Olmsted
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Posts posted by Olmsted
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Baupost exited Targacept after their second failed P3 trial.
With all due respect and just trying to understand more ... Is Seth Klarman a good stock picker?
Targacept, Novagold, RHI Entertainment, on the top of my mind. I also read his 90s letters and did not improve my impression of his picks. He has an outstanding reputation in distressed debt, and his strong cash position getting into 2008 was fantastic. But every time I check one of his stock picks I have doubts, especially about quality and potential upside.
Really, I am trying to learn. Any opinions on this?
NovaGold plummets after Barrick raises doubts about gold deposit
NovaGold (NG) is retreating after Barrick Gold (ABX) indicated that it may not invest significant amounts of money in a gold deposit in which the two companies each have a 50% ownership stake. Barrick said that the Alaska-based Donlin gold deposit doesn't currently meet its investment criteria, primarily because of the large initial capital investment required to launch it. However, Barrick did add that Donlin represents a "valuable long-term opportunity," partly due to its long life mineral resources. Moreover, Barrick added that it would advance permitting activities at the site at reasonable costs, giving it the option to undertake construction there in the future. In early trading, however, NovaGold tumbled $1.67, or 31.04%, to $3.71. Barrick, meanwhile, sank $2.47, or 7.31%, to $31.32. :theflyonthewall.com
I've always had a sneaking suspicion that a lot of Klarman's reported longs are really offsetting unreported shorts or put positions (to add liquidity, lock in a borrow, etc.). Since he never explains his rationale for positions, one has no way to know what is going on at his fund or in his head.
Because yes, there are a lot of questionable longs reported at Baupost. And what's with all the biotech names?
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Hmm- same scare-mongering cliches, few numbers, little real analysis, basically no substance whatsoever. Perhaps he could have taken at least a sentence or two to review US banks' gross exposures, or the extent of the stress tests' draconian scenario. Of course, then he might have been tempted to reach a different conclusion- one that doesn't get as much notice from potential readers!
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Buffett bidding also could have been a gambit - with no real intention of buying the ResCap servicing portfolio. If he forced Nationstar (Fortress) to up their bid, his unsecureds would be worth more. Not sure on timing of the bids and his selling his unsecureds down, though.
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Why do they just not count as regular expenses, in the income statement?
Mephistopheles, I think the key is that once a lease is entered into, it is non-discretionary. A firm can stop buying inputs into a manufacturing process if it wishes to slow manufacturing, the firm can lay off excess employees. But if it decides to stop paying its leases, bad things can happen. Ch11-type bad things. Not a whole lot different than if it defaulted on some bonds. Or so the thinking goes.
The question for me becomes, if we are going to capitalize leases, where to stop? Long-term purchasing contracts? Contracts for multi-year talent (athletes, radio personalities, etc.)?
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Hmmm not even a mention of treatment of current preferred or common holders.
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Simplest course of action would be to just sell your warrants before expiration. There will be plenty of arbitrageurs willing to take them off your hands and exercise them for just a few pennies of profit. I usually take them up on this service unless the bid on the warrants is at a significant spread to the common stock.
This assumes, of course, that BAC will be at fair value upon expiration. If you still want to own BAC common stock, then yes, you'd have to add money to your account and ask your broker to exercise the warrants. Your cost basis in the stock would be the exercise price + cost basis in the warrants. No taxes until you sell the common.
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Hi all,
I have very recently started looking at Chinese small caps. Most of my investment experience to date has been in big and very high quality companies so I am slightly out of my depth. Example: ZST Digital Networks is off 68% today as their auditor has resigned. That's clearly not good news but the company has (or claims to have) $55m in cash and no debt and trades for $8m market cap, or 0.9x TTM PE. How easy is it to fake cash on a balance sheet? My instinct says the income statement is easier to fake than cash on the balance sheet but maybe I am wrong. And how little does one pay for a company that has exhibited steady growth and buildup of cash?
Excuse the braindump but if anyone has experience of investing in companies like this (Chinese smallcaps or those under an accounting cloud) I'd be very interested to hear what you have to say in general or specific to this case.
