Morgan
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Posts posted by Morgan
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Some hope that Internet only editions is the way to go, but a recent study of NYT subscribers revealed that readers of the online edition spent only 2% as much time there as readers of the ink on paper edition. Buggy whips, anyone?
The 2% number does not surprise me at all. I've noticed that I generally look over news websites (and other sites) very quickly, whereas I'll spend quite a bit of time purusing and reading articles in a physical paper. It's much more rewarding depsite getting the same information. Humans are fascinating.
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Pier 1 Imports (PIR) had a ton of troubles leading up to the crisis. Management made mistakes and in 2007/08 they were finally replaced. The new management changed the product line up from less big expensive pieces (furntiture, beds, etc) to smaller knick-nacks. This strategy worked quite well as the stock went from $0.11 (yes, eleven cents) to ~$25.00 a share. I was so close to buying on the day it was eleven cents, but passed becuase I thought they were going to go bankrupt. Needless to say, a 225x bagger is hard to forget, but is a good lesson. I guess. To cut myself a little slack, I think it's quite likely I would not have held until $25 and maybe not even $1. I may have just taken my profits and ran.
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This is just food for thought, but has Buffett ever said to sell stocks? Perhaps limit buying (1969-73? When he closed his fund?). Buffett always says the US will be better and richer in the next hundred years. Unless this Russia issue becomes WWIII Buffett is probably right over the next 10, 20, 50, 100 years.
On the other had, Watsa may be thinking the next year or two, or maybe three, in which case he may be correct.
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I have heard it said it is best to form an LLC for each property. I wonder how to structure multiple LLC's, anyone have experience here?
My understanding is that it isn't worth it in terms of accounting fee's unless they are large properties. It would get unruly I think to have 20 LLC's for 20 duplexes or something like that. If you have two large 100 unit complexes then yes, I could definitely see having multiple LLC's. In terms of pure liability, yes, a LLC per property will minimize the damage done in the event of a lawsuit. You should find the balance that makes you comfortable.
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Tried to browse the forum on my iPhone without logging in. I'm getting the following error message:
"Sorry Guest, you are banned from using this forum! This ban is not set to expire."
Not sure why that's occurring.
Hi Txlaw,
This has happened to a few people in the last couple of weeks. Please clear out the cache in the phone, tablet or laptop. Sometimes stored pages or info won't update as they continue to go to the same stored page.
If it still happens after clearing out the cache and history, send me your IP address for you phone, tablet or laptop? Someone I banned was using hundreds of IP addresses…some of which belonged to other boardmembers. Not sure how that occurs.
Let me know if that works. Cheers!
Great thanks! I was having the same problem!
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I guess I'm not shocked as to how low the median net worth numb's are, with so much conspicuous consumption. My NW is way, way, above the median, and compounding at 15.4% p.a. since 1997. I find it funny when people tell me, i'm good with money. I just spend less the I earn and invest the rest and don't try to keep up with the Jones', who are always one month from insolvency, but drive nice cars. ;)
I'm of a similar mindset as you. The amount conspicuous consumption and essentially total lack of saving is really amazing in the US. There are people around me who earn far more than I do, but are in near dire straights financially. So we talk about what they can do, they see the problem (silly spending) and continue as they always have. One or two bad months they'll be in big trouble. It's only useful to say "stop spending" so many times. Eventually it becomes unwelcomed, so I just say ok good luck. No wonder the average NW is so low.
This is sort of a side note, but does anyone else here think about how much an item would cost in terms of how many hours they'd have to work to earn the money? Sometimes I do and then realize I don't want item X nearly that badly lol. :P
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Mr. Watsa also praised Tom Ward of Sandridge. In regards to ethics and operational execution, he was an absolute disaster. Even during the proxy battles, Fairfax openly supported TW which was a huge mistake (he destroyed billions of dollars in shareholder value) considering how strong the current management is in comparison and the amount of work that was required to turn around this company. IMO, Mr. Watsa lacks good judgment in character and he will continue to support and have full faith in the jockey until the end. This is totally different from Mr. Buffet who expects high quality management with good judgment or he would typically avoid the investment.
