oddballstocks

There was a quote an investor I know has said in the past that I really like: "Cheap stocks are like busses, if you miss one there will be another ten minutes later." There are 40,000 equities worldwide, don't feel like you missed the boat because of one or two stocks people have made money on. There are thousands of cheap stocks globally, you just need to be willing to look in areas others avoid.

Agreed, Japanese companies were fine with the Yen at 120-150 not too long back. There's a lot of fear over a drop, but I'm in year camp in that with a drop some of these companies are going finally have a run. Do you hedge your Yen exposure? I started to hedge a portion of it, still can't commit to a 100% hedge yet. Nate

Not an expert at all, so I'd check with a securities lawyer. If I remember if you manage less than $25m or 15 accounts you don't need to register with the SEC, but you do need to register with your state securities regulator. If I were you I'd just call the state regulator and ask them. You're going to get the best answer for probably a 2m phone call, and the advice will be tailored to your exact needs.

I hope you guys learned the importance of having redundant backups ;) We had a backup that's part of what the DBA worked on, problem was it took something like 20 hours to restore. After that incident they built out a database cluster to ensure there wasn't a single point of failure anymore. Of course at a startup cash is tight, so the company didn't see a need to pay for and build a cluster until a failure happened. Once the DB failed the checkbook came out.

Anders, One thought about your final comment about Apple. I would say it's not worth worrying about for two reasons. 1) What you think the response might be is probably wrong. Trying to model human behavior is impossible, people act certain ways for a variety of reasons, most we don't know. Maybe they use that material because it's softer and requires let machine setup, a substitute is readily available but would require an extra day of machine tuning. 2) Apple has hundreds of people who's job is to take care of that, and if they fail they're not looking at losing a percentage of their investment portfolio, their kids won't eat, and neither will the rest of the children of Apple employees. Never forget that there are people who are working 40hrs a week for these companies we invest in who have deeply vested interests. For most the company represents 100% of the funds they use to live, they also have personal pride as well. No one wants to be the person at the block party who's company failed because of their actions. Personal story: I worked at a startup a while back, we had a critical database fail that housed the company's data (literally the brain of the company), without it the company would have lost most customers. When the database failed only one person could fix it, yet a team of us stayed there for 30+ hours sitting by just in case he needed our help in some way until everything was fixed. The CTO stayed all night, CEO came in at some crazy hour. People were motivated, we saw our jobs disappearing, especially the execs, they say their investment disappearing. I think the CEO would have ran through fire if it would have helped the database. The point of a margin of safety is it eliminates the need to know all the fine details that aren't relevant to the thesis. I think the conclusion from this thread is that if you're working out the number of hours a miner needs to work in Africa to extract ore that goes into a microchip to be comfortable with the investment you need to think long and hard about the margin of safety, it probably doesn't exist. A general rule of thumb might be that the more assumptions you need to make about the investment the bigger the margin is. Some of the stuff I'm looking at where the company is profitable and trading below cash require one or two assumptions, so a smaller margin is needed and probably a quicker decision. One final comment to the exhaustive researchers. Consider getting a job with the target company, seriously. You probably know more than many employees do, and you would be extremely valuable to the company. You also might get some extra shares as a bonus or something as well.

Guess it really depends on what you're researching. I like small companies, and most of their reports are small as well. I can read an annual report in probably 20m. Quarterly reports probably take 5-10m. I can easily read a years worth of reports in less than an hour, then scan the past few years in another half hour to an hour. Usually smaller companies don't have much news so it's easy to digest that information. After that I can think about the idea for a while and consider if it would be a good investment. I would actually say the biggest chunk of my time is spent thinking about the investment. After I've read some initial things I'll just mull over an idea for a few days. Think about the business, think about the types of people who would want to work for that company. I'll think about what my reaction would be if I found out I was suddenly the CEO. I'll think about who would want to do business with them, or my own business interactions with similar companies. This is all intangible stuff, but useful. More than a few times I've read a thesis, or looked at a business and walked away because I've dealt with the industry in real life. What's on paper is vastly different then what happens in the real world often. I've mentioned this in the past, but I try to approach investments in the most time effective way possible. I formulate a quick thesis on why I'd want to buy. Then I spend time looking at why I wouldn't want to invest. Most investments die quickly here, eventually some make it through and I'll invest. This method saves me from reading and researching everything I possibly can on a company only to find 60 hours later that I don't like a particular aspect. I'm an individual, I do this on the side so time is precious for me. I try to buy companies with a large margin of safety and I diversify. Small companies are usually one trick horses so I'd rather have a stable full then concentrate into a few good ones. Bigger companies are diversified in and of themselves. Intel could probably be broken down into 20 or 30 small companies doing one or two things. I also try to look at the time value of research. If I'm investing $10,000 into a stock and I expect to make 50% I shouldn't be investing more than 100 hours if I want my billable research time to be $50/hr or more. Of course not every investment will make 50% guaranteed. Over the long haul even the best aren't sustaining more than 15-20% a year. So those 100 hours would be like $15/20 an hour. Just my thoughts, everyone is different. You need to find a research style that fits you and how you invest.

