Gregmal
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Posts posted by Gregmal
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DVA
I have been long and have decided to close out the position for now. The information on this board has been helpful with the investment but it's a small position for me and I am looking to up my liquidity position so this one fits the bill for the following reasons:
Sentiment seems to have shifted, its been nothing but good news for a the last few weeks. Stock has moved from low 50's to low 70s in a very short time period. Major analyst bullishness/upgrades last few days. $4.9B number received for the medical unit was well above estimates. Buyback announcement was only a month ago. Add in the broader market being on quite the euphoric run. All these things seem very positive, which to me may indicate things could be ahead of themselves. There's still question marks and regulatory stuff that presents risk. As a value investor you buy when something is out of favor and sell when it is in favor. It usually doesn't happen in 3-4 months, but it has here. I entered in August and have a 60%+ IRR. I still like it, but am fine walking away with a respectable return and enhanced liquidity position.
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Can I get an option "I don't care"?
As I have said before, I am selling my BRK position the moment Warren is out (assuming stock does not crater to unreasonable discount). He is not replaceable. Splitting or not splitting won't make much difference likely. Although it's possible that holders after Warren's exit will still get OKish return.
I don't think you are the only one. I expect the stock to tank on that day and I expect to back up the truck if it does.
Warren is irreplaceable. Maybe the effects won't be immediate. Maybe they take a decade or two, but many great and valuable businesses often gradually turn into country clubs once their founding members turn over. It's one of the reasons many rollups do not work.
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This is getting absurd.
https://www.cnbc.com/2017/12/11/people-are-taking-out-mortgages-to-buy-bitcoin-says-joseph-borg.html
On a related note, easy money trade... shorting longer dated OTM calls on RIOT seems like a sure thing. A company that is more or less worthless and then added "blockchain" to its name becomes a multibagger within weeks.
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Rent-a-Center is under pressure from activists and it recently seemed to have negotiated with it's banker (JP Morgan) that a change of control and certain changes in the composition of its board will qualify as an event of default. It is explained as follows in its 2016 annual report under risk factors.
A change of control could accelerate our obligation to pay our outstanding indebtedness, and we may not have sufficient liquid assets at that time to repay these amounts.
Under our senior credit facilities, an event of default would result if a third party became the beneficial owner of 35.0% or more of our voting stock or upon certain changes in the constitution of Rent-A-Center’s Board of Directors. As of December 31, 2016, $191.8 million was outstanding under our senior credit facilities.
I don't think I've ever seen this and not sure how it will hold up in court and/or how it will play out in practice. Anyone with experience in this field care to weigh in please?
Link to AR & proxy http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjY4MDMwfENoaWxkSUQ9Mzc1OTk4fFR5cGU9MQ==&t=1
It's just a covenant that effectively gives the lender the option to call their loans. I'm not familiar with RCII but it looks like this covenant was put in by the lenders to prevent the large owner (a PE firm) from taking a majority stake. I imagine the lenders were probably concerned that cash flow would be distributed to equity holders to the point that they might not be able to fully recover their principal if the company faced a temporary or sustained decline following these distributions. In this case, I would guess it's probably included because of the reputation of PE firms aggressively distributing to equity holders at the expense of creditors (again, I really don't know RCII's situation but that would be my guess).
Management already has a 'veto vote' for takeovers in the sense that board gets to choose whether or not to entertain offers (with some limitations). This has nothing to do with management fear mongering or poison pills. This is just a lending covenant. All else equal, the covenant does not benefit management in any way.
To give some perspective, change-of-control covenants were fairly common at the bank I worked at for SMID businesses. In my limited experience, they were almost always waived as long as the bank's expected recovery rate was unaffected or 'LGD remained unencumbered' (sometimes covenants related to equity holder distributions were added as a condition of the waiver (if they weren't already present) - depends on the purpose of including the covenant).
The point of this type of covenant (from the bank's POV) is the bank lent to RCII and their current management. The bank may or may not want to lend to whoever the new ownership group ends up being. The primary purpose is to prevent the obligation from being automatically transferred to unknown owners/counterparties (and potentially, unknown stewards/managers).
You are correct in terms of the reasoning behind it and the perspective of the underwriters. This is absolutely accurate. I was more so referring to Mr.B's presentation of this covenant within the context of a proxy fight for board seats. Most often change of control is thought of in the perspective of a takeover or go private deal(PE type stuff as you mentioned). However it can also simply be a hedge fund taking 5/9 board seats at an Annual Meeting. The fear mongering comes into play when during a proxy fight you have company executives telling shareholders "if the dissidents take 5 seats we could be in default and have to liquidate/etc". I've seen that before and it's basically dishonest bullshit.
