EricSchleien
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Posts posted by EricSchleien
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Glad you enjoyed!
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Is that a letter you wrote to Prem? Is that a letter you are encouraging us to write? I'm confused...
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Keynes was the guy turning supply side economics on its head, saying it was increased demand which spurs supply increases. When cars were invented, why didn't the horse-and-buggy industry just ramp up supply to increase demand? Regardless, supply vs. demand driven economies is a different discussion...which economists far smarter than us still argue over.
I'm not talking about a slowdown in consumption or "wanting" to work. I'm saying, what happens to all the truckers/drivers when we build self-driving cars. Historically they work elsewhere. Because historically there have always been other opportunities for human labor. My question is what if those opportunities slowly dry up? Furthermore, is there evidence that those opportunities are drying up? I can see the argument for 'yes' to the latter question.
Doesn't matter either way.
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Tried to increase my position in CNGA but no sellers! Would anybody like to sell me shares?
Increased my position in LAACO, Ltd; Trupanion; and Brookfield Asset Management
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I owned it briefly in 2006. Thomas Winmill appears to me like a scumbag from actions alone over the years. Tuxis, Winmill, and Bexil are all set up to enrich management and they treat shareholders horribly. They have a bad track record, their funds charge outrageous management fees (not honestly sure how they raise money for their funds). The whole thing wreaks of filth. There have been times when their companies trade below net-cash and they don't buyback stock yet they preach value investing and talk about the importance of growing book value/share. They have clearly failed at that goal. I wouldn't go near this stuff. You can potentially make money from a cigar butt puff but you can get wrecked on this name too. I just wouldn't waste my time personally and move on to something that's easier. Wish you the best!
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I would agree with that. Personally, I got into value investing because I realized all the best investors in the world with long track records were pretty much all value investors. At the same time, I haven't seen many people with amazing long-term track records who run a long/short fund.
Also, my view has been if I really did want to short something and though something was a fraud, just buy a small put position where if I'm wrong I lose the small amount and if I'm right then I make triple digits on the position.
I'd be MUCH more comfortable buying put options instead of selling borrowed shares which would prevent me from sleeping at night if the trade went the wrong way in a huge way and my downside if I'm wrong is losing my small amount of starting capital.
If anyone thinks I'm not looking at this correctly, please enlighten me. Part of me feels shorting is better for marketing and raising capital for a fund then it is in actual implementation.
Still gambling on the ourcome of certain scenarios ? Do these trades generally work out for you. I am curious, if this is truly better time and money spent than being an armchair investor?
My NFLX trade is a gamble, i won`t argue about that and my history with these type of bets is not favorable for me (even though this year i am at +-0 with these type of bets). I still do it from time to time, because i sometimes simply can`t control my gambling habits. But these bets are always very small. I tried to get rid of them by simply having no access to free capital in my brokerage accounts which worked very well in 2016, but since i trade other systems than my NCAV system now (OTC stocks eat all the available margin.) i have to give my gambling habits a little room from time to time. (So i try to control my bad habits by doing them at least half way intelligently.)
Other than that i am trying a lot of different stuff and keep doing what works for me personally, the DAX hedge is something i tested and that worked in the past. But of course you can`t get payoffs of 5:1 or 8:1 and win on every single trade. I try to collect a number of quantitative systems over time that suit me and that simply work. My options system for shorting stocks that i tested from Sep 2017 to last month has not worked for me because trading and implementation costs where a lot higher than simulated and expected. So i stopped doing that, even though it was profitable.
I am just not the guy who can buy an index fund or AMZN/GOOG/NFLX/AAPL/BRK.B and leave it alone. Its not in my DNA. But my performance over the past 5 years was in line with the market and i expect to do a lot better in the future, especially if we finally get a larger market correction. How do you value the knowledge that compounded over this time?
This was meant as an open question, not as a critique. Option trading is tough, since time is your enemy and as writer stated expected value is negative.
I tried hedging as well a few years ago, as an insurance against my longs as well as shorting and found that it didn’t work for me. It required much more energy and time, distracts from long term thinking and even increased the volatility of my portfolio rather than reducing it. So shorting for me is out now and if anything, I would do an option trade, where I know exactly how much I can lose, which kind of helps with sizing. Even Munger said, don’t do shorting and I think he is spot on for 99% of the investors.