Tks,
S
With FFH wanting to go the BRK way of owning operating companies, taking on more and more turnarounds is a sure recipe for disaster. WEB avoids 10 foot hurdles, like the plague. PW finds himself facing multiple such hurdles. This has to do with businesses coming to BRK to get bought. WEB has the right to say no and most of the time he does. FFH's foray into wholly owned businesses is rather unimpressive and leaves one scratching heads.
This is an excellent point. There is a small, but drastic difference in building a collection of companies that have come from turn arounds compared to Buffetts way of getting excellent companies to begin with. In the end both investors have a group of compnies, but Buffetts are more profitable and for longer. Sometimes sitting on your hands and doing nothing really is best.
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I was just curious about the idea. Its something i pitched to the members. I'm thinking building a public track record and maybe getting financing easier could be a positive. We got turned down for financing on a property where we had 30 percent down. It was distressed and 50 percent of the revenue was for staff payroll! Instead of 21 employees we figured the property only needed between 10-12 people. This reduction would have made the property cash flow positive. The bank didnt accept that rationale.
I have a friend in Boston who is in the real estate business. When he was younger, looking for one of his first loans, he said he was turned down by 91 banks (very likely an exaggeration) but the moral is he kept looking and looking and looking and eventually someone lent him the money. If you have been turned down by one bank I would suggest going to many, many more until you get the funding. Surely there is some banker out there who can see your vision and rationale that will fund you. If you're succesful you could have, say, 10-20 hotels in the next ten years. It's good business for him to successfully lend you a ton of money. It will make him look good, so go find that guy (or gal). ;D
How did you find deals like those ?
I have been focusing on the hotel industry recently. I contacted hotel brokers got there listings and worked from there. The key is to find a hotel that shows consistent revenue but, horrible management of operating expense. Can i come in with a lower operating expense structure? How much is my mortgage compared to the current owner? Cut out anything that is not needed to run a hotel while not affecting income.
The holy grail of hotels is finding a independant brand turn it to a brand hotel. This will increase revenue overnight cause now you are in there hotel reservation system.
I finally spoke to a younger indian hotel owner. He explained me there family's blueprint.
1.) Buy lower economy brand hotel.
2.) Fire all employees and bring in there family members from india that want to work in the U.S.
3.) Cut out all extra operating expenses. No bars/restaurants or anything. Just rooms thats it.
4.) 2-5 years sell hotel and do it again. They dont pay capital gains tax due to i believe the 1031 form.
One last note his family buys a lower economy brand cause the pip ( property important plan) is almost non-existent.
Thank you for that rundown. Very cool to see the angle at which people are succesfully getting into various businesses!
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You also have to be careful what type of shell you buy, because there is still legacy liability risk depending on the type of business that operated under the shell previously. Cheers!
Good point Parsad.
Is there a way to 99.99% guarantee that there won't be lawsuits from the past? I assume the issue is, you buy shell company that has done something really dumb in the past but is broke so it's not worth suing. Then eventually it makes a bunch of money and is worth suing from something the previous owners did? Or do you mean some other liability?
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I just got this after putting it off for a long while because it's $30. I read four pages in the second appendix. That was worth the $30 right there. Can't wait to read the rest.
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Great post oddball! I'll do some networking and more reading to learn more. Thank you!
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Threads like this make this message board extremely valuable, I love reading this stuff.
Agreed.
Others have posted the illiquidity issue. For those clicking their mouse to buy and sell this is an issue. For the 99% of small business owners in the US they've accepted that. You will deal with illiquidity, you have an illiquid building, and an illiquid business. But you also gain a lot, you control the outcome. You are running the show. You also get to keep 100% of the cash flow that this generates and do with it what you wish. Investors clicking around just get to rant on forums about what they want to happen with the cash flow, you get to decide. I would say that's a good trade off for the illiquidity. One more thought on this. I've been sticking my finger in the private business world for a little while and I've come to find that it's not as illiquid as one might think. If you have a business that's profitable and you can separate it from yourself (someone else can run it), you'll be able to sell it fairly quickly through a broker.
Control of FCF is so important in my eyes. For me, I can make better investments in illiquid investments (real estate) and generate far better returns than I have in the markets. Also there is no worry that management will just sit on the cash or pay themselves lavishly or act foolishly some other way because, well, I am the management. Less liquidity, but more upside in my case.
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I know people who started that way, and through hard work/brains/luck had net worth in the 8 figure range within a decade.
