oddballstocks

Worked for a company who was buying back shares at $30-40/sh. Then the financial crisis hit and shares dropped to $9, at an all company meeting someone asked why they weren't buying back shares. The CEO stated they thought shares were a good value but wanted to preserve cash. Shares recover to $40-70 and suddenly the buybacks begin again. They loved to buy at all time highs and do nothing at lows...many companies are like this.

Hmmm, great question. Conduril at 40% of NCAV and 2x earnings was good, so far I'm up 4x on that one. -http://www.oddballstocks.com/2012/08/a-european-net-net-with-pe-of-2x-and.html Randall Bearings at 25% of NCAV and .5x earnings was good as well, up 5x -http://www.oddballstocks.com/2012/05/cheapest-stock-ive-ever-seen-and-why-im.html Just profiled a company in a newsletter I write that's at 50% of BV and 1x EV/EBITDA Have invested in a number of stocks selling for less than net cash. The Japanese companies are great. I think west is pointing out something very important, that valuation doesn't matter as much as psychology. People are looking at 1x EV/EBITDA and saying "it should be that cheap, that's fair" In what world is that fair? Yes, cheap stuff is out there. Nothing is perfect, both Conduril and Randall had quite a bit of hair on them. But not enough that they were a pass. Well I did pass on Randall sort of. Only had a tracker position, but with a 5x gain that tracker has now become a small position. They're still at about 50% of BV and a few times earnings.

I have a few friends who when they mention a stock I do a very cursory look then buy a position. They are very good at what they do, and recommendations don't come lightly. There is no shame in copying other ideas.

I don't have an AmEx card but I had this exact same question and asked a friend who carries one and uses it often. He said the attraction to the AmEx was that there's no credit limit on the card. I didn't realize this, he said it's ideal for business because you can charge a ton of stuff quickly when the need arises. The catch according to him is that it isn't a credit card as much as a charge card, in that it needs to be paid off right away. Is this true, there are no limits on the card? If so then I'd think it makes perfect sense that they're selective on who they give the cards out to.

I have come up with a fantastic new Buffett book idea. I will be selling a book that when you open it you see a giant picture of Buffett and the song from the Lego Movie starts blaring "Everything is awesome, everything is cool..." For those of you who don't have young kids: You can thank me later for getting that song stuck in your head...

Or maybe there are just a few of us investors who would rather think for ourselves verses toting the value investor party line that everything Buffett says/mumbles/breathes is awesome and incredible and the-best-thing-we've-ever-heard. Maybe I'm just having a bad day. This morning as I was riding my bike to get my organic coffee and muffin made from stone crushed hand sewn weathered grain grown in small batches in Iowa my flannel got caught in my bike and it yanked me to the ground crushing my black horn rimmed glasses. I might have scuffed up my vintage boots as well....

Yup, like Genesis without Phil Collins. I mean sure the guitarist and keyboardist are the same, but everyone knows it's "different". Does anyone actually read these books cover to cover? I went to the local business library and have browsed two editions of this book. It's massive and seems to be the equivalent of someone's bookmarks being exported into a book format. The thing is so big and so disjointed I wouldn't be surprised if a few articles about Jimmy Buffett or the Old Country Buffet snuck in there without anyone ever noticing. It's like this guy Googled "Buffett" and then proceeded to print off every article and mention and jam them together into a book. If Buffett were a rock start this level of fanaticism would border on stalker-ish behavior. Somehow it's accepted for Berkshire Hathaway, weird.

