Morgan
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Posts posted by Morgan
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Thank you for the links IntrinsicEdge! I looked through the company lists and didn't see TCI. They are very interesting though to look back and see how much more simple the reports were back then. Thanks again!
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I recently read The Cable Cowboys about TCI and John Malone and have been trying to get my hands on the 1973-1996 TCOMA 10k's and other reports on the company's dealings. The book was good, but was lacking quite a bit of detail on what Malone actually did over the years. It would describe what the end result of his financial engineering was, but not really explain how it happened. Perhaps I'm just thick and didn't pick up on it.
Regardless, does anyone have a copy of the reports they can share, or know where I can look up historical reports for free?
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Thanks for the heads up; I just ordered it!
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I really enjoyed Isaacson's book. I hope this one is good as well. It looks to be pretty good!
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This was a great book. I just finished it a few days ago. I recommend it to anyone interested in business.
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I would look into getting the books from the library or some type of library loan program. Thrift stores may be a good option. Maybe. On the other side, I see books as a good "investment". There are a few books that have each given me ideas that have paid for my entire library many times over. In order to pay for the books, I've made the decision not to have cable. That savings is about 2-3x what I estimate to have spent on books in the last ten years. So, I didn't really offer cost savings per se, but there are ways pay for such things in life.
PS - Oddball I really need to visit the business library in Pitt. What is the address, or website?
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Do you realize the damage a bad tenant can do? ...
This is exactly what I would ask too. A bad tenant can do tens of thousands in damage pretty gosh darn quickly. If you can afford not to have it rented, I would keep it empty while it's up for sale. If you need the money, rent it. A bad tenant is very unlikely, but they can do serious damage.
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Are you planning to retire early, or are you just using the tips/philosophy to reduce your expenses?
I'm using the ideas so I have more cash to invest. I am hyper-aware of compounding and understand that a new Porsche or whatever would be lovely and my ego would shine, but investing is far more important for the future. Right now I have way more ideas than cash. I see opportunity everywhere it seems.
I'm frugal to begin with but these ideas have refined my approach to saving. At this point I don't know if I'll stop working per se; I enjoy my work tremendously. In the future I may decide that I have enough and slow down or stop, but that is a long way off I think. It's just too much fun.
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I've been reading the Mr Money Mustache blog archives from the beginning and I think it could interest some people here (those interested in early retirement, or in tips on how to reduce their expenses).
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
Have you checked out ERE (Early Retirement Extreme) as well?
Next on my list (including the book). What are your thoughts on both MMM and ERE? Are you following the plan (either, both?). Do you prefer one over the other?
So far it's mostly stuff I had read years ago in some of the old school versions of this philosophy (Your Money or Your Life, Tightwad Gazette, Simple Dollar, etc), but it's good to refresh the ol' memory and it does provide extra motivation (kind of like reading on value investing, even if the principles don't change).
Both MMM and ERE (site and book) are interesting and worthy reads. I have basically taken up the ERE/MMM mindset and it is working nicely. I'm not as extreme, but my expenses dropped nicely. Incidentally, my boosted savings have been put to good use in real estate investments that I probably would not have been able to do had I not been saving as much.
Now I just need to find a frugal wife.... much harder than taking up the ERE/MMM lifestyle :/
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In general, I wouldn't recommend investing in real estate unless you're going to buy a duplex and have the tenant pay the mortgage, or are going to make it a full time gig within a reasonably short time (2-4 years). Frankly I don't think it is worth the effort to have less than maybe 10 units considering how much money you'll likely be making. You're not big enough to get much in terms of economies of scale until you have 50+ units at least. We're at ~80 units with our little company and until we had 40-50 units I was doing almost everything myself or had occasional help with renovations. Now I do much more managing and work with a crew of guys to get things done. Needless to say, my back is happier.
As for making the plunge, you just have to find a property that works financially and then do it. Don't force the numbers to work. It will be obvious that you should buy it. I'm in northern West Virginia and RE investing works here. From preliminary research multi-family investing appears to work in Cleveland, Columbus and Detroit, but not Pittsburgh. I haven't looked elsewhere. Overall it's a good business to be in. I took 6 weeks off a few months ago and kept getting paid while I was away.
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It's amazing what both asking and persistence can do.
This can not be said enough.
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I was just thinking of this guy the other day and couldn't remember his name. What perfect timing. Thanks for sharing!
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It is definitely possible to earn those returns, but with bare land it seems pretty close to speculation. If you know something about the future use of the land then maybe it's a good buy.
With RE developments there are so, so many things that have to come together nearly perfectly to make a project happen. If you want to invest in RE I would suggest something that is going to generate cash the day you buy it. My preference is residential RE. I sort of see buying up apartments as stepping over lots of one foot poles whereas this type of 5, 10, 20 year development projects are like jumping over many, many seven foot poles. I'm short, so one foot poles are more my style. But to each his own.
