valueinvestor
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Posts posted by valueinvestor
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Also I’m not saying that ones not emotionally stable specifically, but rather the the misunderstanding that value investing is more about increasing the value of your portfolio on paper, rather than increasing the intrinsic value of one’s portfolio. In fact, most case, I agree with muscleman. Which is why results come after a long time of instability or may never come at all, which was my main point, just because you bought a security cheaply, the market does not have to recognize it.
Theoretically, if you bought a stock cheaply, it should not matter if the market agrees with you or not. A good stock should work even without rerating.
Theoretically, the stock can rerate against your favour too.
A current, or TTM PE is irrelevant and IMO shouldn't even factor into one's analysis. Forward PE can be important but again, I've never found it useful buying just on next year's earnings. Essentially one needs to be able to objectively analyze the business prospects going forward in order to get comfortable with an investment. So in the event that I expect a NTM PE of 10, and the following few earnings are off, there's only two culprits; 1) ME. I misjudged the business or environment, or 2) Management is either dishonest or incompetent. And even in the event of number 2, it is the investors job to make sure you are comfortable investing with the current management. So if you do the work, there are safeguards.
That's the same case as myself, I believe that price is secondary to understanding the economics of a business. There are so so many examples, where purchasing a company with horrendous financials would've been the greatest investment ever.
the misunderstanding that value investing is more about increasing the value of your portfolio on paper, rather than increasing the intrinsic value of one’s portfolio.
I really agree with this - I think this is probably the closest one could get to defining "value investing".
And I think it's a really philosophical question. We all have the ability to buy or sell any publicly-traded company in their portfolio. So asking which businesses are maximizing the intrinsic value of your portfolio, is really asking what businesses are providing the most value to society.
And then of course the price paid matters, but to me, this is a much broader and more complicated question - and more fun trying to answer.
Value investing is fun in the sense that you are able to own companies below their intrinsic value, whether the market agrees with you or not. However, as ludicrous as it sounds, if you're in it to make money, rather than enjoying the process of investing, then it may not be the right fit.
Also there's no one way to make money - look at Stanley Druckenmiller or any entrepreneur that hit it big with their one business.
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Also I’m not saying that ones not emotionally stable specifically, but rather the the misunderstanding that value investing is more about increasing the value of your portfolio on paper, rather than increasing the intrinsic value of one’s portfolio. In fact, most case, I agree with muscleman. Which is why results come after a long time of instability or may never come at all, which was my main point, just because you bought a security cheaply, the market does not have to recognize it.
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What about advantages of time horizon and emotional stability?
DIng, ding, ding.
It's surprising that this was not mentioned throughout this whole thread, because the only time I was able to outperform the S&P over the long-term is by (ironically) under-performing in the short-term. My timing is not impeccable and investments that I've thought were cheap become cheaper by more than 15%. In order to compensate for the bad timing and mistakes that the business one's invested in makes, I double down, as long as those mistakes did not affect the intrinsic value of the business. Not that it is a foolproof strategy, as sometimes what you thought was cheap was actually expensive, which was Valeant and HBC for me. However if one is right one out of three times, one will do well over the long-term. I remember in 2008, when purchased BAC @ $7 and it was more than 50% of my portfolio, and even then the stock went to $3, even after news that the US Government was purchasing shares. I reviewed my investment thesis and doubled down, and even though on paper I was underwater for more than a year, it was one of my most profitable investments. In fact, the most profitable investment was when I was underwater for two-to-three years, but kept on doubling down because prices went down on issues where the company made moves that made sense for the long-term, but meant accepting short-term pains.
