BG2008

Pedro, Great notes and this is exactly the kind of discussion that I was hoping for! As the official moderator, I declare this thread officially a success because it convinced a long time listener to pluck down the dollars to become a member!

What does Lyft has to be with this thread? I'm designating myself as the official moderator for this thread so that it doesn't morph into something else. I was sincerely wondering if Lyft might be a company that matches this thread's title. It seems that this thread's title should be changed to "Multi-Bagger Opportunities With Realistic Positive Outcomes According to BG2008" Please carry on. I'm not gonna defend Lyft or its possible candidacy into future multibagger club. Some arguments pro and con can be found on Uber thread https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/uber-uber-technologies/ . I'm getting T-Shirts Made As We speak I'm happy that my post has suggested multi-bagger opportunity for your business. Although for environmental reasons, please send multiple T-Shirts in a single bag. You can thank me later. ;D I will tie it neatly with hemp twine that will naturally decompose

What does Lyft has to be with this thread? I'm designating myself as the official moderator for this thread so that it doesn't morph into something else. I was sincerely wondering if Lyft might be a company that matches this thread's title. It seems that this thread's title should be changed to "Multi-Bagger Opportunities With Realistic Positive Outcomes According to BG2008" Please carry on. I'm not gonna defend Lyft or its possible candidacy into future multibagger club. Some arguments pro and con can be found on Uber thread https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/uber-uber-technologies/ . I'm getting T-Shirts Made As We speak

What does Lyft has to be with this thread? I'm designating myself as the official moderator for this thread so that it doesn't morph into something else.

This may be true, but everyone involved in this game pretty much have to stomach the risk. To me, it's certainly not for everyone. principal major risk I see with banks is another LTCM-type blowup. some think that the recent issue in the repo market was caused by credit hedge funds massively leveraging to squeeze profits out of a bps in arbitrage (just like LTCM), and the fed had to preemptively add liquidity to prevent a squeeze which could have caused a liquidation cascade. assuming the fed is willing to continue to protect the banks by injecting liquidity (and also thereby protecting the hedge funds), the banks should do well...but I dont see a multi bagger unless you are willing to buy a leveraged ETF or use leverage yourself Comment was more about the past, post 2009, rather than the future. I recently transacted in mortgages, man the underwriting is so much more rigorous these days.

Okay, I am going to crack the whip and get this thread back to shape. The goal of this thread is to identify patterns that lead to multi-bagger opportunities. I would define them as 4x or more in a decade. That gives us a roughly 15% CAGR over 10 years. This is roughly a 5% alpha over the S&P in the long run. I think it is appropriate to think this way because there are good ideals that are also very safe. But they tend to be under written to a lower CAGR, i.e. LAACO. I think anything this a potential 4x in 5 years falls into this category. Heico was just profiled in Forbes recently https://www.forbes.com/sites/abrambrown/2020/01/13/heico-mendelson/#4c6734984b18 Maybe this is survivorship bias, but it seems that Aviation parts is a very good business and the remaining survivors tend to do very well. The often listed reason is that all parts require FAA approval which acts as a barrier to entry. Harping on the barrier to entry theme, I keep hearing, seeing, and witnessing themes that makes certain businesses "work" and certain "not work." High switching cost, long approval time, scale, cost advantages, stable pricing (non-commodities, even if you are the lowest cost producer, if prices drop 50%, you are still kind of screwed), high incremental margins that falls to the bottom line. I hope this turns into a wonderful thread where we can dissect the anatomy that turns an investment into a multi-bagger. Apparently, Berry Global has compounded in excess of 20% for all its PE owners in the past. Why does what seems like commoditized plastic packaging have such high returns? I think it is a combination of more organic growth earlier in their ownership, stable end market demand, stable margins (although, smaller guys tend to get abuse by the suppliers a bit). It is a sucessful private and public LBO. Despite all the noise about ending plastic use, it is very hard to ween one off the use of plastic. Imagine if you no longer buys OJ or Yogurt in plastic containers? What can replace the usefulness of shrink wrap to prolong food? Berry in its current form has a very distinct cost advantage due to its scale. They constantly take out 500bps of cost post deal due to scale, better operations, better pricing when buying resin. The math works something like this $100mm EBITDA company pre-deeal with $40mm of Cap Ex equates to $60mm EBITDA-CapEx Post deal $150mm EBITDA company with $40mm of Cap Ex equates to $90mm of EBITDA-CapEx Post deal, the company is a much lower capital intensity business and results in higher ROIC. Even though Berry has to constantly pay for acquisitions to grow and you will see the cashflow used in investing go out the door every year, but it is resulting in higher EBITDA and higher EBITDA-CapEx over time. Years ago, a wise man told me about Ting and TuCows and I ignored it. Another way that multi-baggers get created is a combination of 1) New products that could scale offer multi-bagger opportunities. 2) CEOs who aggressively buy back shares when it is cheap. I am trying to broaden my mind on this.

