oddballstocks

George Risk actually makes not so much home alarm systems, but switches for the security industry. They're mostly highly specialized (read: moat) switches for all kinds of security applications from preventing fuel theft from 18 wheelers, pool alarms, museum lift detectors and the like. And they are super cheap right now. I've owned them a few years, bought them as a net-net, blogged about them a few times in the past as well. I have held on as they've traded above NCAV because it's still clearly undervalued, but I'm not as enamored with them as some other value investors. I sold half my position once I had made 50% on it. Here's the problem with them, Ken Risk is nearing retirement, I don't get the sense he's aggressive about growing the business. His daughter is the CFO, she seems nice enough, they are all generally nice Midwest types, but not sure if she has the fire to grow the business either. Even if they do have a moat which I'm unsure of they aren't in much of a position to scale their business. They're located in Kimball Nebraska, go do a Google Streetview around town for 15m. It's like every other Midwest town of 2,000 people, not that big, compact, tidy etc. So what's the problem? Where do you attract talent if you want to double capacity? The town couldn't support much more than double, so if the business keeps growing they'd need to move somewhere else. The problem is the company's identity is tied to the town's identity, so that's unlikely. What I'm trying to say is even with the high ROE/ROIC they have this small capital base they're growing off of, so moat or not they're constrained. I'm happy to hold them, book value is growing, it takes maybe an hour a year to read their quarterly and annual report, so not much time commitment, but I don't expect to wake up in 10 years and see them trading at $45 either.

Had a crazy boss years ago,we took this test for him 33/33, it only confirmed what we already knew. The guy was a very high level executive. Also slept with a handgun under his pillow so he could act quickly if an attacker came into his house. We asked what would happen if his kids or wife startled him awake, he said that's the risk he takes to be safe..insane guy, literally, yet extremely intelligent and high achieving. People who didn't know him well admired him, the sheen wore off quickly after working directly with him after a while.

Maybe I am wrong to make the assumption, but how many quality $10m companies go public every year? Seems like slim pickings. Would you mind sharing one or two names of small companies with a moat that you follow? I have a few on a site I run for unlisted stocks, and I know the microcap club guys have a number as well. Like I said above, this isn't really my area of interest at all. Look at CSVI, they did 20% for a long time, stock quadrupled over the past decade, went from 100m to 426m, continue to grow at the same rate.

I am a bit suspicious of this. How can a company have a history of meaningful growth and stay under $100 million? You have to invest looking forward instead of backward. Also reconsider the math, a company starting out at $10m can grow at 20% annually for 25 years before making it to a billion. It takes them 13 years to climb above $100m, I'd say 13 years of consistent 20% growth is a long enough track record. The trick is to find the next Starbucks and buy when it's still a local company. This is really not my specialty but there are investors out there who do well with it.

I'm with Hielko, I don't want to take a concentrated bet on the USD, a lot of my investments are in it, my home is in it, and I get paid in it, so holding a bit of something different is good. Over the long run, 15 years or more currency movements tend to wash out. Look at the Tweedy Browne international portfolios long term performance. I don't have the link but they show the results hedged in USD and unhedged. In the short term there are fluctuations but going past 10 years the returns start to converge, at 15 years there is almost no difference. If you're thinking if sticking in these markets for the long term I wouldn't worry about it. If you're just looking for shorter term trades then hedging might be appropriate.

I think you have your logic backwards here. Seth Klarman, one of this generations best investors, and his team of managers/analysts is able to find 20-30 stocks to invest in . . . I think a retail investor working part time would be nuts to think they could match that. I might know 20 decent companies well enough to own them, but I don't own them because the right price hasn't presented its self. I own 5 stocks in my brokerage account because I can't follow 100 stocks closely and I feel comfortable with the safety and future prospects of each. If I'm wrong my returns will be volatile, but I can accept that. If you buy the stocks in any of Graham screens (net-nets, Enterprising investor, Conservative Investor) you WILL beat the market, guaranteed. The problem is that most of them are companies with <50M capitalization. A retail investor can buy them, but not somebody like Klarman. This has been my experience, stocks below 100m are the sweet spot, they're off limits for bigger funds and most retail investors don't feel comfortable investing in something so small. There are some incredible prices though, and a retail investor or small fund manager could do very well for themselves in this area. I believe these are the secondary market stocks Graham talks about in Security Analysis so often, they were his favorite hunting ground as well. For all the moat investors on the board there are some really nice, relatively cheap growth stocks at this level as well. It's a lot easier for a $50m company to go up 100x than it is for a $5b company.

