premfan

It is only possible because of this board, but anyways here's what Fidelity is telling me for the RothIRA -- they have, as of the end of January, been tracking my performance for exactly 10 years: Wow Eric great work! When valuing the companies was tangible book value the main metric you used to know that its undervalued?

Just ordered the book. The cheapest one left was 1.93 + shipping costs. Looks like 5 forum members bought the book before me! My family has experience somewhat scaling apartment complexes. My dad came to the US in 1979 and bought a apartment complex for lower income residents in NYC in 1983. He told me that back then it wasnt hard to find apartment complexes that were yielding a 20 plus cap rate. Back then the city was in the dumps. Full of crime and banks wouldn't lend to anyone. He finally convinced this bank in chinatown to lend him money. He accumalated units until 1998 when he sold out. He mentioned during the late eighties the city started enforcing rent control. A couple points he made 1.) Buy the best location even when its alot of crime and dangerous 2.) Buy crappy buildings that make cash flow then redevelop the property to charge higher rent rates 3.) Scale as fast as possible. The problem i see now is that asset prices for real estate are high relative to what it earns. Apartment complexes are overvalued at least in denver. When rates rise and if the debt isnt fixed for an extended period of time. Its going to be tough for owners to pay the mortage cause i cant see how much faster rent rates can be increased. I'm looking forward to reading this book cause i would prefer owning real estate assets and scaling that up.

Update : I decided that not to make the deal on the hotel. Factoring in hiring an consultant to run the hotel. The return would be minimal to justify the effort. I do have someone coming in to operate my business sometime in may where its a 50/50 collections split. With an option to buy after certain metrics have been met. I feel I need to control an asset that's somewhat passive. Nothing is really passive in the real world but, I would like my business not to be completely dependent on me operating it. I'm looking to become a franchisee in an up and coming brand. I even looked at steak n stake lol. Apartment complex was next on the list but, the returns are not enough to justify the capital investment. Cap rates in Denver are pretty low like in the 7 percent range. I cant see how rent rates can be increased in the future to justify higher income. Rents are pretty high here already.

Buying companies on the cheap that have strong brands is the holy grail in investing. Buffet states during inflation brands are your friends and asset heavy businesses are the enemy. Knowing that strong brands can : 1.) increase prices in a stealth way to the consumers without much drop in volume I'm looking for ways to quantitatively value a brands strength. This is what I have so far: 1.) net income/net tangible asset 2.) If retained earnings higher than equity we are dealing with a strong brand Using IBM vs Coke as examples: In 2012 IBM has a net income of 16.6 billion/ net tangible asset of 14 billion. Giving it a ratio of 118 percent. This means for every dollar worth of tangible asset it makes 1.18 dollars off of it. This is amazing. 2012 Coke net income 9.1/ net tangible asset of 14.5 billion. Ratio of 62.7 percent. Coke makes 62.7 cents off of each dollar in tangible asset. Very good. Using this quantitative measure ibm has a stronger brand than coke. An observation I have noticed is most tech companies are asset light and have strong brands. The issue is its impossible to know if its durable. So you have to factor that in measuring relative brand strength. Do you guys have any other ways to quantitatively measure brand strength?

well done sir.

Having hobbies and other things to focus on is key when you see no fat pitches. Focus and set goals in other areas of your life. Diversify your interests a bit more and explore your town or city ( go to groupon.com for good deals on fun stuff to do). As Mr. Pabrai says be a man of leisure. The market is here to serve you. If you see no fat pitches: 1.) Look harder for fat pitches 2.) Make goals in other areas in life ( Maybe want to get leaner for summertime) 3.) Go over your list and read the annual reports of companies you have a conviction in that might be creeping towards a potential buy.

Well, it is a even more fantastic reminder of why we should be slow to believe in OUR investment capabilities!! ;) It is easy to deceive ourselves into thinking that, just by emulating Mr. Buffett or Mr. Watsa, we will get outstanding investment results… when the truth is most probably we will never completely understand the true secret of their very personal success! Because every one of them is an original, even if they certainly share common beliefs and ideas. giofranchi “As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes Self belief is the most important aspect of any type of success. Its the 80/20 rule. The real winners are the 20 percent of the players in the game . Not everyone can be an all star thats okay. What matters is do you enjoy playing the game. Is investing a healthy habit. The more i read about the greats in investing ( and on the forum here ) the more i'm convinced the secret to be the best is intuition. Its a gut feeling when to go " all in" or take a step back and reverse course. I wouldnt even say its temperament( although its very important). They know how to make money and know what a good deal looks like. Its more than saying you are a contrarian. Thats just a label and intrinsically means nothing. Its the greatness or essence in them that fully aligns them to make money. Yes there are rules and guidelines. But the greats have that innate ability to make seemingly make "risky" bets feel normal and natural. They get excited when that opportunity comes. They act quickly because they KNOW its a great deal. Reading is great, have rules/guidelines, and reverse engineering are all wonderful. But, to be in a different class there comes a time where you have to act quickly to a opportunity bet big where the whole world is seemingly against you. Thats what makes money. Betting Big when the world is against you. This ultimately comes down to your intuition and no excel sheet with formulas.

