BG2008

https://www.bloomberg.com/news/features/2019-08-13/if-the-tuition-doesn-t-get-you-the-cost-of-student-housing-will College kids don't need luxury apartments

I volunteered as an alumni for my college fraternity. The school quoted us $400k to redo our bathroom. Granted, it is designed to have 6-8 showers and multiple stalls etc. But $400k for a communal bathroom in upstate New York. The amount of administrative burden on such a task is ridiculous. But all jobs must be approved by the school.

I did the same thing a while ago. I actually asks my appraiser for a low appraisal and used that to get my taxes lowered. However, I didn’t have loan to value issues either. Damn you people who want lower appraisals!!!!

In my case, the appraiser uses mostly 3 family buildings as comparisons for 4 family building that I own. And then he's making an adjustment saying that the additional unit is only worth about $20,000 when incremental annual market rent is potentially that much. Any appraisers that I can call just to pick their brain on how to contest this? They claim they are giving me 70% LTV. But if the appraisal is at 75% of fair market value. Then the actual LTV of market price is only 50%. Too much equity locked up in the RE.

My appraisal for a cash out refi just came back and the value is about 75% of of the fair market value. Has anyone dealt with this in past? I know that I can do an appraisal appeal. Can I pay and get a second opinion and submit it to the bank?

GRIF

DuPont over LYB all day. DuPont is actually a decent target IMO

Berry Global

Imagine this, you convince a bunch of Wall Street people to give you $100mm to $1 billion. Then you have a gun to your head to make an acquisition in 24 months. The guys who are selling to you can either go public via a properly road showed IPO or through this back door way and have to deal with warrant overhang. If you are a legit company, what path would you take? This is the problem that I have Social Capital. Chamath Palihapitiya talked about how the IPO process is dead and the pricing mechanism is antiquated. I was look forward to a "crypto or new age way of doing business." So what's the solution? SPAC!!!! This space is just full of crap. Crumbs cupcake - Bankrupt Jamba Juice - Hill International Just google some of these names and you'll see lots of dead or badly injured bodies in the way

Added to GRIF last couple of days

Greg, I think you live in the burbs. 4 hours without AC in NYC in 90 degree weather can kill people. There is no grass and you can just chill in the backyard. You lose power and everyone's apartment becomes an oven.

Please expand on this land of Nova Scotia, New Brunswick and PEI. I love seafood and places close to the water in general.

This maybe a reason for me to short the company when it comes public. Will keep an eye on it. I’ve never bothered researching this, but the USA Today story above refers to the “Bank of America’s fund manager survey” and “American Association of Individual Investors’ weekly survey.” Those might be worth looking into.

There are a lot of roll ups in the packaging sector (containerboard, plastic packaging ) that seem to work out well. It seems that economy of scale and a relatively predictable business with a good cash generation are a winning strategy. I read a packaging primer once that essentially said that packaging companies are bonds masquerading as equity. Their cashflows are so stable that they can continuously lever up to do acquisitions and then use FCF to de-lever. Berry has done this multiple times in their private/public life.

Look into Berry Global, it's a plastic packaging. They buy 5bn pounds of resin and their targets typically buy 5-10% of them. If you buy 5bn of resin, the resin manufacturers want your volume to absorb the bulk of their overhead. So you get a 2-5% of revenue savings in resin. Thus you buy a target that has a 10-12% EBITDA margin and right off the bat you're shaving a lot of that cost off just through being a larger operator in the space. Thus, it makes sense to pay 8-9x EBITDA which is really 5-6x EBITDA after synergy. Cable operates the same way where there used to be lots of little guys around. They can use scale in buying content cost to lower the cost.

Haha BPCAP, Can you outline exactly why you don't see value in HHC? The haha isn't meant to be a taunt. I feel like there are three groups of investors of HHC. First, the ones that don't get the value. On the surface, it is hard to see the value. We struggled with it for a long time as well. Second, there are the group that sees the value but believes that the catalyst is many years away and don't want to own it now. Third, there's the group that owns the stock and are willing to ride through the up and downs and believes that it is crazy undervalued.