For me that would be a problem. I don't want my portfolio to represent past ideas - I want it to reflect my current thinking on each position, all the time. I used to have more of an ad hoc portfolio structure, but I was not comfortable with it. Now I have a prescriptive structure that I created, with 20 long positions (ranging from 12% to 2%) and 20 short positions (each around -1.5%). It's really nice for me to not spend time thinking about portfolio sizing. Maybe I'm confused, do you do a clean slate every few months or something? I'm saying I have positions in all stages of value realization. Some are newly initiated positions, others are just in a holding pattern, and some are nearing IV. So I'm selling down the IV ones to buy new positions, but I'm not going to sell off something that's in a holding pattern just because it hasn't reached IV yet. The truth is I don't have a ton of ideas to implement that either. I might add 10 positions over the year or less, and sell off a few. So it's not a lot of activity at all, mostly just waiting.

I like this thread a lot, have tried initiating one myself several years ago. It appears very few, including this board's members do that. I'm basing this on frequent posts suggesting market timing, lots of trading and the like. How I wish I was the 3 position (& successful) investor over the past 10-15-20 years but that will have to wait for another 5 years, minimum. I have transitioned to my 3 position portfolio since 2008. BRK(60)-FFH(30)-LVLT(10). I've owned these three and other things between 2000-08. The best thing now is that I sleep more with 3 compared to 5 or 10 positions. And the extra sleep comes from having less to read. I have a big passion for music and have freed up so much more time for that with concentration. And btw, I glossed over my five year transaction history on Fidelity and I've paid virtually zero $ in transactions / fees. Of all things that helped me get over any inhibitions to concentrate, WEB's suggestion that over the next 10-20 years the market is likely to return about 5% helped the most. I am very comfortable with an outperformance of 2-3%. If there is no outperformance at all, I like the fact that my money is coinvested with owners who are hell bent on not losing principal. I have done 9% annually over the past 5 years. Not bad for sitting on the butt. I don't do options, any kind of leverage etc. Too much work and don't like to be bound by time. Now the question you have posed, why not just 1 or 2? Why not 1? I suppose your mind does not suddenly make that further concentration a reality. Or does it? . But I already derive comfort thinking that one day, I am going to own 1 or 2 things for the rest of my life. Concentration is all in the head. Good response, and I think you'll do well. In a sense you've just delegated any diversification decisions to Buffett or Watsa, which both aren't bad choices. I'd say your portfolio is more akin to owning two value funds that don't have outright expenses.

The almost impossible, unimaginable situations. Because you do not know if everyone suddenly does not drink Coke tomorrow, a terrorist attack on all Coke facilities etc.. Right, so you need some element of diversification against that. I prefer to diversify both in the companies and countries I own companies in. If something were to happen in the US I have money in companies and currency outside the US. Maybe I'm paranoid, but as rranjan says I'd still live to fight another day..

This makes sense, maybe I could clarify some. If someone put 50 ideas in front of me with capital to invest in all of them I would pick the best. I can clearly see which are better, the problem is I'm not starting from a clean slate. I already have a portfolio with some cash, so I'm looking at a new idea, and if it meets my hurdle requirement I consider it against maybe another one or two ideas at the time and invest. So far I have 50 companies that I believe will all give me 50% or greater upside, or 10-15% in an ongoing basis. The portfolio has been assembled over time in this piece-meal construction, one or two names at a time. But since I always have 10% in cash or so I rarely sell one cheap thing to buy something cheaper, although I'm doing that this afternoon once New Zealand opens. I should also state that my entprepreneur example is actually probably backwards. The entrepreneur is actually extremely diversified, they have hundreds if not thousands of customers. Whereas someone working for a salary is extremely concentrated, they only have one employer. But as Kraven said earlier, Know Theyself. I don't invest fulltime, and I don't have the ability to watch my holdings very closely. I sleep just fine with my portfolio and will go days without checking anything without a second of worry. Many of my companies only report once or twice a year, and never report news, so I need to think even less about them. I could imagine keeping up with the informationflow on some of the larger caps the board likes.