The author states his position is that "Apple does not believe in moats". If they have a moat and how strong that moat is if it exists is a slightly different topic. I don't believe the "Apple does not believe in moats" position, even though their ecosystem is not as strong a moat as switching costs from IBM or Oracle it is still a moat. It may not be as deep or have as many crocidiles (yet to be seen). Moats as we know can be based on switching cost, lowest cost provider, network effect and intagible assets (brand for example). It seems to me to that Apple has for a long time been strategically focusing on intagibles (brand), switching cost (eco system) and now network effect (payments). Even if you believe they don't have strong moats in these areas it seems hard for me to swallow that they don't believe in moats. Yes. Worked in IT for a long time and I know exactly what you are talking about. But switching costs is a particular type of moat. I agree that Apple that does not have the switching cost moat that IBM does. I always chuckle when I am on a flight and I see someone fire up Lotus notes, or some app to access an AS/400 app over in flight wifi. That is your opinion based on your experience and personal prefernce. I can provide similar real life stories that provide a different viewpoint. Moats take a long time to build and it remains to be seen if Apple is building a strong one in their ecosystem, but I still argue they believe in moats. Telecom is essentially a utility from a moat perspective. Different type of moat. Not trying to come of as a crazy Apple bull here but does anyone here really believe that they do not believe in moats and not actively trying to build them? In IT there's also a psychological/emotional moat. Your counterpoint to my OS X->Windows experience brought this to mind. I've worked in some Windows shops where they will think that Mac can't do something because they don't have first hand experience. They are so MS experienced that they wouldn't even try an Apple product, even if it has the functionality and is superior. At the same time I think this is the moat that Apple wants to have. The emotional one, where users just blindly user their products because they have the Apple logo on them. Once a company gets traction like this it's nearly impossible to switch away.

I agree with this post, it's fascinating to think about. Apple is doing something unique, they create new products that capture the large upfront margin and then let the product drop off as margins shrink. Some of his point might be lost on a non-technical audience. Substitute moat with vendor lock-in. You purchase ILOG from IBM and rearchitect your call center to use it. IBM can never release another update and you're stuck with them paying for years, that's a moat. That's no uncommon in the IT world. If you saw some of the outdated stuff that companies are using and paying IBM to support you'd be shocked. I'd disagree that the Apple ecosystem is a moat. I love Apple products, they work well and I like their build quality. Recently I needed to buy a Windows machine for a business project. I'm on that machine almost all the time now, if I had to never use OS X again it would be fine. The fact that songs are in iTunes or whatever isn't a big deal. The important things (documents/code) works on both environments. Apple needs to continually be pushing the ball forward. A company with a moat can sit on a crappy product and fail to innovate for years and still reap giant rewards. Look at the telecom carriers and their moat, it's giant, telecom innovation isn't exactly thriving in the US, doesn't matter.

The Internet is amazing, there are no barriers. The press release has a message at the top, not to be disseminated to the US. Yet here I am in the US reading this... This is great news. Congrats on taking over a company, quite a long journey to the top. But at least you didn't have to climb any corporate ladders.

I wonder how much of Greenblatt's results are from his superior data? There's an interview floating around where he mentions he spent $20m to hire analysts to recalculate and normalize all of the market's financial statements. The website that anyone can access isn't driven by his database, his DB is proprietary to his fund.

Congrats! I'm a little confused on what exactly's being announced. Are you announcing a private (public?) placement of the stock? Or that you guys own this company and we can buy shares along side of you through our brokers? Is this open to US investors, or just those in Bermuda?