Many thanks
Pete
I would read every post on Bronte Capital and get into the mind of its author, John Hempton. If you can approach a Chinese company like you are looking for a fraud (abnormal profit margins, inventory, not enough employees, not enough R&D, doesn't "smell right", etc.) and do it rigorously, and cannot find evidence of fraud - you may be okay.
My gut tells me that there have got to be legitimate companies in China at great valuations because fraud has become the assumption a priori. If someone is good enough at fraud detection/detecting absence of fraud - there has got to be good money to be made there.
For me, there are too many landmines to even consider a single Chinese company (especially with the undervalued companies already in my portfolio) - but someone with better info, better forensic accounting, etc. may have a different viewpoint.
Also check reports by Muddy Waters and Citron. Other board members may have further suggestions.
Best of luck.
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I'm surprised the Google guys didn't invest Google money in this - that's their MO!
From a non-investment point of view, though, this sounds totally awesome. Good for these guys, to be willing to burn some cash in pursuit of something great.
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I've been auditing two of Prof Damodaran's courses. He presents a very traditional view of finance and valuation. Think modern portfolio theory, beta, etc. (though with his own improvements). He advocates owning 40 stocks to be diversified. The courses are good background, he is a smart and thoughtful guy, but there are some definite philosophical differences between him and most of the individuals on this board.
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http://en.wikipedia.org/wiki/Louisiana_Purchase
...the acquisition by the United States of America of 828,000 square miles (2,140,000 km2) of France's claim to the territory of Louisiana in 1803. The U.S. paid 60 million francs ($11,250,000) plus cancellation of debts worth 18 million francs ($3,750,000), for a total sum of 15 million dollars (less than 3 cents per acre) for the Louisiana territory ($233 million in 2011 dollars, less than 42 cents per acre).Assuming each acre is worth $10,000 today (a lofty assumption), then that is a compounded annual growth rate of roughly 6.27% pre-inflation.
The Louisiana Purchase wasn't really a "trade" in the traditional sense, since it was kind of taken by force from the native Americans, who were already occupying it.
6.27% capital appreciation. But that land has thrown off cash regularly (taxes, etc.). On the other hand, the government has also dumped a lot of capex into it (highways, surveying townships). Hard to calculate a good return!
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Another board member (PlanMaestro) has done some great thinking and writing along the lines of your question.
http://variantperceptions.wordpress.com/turnaround-investing/
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I might post about it at some point, but sometimes I feel like Mr. Market himself reads this board, and if I post about my portfolio, everything's going to drop 20% in a day :P
Ha - good point. My one stupid post about my GNW long totally called the top in the stock. :)
Good discussion here Liberty.
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Hampton Roads, Virginia
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...To now add insult to injury, those of us who stewarded our capital and, say, put it into the equity of a bank rather than into a home, have to listen as the banks are blamed for loaning money to these fools: "They should have known better", and then, when the fools (voters) can't pay (even though many of them took out all their gains -- my original point), the banks are blamed for not "properly foreclosing" (aka: robosigning). As if poor foreclosure practices were the cause of these people not paying their contractual obligations in the first place.
Like I said: Comical.
But, and I mean this not in jest, I have no idea if this is likely what is going on in Canada.
"Comical" really isn't the first word that comes to my mind.
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I've been looking into ways to short China's real estate and financials for quite a while now, but never have because they can kick the can down the road longer than my patience will allow. They're going to have massive dislocations sooner or later, but is it sooner... or later...?
So what are the second and third-order effects? Cheaper commodities? Australia and Canada resource sector issues? Could be some cheap, long-duration hedges in there somewhere.
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Here is historical chart of freight rate from 4,000 BC . I got it from shipping executive last year.
In value investing, it is important to have a long-term time horizon! ;)
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I'm with Parsad and Hester - it is hard to make a solid bearish case here. Or any case, bullish or bearish, for that matter. Is it overvalued? Probably, maybe a lot, but it is really hard to say that with enough certainty to be actionable. Facebook obviously has strong network effects, creating a powerful moat, and they are probably very early in the game of figuring out how to monetize their captive audience. Revenue per user will go up, perhaps dramatically. The story-stock nature of the hype around facebook, combined with the nosebleed valuation to current FCF, imply that it is probably overvalued - but it is really difficult to pin that down with any certainty.