In the general investing world I guess I'm fairly concentrated, I hold 50 positions, yet compared to most on the board I'm just hedging my ignorance. I do have 20% of my portfolio in one position, but that's the result of it running up 10x, not a concentrated bet, although in a lot of ways it is now. Here's my thing with concentration, I would like to hear from an investor who's invested the last 10-15-20 years with a consistent 3-5 positions. If they have market beating returns they should know a lot about what separates their winners from non-winners, so the next logical conclusion is why aren't they only investing in the one or two best companies they find? I know Ericopoly gets a lot of press in these performance threads, but he seems to embody the person I'm thinking of. He knows for sure when something's a winner, so he goes all in on it, and his returns reflect that. To me this is the logical conclusion of investing like that. If you can look at a list of investments, know which is the best, and know which will return the most why diversify out of the best? The bigger question for the 3-5 position people is why do you have so many positions? If you have consistently outperformed like that why do you need so many positions? Why not pick the one or two that will do the best? I would have no problem concentrating all of my money in one position, the only qualification would be that it would be a position I'd have control over. I'd sell all my stocks to invest in a business that I was the CEO or Chairman of. But that's just my personality.

Sure, just plug in the date of the addition into Excel and use the XIRR function to calculate your return. As for myself, I'll find out when Fidelity calculates it all for me on 1/15/2013, I was at 22% on 11/30, my balances look roughly the same, so probably somewhat close to that mark. It's fascinating to see how different things do, I have my investments spread across a few accounts (taxable, retirement etc), my taxable looks like it was up 31%, that's where I do most of my foreign investing. My accounts with mostly US stocks fared worse, up 10-12%, all of the accounts together are the 22% figure. I'm glad to see some people reporting less than market beating numbers, it takes courage to post on a chest thumping thread, even better the mistakes made and lessons learned. I'm impressed with the returns on here, but they're really not different from an entrepreneur or angel investor who put all of their money into their own business, or two or three companies they know well. I could never get comfortable with the invest in two or three things camp, but I applaud those who did, and even did it with leverage!! For those willing to take the risk the return was commiserate. One final thought, these threads are a great example of self-selection bias. There might be 50 or 100 posts of returns but the view counter will be in the thousands. I realize people re-read the thread boosting the counter, but there are also a LOT of people reading who never post, I wonder what their returns are….

Sweet, we can relax now, all the fiscal and debt problems have been solved once and for all in the US… Oh wait, we just kicked the can down the road a little further…until we meet the can again, party on!

How much did you end up paying for the Japan company handbook with shipping? BeerBaron I ordered it from Kinokuniya Book Stores of America in NYC. It was $148 total, that included shipping. They shipped it very quickly. If you went to the store in person I think it would be cheaper, but immnit sure. I called and ordered by phone.

Nothing to add except anecdotal evidence that manufacturing is returning. My brother works as a project manager for an industrial company in the Rust Belt. Business is stronger than its ever been, both domestic and overseas. They can't hire enough people, and everyone's working crazy hours. Their biggest competitor is in the UK, and it's cheaper for clients to buy in Dollars than in Pounds. US companies also have the advantage of cheap gas right now. A friend of mine works for Alcoa, he's been working on some project to refit their plants for natural gas instead of whatever they run on now. He said the cost savings is mind boggling.

Yes, there's an electronic copy, it is a CD-ROM version and it's all in Japanese. The only English version is the hard copy book. Based on the fact that the book is the most recent one published (this quarter) I'd say the interview is from November or December.

Thanks for posting that, I noticed that he had the most recent Japan Company Handbook on his desk, I know because I have the same copy I've been working through here. I guess he just can't get away from paging through those books looking for bargains…!

