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Morgan

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Posts posted by Morgan

    What's the likelihood of a truly major global conflict by 2025?

    in General Discussion

    Posted

    I don't know if there will be a major conflict by 2025 that has huge human costs. But it does seem likely that wars will be fought significantly differently than they have been in the past. Going forward, there will almost certainly be a shift to unmanned human controlled fighting machines as well as almost completely AI forces. As this shift happens, it will likely be a war not simply about the number of human bodies, but of economies. Whoever can build and maintain the largest and best drone/AI military force will dominate.

     

    Another option, assuming there isn't a radical change to a drone/AI military, is nuclear wars. If it comes to that, hopefully only one nuclear weapon will be launched and whomever is attacked will not retaliate with nuclear weapons. That is is almost certainly the best option for human kind. We absolutely do not need a nuclear war. Lets say though, that the attacked do retaliate and it grows into a global nuclear war. It's likely that the largest cities would be attacked (with nukes anyways). 35 million people, I think, could easily be killed with todays modern nuclear weapons. An attack and a retaliation - two nukes - on any of the top ten metropolitan centers would definitely do 35 million people in. 175 million people would require a significantly larger war, but probably could happen. A long, drawn-out, world war could probably do it. I hope it doesn't happen though, but I can imagine it.

     

    Hopefully violence in the world will continue to decline as suggested in Steven Pinker's book The Better Angles of Our Nature, but he also states that it may not continue it's decline. Nor does it seem that humans will collectively decide to abandon violence and wars in the next 12 years.

    Tesla Model S Named Automobile's "Car of the Year"

    in General Discussion

    Posted

    I'm not sure if this has been posted on here yet - it was just put on YouTube a few days ago.

     

    How the Tesla Model S is Made:

     

    I know nothing about manufacturing so maybe this is mostly common stuff, but I found the video to be absolutely stunning. And the robots are extremely capable. It's so cool to see how it all goes together. Literally from coils of aluminium to a Tesla. Amazing. I really would love to own a Tesla.

     

    Of all the businesses you've looked at - what's the best one and why?

    in General Discussion

    Posted

     

    It can be a high margin business. I know a guy who has owned some properties forever and has 70%+ net profit margins because he no longer pays a mortgage on them.

     

    But the ROE must be terrible right?

     

    I assume the ROE was pretty decent. I don't know the details of his purchases, but it was probably financed conventionally (20% down) and he didn't blow up. So he had decent leverage combined with good operations so he probably made decent money in the early years and now that his mortgages are paid off, his profits are very high. He has done well on these investments.

    Of all the businesses you've looked at - what's the best one and why?

    in General Discussion

    Posted

    I am not quite sure how you came to the conclusion that RE is a high margin business.

     

    It can be a high margin business. I know a guy who has owned some properties forever and has 70%+ net profit margins because he no longer pays a mortgage on them. That being said, I know another guy who developed a big apartment complex that didn't work out and he went bankrupt and the property sold for ~38% what it cost to build 5 years prior. It goes both ways. Be sure to have a margin of safety.

    Finding assets that are worth more than recorded

    in General Discussion

    Posted

    These are the holy grail for asset investors, unfortunately there is no systematic way to find these.  Here are a few thoughts:

    That's what I sort of assumed, but it never hurts to ask. I know people here know more than me. Hence you and Ragnars list list below. Thanks!  ;D

     

    -Find companies with old operations, usually something has been in operation that long.

    -Look for companies that are real estate heavy, Bowl America comes to mind, operating bowling alleys since the 1950s, most recorded on the books at cost (1950s & 60s cost).

    -Look for neglected companies, or companies no one bothers to value, things like Texas Pacific Land Trust, Aztec Land & Cattle.

    -Look for things with alternate uses, Aztec Land & Cattle comes to mind, most of their land is grazing land, but being investigated for wind farms.  Land was on the books for around $60/acre, selling at $30/acre last I looked.

    -Look for family owned or controlled companies, they're usually much more tax conscious and try to minimize taxes by eliminating churn, they'll hold onto something rather than sell it.

     

    The best way is to just turn over a LOT of rocks.  Be creative, go to the library, Carnegie Business Library (in Pittsburgh) has a ton of OLD Moody's manuals and stock reference manuals.  Look up real estate companies in editions from the late 1970s and early 1980s, then see who still trades.  I'm guessing 90% of the companies are gone, but the other 10% probably still have some of that original land on their books at cost.

