EricSchleien
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Posts posted by EricSchleien
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It may not match what you are looking for, but here's a letter I sent to USNU ($1.5M market cap) a few days ago.
To the board and management team of US NeuroSurgical Holdings:
As a fellow shareholder, I would like to share my thoughts on the direction of the company.
Congratulations to your team on the positive results from the NYU Medical Center over the last few years. Relative to its market cap, the company has substantial assets and expected short-term cash flows. By my estimation the company is currently worth about $0.55 per share, compared to a current share price of $0.17.
However, I believe that if the company continues to invest in and loan money to its subsidiaries, it will have a negative impact on shareholder value. This is especially critical since the company has advanced $2M to subsidiaries over the last year.
As you know, all of the joint ventures except BOPRE have a negative equity position and all except CGK are currently unprofitable. This makes these companies extremely shaky credit risks, and I question whether US Neurosurgical is earning an appropriate interest rate on these loans. Although it is somewhat early to assess the results at MOP and CBOP, the initial investments in FOP and CGK were made 9 and 12 years ago. It appears that US NeuroSurgical’s return on these investments has been unsatisfactory.
Instead of continuing to invest in these subsidiaries, which do not appear to offer an attractive risk/reward, I believe the company should return excess cash to shareholders. Furthermore, the company is too small to justify the expense of being public. The most appropriate action would be to sell the company or sell the remaining assets and distribute the proceeds to shareholders when the NYU operations wind down.
Please let me know your thoughts on this subject.
Sincerely,
Nathan Herold
My math:
$4.5M current assets
$2.3M operating cash flow per year x 20 months = $3.8M
-$3.5M liabilities
Total: $4.8M
Nathan - just messaged you.
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Hi All,
I'm looking to source some microcap activist ideas. I've partnered with Scott Forgey and John King to do Tribal Leadership with companies in the public markets. Over the past several decades of this work in private markets - profits increase on average 300% - 500% within 24 months of doing this work with companies. John helped build the culture at Zappos with Tony Hsieh and Scott currently works with Google, LinkedIn, eBay, and also helped with some turnarounds of a few companies that I can't publicly talk about.
I have access to capital for launching proxy battle and doing all the legwork.
The criteria is as follows:
1) Stock down a lot = pissed off shareholders
2) Management owns small stake in company
3) Ideally a broken organizational culture
4) Institutions or Funds own large percentage of stock already
If you are a shareholder in a company like this or know someone who is, please send them my way. All conversations are private.
Best,
Eric
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Can you point me to where you found that packaging primer? I'd love to read it.
Look into Berry Global, it's a plastic packaging. They buy 5bn pounds of resin and their targets typically buy 5-10% of them. If you buy 5bn of resin, the resin manufacturers want your volume to absorb the bulk of their overhead. So you get a 2-5% of revenue savings in resin. Thus you buy a target that has a 10-12% EBITDA margin and right off the bat you're shaving a lot of that cost off just through being a larger operator in the space. Thus, it makes sense to pay 8-9x EBITDA which is really 5-6x EBITDA after synergy. Cable operates the same way where there used to be lots of little guys around. They can use scale in buying content cost to lower the cost.
There are a lot of roll ups in the packaging sector (containerboard, plastic packaging ) that seem to work out well. It seems that economy of scale and a relatively predictable business with a good cash generation are a winning strategy.
I read a packaging primer once that essentially said that packaging companies are bonds masquerading as equity. Their cashflows are so stable that they can continuously lever up to do acquisitions and then use FCF to de-lever. Berry has done this multiple times in their private/public life.
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I managed to score some LAACZ units today for a good price. It happens from time to time.
Nice! Me too. Bought 2 more units at 2200. What price did you get yours at Spekulatius?
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Looks good. One issue I am having is that for me, a lot of the stocks I own don't even show up here.
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I've read this in February for the first time myself. Definitely a book you can benefit from reading once every few years or even yearly. One of the few books I gave 5/5 on Goodreads.
It's a good book, however, like most philosophy books, the way to get these abstractions in with people isn't through intellectualizing them or learning about them. Hence, why you can study say existentialism for 20 years and not get meaninglessness other than a concept while someone can learn through experiential means and get it within just a few days. I find stuff like this interesting but reading about it is a highly inefficient way of getting it.
