oddballstocks

I'm guessing you're looking at industry dynamics and such? Here's what I'd do, I'd request information about being a franchisee from as many franchisors as possible. Read through all the material and compare it, then correlate that back to parent company financials.

Cardboard, let me ask you a question: have you ever managed a business of your own? If you have, you know at least as well as me that most technical aspects are beyond the man at the helm (furthermore, Mr. Watsa hasn’t ever been at the helm of BBRY!). I manage my businesses finding good and reliable technicians, whose work I can barely evaluate and judge... It has always been this way, it has worked pretty well, and it will always be so. Believe me: Mr. Watsa doesn’t know anything about new phones… And has never pretended otherwise… He might have made a mistake judging BBRY’s management, but I am not sure... Imo, the error here is much easier and plainer to see: he was tempted to invest in technology, when technology is so hard to predict. Period. Why did he stay on the board for so long and said nothing? Simply because he didn’t know what to say! I wouldn’t have known what to say, you wouldn’t have known either… giofranchi Gio, I appreciate posts like this, you seem to grasp a lot of the real world intangibles of investing, mainly what it takes to run a business. You have the right approach, the person in charge isn't running the show, they're hiring the talent that runs it and supervising. A great manager doesn't have to understand the minute technical details, I've found those types of executives maddening, they're always micro-managing. A great executive sets the vision, assembles the correct team to execute the vision, and then works to eliminate disruptions and hurdles that block the team's progress. I'm a through and through cigar butt investor, it's what I'm comfortable with. But I also recognize the value of being the best, and having a great business-model. I'm building a startup myself, we've built the best tools and are hoping to grow by providing a superior product. So while I'm buying sleepy manufacturing companies on the brink of death in my stock portfolio I'm also working on building a best in class, high margin company that I have control over. The different backgrounds and perspectives of posters adds a lot to this board!

For those interested, I believe the link below includes the Wesco letter to which Buffett refers. Unsurprisingly, a very good read: http://www.docstoc.com/docs/949558/Wesco-Financial-1990-Letter The numbers in the letter are a banker's dream. He talks about their "low" rate on their loan portfolio, in the mid 9s, and how they're getting a 17% tax equivalent return from their muni bond portfolio.

So for a startup fund that's going to accept outside capital, have a real auditor, and decent platform I'm seeing costs in the $35-50k range, plus about $12k in ongoing platform costs per year. This is similar to other numbers I've heard in the past, this is good verification for myself that what I'd heard was reasonable. In an ongoing basis $12k for platform, and say $12k for audit and $6k for misc expenses, so about $30k at a bare minimum to operate a fund. That means that the fund would need at least $3m in AUM to cover costs, not including a manager.

Not sure it's out there, know a lawyer who had some insight on the deal, said the proposal submitted to regulators only included cost cutting as a benefit. On the flip side, I'm familiar with some people who were at Heinz corporate, and there is a lot of fat that needed to be cut, so it isn't unwarranted. Looks like this is a slash their way to profits story.

What's the upside with the LP fund you don't get with the SMA structure as an RIA? Performance fees?