I agree with this. Buying a business is difficult. Most businesses that individuals without significant financial backing can buy are low margin companies that are difficult to scale. A small established business might cost a few hundred thousand for an outside investor to purchase. What I wonder is how many individuals are really buying small private companies? Most of the people I've known or met who own their own companies start from scratch. This is because they wanted to be their own boss and had a skill but had almost no capital. Most small companies start out in a scrappy way flying on a shoestring. Buying a business outright requires a significantly higher level of capital than what most people have access to. Even if a hotel were to be available at $500k that's out of reach for most individuals. What happens is you get people who are either older and saved and are established looking to buy these companies, or younger people with family money. Everyone else is going to have to start from zero unfortunately. The best advice I can offer on this is look at your own skill set and find a niche. I believe Gio runs an engineering consulting firm. Consulting is a great way to get into business. You can bill people out hourly and cover their cost. Projects are easier to find, but the business isn't that scalable. What consulting companies need to do is look for commonalities across clients and develop a product to solve the problem. Then the transition from a consulting to product company can take place. This entire process can be funded by consulting. Consulting is easier to sell. If you have a product it's hard to find and sell potential customers. If you're consulting in something you already have experience with I'm guessing you already know people who would consider hiring you on a project or consulting basis. You go from there, get yourself in the door and as demand grows add people and build up and out. I think I recommended the book The Origin and Evolution of New Businesses on this thread. The author spends a lot of time discussing why most entrepreneurs go into low margin companies with low barriers to start. These are the companies mentioned in this thread, hotels, vending, plumbing etc. He then discusses why these companies can't scale and while they will provide a great living for the owner they won't become big companies. One other thing the author talks about extensively is that most startups have no original ideas. They are doing exactly as tombgrt says, they take an existing idea and make it different or better. A lot of people talk about buying a company that's on auto-pilot or that can run itself. I have yet to see a company like that. If you buy a company prepare to immerse yourself in the company. If you want to own a company hands-off just buy public stocks. One last thought. The person posting about the hotels and garbage assets above is unusual. Most private transactions happen at or around fair value. The purchaser brings their ideas and expertise that they hope will enable them to grow the business above what it is currently. If you bring no ideas or operational efficiencies then you will be getting whatever return the business is doing. Oddball, Your post's are well written and insightful. Easily, one of the top six posters on the board. Regarding the last paragraph. Being unusual is good in business! Case study: Busted downtown building with 30 commercial office units available. 17 units are rented and 13 units need to be remodeled and are currently non-operational. The building is priced via the cap rate method. You do due diligence and talk to contractors you get a rough estimate of the total budget to fix the building. Details so far: - Central downtown property in gas producing state. Long trend economics of the state look solid - Building is priced below replacement cost. Building is at fair price according to the current cap rate - Current office rents slightly below market rent. Deal looks good right? There is pricing power once the building gets completely remodeled. Also unit growth via turning the non-operational units into operational units. These type of "distressed" properties are commonly priced below replacement cost. The reason most people wouldn't do this deal is : - To remodel the property will have to take cash from other business to finance this project. - Start to finish this process will take 6 months-2 years. - The unwillingness to not make a return from day 1. Quality comes at a fair price. I can either buy my high quality green juice smoothie via jamba juice or invest in a blender. The case study above is like investing in a blender. More work, more vision, and more fun. Its a beautiful thing to see garbage turned into something respectable. Vision is needed. Thanks! I agree unusual is good. You're doing exactly what I described, what's awesome is that it's working. You're buying things at 'fair price' where you see improvement. In theory the current owner of the office building can do the same things you're doing, but they aren't. So you see opportunity and are taking advantage. I think we're trying to say the same thing. In the public market it's possible to buy a good company at a bargain price because of market sentimentality or emotions. You can buy something and just do nothing and it will eventually mean revert. A bargain purchase in the private market is because the buyer sees opportunity via work. You see these properties that need to be redeveloped and with your expertise and capital turn garbage into gold. What's shocking to me is how many people I've talked to who expect to find a public market bargain in the private market. They expect to find a great company that runs hands off for 2x FCF or some low number. Those things just don't exist. The trade-off is that when you own a company you have control. If the CEO of a public company is going to Bermuda shareholders can only complain. As the owner you can decide whether a trip to Bermuda is better than a capital investment.

I agree with this. Buying a business is difficult. Most businesses that individuals without significant financial backing can buy are low margin companies that are difficult to scale. A small established business might cost a few hundred thousand for an outside investor to purchase. What I wonder is how many individuals are really buying small private companies? Most of the people I've known or met who own their own companies start from scratch. This is because they wanted to be their own boss and had a skill but had almost no capital. Most small companies start out in a scrappy way flying on a shoestring. Buying a business outright requires a significantly higher level of capital than what most people have access to. Even if a hotel were to be available at $500k that's out of reach for most individuals. What happens is you get people who are either older and saved and are established looking to buy these companies, or younger people with family money. Everyone else is going to have to start from zero unfortunately. The best advice I can offer on this is look at your own skill set and find a niche. I believe Gio runs an engineering consulting firm. Consulting is a great way to get into business. You can bill people out hourly and cover their cost. Projects are easier to find, but the business isn't that scalable. What consulting companies need to do is look for commonalities across clients and develop a product to solve the problem. Then the transition from a consulting to product company can take place. This entire process can be funded by consulting. Consulting is easier to sell. If you have a product it's hard to find and sell potential customers. If you're consulting in something you already have experience with I'm guessing you already know people who would consider hiring you on a project or consulting basis. You go from there, get yourself in the door and as demand grows add people and build up and out. I think I recommended the book The Origin and Evolution of New Businesses on this thread. The author spends a lot of time discussing why most entrepreneurs go into low margin companies with low barriers to start. These are the companies mentioned in this thread, hotels, vending, plumbing etc. He then discusses why these companies can't scale and while they will provide a great living for the owner they won't become big companies. One other thing the author talks about extensively is that most startups have no original ideas. They are doing exactly as tombgrt says, they take an existing idea and make it different or better. A lot of people talk about buying a company that's on auto-pilot or that can run itself. I have yet to see a company like that. If you buy a company prepare to immerse yourself in the company. If you want to own a company hands-off just buy public stocks. One last thought. The person posting about the hotels and garbage assets above is unusual. Most private transactions happen at or around fair value. The purchaser brings their ideas and expertise that they hope will enable them to grow the business above what it is currently. If you bring no ideas or operational efficiencies then you will be getting whatever return the business is doing.

