand Lubrizol is/was a good example of this.
But not all such industries produce outsize profits to the handful (or less) of participants. The strategies and tactics of oligopolies are complex and cartels are hard to hold together because cheating is so profitable.
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Another thing: commodity producers should have low ROIs. Someone who sat in a Macro-econ classroom more recently than I may be better to explain it, but their returns should match the marginal utility curve.
Why? Because it's a commodity. By definition, the product is standardized and anyone can product it - there is no differentiating factor to justify increased ROIs above the marginal curve.
In other words, if we can both as easily dig rocks, why should your gravel cost more than mine?
Yes, that is why profit in commodity industries comes from having lower costs and sometimes other factors, such as regulations. To take your example, rocks are commodities, but rock pits are often great businesses because you can't economically transport rocks very far and NIMBYism makes it very difficult to permit a new rock pit in growing areas close to where rocks are needed.
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I do see some duopoly, or let's say up to 4 major players in some industries and no more. I don't understand why there are 3 or 4 of them and not more. I also don't understand why Standard Oil was disbanded many decades ago. Was oil not viewed as a 'commodity' back then, or did John Rockefeller do something somewhat shady to his competitors?
I believe this has been discussed in many other threads. Industry structure is often driven by the minimum efficient scale and the economics of scale (or lack thereof) in an industry. An industry that has high minimum efficient scale and large economies of scale will tend towards few competitors. For example, if you need 20% of the market to be competitive, how many competitors can there really be? On the other hand, an industry with minimal economies of scale and low barriers to entry often will have many competitors.
What does the fact that oil is a commodity have to do with whether a monopolist can impose a deadweight loss? Or are you suggesting that monopolies are impossible in "commodity" industries due to the lack of barriers to entry? Note that the Standard Oil monopoly started in refining and then moved downstream to distribution and was achieved, in part, through mergers.
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Ok, interesting. Would this impact the desire of players to commit large capital, knowing the return will be dispersed among the fragments which won't be allowed to consolidate and thus limit the return potential for the investment to be made?
Also, is it conceivable that this could lead to the perverse situation where a player could go bankrupt or dilute shareholders into really poor performance because it can't be bought up by a bigger player on the ground that it would then eliminate a competitor?
You can look at the real world examples of this. Is there a lack of capital investment in, for example, airlines and chemicals?
You are also neglecting that fact that monopoly often leads to underinvestment (in infrastructure and R&D) because a monopolist often has no need to innovate.
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Why is there anti trust issues in commodity businesses with high capital costs (mergers for example)? I mean if money was raised (or money was almost free) and someone decided to own it all or maybe 80 percent, how could the government justify fragmenting the industry ? For example standard oil. Or any modern day duopoly. Is the goal of government to keep an industry fragmented? Couldn't they regulate pricing Instead ?
Yes, the goal is to keep the industry "fragmented," i.e., preserve competition, with price regulation begin a last resort for industries in which we do not believe competition is possible, e.g., natural gas delivery to your house in which overbuilding with a second set of natural gas lines is not economically viable.
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I still don't understand why so many people (if their time horizon is long) prefer cash earning 0 when one can buy decent/good/great businesses at +10 pct. FCF yields, but obviously there's a lot of variables involved (if one can live the sweet life off the existing portfolio, there might be no reason to risk something you need for something that woudn't improve quality of life).
I keep what is (for me) a large amount of cash because the earnings from my labor are very lumpy, infrequent and uncertain, so a large amount of cash prevents me from ever having to sell for liquidity, rather than fundamental reasons. For similar reasons, if I have X assets today, having .25X in assets next year would have a much greater effect on my life than having 1.75X in assets next year. I also have a limited amount of time to devote to investing, so I'm not particularly nimble with buying and selling and do not expect to sell before any large market decline.
I'm also not aware of many great businesses currently selling at greater than 10% FCF yields that aren't levered up to their eyeballs, but I also look almost exclusively at US companies. Can you name 5 or 10?
I don't wanna sidetrack this, but you recently had a bunch of UK car dealers - Vertu and Motorpoint - which I'd rate at decent/great respectively - trading at some very solid FCF yield despite a tough environment. After the current runup I prefer Cambria which I'd also argue is good+ and VERY cheap. Last month you had MO around 10 pct. yield. ULTA is only 5 pct, but then analysts expect 10 pct. EPS growth. My favorite is Linamar though. 2/3 endmarkets are in the gutter, so you get to buy a good/great industrial busines below book value led by management with a crazy good track record AND around a 18 pct. FCF yield despite a tough backdrop.
Or if you don't mind leverage and serial M&A there's Berry at some +15 pct. FCF yield.
One can definately argue some of these have warts, but I've never found as many compelling setups than during 2019. I've only invested since 2015, so I might definately be the bagholder here, but even Berkshire looks cheap. And has looked cheap all year. With a multiyear horizon I really don't see how one loses when we get around 1,3xbook.
Thanks for following up with specific names. It helps understand what you mean by quality, which varies person to person.
