oddballstocks

Great responses so far, thanks! Tim, your approach makes sense. frommi - What discount factor do you use for years 1-4? Do you discount years at different values or add in a terminal value? Fat Pitch - You look for banks about 1% ROA, then do you look for anything else? I followed the link to your site and read your writeup on Chesapeake Financial, do you usually use a DCF model to value banks? What do you use for cash flow? What's your discount rate?

I've recently been thinking about how I approach bank investing. I look for banks cheap on a P/TBV basis and work out from there. Once I determine something is cheap enough to my satisfaction I look at other factors, but cheap on a P/TBV is always my first step. What are other approaches used? For example is there anyone looking for growing banks, or improving banks? Just curious as to other approaches.

Do you mind posting the list? Unfortunately I'm not at liberty to post the list publicly, but Wrister's screener works as well. To Ericopoly, yes you can easily screen out companies that return their capital to shareholders and generate these high returns. Screener.co can do most of this stuff and they're fairly inexpensive and international. Their data is pulled via CapIQ. Thanks for the screener.co tip. I believe what I'm thinking about is a function that would serve the purpose of giving us the proper mix of variables to screen on. Okay, so it works like this: You tell it that you like companies with 20% ROE, a 15x P/E, and a 20% payout ratio. So you have it graph that across all combinations of ROE, P/E and Payout Ratio. It would be essentially a three dimensional function. It would find you, for example, the right combination of P/E and Payout Ratio to screen for if you wanted to know the equivalents given a 10% ROE. Therefore, you could generate a bigger list of candidates to pick over. Theoretically, you may improve your returns if the lower ROE companies are out of favor amongst stock screeners. Call it a three-dimensional "equivalency" function. I believe you can do that with a Bloomberg Terminal. It has the ability to backtest any combination and then rank results into quartiles. It might be cumbersome to try different parameter sets and a better alternative would be to buy the Compustat database. This is how most academic researchers work, they have a copy of the point-in-time Compustat where something like this can be modeled out.

Do you mind posting the list? Unfortunately I'm not at liberty to post the list publicly, but Wrister's screener works as well. To Ericopoly, yes you can easily screen out companies that return their capital to shareholders and generate these high returns. Screener.co can do most of this stuff and they're fairly inexpensive and international. Their data is pulled via CapIQ.

Just to throw some fuel on the fire here. For everyone who's saying there are no ideas out there, I just ran a screen on US stocks with a 5yr ROE greater than 20% that are debt free (there are 122) and I'm seeing 67 with P/E's less than 20x, 58 with a P/E less than 16, and 34 with P/E's under 10. Maybe all of these companies are junk, I don't know, but I'm guess there are at least one or two good ideas in there. My suspicion is that this is an ever changing list, if I ran the same screen next month it would probably have different results. Just hunting off a list like this one could build a portfolio of high compounding companies.

We've been spoiled coming out of the crash with the abundance of good ideas. You could run a screen and within the first five or ten names you'd find a good investment. There are ideas out there, I revisited my investment in Hammond Manufacturing yesterday, they're still at 54% of BV and 6x earnings. These companies are floating out there, but it takes more work to find them. Maybe you only find an idea once a month instead of once every two days. Is that terrible? My impression is most people on this board own about 6 stocks. If you have a 25% turnover you have 12 months to find two stocks. Yes, there are fewer opportunities but there are at least two cheap stocks out there over the course of a year.

I hope I didn't, but it's not beyond me. I was trying to post my response before leaving the desk so maybe I inadvertently clicked something?

I have to respectfully disagree with Oddball's approach. If you want to talk to farmers asap, you have to understand that "city folk just don't get it". Try this site instead -- www.farmersonly.com I remember seeing commercials for this on TV few years ago and wondering if it was a real commercial or some sort of fake thing...so awesome.