Viel Glück!
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MMM
Thanks
Lance
Why?
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Also been buying LAACO over the past few months (control 163 units as of now). Really interesting company, and I agree, it's quite cheap.
My family owns rental (commercial) property in Los Angeles and cap rates are been squeezed down to nothing (2-4%)
By contrast you can buy 5-7% out of state but in little podunk towns w/triple net leases.
Then the stock market multiple REITs selling at 10-11x AFFO and around 5-7% dividend.
I've been holding VER (ARCP formerly. All properties verified and 99% occupancy. It sells abt 10-11x AFFO and has a 7% dividend. This stock i understand why its low (Nick Schorsh legacy, lawsuit hanging over company etc)
Then you have KIM (kimco) selling at 11x AFFO, 7% dividend. 95%+ occupancy. Has positioned itself as Amazon resistant.
What is contributing to such a big pricing/yield gap between private transactions and public REIT transactions?
REITS historical undeperformance against sp500 index?
Hot money flying toward tech stocks?
REITs too boring?
Amazon?
Curious to see what the board thinks....
I've written a bit about my experience in the last 10-15 years about figuring out "paying up for quality". In short, the NYC and CA assets are higher on the quality spectrum and they rightfully deserve a lower cap rate. Although, I disagree that you should pay 2% for anything. 4% is on the expensive side of reasonable for CA in my humble opinion. Often time when you buy a high yield in the middle of lower, you're paying for the long term lease, you're not paying for the dirt and the replacement value. If the existing tenant leaves upon lease maturity, you oftentimes can't get a similar tenant. This is especially true in a smaller market where your building maybe 5% of the market.
I personally think that interest rate risk is very real. Assume you have a REIT that is 50% LTV, due to low interest rates, it trades at a 4% dividend yield. Bc of higher rates, people demand a 5% yield. Two things will happen, first the cost of debt capital will go up when the debt matures. Second, people now demand a higher dividend yield. Third, the bank may want to maintain a 50% LTV but the value of the assets have moved against the REIT. So, the REIT may have to put up more capital. All of these factors makes levered REITs a really good investment when interest rates drop but terrible one when rates increase. I am convince that this applies for companies trading at 20 P/FCF with substantial debt on them as well. Unless you're a REIT that can grow out of these issues, you're going to have some tough going ahead. We own FRPH and we know that FRPH will face some cap rate expansion headwind, but the FFO will be minimally impacted due to higher interest rate cost. We own some LAACOs as well. It is a severely under followed and under discussed name in Southern California and San Diego trading at 7.5-8.0% cap rate plus a free Downtown LA building. The amount of debt is roughly $50mm versus a private market value that is in the 6-700mm range.
Just to walk through that 50% LTV REIT excercise (this exercise applies to privately owned assets as well) - F
$1.0 bn asset with 50% LTV with 6% cap rate
$60mm in NOI less $10mm in G&A equates to $50mm in EBITDA
$500mm of debt at 4% equates to $20mm of interest expense
This equates to roughly $30mm of FFO and we assume 80% payout which equates to $24mm at 4% dividend yields a market cap of $600mm
Now that interest rate is 1% higher
Still $50mm of EBITDA because the assets still generate the same cashflow
$500mm of debt at 5% equates to $25mm of interest expenese
This equates to roughly $25mm of FFO and we still assume 80% payout which equates to $20mm at a 5% dividend yields a market cap of $400mm
This is how a 50% LTV REIT can logically lose 33% of its value in a 1% movement in interest rate. This is also the reason why I've avoided RE companies with a lot of leverage. FRPH and LAACO both have leverage below 10% of their private market value. FRPH has non-recourse leverage at one of its multi-family building in DC, but that's a 10 year fixed mortgage. So we view that a little differently.
We've held a lot of cash because in a world where 3-4% interest rate is normal and cap rates in the 3-5% is normal for certain type of assets, a 100 bps movement is seismic. This applies to both real estate and anything that trades at 20x FCF or higher.
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Hi All,
I'm going to be writing a case study on Sears regarding what went wrong, issues the company was dealing with, mistakes Eddie made, things Eddie did right, and then at the end make some recommendations of what could be done going forward.
I'm looking to interview people with good knowledge of the situation. Anybody willing to help me?