Over all, it is possible, but the spectacular, once in a lifetime opportunity type return scenario is much more psychologically alluring than making 10%-15% pretty securely over a long period of time. That is another thing to take into consideration; how they're marketing it.
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Forgive the length of this post. It is very rare that I have anything meaningful to add.
Our circle of competence is really only in the Apartment Industry. Thats why I read this forum often. I am greatly indebted to many of you for what I have learned from your comments here. Also to Parsad for pulling a Ben Franklin and being responsible for what seems to be a modern day version of the Junto Club.
If interested in RE, I would strongly suggest getting your hands on the public REITs 10-Ks. I compete with them daily and many (not all) of the largest risk's are outlined in their 10-Ks. There is one topic I rarely see discussed except maybe by Dimon. The week Gene (business partner & childhood friend) and I were born prime was 13.5%. Less than 3 months later it was 21.5%. When putting together bank packages for acquisitions, you will find bankers much more comfortable with the writings of Dr. Cresson Kearny than you asking what it was like back then and how would that effect cap rates today if prime was 50% of 1980..
The role technology has played in our experience has largely been positive. In our early days, while Gene started to analyze an apartment deal I would have to spend several days cold calling and "scuttle butting" if you will conducting market studies and persuading potential competitors to give me their operating numbers. All while trying to annualize P&L's that were penciled out on a cocktail napkin. If the acquisition passed this cursory analysis (less than 1 out of 100 did) we would book flights, kill almost a week traveling back and forth for a site visit. If all of that worked out, I would then proceed with an LOI.
Now, with about 5 mouse clicks, I can: get an accurate market study, view the property on google earth to learn if the asset is next to a Tiffany's or an "adult toy" store, conduct a title search to see if the LOI offer is even above their mortgage. I can do this in St. Louis or on Green Turtle Cay while listening to Munger on youtube. The problem is all of our competitors can too.
Quite often success in real estate is its own worst enemy. Take Austin,TX for example. It is one of the best markets in the country for apartments. It has a high rent per square foot average vs cost per unit. Vacancy is low and the percentage of renters vs. home owners is high. That being said, this year over 17,000 apartment units are under construction in Austin. One might expect that to have consequences for operating fundamentals for anything you own there.
In my judgement, RE is a poor industry to be in. Almost no acquisition makes sense unless you include a shitload of debt (80% of purchase price). On top of that you really never see any material fluctuation in asset values like common equites. Owners have months when considering selling and even then they only have to find the dumbest buyer in a field perverse with them.
A short example. Around 2004, we were bidding on a 200 unit asset near Chicago. There were only two buyers at the auction, us and another guy who looked like the biggest piker you ever saw. We try pushing him around and bid very hard very fast. He just goes right along with us like we are at a pie supper. Very quickly we are at the limit of what we can pay and he wins. I approach him after and try to learn a little about him and what he is doing. Does he own any other apartments in his portfolio? No, this is the first he and his family trust are buying. I congratulate him for winning and ask where he saw the value that we missed, allowing him to pay more (just over 10M in final bid). He says "well you guys looked like you really know what your doing and I just figured we would make a little less that you." Just a year or two earlier Gene was still in college double majoring in pschology and criminology. I had dropped out and was working full time for Coca-Cola as a "merchandiser" stocking soda at gas stations and Walmarts in rural Missouri.
Buffett mentioned a joke in his 85 letter. Upon reading it I took a deep breath and sat in silence for quite a while. The joke was about oil men and oil discovered in Hell.
Thank you for your reply reddog66. Very informative.
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I should have been clearer, I'm asking about residential/multifamily RE. Everyone needs a place to live. Many of the reasons outlined above apply to commercial real estate. What about multifamily? Excluding reducing RE/leasing agents, do you think demand for residential real estate will change? The obvious answer is probably not much, but what about less obvious answers? Maybe it's all too far fetched?
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Recently I've been thinking about how changes in technology can affect (and destroy) various industries over time. Marc Andreessen wrote an article in 2011 called Why Software is Eating the World that basically says software is getting better and better and is able to do more and more. Combining that idea with the idea that computers can learn (inspired by this talk The wonderful and terrifying implications of computers that can learn), it makes me question the future of real estate, however unlikely that may seem now.
The obvious ideas from more powerful technology generally seem to be positives for RE; "smart" structures and supremely energy efficient structures. What will happen when machines can learn and are set free if you will and come up with new ways to build excellent living structures for virtually nothing? Will the old buildings that are too expensive to operate or pay the mortgage be forgotten? Are there ways that the deep thinking machines could enhance 3D printing so dramatically that everything else is obsolete? What else could they come up with that could destroy the real estate industry?
