oddballstocks

I wrote three posts on this a while back: http://www.oddballstocks.com/2013/02/a-banking-primer.html http://www.oddballstocks.com/2013/08/a-banking-primer-part-2.html http://www.oddballstocks.com/2013/09/banking-primer-part-3-first-northern.html

Who cares? Munger likes it, it's like a blessing from God, ignore actual results, just be blinded by the Munger approval. Now if Buffett would bless them then CF Braun could do no wrong, they'd be the holy grail of companies.

This is a good rant. I've been doing a podcast over the past few months and have learned a lot. First off you need a good mic, spend up for a mic. Secondly on the keyboard. My co-host constantly gets on me case about this. I figured out the issue. I had the mic stand on the same desk as the keyboard. Any keyboard movements were transmitted into the mic. I have a little isolation pad, plus muting is key. Podcasting is fun, I've enjoyed interviewing investors more than I ever expected. A few hundred dollars in equipment and an internet connection and you're good to go!

There are 5,441 commercial banks in the US as of Q2 2015 (https://ycharts.com/indicators/us_number_of_commercial_banks). In Europe there are many more banks. Think about Latin America and Asia… Most of those banks issue credit cards and bear credit risk, don’t they? And most of those banks have established relationships with V/MA. It doesn’t not seem an easy thing to do to replace those established relationships, which have been hugely profitable for all the banks involved, with new relationships… But I might be wrong. If instead it is an easy thing to do, V/MA moats might shrink in the future. We will see. Cheers, Gio Gio, I think you misunderstand MA/V. There are 6,300 banks or so, but the actual banks aren't issuing credit cards. Sure they issue a card with their name on it, and the customer think they have a "First Bank of Smallville" credit card, but it's a branded relationship card. Say a small bank wants to do credit card lending. They buy a package from their core system to support it. This is the network effect. They receive MA or V cards. The bank itself didn't do much. They extend their balance sheet to an extent, but can even outsource that if they want. The value isn't the pipes, or encryption, or credit checks or anything, it's purely relationships. That's the value, it's the relationships and a trusted brand. The brand is so powerful that well read investors on this thread still aren't sure exactly what MA/V does. They just associate the logos with credit and cards. More than anything I think MA/V are simply brands. A new merchant starts, what do they need? They want a machine that takes V/MA and sometimes Amex, but Amex is optional, Discover an after thought. They trust those networks. Seems like everyone on here is more tuned in, hipper than the general population. Sure, a little boutique gourmet cupcake place will probably do ApplePay because the trendy customers might want it. But the value of Mastercard is I can be driving through the middle of Kansas and if I need car repairs I know the small town mechanic will accept my payment. Do small business owners in Manhattan, Kansas know what Apple Pay is? I know some very intelligent individuals who still marvel at "the little white thing on an iPad that takes cards" and we think Square is passé. Maybe these businesses are dead. The thing is world-wide acceptance at the lowest common denominator takes a LONG time. If MA/V are dead today from ApplePay or the block chain it might take another 20 years before there's some payment system that I can use in Punxsutawney one day and then Leige the next. Credit cards started in the 1960s and they finally hit world wide acceptance at the lowest common denominator in the late 1990s. Are Apple and Google willing to stick with their payment plans grinding along for 30 years before they hit critical mass? Maybe, I don't know. The best way to think of MA/V are as clearing houses for banks.

Agreed. Had a discussion recently about entrepreneurs and one trait we discussed is how raw intelligence usually isn't necessary for success, but rather in inordinate amount of optimism is. Where I live I can think of a number of extremely successful entrepreneurs who weren't brainiacs, they are average people, who are optimistic, execute and don't give up. It's unpopular on here, but there is probably a risk of being too educated. Intelligence doesn't garner riches, if it did the Forbes 400 would be filled with professors. Sometimes intelligence can be a hinderance because it lets a person see real risks better than the optimist entrepreneur who just charges forward and figures things out as they go. This is probably why a lot of businesses fail too.

