Sportgamma
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Posts posted by Sportgamma
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Anyone follow Universal Insurance Holdings (UVE), an equity-heavy P&C insurer concentrated in Florida? The CEO and COO are in their 40s and own 34% of the company.
Yoshikazu Tanaka owns around 30% of GREE (3632.JP) and is a self made billionaire at age 35. I think I'd rather invest alongside him than Zuckerberg.
I had some UVE for a while, but it didn't but found that holding it was causing to much discomfort for me. Their risk is very concentrated (or was...think they expanded their operations to other state(s)).
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ER: What are you sell criteria?
MW: We never sell. Our whole technique works much better on the buy-side. Since we continue to attract new money there is very little pressure to sell. We sell in the open market when things become grossly overvalued. We are just not that good at selling when things are moderately over priced. We also sell when we make a mistake. Mostly we sell when our companies get taken over. Most of our sales are not to the market. I’ve been doing this for a long time and I’ve held securities for three years and sold them after they’ve doubled only to see them triple over the next six months. When you don’t know what you are doing, doing nothing is the best course of action.
- Martin Whitman
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Well, I guess the reason is simply that in all I have read about Keynes (I cannot claim I have read everything there is to read, but I have read a lot), I have never found even hinted at a 0% interest rate policy, or a 350% world total debt / GDP, or a deficit spending policy in a time of economic growth. Instead, I remember him advocating to build surpluses in a time of economic growth, surpluses that would enable us to engage in deficit spending during a contraction. Deficit spending is the “easy part”, building surpluses is the “hard part”: preaching keynesianism, while adhering only to the easy part and disregarding altogether the hard part, will end like everything ends, when you do what’s easy and procrastinate what’s hard: very badly.
Maybe, you might argue, it is me that should read Keynes more carefully, and have not understood his economic thought correctly. Of course, it might be. But what that means is simply I have not studied history well enough. Not that history is irrelevan
Well, Kyle Bass does agree with you Gio. And this guy for what it is worth: http://hurryupharry.org/2012/06/07/the-misunderstood-mr-keynes/
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Perhaps we should define a little bit better what we are talking about. Here is an attempt to offer definitions to various concepts that we have been talking about.
Scepticism: Being critical on the information that you receive (i.e. being aware of common behavioural biases (http://en.wikipedia.org/wiki/List_of_biases_in_judgment_and_decision_making), trying to refute your own hypothesis as opposed to confirm them, using multiple frames of analysis, etc).
Past: What happened prior to the current situation.
History: Interpretations of the past.
Data: Quantitative representation of past events.
Stories: A verbal description about what occurred and why.
Theories: The discipline of trying to discover reoccurring phenomena by analysis of the past, either from a qualitative or a quantitative standpoint.
Application
What I am trying to get at is that the difficult part is determining how you will study the past and how it will be applicable to the problem that you are trying to solve. I am not proposing that history should not be taken into account.
Bicycles have existed longer than cars and therefore are likely to outlive them as a technology. What meaning should I derive from that? Should I sell my car and travel by bicycle or should I sell my Exor and buy Dorel? How much time should I allocate on studying macro economic history to become a good investor? Economists have be debating the gold/commodity standard vs. a fiat system for a long time. Both groups have studied essentially the same history but have come to different conclusions. Gio and I had a discussion on another thread about the management of Exor. We both used past events in our examination but came to different conclusions because we used different measurement tools.
Consider this. Somebody says to you: "There is a brilliant hedge fund manager who is building his own Berkshire from Sears." There you have a story. First of all, you will have to fight the inclination to confirm the story. Then you have to find out how it can be refuted. You might want to look at his past performance (data) but you might also want to look at some behavioural references of his, i.e. by reading his shareholder letters (history). But then you will look at Sears and its current shape and ask yourself how will he do it and you will start to simulate different scenarios and different ways for him to achieve such end.
What do we do in the investment idea threads? Somebody starts of with write-up and usually its just a simple story backed up with a few hand picked data points. By doing so the initiator is exposing himself to this group of people who will look at it from a critical standpoint. People will ask critical questions or even offer counter arguments. New data-points will be presented. I find this to be the true power of theCorner (e.g. the proper treatment of scepticism towards investment stories/thesis´ and theories).
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Why do you believe that about Keynes? Why are other people getting it wrong?
Perhaps one of the reason: "[Keynes] was vastly smarter than people who write for the Times and say that Keynes said something."