All these years I've learned that outperformance for me is more psychological than analytical, in fact, I do not check my performance every day, much less every year. As weird as it sounds, my mind is focused on owning as many shares in a company as possible, and I am more happy when a stock goes down, rather then up. I realize that this does not align with everyone's investment/retirement goals, but I think it is one of the reasons why value investing is hard. As one has to bet against the consensus, and believe that the stock price is not the per share value of the company. In fact be happy when a stock price goes against you because you are increasing your percentage ownership at a faster rate, then before. Again not foolproof, for example, I've been invested in Hudson's Bay for almost six years, and still underwater, but have not sold because it is a company that I am more than happy to own under $15/share.
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Everyone, I just wanted to say thank you so much! Thank you for those who reached out to wish me the best, and I will try to get back to each of your emails, ASAP!
In the meantime, please know it means a lot, and whether or not this purchase is a success, I really do appreciate you and everyone else who are trying to help!
All those who contributed, you have my deepest gratitude as well!
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We sometimes invest in this space.
there is a whole community of so-called ETA folks-Entrepreneurship through Acquisition. There a a number of lenders in the US, and I suspect there are a number in Canada as well.
There was a conference at Harvard Business School last month that would have been interesting. I think there is one at U of Chicago.
There is a small but very supportive community active in the space.
DM me
Sure, I'll DM you! Thank you!
In the US we have SBA loans, which are basically government guaranteed loans explicitly for stuff like this. They require a personal guarantee, but otherwise are great loans... high LTV, no covenants. Not sure if Canada has something similar.
Also could try talking to the owner about seller financing. Sometimes this can be the best of both. If the owner knows you he/she may be fairly comfortable with the busines in your hands. So the owner gets to sell the business, while earning interest on the seller financing.
Finding a good operator of a good small business at a good price is a unicorn. If your resume is good and you set about raising equity you should be able to do it fairly easily (sounds like people on this board have already filled the bucket!). Make sure the incentives are aligned for everyone, but don't sell out too cheap. Don't give up control. Also, know your investor's styles. A lot of PE investors like to "talk strategy" and build forecasts, but not do any actual work. If you're grinding it out at a small business while someone else wants to call and talk to you about what you're doing it can get fairly tiring (talking from experience lol).
We do have them here, if not similar. I'm just saving up the 25% downpayment required for such SBA loans.
I know what you mean, or atleast forsee it. I rather be working on the business as the sole owner, as opposed to holding hands.
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Hey, I work at the one of the Big Four accounting firms in the GTA (so lots of knowledge for this kind of transaction - albeit much bigger than your deal). Nonetheless, I have some contacts in the PE industry who may be able to help you out, and I also know of financing arrangements for small businesses (BDC, Canada Small Business Financing Program) that you might be able to utilize. PM me and I'll try to point you in the right direction.
Thank you! I'll PM you now.
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Not my favourite suggestion but have you thought about asking friends and family (for a loan, co-ownership or for guaranteeing a bank loan)? Cause it sounds like you need a favour.
Good luck! :)
Thank you! At the moment, I have not tried, but in my experience, as it is not my first time running a business, whenever you take capital from someone, it is probably best to get it from a person/group who can provide know-how, network, or other benefits with the capital. It also helps to have a person who's investment goals are aligned with the operational goals of the business. So far in my mind, I do not know anyone, but I am already starting to work on it (but more likely a last resort).
Are there any other employees that might also be interested? Maybe you could do a majority stake and have minority stakes for your employee partners. It might also help with retaining them and keeping them more incentivized to help the business succeed.
The only coworkers that I have that were managers, capital allocators and/or operators are the owner, myself, and one other person. The owner wants to retire, and the other person is in the same position as me. However, if one of us has access to capital, then it will be acquired ASAP.
Depending on the opportunity, I may have some investors in mind that may be interested.
Feel free to PM me.
This is interesting, I definitely look forward to seeing where this goes.
Depending on the opportunity, I may have some investors in mind that may be interested.
Feel free to PM me.
As do I. Located in Canada.
I'll PM you as well! :)
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Wow thank you for the incredible ideas and insight everyone, I certainly did not expect people willing to take a look at the business to be a potential investment, this really is amazing!