Haha

GRIF, made it a mid teen's position

I disagree with others on this thread. This is how I would think about your situation. While someone who is in his late 50s may not have much to add for his wealth over time, maybe he wants to leave a bigger inheritance to his family and be able to pay for his grand kids' college education etc. So there maybe other financial reasons over time. Maybe the OP wants to leave some money to a charity. After all, Warren Buffet did make 99% of his wealth after he turn 50 or something. The power of compounding is real. The key question is really "do you really enjoy this?" There are also other considerations at your age where you want security of income. So the nature of your portfolio needs to have a different mix between income and appreciation. If your objective is to simply compound wealth and beat the younger guys, it's probably not the right mindset. If your objective is to learn, enjoy the process, and get better, I think it is very healthy and may prevent Alzheimer/dementia etc. People take up golf and other hobbies in retirement, but this could be very rewarding for you. If I were OP, I would take a hard look at myself and ask "what are my skillsets and what does my rolodex look like?" If OP has 40 years working in specialty chemicals distribution and has a network of people that can reach out, there is a very good case to make for him to contribute his time and network to help a fund or manager in return for mentoring. wink wink. Just being on this board likely puts you in rare territory. So look at your career and look at your work contacts and think about what industry knowledge you can offer. Look up publicly traded companies in your sector and check 13F filings. If they are sub $1 bn companies that you know well and have opinions of in terms of profitability, long term earnings power, the ability to earn a return on capital, and the various players involved, you can create tremendous value add. Frankly, I want more 59 year old guys/gals in my Rolodex that I can call quickly and get their views on various topics. You can PM me if you want and we can do a quick chat about ways we maybe able to work together. I have to be honest and upfront that if there aren't a whole of industry knowledge or contact, it will be difficult as "time" is the most expensive COG in the investment business. Maybe you have 40 years of experience as an administrator in a school district and you are thinking what value add can I provide. Well, I would like someone on my Rolodex who I can call when I want to understand how a school district admin thinks about buying educational subscription services. Take a step back and think about this dynamic and have some fun with it. The most important question to ask is "will you enjoy this" and please please please have the right ratio of low risk income (perhaps an oxymoron in itself) and higher risk equity exposure in your portfolio. Our runway and risk tolerance is justifiably different. Heck, my own risk tolerance has changed slightly since my mid 20s.

Screw my previous goals, i’m all in on this one. Screw my previous lengthy rationale for financial independence, I just want to play the triangle in a house of pleasure

