oddballstocks

Yes, very much so. Especially at the low end. I enjoy browsing Craigslist for cars and trucks, just browsing keeping pace with prices. The prices that people are asking for low end junkers is crazy. 17 year old Tacoma with 175k miles, $7k: http://pittsburgh.craigslist.org/cto/5730759423.html 16 year old Buick Le Sabre $3900: http://pittsburgh.craigslist.org/ctd/5733247620.html (this should be an $1800 car max) 14 year old Camry: 3500 note the hood won't close, obvious accident damage: http://pittsburgh.craigslist.org/cto/5730482118.html Prices for used cars at subprime lots are in the $7-10k range now. In the past they were typically in the $3-6k range. I should have just posted this and let it linger. 1998 Dodge Neon for $800, has a brand new motor (what else is bad..??) has 144k miles cracked dashboard covered with tape. Guarantee this thing shifts like a rock around 2nd or 3rd gear: http://pittsburgh.craigslist.org/cto/5714356377.html That's a crazy price. I remember looking at cars similar to this back before the crisis and they were in the $350 range.

Yes, it does. Although people losing their car(s) is obviously much different than losing their home. I doubt there will be much economic significance if a large number of people default on their auto payments. It was a typo, that's what happens when you take a break mid-response to go have breakfast and read a book. The fallout from this will be less than the housing crisis. Autos for most borrowers are good credits. Subprime is a small part of the market. My thought was when people start to default on their cars, especially people who can't afford to default on cars then it doesn't bode well for the economy as a whole. When we're talking about the poorest borrowers their car is their lifeline. Outside of major metro areas like NYC/DC/SF if you don't have a car you can't make money. People can find a place to stay at night easier than finding a new job. This is much worse than homes, the impact will be smaller, but it's a canary in the coal mine for other issues. Why do you think this will be much worse than homes, by which I assume you're referring to the housing crisis?

Yes, it does. Although people losing their car(s) is obviously much different than losing their home. I doubt there will be much economic significance if a large number of people default on their auto payments. When we're talking about the poorest borrowers their car is their lifeline. Outside of major metro areas like NYC/DC/SF if you don't have a car you can't make money. People can find a place to stay at night easier than finding a new job. This is much worse than homes, the impact will be smaller, but it's a canary in the coal mine for other issues.

His body gets stiff making it hard to move from sitting in that big giant easy chair reading 10-K's all day. I've found investment managers to to be the most accessible people on the planet. They sit around all day waiting for someone to call/email them with ideas or updates. Every other job is consumed by operational issues, investment guys are always on the hunt and if you have good ideas they always have time to talk.

Ha! Yes.. let me get on my soap box for a minute here. This is within the context of banking where I have the data to support this. There are about 1,000 banks with tickers (some rarely trade). One of the functions of our software is to build out valuations based on standard models for these banks. Then banks are ranked "undervalued, moderately undervalued, fairly valued, slightly overvalued, overvalued" based on the delta between their pre-computed IV and their trading price. I talk a lot about undervalued banks, but not all banks are undervalued, not even a majority, maybe 10-15% are undervalued. The rest are fairly or slightly overvalued. There are a few very overvalued outliers as well. Our model values banks in a way that bank investors value banks, so in some senses it's not surprising that banks are trading at fair value. But what's surprising is that the market is so efficient. For say 85% of bank stocks investors get it right. That means the question you need to ask of the other 15% is why isn't the market getting it right? Often the easiest answer is the stocks are too small and too illiquid to get right. Other times they're cleaning up old issues that investors don't believe will happen. Or my favorite, investors are burnt out with mediocre performance and are tired of waiting for the land of milk and honey. Investing is about two things, odds and expectations. It's the odds that a situation corrects itself or the odds that something happens. Hanover Foods at 30% of book value is cheap, but what are the odds it ever re-rates? The second factor on this is expectations. Hanover is at 30% of book because nearly 100% of the market is saying "I view the odds of Hanover re-rating to be 0%" In this way odds and expectations are intertwined and investing is simply finding situations where the odds are wrong. In large caps it's very unusual to find situations where the market has the odds wrong. In small caps there are a lot more opportunities to do so. If one isn't lugging around billions in AUM (and if you are why care about performance? You can write yourself a nice check and if you match the market live like a king) when it seems like common sense to find areas where the odds are egregiously wrong and just sit there and make money. I have a book on my bookshelf "Options as a Strategic Investment" The book details every option type and strategies to employ when trading options. In each section the author details how to find misplaced options, essentially spots where the odds are wrong. In my view buying mispriced odds on options is no different than value investing. The same could be said for real estate, for paintings, for oil stocks, for whatever.

