fenris

I like to think about my investment approach like this: my goal is a superior risk-adjusted return. No point in making all the effort if you're happy with a fair equity return. My return on capital (equity or debt) is a function of two variables: price and value. My alpha can therefore be driven by either an increase in value, an increase in valuation (price) or a combination of the two. I therefore think of my investments as either "good, special or ugly". A "good" investment exhibits such strong intrinsic returns that the appreciation in the underlying value will satisfy my return requirement with no change in valuation. Your expected return is effectively equal to the business' long-term IRR. Think of an early investor in Berkshire: you buy at book and sell at book. Other than that you are mostly patient and ensure that the business does not loose whatever trait allows it to generate superior risk-adjusted returns. Time is your friend here as you just wait for the compounding effect to kick in. An "ugly" business is exactly that. The cigar butts, crashed IPOs, orphan equities; the unloved assets at trough valuation. You buy a dollar for C50 (or less) and wait for the cycle to turn, for the reversion to the mean. You wait for an increase in valuation, for pricing to get back to $1 (or more) for $1. Time is the enemy here as your IRR is directly dependent on the time that it takes for valuation to normalize. Given that catalysts are far and between for these situations, you can make the most money if you are able to unlock the value yourself through activism or a take-private. Special situations incorporate a change in both value and valuation. This includes the reorgs and distressed situations, the merger arbs, spin-offs, restructurings and all other businesses that are or will be subject to material changes. This can also include less exotic situations such as management changes, sales or acquisitions of significant assets etc. This is really my bucket for everything that's not clearly driven by either the compounding engine of a high quality business or the forces of mean-reversion/cyclicality.

http://brontecapital.blogspot.com/2011/08/software-eats-part-of-world.html Recommended reading for all Dell, CSCO and HP investors (any left?)? "[...]Its OK for Microsoft: Microsoft is still renting 70 software licenses to run on 70 virtual machines. It is still renting office and the whole suite of other Microsoft products. But it is diabolical for Hewlett Packard who like Dell are highly dependent on corporate computing businesses for their margin." - Not a recommendation or offer to buy or sell any securities-

Just took a quick glance What does the Aug '11 write-up focus on? It seems like with the recent sale of their retail micro-loans, they will be left with the auto and credit card run-off portfolios, a stack of cash as well as the charged-off receivables portfolio. If they actually intend to run down everything and liquidate there may be upside given that it's trading below book. But if they keep it alive, Opex may eat the value given that it's pretty difficult to slash Opex at the same rate as a run-off portfolio (though the sale of their retail locations was probably a decent move in that regard). -This is not an offer or recommendation to buy or sell any securities.-

Hi everyone, I was fortunate enough to find this board about a week ago - just in time.. ;D Looking into loading up on a) high quality stocks that have come under pressure and b) a lot of the stuff Bruce has to get rid off (I like the BAC and AIG warrant angle - wasn't aware of that before reading about it here on the board). As someone recently remarked in another thread: you can always find smallcap bargains and special situations. When there's a sell-off, focus on getting high quality assets on the cheap. Having that said, I will keep plenty of dry powder in case there will be more opportunities in due time (either in the US or Europe). High quality and US financials aside, I wanted to take a look on another source of potentially rich returns. I think one of the prevailing rumors is that a bunch of hedge funds have to sell for various reasons (margin calls, cutting losses before investors get too nervous in light of a chunky monthly loss). If hedge funds are forced sellers in this correction, then (former) hedge fund favorites should have come under heavy pressure. This could be an opportunity to pick up some 'smart trades' at attractive prices.. For example, I checked a few popular reorg stocks. Some of these names have been covered on this board, some have write-ups at SumZero or VIC. I'm certainly not making any recommendations but would rather like to see if anybody else is invested or following these. A lot of them have pulled back significantly. ABH: peak at 30, now 15.72 (has a thread here) ACW: from 13 to 7 (featured at SumZero with a price target of $20.88 in April 2011) CHTR: from 60 to 42 CHMT: 18 to 12 GGP: 17 to 11.75 HHC: peaked at 75, now 45 LYB: back to 28 from mid to low 40s Then again, the risk/reward profile may not be as attractive if this sell-off presents you with high quality companies at low valuations. Seagate and Western Digital are two hedge fund darlings as well. STX went from 17 to 10.88, WDC from 38 to 29. This may be an attractive long-term play given the recent industry consolidation (I believe Einhorn mentioned it in his most recent letter).