Good friend's dad is a dairy farmer, although scaling back as he ages. My mother-in-law's husband grew up on a dairy farm, although I'm not sure his experience from the 1930s and 40s would be helpful. If you want to talk to some farmers here's how I'd go about contacting them. Get in touch with the co-op that they sell their milk to. Ask the co-op for the contact information, they'd know who has a herd the size you're looking for. Someone like Reiter's: http://www.reiterdairy.com/management-team As a random aside, I grew up in the Midwest, my wife did as well. We have cheese and corn flowing through our blood. We never realized how much of each we ate until we moved away from the Midwest, apparently the rest of the US doesn't include cheese in 90% of their meals...

I think you made a typo here. The senior bond is 38 and subordinated is 44, so if you could somehow buy senior at 38 and short subordinated at 44, you will lock in a profit even if both go to zero. But with the low liquidity, I am not sure if you can do this arbitrage. Yes, you're right about the shorting. I'm not seeing the illiquidity though, there are a decent amount of these trading daily. Looks like you can get up to a few hundred bonds a day if not more.

Good question about pricing. Probably my favorite part of municipal bond investing with distressed issuers. It goes something like this: Customer: Hey can you sell my bond? I read bad things in Barrons. Broker 1: Sure, we got a bid back at 70. This thing can go to 10 bucks so you should take it. Customer: Okay Meanwhile across another muni trading desk.... Trader: Holy crap these bonds just traded at 70 after being sold at 85 yesterday. If anyone is offering thse bonds, pull down your bids to the low 70's. We're also going to stop letting customer buy the bonds now that they're trading at 70 so that should help the situation (sarcasm). The next day the index drops 5%, customers who havn't sold see the drop in the index and start panic selling. This is where you get good pricing. You follow bonds you know are being sold in a poor fashion and try to take advantage of it. Unfortunately you can't do this through IB or Schwab. You need accounts at firms where these bonds are being sold or you need a trader to contact these firms for purchase. To get good pricing on the sale is a different story. I've purchased bad bids at 82, waited 15 minutes and sold it to another desk at 93. You have to be careful when selling any muni bond if you have never done it before. This is why I don't trade bonds, the market place just isn't transparent enough. I kept digging on these things, the trade history is fascinating. I don't see how anyone can trade these as a retail investor. The information I get from Fidelity is night and day different from what I'm seeing on Bloomberg. Fidelity is showing no bids, Bloomberg has a bid and some liquidity. Maybe a Fidelity trader could get this information if I called, I don't know. While bonds are illiquid and non-transparent I don't feel like a retail investor can gain an advantage. I see $170m in volume has traded for this bond in the last 90 days. The only market participants who can move that type of money are institutional investors and funds, the ones who have their ear closest to the ground. Now the pricing anomaly mentioned on this thread is interesting. Seems like there's a solid arbitrage opportunity there for someone to buy the lower rated and short the higher rated. Of course if this thing is going to zero, and it's Caa1 maybe the cap structure doesn't matter much.

Great question. In theory it's supposed to be implemented, but I'm still seeing news releases about standardizing things like asset quality. If this is going to be implemented by Oct then that doesn't give much time for the submitters to adjust their systems to whatever has yet to be determined.

I'm just browsing the trade history on a few of these and they are really all over the place. On 745190ZT Muni prices have been between 42 and 59, that's quite a range, especially in the course of a week. How do you get good pricing on these things as an individual? Looks like there's a lot more sellers compared to buyers, on most days significantly so. I'm guessing this is the reason for the pricing?

Yes, the US regulatory banking data is great. I run a company that builds tools based on US banking regulatory for investors and bankers (http://www.completebankdata.com). We've looked into the European banks, the issue is there is no one regulatory standard. This is what I referenced above, it will be standardized in October.

Great advice. I can read business French fairly well and it's been useful. I also noticed you get a lot of bang for your buck with romance languages, I can follow Spanish or Portuguese financials even without knowing the language. I can't read the footnotes, but I can understand the financials. You're dead on regarding foreign banks. While I have no issue reading about a French industrial the French banks are a different story. I have spent more time than I'd like to admit trying to parse French bank filings. In the end I just decided I'd rather invest in US banks, there are a lot of them and many are just as cheap. Some of this will change come October when all European banks will be required to make English XBRL filings. At that point the issue will be parsing the filings rather than reading. Their implementation of XBRL is very European meaning where a US company's filing is maybe 2megs a single German bank filing is 1.5gigs of XML text! Personally if I can read a foreign company's filings I will invest in a situation that has at least a 50% upside. If I can't read it then I need at least a 100% upside or more to account for anything I might miss. Lastly, you can find cheap translators online if you want to hire a person to translate something.