Wow - there are a lot of "likely"s, "probably"s, and "maybe"s in that paragraph. That tells me that 1) I'm a poor writer and 2) Facebook, long or short, is in the too-hard category. Fun to talk about though!
Good article Ragnar.
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What about mortgage insurers? Genworth looks interesting, partly because they are diversified and could jettison the mortgage insurance if it made sense to, and it looks like the rest of the company could support a valuation north of today's with normalized earnings. But if housing turns around, the mortgage insurance subsidiary would contribute a lot of upside. They are also more conservative with reserving than some peers. I haven't done a rigorous sum-of-the-parts, but it is something I'm looking into.
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http://news.businessweek.com/article.asp?documentKey=1376-LW7AVX1A1I4H01-65SJ4CMOM0AB5BL5K7MJQL3O8K
High quality land in Iowa rose 34 percent to $8,198 per acre, according to the report. O'Brien County, in the northwest, had the most valuable farmland in the state with the average acre valued at $9,513, up 33 percent, according to the survey. Decatur County in south-central Iowa for the second straight year had the lowest average at $2,721 per acre. That's still up 31 percent from 2010.“This rate of increase in 2011 has led to concerns that farmland may be the next speculative bubble,” Duffy said in a statement. “Some people feel farmers are setting themselves up for a fall similar to the 1980s. Without a doubt, it's an interesting time and something to watch, but it isn't a time to panic.”
How do you short farmland? ;D
Short agricultural commodities.
Short manufacturers/dealers of durable equipment that farmers buy when they're feeling flush.
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I cannot believe FRO shareholders got off that easy: SFL basically bailed them out by lowering its rates, FRO shareholders avoid dilution, and Hemen takes the problematic newbuilds off their hands. Of course, I am biased from being long SFL as of last week. This was a good deal for both companies, but more positive for FRO.
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Owned NFLX Sept 170 puts. Lost 10% on them when NFLX finally crossed that price the very day of options expiration. Given that it had looked like a total loss for some time, it could have been worse. BUT... still kicking myself for not buying those Jan puts instead!
Next up on the chopping block is LNKD. Catalyst could be the end of the lock-up period on 14 Nov. It's a crowded short though. Thoughts?
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Not very knowledgeable re investing in BAC but am watching +learning.
Different perspective re recent earnings from zerohedge
http://www.zerohedge.com/news/bank-america-posts-adjusted-loss-excluding-benefits-spread-blow
"the reported net income number was $6.2 billion, which includes, "among other things, $4.5 billion (pretax) in positive fair value adjustments on structured liabilities, a pretax gain of $3.6 billion from the sale of shares of China Construction Bank (CCB), $1.7 billion pretax gain in trading Debit Valuation Adjustments (DVA), and a pretax loss of $2.2 billion related to private equity and strategic investments, excluding CCB. The fair value adjustment on structured liabilities reflects the widening of the company’s credit spreads and does not impact regulatory capital ratios." So netting out the CCB gain and the strategic investment loss leaves us looking at the two items entirely affected by the blow up in the company itself manifested by its soaring spreads: the $4.5 billion in structured liabilities adjustment and the DVA which add to $6.2 billion, which is.... what the company reported as its EPS! In other words, Bank of America had $0.00 EPS excluding for the accounting BS that is provisioning for buying "CDS on yourself." And since both of these adjustments flow through the P&L, the reported revenue of $28.45 billion (much better than the expected $25.92 billion) had to be adjusted $6.2 billion lower, and confirms that absent this most blatant accounting gimmick, the revenue was a huge miss. Yet despite a plunge in the company's NIM, a $1.7 billion reserve release, and a substantial plunge in BAC's provisioning for Rep & Warranties from $14 billion in Q2 to $0.3 billion in Q3, something which will again haunt BAC, Bank of America increased its staffing from 40.4 thousand to $42.1 thousand sequentially"
There were $3.3 billion in other one-time charges not mentioned in this zerohedge piece (besides the $2.2 billion loss on private equity investments they do acknowledge). Intelligent individuals can have a debate on the true "one-timeness" of these charges, but it seems that if they discount all the one-time gains, they should at least mention all the one-time losses.
http://blogs.wsj.com/deals/2011/10/18/bank-of-america-earnings-very-messy/?mod=yahoo_hs
Blogs anyone?
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What's your blog?