Great Great find!

My take on EGD: - The catalyst that I see is in 1.5 years the Bertram earnings will go straight to the bottom line. - The market consensus is one of distrust because of the bought deal and the lack of financing from the juniors causing lack of demand for drilling. This is not top of the cycle behavior. - The company is insanely cheap based on the earnings power in 2015. The market cap is 90 percent of 2012 revenue. This is a high margin business and its still growing ( even though it has been a horrendous year for drilling demand). - Assuming crappy growth like 10 revenue growth which is horrible for energold. I see a base of 0.50 cents a share. This is a very conservative estimate. Its currently trading at 5x 2015 earnings. Negatives - The acquisitions have been great but, the dilution is a concern - Will management learn from their previous errors with the capital markets Increased my position by 200 percent recently. What is everyone else's take on EGD lately?

Morgan, This is what I was thinking as well. I'm currently a owner/operator in a wellness office. It does well but, it requires me to be there all the time. I was looking to get into something more passive. The wellness office requires me to sell a lot and always be on "stage". I literally have to be "on" every moment to gain the trust and rapport with my clients. Also its not really a scalable business. Reading everyone's messages it seems the only way to make this work is to do it the patel way. Going all in and using the cash flow from the property to put a down payment in other ones. Keep rinse and repeating. I don't have the network that patels have like their family and relatives. Only way to make this work would be to use management services which would give me a rate of return of about 6 percent :(. Thank you for all the suggestions guys! This board is awesome!

Depends. If you have good management in place, then yes, it could operate quite well with you only on site some of the time. At the same time, being on site only on occasion, also opens you up to considerable fraud or theft if you are incorrect in your judgement. Not to mention your hotel's reputation for service, cleanliness, friendliness, occupancy and execution. I have a friend who owns a hotel about five hours from Vancouver. He lives in North Vancouver, but he is on site usually for two weeks of the month, even though he has good management in place. He has to be there and much of the administrative and book-keeping work is done on site, so it occupys a considerable portion of his life. He has a wife and two young children as well, so he's a very, very busy guy. You should also consider what competition is around you as far as the hotel is concerned. My friend's hotel is really the only hotel on the lake in the immediate area, and he owns the largest marina there, which is attached to his hotel property. So, his hotel has certain amenities that the competition cannot provide, since that zoning is not available in the future for any other properties near his hotel. Cheers! Thank you for the advice parsad. I'm thinking 2 days to manage the hotel isnt realistic. I have some choices to make if i want to do the deal. I've been interested in hotels for some time and a big obstacle seems to be making the jump from owning one or two hotels and being there all the time, to creating a larger chain and having other people run it mostly. As Parsad says, getting quality and trustworthy management is key. Just out of curiosity premfan, how big is the hotel you're looking at? I always find it interesting to think about the numbers... The gross revenue is in the low 500,00k Its on the market for 2x gross revenue It nets between 120-140k The guy runs a really lean hotel so i'm thinking i cant add any value there. The things i add some value to is there is a vacant bar/resturant space in the hotel. I can lease that and make some additional income. The hotel needs some work though. So 20-25 percent of net income would go to improvement of the property. This leaves me with about 100k cash flow. Its looking like the property will go in the mid 900k's. 60 plus units. PS. I have noticed hotel prices have gone down since 2009. It hasnt reached a bottom yet Is it just me, or does this sound like a basket-case? Annual Gross revenue of $500k/365 days per year = $1,370 per night. Nightly gross of $1,370/$100 nightly room charge = 13.7 rooms occupied per night Nightly Occupancy of 13.7/60 units = 22.8% average occupancy rate? What doesn't add up here? Stubble, Its an economy brand and its in a rural area. Room rates are in the mid 50's. Very good point! I would have to research management fees and see whats going to be left over. I'm guessing the area this hotel in isn't $100 per night average rate, not that it matters much. If it were $75 per night we'd be talking maybe 1/3 occupied, and for $75 unless this is an extremely rural area I'd be worried about damages from guests. To someone else's point maybe you're not looking at the right books? The real world investments are fascinating. Ultimately the price is 9x cash flow on this thing for a private illiquid deal. This speaks volumes, especially when I see a stock trading at 3x FCF and someone tells me the price is appropriate because the stock is illiquid. I've looked at a ton of hotel development deals. There are three things I generally dislike about them: 1) Heavy price competition. Hotels (within each tier) have very little pricing power. 2) Required capex every seven years or so for franchised hotels 3) Heavy debt loads required for decent returns. Many people tell me their goal is to operate breakeven on a cash flow basis and profit when they sell it. I don't know... Good points. Thank you for the info.