     

    I agree with Nate for the most part. LOTS of reading and research is the only way that you are going to do this. Develop your own skill set and then share it! Tax records are often a good place to start once you find the company that you find might have cheap items on the books. If you are looking for RE assets, think about the business and your research on it much as a RE investor would. One of those "I am a better investor because I am a businessman and a better businessman because I am an investor" sorta things.

     

    I will add... Be weary of land trust type companies- this can extend to retailers as well, which can often be pretty "land trusty" in and of themselves.

     

    I have often wondered how many companies there are out there that have REALLY odd assets on their books that are undiscovered.

     

    *Cash is too obvious, and there are still A FEW companies trading for less than net cash. A few years ago, they were quite common.

    *Real estate is the obvious goto, but that seems too easy.

    *Some firms have more securities on hand than their market cap, but those are exceedingly rare.

     

    FARM has/had a ton of coffee on their books that gave them a ton of hidden value due to LIFO reserves. You could do some sort of scan based on FIFO/LIFO or even cost average styles of accounting, depending on what kind of environment you are looking at.

     

     

    Here's another angle, this is a hidden asset gimme..download the list of bank branches in the US, then sort them by age, there are a LOT from the 1800s and early 1900s.  I'm guessing you'll eventually stumble on a community bank that has four or five branches held at 1930 prices. 

     

    I couldn't resist, so I ran a query and found that there are 4170 bank certs with more than 5 branches that were established before 1930, lots of potentially hidden value there.  I'll note that BAC is at the top of the list with 809 branches established before 1930.

    Where did you get the list? From the FEDs website? I did a quick search but couldn't find the list.

     

     

    When reading about Buffett, his arbitrage style of investments (with, say, soy warehouse receipts) just seem all too easy. Some sort of hindsight bias, I suppose. I wonder how rare those things actually were back in the day, especially when compared to now.

    I agree. We almost exclusively read about their successful investments. Or the highlight reel if you will. Thinking about the Buffett/Soy bean arbitrage...how many other trades had he been involved in that were only moderately successful that we rarely hear about? And the book about Cudill is similar. I think in the first 15 years of his career they cover in the book, 5-7 investments are covered. Cundill says he'd usually have 10-20 securities at any given time, so that definitely his highlight reel. Definitely some hindsight bias involved, but it show that it's possible. Not to mention it's fun to read about!  ;D

     

    True story! I bought a small, 50 year old manufacturing company out of bankruptcy a number of years ago. Bought the assets pennies on the dollar. While cleaning out an old filing cabinet I found stock cert (in the company's name) in a since de-mutualized insurance company. Turned out to be worth about 10% of entire purchase price. Now that was a hidden asset!

    Care to share anymore details? What the process in buying the company? When you bought the bankrupt company they just left everything there and you went through it all and found this stock cert? Other than the stock, how did you go about liquidating the assets? Just selling stuff off to the highest bidder? Or did you have some industry connections? I'm pretty curious about your deal! And congrats!

    Finding assets that are worth more than recorded

    in General Discussion

    Posted

    I've been reading There's Always Something to Do and Cundill's career at least in up until the mid 1970's (that's how far I've read so far) he was able to find companies that had significant "forgotten about" value from assets that had been recorded at cost a long time ago and were worth far more than stated on the books.

     

    I work in real estate and the opportunity to find real estate and get it for cheap, maybe with a profitable company thrown in for free sounds very good. What strategies do you recommend for turning up these types of situations?

     

     

    Blue Chip Stamps

    in Berkshire Hathaway

    Posted

    Hi everyone,

     

    Considering I live in the D.C. area, I'm going to just head over to the Library of Congress this weekend to see if there's anything there. I can apparently use LoC's subscription to ProQuest while I'm there, so I'l let you know if anything turns up.

     

    Great! I'm interested in seeing the annual reports too. Thanks in advance!  :D

    Buying a hotel as a passive investment?

    in General Discussion

    Posted

    My Dad said his first purchase was a 16 unit building in harlem. The purchase price was 125k and he put 25k down. He found the building in the new York times. He bought it from a old lady. Three years later he bought two other buildings in harlem that had 32 units total for 450k. Three years later he bought 10 units with one commercial space. Purchase price was 150k with 25k down. Sold out in 1998-1999 to multiple buyers due to his feeling that the market was toppy.

