Saluki

Small adds to JOE and TV on the dip yesterday. If I was sitting on cash it would've been a good day to go buying yesterday since almost everything in my brokerage account was flashing red. But alas, I had no war chest

Well, it's not just a Florida problem. The National Flood Insurance program charges way less to insure those Outer Bank mansions in North and South Carolina than they should. I saw an interview with the director of that program a few years ago on TV and he said something so stupid that it could only come from a bureaucrat. He said that they were raising the premiums a little bit each year and hoped to eventually get to market rates one day. In the meantime, people whose mansions were destroyed in hurricanes, just rebuilt them in the exact same spot using the cheap insurance they bought. When asked why they didn't raise the rates to market rate if they knew what they should be charging to make up for the losses, he said that if they raised it too high all at once then people might not buy the insurance and they wouldn't have any coverage. OR they might use common sense and not rebuild in the same area. Or they might build a small summer cottage instead of a McMansion. Or they might take remediation measures (hurricane tie downs on the rafters, sump pumps in the basement, hurricane shutters, build with cinder block instead of sticks). Or they could pay what it costs and not have low and middle income tax payers subsidizing your beach mansion.

I thought until recently that tech is going to make living in cities less desirable. If I can Zoom into meetings, why not have a bigger house further out, than live in a cramped apartment? Why pay for a lot of office space, when you can pay for a smaller space and have "hotelling" when people need to come in for a meeting? My thinking has gotten more nuanced on it. I was reading "The Logic of Life" by Tim Harford (it's a book like Freakonomics) and he was pulling up data about how tech makes living in cities more attractive. Clusters of specialized people (chip design in California, pharmaceuticals in New Jersey, Finance in NYC, biotech in Boston) lead to quicker advancements in industries. And tech like railroads, internet, food preservation, let's larger numbers of people in cities be viable with finished goods and food shipped from further away. Although we have email and facetime, you don't suddenly start engaging with people around the world. You use those tools to engage with people near you. You call your friends and email them, to arrange to do social things in your city, not have random interactions with people in a different city (COBF is the exception). I no longer think big cities are dying (despite the efforts of places like San Francisco to kill them), and there will probably be a need for office space that is somewhere between pre-pandemic levels and where it is now, which is the low point. But I don't know where that point is. It's going to take rational discussions about why we need people in the office and when rather than saying "we need them in here because we are paying for rent on this builiding". You are paying the rent whether people are there or not. I'm more productive at home because I don't have the distractions of people knocking on my door and saying "do you have a minute". But for people in a creative field or people who work better in groups, they may get a benefit from being in the office that I don't.

The funny thing is that Madoff had a legitimate business that would have made him wealthy enough, even for NY. And he got into the ponzi stuff. The ego is never satisfied. Similar story with super lawyer Marc Dreier. He had a 250 person law firm, where he was the only equity partner. The only reason this story isn't well known is that he was arrested about a week before Madoff. https://en.wikipedia.org/wiki/Marc_Dreier But this is a wild story too. At one point he made fake business cards and pretended to be someone from the Ontario Teacher's Pension Plan and tried to scam some investors into giving him money. And another time he claimed to be selling promissory notes for a real estate billionaire, and had a meeting in the client's office with someone he hired who pretended to be an executive from the billionaire's firm, to answer questions for the investor. It's fascinating because if you are a partner at a top law firm and have 8 associates under you, you will be very rich. I worked at a firm where their was only one equity partner and 60 attorneys. He's one of the world's largest art collectors. I can't even imagine how having 250 lawyers under you and keeping all the money could go horribly wrong and you end up behind bars.

In my copy of Security Analysis (6th edition), there are a lot of chapters by people who are well-known in the value investment community, like Seth Klarman, Howard Marks, Bruce Berkowitz and Tom Russo. However, I noticed a name that didn't ring a bell, Ezra Merkin. He made 1-1.5% fee by channeling his investors to Madoff. He agreed to payback over $450mm to investors. https://www.artnews.com/art-news/news/merkin-sells-310m-art-collection-amid-fallout-from-madoff-fraud-1162/ He was definitely a better salesperson than an investor because when he was running his fund, he had trouble generating alpha so he had a person trading for him who was convicted of insider trading (this is a story line in the Billions TV show). Victor Teicher wasn't trading for Merkin while he was on parole or subject to home confinement. He was literally trading for Merkin from behind bars. And when he saw the results for Madoff's fund, Teicher warned Merkin to not invest with Madoff because it was a fraud. But Merkin sent billions of his client money there anyway. He seems to still be around has money to invest: https://www.citybiz.co/article/297146/ezra-merkin-hedge-fund-manager-scarred-by-madoff-scandal-buys-into-orgenesis/ I don't know what the lesson is from this, other than this industry is full of shady people who live in nice houses and buy expensive things. I'm surprised that his reputation was good enough that he got to write a chapter in the previous edition of the bible of value investing. Didn't the other smart people figure out there was "no there there"? I think this would make a better TV show than the Madoff Netflix movie.