- Taleb at GoogleTalks
Its a great talk by the way:
(He covers the Lindy effect as well)
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How ´bout Colgate-Palmolive? Seriously efficient with unbelievable returns on equity.
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Hey Gio,
Thanks for visiting the site, I´m glad you liked it. Wow, it seems like ages since I wrote that sentence, I did not even recognise the title of the thread.
First of all, I think a fair amount of scepticism is always healthy. Regarding using the past to predict the future, I think we have to make a distinction between using historic data to identify common phenomena, such as business cycles, human biases, etc. or using a trend to project the future.
I´m not sure whether I wrote this before or after the Icelandic banks collapsed, but bear in mind that the banks had steadily increased their profits, from quarter to quarter and just as the turkey at its heaviest the day before it got slaughtered, they were recording record profits in their last year of existence. What I was referring to is the weighting of the turkey to predict its future weight. What you are referring to is studying the weight patterns of turkeys in slaughterhouses to discover repeatable patterns (Marks also quotes "if something can not go on forever it must come to an end).
What I try to apply to my work and investment process is to use history to form the necessary assumptions, but at the same time prepare for various probable future outcomes. The thing that impresses me the most about WEB is the way he used a decision-tree-like approach during the partnership years (http://sportgamma.net/2012/04/29/ryan-morris-and-the-value-of-the-activist-option/).
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LBIX released 3Q earnings on friday and it was bad, first loss in 17 straight quarters. I can accept that, but what I find highly suspect is that the stock starts trending down roughly a month before the release and then hardly budges after they make it public...
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I recommend the video as well. Ergen is quite a character.
Charlie Ergen: His management style, why he likes to sign company checks and other tidbits
In describing his management style, Ergen said, “I’m more of a micromanager than to let somebody just do it.”
“You either trust someone day one until they prove you wrong, or you say I don’t trust you until you show me I can trust you. I’m the latter,” he said.
Up until seven or eight years ago, Ergen signed every check at Dish. He said board members even joked that they would pass a resolution so he couldn’t sign checks any more.
“It’s the single easiest way to stay on top of your business, because if you know where the money is going, you know most everything about that business,” Ergen said.
He moved from signing every check to signing $5,000 checks, then to $10,000 checks, and now he’s at signing $100,000, except for those that involve recently acquired Blockbuster, where he still signs $10,000 checks.
“It takes me an hour or two every week and I have a feel for the business and I can ask questions,” he said.
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Interview with DISH´s Charlie Ergen
http://www.siliconflatirons.com/publications.php?id=video&doc=1191
Dish Network, the Meanest Company in America
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Gleðilegt nýtt ár / Happy new year
Gísli aka Sportgamma
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Well, I think there is also the issue of a 'level playing field'; in other words, you need to have a stock market that treats minority shareholders more or less on the same footing as controling shareholders (and I use that statement quite loosely). This is not the case in many, if not most, mediterranean countries where controlling shareholders routinely abuse minority shareholders with impunity. How can there be value investing if 1) there is poor disclosure, 2) there is unequal disclosure (i.e. you can't be sure that you are acting on the same information as other investors, particularly company insiders), and 3) there is little or limited recourse against abuse (shareholders can expect little help from the legal system for righting even those limited abuses that are proscribed).
Oh, that explains why all the big frauds happen with Italian or Spanish companies: Enrone, Mundocom, Los Hermanos Lehman, MFI Globale, etc. :)
Haha, me gusta.
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The same goes to you Gio, thank you for all your input on this board.
I mention LUK and LMCA because both companies are essentially holding companies that actively manage their portfolio of assets. It is my view that just as with LUK and LMCA, looking at the operating companies of Exor and projecting their future for the next ten years would perhaps not be the appropriate approach.
But I don’t look at the operating companies at all!This is the complete paragraph that you are quoting:
I mention LUK and LMCA because both companies are essentially holding companies that actively manage their portfolio of assets. It is my view that just as with LUK and LMCA, looking at the operating companies of Exor and projecting their future for the next ten years would perhaps not be the appropriate approach. But as you state, your approach is focuses on the jockey.Just to clarify, I want to sum up my point:
You initially asked if the Exor thesis was just about discount to NAV or if there was more under the hood. My response was yes, I think there is.
- Just as LMCA and LUK, Exor is an Owner-Operator company (you brought Murray Stalh to my attention and for that I am very grateful, Gio) and their portfolio of assets can change significantly over time.