Profit?!?!?! Obviously you're not talking about the blog writers.... If there's a profit in there somewhere I still haven't figured where it's hiding. If I wanted a profitable blog I'd probably be writing about celebrity sightings, new Mac products, or extreme couponing...... Racemize, thanks for the plug on my site, I appreciate it. Radio Free Cash Flow, fascinating site, I bookmarked it (I'm old school, no RSS for me) seems like we might cross paths on stocks some.

alwaysinvert, I remember reading about headwinds for Telefonica but don't remember specifics. For Vivendi I'd recommend reading this post: http://valueinvestingfrance.blogspot.com/2012/01/vivendi-vs-free-update.html (French on top, English translation lower) Large price war going on, Vivendi's price is 4x higher than the low cost operator. Seems a lot of people in France hate their service and are leaving. I'm not sure if that's shown up in the numbers yet. For mobile operators in foreign countries I always try to talk to customers to get a local perspective. I know in the US people have strong feelings towards AT&T vs Verizon, but you'd never know that by looking at the statements.

Used to get the WSJ, dumped it, haven't missed it. Get Barrons, it's hit or miss. Some weeks are great and I read most articles, other weeks are a total miss and I read about 25%. I hate some of their ideas "Company XYZ is selling at $21, analysts see it moving to $23 over the next year." I get Businessweek, similar to Barrons, sometimes really interesting, other times a miss. Usually very good offbeat stories. Nothing really actionable but very good business news. I get SmartMoney, was offered 3 years for $10 or something when I signed up for Barrons. Surprisingly good, I've found a few articles in there I've actually cut out and saved. Used to get Forbes, don't waste your time. Read Fortune at the office sometimes, seems like the ad to article ratio is a bit high. So high in fact that I have trouble finding articles in there. I read the FT whenever I'm at the airport since it's easy to pick up a copy. I'd love to subscribe but it's pricy. I signed up for the Economist recently, should start getting it soon.

We're working on some sort of strange hated stock wavelength together... I'm going to really be freaked out if your next thread is about investing in community banks. I've been running into a bunch of natural resource companies as I go through the Walkers Manual and pink sheets. I'm also running into a lot of natural gas companies. Some of these companies are crazy, I'm seeing dividend yields of 10-12% consistently even with prices depressed. I'm more interested in some of the natural gas companies myself, but the coal stuff is interesting too. This area interests me mostly because it's deeply out of favor, but I really only know enough to be dangerous. Any tips on analyzing companies in this sector?

I'm not sure about corporate debt, I believe companies would still be on the hook for that debt in Euros which would absolutely kill a lot of companies. I mention local debt because it would be easier to pay off. Most Portuguese companies I've seen use bank lending not bonds so the debt is with local banks who would presumably be using local currency going forward. I sent you an email as well.

Ok, finally put some thoughts together on this: http://www.oddballstocks.com/2012/02/investment-strategies-for-devaluation.html AZ_Value - Thanks for the compliment. COR is good, but you'll probably do much better for yourself from having purchased the Hidden Champions book. I just wish a lot more of those companies were public! If I remember only 9% are listed. I've gone through about 8-10 more that are listed in Austria and Germany the last few months. Universally they're all fairly valued or even overvalued. On blogging, this has been the biggest help to my investments this past year. Having to sit down and record my thoughts helps me think things out better. Often I'll do some research and think one thing, then as I try to type it up my mind changes because I'm able to flush out some detail or perspective I hadn't initially considered. Let me know if you do start writing online, I'd love to read it. Persistentone - I agree FISIPE is a crappy business, but the idea I had was that a devaluation would be a catalyst. Debt could be reduced because it's in native currency with their export earnings stream. Also their margins would grow as labor costs are lowered. Of course the company has to survive until then, and not lose any customers in the process which could be difficult. I think this is why some sort of moat/competitive advantage needs to exist. I really like COR, earnings have been increasing. I should really do a follow up post. I've read up on a few French companies in a similar space, there might be some opportunity there as well. Unfortunately I read French so slow and Google Translate is imperfect. I will invest in a foreign company that I have to translate if it's a net-net and I have a nice margin of safety. If it's a decent business I really want to understand what's going on, and Google Translate just doesn't cut it.