Great insight. I would add a second one, bad management can mean good returns for shareholders. And good management can mean bad returns for shareholders. Bad management could run the place on a shoestring, pay poorly, demotivate etc and earn high margins. Good managers could hire well, pay well, respect their employees and pay out more benefits depressing shareholder return. So good/bad could depend on perspective. I like to browse glassdoor, some crazy stuff on there. Here's another way, recommended to me by a fund manager. He contacts ex-employees via LinkedIn. Said they're "ex" so expect them to say some bad things. But he said it's the themes that matter, if everyone who's ever left is praising the CEO then it's probably true. If all the people who've left have the same gripes they're probably true as well. People who've left are much more willing to talk about former employers.

I agree. And thank you for the book tip. I think you could also hire good sales and marketing people. In my experience you should enjoy the process of selling… If you don’t, because you find it time consuming, time you’d like to devote to other activities, a good enough alternative solution is to hire someone who truly likes selling. ;) Gio In most smaller companies the best sales person is the owner or founder. They know the products, have a passion for the business and want satisfied customers. I don't know what selling is like in Italy, but you're trying to match customer needs with products you offer. That isn't slimy or shady at all. If someone has a need and you have a solution there is no pressure, the buyer is happy to buy from you. What you're offering is of greater value to them than the money they give you. You as the owner want an ongoing relationship. You can hire people to do all these things, and at some point to scale it's necessary. But in my experience the CEO is always selling to the biggest and most important clients. Even at multi-billion dollar firms the CEO is at key customer meetings. The CEO is the spokesperson for the company. Important accounts need that contact. Maybe the CEO sitting there doesn't think they're selling, but they are. They're trying to find if what the company provides can meet a custom need.

Do you have any good book recommendations on marketing (ie rather than sales?). For example, one that would relate well to starting an investment management business? I'd highly recommend the sales book I talked about. You probably have the wrong idea of sales, both sales and marketing are very similar things. There are people out there with needs, both known and unknown (sometimes referred to as latent needs). People with known needs are some times actively searching for a solution, but most of the time not. So your job is you are to develop these needs and make people aware of them. When a potential customer becomes aware of their need then you have the ability to present them your product that satisfies their need. In your case investment management. Here's the thing, I think most investment managers are doing this all wrong. They're selling performance, if you sell performance you'll struggle to accumulate funds, will always be chasing it, and never will be satisfied. There is only one Buffett, only one who's at the top of the pile. Instead sell something different. Sell the value strategy, you pick stocks that aren't as risky so there isn't as much volatility. The need the client has is for a portion of their portfolio to be in safer stocks, maybe they also buy biotechs. You have a product (your fund) that satisfies this need. The buyer might not come out and say that though, that's the key to selling. You need to investigate and talk to them. So you're talking to a prospective customer on the phone. They will drop hints. They might say "Well I want a fund manager who can really knock the socks off the S&P, but you know my son is going to college in three years and we need this money for that." They said two things, they said they care about numbers (which all clients will), but they also gave you a hint on the need. So you play off this "well if your son is going to college in three years I would imagine you wouldn't want to wake up in two years and see that the fund had lost 35% correct? I would presume that you want to ensure you have enough for tuition plus some growth over the next three years correct?" Etc. You need to tease out these needs by asking good questions. Be curious. Don't push for a sale, you might find a customer isn't a good fit, that's perfectly fine. Expect a lot of no answers. This is just an example, but think creatively about what you do and how you do it. Ahh, here's another great book, "Marketing High-Technology" by Davidow. The guy was an engineer before heading up HP's marketing in the 80s (which I'm sure you can tell by the title). You can never assault a competitor by going directly at them, unless you have the resources. You need to stratify the market, even if your product isn't different! Investment management is a commodity. If I put a post on here saying I had $1m I needed someone to manage I'd probably have 15-20 great potential managers in a few hours. It's a commodity, but that doesn't matter, set yourself apart. You need to figure out that niche. Maybe you're an expert in Agricultural stocks, or special situations, or stocks in Iowa. Something, but you need this selling point. You can re-brand yourself multiple times. Maybe you're an expert on three things, you have different messaging for the different client groups you're approaching. You've an expert on Iowa to those who want Iowa exposure, you're an expert on farming for those who want Agricultural exposure, and you're an expert on grain for those who want the commodity exposure. The thing is this, maybe those three angles are all rolled up in Iowa companies.