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What is the "commercial facility" does that mean the business owns the building it operates out of?
No, they do not own the building, but like other manufacturing plants that do not own the property. If there is a secured lease with the landlord, a strategic buyer or a new entrant may be interested in purchasing an already running commercial facility, as opposed to developing one from scratch, if the price is right.
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Thanks for the elaboration here, valueinvestor,
-To me, especially the Canadian investors here on CoBF throw around themselves with abbreviations, short of explanations [,please let it go here].
Please keep us updated in this topic about your fare - it's actually very interesting [ : - ) ].
For sure! I'll keep you updated. ;D
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... with 4X EBITDA with VTB. ...
valueinvestor,
What do you mean with "VTB" here?
Vendor Take-Back is a financing provided by the seller to the buyer to complete a transaction, when buyer is short of funds to purchase or seller wants to profit more by obtaining a bond-like investment. Not a formal definition, but hopefully provides some clarity.
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Anything you can take out loans against? Margin your stocks, mortgage, etc. etc.
I do not have a lot of assets, and I got out of school recently (so student debt), but I was going to cash my stocks to purchase it.
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Hi Everyone!
I'm trying to buy out a business for myself, but it seems that it may be pushed 6 months down the line, as I don't have the money.
I work for the business and the owner wants to retire badly that he is willing to sell the business to me for 4X EBITDA with VTB. It's in a very niche market, where only two players including us with a majority share.
To give you a sense, a competitor (largest in our space) that is more than 100x our size and generates $100M+USD in revenues per year tried to come into the market and failed. Additionally, they've attempted to do a joint venture with our company but was acquired by a Private Equity Group, before it could be solidified. Also, a competitor offered $4M CAD but requires the owner to stay on for another 5 years.
At the moment the sale price is $1.5M based in Toronto with a commercial facility worth $500K and assets worth another $1-2M. My plan so far is to earn the money and buy it out-right with an acquisition loan. I'm sure I'll be able to obtain 375K for the downpayment sometime in the next six months to a year, by working and doing various side projects.
However, I am open to any idea to shorten that timeframe. Does anyone know a better way?
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Not the right place! Probably most suited for general discussions category of this forum.
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I'm sorry Gregmal, but I don't think that politically incorrect is the right word. Ignorant may be more correct of the above post.
Firstly, way more people live close to financial centres in Canada compared to the US.
Secondly, what's the difference between 2-3% MER and 2 and 20?
Addressing the original question - what exactly is a hedge fund? Hedge funds run the entire spectrum, anything can be defined as a hedge fund. I think the only differentiation is whether the fund charges a performance fee or not.
Reasons why you may see a lot of US style hedge funds is that we have a lot of family offices in Canada. So wealthy families have in house hedge funds as opposed to farming that stuff out. This way they save a lot on fees.
There is definitely a more conservative approach to investing in Canada as well - good luck trying to sell a junk bond issue up here. But as funds run the gamut it doesn't translate in an attitude against HF. However being an HF (whatever that means) doesn't make you a superior investment by default. What Canadian conservatism does is that it won't allocate assets to HF as a class as it does in the US where you'll have a consultant that says you need to have X% in hedge funds and the clients will dutifully oblige (I'm aware that that statement may be a bit ignorant on my end as well).
To the OP, stop thinking of things in terms of labels and norms such as hedge fund and 2 and 20. Think of it from the side of a business. Provide a good service, charge a fair price for it.
Which is exactly why it is not deterring me from starting one. As you said, if you provide a good service, you charge a fair price. You are right that hedge fund is a broad term, almost similar to the term "literally." As for thinking from a business perspective, it is nice to have perspective on the industry and know the nuances. That way you can learn the needs and wants, and hopefully provide value.