I would love to know how to do this -- earn a total of $1 million over 10 years and then have a net worth of $10 million. Does this involve playing Powerball? :)
One way is to own real estate in a nicely appreciating market. 100k/yr FCFs from the rents, and say $1m-$2m in property that is appreciating. Powerball could work too though. :)
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And you can live decently as the absentee operator pulling in $53k (or $35k inclusive of financing costs). The manager's knowledge of this (since they will have a good idea of the flow of money) may create friction.
This is something I have wondered about. Pay differences must cause friction at a certain point for some people. There is another local business where my friend works and I learned revenues, COGS and markup and from there can estimate the other expenses. The owner probably makes 60-70k/yr and pays, in total, his three part-time employees about 29k/yr ($10/hr * 55 hours/wk * 52 weeks/yr). Only one employee is needed at a time. My friend never complains about the pay and has a few other part time jobs to make ends meet. Not that I don't agree with you, pay differences can cause friction, but I think a good portion of the population doesn't really think about it too much. Board members probably care more than average because we're investors and naturally just run the numbers in our head. Either way, it's interesting to think about and be aware of.
As per the chef partnership comments, that is something I have thought about. It makes more sense, especially in a rapid expansion scenario. Thank you everyone for the comments.
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Hi DTEJD1997. Detroit metro is a hard place for real estate (unless you're Dan Gilbert). I have been there three times to look at apartment complexes. There are tons and tons and tons of vacant buildings of all kinds. Some simply stunning buildings in seemingly decent locations just sit empty. It's odd in Detroit.
I'm not an expert on the Detroit market, but all the rents I saw were very low and so margins were tight. I would strongly, strongly encourage you to figure out if you can rent the space and if you can, how much will it take to make it reantable. You must be intellectually honest here. 6k sq ft isn't too much space, but there is a ton of open space in Detroit.
Since the seller is your friend maybe you can get a nice, no money down type deal. When we talked to banks they wanted 35% down. Perhaps you can get the seller to finance the down payment or the entire thing. He'd get out of the property and you'd be able to get into it for nothing down. If you can turn it around that's not a bad deal. Make sure you carefully run your numbers and are actually confident you can turn it around. You don't want to be in the same position as him.
As for property taxes, yea they're high in Detroit.
$600/mo is $7200/yr (if everything goes smoothly). Is the money worth it to you for all the work you'll likely do?
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The owner says he makes $120,000/yr, but he is the chef and manager. So if I were to buy it, I'd need to hire a chef (37k/yr according to him) and a manager (30k/yr if I'm lucky) plus financing to buy it (about 18k/yr).
At those rates, I wouldn't have a problem if the employees robbed me blind. Those are super below market rates in either case, especially if benefits are included in that wage, and they'll want to make up for the differential some way.
Why work their duffs off to make you money when they could just go find a do-nothing govt job and have less stress and generate a higher hourly rate?
This is a small town in West Virginia. Living expenses are low. 37k/year isn't a terrible salary to earn here. You can live decently on that.
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It's great, worth buying for future reference.
I got it a while back and read it. Just a you said, it is a great reference to have on the shelf. I've gone back to a few times since I finished it. ;D
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That smells fishy to me.
Haven't you watched Kitchen Nightmares? The restaurant business is not easy.
Also, his numbers don't make sure. He should go out and hire a 37k/yr chef and a 30k/yr manager if it was so easy to make 53k/yr. I have a feeling that his restaurant is extremely marginal and he wants to get out of it because it's a bad business for him.
I have never seen kitchen Nightmares, but I am well aware of the difficulties of the restaurant business. No one ever says it is easy.
The numbers he gives have not been verified. I haven't seen his books or accounting practices. He has been in business for nine years and said he is tired of it dealing with the small day to day issues. He has hired a chef. That's where the 37k number is from. The idea that he is selling came out from a random chat with friends.
I do appreciate your input though. I'm still considering it, but obviously much more due dilligence is needed.
By the way, are you in the restaurant business? Any tips? :)
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\You're right - there are very attractive returns to be had acquiring solid businesses at those prices. As Stubble mentions, however, if you're going to be absentee you need to make sure you're still generating an attractive return after paying the folks to mind the till. Businesses of this size frequently sell for such low multiples because they (a) are "flying low to the ground," meaning any hiccup in revenue could have disastrous cash flow implications, (b) often have substantial customer concentration, and © often thrived by sheer force of personality of the existing owner. All that being said, the ROICs on some of these businesses, because they fly below the radar of larger competitors, can be phenomenal.