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Rent-a-Center is under pressure from activists and it recently seemed to have negotiated with it's banker (JP Morgan) that a change of control and certain changes in the composition of its board will qualify as an event of default. It is explained as follows in its 2016 annual report under risk factors.
A change of control could accelerate our obligation to pay our outstanding indebtedness, and we may not have sufficient liquid assets at that time to repay these amounts.
Under our senior credit facilities, an event of default would result if a third party became the beneficial owner of 35.0% or more of our voting stock or upon certain changes in the constitution of Rent-A-Center’s Board of Directors. As of December 31, 2016, $191.8 million was outstanding under our senior credit facilities.
I don't think I've ever seen this and not sure how it will hold up in court and/or how it will play out in practice. Anyone with experience in this field care to weigh in please?
Link to AR & proxy http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjY4MDMwfENoaWxkSUQ9Mzc1OTk4fFR5cGU9MQ==&t=1
It is basically just a scare tactic from management. Saw the same thing last year from Consolidated Tomoka's disingenuous fear mongering campaign. Management tries to use this as a poison pill of sorts. Additionally in many instances, change of control can trigger onerous golden parachutes. That said, if activists are involved, chances are they feel a shake up is necessary. So I guess in the absolute worst case that it triggers a default, what is the problem? That a company that is probably already over leveraged is forced to sell off some assets and pay it down. Don't be fooled by these clowns.
The lawyer in me would also point out the word "could" in your bold highlighted paragraph. A change in control "could" cause one. But it also "could' not. All this stuff is usually negotiable.
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I think the above term means something different to everyone. For me, it just means sleeping at night knowing what I am invested in and being brutally honest about what my permanent loss probabilities are. There are certain areas of the market I've found much more success investing in than others. Real estate for instance, has great optionality. Additionally, there isnt a single company or person in the world that in one way or another doesn't need real estate. The only times in history its been given away for nothing, the recipients became immensely wealthy. So to me, I understand that there is a certain floor on the value. Where as with things like tech, value is here today and maybe gone tomorrow. So I just don't want to deal with that type of headache; monitoring whether Apple will become the next Nokia or Blackberry. Or whether Blackberry will have an Apple like trajectory and recovery. Too much work to do. Same with oil and gas. Just too many moving parts and external risks. So I guess my circle of competence would be defined as "old economy" businesses. That and I've always had a pretty remarkable ability to rely on a gut feeling that ends up paying off big time. But that's an intangible and not something I can really quantify or articulate in precise terms.
I'd also say brutal intellectual honesty and constant reflection are pretty equally the most important aspects of investing. Keeping your psychological state of investing sharp, even keeled and rational is probably even more integral than simply understanding a business. Knowing I'm being greedy and thus likely looking at more speculative investments helps me take a step back and re-evaluate when otherwise maybe I'd pull the trigger thinking I've done my normal due diligence. Knowing I'm pissed at management and tired of an investment might lead me to want to sell when otherwise it's not be the right move. Investing is pretty much 100% a mental game.
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Excuse me for being new to this, and admittedly uninformed, but I was having a talk with someone earlier today and couldn't believe what I was hearing. Is it accurate that one can buy Bitcoin on these exchanges using a credit card?
You can buy bitcoin and ether with a cc on Coinbase. Or you can link your bank account. Or you can use cash at a bitcoin ATM, there is probably one near you.
I think that's incredibly dangerous given the majority of what's driving this insanity is the retail investor. Getting rich quick. Allowing people to speculate with high interest, non secured credit is mind boggling.
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Excuse me for being new to this, and admittedly uninformed, but I was having a talk with someone earlier today and couldn't believe what I was hearing. Is it accurate that one can buy Bitcoin on these exchanges using a credit card?
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Investors here and elsewhere like to post about what is exciting sexy. For example, Pabrai says he wants to invest in things that can double or triple in a few years. That precludes stocks like managed care organizations such as Aetna. Everything medical except some blockbuster drug company is ignored here and everywhere else. But MCO's have had a great run lately with all the attention on medical care and medical insurance.
It's just a fact of life.......