- You highlighted a couple of persons in the management team to which I replied that those are perhaps not the persons you should focus on. I think its kind of like saying LUK and LMCA have unproven management teams because Wheeler and Maffei have short track records.
- Exor in its current form has only existed for 3 years and I understand perfectly that that is not sufficient for your approach. However, I wanted to point out that in those three years, so much has happened and Elkann & Marchionne have made many strategic decisions. Therefore you can extract considerable amount of information about their quality as operators, financiers and capital allocators.
- Exor is Italian only to a limited extent.
- My main point is, Exor is a misunderstood company. "I doubt they invested in FIAT opportunistically…" Sure, but look at Fiat today and compare it to three years ago. They spun of the industrial divisions (which they will merge with CHN) , they invested in Chrysler, they simplified the capital structure. They have been very opportunistic in my view. You are right that their investment in Fiat is most likely permanent, but it does not mean that they will not implement value accretive actions, such as spin-offs. Personally, I suspect that they will allocate whatever cash flows they get from Fiat to other opportunities.
-What I look for are asymmetrical risk-reward situations. If Exor approaches fair value with considerable downside risk, I will simply be able to sell.
I like LUK and LMCA, and a few other companies, because they are in the business of “buying $1 dollar bills for 50 cents”, without all the weaknesses inherently embedded in the mutual or hedge fund business model.On this we do agree but let me add that what the above mentioned companies also monetize when they are able to get more than a dollar and that is what I mean be "actively manage value" (as opposed to buy-and-hold).
You say: "I like LUK and LMCA, and a few other companies, because they are in the business of “buying $1 dollar bills for 50 cents”, without all the weaknesses inherently embedded in the mutual or hedge fund business model. And, among all the endeavours of mankind “to buy $1 dollar bills for 50 cents”, as far as I know, will be the safest way to accumulate wealth for a very long time to come. Because, to paraphrase Mr. Taleb, it is the most anti-fragile business I know of."
I say, well that is basically what Exor does. You mention the Sirius XM transaction and I agree, it was arguably one of the best documented business done during the crisis. But you could also group the Chrysler transaction by Fiat in that category. That was an exceptional piece of business.
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Hi Gio and thanks for your response.
The reason is that I almost never try to value a company: instead, I am only interested in coming up with a conservative figure for what might possibly be the return on my investment for the next 10 years. And that is never easy, of course, but, as far as Liberty Media and Leucadia are concerned, I am quite comfortable with my assumptions. They are based on an extended and well-documented track-record, with a management that could go on performing very well for the next 10 years. Most important of all, I think I understand what the management of both Liberty Media and Leucadia did in the past, and what they are still doing today. It is this “understanding” that gives me the required confidence to partner with them, even more than their historical track-record.I mention LUK and LMCA because both companies are essentially holding companies that actively manage their portfolio of assets. It is my view that just as with LUK and LMCA, looking at the operating companies of Exor and projecting their future for the next ten years would perhaps not be the appropriate approach. But as you state, your approach is focuses on the jockey.
Although we share fondness of Liberty Media and Leucadia (I hold LUK shares), I´m not sure that I totally agree with you on the here. LUK is already in a management transition and I would suspect that Maffei is being groomed to take charge at Liberty. Handler will hold a significant stake in the new LUK, making him an owner operator in some sense but still, can we look at his track record as an IB-er and assume that he will be as suited for his new position?
When I asked Christopher1 what he thought about Exor, he answered: “I rarely invest in Italian companies… I have seen too many bad things happen in the past…”. I couldn’t agree more!Is it an Italian company? Its listed in Italy but how much of their business actually takes place in Italy? Is Elkann Italian, is Marchionne Italian? Non of these questions are 100% yes.
Likewise, I don’t pretend to know every bargain that is available (Exor trading at 0.5 x NAV might certainly be a very good bargain!). What I am positive about is that I prefer to know Liberty Media and Leucadia well, then to know Liberty Media, Leucadia, Exor, etc. approximately.I get your point and your selection of stock (and jockeys) are very much to my liking. However, your original question was:
I am curious about EXOR: could you elaborate a little bit? Is it just a matter of the meaningful discount to NAV it is trading at, or do you also really like what you see?...and that prompted my response.
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Hello Gio,
Take a look at Bestinver's hedgefund and you can see that they have over 20% of their portfolio in Exor. And MOI had a interview of them explaining a bit of it.
I might buy it as well if it goes to 15 :D
Cheers,
ASTA
Thank you ASTA!
I know that Bestinver has a meaningful position in Exor. I will look for the interview on their website.