Maybe buying large cap stocks that have value characteristics is dead, but otherwise things seem fine and well. I've noticed that value investing shifts, there is always some segment of the market that's cheap where traditional value metrics work. I've had a lot of success looking for low P/B, P/E, low-IV bank stocks over the past few years. Simply buying banks below book and selling them above is a simple and workable strategy. The problem is most value investors will say "I don't do banks" or "I don't do oil" or "I'm not into transportation stocks" or whatever else. And when you limit yourself you're blocking off whatever area of the market is cheap.

Just an FYI I am not involved with this going forward and won't be attending. That said Fred puts on a great conference that is well worth attending even if I'm not there. It's a great event to meet other investors and find some good potential investments. There is the promotional factor for some companies, but overall Fred has a good eye on picking companies to attend. Fred isn't picking pump and dumps like most conferences, he has a great eye for quality undervalued and off the radar names.

Why? The best part of a SOTP with public equities is you can actively hedge away any market risk. I didn't read this summary, but typically there's something where 4/5ths of the company is public and the 1/5th is basically undervalued or not valued. If the 4/5ths are public you buy the company shares, then short the public portion equal to the ownership interest relative to your position size. You'll have effectively created a stub of the portion you believe is undervalued. I get that there are carrying costs to this, but if the stub is selling for an extremely low valuation then the carry costs could be worth it. Being able to strip out the other parts and gain exposure to the most undervalued portion of the equity is extremely powerful. I don't know how many investors do this in practice, but the fact that it isn't popular doesn't diminish the power of it.

Luckily you don't need great performance from them to get a good return at the current price. Agreed. I worked at a place like this. Things like that indicate a sale might be in the future. If the CEO has essentially checked out already..

What your rate goes up because of asking too many credit reports? That's ridiculous. A clear sign of government intervention :( Yes, your credit score could be negatively impacted by too many credit pull requests in a period of time. This is why a broker can be good. They do one pull and then shop for rates for you. I've never had good luck going directly to banks. The rates were always higher and the people weren't as good to work with.

What I found doing this last year was you might be quoted a rate, but until underwriting is done there is no guarantee that you can actually get that rate. In terms of fees just prepare for them to be all over the place. You are either paying explicitly for the paperwork, or it's in the rate. Some banks can do this very cheaply. I know one that $250 flat for a refi. You need to shop, but there is an issue with that. If you shop too much you'll have too many credit report pulls and end up with a higher rate. It's a balancing act, getting enough info to get a good rate, but not too many hits that your rate tanks by trying to find a good one.

VaR (value at risk) was near perfect super computed mathematical model of risk right? How'd that work out in 2008....? If there is garbage data in the system (and any system with humans contains it because we're not rational and do weird things that don't make sense) then you can't predict anything with perfect accuracy.

Now the counterpoint to my last post. Some of these bank and CU's might be looking for growth. And they're looking for growth by doing what they've always done, open branches. There were 93,000 branches in the US in 2015, and 94,000 in 2014. In 2013 96,000 and 2012 97,000. There are still a LOT of branches, and the number isn't shrinking as rapidly as the number of banks. Meaning that most banks still see value in these branches.

I'm guessing you're a retail customer correct? Think about this differently. You own an excavation company. You have 10 dump trucks, a number of shovels, people, some land and steady work. You need a $800,000 loan for a new excavator. Where do you go? You can't get that loan online. You can only get it through a relationship with a banker in person. Where are those people? In branches. Branches also get you a foothold in a new market. A relative of my wife who owns a bank has talked about how he entered a number of new markets by buying existing branches. There are already relationships build and he can grow on top of that. I agree, I do almost all my banking online. But there are needs beyond basic checking and savings. For example if you wanted $10,000 in cash from an online bank or ATM you'd be going to the ATM for 20 days straight and withdrawing $500 at a time. Or you can walk into a branch and get it 15m later. I find myself in my bank's local branch for business banking needs, and large dollar needs. I'm not mailing the check from the closing of a house to an online bank to be cashed..

Happy Birthday!