persistentone, Funny you mention exporters... I've been working on putting together a blog post to detail some of this. I have a similar thesis as you, in a country with a devaluation assets aren't worth much but a good export revenue stream is gold. I'd recommend looking into Corticeira Amorim, almost all sales outside of Portugal. Supply of raw materials is mostly local, so you get cheaper labor. Other labor is worldwide so costs won't shrink as much but they were killed by associated. I also was looking at FISIPE today, 99% export but supply is almost 100% external as well. So they won't get killed purchasing abroad, where they really gain is that labor will suddenly be cheap. Also they're highly indebted, they'll be able to use foreign cash to pay off local denominated debt. They're slightly profitable, so this is really a devaluation play. If they can float until debt becomes cheap and labor becomes cheap a possible win. I have a position in COR, I'd buy them regardless of where they're located though, I like the company, Portugal is a nice little bonus.

Jim Grant mentions a way to play this is by holding Treasury Wine Estates. It's an Australian wine producer that's been hurt by the strong AUD. The thesis is that if China slows down it will drag down the AUD and TWE will start to report record profits. Sales are mainly to AU (so no effect of currency there, maybe demand though), US, and Europe (lower AUD nice tailwind). The thesis is interesting, too many moving parts for me to invest on that alone. I do own TWE but purchased for entirely different reasons (spin-off, selling below book, selling for 1/4 of replacement cost), but if the AUD weakened from China I'd take that as well.

Here's the Fidelity International Trading information: https://scs.fidelity.com/accounts/services/international_trading_details.shtml.cvsr

racemize - I know Fidelity lets you trade international (that's who I use). It's as simple as typing in the quote and clicking trade, just like a US stock except the hours are different 3:30am-11:30am EST. Portugal's commission is €19 a trade I think. For anyone else here's the Euronext site I mentioned: http://www.euronext.com/trader/priceslists/priceslists-1800-EN.html?lan=EN&cha=1800&filter=1&mep=8628&economicGroupList=&belongsToList=market_EURLS&capitalizationList=&investmentList=&eligibilityList= Clicking on a name, then Company Profile gets you to a brief description of the company, a list of shareholders, a summary income statement, and summary balance sheet.

Of course!! I went through the Portuguese market A-Z about a year ago and it's probably worth going through again. Portugal is an easy market to do this with, I think there are 65 stocks, so not a ton of work. I ended up buying two (and selling one) Corticeira Amorim - Cork company, they have a monopoly on cork products, a large market share in wine stoppers as well. I bought on the thesis this is a company with a solid moat, nice ROE/ROA for a nice, EV/EBIT of 5x. The company's since had a 40% run up, but earnings have driven it. Still selling at about EV/EVIT of 5x or 6x. 85% of operations/sales are outside of Portugal, this got dragged in the mud undeservedly. Novabase - A IT consulting company that was selling at EV/EBIT of 2 or 3 (don't remember exactly). They had divested a money losing TV division which was clouding their previous results. They were 75% domestic and 25% international. I ended up selling because earnings dropped like a rock, margins shrunk and it the international expansion stalled out. I misjudged demand, I had thought I was buying a company operating at trough demand, that wasn't the case. Other interesting companies: Brisa - Toll road operator, they're selling under book now with a 12% yield. Tollroads are usually decent investments, traffic remains in decent range as long as there are no other roads competing. If I remember BRISA had a monopoly on certain routes. I was interested at €4.50 but the price was too high, now they're at €2.54 and I'll probably look again. Conduril - Construction company that does most of their business in Algeria, Morocco, owned by the founding family. I emailed back and forth with someone on the BOD for a while asking questions and trying to get more information. I have their 2010 annual report if you want a copy, I'm not sure if they ever posted it on their website. Weird thing with this stock, earnings were something like €15/share, shares were trading at €5. Cash flow was weak, but shares still insanely cheap. I tried for a while to get a order, very illiquid. At one point bid €4.50 ask €85. Looks like it's trading at €22 right now, might be worth looking into again. This company has in the past published English statements, I was emailing the woman from the BOD in Portuguese. I used Google Translate to build my email then ran it by a Brazilian friend. He was amazed at Google Translate, most of the time just a few small corrections were needed. Notes: Here's what I did, I went to the Euronext Lisbon website and found the list of listed companies. If you click on each one there are summary financials, a summary income statement and some balance sheet items. I was looking for companies that were profitable and didn't have much debt. I figured no debt would help weather the recession, and I didn't want a company losing money hand over fist (most were/are). I will also note, a lot of company websites are in Portuguese only statements included. Have no fear, almost all companies file with the CMVM (Portuguese SEC) in English. Here's the website:http://www.cmvm.pt/en/Pages/default.aspx The site is really clunky to navigate, but poking around I was able to get everything in English eventually, it wasn't obvious at first. Here's the Corticeira Amorim Material Information page in English as an example: http://web3.cmvm.pt/english/sdi2004/emitentes/emit_fact.cfm?num_ent=%23%22%24OY%0A&ano=%24%23T%5F%5C%230%20%20%0A Maybe others can post interesting Portuguese ideas in this thread? I will do the same. Nate