This is going to be a lengthy answer because I will include the WHYs 1) Financial Independence - There were two events that really stood out in my life/career that puts me on the path to want to gain financial independence. During 2008/2009, I was a RE investment banking analyst at Citigroup when Citigroup's stock went below $1 per share. It had traded in the $40-50 range when I started in late 2006. There were a lot of 40-50 year old relationship bankers in the Private Bank and Smith Barney side who had really long faces during that time. I was a young guy in my 20s who hustled and worked hard. The 40-50 year old guys/gals never really developed tangible skill sets such as investing. But they did develop soft skills like catering to wealthy millionaires. Their jobs were pretty much glorified concierge services to the millionaires and billionaires that Citigroup served. In late 2008, a lot of those guys on my floor realized that their skills were worth $200-300k a year only if a large financial institution like Citi continues to exist. Without the various fiefdoms of Citigroup or another large financial institution, they really had no stock picking, investing, or "profit generating" abilities. As Citigroup continued to lay off people, I realized that eventually they will get rid of me as well. But I was in my mid 20s, young, hungry, and hustled, and I had just discovered this guy named Buffet. So I decided that I was going to the Berkshire meeting in May 2009 if I got laid off. The 40-50 years old on my floor were terrified of what might happen. What I learned is that they never really saved and invested. They became accustomed to the expensive lifestyles of eating out and renting summer houses. Many of them pay up for rental apartments in NYC. But no one owned anything really. They mostly spent their $200-300k salaries. Plus their Citigroup stocks were junk paper at this point. I made up my mind that day that I will continue to invest in myself and my ability to invest. The second incidence is more of the cumulative experience of my teenage years. I have shared my experience of how a Chinese take out restaurant works and how slim the margins are. I have tried to analyze why my dad behaves a certain way, I believe that if someone is willing to get on a boat and come to the US from China, he's probably got a bit of risk taking genes in him. Anyway, my dad in his 30s were rather quick to take risk. We opened a second restaurant when we could've focus all of our energy in our first restaurant. The 2nd restaurant winded up being a complete flop and we lost about $100k in 90s term. That was actual monetary loss and about 2-3 years of dividing between an original restaurant that performed decently but lacked attention and this new venture that never took off and sucked the soul out of us. We finally cut our losses and focused on our first restaurant. By the time, we came around to that realization, the first restaurant was about 8-9 years old and it needed a refresh. Given that we just lose $100k, we did not have the cash laying around to invest another $50-70k into a restaurant refresh. So my parents being the scrappy immigrants that they are, decided to play a bit of game of working capital maneuvering and delay paying our vendors and milked the cashflow. What they did not understand at the time is that you can kind of work with your suppliers and draw out the payment terms by up to 3 months. But you can't really mess with your home mortgage, restaurant rent, and various utility bills. This is kind of common practice in China at the time. Sometimes you don't pay for 3-6 months and then you pay the entire bill in one fell swoop. I was about 12 and the best English speaker in my household. I got a knock on my door one day and a guy from our bank giving us a service notice for home foreclosure. I was 12 and learned a very early lesson on what happens if you don't pay your mortgage in two consecutive months. I asked the guy "why would the bank do this to us? We are good for it. I found out how much legal fees we now accrued etc." I remember we paid $240k for the house and we had a $180k mortgage on it at about 8-9% interest (yes, early 90s interest rate). I was terrified that we might lose our house and we maybe homeless. The worst thing is having to explain this to my parents. I grew up really fast that day because I learned how foreclosures work. The terrifying thing about my teenage years is that it was in essence going from one chaotic shit storm to another chaotic shit storm. Home foreclosure, building department citation for illegal construction without proper permit, health department citation, rent past due, improperly installed HVAC system which may cause pilot light to go out and create an explosion. My wife and I have talked about how if we buy a house, I want to do what Buffet did and either own it 100% equity or set aside 3-5 years of cash mortgage payment to service the mortgage. I have a 2 year old son and I never want him to get a knock on the door when he's 12 and have to learn from a stranger what a foreclosure is and why it is a terrible thing. Surprisingly, my family somehow manage to own a few buildings now. Due to luck, we correctly bought some rental units in Queens when only colored folks lived in Queens. Rent has gone up quite a bit and interest rates have dropped. In short, all my siblings own a rental building each. Over the years, I have grown to appreciate the economics of owning a rental building in NYC. I used to look at it from the perspective of earning a yield. However, when you can leverage with 30 year fixed rate fully amortized non-recourse debt, it creates very interesting opportunities. In short, my cost stays largely flat. But I get to extract 1/3 of a tenant's monthly income for each unit that I own. It sounds diabolical, but it is the economic reality of owning real estate. I will provide part 2 of my goals in another of my updates

Hyten1, This is where I want to make a differentiation. In the case of Cable, the thesis was literally, cord cutting will decimate their biz. They are going to die. Now it is starting to emerge that the Cable companies can actually increase prices via their broadband internet. It is very different when the market believes the rate of decrease is 10% a year and it turns out it was 3% and you can manage that down. It is entirely different when the market or a large part of the market participant did not realize that the incumbent cable guys can actually grow because you still need the cord for the broadband access. I don't know what the right terminology is here. I was never good with semantics. But some large segment of the investing world got it really really wrong.

I think that if the list of owners are all top mutual funds doesn't really mean that they understand it. I have talked to mutual funds that own 10% of a company who literally does not know that the company was going through a transformation. Someone has to own the stock. I find that the top 20 holders of a $200mm small cap that I own are your usual suspects, Fidelity, Vanguard etc. But I don't think they know that is is trading at 50% of intrinsic value.