No that is a fair question and the following is quoted from the first draft of a letter I’m putting together now, so consider yourself a guinea pig. Firstly, in practical terms the removal of $600Bn from a $15,700Bn economy is hardly the end of the world. It is not inconsequential, but the world will not grind to a halt. Secondly, $600Bn of debt on let’s call it a $16,000Bn debt pile is insignificant when measured against roughly $46,000Bn of total US tangible assets plus $141,000Bn of financial assets sloshing around American pockets. You can question how much of those tangible and financial assets are being double counted, but against that you have to also consider off balance sheet assets such as the “recently discovered” US gas assets unlocked by fracking. By some measures the annual oil/energy saving for the US can run to $600Bn/annum. The benefits are already being felt. Consider that from 2008-2012 US GDP grew from $14,200Bn to $15,700Bn yet net oil imports for the US decreased by 3.3m barrels per day to 7.8m barrels per day for an annual saving of around $100Bn. Thirdly, you have US Fed that is clearly backing up its commitment to do what it takes with actions to the tune of $85Bn per month or $1,020Bn per annum, so I doubt they will let $600Bn spoil a good party. What should concern us is that the US is currently spending 10% of “tax” revenues on interest while interest rates are at historical lows and the majority of the debt is very short term (even lower interest rates). Stimulus will not end until inflation forces the world to demand higher interest rates, which will force the Fed’s hand and lead to higher interest rates, which means your 10% could quickly become 20% and then you very, very quickly have serious problems. So, for us Dec 2012, Jan 2013 and the foreseeable future will be business as usual, but we can hear the train coming. I have a slightly different view to most on debt to GDP, because I think it is a bit like talking about Debt/Revenue for a company. Be as it may, I also think the US and Japan are in different positions both in the size of the problem and the immediacy. Japan’s issue is very large and with inflation just about guaranteed in the next few years their hand could be forced on interest rates very soon. Moving from sub zero interest rates to 2% while spending more than 20% of revenues on servicing your debt strikes me as a slightly comprising position. I am not advocating I know exactly how it will pan out in the medium term, but I am certainly not taking any currency risk. Hence my generalized question…do you hedge the currency? In light of the above I imply it might be a good idea. So simply put: yes the US might have similar issues, but it ain’t tomorrow’s problem. Correct, but Japan’s ROEs clearly show that it comes at a huge price. In fact it is a net cost, because from what I can tell Japan’s companies have ROEs below cost of capital. You can have full employment tomorrow in the US if you are able to convince all US companies to run with sub 8% ROEs. Note that I am purposefully avoiding putting numbers out on ROE, because it varies significantly depending who you listen to. Goldman Sachs estimated it to be 3.25% in 1995 and according to them it is now as high as 7%, but I question the methodology they are now using. My research indicates that it is now closer to the 1995 number than the latter. And that is not a bad philosophy to have. However I bet you will not invest in Iraq, Pakistan or maybe Nigeria. If not, why not? Japan has real well documented problems and not thinking about them does not make them go away. In this case it really is not that complicated and on a basic level you have a “new” BOJ very clearly saying that they will inflate…it is now or never… Personally I will not bet against that, I will put in the call to my broker to hedge the currency. It is not a scenario I’m contemplating. Japan is not going away, unless they really cannot let the Spratley Islands go or whatever those islands are called they are fighting over. Please note that I did not suggest Japan is not a place to invest. I said there are hurdles, I think, you need to overcome. We’ve had a long and happy experience investing directly in Japanese stocks. However, I think a critical ingredient is that we’ve always set exactly the same bar we set for US or any other company. Well run companies of which the pocket risk is as important as the fundamental investment risk. I’m simply not prepared to invest in a low ROE company even if it has a high cash component if my partner is sitting on that money until the cows come home. Offering that company to me at a fraction of its cash does not change my mind. In conclusion: Is the JGB market in bubble territory? Is the stock market generally depressed? Will inflation cause the JGBs to deflate? If so where does the cash go? Interesting thought. Thank you for the response, it's appreciated. I think inflation is coming at some point as well, and the more I think about Japan the more I think I need to hedge some or all of my currency risk. The difference with Iraq/Nigeria/Pakistan is there's also political and stability risk. Japan is a first world country whereas in Nigeria there could be a military coup next week. It's possible in Japan, but about as likely as a military coup in England. You have some good points on the ROE, although some of the ROE's are misleading. If you back out the excess cash at a lot of these companies ROE's improve to more normal levels. I've been looking at net-nets and net-cash companies and one of my metrics is ROE ex-cash. There are some in the 10-15% range, so the actually business is decent, it's just masked by the overcapitalization. Of course there are slews of 2-3% ROE companies ex-cash as well. I'm not as much of a good company at a good price investor, I do better with deep value and cigar butts. For solid compounders there are probably just as many in Japan as anywhere else, although I'm not sure how cheap they are. I've found a number of higher quality companies selling at lower prices in Europe. The pocket risk is real and if the currency drops that high cash holding suddenly isn't as valuable either. My first pass at Japan I was looking for the safest absolute bargains, the net-cash companies. As I've been looking at companies and investing in net-nets over there I've changed my approach a lot. I'm not looking for severe undervaluations on acceptable companies. I'm looking for high FCF yields, no debt, and an ok ROE ex-cash. A dose of foreign sales exposure is also helpful. It seems like I'm looking for the impossible, but with how cheap Japan is I'm finding companies that meet my criteria. I should also note, I started with net-nets because it was a good starting point for balance sheet safety, but I would probably take a better company at just a book value discount to simply a discounted pile of cash. But even with the net-nets there are success stories. Sonton Foods, and Noda Screen both went private in management led buyouts. Sonton Foods at a 60+% premium, Noda at a 100% premium to trading prices earlier in the year.