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I haven't been investing for 10 years either, but I do something similar when buying a new apartment building. I always estimate FCF and how the purchase will change the balance sheet. I've looked at the estimates from the past and compared them to the outcome and I've gotten a bit better at estimating over time. By now, 3 solid years in, I can walk through a building and pretty accurately estimate the renovation costs, FCF and what is going to happen to the BS. Thinking about my strength for looking at real estate, makes my weakness for analyzing other businesses quite apparent. More filing to read!
Edit: As for looking at the cash flows 10 years out, I haven't modeled that far out. I see how much I'll make per year compared to how much cash I have to spend to buy the cash flows from the building.
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Not really trying to knock him, as I think he is a good investor, but I just saw the other day that supposedly his parents are billionaires as well, maybe. Hard to call it completely self made then, but he definitely seems smart and hardworking.
Hm. Interesting. I've never read that. Do you happen to remember where you saw that? I imagine they were fairly well off, but not $100m+ family when he was growing up. Thanks!
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If I remember correctly from a Charlie Rose interview, Ackman was getting tough questions on his recent activist investment that had done poorly (JcPenny I think), and Ackman said he'd invested in 24 companies and only three have done poorly. 21 for 24. That is one seriously good record. I wish I could fail as badly as Mr. Ackman. Certainly I'd never bet against him and he is definitely smart and hardworking. You don't become a self made billionaire because you're stupid that's for sure. More on topic though, I won't be buying any of this, but I wish him all the best.
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As others have recommended, Creative Cash Flow Reporting by Mulford and Cominsky, Quality of Earnings by O'glove and Financial Shenanigans by Schilit are all good. Even if you're very advanced, I imagine you'd learn something useful from all of them. I learned a lot from them. Enjoy!
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Just curious Parsad, what do you think the long term play for the management is? They clearly can't run the company like this for too long. They'll run out of cash. So as Anders seemed to imply (Anders, please correct me if I'm mistaken), the end goal seems to be appreciation and not cash flow?
I have studied Mongolia a great deal and have faith in its prosperity. I dont think finding additional cash would provide a problem for them. Today almost all RE comps cannot handle big volumes such as blocks of 100m since they wont be able to deploy it succesfully. CF and value always goes hand in hand so obviously they will try to achieve both.
We have found a couple of companies in mongolia that we think can provide good return over the long term period - its part of our frontier forever capital. It goes into our assymetrical positioning sacrifizing 1% every year on frontier capital, this coupled with sacrifizing 1% on macro hegdes every year (ie japan default, short JPY)
So we are building on YAK buying very small volumes, and are taking a bet on Harris that he will be able to structure a company that can ride on the progress of mongolia. And if it takes 10, 20, 30 years, it doesnt matter as long as we believe he does the right things. out of experience, this things tend to take much longer than any anticipates, and then a bit longer still..
Rgds
Thank you for your reply anders. If you have time, can you answer a few questions?
The current market cap for the company is about $40m ($1.12/sh). I'm not sure how big your portfolio is, but at some point you, either alone or with other investors, would consider buying the entire company outright correct? What price would you buy the entire company?
In the long term (15 and 30 year time frames), how much do you think the property will appreciate? Very roughly. Will it become a $500m portfolio or $5bln portfolio? Something on the higher end? I'm not sure, so I'm just throwing numbers out.
Until then, how will the company continue to pay its bills? By selling buildings? Cutting expenses drastically? Raising more money from investors?
Thank you for your input.
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My bad. They have negative yields. What geniuses.
No problem :)
By the way, where did you see the 95% occupancy statistic? Was it in one of their recent monthly letters? I didn't come across it, but I wasn't looking for it.
Cheers!
95% occupancy means nothing when the rent doesn't cover expenses. I can get you 95% occupancy in any city if I price the rent significantly less than operating costs.
They were buying property all through the commodity bubble...bubble burst! Unless commodity prices rise again in the next few years, I cannot see how their real estate value won't come down. Stock is reflecting that sentiment.
Cheers!
There's no question there. It'd be better if they had 20% occupancy with $2m in revenue then at least if expenses stayed in a similar range and revenues went up 4-5x they'd make money. But 95% occupancy means there's not much more room for revenue growth.
Just curious Parsad, what do you think the long term play for the management is? They clearly can't run the company like this for too long. They'll run out of cash. So as Anders seemed to imply (Anders, please correct me if I'm mistaken), the end goal seems to be appreciation and not cash flow?
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My bad. They have negative yields. What geniuses.
No problem :)
By the way, where did you see the 95% occupancy statistic? Was it in one of their recent monthly letters? I didn't come across it, but I wasn't looking for it.
Cheers!
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2million revenue for 45 million cost of property is horrendous.
2million pre-tax profit on 45 million is a 4.4% yield.
Interest rates in Mongolia are apparently 12%.
:o
It's not $2m pre-tax profit. For 2014 they're on track to have about $2.3m in revenue with about $6.6m in expenses and they have no mortgages on the properties.
Looking Up Old Annual Reports
in General Discussion
Posted
Excellent! Thanks Gamecock-YT!