You beat me to it...I agree

To answer a few others questions. Returns: My goal is 15% annual returns, I think that's an achievable target over the long haul. I have done better then that since the financial crisis. The last time I tallied anything this year (end of July) I was up 27-28% for the year. As long as my accounts are increasing in value I am satisfied. Here's the thing about performance, I'm not as worried about bull market years, I'm expecting to underperform, I'm hoping to outperform in down years, that's where I believe the money is made. Who is my competition? This is a great question that I've thought about, and actively explored. There are multiple sellers, the largest contingent is legacy holders from when the stocks were bigger, or listed. There are thousands of these holders who own insignificant amounts of shares. When I looked at SODI's shareholder record list I saw this. People who own 200 shares. One day they will decide to sell, or their heirs will sell and the shares come on the market. These legacy holders own a LOT of stock. You also get former employees, they received a bunch of stock, left or were fired and now want to liquidate their holding. So they're selling. There are then heirs to larger blocks, these are the best sellers. When a stock suddenly has volume for no reason and a large drop you can almost be sure someone wants their cash now rather than later, a broker is happy to execute. When this happens, if you've been following the company and know the story, and know nothing has changed buy with two hands as much as possible. If you want to make money in microcaps I just gave away a huge secret, know the market. Then there are institutions, there are market makers and advisors who make a living in these markets. I know some of the players, they will buy positions as things come on the market, just because they don't get liquidity often, even if it's not a great price. They'll hold and sell when the right buyer comes along. They aren't necessarily value investors, but they are holding the market together. If you want a fill on a big block you'll have to hunt these guys down, once you are plugged in you can get much bigger fills if you want. Then there are all the retail investors like myself. Guys like the person who posted a message on the FRMO message board today, they said they think this stock is great, they love Stahl but don't quite understand the relationship with Horizon Kinetics. That person is my competition, in FRMO's case I understand how it works, so I'm at an advantage. For some stocks just having an annual report puts me at an advantage. I know someone reached out to me a while back and said they purchased Ash Grove Cement because they thought cement would benefit from the recovery, they never saw a financial statement. There are some VERY smart players in this market as well, and when one of them is selling, or they think an idea of mine is junk I take a long and hard look at my thesis. You need to have the courage of your own conviction, but be willing to adjust when needed. As for how long this takes, I spend a few hours a week on it. Some companies like PDRX report once a year, it takes 20m to read their annual report. I spend 20m on that position once a year. I have ~50 positions, at most they take an hour to read the annual report, so maybe 50 hours a year minimum. My goal is to find 1-2 investments per month, I spend a few hours doing this, most of it is spent writing things up on the blog. I spend more time looking and discarding ideas, no clue how much time that takes. And PDRX, they don't release quarterly financials, most of these companies don't. You need to be comfortable holding something that you'll receive information from once a year in the mail. Although you can call the CFO any time you want and talk to them with ease, so that's the tradeoff. Nate

There was a video on neatvalue.com (and posted here) that's down, but Buffett answers this exact question directly in 2011. While in India someone asked him what he'd invest in if he had less than $10m in capital, he said "Graham stocks" the net-nets, low book value, cigar butts, then he quickly said he has too much money and started to speak his standard line about great companies and how you can hold them forever. I'm always fascinated at this dynamic anytime this discussion comes up. The Graham/Schloss investors will buy loads of cigar butts and diversify, yet every one I've talked to can understand the great companies and good price idea, and why someone might concentrate. Yet the Buffett groupies seem to have this dogma that the only "true" way to invest is exactly how Buffett does right now, in giant brands at reasonable prices. I don't know why the Buffett people are so strict and so exclusive. I've said it many times before, clearly the best way to get rich (if that's your goal) is to buy some tiny small cap and ride it to the moon, and only own that company. Buy Starbucks when it's three branches and ride the wave, it's undeniable. I can understand concentrating, I can understand buying companies with moats. But I know myself, I'm too stupid to figure those things out. Companies pay millions of dollars per year to consultants to help them develop competitive advantages, most which are a fiction. If those guys who do this day in and day out are hit or miss why should I, someone who does this part time think I can suddenly divine moats and the next great growth company? Buffett is a genius, he is the Michael Jordan of investing. No matter how hard I practice I will never be Michael Jordan, it's a natural talent. I like Graham because he lays out a simple framework for all the non-geniuses, I am not a genius, at best I have absolutely average intelligence, so I have found a style that suits me. I also recognize there are some VERY bright investors on this board, I would absolutely hate to play Trivial Pursuit with most of you, for you guys the Buffett thing is probably the right approach. I also know this, you'll probably end up with much more money then I will, and I'm perfectly fine with that. My goal is to invest prudently with the skills and talent that I have. As to funds size, a Graham deep value strategy could easily accommodate $30-40m or possibly more. I know there are fund managers on the board, so this strategy is out for you, which is also why it works so well for us little guys.

Here are second quarter results: http://www.otcmarkets.com/otciq/ajax/showNewsReleaseDocumentById.pdf?id=2021204066 I'm taking that plus the CEO statement in the annual report that these core earnings are what we should expect going forward. So $.42 a quarter, maybe $1.50 for the year. This is the same as what you put together. I believe some of the stock situation might be cleaned up soon with TATT reducing or eliminating their stake. I believe the preferred is owned by the CEO and is convertible. Presume that converts and the company buys back the TATT stake, it would be a net positive. I'm betting on management and margin growth. The balance sheet is much better than where it was when I purchased this. My initial buy was based on the fact that they sold their money losing division for more than their entire market cap, the stock didn't move. They used the proceeds to pay down debt, and now they have two profitable divisions that are poised for growth. Maybe this is why I'm not a GARP investor... In terms of the stocks I listed I'd say PDRX is probably worth a look over FAVS, but FAVS is interesting for sure.