     

    Total units at peak= 58 units with commercial space rented as a Chinese restaurant

     

    He was a one man show and at that point I was too young to help out ( I'm 30). The plan was to slowly redevelop the property and increase rent. I saw his journal during the mid 80's and the rents were silly cheap in that area. Like 250-300 for a one bedroom.  I saw a couple in the mid 100s ! You frame it as an arbitrage between putting money in the buildings and increasing rent. NYC during in the 80's is not how it is now. No one wanted anything to do with the city. This was also the era that trump made his money by redeveloping prime real estate in manhattan. You go where no one else wants to go. Being a landlord in that area is not a glamorous profession. I remember him going to court like every two months or so to kick out a tenant that wasn't paying. There is always a price to pay to make money. He had fun doing it so it wasn't ever really work to him. When he sold out we moved to the west coast. He used the money to buy downtown commercial property and apt units mostly with cash. 

     

    My goal recently has been to find something I can scale up. Coming to a realization that my small business isn't scalable. I'm open to everything from being a franchisee, owning a hotel, or buying 8-10 unit property. I'm not seeing the no brainer deals like they were back in the day. There is too much opportunism compared to back in the day. I wasn't really thinking about doing anything but my small business until recently so I missed the good buying opportunities from 2008-2010 in RE.  Congrats on tripling the apt units!

     

    Thanks for sharing premfam! Sounds like you Dad did nicely there! He certainly bought those buildings at good prices. I don't know much about real estate in NYC, but I'm sure it's not that cheap for equivalent stuff nowadays.

     

    You're right about no-brainer deals being less prevalent now in Denver and also in WV where I am because of the gas boom. There are lots of temporary people here so rents and building prices are high, so you gotta negotiate hard and be willing to walk away if it doesn't meet your requirements. There is definitely money to be made, but it's just not as obvious as it was a few years ago!

     

    Let us know of any other options you think about to build a fcf machine.  ;D

    Buying a hotel as a passive investment?

    in General Discussion

    Posted

    If you do happen do get into real estate, you should really read Real Estate: A Case Study Approach by William Poorvu (http://www.amazon.com/Real-Estate-Case-Study-Approach/dp/0137634838/ref=la_B001IGJM4U_1_4?ie=UTF8&qid=1362591079&sr=1-4). There is one chapter in there that is really great. Of course I can't remember the chapter number, but it's about a guy who owns 10,000 apartments and how he uses creativity and scale to keep his margins high and his properties looking nice. Really good stuff in those few pages. The book is only $0.01 used so it's hard to argue against it. 

     

    Thanks! I just ordered it. Even with shipping and tax probably still cheaper than a drink at Starbucks.

     

    Just ordered the book. The cheapest one left was 1.93 + shipping costs. Looks like 5 forum members bought the book before me! 

     

    My family has experience somewhat scaling apartment complexes. My dad came to the US in 1979 and bought a apartment complex for lower income residents in NYC in 1983.  He told me that back then it  wasnt hard to find apartment complexes that were yielding a 20 plus cap rate. Back then the city was in the dumps. Full of crime and banks wouldn't  lend to anyone. He finally convinced this bank in chinatown to lend him money.  He accumalated units until 1998 when he sold out. He mentioned during the late eighties the city started enforcing rent control.  A couple points he made

     

    1.) Buy the best location even when its alot of crime and dangerous

    2.) Buy crappy buildings that make cash flow then redevelop the property to charge higher rent rates

    3.) Scale as fast as possible.

     

    My family is in the apartment business too and what your Dad says is exactly what I'm doing with the company now. After managing an eight unit building during college, we tripled the number of units in 2012 and hope do to the same again this year.

     

    Premfam if you don't mind can you add some more specifics about your family's experience with RE? How many units did you guys have at the peak and also when you sold out? Dealing with financing issues? Any thing else you want to add? It's always interesting to learn more from others!

     

    Cheers!