I don't know what this kid was thinking. But if the account is in your name, then so is the indictment. He's lucky that they closed him out the next day for a small profit. If he had lost money, then it wouldn't just be the SEC involved, they would probably have had him arrested. https://finance.yahoo.com/news/pretzel-shop-worker-committed-1-201647808.html https://www.sec.gov/litigation/litreleases/lr-25816

I noticed that the airport in Athens may be privatized soon. https://www.reuters.com/markets/deals/athens-airport-shareholders-clear-way-30-stake-sale-source-2023-06-01/ Don't know where else to put it since there aren't a lot of details, but this post seems as good a place as any.

I'm fully invested but a dividend payment landed in my account so I picked up a few shares of SWBI. It's down about 8% in the past couple of days ahead of the earnings release. It still looks cheap, has no debt, is buying back shares and growing the dividend. I think it will stay cheap until 2024 when the new factory is up and and running and they will have no need for more big capex projects and more cash available to distribute to shareholders or do buybacks.

added a little NTDOY and TAYD

https://techcrunch.com/2023/08/24/better-coms-stock-tanks-after-spac-combination-brings-it-to-the-public-markets/ Since this is the CEO who fired 900 people on a Zoom call, it couldn't have happened to a nicer guy.

Almost finished with the book and giving it a bump. There are just enough examples of investments and the outcome throughout the book to make it interesting. A good balance between just theory and just war stories. The Year by year summary of his investments in the back half of the book are also very good because you know what will happen with the world and he doesn't. I didn't get any hidden arcane techniques of what to do in a high interest environment, but it seems his approach was mostly classic Ben Graham (maybe that's what works best in a high interest environment?). He writes in a very folksy, readable style. I was surprised to find out that although he is not mentioned in the Super Investors of Graham and Doddsville list, he could be considered one of them. Although he didn't study under Ben Graham, he took an investing class as a student in Ohio and his professor was a student in Ben Graham's class at Columbia. A great book on investing that is not often mentioned, I would recommend it.

I'm not a hunter or a gun guy, but I looked into it quite a bit before investing. My understanding is that when people go to the shooting range to practice, they generally buy what is cheapest. If the ammo is low quality and occasionally misfires it's not a big deal, it's only range practice. When they buy the "self defense" rounds (i.e. hollow point), or when it's purchased by police, or the hunting rounds, they pay up. And for those, they tend to have brands they prefer. The ammo is fairly easy to make (which is why several low-end, or specialty brands exist). You need the gunpowder, the brass casing and the primer. The first two are easy to get and with some machinery you can set up a factory and start making bullets. The primer is difficult to make, and currently only four companies in the US make it (3 are owned by Vista Outdoor and one is owned by Olin). Recently, due to a primer shortage and unhappiness about the price spikes, a low-end brand (Expansion) tried to open their own primer facility. It failed miserably. So their is a kind of toll bridge that independent (US) ammo makers have to pay to get the primers. A foreign company, Fiocchi, which makes primers in Europe, is building a US primer facility for lead free primer (more expensive), but I don't think that will alleviate the toll bridge problem for the little guys.