MrB, Are you avoiding US investments due to the fiscal cliff or the $69T in total obligations (unfunded pensions etc) to our $16T in GDP. The US has onerous problems just like Japan but we keep most off the books. I think we'd both agree that a liability both on or off the books is still a liability. This isn't an attack or anything, I'm genuinely curious. This is something I consider, should I be worried about my Dollar holdings? If we look at the fiscal problems Japan's having and their predicted outcome a similar story could be painted about the US. Another thought worth considering, Japan has almost no unemployment. I'm willing to wager that almost every US senator and congressperson would double our debt to have the same unemployment that Japan has. Just food for thought. In every part of the world there's risk, there's the macro risk in Europe, there's risk in the US, there's the house bubble in Canada, the China bubble. As a value investor I'm looking at companies first not markets first. The companies in Japan are priced as if it would be better if the whole of Japan completely closed up shop. Japan's companies are already factoring in the fiscal destruction of whatever fate they might have, whereas US ones are not. I'd argue that even Europe isn't all that cheap for their problems. So if Japan does implode do companies go from 50% of BV to 10% of BV, or 1% of BV? What's a good price? I'm obviously concerned at some level about macro as well, I don't want to lose my money. But I'm also not letting the macro drive my investment decisions, I know myself, I'm not a macro investor, I can analyze companies but not economies. Just a thought experiment. The market is saying that Japanese companies should liquidate, they are destroying shareholder value. Yet Japan is a critical element in the global supply chain, and holds valuable assets and IP. What if Japan did just close up, who would be affected? Could US companies continue to function if there was no Japan? I'm obviously concerned about losing my money, not just in Japan but everywhere. I have hedged my Yen exposure on and off since investing over there. Right now I'm exposed, but I'm considering buying some deep out of the money puts, a sort of catastrophe insurance.

Interesting, any ideas? My account has just been sitting there... Search the board archives, someone posted a massive document with hundreds of Indian net-nets, I'd say it's a starting point.

Yes, the Kuppy blog is good, didn't know he posted here, very cool!

Dividends, and that was Kenya. Each country is different. I'm guessing your Indian? There are all sorts of crazy restrictions to ensure no non-Indian invests in India outside of a mutual fund. Lots of bargains in India.

Simple. Go to the Botswanna exchange website and contact the brokerage companies authorized to trade there and ask how to open an account. I bet you can do it all by email, and tomorrow morning you'll have five or six instruction packets in your email.

I have spent time looking at Africa. I looked at all the listed stocks in Kenya and Rwanda (all 3). I never bought anything. I've heard there is deep value it Botswanna. As for buying just contact a local broker and setup an account. I've talked to a number of brokers in Africa and setting up an account is very easy. The problem for me is most will only pay dividends in local currency to a local bank. So you end up with a brokerage and a bank account. The only problem is I'd need to fly to Africa to get my money out. The ones I looked at wouldn't do wires or remote withdrawals. So buying a stock with a 10% yield suddenly isn't as attractive.

Perfect timing for this thread to come back to life. I purchased the Japan Company Handbook that I mentioned on page one. I also have a list of 400 or so net-nets in Japan. In the handbook I'm looking at every JASDAQ and Mothers listing. I've looked at 500+ with another 600 or so to go. It's very quick. I'm looking for low P/B high FCF yield, no debt, positive retained earnings etc. The criteria is strict but I'm finding plenty of matches. That said just eyeballing the Tokyo and Osaka stuff looks a lot cheaper. Osaka stocks are really cheap. My plan is to take the list of the ~400 net-nets then look each up in the handbook and find the gems. To head off potential questions of why do this manually....looking at TONs of companies gives one a great overview of the market. I have a rough feel for how investors in Japan price stocks. ROE is king, an ROE above 20% and the stock trades well above book and with a high earnings multiple. Even spending a few seconds looking at these companies I'm getting a good feel. The book is nice because sometimes there's a key detail in the summary that I'd have to spend 30m googling for, or I might never find it. I've seen a few times the line "management is hungry for acquisitions", that's a pass for me, I might never quite translate that correctly if I was doing all my research online. I've done this with other markets (New Zealand, Portugal, Kenya, Rwanda) and the results have been great. One JASDAQ net-net I like and recently purchased is Odawara Engineering. Sales and earnings have been growing, business is getting better yet they still trade in the dumps.