     

     

    Buying a hotel as a passive investment?

    in General Discussion

    Posted

    Update :

    I decided that not to make the deal on the hotel. Factoring in hiring an consultant to run the hotel. The return would be minimal to justify the effort. I do have someone coming in to operate my business sometime in may where its a 50/50 collections split. With an option to buy after certain metrics have been met. I feel I need to control an asset that's somewhat passive. Nothing is really passive in the real world but, I would like my business not to be completely dependent on me operating it.  I'm looking to become a franchisee in an up and coming brand. I even looked at steak n stake lol. Apartment complex was next on the list but, the returns are not enough to justify the capital investment. Cap rates in Denver are pretty low like in the 7 percent range.  I cant see how rent rates can be increased in the future to justify higher income. Rents are pretty high here already.

     

    If you do happen do get into real estate, you should really read Real Estate: A Case Study Approach by William Poorvu (http://www.amazon.com/Real-Estate-Case-Study-Approach/dp/0137634838/ref=la_B001IGJM4U_1_4?ie=UTF8&qid=1362591079&sr=1-4). There is one chapter in there that is really great. Of course I can't remember the chapter number, but it's about a guy who owns 10,000 apartments and how he uses creativity and scale to keep his margins high and his properties looking nice. Really good stuff in those few pages. The book is only $0.01 used so it's hard to argue against it.  ;D

    Buying a hotel as a passive investment?

    in General Discussion

    Posted

    You will have to be totally hands-on on the franchise for a while, until you find a good manager and train them right.  I have a number of friends who run franchises, and it is never-ending.  Once you find a good manager, then you start to see the passive income come in, but initially it's very time-consuming to get it up and going.  Good help is hard to find, but once you do, they have to be incentivized to work hard for you.  One my friends has done very well with Subway franchises on Vancouver Island.  He's even got it now where he can monitor his employees from his laptop and cameras in the store.  He's got a good manager in place, his retired parents help out a bit on the accounting and administrative side, and he's got some good passive income coming in between two stores and now trying to get a third one open.  But there are definitely times when he has to be there and for long stretches.  Cheers!

     

    We have a family friend that opened a franchise a few years ago and she's made apparently decently good cash flow, but she says it's not worth it. Finding help is too difficult and a good manager is basically impossible to find. She also had troubles with the company when the store computer went down. She couldn't just buy a new equivalent one for $300, but she had to buy the one from the company for $1200 and it was a crappy old machine. It's constant troubles for her. She's just working to pay off the debt and then be done with it. So like Parsad said, until you can find and keep a great manager you trust, it's going to be a lot of work.

     

     

    Prince Alwaleed and the fight with Forbes richest people data

    in General Discussion

    Posted

    “When he was my age, he was not as big as me,” Alwaleed says. “I still have 20 years.”

     

    I'll admit I haven't studied Alwaleed's investments much, but of course he had a larger dollar figure at his age than Buffett did. Alwaleed started with way more money so lower returns are required to achieve a higher dollar amount. Also, both Buffett and Munger say that the huge returns come from compounding for the long term, so can the Prince maintain excellent returns? If he can manage huge amounts of money and still maintain excellent returns, he will likely have a higher dollar figure when he dies than Buffett does (not to mention Buffett is giving a lot of money away).

     

    It's interesting to think about why he would want to push his rankings up. Beside's the obvious factor of an ego boost, he has more perceived power when his reported wealth is higher. One downside is if he continues to lobby excessively for the boost and people find out about it, it could undermine his credibility. How significantly so I'm not so sure, but I'm sure he wouldn't want that at all.

     

     

    She is actually quite impressive:

     

    www.youtube.com/watch?v=vDbIn6Erk4Y

     

    I really do hope they can create change in the Middle East. Saudi Arabia won't be hurt with more people working and creating and innovating in the economy. Nor will the world.

    Walker's Manual of Unlisted Stocks - Harry Eisenberg

    in Books

    Posted

    I ordered Walker's Manual of Penny Stocks 3rd Edition and it came in so I looked through it last night and found some very interesting companies.

     

    All data is old. The newest is from 1999. Interesting to see companies for these valuations, but is absolutely just a start off point. I didn't have chance to look at many of the companies - maybe only 30 or so out of the 500, but there is some good stuff there. One thing I did notice is that many, almost all of the companies I looked at, had very small margins and relatively volatile earnings despite consistent revenues. Getting sued or some other issue seriously kills the bottom line with these companies.

     

    Whitney American Corporation

      Market Cap: $213,301

      P/E: 0.24

     

    In 1998 they earned 112k, with 575k in FCF and in 1999 they earned 999k with 1,579k in FCF. So you could have (theoretically) bought this company for 213k and earned a million dollars in the first year. Ridiculous.