Yes, even though guns can last 100 years, people like to buy them and just keep buying more. That's what took me a long time to come around to for gun stocks. If someone already has a gun, why do they need another one? They don't NEED it, but they think they do. "This is my home defense gun, this is my everyday carry, this is my small gun that I use for jogging, this is the backup gun, this one is my bugout gun, this is my hunting rifle for small game, this one is for big game, this is for target shooting etc." But I'm very interested in the ammo as a kind of model where someone is selling the razors and you sell the razor blades. Maybe someone will prefer the Beretta over the Smith and Wesson, but no matter which he chooses, he still needs to buy ammo for it, and he needs to keep buying it. And with Olin and Vista owning all 4 domestic primer manufacturers, even if the customer buys a cheap brand for use at the range, the no-name brand is probably still paying Olin and Vista. I'm not sure to what extent they are able to use foreign primers (the small ammo makers are private and don't share details), but it's something that I'm looking into. And yes, with Coke people drink it over and over again. Since the ban on tobacco advertising, despite the decline in smoking, it seems like it is calcifying the existing moats. People keep smoking and if they don't see ads for other brands, there is no social pressure to switch. And ditto for R&D in tobacco. They bought into companies that make vaping products because tobacco is not very innovative. The last piece of "tech" introduced by a tobacco company was the flip top lid in a cigarette pack. So if the moat wasn't so powerful, the lack of R&D could have invited an innovative competitor to disrupt them. Eventually vaping happened, but for decades they just chugged along and made money without having to develop new products because no one was foolish enough to try start a new tobacco company. I heard performance psychologist Gio Valiante say that "beliefs blind your observation." Railroads were terrible for a hundred years, but then when they weren't most people didn't notice because they had a belief about them that prevented them from looking at it with fresh eyes. Ditto about the consolidation in the aircraft and chip industries. I have some energy, shipping, and other things that hopefully have a better near future than recent past, but maybe the reason I was able to get in cheap is because of people's beliefs about the industry. The other possibility is that they are still cheap because I'm wrong, which would not be a good alternative theory. John Neff's "measured participation" method seems to be a good way to split the difference.

Sold the few shares of VTS that I have in my IRA (still holding all my shares in my taxable account for at least a full year). Up 50% in 8 months. Nice work if you can get it It had a nice little pop today , people probably noticed that a director bought more shares http://openinsider.com/search?q=vts and it's not a big company, so it doesn't take much to move the price. The dividend is great and it may still have more upside, but my IRA is tax free, so why not take some chips off the table. A lot of their production is hedged so they weren't hurt too much when oil prices dropped, and probably won't knock the cover off the ball if oil prices go up.

I was thinking recently about Buffett (and some others like Tom Russo) who have a penchant for brands. Sees Candy doesn't take much capex (it doesn't grow) and just kicks off cash every year. Ditto for KO, which owns the Coke brand, the costs are borne by the bottlers. Both have great moats. Car companies and fashion brands are recognizable, but they aren't really moaty. Each car company must design new cars and spend capex to improve cars every year. And a fashion brand that stops advertising quickly loses it's appeal. The ability to raise prices in an inflationary environment is evidence of a moat. But what about the ability to operate for years without spending a lot of capex, isn't that evidence of a moat? What does KO have to do to stay in business besides cashing their checks every year? I was thinking about this recently when looking at an ammo company. Gun companies, like Smith and Wesson, have to come up with new models every year, like car companies, but bullets are just bullets. So it would seem like gun companies are like car companies. Wouldn't a respected ammunition brand be a moaty business because it doesn't require capex and can command more $$$ than no name range ammunition? I looked at SWBI and RGR to see how much they spend per year in R&D capex. RGR spends about $20mm total capex and R&D is about $8mm. SWBI capex is bloated now b/c of the new factory costs, but the R&D capex is also about $7-8mm per year. I realized that it's not a huge amount for two of the biggest brands. Smaller brands, who (are private and we don't have the numbers) have to spread that cost over fewer sales, so the % cost is likely a lot higher. So is this evidence for the strength of their brand moat? I.e. that they can spend so little on R&D and still run circles around the competition for the mid/high end sales. Somethings are not brands, but obviously have moats that don't require a lot of capex (patented drugs, FCC licenses, lowest cost commodity producers etc.) I wonder if there are other ones out there that I'm not seeing. Just thinking out loud here.