Depends. If you have good management in place, then yes, it could operate quite well with you only on site some of the time. At the same time, being on site only on occasion, also opens you up to considerable fraud or theft if you are incorrect in your judgement. Not to mention your hotel's reputation for service, cleanliness, friendliness, occupancy and execution. I have a friend who owns a hotel about five hours from Vancouver. He lives in North Vancouver, but he is on site usually for two weeks of the month, even though he has good management in place. He has to be there and much of the administrative and book-keeping work is done on site, so it occupys a considerable portion of his life. He has a wife and two young children as well, so he's a very, very busy guy. You should also consider what competition is around you as far as the hotel is concerned. My friend's hotel is really the only hotel on the lake in the immediate area, and he owns the largest marina there, which is attached to his hotel property. So, his hotel has certain amenities that the competition cannot provide, since that zoning is not available in the future for any other properties near his hotel. Cheers! Thank you for the advice parsad. I'm thinking 2 days to manage the hotel isnt realistic. I have some choices to make if i want to do the deal. I've been interested in hotels for some time and a big obstacle seems to be making the jump from owning one or two hotels and being there all the time, to creating a larger chain and having other people run it mostly. As Parsad says, getting quality and trustworthy management is key. Just out of curiosity premfan, how big is the hotel you're looking at? I always find it interesting to think about the numbers... The gross revenue is in the low 500,00k Its on the market for 2x gross revenue It nets between 120-140k The guy runs a really lean hotel so i'm thinking i cant add any value there. The things i add some value to is there is a vacant bar/resturant space in the hotel. I can lease that and make some additional income. The hotel needs some work though. So 20-25 percent of net income would go to improvement of the property. This leaves me with about 100k cash flow. Its looking like the property will go in the mid 900k's. 60 plus units. PS. I have noticed hotel prices have gone down since 2009. It hasnt reached a bottom yet

Hi guys, I'm looking at buying a hotel property as a passive investment. The numbers work and the hotel staff live on site. The concern i have is i have other obligations and if i make the deal i'm only able to check out the property about 2 days a month. I have no experience managing a hotel. My family used to own some apt units awhile ago but, i'm thinking thats a different animal compared to being a hotel owner. Questions for any hotel owners or people that know hotel owners. 1.) Is managing a hotel really a passive investment? 2.) Is it realistic to only be onsite 2 days a month and still make it work? Thank you guys! Thank you guys!

Thats simple. To cure the debt problem with more debt I dont understand how it should work: so, either I am dumb, or it is too complicated. Probably, the former. :( giofranchi No, no, no. I think you choose not to understand since it does not conform to your view of the world. :) I do that all the time. On this particular issue, I have changed my own opinion on this a couple of years back. I would lay out my understanding briefly and you can point out where you disagree. I am talking just about US here. Consumers took out more debt than they can service over the past several years for a variety of reasons (housing bubble, easy loans, falling interest rates, central bank encouragement, stagnating wages, etc.). The financial crisis of 2008-2009 with falling asset prices, unemployment, etc made debt servicing more difficult for consumers who have logically pulled back from spending and started saving, thus beginning the process of reducing debt levels. The reduced spending by consumers creates headwinds for the economy resulting in sub par growth and also reduces government revenues. The government at this time can choose not to do much and just let nature take its course and let those who have recklessly borrowed more money suffer. The result would be that economy would take a much sharper downturn, housing and other assets deflate, bad banks get wiped out, lenders take haircuts on the money lent. Once this process works through, economy regains strength. The problem with this approach is that it would cause tremendous suffering. We are probably talking about GDP declines of peak to trough of something like 10-15%, unemployment shooting to 20%, etc. Jim Grant, Hussman, Rodriguez and many others think this should be the process that should be followed. There is a moral component to this line of reasoning. This approach has been argued as the quicker way to resolve the crisis, but we cannot be sure about that. We have tried this in 1929 with disastrous results. The other approach has been for Government to step in and try to take debt for a while as the consumer slowly deleverages. The Government does take on debt so Government spending would try to offset some of the reduction in spending by consumers. Monetary policy is kept as loose as possible via various mechanisms to allow borrowers to deleverage via lower interest rates or via higher inflation. We do know this is not sustainable for ever and this is not without risks. But this would be the best of the bad options. Vinod Lets keep it simple: Whoever makes the rules ultimately wins the game. Choose your players ( stocks or whatever), set YOUR rules, and play a game that you can win. In the macro world the rules keep changing. You cant play the game ( macro game) if you dont know the rules.