The above is right on target.
I've never bought a business, but have thought about it quite a bit lately. There is a local upscale restaurant where I live that is for sale for $200,000. The owner says he makes $120,000/yr, but he is the chef and manager. So if I were to buy it, I'd need to hire a chef (37k/yr according to him) and a manager (30k/yr if I'm lucky) plus financing to buy it (about 18k/yr). So it goes from buying it at ~1.6x earnings to about ~5.7x earnings. That still isn't too bad, but can I invest my money elsewhere and make a higher return with less risk? Adding another 200k of real estate is much less risky in my eyes and I know how to run it well. The main reason to buy the restaurant would be to expand the number of locations dramitically.
One upside of owning the restaurant would be good food all the time. That may be my downfall though ;)
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I'm stealing (or cloning ;)) this from the book Value Investing: From Graham to Buffett and Beyond (Greenwald, et al), but WD-40 (WDFC) seems to have a pretty solid moat and unique market position. The normal 12oz can of the stuff is $5. I go to Lowe's about 20 times a month and I don't even know the competing brands names. Assuming there are competitors, how much cheaper would the alternative have to be for me to buy it? Super cheap. ~$1-$2 tops. Then even if it was $2, I'm not sure I would buy it because I rarely buy WD-40 so I need it to work guaranteed. I know WD-40 will. Will the competitor?
WD-40 style lubricant isn't difficult to make as far as I know, so the production costs for each company should be similar. So the newcomer's margins are likely to be really small or negative as they have to lower their price dramatically and spend on advertising as well. What ways can a newcomer gain market share? Be backed by a larger company set on taking market share? What is the timeline for that to happen? Could WD-40 simply lower its prices and wait it out? Probably. They have $90m in cash and securities. That's 2-3 years of earnings.
Currently trading for about $1 billion with 26x PE ratio. Seems a little pricey at the moment (up~150% since 2009), but something to keep an eye on.
Edit: WDFC makes about $35m/year, at what price could they afford to service the debt load from a LBO? $500m with $150m down and $350m debt (5% for 15 years)? That's about $33.2m/year. Interesting to think about.
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Wow great share!
Thanks!
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Working in real estate full-time for 2 years and 5 years part-time prior. Now it's back to part time, plus working in the investments department of a wealth management firm.
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A negative EV is tough to find. I have only seen it in a stub situation. You are saying the company has more cash on its book then debt or MC. Thats awesome if it also has positive FCF. I would sell everything and buy it and probably get a personal loan and go on margin as well lol.
Seems like it's time to find a loan: http://finance.yahoo.com/q/ks?s=EDS+Key+Statistics
I would be careful with chinese -EV stocks.
isn't this one about to be acquired?
Its being taken private for U$60M I beleive.
Interesitng to note that Mr. Ding is the brother-in-law of the Chairman and CEO. I don't read tons of executive profiles, but that seems like an odd thing to add to the description.
http://www.ir.xdlong.cn/phoenix.zhtml?c=217204&p=irol-govmanage
This is a pretty cool situation on the surface, buy a company for U$60M and get U$85M in net cash (I think from my quick look), but since it is in China you'd have to do some serious due diligence. If you're interested in Chinese Law and all the various shenanigans that can happen, check out Dan Harris' "China Law Blog".
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Hi, Morgan: I'm from around the same area. What bank(s) are you using? The loan I got on a personal residence was almost completely in line with what others have described on here - a lot of red tape and hassle - course that was 2-3 years ago.
The first loan we got was in early 2007 and it was from Citizens Bank. All the other loans are through WesBanco and we got them in the last two years. We haven't been turned down by them thus far (knock on wood). Hope that helps.
The Joy of Less, A Minimalist Living Guide - Francine Jay
in Books
Posted
I dunno yadayada. I have built most of my furniture (3 bookshelves, desk, shoe stand, tv stand, bedframe) for under $100 or have gotten things for free (sofa). I don't think I'll be spending $1500 on furniture for a long time. There are many ways to live life. Doing it on the cheap to invest saved cash is generally the theme here. He's just saving more.
If ScottHall is happy and content with his setup let him be. There is no need to knock his style.