I would say that is true mainly of places like Yahoo message boards, but to a lesser degree here. Basically IMO lower quality sites. VIC is great because real investments are thoroughly discussed. To me it is a trait of gamblers/speculators to fawn over exciting and sexy. Getting rich quick. I am not close enough to the CVS situation, but it broadly falls into a similar category as most stocks I follow and discuss. Boring, undervalued, great long term runway as an investment and little to no discussion on the threads of the sites I read through. To me that is sexy. To me that is exciting. I kind of ignore all the noise of the FNMA type threads where it's really just speculation and get rich quick wishful thinking. That offers me very little as a patient long term investor. And I own FNMA for what its worth. I bought it realizing my investment would either be a multibagger or a complete zero. Therefor, nothing to discuss; discussing it is a waste of time if that is my understanding of the investment. Whereas something like DVA is an evolving situation that is not exactly binary, and a better use of one's time and/or resources. Just my 2c though. I know I can come off as a douche. Not intentionally, but I don't really care either. We're all here to discuss and help each other with investments. Thats what makes the community useful. Differing opinions.
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Agree on the distinction between robust/durable and antifragile. I'll throw US Lime and Minerals in to the ring here. Digging limestone out of owned quarries is a nice, durable business throwing off lots of free cash flow. USLM's capital management approach is to horde cash, pay a minimal dividend and very occasionally do something with the cash. This element might qualify it as antifragile. In 2012, a large block of stock became available so they did that. There was an acquisition way back. Today, $82 million in cash, no debt, $480m market cap, they could do an acquisition if one became available in a downturn. Not sure many quarries go on sale in downturns, though, as they tend to be very durable businesses. But some decent chance at value creation in a downturn.
+1 on USLM. Great all around company and investment
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Oddly enough, as someone who's shied away from the stock for reasons relating to it's valuation and fears of it blowing up during a recession, I'd say AMZN. Any economic slowdown would crush most retailers, making AMZN even stronger.
MSG is a stock I'd consider unbreakable simply because of the balance sheet and exposure to assets that typically trounce inflation.
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The rejection itself wasn't surprising. It probably is just a maneuver designed to bump the price. But nonetheless the arrogance of some of these guys is crazy. QCOM has lingered in the 40's/50's to low $60's through a massive tech bull run. These guys have not really succeeded with anything. Their business plan has shown few positive results, and none where it matters; for shareholders. IMO simply coming out and scoffing at a 40% or so premium to where the stock has lingered and simply dismissing it as "undervaluing the company" without supplying any sort of credible plan on how you(management) can do better(especially in regards to how you can do better when you've had years of opportunity yet havent done jack but now all of a sudden will...) for stockholders is reprehensible. IMO the most useful thing they've tried doing is buying NXP, and even that they can't seem to do right.
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In relation to the QCOM?AVGO deal-
I was a bit surprised today. How does QCOM reject such an obvious value creating event for it's shareholders when it's done nothing but fall all over itself and destroy shareholder value over the past several years? Especially when the reasoning is that the bid "dramatically undervalues the Company". I've learned over the years that it really doesn't matter how undervalued a company is if the management team is incompetent and unable to unlock this for shareholders. Where do management teams get off making statements like this? QCOM may have been undervalued, but these guys have shown zero ability to do anything about it. Now, an event comes along that unlocks some/most of that value, and these guys all of a sudden think that could/can do better? Unbelievable
No position in either FWIW
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IMO indexing is always moronic. But IMO most people are in fact morons; at least in terms of their ability to make investment decisions. At best, indexing is just lazy. But most people are also lazy. So maybe it's for the best...
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I'll extrapolate a tad just to narrow the scope as the comments already have touched on some good points. For less liquid securities it's obviously a little bit trickier. One must also be aware of unique market conditions. Obviously Ackmans GGP trade doesn't turn out the way it does if it's sold because of a quick gain. But one had to have been aware that 2008-09 was a unique circumstance. On the other hand, something like FNMA has similar characteristics and a crazy high IV if the thesis plays out. Yet if you had taken the approach to sell FNMA after every 30% short term pop since 2011 you'd probably already have your $20 a share in gains. So as has been said, it's hugely challenging. I'd use for shit's sake, today's environment as the basis. Most securities are fairly priced. Many see big downside in the market. It also may go up more but nonetheless it's a pretty ho-hum environment. If you bought DVA at $53 a week or two ago or whatever, isn't it kind of a no brainer to take the $9 gain and free up cash?(FD: I own a small DVA position at $58, have held for a few months, and am not looking to sell but just using this as an example being it's a liquid large cap stock)
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I was having an interesting conversation with someone who had recently bought GM. I've owned GM for years. Only recently has it been paying off. On the other hand, if you bought GM in June or whenever at $33, your IRR is insane. I still love the thesis, and the inherent value, but looking at it from strictly a mathematical perspective, this sort of short term return(50% or so in 4 months) is clearly unsustainable. Thus it got me thinking. Would there be a scenario where one uses set investment parameters to dictate sell decisions based off of statistically abnormal price movements on a short term basis? This would seemingly come down to a clash between one's dedication to the long term thesis and one's faith in statistics. Outside of trading around the core of a long term holding, wouldn't it kind of being a given that one should capitalise on a short term aberration? The odds that the performance will continue and you will never see your selling price again are rather slim. On the other hand, is there anything to lose really from taking a crazy IRR and wait for a pullback, consolidation, or more compelling idea? This may also depend on whether one is trading with leverage; I do quite frequently. The example I guess I'll give is that you own stock XYZ. 4 weeks after buying it at $10, it is trading at $13. 30% in a month is crazy. Maybe you think the shares are worth $20 longer term. Or CoBF favorite SHLD. You bought the other day at 5.75 and see your shares sitting at 6.60 a few days later. Berkowitz tells you it's worth $150 though. Do you sell or hold a 15% 4 day return? Be curious to hear people's thought from a mathematical perspective as well as the obvious fundamental one.