Never knew that family offices were popular in Canada, then again, why would family offices advertise themselves. However if a manager is that good to be hired by a family, why not set off on their own? Not that everything is driven by compensation, and the need to have "more," but it is unusual in a capitalistic society. One would think that if their returns are good, they would open up shop and have more than one family as a client. However, the more plausible case is that I misunderstood you, so if you can provide clarification... it would be appreciated.
My guess, is a combination of factors.
Smaller population (1/10th of US)
Population not highly concentrated near financial centers (relative to U.S.)
Slightly less wealth concentration at the top (relative to U.S.) means smaller pool of potential hedge fund investors
Lack of financial education among investors (eg. many Canadians still hold multi-million $ portfolios full of Mutual funds paying 2-3% MERs)
Perhaps a more conservative attitude towards investing (on average, among wealthy Canadian investors).
Perhaps lower risk-taking in general in Canadian culture?
Lack of flagship Canadian hedge funds with amazing results to build local hype for hedge funds?
curious to hear thoughts from other people here.
Certainly see where you are going there, and definitely can attest to your point that there is a difference in culture.
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It's strange because the requirements to start a hedge fund in Canada/US does not seem too strenuous, where the US is slightly easier because you do not have to be a qualified investment manager when your AUM is small and you only have a few number of investors.
This is from speaking to lawyers and reading source/reliable materials (from OSC, SEC, AIMA, etc.) because someday in the next two to five years (once I get my CIM or CFA), I would like to be running my own partnership.
With all this, the question still reverberates at the back of my head that why hedge funds are not as prominent here, as in the US. One lawyer (though she does not practice securities law) told me that Canadian Hedge Funds are not allowed to invest in US equities because of some odd reason, and because she could not give me a reason, I'm dismissing that claim.
Any insight that can be provided would be greatly appreciated because it is unsettling to see this. Thank you.
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That's incredible, never knew about everything you've said. Thanks for the information! Do you think since Brookfield Property Partners are purchasing it below the stated NAV, then they will be able to re-rate the property portfolio on their balance sheet? This may translate into BPY's share price.
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valueinvestor Sometimes I feel that I am the only guy here that has BOX.UN. Like you, it is a mojor holding and I have been in it for a very long time through various names and I have done well.
I see that it may be another six weeks before we get the results of the formal valuation of Brookfield’s offer. Are you waiting this out or reducing now? Think I will probably hang in.
Portfolio by size:
FFH. - Fairfax Financial
BOX.UN - Brookfield Canada Office Prop
RY - Royal Bank
ALS - Altius Minerals
CKI - Clarke
PWT - Penn West Petroleum
BB - Blackberry
MTL - Mullen Group
CHK - Chesapeake Energy Corp.
POE - Pan Orient Energy Corp.
ADV - Alderon Iron Ore Corp
Investing is a lonely profession, as many would say. Though there are other perspectives that are more qualified to provide insight, in my perspective, it is a forever hold. Hoping the proposal falls through, even if shares tumble. May not have the capital, but more than happy to purchase as much as possible to the point where the only owners that matter is Brookfield and me. A portfolio of properties that is recession resistant and typically reserved for pension funds and other institutional investors, that made more money than the last even during the years of the oil "crisis," and pays a 5-7% annual dividend distributable monthly, trading at a price that is below NAV ex the tallest building in Calgary where occupancy starts late 2017 is quite compelling.
How do you feel that Brookfield is taking out BOX-UN less than NAV?
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~30% - Brookfield Canada Office Properties
~20% - Cimpress
~10% - Loral Space and Communications
~5% - Seattle Genetics
~5% - Incyte Corp
~2.5% - Coty Inc
~2.5% - Henry Schien Inc
~2.5% Nuvectra
~1% - Rentech Inc
~15% - Cash (It will be approximately ~50% once Brookfield Canada Office Properties is acquired and Loral provides a special dividend).
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Small Family Business in Canada (Trying to Buy It Out)
in General Discussion
Posted
Thank you StockDuck13, I'll give it a listen!