Thanks for the shout-out Ben. First off enterprise value has no place with financials, it's a metric that's irrelevant and shouldn't be considered, especially with a bank like Synchrony. Second a sum of the parts isn't really appropriate either. It might seem unique at first blush that a bank has a number of different and potentially valuable product lines, that is until you realize that almost all banks have the same variations of those subsidiaries and product lines. There isn't much unique in banking. You can't just hive off a financial services arm, or a credit card processing arm. Maybe there are exceptions here and there, but in general think of a bank as one entire integrated unit. All parts work together. So with that said you're looking at deposits and funding? On a balance sheet deposits are clearly a liability, it's someone else's money that a bank is investing. But it's also the bank's greatest asset. It's a very cheap source of government backed funding. There is almost no risk to deposits, as long as a bank stays compliant on their FDIC insurance depositors have 100% protection up to limits, and a bank has this ongoing cheap source of funding as long as they offer a service that a customer might want and pay somewhat competitive rates. It seems like your question is how to value a bank. There are really three ways, in relation to peers and the market, ultimate take-out value, or a discount cash flow. Unless a bank is truly unusual all three of these values should be roughly equal. Relation to peers: Look at state and local peers that are the same size and see what they trade for. In general banks are at about 1.3x TBV right now. On an earnings basis about 15-17x earnings. If SYF trades in this range they'd be fairly valued on a relative basis. Secondly take-out value. This is the ultimate ceiling for intrinsic value, it's the highest and best value for the bank. Look at TTM earnings and then operating expenses with a estimate of after tax cost savings. Apply a multiple of 10x to the result. This is what the bank in theory could be acquired for and if the acquirer were to maximize cost savings. Things like duplicated staff, reduced IT expenses etc. Lastly is just a simple DDM, you have two phases, the current dividends projected into the future with growth and then a terminal stage. Make some assumptions about discount rates (10% is fine) and growth rates. I'll say this, about 85-90% of banks trade for the result of these three values. In a lot of ways it's really incredible, the market is really that efficient. If you put these values together and do a simple average that's 'fair value'. So the question is if the bank isn't trading for fair value why not? That's what you need to find. I haven't looked at Synchrony at all, but I know from industry literature they're LOVED for their commercial lending. Commercial lending can be great, it's like the financial advisor business. A lender brings their book with the them when they leave clients, and SYF has done a great job of pulling in lending officers. The upside is rates on commercial loans are higher on average. The downside is the bank is exposed to a lot more risk. If the economy hits the skids commercial loans take a hit. Most people would rather close their business verses lose their house. Especially because in many cases a bankruptcy doesn't actually destroy the business, it just wipes away the debt and puts the bank in control. If I remember correctly SYF is a new creation post-crisis. We don't really know about the quality of their commercial lending. Are these guys growing fast? Are they making stretch loans to hit growth targets? I was part of a very interesting debate at the Philly Microcap conference where a few bank experts believed SYF was complete crap, and there were others saying it was the second coming of banking. I think you really need to buy into the story of these guys. Do you love what they're doing? Are they changing banking? The only news I saw from them was they saw increased write-offs of 30-40bps. They expect to charge-off 4.7% of loans. I recognize that they are doing some credit cards, but this is a really high level. Contrast this to Discover's 2.4% charge-off rate, and the fact that in the industry Discover is historically known to have the lowest quality borrowers it's a warning sign for sure. The economy is doing well and they're notching 5%, what happens in a recession, will they hit 10%, 12%? If you're digging into these guys I'd be looking intently at the loan book, reserves, ALLL, capital and trends related to all of those. Model out some loss scenarios, model them out for 2-3 years and see what it looks like. Are they doing to have to raise preferred or something to make it through? Hope this helps.

Two companies have tried to buy my software company on the cheap. Both times I didn't sell. Savvy buyers, one buyers with deep pockets think they can push around smaller companies. But in most cases the smaller companies have decently intelligent founders and employees who aren't willing to dump their baby for peanuts. I wonder about the quality of companies that sell cheap. Wait, actually I don't, I worked for one. When you buy cheap you are buying problems. They are either apparent right away or take a year or two to manifest. If you aren't a software person you are likely the patsy at the table. You will get what you pay for. To do this right you essentially need to re-interview each engineer and rub them through the ringer. Would you hire them? Are they creative? Innovative? Just looking for a job? How well does the company ship products? What type of bugs exist? What's their development process? I get that Constellation probably doesn't care about this. They are buying anything and everything and somehow paying really cheap prices when the industry itself is inflated..hmmm..anyways having industry knowledge is key. I know some people who've tried to get software off the ground for years and it always fails. Likewise those who know the industry and development continually ship product. You are buying customers, a market presence as well as intellectual property. My sense is that buyers always write IP to zero giving it no value. What happens is the people who created the IP walk out the door and the buyer is left holding the bag. I've seen this over and over. Best of luck! It's hard buying in a hot market. Maybe you have a secret source of good deals.