JEast - Thanks for the rec, I picked up a copy of that book on Amazon, looks interesting. I've always been wary of my view on retail from the eyeball perspective. A lot could depend on the time of the visit, weekday vs weekend. Big football game on a Sunday means the store is empty when another Sunday it might be full etc. The field research is also hard when a lot of the companies in a portfolio are manufacturing or build a piece for some other part of a process. I guess you could always count trucks leaving the parking lot or something. I've always had the impression sell side analysts do this sort of minutia research. Count parking spaces filled, watch truck traffic, count rail cars etc.

I would identify my strategy two ways: 1) Network for ideas - I will have a stock recommended to me that I look at, sometimes it works out, most of the time I don't invest. Often in researching I'll come across other ideas that are as or more interesting that I eventually invest in. So networking is a great starting point. 2) Brute Force - This is the worst way to find stocks, but has also been the most rewarding. I have picked countries and gone through their stocks A-Z looking at each one. Most of the time you can quickly pass on a company so it makes it quicker. I've also done this with lists of net-net stocks, start at the top and work to the bottom. Most recently I've been moving through the Walkers Manual like this, A-Z. Each stock that's interesting I make a note in a notebook and then work to follow up later. I hate to say it but brute force has uncovered the best and most original ideas I have. Often the companies I'll stumble on won't come back in any screens. The problem is this method takes a lot of work, lots and lots of sifting for not many researchable companies. And out of the stack of researchable companies not that many companies I'd actually want to invest in.

Good article. His investment style seems to be a favorite of this board, own a few positions, hold for a long time, buy companies with moats. The question I always have when I read about these people starting funds is how do they live fees from such a small AUM when starting out? Allan had $200k AUM, 2/20 ain't gonna cut it unless you double or triple it pretty quickly. Do these guys live in their offices eating Ramon until they achieve some sort of critical mass AUM? Seems like a lot of small money managers are in the same boat? Do they all have second jobs to actually pay the mortgage?

I'd be wary of a situation like this, how much value was left for Olympus shareholders recently? I am willing to buy value anywhere but the type of culture that allows something like this to happen (trust me, it's not just two people) isn't the type of culture I want in a company I'm a partial owner of. This is why it's useful to screen for aggressive accounting before investing, you generally avoid the types of characters who might play fast and loose.

If any article about a fund manager's holdings leads investors to dump their shares something is wrong. The whole point of investing in a mutual fund is that you're placing your money and trust with the manager and letting the manager do whatever they want with that money.

Excellent resources, thanks for posting those.

I don't remember the reference in the Snowball but it wouldn't surprise me. The Walkers Manual is a great book, I have the 03 edition, and the 1999 Penny Stock edition. I've found that a lot more of the stocks in the Penny Stock Manual aren't tradable anymore, many more than the unlisted stocks. I think the reason so many unlisted stocks are still around is that they can operate under the radar without much of an issue. I think most people who've gone through the book and looked at this companies would agree with your assessment, this is an inefficient area of the market. Not only is there little to no analyst coverage, most of the time there is little to no information period. Most of the time you need to buy a share of the company and then call (and usually talk to the CFO) to get an annual report mailed out. This is a very cool area of the market, I'm having a lot of fun researching these companies. You need to be innovative to find information, real estate tax records, creative Googling. This isn't your standard look at a few metrics and move on type of deal.

ageofsocrates, I'm sure they are but I'm not aware of any that follow some of the unlisted value micro-caps. If there are it would almost be a crime considering that some of these stocks don't see more than an order a month at most. One stock I own Micropac (MPAD) is very illiquid although they do file with the SEC. They were trading in the $5 range last year and the stock was mentioned in the AAII newsletter as an example of a net-net stock. The stock ran from $5 to $10 in three days on about 20k of volume. Right now there's a bid of $5.10 and an ask of $20,000. I'd hate to be the sucker that punches in a market order on that one.....