Or invest in a market that the locals have left such as Japan. Only 4% of Japan's population directly owns equities. At some point buying cheap enough is a hedge against mistakes alone. If you're buying a company at 40% of NCAV or net cash does it matter if you can't read all 30 pages of footnotes? If you were to buy 20 companies like this I don't think reading the footnotes would add much to your incremental return. If you're looking to go Buffett on some foreign market then yes, you need to be able to read the reports. Many companies publish their annual reports in English, or you can find a local who can help you translate. Alternatively you can learn to read some of the target language. Note the hesitation of readers to invest overseas. For some reason most US investors are extremely hesitant to invest outside the US. Many non-US investors are focused on US equities as well. What you have is this strange situation where everyone is looking at the US and foreign small caps are very ignored. My experience has been that the cheap companies outside of the US are of much higher quality compared to the cheap companies in the US. The competition is smaller, and information is easier to find. Here's a site worth browsing: http://www.worldreginfo.com

Call Fidelity and talk to a market maker, they'll read you the order book over the phone. Depending on the liquidity and who's offering what it might be worth paying Fidelity for an over the phone order if they can execute it correctly at once, rather than you playing hunt and peck online. I know Fidelity shows local quotes online, but they also have connections to market makers in the US who hold the stock. A few years back I purchased a Swiss stock from a US MM. You need a broker for something like that, on the phone they can help you out, this stuff isn't accessible online. Looks like it's €50 for a phone order or €19 online. If the phone rep can make it happen in a single trade whereas online it might be more than 2 trades you come out ahead. As others have said if you need a lot of small trades then IB might be the way to go.

+100 Starting a company has been able to fill up all of my extra time and then some. Checking stock quotes too often, fixed. Not worrying about day to day developments, fixed.

Yes, buy & hold has worked for many. Go to any senior citizens event and find those living off dividends, they will vouch for this strategy. No genius is required as other posters have said. Purchase shares of large well known name brands that pay dividends. Reinvest your dividends and go do something else. It also helps if there's a bull market of the century like we had from the early 80s. Most large companies grow at the rate of GDP growth plus inflation. So maybe 7% a year or so, if you hold long enough and reinvest your dividends that will result in considerable wealth.

And perhaps how have your returns been? Since 20% (random) or 50% (yada) returns seem not to be rocket science. :P Ok if you want to know more about me you can get some ideas of my portfolio: http://bovinebear.blogspot.com/2013/09/my-2nd-annual-schedule-of-investments.html I honestly don't know exactly what it is and I wouldn't publish it anyway. But you can see from my holdings and I do own all of them still what kind of returns I am getting. But yaya we are in a raging bull market. You can also see my age on my blog. I have been investing for 16+ yrs. I have seen a lot. For example, if you read my other entries (I am flattering myself probably) I have mentioned STZ (bought 9yrs ago missed a 7 bagger). PM/Altria (bought 14 yrs ago). CVX (bought 10yrs ago). Cisco bought 15yrs ago at 50. I have done stupid things through the worst 10yr stretch since 1930s. But I am a new person now haha, wishful thinking. Believe me I am not a braggard, I just want to call a spade a spade. I am not saying my net worth will go up by 20%, I just expect the stock portion of my portfolio to go up by 20%. It is what I think it doesn't fact. You know, I have seen two crashes, I have a mentality like a concentration camp survivor: what can they do to me??? Wow..someone else who holds Installux! I was tempted to sell them once they crossed book value, but decided I'd rather hold. The company is nice, I like their owner, his letters are a nice read.

On a related note, does anyone read Bloomberg Markets? They have been trying to sell me on advertising in their magazine, the prices are steep and my experience says this isn't a great ROI. Thoughts?