Great post, Schwab711. By my memory, I first met Schwab711 in the Spring of 2016 and he is just as insightful and incisive a thinker as you would suspect from his posts. I believe it was this same occasion that I pitched CNXC and FELP as Schwab711 references above. BG2008 was in attendance for all three of the pitches that I make reference to below, so maybe my comments will be of use to him or others. In the spring of 2016, I pitched the purchase of CNXC and FELP. Picasso and I both separately and roughly simultaneously came upon coal opportunities from different backgrounds and perspectives. I certainly felt it was very contrarian to propose coal investments in 2016 when so many coal companies were going under. Traded at the right time, you could easily have made returns of several hundred percent in roughly a year on each of them, but it was difficult to generate interest from fellow investors as Schwab711 said. I think both Picasso and I saw these investments as specific securities of specific companies that could be identified as promising opportunities with a margin of safety and it was not a bet on the industry itself, although you could argue the prospects of the industry were likely better than many people believed at the time. Shortly after I pitched FELP, I discovered some crazy guy named Picasso was writing about it. So coal has given me a lot from that perspective too, it introduced me to Picasso. In the spring of 2017 I pitched a group of Healthcare investments including HCA and simply buying the healthcare index. As an aside, BG2008 and I scheduled follow up conversations to discuss the opportunity in HCA, as a result of the pitch. The fear regarding regulatory changes had created a whole index that at least temporarily was undervalued. Those out of favor healthcare ideas beat the broader market with low risk. In the spring of 2018, I pitched buying VRX and/or LEAPS on VRX. People laughed, and I laughed along with them, but I was confident in my belief because I had been following the company for sometime, though more for amusement, or potentially as a whistleblower or short. My point is that sometimes a specific security is misunderstood (CNXC and FELP). Sometimes an entire sector is misunderstood (healthcare in 2016 and 2017). Sometimes a single company is misunderstood (VRX). Each of the examples I gave above were temporary opportunities the market presented. Many of the above buying opportunities lasted for quite a while, but I think BG2008 is looking for something that is misunderstood more consistently. I think BG2008 was asking about the situation where the industry is consistently misunderstood and he is probably consistently interested in higher quality companies. To the best of my knowledge, I was unsuccessful in talking him in to HCA, even though HCA is probably a better company than a lot of what I have invested in, and HCA has almost doubled in the past two years. Another point that might be worth making is that in the cases above, I was drawing on prior knowledge to identify the opportunity when it arose. I think from talking to Picasso about how he found FELP, he also relied heavily on prior accumulated knowledge. That is a little different from actively going out and seeking misunderstandings. That might work too, but it is a different process. The risk is that the further you are out of your base of knowledge the more you risk being (here I am paraphrasing Schwab711) as crazy as you might sound. This is way better than I could have summarized. For the record, I was too dumb to recognize the wisdom of Read the Footnotes. I need to pay attention to everyone of his healthcare ideas. I left a lot of profits on the table. I guess the title of this thread should be "what do you think, companies or industries, is currently misunderstood based on your accumulated knowledge." If someone else has a more eloquent way of summarizing my questions, please feel free! In Oprah's voice, you get a Word Smithing Award, you get a Word Smithing Award, Everyone gets a Word Smithing Award Read the Footnote - Any updated thoughts on Bausch? Thoughts on attractive entry prices? Of course, I left money on the table on this one as well. When will I ever learn?

Jurgis, I waited a few hours before responding and still can't figure out your argument. You have a way of framing your points that is frankly a bit above my pay grade. Variant perception, what is that? In fear of getting too caught up in semantics like "what is value investing." I'll try to boil it down to simple examples that a fifth grader can understand 1) Before Buffet bought Burlington Northern Santa Fe, everyone thought that railroads were bad capital intensive businesses. After he bought them, everyone realized that there is a ton of pricing power. 2) A few years ago, people thought all the cable companies will die and shareholders will get wiped out. A few people realized that you will still need the connection to the home. 3) A few years ago, there was a 400 post discussion on VIC about whether Amazon will forever be a 1% net margin crappy retailer. I think we all know that the reality is very different from that. Amazon was a large cap even then and there were thousands of people looking at the name. 4) I neglected to mentioned that WWE's stock crashed because Vince tried to get a TV deal that would pay WWE live sport kind of money. The TV people balked at them and told Vince that wrestling is scripted. So Vince said "to hell with these guys, I'm going over the top." The strategy was risky and no one knows if they will ever go above breakeven which I believe is about 1 mm subscribers. So there was a time when you could have followed WWE closely and see how close they were getting to break even. The subscription at $10 or $12 was a great value for its fans. If you bought 2 pay per views a year, that was your annual subscription. From a content perspective, it also means that your stars can focus on the product and not try to promote the buying of pay per views which can get very tiring. 5) Buffet denounces airlines for a long time. Then he invested in them after they have been consolidated to four big players. Maybe we can call whatever I am trying to find something different and exotic, but the key here is to identify situations where people think 1) An industry is terminal, yet it has tremendous growth and pricing power, i.e. Cable companies 2) Business is capital intensive and will forever earn a bad return, in reality the industry has consolidated and has much better economics 3) Low ROIC is intentional and the company is being greedy for the long run, i.e. Amazon and a lot of the tech companies 4) Not sure how I can frame WWE into this framework, but there is some misperception in that the capital allocators don't understand the lifestyle of the poor and trashy population.