Seems like the letter is working. I might've smelled a bit of weed last night, but it seems like they are staying further away from the building. It wasn't a constant 2 hours of hot boxing it was before. It has been a week and it seems like things are better.

Guys, I think there are enough Midstreams that are trading at distressed prices. If you are looking at Energy, look for ways to get paid in the interim. Many of these MLPs used to be valued at 4-6% yield. Now they are high quality one that are valued at 7-10% and the more trailer types paying mid teens. You get the distribution and an optionality that it re-rates to a 6% yield. If oil goes to $100, you probably do better owning the E&P. IMHO, E&P are uninvestable, yes, likely "famous last words." But I have never owned an E&P ever. That rule has applied for the last decade of my investing.

BG - is there a lot of effort involved with 1031? I thought it was just a form to be signed by the buyer. I've seen a few of those contingencies in listings but nothing we've put a bid on had that stipulation. Depends on from who's perspective. From the seller perspective, you have a gun to your head where you have to identify 3 property within 45 days of selling your property and then close within 180 days. From the buyer perspective (my situation), we jumped through hoops to get all the paperwork lined up and the seller wanted to wait another 3 weeks to close because he needs time to identify a 1031 property to exchange into. This is where my agent worked her magic and just badgered him into agreeing to close within a week. My wife and I just about flipped out when we found out the seller wanted to close in mid Feb. You then run into issues with the bank with rate locks and them asking for more financials. My understanding is that you typically have to wait 2 years after declaring your property is no longer your primary residence for it to qualify for 1031. Someone smarter can verify this.

Maybe you can do a search for properties that you feel sold for higher than expected prices and look for who the agent is. Completely different, I just closed on a property a few days ago. The agent basically worked with my wife and I for 2 years. We started out just looking for a co-op for me to use as an office. It morph into something that was 5-6x of the initial price. Along the way, I put in a bid for a condo that turned out to be a bad choice for me and I withdrew because it was internally managed (meaning everyone has to pitch in to clean up) and I was looking for something more turnkey. Then we got outbid on another property and the seller wanted more cash equity in the deal. We closed on a property that we are very happy about. The agent probably showed me a dozen properties and have to deal with the seller being weird and wanting to 1031 his proceeds. There were some fixes that needed to be taken care. The amount of patience that this woman had justified every penny that she earned. A lot of people mention asking behavioral questions etc. Here are some food for thought, just tell an agent that you want the highest price and you are willing to sit on it for one whole year. If they cringe and become uncomfortable, you will know that is not the agent for you. If they understand where you are coming from and are willing to work with you, then you've got the right agent. It will hurt your commission negotiation. But you will likely find the right agent. This is similar to a manager telling prospective investors that he has a 2 year lock up. It very quickly scares away the investors who will treat it like an ATM. So if your agent is looking to move fast at a low price, they will give you pretty good reasons why you shouldn't try to maximize price. I second the advice of looking for people who are older and have seen at least one cycle. I used to be very cynical of RE agents. After working with my current agent, I now understand why certain 40-50 year old agents manage to stay in this business for 20-30 years. They have infinite patience and tolerate lots of BS, including mine.

In the small and micro cap side, Calumet is a $350mm MC with a $1.2bn net debt. I think the difference is that Calumet is a "Real Company" with $300mm of EBITDA. It has always had several billion of EV in its corporate history. Sometimes, the opportunity maybe in hundreds of million market cat that used to be $2bn. It's about righting the shipping rather than growing into it.

I forgot the Bank Stocks in General and TARP Warrants

I beg to differ only in the hope of making myself and other less "boxed in" with being too Graham like which I suffered from early in my career. I think if you find a decent business trading at 10-12x P/FCF with 4-6% organic EBITDA growth. It naturally translate to a 12-16% compounding. If the shares are to continue to trade in that range and the company actually buys back shares, you wind up with a pretty good long term rate that has surprised me quite a bit. I think if they pay 2% dividend and buy back 8-10% of the S/O coupled with the growth and the market eventually re-rate them to a 20x P/FCF for the nice businesses that it is, the CAGR on owning something like this is actually quite high. Probably not a 10 bagger in 10 years, but likely a 4x in 10 years. This is probably one of the most overlooked areas of "value" in the last 10 years for me.