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Pretty remarkable if you extract some of the numbers. His longs outperform generally, so his short book must be running -30% or so in 8-9 months. Pretty brutal.
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From my experience, around 2x EBITDA. The restaurant business is a shitty business to be in. That's a direct quote from somebody I know who has started from scratch dozens of restaurants and currently owns several very high profile restaurants in NYC. For LPs or private investors, you generally look to recoup your initial investment in about 3 years.
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This varies but more often than not the fund managers not willing to talk about stocks are just self absorbed schmucks who don't want to waste their time unless it's something they can get publicity out of.
I've actually had decent luck with this, although hands down the best place to approach them is shareholder meetings.
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How long should an investor allow a fund manager to underperform the indexes before they redeem 5 - 10 - 15 years? If you were to underperform at a job for 5 years you surely would be fired.
lol. This thread reads like a bill of rights of managers of opm. If you read some of the comments, it's all the fault of the investor. Not leaving the money in the hands of the manager for a long time, being fickle minded, demanding annual performance for paying annually etc. Them poor souls need saving from selling and buying the index at the wrong times. The biggest joke is name dropping Buffett partnership from 50 years ago. It doesn't matter that Buffett wound up the partnership for some of the same reasons as Tilson today. Buffett was early even then. His investors would have lost money had the partnership continued. Denial does last a long time. ;)
I just have never seen a fund manager who is beating the market say that investors shouldn't compare them to the market. Is investing in a hedge fund less risky than a index fund? who knows I guess.
I think that's part of the problem of the modern day fund manager. Marketing is probably even more important than performance. Look at Paulson. The guys had a handful of years since the crash of -20% up to even -45% type years. He's still "The guy who made a fortune shorting the housing bubble". When guys can literally pull in assets worth hundreds of millions in fees after a few years of beating the index, I'd guarandamntee that guys marketing material is guys to start calling him "The guy who beats the market". Which is why it's dangerous to rely on a manager. Very dangerous to be lazy in your vetting of a money manager. Guys that are humble and honest are rare. So I'd say it's moreso up to the individual to find a manager or a strategy that is a good fit.
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How long should an investor allow a fund manager to underperform the indexes before they redeem 5 - 10 - 15 years? If you were to underperform at a job for 5 years you surely would be fired.
If your job(the one I am employing you to do) is to responsibly manage my money, your performance against the index is irrelevant for 1 year, 3 years, 5 years, 20 years. Because I am not paying you to simply chase some collection of assets that I may or may not want exposure to. If a manager returns 50% vs 10% for the index but I found out he did it by concentrating in out of the money options, I'd probably either send him packing or allocate a much less meaningful percentage of my assets to him. If I have a guy who consistent buys low risk value securities and can consistently return me high single digits-low teens with little market correlation, I'm there all day. If I have a couple income properties that are generating 8-10% years returns for me I don't really give a hoot what the S&P is doing.
Finding a good manager is much more like finding a wife than finding a stock to buy. You need to be able to trust them, and they need to be skilled with the things that are important to you. If my money is with somebody I know is talented, trustworthy, and patient, I sleep well at night knowing my money should do ok. The index syndrome to me is really just indicative of where we are in the current cycle, the prominence of ETF's, the ease with which one can make outsized returns for taking huge risks, etc. Someone mentioned earlier the lost decade; good comparison. Surely in 2011 and 2012, none of the S&P fan boys had wished the owned the almighty index. This is all very much cyclical and part of the psychological element that make markets efficient over time.