I partially disagree with this. I think what you say is true for tech companies. But if you tried to start a new Walmart, Home Depot, Fastenal, I doubt that you'd get easy VC funding. Do you have any examples of non-tech space companies: retailers, restaurants, distributors, non-tech household items manufacturers, etc. who would easily get to unicorn without going public? I'm not talking about online-only retailers like Jet. I have a friend who works for a VC fund in Pittsburgh here. They have an entire fund devoted to non-tech companies. They're "hard" companies in the sense they have real products, stores, locations etc. This is one of the most promising areas for them, there are a LOT of ideas and not enough funding. I agree with premfan, growth has been sucked up by angels and VC's. The public markets have done it to themselves. The regulation and burdens on companies are too costly for smaller startup companies. Additionally we have a shadow market of funding that has come in to fill the gap. When I met with a funding lawyer I asked him about the mechanics of the transaction. He said I send an investor a prospectus, and they wire me money, that was it, nothing more, nothing less. All I had to pay for was the prospectus so that I was legally protected. It was cheap and simple, almost too simple. A few paper forms and I could raise as much money as people would give me. In theory this is what IPO's used to be. Now an IPO is extremely expensive, and even staying legal as a public company is very expensive. Too expensive for many of the small names I like to follow.

Let's take it a step further then because I think this is a good line of thinking. What are the companies in the 10-100M mcap range? They're old ruddy duddy companies that don't have much potential. Or they're hyped up brand new revolutionary change the world fantasies. The companies in this range that are true compounders are still private. They're the tech companies everyone here loves to crap on because "they're too hard to understand." Venture capital has stolen most potential for investor return by being there at the start. The SEC takes blame as well. VC didn't exist in its current form 25-30 years ago, or even longer when Buffett was doing this. If a person had an idea they could do a small IPO to raise capital. Now there are angel funds, there are VC funds, there are private investors. There is such a large network of people with money that want to invest it's almost pointless for a company to go public. I've looked at this myself with my own company. I considered raising capital for a while and spoke to a number of people. In theory I could have done an IPO, but why? It's costly, I'd have regulation, and the public investor who own shares wouldn't do squat for me. Verses going with a VC or investor they could provide advice, contacts and connections that would be helpful and move the ball forward. There is also only one or two investors to please rather than hundreds or thousands, and it would still be private. I don't think there's much of an incentive to be public anymore. What we get are crazy compounders going public after the best time to invest is gone. Think of Facebook, great returns on capital if you're a VC. I don't know what this means, but taking the very long view I think investing is changing dramatically. The tiny small companies that I love to invest in will probably cease to exist in the next twenty years. The number of dark companies is falling off the map quickly. Most of these companies have older execs who will end up selling to a private company. This will leave the small caps to the over hyped crap companies. Then at the mid and top tier you have all of the growth companies who's growth is slowing where the Founder or VC wants to exit, gain liquidity and dump their shares on the public market. If we fast forward I think what we're going to be left with is a market of mid to larger companies whose best growth is far behind them. It's really hard to get excited about investing in a market like that. Maybe investors will leave quickly and there will be bargains? I don't know. I could also see a scenario where a number of companies continue to go private and the market becomes a shadow of itself as well.

I'd like to see more people walking around rambo-style with guns and ammo strapped to their person with provoking t-shirts with sayings like "I hate all xyz people" and see what happens. Maybe there's a relationship to stature and number of guns? The guy with the full arsenal is also 4' 7" and drives a truck with a 15" lift?

Designated driver should also be the designated carrier. I've been to and carried in such places (clubs, not gay bars :), not that there is anything wrong with that). I don't know if you've ever carried a firearm, but it changes the way you behave completely. I am less likely to blow the horn on my car when driving, I notice that I keep more of a distance between my car and the car in front of me and more likely to let everyone else go at intersections and such. I am much more likely to avoid even the most egregious antagonization from someone who's had too much to drink, and I never drink at all myself. Carrying a firearm is an enormous responsibility and the vast majority of people treat it as such. If you ever use your firearm every action you take in the moment and every action which preceded it, and every action you take after it will be endlessly gone over by the police, prosecutors (and if all goes wrong, a jury) after the fact with plenty of time to analyze and re-analyze every thing you said and did. If you've never carried and you start carrying you will even shock yourself at the effect it has on your actions and level of aggressiveness. You think about everything you do and say. You try to reduce the chance of any confrontation at all, however minor, to zero. In short you behave as civilized people should behave anyway, but don't always. An armed society is a polite society. Have heard this from someone, he said when he carried he became so paranoid that he eventually stopped carrying. Worked with a guy who carried and the gun changed him to the point where every person walking down the street during daylight suddenly became a thug who was out to get him. If you walked towards the guy he was likely to grab for his gun fearing being attacked. These are just anecdotes. It doesn't bother me to see people carry guns, but I don't do it myself. To whomever's point about taking over the populace. I have heard the stat that on opening day there are more people in PA with guns in their hand than any standing army in the world. Another odd and fascinating point is (based on my interactions) that the majority of the US military seems anti-government. Agencies such as the FBI, Homeland Security etc have employees who are very pro-system, pro-government. But based on my interaction with a variety of people both current and past who are/were in the military is that the vast majority, and it's a high majority are very anti-government. They're pro-military, but anti big-government anti pro-system etc.