That's from the article. I'm sure his returns are floating somewhere on the internet. I'd be curious to know as well. My only information about him comes from a friend who interviewed with him. He said Cooperman belittled him and went on a rampage during the interview. The friend declined working there. I'm leaving out details, but that story has stuck with me whenever I see the guy's name. Of course none of these guys are saints, but this was over the top.

Ok then, we are talking single stocks. I just find it hard to imagine holding on to a mispriced stock for 5-10yrs. Mind you I had STZ for 3-4yrs then sold for almost nil profit... fast forward to today? it is at 7x!!!! I think the scorpion was referring to something that I always struggle with. I put a chunk into a stock, I feel good about my thesis, NOW WHAT? Well, I remind myself it typically takes 2 yrs for things to play out (if I am right). That's not a deadline, it is the expected realization time for a correct thesis. It is mental preparation for the strains that will inevitably come with investing. For example, right here we have a thread about Hanover Foods, it is a cigar butt trading at about 1/2 book. I just bought it. Posters are fretting about oh how it will be perennially this cheap. I don't necessarily know better than the others, but if they asked me I'd say, heck wait a couple of years, odds are something good will happen and the stock will move closer to book.... just a practical example of my viewpoint. I've always felt that 2-3 years was practical and 5 years was about the most before throwing in the towel. This time range seems well supported by Graham, Schloss, Lynch and others who aren't buy and hold investors like Buffett. Funny you mention Hanover. I purchased them when they were in the $80s per share and a few people told me at the time it was dead money that will NEVER appreciate. Someone went as far as sending me a strongly worded email saying it was a bad decision and that it's likely the shares would be trading in the $80s 15 years from now! Seeing as how the price is up 45% since my initial purchase I'd say that person was off. There are a few companies that are actively working to keep their value hidden, ones like Vulcan International. I'd suggest you stay away from those. But for most others within 2-5 years the price will likely appreciate towards fair value. I want to echo Tim, I've rarely had to wait that long.

Yes, but raising kids is a lot of work. One could equally make the argument "surely helping people build their retirements comes with an ROI - the happiness of seeing your customers having a financially-secure retirement where they have the assets to realize their retirement dreams". Really, if you start looking at things from "intrinsic reward" incentives, then you've basically conceded rkbabang's argument anyway. You could say that many politicians govern well because of the intrinsic rewards of improving their country and the well-being of their fellow citizens, which I think rkbabang wouldn't agree with at all. ... I've come to a conclusion that EVERYTHING is hard work. At least if you want to do it well and do it right. You can be a lazy parent, but even a lazy parent requires work. And your kids turn out poorly. You can be a lazy employee, but it's still work. It's harder to work on not working than it is to do the real work sometimes. A good marriage is hard, good finances are hard, even taking a good vacation is hard. That doesn't mean we shouldn't do it. Sometimes the hard work creates results infinitely better than the effort put in. Tackling something new and complex can be character building. In the case of parenting it there isn't a silver bullet, or special technique that makes things right. It's being a role model and working with your kids daily that generates well adjusted adults. Maybe others have had a different experience. I only know one person who was given everything on a silver platter, and the same things that are hard for me (family, marriage, work) are hard for him as well. Money and family connections don't solve those things, if anything they might complicate it even more.

This is heretical but I'll say it anyways. Forget about results, forget them. Go and raise money, sell yourself and your story. Investors are investing in YOU, not your returns. If you want investors who just care about returns you'll attract hot money. Investors who believe in YOU don't care if you have the Delaware LP with 5 years of audited performance. If they truly believe in you they will understand you're starting out and accept that. You want to find those people. Get the money committed first and go from there. If you can't raise funds it doesn't matter how well you can invest. Capital is the blood of a fund company, go get that first and worry about the rest later. Figure out what makes you unique, why should someone invest in you? What do you do differently? There's a line about marketing I love: "Engineers build devices, marketers build products." It could be adapted to: "Investors focus on returns, successful funds satisfy their client's needs." Satisfying client needs might be operating a fund that's a diversifier, or invests in a niche, focuses on taxes, or does something unique. Find that, sell that, raise money and you'll be successful.