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Personally I think the excuse that Tilson uses about holding too much cash because of Trump is bullshit. First, hardly anyone expected Trump to win. Literally no one. So why would you be all in cash as if it was a given? If you did think Trump would win, how in the world would you think it would be bearish when his entire platform were things like tax reform, deregulation, and pro-business? Icahn saw it right away, as did many investors.
I think it's just the latest round of justifying his inability to invest in the current market. Certain people have spent almost a decade being scared of their own shadow when it comes to the market, or blaming the Fed for their inability to take advantage of a very robust market. Not just being wrong but then compounding that by being short and not knowing when to throw in the towel.
To me, investing is a lot like fishing. Sometimes the conditions are right and you can pull in walleye all night. Other times you throw 100 casts and maybe pull in one. Sometimes you can go days and even weeks without catching anything. But patience is a necessity and knowing the landscape/environment is a huge plus. Having a passion for it also helps. And when catching fish is your job, and the walleye are not there, maybe it's time to go to the shallow end with a worm and catch bluegills.
With Tilson, and quite a few others, "the market" isn't an excuse. Your job is to find ideas. Finding ideas is not necessarily dependent on "the market". If ideas aren't plentiful, you can always do fixed income, merger/arb(which for the past 2 years has been filled with great opportunities), and easier, lower return strategies to at least do something for your investors while you wait for the environment to be better. What's interesting about Tilson though, and why the more I think about this, the way he closed his fund almost comes off somewhat sanctimonious, is that he was ALWAYS out there pitching his ideas. It wasn't that the environment wasn't right, it was that HE WAS WRONG. The thread is about Tilson although the same applies to plenty of others. Guys like Tepper and Loeb are so dynamic because they are constantly adapting. One minute Tepper was "balls to the wall" levered, the next he's short Europe, then going activist, then he's squeezing currencies and short bonds, etc. Granted those two are probably some of the best ever, but the contrast that with some of these slugs who just consistently get it wrong and then make excuses and you can see the difference. I also think there is a certain type of investor, the academic type, usually the ones from families with money who give them seed money straight out of Harvard are way too textbook in their approaches. They've never had to grind it out on a trading desk or get their hands dirty. They just use metrics and analytic skills they learn at business school and that only goes so far. So when presented with a market that is kind of unique, they don't know what to do.
Guys like Pabrai(BG too) sit back and wait for a fat pitch and when they get it their batting average is great. Meanwhile other guys are coming up with new ideas every few weeks, not getting the results, and then blaming the market. Massive difference.
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Kudos to Tilson for taking the high road and graciously choosing to close his fund. But $1.5M a year...and I believe he may have started with more capital...for an 8.4% cumulative return over 7 years?!
Mohnish didn't get paid a nickel for 10.25 years, and he's still called a bum by some. I think all fund managers should be operating using the "Buffett Partnership" model. Cheers!
Prasad,
Mohnish, is certainly impressive in that he had the integrity to make his clients whole: + 6% / annum after 10 yrs. However, 6% return in 10 yrs is a 80% gain, the S&P 500 TR has return more than that in 10yrs, so as you said, he made a profit something like $8M above expenses, all for lagging the S&P500 TR. Just want to clarify things for real......
thanks
I've mentioned it before but it amazes me how misguided the entire "he did/didn't beat the index" logic is. When someone puts their money in a CD, they'd be foolish to then say "darn, I under performed the S&P". If one buys a government bond, I'm sure they are not thinking about "beating the index". It is about risk adjusted returns and ultimately there are tons of different products out there that offering varying degrees of risks and rewards. There is a reason one puts money with, and pays a guy like Pabrai. Maybe it's just me, but at the forefront of the list would be the fact that he is both a talented investor, and a good, honest man, so he will be prudent with my money.
There was a time when hedge funds were viewed as alternative investments with little correlation to the markets and security against big declines. I guess now a days there is sooooo much focus on this "beat the index" syndrome that the by-product is 90% of fund managers, guys like Ackman, are just gunslingers who redefine "value investing" so they can sell excessive risk taking as "safe" to the investors, and then swing for the fences with OPM. I have a ton of respect for guys who under perform the almighty index because they stick to their core investment philosophy and er on the side of caution with their investor's money. In relation to this thread, as nice a guy as Tilson was, he was not one of those guys. Pabrai is.
Cryptocurrency and Economic Importance
in General Discussion
Posted
Mortgage the house to buy Bitcoin, max out your credit cards buying Bitcoin. Find a platform that lets you use 20:1 leverage to "invest" your mortgage and credit card proceeds. Then either become rich enough to never have to work again in a short period of time, of file for bankruptcy and start over like every average schmuck citizen not gambling on cryptos. Surprised more people arent doing this.