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Since 2015, the Liberty complex has been a major component of my AUM.
Currently:
Liberty SiriusXM ~12% position (sold a bunch last year in the 40s)
GCI Liberty ~8% position
Discovery ~ 4% position (sold a bunch last year. My cost basis is ~18/share so was buying it very cheap)
I owned Liberty Braves at a cost basis around 14-15ish (including warrants). Bought more at ~20ish. Sold out in the high 20s. I'd probably re-buy (at current intrinsic value) if it went back to around 20ish as it's probably worth at least 30.
Also used to own Formula 1 but sold out last year as well. Had owned it pre-tracker.
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On Interactive Brokers, I'm able to do SMART routing in which IB finds the best available price across a bunch of exchanges and gets me best execution. I also have the option to route my order to a specific exchange. I'm wondering if anyone can help me understand why I'd ever choose the latter option. Thanks.
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He did make the request for Wells Fargo but was told if approved it would limit the ability of Berkshire and its subsidiarys to transact with Wells Fargo in the course of their business.
Oh interesting, I didn't know that!
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Can anyone explain why Buffett can hold 17% of Amex but can’t go above 10% for other bank. In other words, why doesn’t Amex trigger the bank holding company requirement?
I've wondered that in the past too. I found a fool.com article that says,
Berkshire recently asked the Federal Reserve to boost the maximum amount of American Express stock it can own from 17% to just under 25%. Berkshire has committed to be a passive investor in AmEx in order to get around another rule that would have limited its ownership stake to just 10%.https://www.fool.com/investing/2017/06/20/how-risky-is-american-express-company.aspx
So why can't he make these same kind of requests for the banks?
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Not gonna happen.
Berkshire doesn't need more currency or flexibility to do deals. They have plenty of both. So why go through the trouble of having a bunch of publicly listed subs. Plus isn't one of BRK's acquisition selling points that if you sell to us you won't have to be public anymore?
Regarding valuation, it could very well be that once Warren decided that I'm gonna buy back a crapload of my own stock that he doesn't care if he gets a fair valuation or not. Once he makes up his mind on something he can be very ruthless at making money off of it.
1. I know they won't hence why I said thought exercise.
2. RE: "Plus isn't one of BRK's acquisition selling points that if you sell to us you won't have to be public anymore?" ...touche on that.
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Book Rec's?
in Books
Books I've read recently that I enjoyed.
"The Coddling of The American Mind" Jonathan Haidt
"The Happiness Hypothesis" Jonathan Haidt
"The Myth of the Rational Voter" Bryan Caplan
"iWoz"
"Christmas Eve, 1914" Charles Olivier
"The Everything Store"
"Thinking in Bets" (but I'm pretty sure it was you who recommended this, so you read it already, if not, it was good)
The 2 "Luna" books by Ian McDonald
Yes, it was me who recommended that to you! Also, I love Haidt. Have you read The Righteous Mind?
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Book Rec's?
in Books
Looking for book rec's!
I've exhausted my reading list and looking to add a bunch more stuff.
What have you guys read recently that you loved?
Going to be doing a bunch of book buying this coming week.
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Hey Guys,
I wanted to do a little thought exercise. Buffett has made it very clear that Berkshire is worth more as a conglomerate than as broken up. What are your thoughts on Berkshire creating tracking stocks. This way there's no actual spinoffs and it ends up allowing Berkshire subs to get re-valued on the balance sheet. Also, it would allow more forms of currency for Berkshire and more flexibility for doing deals.
What are your guys thoughts?
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I second what Read the footnotes stated. My impression is that Metro’s management lacked the ability ( to exactly understand the rules governing banking in the UK) and were not necessarily dishonest, but I could be wrong.
I haven’t followed this story too closely however.
Good point. I too am ignorant on the specifics. I didn't mean to impugn Metro Bank management, but to respond to Cubsfan's comments and assessments as I understood them.
Falling victim to a charlatan is the worst case scenario that we all are trying to avoid, but there are many lessor risks in evaluating manager skill and honesty.