It seems you have already done your homework on Exor: can you tell me their track record on a 5, 10, and 15 years basis? I have checked very quickly, and all I could find was the increase in NAV during the past 3 years. Not enough for me! Also because the management team seems relatively new, and therefore unproved (Enrico Vellano became CFO in 2006, Alessandro Nasi became Vice President of Business Development of CNH in 2008, and Mario Bonaccorso joined Exor in 2007). If I cannot project earnings at least 5 years into the future, with some sort of confidence, I almost never invest. Even if the price looks very cheap.
giofranchi
How would you project earnings for the next 5 years at Liberty Media or Leucadia for that matter? When you value Exor, the weight should go to analyse how they manage value (Gio, I also recommend that you read Valuation, Measuring and Managing the value of companies, by McKinsey CG).
In regards to management, I would put more weight into J. Elkann and S. Marchionne as they are truly the ones in charge. Elkann has been on the board of Fiat since he was 21 years old (he is an engineer, such as yourself Gio). I don´t think I have seen an Xth generation (I think 4th in his case) descendant in a family business who is as competent as him. He also seems to be have a very humble personality (there is an anecdote about him working at a Fiat factory in Birmingham and even the family he stayed with were unaware of his family background).
A few points:
1. Take a look at the transactions and structural changes that Elkann and Marchionne have implemented after they took charge and form an opinion on the quality of their decisions for Exor shareholders. Look at the spin-offs, the acquisitions, buybacks and simplification of capital structure.
2. Giovanni Agnelli & C. owns 59% of ordinary shares and 39% of preferred shares in Exor and J. Elkann has managed to gain total control of Giovanni Agnelli & C. Ask yourself if the fortunes of J. Elkann is aligned with the rest of the Exor shareholders.
3. Compare what Fiat has done since 2008 with, for example, Pegout.
4. Take a look at Fiat, Fiat Industrial, SGS and C&W. You could look at the track records on a 5, 10, and 15 years basis. You can also review S. Marchionne´s 5 year plan for Fiat and what the expected price per share should be if they accomplish 70% of their goals and look at how sensitive it is to scale efficiencies.
5. Look at the valuation and think about what you find to be the appropriate corporate discount for Exor.
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What kinds of businesses are those where suppliers and/or customers provide float? Those with moats.
I havent thought of it in this way before, but it makes perfect sense when you think about it.
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STEVEN BREGMAN: Well, I like the Malone company. One of John Malone’s many publicly traded companies is known as Liberty Media. As you might know, he trades securities kind of like playing Hearts. If Wall Street likes a certain type of business or a piece of paper, he’ll sell it to them. If they don’t like it, and it’s cheap enough, he might buy it back.
Liberty Media, which underwent some recent capital changes, is undergoing some new capital changes. To keep it simple, their basic operating business is the Starz and Encore cable channels. It’s one of the more successful cable channel properties around. Starz itself has some 54 million subscribers. They get new subscribers every year, sometimes more, sometimes fewer, but let’s say it grows on the order of 5%. It produces tremendous amounts of free cash flow.
John Malone has an extraordinary record for value creation over many, many periods of time, in many different companies. It’s not by accident; it’s too long a period of time. His capabilities are well known. Technically, if you look at the balance sheet, you’ll see some small amount of debt, but it’s truly de minimis. Cash, net of all the debt, is quite a large number at well over $1 billion.
The company owns shares in Time Warner, Sprint, Sirius Satellite Radio, and so forth. Just as an exercise, you could subtract the value of all the securities and cash from the stock market capitalization and, as of the last time I did it with a little bit of care a few months ago, depending on the day or the week in terms of the price of the stock, you might actually be paying only one, two, three, or zero times the earnings of the cable channel.
Malone is not a passive investor; he’s an active investor. If the earnings from the cable channel business were priced anything like comparable companies, the stock would be much higher. But there are layers to it. Even the exercise I just described is a little too simplistic, because John Malone, although he periodically hedges many of these equity ownerships he’s received over time, such as the Time Warner or the Sprint, he does not choose to hedge Sirius Satellite Radio. In fact, he’s endeavoring to buy more. And he is buying more to get control of it. The question is: is that worth very much?
On a P/E basis, to some analysts, Sirius Satellite Radio might look like a high P/E stock. But it’s only now achieving a certain scale economy that has been over a decade in the making. If you go back three years ago, on a free cash flow basis, that company lost a half a billion dollars. Then, a couple of years ago, it was sort of at break-even. A year ago, it made $100 million and, this past year, it made $500 million. That’s a $1 billion swing in just a few years. It’s only now achieving a certain scale economy. It should be a lot bigger, and be worth a lot more, in the future. And this is a large market capitalization company.