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There was an episode of Black Mirror on Netflix that had an interesting take on this. Not sure if it is true or not. Basically they stated that in older wars more people died from disease, mal-nutrition, and infection rather than actual combat. In the revolutionary war times people many times fired over the heads of their enemies, not actually trying to kill their opponent. From the Vietnam onward the mortality rate on a per soldier basis has increased (they state). A single drone operator or sniper may be responsible for killing dozens of people without "facing combat".
That said, I have relatives who have fought in the Battle of the Bulge (WW2) and later in the Korean War. They have very gruesome stories to tell, but I think they tended to suppress their bad memories. If they had PTSD they didn't talk about it.
From my experience, completely anecdotal and non-scientific, older generations processed this differently. I have found them on average less sensitive and "triggered" by horrible events.
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Snowflakes
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Guys I would like to go to the meeting for my first time, although I've researched Buffett for eleven years. I am trying to get there from the San Francisco Bay Area and find lodging as cheaply as possible. Any advice? Thank you!
AirBnB
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^^^^that was my younger brother who wrote this above. He was asking me about this today & I just told him he should ask a question on here. I let him use my account to ask the question. If you guys had any feedback for him, it would be MUCHO appreciated. It means more coming from one of you guys then it would from me.
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Hi, I decided to take on a new project to increase my learning on Johnson & Johnson. While I understand the general picture of the company, I have less of an understanding of the economics of their acquisitions and would like to get a better understanding of whether they are good deals and how to evaluate the purchase. My goal is to eventually connect with executives in this industry and I want to be able to show more knowledge of their business than anyone they have ever met that wasn't working at the company. I would like to start with a recent acquisition they did with Actelion and would love if anyone could point me to some resources on how to evaluate the deal better and if any of you have some thoughts or some questions that I should be asked to answer for myself to better assess the situation. Once I get a handle on this, then I can use these principles to look at other acquisitions that J&J has made. What are your thoughts?
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I've submitted twice. One was an arb opportunity with 60% upside within a few months. Was rejected. Made 60% in a few months.
The other was a current idea which is already up 14% since I submitted it on no news. Idea was also rejected.
I get plenty of value from the delay or having a friend send me more details on something so I can read comments.
I've only ever generated one idea from there and it turned out to be a mediocre investment so for me, VIC has added no value for me monetarily. Maybe I'm just bad at picking VIC winners :P
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Puerh Tea
Yerba Mate (only from gourd)
Bulletproof Coffee
The very occasional modafinil
Walk, Sprint, Lift Heavy Shit
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HD, MO and MU
Thanks
Lance
Why HD?
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Is the year prior available?
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Amazon link:
https://www.amazon.ca/Tribal-Leadership-Leveraging-Thriving-Organization/dp/0061251321/
Sounds interesting, thanks.
It is. I'm looking to do activism with someone and also teach others in the value investing world how to do it on their own as well. I think the more of us equipped with this wisdom and knowledge, the more we will impact this industry in a positive way.
If the book resonates with you, I'm more than happy to introduce anyone to both myself and John and would love to collaborate and work on projects with any of you around this realm.
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Just bought this on Kindle. Look forward to reading this. I have always enjoyed Nate's insights on this board. The podcast with Eric is also a good listen
Thank you! It was definitely one of my favorite interviews to do. Nate's a super interesting guy. We ended up chatting for about an hour after the show as well.
Highly recommend the book too.
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My colleague John King developed the methodology in this book and also co-wrote it. What he does, would drastically increase the effectiveness around shareholder activism. Nobody on the planet to my knowledge is doing anything remotely similar.
Highly recommend the book, it's just a tip of the iceberg. And the 10-year study showed the results were the same regardless of company, size, country, gender, etc.
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Link: http://intelligentinvesting.podbean.com/e/travis-wiedower-calloways-nursery-franklincovey-issuer-
In this episode, Travis Wiedower comes back on the show to discuss 3 different companies:
Calloway's Nursery
FranklinCovey
Issuer Direct Corp
Travis is the founder of Wiedower Capital: http://www.wiedowercapital.com/
He also runs a great blog: https://traviswiedower.com/
Tom Jacobs; Huckleberry Capital Management; The Curious Case of Maurece Schiller
in General Discussion
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