I would argue that Tim's definition of liquidity is much different than most on the board. I enjoy the buy at P/E 5 and ride to P/E 10 investments as well. I have purchased a few P/E 1 stocks too, in every case they've doubled, I'm not complaining. If I'm buying something VERY illiquid, I want to ensure the business is sound. These companies are the type that Buffett mentions wanting to own if the market were to close for five years. I have a number of holdings that only report once a year, I haven't lost a blink of sleep over them, they're well run companies that are cheap. Eventually value will be realized, but I'm patient.

Sometimes you need to buy a share and call the CFO. Seems like a pain doesn't it? It is, but where information is hard to get it's extremely valuable. It's very hard to have an informational edge on Pfizer, but to have one on Thermwood Corporation you just need to spend a few cents for a share and call the CFO.

I look at tiny companies because it's easy. I can usually eliminate a company within 15-20 minutes, which is incidentally about how long it takes a read the entire annual report. I can eliminate something quicker is most cases. I'm looking for gross undervaluations, something like Federal Screw Works, at 10% of BV would catch my eye. I'm actually familiar with them, what always steered me clear was the constant losses. For these positions I start with a 1% sizing, I will increase it up to 5% if I grow to love the company, or if it becomes cheaper. Here's the attraction for me, I can buy higher quality companies cheaper than on a listed exchange. The net-nets on the NASDAQ are complete junk. There are a handful of unlisted net-nets that are very profitable, and decent companies. I'd rather scrounge for information and get the higher quality company at a lower price. The attraction of the very small stuff isn't just absolute cheapness, it's also being able to get things that are a notch up in quality. PD-Rx, yes, I really like them. They are an example of what's great about these companies, a press release came out two (maybe three) weeks ago saying they signed a $40+m contract with the government. The stock didn't move, just look at their latest annual report to see how significant this news is, I'd say very! It seems weird to say, but I believe that micro-cap investing is both the easiest, as in easy to understand, and takes the least amount of time. I could read the SHLD annual report or read the annual reports for 5-10 small companies that all have the same upside. There's also less of a chance I mess up with a small simple company by assuming something wrongly, or mis-estimating.

Nate, Truly appreciate the great work you do on your blog. Are there any plans for keeping a running list of the stocks which you have analyzed and written about in a separate section on your website? Thanks. I tried this at one point, but it was an upkeep nightmare for me. I see the value though, after doing this for a few years I've probably profiled 150-200 different companies, and some from a year or two ago are still very attractive. There is probably a way to expose those somehow without having to read through the whole archives. Maybe the prunes guy can write some web scraper for my site?

Thanks. I'll try to go through these companies and see if I can reverse engineer your thinking :) I had a very quick look at FAV: http://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=81cae14e-5bba-4d9f-a40d-895abb9f2954 Dividend is great, but they are underperforming the market pretty badly. I guess you have other reasons for owning FAV? http://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=d69c9986-1ae5-4bd1-8280-6761f7ff30da I think you missed the "S" at the end of the ticker, it's FAVS, an OTC listed stock, not the fund you pointed to. The company sold off their underperforming division and are left with two profitable divisions. Earnings have shot up. The CEO has a hedge fund/PE background and is very focused on capital allocation. They paid down debt with the proceeds from the sale and not have a fairly clean balance sheet. The company isn't afraid to take on debt for an attractive acquisition. The company was a net-net for a while, but almost all of NCAV was tied up in the division they sold. This was an interesting case, would I rather have the balance sheet safety where the safety comes from a money losing division, or no asset safety with earnings growth coming out strong? I'll take the cheap earnings without the balance sheet. Off the top of my head they're trading at an effective P/E of 5 or so. I've done very well buying the balance sheet bargains, but I've also done very well buying cheap earnings, and I mean cheap, P/E 5 or less type companies.