Had a bad plan at a small company years ago. They charged a service fee quarterly, plus a % of assets fee at the end of the year capped at 5%. I brought this up to management, they said I shouldn't be reading the fine print, and the company probably wouldn't charge it, that it was just there for legal reasons. This bad 401k also had high expense funds. Someone could have had the following: $10,000 invested in a fund with a 2-3% expense ratio. There was the underlying expense ratio then the fund admin cost layered on top. The S&P fund was over 1% if I remember correctly. Then a 5% surcharge each year A quarterly fee of $25 or so $200 expense ratio $500 asset fee $100 quarterly fee $800 in fees, that's 8% off the top. The only reason to be in this plan was the employer match. Once you received the match the funds started to whittle away at what was in there quickly. Anything less than an 8% return and you're losing money each year.

So, let's invert: if you don't phone oddballstocks and/or management, you have 40% handicap on a small cap. Suddenly mega caps look much more level playing field. 8) I would disagree here. Have you ever talked to some of the sell-side guys on a name, or analysts who cover large caps? These guys know leagues beyond what could ever be knowable by any individual. They have access to management that individuals don't either. You can call the CFO of George Risk Industries and they'll pick up the phone and talk to an individual. Try setting up a phone call with the CFO of Valleant. It's much easier to gain an informational advantage in a large cap because there are so many people in the company and tangentially related to the company. If a small company won't talk that's it. But at a large company you might have 15,000 employees that you can attempt to gather scuttlebutt from. Sometimes things that surprise the market are "known" to anyone who works at the company or interacts with it. All of this said I firmly believe that an individual who simply reads annual/quarterly reports for small companies and invests with a process can earn superior returns. No need to call management, no need to find other well informed investors, no need for any of that.

I've worked with people at large and small companies. If Spier thinks management is "better" at a large company due to size he's clearly never worked at a mega-cap. Mega-cap management is often more political. Those who survive can navigate internal politics. At small companies results matter. If you are insufferable but the sales king, you stick around. I have seen absolutely terrible non-performers protected at large companies because they've built alliances. Knew a guy at a small company who was storied..at one point threw up in the CEO's car from drinking, emailed the entire company ranting, yet made it rain and the CEO did everything possible to keep him. Regarding advantages and who you're investing against. Some do have advantages, by writing I've met a lot of other investors and learned a lot about this market. Is that an advantage? In many situations it is. For example I'm putting together a piece about a company where I have spoken with the largest outside shareholder (owns 40%) multiple times. He's owned since I was in elementary school, there's a wealth of knowledge from talking to him. I'll temper this with the idea that you don't necessarily need to know this to do well. You just need to be able to identify bargains, purchase and sit patiently. Here's the other thing about small companies, the space is small. If you put yourself out there pretty soon you'll get to know all the players. People buy and sell for many reasons. Some sell for estate planning, others fatigue. I know this is a forum and we're all on the Internet, but I've found I've learned the most when I've picked up the phone. I'd say maybe 40% of small cap knowledge isn't online, it's tribal, passed between people who've either learned on their own or been taught. There are so many people with so much knowledge who are willing to talk, you just need to make yourself available. Some will talk for hours, and then call again to talk for hours again!

Travis, great points. On the cars, down in your neck of the woods my wife's cousin runs a car dealer that focuses on a specific type of car he's passionate about: http://www.sevenhillsmotorcars.com/ My brother is a musician (plays bass) and started to do this at one point as well. He'd buy high end amps on ebay and then resell them on craigslist for a multiple of it. At one point he was in sales for an audio engineering company. He said one of the company's largest dealers was a guy operating out of a condo in San Diego. He had a garage full of gear and he had insanely high turnover all from selling online. My brother's boss at the audio engineering company also bought and sold on the side. This guy found his niche in Fender Strat guitars made in Mexico. The market for American made strats is somewhat stable, but Mexican is all over the map. He'd buy low on craigslist, re-word the copy and sell high. He said he liked to do a few guitars each weekend and pick up between $1-2k in profit. In terms of scaling you can't scale the guitar resell business. Maybe you sit around and only work a few hours on weekends and make $50-80k a year, but that's it. It's a nice salary for essentially arbitrage, and it can fund doing other things, but you won't be a millionaire off of it.

Couldn't the converse question be asked: "Why are American companies allergic to paying shareholders dividends. European companies mostly pay dividends and have generous policies in place, why don't American companies?" I believe the answer is it's cultural. Would you rather the management buy back shares at almost any value (what happens in the US), or the company pay out dividends and allow investors to repurchase shares if they wish?