I was inspired by a recent conversation about multi-bagger opportunities, why they happen and what are some potential current opportunities. I will start by sharing some examples, both past and current Past Examples Charter - This is a rollup in a good industry mixed with intelligent use of leverage at up to 4.5x EBITDA mixed with sharebuybacks mixed with good execution and a chairman and CEO with great past track record. There is along thread Xpel - Small cap, great product, frankly, I don't know much. But I know the outcome. I will read the thread. Small market penetration. Fast adoption. Margin expansion. etc FANG - Just phenomenal businesses growing 20-40% top line, amazing margins, network effect, pricing power etc Napco - Deleveraging play since 2009. Frankly, they got into trouble, got over levered and have been deleveraging. The stock has done phenomenal Constellation Software - Other know better Heico - Forbes article https://www.forbes.com/sites/abrambrown/2020/01/13/heico-mendelson/#93d87c74b18c HVAC Companies - Lennox (5x since housing bubble price) AO Smith (10x since housing bubble price) These are a bit counter intuitive. I used to be a HVAC engineer and I used to size the quipment using the manufacturer load calculator software. To my untrained eye, I didn't realize that that was the manufacturers' way of creating "habits" as an engineer used to specifying Lennox equipment would loath to specific a different manufacturer as they do not understand the pros and cons. If there were issues, they would know it already. SaaS Companies - I missed the boat here, someone smarter can explain GGP Bankrupted equity back in 2009 - roughly a 100 bagger for Ackman and company Fannie and Freddie - Levered equity stub Domino's Pizza - Great Franchisor business, improved pizza quality, invested in technology, etc HHC - A laggard in the last 5 years, but still a 4 bagger since its spinoff from GGP Berry Global - Up 3x since IPO in late 2012. Public LBO of a plastic packaging company. I own a position here and think that it is very undervalued. I think intrinsic is much higher in the 70-100 range as they execute on their integration and deleveraging in the next few years Current Opportunities Calumet - Deleveraging play, specialty chem business does about $200mm of EBITDA and likely worth $1.8bn to $2.0bn at 9-10x EBITDA. Montana refinery likely worth 4.5-5.0x EBITDA over $500mm. If sold in next 12 months, company will delever from $1.2bn net debt to $600mm net debt with $100mm of FCF in 2020. 2020 is the first year after the company implement ERP software and have no turnaround activities which means all facilities run at full speed with new catalyst. In addition, IMO 2020 will benefit company as the WCS/WTI spread is now $20 for the strip. Their facilities can process the heavy sulfur Canadian crude. That's my crude understanding, pun intended. Why does the opportunity exist? It is a MLP that doesn't pay dividend which means there is not natural shareholder base. They can't pay for a while because the 2025 debt restrict debt payment until a 3x fixed charge ratio. This is different than 3x debt to EBITDA. Debt trades at 5.7% to 7.6% and the equity trades at 28%. Probably the most mispriced security that I know. Recent unsecured debt was issued at 11% and then prompted traded up to $112. They got robbed with the debt. 2 more months, they probably could've gotten it done at 9%. But such is the life of a levered company in the capital markets with a MLP structure. I think this is potentially a $20-30 stock in 3-5 years which now trades at $4.50. I think the current CEO is a huge improvement over his previous family run. Everything improved, operation, capital allocation, technology, and people. Aspen Group - This is a high growing "Peter Lynch" style. Better product, one of the lowest cost online nursing program, mostly does RN to BSN in the past and have expanded to Pre-licensure to BSN. Organically growing 40% a year with 60% gross margin. No EBITDA as they have to pre-hire call center staff who function as academic advisors. I think incentives are correct. A little bit too much equity comp and CEO is eccentric. But it has the potential to be a multi-bagger. Just raised $13.9mm at $7.15 per share and significantly de-risk the balance sheet. I wish the CEO has the investor relationship skills of Elon Musk. I think society needs more of companies like Aspen where you can get a BSN soup to nuts for under $40k. People don't take on much debt and don't go to "economic jail" for failing out of college. Ashtead - One of the better businesses that I have seen. But very prone to 50% selloffs. Scale, network effect, 2 bigger players and lots of little guys who can't compete. I wish I bought more in the past year. Ashtead does equipment leasiing. btw. Would love to have a very active conversation on this

There are trade-offs wherever you live. This "dorm" feeling as Greg put is it the exact reason I chose to not live in a big city for any extended period of time. People are annoying all over the place. You're just much more likely to encounter them in a city due to proximity. Personally I prefer to walk outside every morning to see a few deer grazing in the field, over some meth addict sitting on my steps. My wallet also thanks me! But to each their own! Different strokes for different folks :P Castanza, Deer, perfect grass fed meat for a keto diet. Just got to add some butter or rendered deer fat at the end

There are trade-offs wherever you live. This "dorm" feeling as Greg put is it the exact reason I chose to not live in a big city for any extended period of time. People are annoying all over the place. You're just much more likely to encounter them in a city due to proximity. Personally I prefer to walk outside every morning to see a few deer grazing in the field, over some meth addict sitting on my steps. My wallet also thanks me! But to each their own! Different strokes for different folks :P Castanza, Deer, perfect grass fed meat for a keto diet.