Beautiful. If i had to choose one book to read to build your career and personal relationships this would be it. Master this book for good and you WILL be the elite.

virtual value investing high five for the post!!

Being rational is a label that is useless. Everything is subjective and open to intereptation. Being rational would indicate that the person is completely objective. This is impossible cause even objective things have a bit of subjectivity to it.

Good stuff. So in the internet world things that appear stable are really unstable.

50 years is a long time to be thinking out. The question to ask is " What isnt going to change in ten years ?". This quote is from bezos and i think its one of the most profound questions because people are so wrapped up in everything changing in tech. Amazon= In ten years will customers want books at the highest prices and will they want it to arrive as late as possible. Amazon's core business wont change. Apple= Will customers want the ipad, ipod, and iphone in 10-15 years. Probadly not so apple has some short term and long term pressure. They have massive brand loyalty and "as of yet" there products are the most superior Google= Will people still want to navigate the web via search? Yes short term and probadly not in the long term. Also google pisses there customers off by constantly changing there algorithms. So in order safest business model to least 1.) Amazon 2.) Apple 3.) Google I can easily flip google and apple so 2 + 3 is debateable.

Sincerely, I wish I were so much of an idiot as Mr. Biglari is!! ;D Last year he increased investments 50%, BV per share 25%, investments grew from $6.9 million in 2008 to $378.6 million in 2012, SNS customer traffic is continuing to improve (albeit at a slower pace), and operating earnings per store are continuing to increase handsomely, the pursuing of the SNS franchising is also bearing fruits, with the first 40 international restaurants to open next year throughout the United Arab Emirates. No, to me he doesn’t sound like an idiot at all… Instead, he most certainly sounds like a bragging, arrogant, and overconfident entrepreneur… But here, of course, we must once again remember the difference between investors and entrepreneurs: the most successful investors tend to be intellectuals, very deep thinkers, while the most successful entrepreneurs tend to be… well, bragging, arrogant, and overconfident! Their bragging, arrogance, and overconfidence stems directly from all the energy and unrelenting persistence they put in each effort of theirs, and, consequently, from all the outstanding goals they achieve. The problem is that most entrepreneurs are fooled into thinking that energy and unrelenting persistence are all that really matters… So, they overlook culture, and most often remain ignorant and unsophisticated… Now, say what you want about Mr. Biglari, but I think nobody can label him as “ignorant” or “unsophisticated”. Instead, put together knowledge with energy and unrelenting persistence, and what you get is a hell of a businessman! That being said, I must admit that my judgment of Mr. Biglari might not be entirely rational… Mr. Biglari has created the “platform” that best resembles what I am also trying to do with my own firm. And, maybe, sometimes I unconsciously think: “If he fails, operating on a much larger scale and being in a much safer position than me, why should I succeed instead?”. That is an irrational thought, I know. But no one is entirely rational all the times, right? :-[ giofranchi I agree biglari is a GREAT businessman. Hes outstanding in optimization. In other words creating value in areas that didnt exist before. I still wouldnt invest in this " platform" cause his sole intention is to maximize use own wealth. Didnt buffet just say in a new article if money was his main influence he would have kept the 2/20 structure of his fund and not go into brk. People are usually influenced by one main thing money, status, or etc. Partnering up with people that value creating value ( optimization) is much superior than partnering with people that are influenced by money. This might sound the same money and optimization but its a HUGE distinction. Saying all that for the right price i would invest in a control company of biglari cause hes great at optimization of companies. Ackman is great too.

Floats/Moats > boats/hoes

Thank you for so much for posting this !!

coinstar

No one is 100 percent right all the time. If he is right 3 out of 10 that is considered good. Portfolio positioning should be directly measured on how superior YOU think you are. Its perception mixed with prior results. The more superior you think you are the more concentrated you can be. Most people are probadly not really good at investing so i'm thinking a portfolio size of 12-15 would be ideal for most morals.

Yeah you are right i forgot the rails and etc. The list was off the top of my head. The greatest indicator that i use for moats is emotional attachment for the product or service which is of course VERY subjective.