Oddball, Curious why you mentioned VULC? I own some shares and have tried to get in touch with mgmt to get full financials etc. Left voicemails, wrote emails and all I got was radio silence. Lloyd is a huge investor with VULC. Has been involved in lawsuits for almost a decade, was a Director at one point. Search PACER, lots of law filings between the two. I'm connected with a number of VULC investors who have the financials and additional information. Send me an email or PM.

This is a good point, as a content producer I've noticed a shift as well. People want more voice/video. If I'm taking a road trip (has to be alone, wife has no tolerance for this) I will download a lot of podcasts and just listen. Sometimes it's akin to listening to sports talk radio, a lot of talk about nothing. But other times I'm on the edge of my seat, entertained and learning. You take the good with the bad, but it's a nice format.

I subscribed to the WSJ for years but eventually grew frustrated at the horrible delivery and cancelled. I would randomly miss a few days and then the paper carrier would deliver them all at once. There were multiple occasions that my delivery would stop for a week or more then suddenly start back up. It was extremely inconsistent. Then I loved the audacity of the newspaper person who'd deliver this giant card asking for a big Christmas tip. The WSJ at first would credit me with missed papers, then they just gave up, and so did I.

I started to write a blog post about this a few months ago, but since everyone has so much to read it probably wouldn't get read...:) Here are my thoughts on this. I used to read a LOT, but now I do a lot and read much less. I find doing is better than reading, reading just puts off doing. I'm a sap for Bloomberg News, Google News, linkfests, anything curated with good content. I'll find myself wasting a day or sometimes a week just reading stuff that feels good in the moment, but is rarely actionable later. I gave up the news almost two years ago, went cold turkey. Gave up looking at stock quotes, gave up a ton of 'good' sites as well. They sucked up my time. Now I only go searching for information that answers a question. Instead of mindlessly reading the business news I go the other way. I find an interesting investment idea then read news about it, or news that would pertain to it. I will search for relevant articles, most aren't current, but I find reading old news gives a good perspective on issues. Sometimes people post about current things on Twitter, I'll casually look at an article or two, but then I limit myself. In a way I think news/infoporn etc is really almost an addiction. I would read and read and feel like I should read more before doing something. As if reading everything written could solve my problem before I tried to tackle it. I've learned that instead there is a base level of knowledge you need to learn to function, and beyond that you only need to know items relevant to what you're working on. If this endless reading is viewed as an addiction it can be treated as such. If I had a problem with booze I wouldn't go into a bar, likewise I don't navigate to news sites. I know if I go to Bloomberg News I'll just start to endlessly read. I've heard the analogy that modern news is like junk food. You always want more and it's never filling. We're just filling our brains with cheetos and popcorn and thinking it's great because it tastes so good. This view is complete heresy here. I know everyone else has blocked out their day to sit in an armchair and read. That's all well and good. Those hours you're reading I'm building something, or talking on the phone (information that's HIGHLY valuable and doesn't exist online), or selling, or writing (for others to read!). Reading is fun, but I view it as leisure. I am reading How Google Works at night. I just finished Peter Jenkins' A Walk Across America. I don't watch TV, I'll read a book, or do something around the house instead. But like I said, I'm weird. I find "real" work (building things, home improvement, auto repair) therapeutic after doing a knowledge job all day. There was a point in my life I probably read 3-4 hours a day, then spent more time following the news etc. I accomplished much less than and I was also unhealthy. Maybe I associate heavy reading with lots of sitting and weight gain, I don't know. This doesn't work for everyone. But this is just the experience of a natural reader or shall I say a former reading addict. I love to read, have always loved it, but I let it grow out of control. I've since reigned it in and life is better.