Looks like the book is "The Secret to Selling Anything" by Harry Browne: http://www.amazon.com/Secret-Selling-Anything-Harry-Browne-ebook/dp/B00M19W20Y/ref=sr_1_1?ie=UTF8&qid=1409593567&sr=8-1&keywords=secret+to+selling+anything On marketing "Scientific Advertising" is excellent, and cheap too: http://www.amazon.com/Scientific-Advertising-Claude-Hopkins/dp/1603866361/ref=sr_1_1?ie=UTF8&qid=1409593605&sr=8-1&keywords=scientific+advertising Other marketing books..I liked Ogilvy On Advertising and am partway through "Breakthrough Advertising" by Eugene Schwartz (the Margin of Safety of the marketing world, there's a Creative Commons pdf version if you Google.)

Here's a piece of advice related to almost any business. Learn sales and marketing. I know the attitude on here is to look down at those things, but if a business can't sell it doesn't stay in business long. Marketing is just a different way to sell. What's the difference between the top fund managers and bottom ones? It's not performance, sales and marketing. What's the difference between successful and failed businesses? Either debt or sales and marketing. I'd highly recommend "How to Sell Anything" by Harry Browne (of Permanent Portfolio fame), and Scientific Advertising. Two books written in the 60s and 30s that have stood the test of time, they're cheap on Amazon Kindle as well. I'm working through SPIN selling which is a really good book too if you're doing larger sales. I used to think marketing was terrible until I met someone who truly understood the role of marketing. Marketing can do the job of thousands of salesmen if done right.

I'd second this. Software is excellent, build a product and then continually resell it. There is an initial capital requirement, but ongoing is minimal if you want. Even better, learn how to program so you don't need to hire anyone.

Two other data points, Canadians have a wealthier middle class, and as a whole are much wealthier than Americans. So maybe the prices are just reflecting that Canadians can and will pay more for places? You can get some truly cheap housing in the US. My brother rents an apartment that's probably 800 sq ft two bedroom. He has a roomate, they each pay $250 a month. It's in a nice city, and the building is in nice shape. I wonder if anyone's living in Buffalo and commuting into Toronto each day? Making Canadian money and paying Buffalo prices, the new wealthy... I guess the same could be true for BC as well.

That first link is awesome, what a building! Hope they finish it before a crash, that thing would look hideous half finished. I much prefer developers build beautiful buildings like that verses the cookie cutter stuff you see here. Norm, thanks for the median stat, it's 50% higher in Canada verses the US ($50k). Now if everything costs 50% more it's just a wash, interesting eitherway.

Gary, Thanks for the clarification. Now that I'm looking at these average and median salaries I'm wondering (like everyone else) how anyone can afford a home up there. The cost and salaries are really out of line.

Yeah, I guess I just never realized how much more expensive it was. I wonder why? It seems like goods should be just as cheap as in the US, they have plenty of roads, rail and ship lines that connect. Maybe an import duty tax or something, but I wouldn't think that much.

I'm reading this thread with fascination. Are salaries really that much higher in Canada? gary17 mentioned that a working class couple in Canada would make $60-100k, in the US a working class couple is probably making $35-40k at most. But our houses are cheaper, you can buy a house for $100k in most cities outside of LA/NYC/SFO. The rule of thumb I'd always heard was 2.5x income for a mortgage, so someone making $40k can buy a $100k house. Are Canadians house poor? I know in the early 2000's here there were stories of people stretching for a big house only to have a ton of empty rooms. Yet if a working class person can really make six figures and you have two incomes in the family I guess I can see how a $400-500k house is affordable. What's an average professional white collar salary up there 150-175?