     

    W W Capital Corporation

      Market Cap: $325,224

      P/E: 3.0

     

    In 1998 they earned 87k with 283k in FCF and in 1999 they earned 105k with 258k in FCF. In 1996 they lost 718k but were profitable for 1997-99.

     

    The Coeur d'Alenes Company

      Market Cap: $694,904

      P/E: 6.5

     

    1998 they earned 251k with 22k in FCF and in 1999 they earned 142k with 720k in FCF.

     

    Health Power, Inc

      Market Cap: $6,512,785

      P/E: 1.67

     

    This company had some losses in its past, but 1999 had net income of $3.8m with FCF of ~$4.3m. The market cap was only ~$6.5m in 1999, but was taken private in December 2000 for $36m (I think).

    Walker's Manual of Unlisted Stocks - Harry Eisenberg

    in Books

    Posted

    Hellsten,

     

    Good links, I've read some of that through Google Cache before, there are a number of other articles about unlisted stocks from the 1990s, they were somewhat popular then. 

     

    Anyone who digs in this area will quickly find that out of the 3000 unlisted stocks there are about 200 that most unlisted investors are familiar with, and about 40-50 worth investment consideration at any given time.  I liked the reference to Benjamin Moore paints, they wouldn't pick up the phone, had decent earnings and eventually sold to Buffett.  Going private or selling is the end game for most of these companies.  I recognized almost all of the names in the articles, but I also have a few editions of Walkers that I've marched through.

     

    Morgan,

     

    The books are useful as a starting point, overcapitalized firms in most cases then are still overcapitalized now.  Some firms have completely destroyed themselves.  If you're a DIY person buy the book and go through one by one, marking companies that are around vs gone.  You'll find about 30% of the penny stocks are still around whereas about 60% of the unlisted ones are still trading.  Then go about buying a share of each that looks interesting to get the annual report.  The most famous of these is Paul Sonkin who holds over 400 shares in an account to get reports.  He doesn't own 400 unlisted stocks, some publish to OTC markets, but many are unlisted.  You'll also find many companies that refuse to give out reports.  I called Thermwood a few months back and was told "we don't have an annual report or give anything away", that's patently false, but for a $3 investment it was worth a shot.  I might still press for something there, who knows.

     

    Reading google cache can be very useful from time to time. Knowing how to use Google creatively is definitely helpful.

     

    I am a DIY-er, but I'm a lazy DIY-er.  ;) Going through 3,000 stocks isn't my idea of efficiency, so if there are others to work with (http://unlistedstocks.net) it makes it easier. I'll use the books as a starting point just to learn more about that segment of the market and then get onto the site.

     

    Walker's Manual of Unlisted Stocks - Harry Eisenberg

    in Books

    Posted · Edited by Morgan

    On 2/19/2013 at 4:10 PM, hellsten said:

     

    It's really strange to read stuff that was published on the web in 1996 (I'm a youngin). Especially regarding a company and its financials. I find it completely strange that these books could be of much serious use considering the data is so old. I guess it's a good starting point to learn of the existence of companies in your circle of competence that may be inefficiently priced then do follow up research. But man... it seems strange to look at financial data from 10-15 years ago and hope the companies are still similar (or in business). Although you can get the Walker's Manual of Penny Stocks from 2000 for ~$4 on Amazon. So why not right?

     

    Walkers Manual Penny Stocks 2000:

    http://www.amazon.com/Walkers-Manual-Penny-Stocks-2000/dp/0970001002/ref=sr_1_13?s=books&ie=UTF8&qid=1361415440&sr=1-13&keywords=Walker%27s+Manual

     

    Walkers Manual of Unlisted Stocks 2000:

    http://www.amazon.com/Walkers-Manual-Unlisted-Stocks-2000/dp/0970001010/ref=pd_sim_b_1

     

    Walkers Manual of Micro-Cap Stocks 4th Edition (2002):

    http://www.amazon.com/Walkers-Manual-Micro-Cap-Stocks-4th/dp/0972068813/ref=sr_1_14?s=books&ie=UTF8&qid=1361415440&sr=1-14&keywords=Walker%27s+Manual

     

    (I don't make any money if you click those links)

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