Like what.... (not to be that guy ;), but the purpose of the thread was what are some of those business models.) A local custom home builder. Niche landscaping, or landscape supply. Monopoly on a supply business (plumbing, electrical etc). In a rural area barn builders do very well, same with self storage units. Met one guy who runs a "bee hunter" business. Makes $4-5k in a day, you need to be willing to put on a full body suit, tear into wall and destroy nests. Lucrative, sure, desirable, nope. Dealerships are a great small business, especially a tractor dealer in a rural area. You're granted a monopoly, parts are essential for farmers and they're expensive. Have an acquaintance of a friend who's grown a sizable plumbing business from zero by showing up on time and always answering the phone. A friend's brother has a custom cabinetry business that's the same. Always returns calls and shows up on time. He builds and installs cabinets in high end homes in Philly, it's physical, but great money. None of these can scale well. The dealers can, but that's about it.

My best advice is find something and just start. Might not be "the best" but just start and keep going. You'll eventually fall into a business that fits you. Don't jump into something because you could make a lot of money, do it because you enjoy it, or it interests you. Starting a business is slow, requires patience, and is trying. If you aren't interested in what you're doing it'll hard to keep going through the dry months.

There are a TON of businesses that make an owner, or an owner plus a few partners a LOT of money, but are locally restricted and not scalable. Some of the problem is a lot of investors on here have stars in their eyes and want to grow a pile of money to the 10's or 100's of millions range or more. There are a few well known models that support that. Otherwise find a niche and exploit it. I've talked to numerous entrepreneurs who are making great money in little niches. They aren't scalable though. Maybe you can ramp up to $500k or $1m a year in income, but that's probably the ceiling. For 99% of America that's fine, but my guess is most on this board would want to take it higher.

Only 1000 pages a day...pfff, I'm at at LEAST 2,400 a day. I read one page every minute every hour every day. While I sleep I listen. To audio books so I don't fall behind. Sometimes I will have three or four cassette players going at once so I can listen to multiple books at once. And of course I like to hold a book in each hand and read those as well at the same time. My daily page count is off the charts. I'm sitting by my phone waiting for Buffett to call me.

Exactly opposite of what VRX does. VRX is in the business of buying "net nets" or "melting ice cubes" and squeezing as much as possible out of them This guy on the other hand is setting up something similar to BRK for drug companies :). long term compounder with venture capital like returns. oddball- I looked, but there is no font for sarcasm in here. Funny, I was looking for the same font...

Sounds like a perfect acquisition for VRX right?

Yet in football the standards still apply. Sure it's complex, but if you have a team that can block, tackle non-complex simple runs are very effective. You can have the most complex offense in the league, but it doesn't mean squat if the basics aren't in order. Graham's methods still apply, I and many others use them successfully in our portfolios. Here's the issue, simple investments that work are not exciting. How exciting is an average business at 75% of book value? Not exciting, but buying at 75% and selling at 150% works, and it works over and over and over. Here's an example, Titanium Holdings. They own cash and a cleaning business. They're selling for about 30% of net cash, they're profitable. It's boring, simple, almost no research is needed. You don't need to know about the Texas cleaning industry. I've taken a ride on this stock from 30% of BV to 60% before. There are a few rides left, no industry expertise or almost no intelligence needed to double your money. But it's small and boring, and 99% of the posters on here will find an excuse to not invest, maybe there's no catalyst, or no moat, or management owns too much or something else. There are excuses for any stock. I know that I've found buying things on sale to readily ascertainable values (either assets or earnings) and waiting for them to revalue has been very profitable for me. This is basic value investing, and it works. It's not exciting, I'll never be invited to Columbia to speak because it's too simplistic. But it's the basic blocking and tackling of the investing world. I'd rather perfect the basics and spend my time on other pursuits rather than trying to master complexity.

Maybe money is walking out the door and he's trying to keep investors from leaving the fund? A letter to say "we are close, stick with us" seems to serve that purpose. Same thing with Sears, the position is hammered and suddenly he's blogging about it.

I'm not going to read 35 pages here but I'm trying to get a simple handle on this. Is the below accurate? Preferreds trade and right now are technically worthless so they are priced low. Yet there are a lot of legal battles and if by chance one of them wins the preferreds will be worth 4-8x their current value. Clearly this is a complete speculation, although there is nothing wrong with speculating if the odds are in your favor. If my statement is correct it seems like it's worth picking up some shares then ignoring this for a few years and either cashing out for a trip to Disney or sheltering some gains from taxes.