Since my passive/aggressive announcement, I have not smelled pot yet. But I have been out of the apartment in the last few days. Someone did aggressively torn my publicly placed letter in half with half of it still on the wall and half of it on the ground. From the tear pattern, it seem like an aggressive "f*%$ you" down to up stroke. The responses on this board is interesting in the differences between dense city, suburb and rural settings. NYC people are known for avoiding contact. I have been on subway cars where a guy walks into the car and starts announcing that s/he lost their job and is now homeless and needs $10 so s/he can stay at a shelter for the night is diabetic and needs to scrounge up enough money for insulin is HIV positive and needs money for treatment is selling candy to raise money has children and need to feed them SHOWTIME, IT"S SHOWTIME (If you lived here, you'll know) And literally no one will bat an eye. We learned a long time ago that if you make eye contact, they know they "Got You" I have only given money to people who actually provided entertainment and a guy who had both of his legs cut off and he was literally pushing himself on the Subway car with his arms. This was at 2AM in the morning. So we are not the type to knock on 10 of our neighbors door and ask "are you the one smoking weed? can you please stop it?" Everyone here has a place to be and 10 things that were supposedly to be done yesterday. God forbid if you stand on the left of the escalator or stopped mid stride to look at a building. This is the context that we are dealing with. Frankly, I don't know any of my neighbor's name. I only know the Super for the property. FYI, I love my apartment as it is a 5 minute walk to the subway which is a 25 ride into midtown Manhattan, there is street parking for my car and I am 2 minutes from the LIE and the parkways. It is like the most ideal location. There is literal water damage in my apartment and I haven't bothered the management to fix it because it is a rent stabilized apartment and I would like to stay here as long as possible. The crap that us NYer put up with in order to have well located housing is incredible!! Everyone else in the building has been great in the last 8 years as they just leave each other alone. I will bet money that there are others in the building who are extremely glad that someone finally "spoke up." This is an issue that is not solely confined to me. This is likely an issue all over NYC. Frankly, I have visited extremely high end multi-family buildings in Texas, DC etc where in the middle of touring, there is a tenant who is blazing in their apartment. These are like $3,000 a month apartments. And the leasing agent is embarrassed as hell and promised me that they won't tolerate that. So, I will wager $1 (like the guys from Trading Places) that there will be an article in the WSJ in the next 3 years about how the decriminization of weed has led to a lot of neighbor complaints.

Coast/Urban all the way! JK

This is great advice. Part of me is extremely resentful that "I have to deal with this"

Thanks for the advice. Pot smoking is still illegal, but no cop will enforce it. People smoke out in the open and with the current mayor, they are not enforcing this type of behavior. Your suggestions are quite helpful. Not sure if the public shaming hasn't worked yet. It was posted last night. So, we will see. I did suggest using edibles in my letter and heavily apologize for wasting 2 minutes of the non-smokers' time.

Probably a little different in that weed has a bit more chemicals in it which is why people smoke it in the first place

Do you think anyone in a NYC apartment building talk to their neighbors or even say hello? I agree that probably should've been a first step.

Apartment Building - Already wrote a fairly passive aggressive public shaming letter. So the cats kind of out of the bag. Problem is also, not sure who the pot smoker is.

Pot has been decriminalized lately. I have nothing against cannabis and lots of research shows that it is a lot less addictive than opiates. However, I am currently dealing with a neighbor who lights up 5-6 nights a week around midnight. The smell is so strong that it is making it hard to sleep. I am sure that I am getting a mild case of second hand smoke. NYC has a smoke free act of 2002 that prohibits smoking in common areas indoors. Any suggestions for dealing with this? I have a feeling that WSJ will have an article on this sooner or later. The same rules that applies to cigarette smoking in terms of distance from building etc should apply here as well. Again, nothing against pot. But I shouldn't have to suffer from second hand smoke.

BERY should be interesting with the next couple quarters of earnings. Down 6% volume wise last year may easily convert into up 2-4% this year which still means down 2-4%, but market will likely like it given the current P/FCF. Refinancing at 1% and 1.5% means an extra $30-40mm of interest savings.