I'm embarrassed to say that in my young and foolish 20s I dabbled a bit in this and couldn't get it to work. I studied various things including books on technical analysis methods like japanese candlesticks and other TA stuff. I subscribed to Investor's Business Daily and studied the CANSLIM method. One problem with technical analysis is that it's subjective. It looks like a head and shoulders pattern, but it doesn't work. So afterwards, some wizard will point out why it LOOKS like a head and shoulders, but actually it isn't. This is "no true Scottsman" fallacy. If there was something objective about it you could program some computer to do it for you. Another problem is that if you are looking for a pattern, whether you are using a daily, weekly, or monthly price chart will give you different answers. So which one are you supposed to use? what if they give different answers? The biggest problem is that people who subscribe to this are usually not lone alchemists sitting in front of their screens trying to create their own magic. They either share with other members of the true religion or pay for trading signals where a master tells the Jedi trainee what to buy and sell. And if you have a lot of people buying / selling at the same time, it looks like it's working, but it's just a bunch of pikers getting bad fills and slippage and thinking the magic beads work. The arguably good counterpoint is that IF you have already done the fundamental work and your technical analysis makes you more confident in your work, that might be a benefit. "It looks cheap, but I was not sure whether to buy today. However, the magic squiggles give me confidence." In Thai kickboxing, the fighters wear magic headbands and armbands and do a ritual dance before a bout. I can assure you it does nothing to protect you (especially since the other guy has the same thing), but if it gives you the courage to see the ring and a scary guy waiting to kick you in the face, and not turn around and head back to the locker room, then it's done it's job.

One of my small positions is a company called Anterix, which has FCC approval to use part of their bandwidth for private 4G LTE for utilities to do Internet of things. One of the use cases is that it can detect when a line breaks then remotely turn of the power to the downed line before it even reaches the ground. Maybe this will speed up adoption of the technology?

This company is down for $40 to $12 yesterday, and is up about 15% today on this news: https://finance.yahoo.com/news/hawaiian-electric-takes-expert-help-112122259.html Hawaiian Electric said in the filing that unlike in California, there was no precedent in Hawaii of applying an "inverse condemnation" to a private party like an investor-owned utility. An "inverse condemnation" exposes California utilities to liabilities from wildfires regardless of their negligence, as long as their equipment is involved. I don't think this means what they think it means. They didn't say "Hawaii courts don't recognize [i.e. have rejected] the inverse condemnation legal doctrine." It said that there is no precedent for it in Hawaii. If the plaintiff's win, there will be a precedent. Maybe the state will provide aid to those affected in exchange for not suing the utility, but this is a stretch. And even IF the court's say that the utility is not liable regardless of negligence, as long as it was caused by your equipment, they still might have been negligent. After they heard about the California wildfires, they had years to harden their infrastructure to prevent the same thing from happening. I've never worked with anyone from Hawaiian Electric, but I did have a client who is an electric utility on one of the other islands. And lets just say that I wasn't bowled over by their ability to dot every "I" and cross every "T".

picked up a few more shares of NTDOY

Picked up some NTDOY

The lines are much worse at the US/Mexican border crossing. If by "freely", you mean going across some section of unguarded border, you a free to try to swim Lake Michigan or drive from Calgary towards the border and attempt a mountain crossing on foot. I should warn you, the amount of people who die trying to cross the desert into the US to avoid the manned borders is not small. Maybe swimming Lake Michigan would have a higher survival rate, who knows?

Revson, the founder of Revlon used to say "we don't sell lipstick, we sell dreams" and "our stores don't sell perfume. Our factories make perfume, our stores sell hope." These crazy SPACs and IPOs are just selling people what they buy when they buy lottery tickets. A way to snap your fingers and get rich.

I haven't seen this posted about even though it was a couple of months ago: Concerned Shareholder Urges BlackBerry Board to Guard Against Unfair Buyout Bids and Oppose Watsa as Director as Board Considers Strategic Alternatives https://finance.yahoo.com/news/concerned-shareholder-urges-blackberry-board-140300075.html As a Fairfax shareholder, I hope it works out because that money has been parked in BB for a long time in something that was fairly speculative. I don't blame the guy for thinking he's going to get low balled in a take under. It literally happened to a lot us with ATCO last year.

Added a little NTDOY and FRFHF

It's no secret that for many investors, including myself, their Achilles heel is their stomach, not their head. So anything I can do to help with that like having trading rules (don't sell this position for 3 years; don't check what the market is doing during trading hours unless you have cash to trade etc) is helpful. When I was looking for a headphone stand so I don't leave my equipment on the couch like a hobo, I almost bought a Mexican day of the dead colorful skull to hold my headphones, but the skull doesn't have a nose so it won't work to hold my glasses too. But when I saw these I knew that the universe had sent me a sign. The only drawbacks are that I should have ordered white, but gray was on sale and I'm a value guy. And I should absolutely have warned my better half that these were coming. Because when I heard "Ahhh , what the fcuk!! " from the living room, I realized that seeing two of these through a layer of bubble wrap looked like someone mailed me two severed human heads. Live and learn! Whether it not these will help my performance remains to be seen.