I owned one of the funds for a while, after years of under performance I dumped it. This was in a retirement account for my wife. I remember they are huge on Hong Kong real estate, or were for a while. Conceptually I've liked how Whitman thinks. But I can't stand how he writes (CSHHW) with all the crazy acronyms for everything. Since CSHHW I have trouble reading his books without stopping at each acronym and thinking "what in the world does CSTBCNWC mean? (cheap stock trading below current net working capital)".

Paul, Both my wife and I went to Miami. My wife is from Cincy originally, so we're down there somewhat frequently. I think Columbus is even easier. Go east again towards Zanesville and you can probably find some places cheap. Beyond that you might end up with some land that has mineral rights, a hot commodity in eastern Ohio right now. Nate

Just get started.. I believe you're in Cincinnati right? I'd go a bit further out, there is probably too much competition in Hamilton County. Look at Butler County, maybe even Oxford area for college type housing, or Clermont, Warren or Clinton. I prefer to travel a bit, I'm guessing Clinton is your best bet. I'd go east, not much going on east.

For example...here is a sale in Sept: http://www.co.forest.pa.us/assess/JudicialSale.pdf The 1.05 acre house looks decent. The other place in Hickory looks good as well. I might drive up for that, the Hickory place would be a good camp, could probably get it for $2-3k or so. Another example. You can pick up this trailer for $50...yup $50: http://www.tiogacountypa.us/Departments/Tax_Claim/Documents/Repository%20of%20Unsold%20Properties%20List.pdf

This is key. Pennsylvania has a unique system. Throughout the year properties will be be entered onto a sheriff sale list as taxes go unpaid. The sheriff sale (called an upset sale) is for the property with all liens and mortgages attached. If the property fails to sell at a sheriff sale and taxes aren't paid it sits for another year and is listed in the judicial sale. The judicial sale is an auction where the starting bid is for the amount of unpaid taxes. Purchasing at a judicial sale results in a free and clear title, all liens are wiped out by the county/state/irs. This is where deals can be found. But beyond this properties that don't sell at repository sales enter a repository list. This is a list you have to pay a few bucks for ($2-5 cash only) at the courthouse. You can purchase anything on this list for the county minimum. It's not uncommon for people to pick up old lots for a few hundred bucks (like I did). The reason more people don't do this is because there are some weird barriers to entry. You have to physically go to the court house during business hours and pay a few dollars to get the lists. You also need to go to the courthouse to use their computers to research. Some properties were trailers but not the land underneath. Others were the land but not the building. I purchased my lot in a very rural county. What was nice is I could use the computers to research and see who owned the surrounding lots. I went upstairs and there was a different office with some mainframe type system that they gave out every owner and lien for every property in the county. I could find a lot, then check to make sure there was nothing against it. All public info, all free, yet you have to be there in person to get it. The reason I purchased anything is because in doing research I found this lot is surrounded entirely by land owned by a forestry company. I figured buying a wooded parcel they were missing wasn't a bad bet. I need to write them a letter and offer to sell, just haven't got around to it yet. There are a lot of little ways to make money like this if you're slightly innovative and resourceful. They don't require a ton of capital either, but the downside is they aren't scaleable. You might make $150-200k a year doing stuff like this, but you'll never be a millionaire. There's a reason so many people like to just sit in front of a terminal, point and click and buy stocks, it's MUCH easier.

Pennsylvania doesn't have tax liens, they have a different structure and I've purchased property though it. Ended up with an acre of land for $300. I've talked with people who have extensive experience with lien sales. Berkshire101 is partially right, it's very competitive if you're a small player. Tax liens for houses are affordable for most to bid on and there is a lot of competition. The real money is made in bidding on larger liens, liens on hotels, warehouses, businesses. Great returns, sometimes you end up with the property for a song, and not many players in the market. The issue is many of these liens are $100k on up. You might be bidding $350k on a tax lien for a $4m hotel. One guy with experience in this said the more expensive the property and higher the lien the better the return. If you're sufficiently capitalized you'll do well. There is a lot of travel involved. At the higher levels I believe it's easier to work out payment deals as well. If a hotel or restaurant is having issues they're sometimes franchised, and you can work something out with the larger backing company. The last thing McDonalds wants in the news is some vulture investor taking over a restaurant because someone didn't pay their taxes.