The price right now is probably about $104 a share. If I think about a company in terms of the quality of the business platform, and I might say that in terms of cable channels—not cable infrastructure, which he left quite a long time ago and sold to AT&T, which was a fool for buying it from him—that’s on the right side of the content divide. There’s a lot of foment in the media and technology sector.
It’s really a very, very high quality business, with a very, very long product lifecycle. It’s got a lot of intangible assets associated with it, a lot of free cash flow. It’s a wonderful business in terms of quality of platform. It is bizarrely priced. It’s really a wonderful investment. In terms of risk/reward profile, I would say that comes near the top in terms of selection.
2012 FRMO Transcript
http://www.frmocorp.com/_content/letters/2012_FRMO_Transcript.pdf
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http://online.wsj.com/article/SB10001424127887323501404578161211614586512.html
Starz's parent, Liberty Media Corp., LMCA +0.80% has said it will spin off the TV channel as a separate company. Once the spinoff is complete, which the person said could be in early January, Starz plans to promptly begin discussions with potential buyers. Tax rules prevent talks with a buyer earlier.That sale plan influenced Starz's decision to not aggressively bid against Netflix, the person said. Netflix's deal with Disney is worth $300 million a year, up $100 million from what Starz is paying, the Journal reported on Tuesday.
"Some buyers wouldn't want to take over a company that's burdened with giant cost increases," the person said Wednesday.
http://si.wsj.net/public/resources/images/MK-BW347_STARZ_G_20120808175410.jpg
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I totally agree with you on the jockey bit.
Did you watch this lecture:
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Hi Gio,
Malone is somebody I really love to follow. These guys are so active in managing value, so there are always lots of moving parts. But therefore I think you should look at it from that angle as well. You should bear in mind that there will be lots of action around Sirius, its not going to be buy-and-hold. They´ll most likelly lever Starz up and spin it off, as well.
Therefore, some sort of sum-of-parts analysis would, in my opinion, be more appropriate.
I´d also recommend taking a look at LINTA. I don´t think there are that many e-commerce (/tv-commerce) cos that manage the same operating margin as QVC does.
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Check out the WFB presentation from the analyst day (begins on page 100):
http://phx.corporate-ir.net/phoenix.zhtml?c=177739&p=irol-calendar
They rank nr. 14 on purchase volume in general purpose credit cards in the US ($13.8b) and historic charge offs are impressive.
Its a very interesting company. I am reminded in some way of NFM when I think of CAB, at least in terms of selection:
http://theinvestmentsblog.blogspot.com/2010/02/charlie-munger-on-nebraska-furniture.html
People go to a CAB store and they spend the whole day there. It hard to compete with that.
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http://25.media.tumblr.com/tumblr_mdhmmfw5Vf1r1to8do5_250.gif
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Very interesting. Thanks for sharing.
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Zix Corp came up in a screening of quality companies that I did. Upon looking closer I became intrigued as I found characteristics that I favor:
- Industry characteristics: (Relatively) few direct competitors (albeit big ones: Cisco, McAfee and Proofpoint) servicing a large group of clients (government, healthcare, finance, etc) - the company is servicing over 7.000 clients with no single client contributing more than 2% of revenues - through a service based business model with high renewal rates (+90%). From the clients perspective it is a vital service although it represents only a minor part of the clients total costs (meaning that changes in cost of service will have minor impact the clients income statement).
- Scaling properties of the business model.
- The company has been showing rapid growth, high margins and high RoE.
- Huge growth potential (f.ex. international expansion)
- Recent shareholder activism (http://finance.yahoo.com/news/meldrum-asset-management-delivers-letter-123800907.html)
As one would naturally suspect from a tech stock, outstanding options are in excess of 10% of outstanding shares...
I´ve only just started looking into this one, so I would be interested to see if any other board member has already been kicking the tiers on this one.
Of course this company proclaims to be miles ahead of anybody in the industry and that their products are vastly superior to others. As there seem to be quite a few programmers/techies/IT guys on the thread, I would greatly appreciate some Devil´s advocate contribution regarding technology (as this is far out of my Circle of Competence).
Mr. Taleb likes owner-operators
in General Discussion
Posted
And then couple that with some history of under reserving...