I have a portfolio full of these little gems, the better ones require more work to find. A few random names that I like: First Aviation (FAVS) Goodheart-Willcox (GWOX) Scheid Vineyards (SVIN) PD-Rx (PDRX) Kopp Glass (KOGL) Hammond Manufacturing (HMM/A.Canada)

A company can distribute their bulldozers in-kind to shareholders if they wish. If someone doesn't own a full bulldozer they could distribute the treads or whatever they felt like that would satisfy an ownership interest. As Kraven points out a company owns the bulldozers not the shareholder. Here's the caveat, to the law someone who's a shareholder is a legal owner. This means you can legally go on the property, examine books and records etc. It's like trying to trespass in your own home, you can't, you own it, same with a company. Clearly some companies will try to fight this, but if your pockets are deep enough you can fight back and court precedent is that shareholders are owners and are allowed on the premise and are able to examine anything that is relevant to their investment.

For all who think there is no problem in Europe, I simply invite you to come to Italy, have a nice trip for a few weeks, so that you can relax and visit wonderful places. Then, when finally recharged and with your full strengths completely restored… TRY TO DO SOME BUSINESS!! GOOD LUCK!! ;D ;D giofranchi I had an Italian who worked for me on a project last year. He ran a tech company in Italy, he left and came to the US because he was tired of the stress and hassle of just trying to operate. Some of the stories he told made me question how anything actually happens in Italy. He is from Southern Italy, which I gather is a place all to itself in terms of being business unfriendly. When I worked with him I held an Italian investment, which after talking to him at length I sold, the company was run by the mob. I ran some other ideas past him, and after getting more on the ground intel decided that Italian investing isn't for me, I'll let those bargains go to someone else..

Great results, you are obviously very wealthy, or you started from zero back 10 years ago, and with a few more years of 37% returns will be wealthy. If you can somehow keep it up for another decade or two you will likely be a billionaire. I'm curious as to why you still have a day job as well? Presuming you started with $50k or so you're making $300-400k a year from investment gains. Is it that you don't want to tap the kitty yet, or is it that you just love your job?

This thread seems to be focusing on the stereotype of a "smart" person, someone who's introverted, keeps to themselves and is deeply technical. I propose there's another type of "smart" individual, the one who has social smarts. This is the person who is able to muster all those hiding-in-the-basement-brain types to get something done. I have managed teams with extremely smart people, I am by far the stupidest one on the team, yet on their own nothing would get done. They would be happy to thrash on some intellectually challenging point constantly that is inconsequential to the delivery of the project. The person leading isn't dumb, but they are able to differentiate details that matter and details that don't matter. If book smarts ultimately mattered for success librarians and historians would be ruling the world.

Are you implying that only introverts can be smart?

If sites seem slow and you want to know if it's you or them the best resource is the Internet Health Report: http://www.internetpulse.net The grid shows all of the major routers on the internet, yellow and red ones are having issues. If your traffic goes through one of those routers you'll see slow traffic.

Read this article this morning, so dead on. Ended up emailing it out. The article is very company specific, I've worked at a number of large caps and this rings true. My work at startups didn't resemble the article at all. I sit next to a guy who has at most 3-5 hours of work a week. He is there because they didn't want to lose the money in their budget, the choice was smaller departmental budget or hire a person to keep a seat warm. There are thousands of employees like this, it's unfortunate, but the hoards of middle managers making these decisions are playing with someone else's money.

Cloning is perfectly acceptable in the hedge fund world, it's a way to scrape fees off institutional investors, they're called Fund of Funds. You start a fund to invest in other funds, you take a fee, and the underlying fund gets a fee. Managers make out and the investor is lucky to get the market return. Yet the sales pitch is incredible. You're offering the opportunity for some semi-large regional group to gain access to some super exclusive star investment manager that they could never access on their own. Don't know if you all saw it, but at the BRK annual meeting this year, Warren showed a slide on how the "Fund of (Hedge )Funds" has done versus the S&P Index five years since his bet. S&P Index: +9.5% FoF: 0.5% That fact won't get coverage in the mainstream, financial media Doesn't surprise me at all, they always seemed to be the worst investments possible. You have a fund with a high fee structure, and then a feeder fund with a high fee structure. They're almost built so it's impossible for investors to actually do well, yet management does very well (the goal presumably).

Cloning is perfectly acceptable in the hedge fund world, it's a way to scrape fees off institutional investors, they're called Fund of Funds. You start a fund to invest in other funds, you take a fee, and the underlying fund gets a fee. Managers make out and the investor is lucky to get the market return. Yet the sales pitch is incredible. You're offering the opportunity for some semi-large regional group to gain access to some super exclusive star investment manager that they could never access on their own.