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I still don't understand why so many people (if their time horizon is long) prefer cash earning 0 when one can buy decent/good/great businesses at +10 pct. FCF yields, but obviously there's a lot of variables involved (if one can live the sweet life off the existing portfolio, there might be no reason to risk something you need for something that woudn't improve quality of life).
I keep what is (for me) a large amount of cash because the earnings from my labor are very lumpy, infrequent and uncertain, so a large amount of cash prevents me from ever having to sell for liquidity, rather than fundamental reasons. For similar reasons, if I have X assets today, having .25X in assets next year would have a much greater effect on my life than having 1.75X in assets next year. I also have a limited amount of time to devote to investing, so I'm not particularly nimble with buying and selling and do not expect to sell before any large market decline.
I'm also not aware of many great businesses currently selling at greater than 10% FCF yields that aren't levered up to their eyeballs, but I also look almost exclusively at US companies. Can you name 5 or 10?
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Charter and comcast aren't really a duopoly imo, they are more like non-overlapping local monopolies. Barriers to entry are huge.
I think that is the answer to your question actually - barriers to entry. Oil a d gas is fragmented because there are no barriers to entry. I could start an O&G co pretty easily. By comparison, starting a plane manufacturer has huge barriers to entry. Even if you succeed designing and manufacturing a great airplane (hard!) Without worldwide support it's hard to sell. (Eg Bombarider cseries didn't succeed until it became the A220 with Airbus support)
Agreed re: Charter and Comcast. The service they provide requires physical infrastructure in specific locations, so their businesses are limited to specific geographies. They are not a duopoly because they largely don't compete with each other in the same geographies. Instead, the relevant duopoly in that industry (broadband and video) usually is the local cable co and the local telco.
Along the same lines as "barriers to entry," look at economies of scale and minimum efficient scale in an industry. If you need 33% of the market to have the minimum efficient scale necessary to be competitive, then the market will trend towards very few competitors. If you only need 1% of the market to have minimum efficient scale, and the benefits to additional scale taper off quite rapidly, then you're likely to have many competitors. In the broadband/video example, there are very large economies of scale (high fixed costs/high incremental margins), so each geographic area tends to have very few competitors. In the oil/gas example, minimum efficient scale is low.
Your supermarkets example is similar. Supermarkets are essentially logistics businesses in which local (not national) economies of scale are critical. For example, having 50% of the grocery business in Los Angeles won't help you in New York, and vice versa. That is why the industry has many strong regional players.
Now consider an industry like homebuilding. Minimum efficient scale is low, so you have many, many homebuilders. But there may be some regional economies of scale. You can see that in NVR. So, look at how that business has expanded over time -- typically its into adjacent geographies, rather than a hodgepodge of disconnected regions around the country, because scale in Portland isn't going to help you in Orlando.
As for why are some true duopolies and oligopolies still cyclical and price sensitive, that is likely because they have high fixed costs and their end markets are cyclical. So, when end market demand declines there will still be strong competition for business, because of the high fixed cost/high incremental margin nature of the industry.
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I was hoping that this thread would be differentiated from previous "who's worth reading on Corner" types of threads by putting the focus a bit more on the process and skills of contributing well.
Wrister, thank you for taking a moment to share your thoughts and for expressing yourself through "rational, independent analysis".
There is obviously no one right way to contribute and we benefit from different styles of participation, so it would be great to get more input along the lines of what Wrister contributed. For those of you who stopped by to accept a round of applause (Wabuffo, SharperDingaan, Viking and Ben Hacker, for example), would you be willing to share some similar analysis?
Some possible starting points:
What you like to see in posts by others?
What about your own background and process contributes to others appreciating your contributions?
Do any of you have rules or guidelines you use to think about when deciding whether or how to post?
Do you think about your reader when posting? If so, how do you think about readers?
Thank you in advance for keeping it a positive, constructive conversation.
For whatever it's worth, I think a useful first post on a proposed investment (i) explains what the company does and how it makes money, (ii) explains the important factors that are likely to determine the company's performance/stock price going forward, (iii) offers some rational analysis of how those factors are likely to play out, and (iv) says something about the company's current valuation.
A post that says, "XYZ is at a 52-week low, what do you think?" doesn't meet that standard and suggests the poster doesn't have any useful information about the company. Similarly, a long post with a lot of description that ends with "If the company can just get margins back to X% you'll do well" fails to because it doesn't get at (iii) above and contains no actual useful analysis. Many times, forcing yourself to cover all four issues in writing will reveal many things you don't know and that may be unknowable. But unknowns are important and should be included in the post, because at least you understand the risks you're taking on and another poster may be able to shed some light on the gaps in your knowledge.
Useful follow-up posts are those that add additional material facts or analysis (not minutia) or provide some insight or commentary that presses the original poster to justify certain of his or her views. In my view, too many follow-up posters don't bother to read carefully the initial post (because they ask a question that was already covered in the initial post), ask lazy questions that could be answered with two minutes of research into the company's filings, or simply make assertions, e.g., "I think this company is a zero," that are useless because the poster doesn't articulate any coherent reasoning in support.
What are you buying today?
in General Discussion
Posted
Rosetta Stone
FRP Holdings
Vornado
Williams
Wells Fargo
Bank of America