One heuristic I developed (in a costly manner) was to always sell any financial stock that has a run in or problem with a regulator. I have several experiences with these issues and one I remember vividly was that AIG in one of their filings around September 2008 noted a disagreement about valuation with their auditor , as I recall. I thought about this for a while, my position was already in the hole at that time. I decided to sell, because I thought if their management can’t agree with their auditor about valuation of some assets, who am I to value this stock? It turned to be the correct decision. I had several other experiences like that with banks and none of them would have worked out.
It’s a bit different with Industrials or non-financials, but with financial the rule to to sell first is probably right in the vast majority of the cases.
^^ 100%
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Wow! This is really good. Thank you for sharing!
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Bought more BAM, FCAU, and TRUP.
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01:32:00 it gets kind of funny :)
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Is there any chance for a transcript or closed captions - maybe via a third party service or reuploading with another podcast service?
Hey, I don't. I've done some transcripts on some of the shorter ones where I was paid to publish the transcripts but it would be very expensive to get a transcript done for no cost and just sharing this for the love of the ideas getting out there.
I know 2 hours is a lot of time. However, if you skim through it, and you find what we are talking about resonates with you, I know Scott will be at the Daily Journal, Markel, and Berkshire Hathaway Meetings this year and could always put you in touch if you're ever at any of those!
Best,
Eric
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I think a lot of you guys will enjoy this. It's an interview I did with one of my incredible colleagues, Scott Forgey who currently does work with Google and PayPal amongst other amazing businesses. And for full disclosure, I'm not pitching any kind of service, simply sharing a conversation I had on the podcast that I thought would add value to those interested in the topics discussed. It's all free and I give this all away for the love of sharing ideas with others :)
Scott has led Transformational programs for over 100,000 people all over the world. The dude has coached top executives from all fields, award-winning architects and designers, Oscar and Tony-winning actors, Grammy Award-winning musicians and composers, athletes from the NBA, NFL and Formula 1, renowned chefs and tech startup geniuses. His practice brings together in-depth thinking from Silicon Valley with the wisdom and practices of advanced consciousness development. He gets FLOW and TEAM in a way that most others talk about in a way that makes want to roll my eyes, puke a little bit, and then call BULLSHIT on! Scott is the real deal.
We talk a little bit about Tribal Leadership which was discussed on previous episodes when I brought New York Times Bestselling author John King who invented the Tribal Leadership Technology onto the show, TWICE:
The link to the podcast is here: https://intelligentinvesting.podbean.com/e/49-google-paypal-how-to-keep-large-companies-innovative-competitive-moats-interview-with-scott-forgey/
The links to the previous shows around Tribal Leadership are here:
Episode #39: John King, Netflix, Tribal Leadership: https://intelligentinvesting.podbean.com/e/39-john-king-netflix-sears-tribal-leadership/
And also here: Episode #13 - John King - Tribal Leadership - A New Model for Shareholder Activism: https://intelligentinvesting.podbean.com/e/13-john-king-tribal-leadership-a-new-model-for-activism/
Best,
Eric
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It's amazing what politics does to people's minds. Had Trump never run for president there would absolutely be no one voting for him in this poll with this list of choices. Hillary should have been listed, I bet someone would have voted for her over Bezos and Musk as well. Politics really is mass delusionment, it takes over your brain and shuts down its reasoning capabilities.
rkbabang - Just look to see who is buying IDB's. That will show you who is the best.
Prem is the expert in India, so he'd be my guess.
Exactly rkbabang. I wasn't going to say anything because Prem doesn't talk about it in the shareholder letters so figured it could be just something they don't report. Anyway they're still trading at pennies on the dollar. Maybe I should just delete this post so the word doesn't get out. They are very thinly traded.
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It's amazing what politics does to people's minds. Had Trump never run for president there would absolutely be no one voting for him in this poll with this list of choices. Hillary should have been listed, I bet someone would have voted for her over Bezos and Musk as well. Politics really is mass delusionment, it takes over your brain and shuts down its reasoning capabilities.
rkbabang - Just look to see who is buying IDB's. That will show you who is the best.
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Microcap Potential Activist Opportunities
in General Discussion
Posted
Hi Mark,
Please do.
Best,
Eric