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Easier or Harder to Find Ideas


Cunninghamew
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I am pretty young, so I am curious how today's stock picking environment compares to others (mentally not in terms of past valuations, which I can look up)?

 

Obviously, it is harder to find stocks with compelling upside today than it was last year. What I would be interested to hear is

 

(1) How does today stack up in terms of opportunity set? How long you have been investing?

(2) What is your style (short description)?  For example, my portfolio is usually split between super deep value stuff (typically not great companies) and what I would call compounders (great mgmt. / high ROIC names / etc).

 

The reason I am asking is I am finding it incredibly tough to generate good ideas. I also feel like several of my holdings (while not overvalued) are only compelling if you compare them against the what the rest of the market is offering.

 

My fear is that more often than not it will feel this hard?

 

My more core positions:  GY / MKL / FIATY / BRKB / ENDP / GNCMA / ALSK (this has a lot of random option trades around it) / RJET / ACN / AIG / DVA / TDG

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I am having the most difficult time ever finding good long ideas.  Am only 35% invested.  I agree Canada offers the best value by far.  4 of my 5 longs are Canadian micro and small cap.  3 of my 4 shorts are from the US with one LYC from Oz.

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what is deep value investing? Isn't that kind of redundant. Isn't valueinvesting pretty much buying at a discount already. The value part is already kinda redundant.

 

Sorry for the lack of clarification... my investments I normally label as 1 of 3 types

 

Compounders category: example would be TDG... great company / great economics / great management / good tailwinds... but the valuation isn't cheap (at least on face value)... it typically trades for a mid to low single digit free cash flow yield... despite the price I am willing to hold this company and periodically add to it when it becomes reasonably valued

 

Deep value category: this is my terms for stuff that is just ridiculously cheap at face value, but not necessarily a great biz. For example, I might be willing to buy a really crappy house in a crappy neighborhood if the price was just stupid low, but only at a certain price that is super discounted. Examples... I owned yellow media for a time. Despite the management being great, Fiat falls into this bucket for me.

 

Special sits category: I didn't mention this earlier, but sometimes I will put on risk arb plays and/or other investments that are impacted by corporate events. I guess you could also call this event driven.

 

I hope that makes more sense now. Yes it is redundant, but it is simply how I label/breakout my portfolio when I am thinking about it.

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what is deep value investing? Isn't that kind of redundant. Isn't valueinvesting pretty much buying at a discount already. The value part is already kinda redundant.

 

Sorry for the lack of clarification... my investments I normally label as 1 of 3 types

 

Compounders category: example would be TDG... great company / great economics / great management / good tailwinds... but the valuation isn't cheap (at least on face value)... it typically trades for a mid to low single digit free cash flow yield... despite the price I am willing to hold this company and periodically add to it when it becomes reasonably valued

 

Deep value category: this is my terms for stuff that is just ridiculously cheap at face value, but not necessarily a great biz. For example, I might be willing to buy a really crappy house in a crappy neighborhood if the price was just stupid low, but only at a certain price that is super discounted. Examples... I owned yellow media for a time. Despite the management being great, Fiat falls into this bucket for me.

 

Special sits category: I didn't mention this earlier, but sometimes I will put on risk arb plays and/or other investments that are impacted by corporate events. I guess you could also call this event driven.

 

I hope that makes more sense now. Yes it is redundant, but it is simply how I label/breakout my portfolio when I am thinking about it.

 

One more point... ideally I could find compounders at just stupid cheap valuations (i.e. they would fall into both categories, but that seldom happens).  But if you ever see TDG / V / MA / CHD / VRSK / or the like trading at a high teens free cash flow yield let me know

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I've been able to find ideas without much of a problem.  Yes, maybe it's harder than in 2010, but no harder than maybe 2006 or 2007.

 

I purchased a position in a company recently that's maybe the cheapest I've seen in a few years.  There are definitely bargains out there, maybe not laying in plain sight.  The crash spoiled everyone.

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I've been investing for about 25 years, and it is DEFINITELY harder to find good deals.

 

HOWEVER, there are veins where you can get good ore.

 

For example, the mining sector is definitely down right now, especially junior producers.

 

You can find companies with solid balance sheets, producing mines, strong cash flow producing net profits, and even paying dividends...

 

As always, there are some bargains in the micro-cap sector, but you've got to look at a lot more candidates than you did 2 years ago...

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I think Terravest and Holloway Lodging are cheap. I bought Holloway in the last few days. There are quite a few cheap Canadian REITS right now.

I was focused on resources, but there seem to be a few cheap Canadian companies yielding 5 plus percent trading at below 5x CF.

I owned High Arctic and they raised the dividend 20%, and are now up 50%. Xtreme Drilling doubled last year. Both drilling companies but both were very cheap.

 

Outside of 3 holdings everything else I own is Canadian.

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i started actively in 2006-2007 i think. it was hard to find stuff that looked cheap and i thought all the books i read on the subject were outdated.

 

2009-2011 i found some. there are some values around today, but quality companies for bargain prices are hard to come by once again.

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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer!  There are still many pockets of value but Financials should not be overlooked...

 

Tks,

S

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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer!  There are still many pockets of value but Financials should not be overlooked...

 

Tks,

S

 

What are you looking at? I think SUSQ looks cheap.

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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer!  There are still many pockets of value but Financials should not be overlooked...

 

Tks,

S

 

Banks are already up a lot last year. The only one I have is BPOP. It is not up so much probably because of Puerto Rico worries. Other banks like BAC and IRE are already expensive. What other financials are you looking at?

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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer!  There are still many pockets of value but Financials should not be overlooked...

 

Tks,

S

 

Banks are already up a lot last year. The only one I have is BPOP. It is not up so much probably because of Puerto Rico worries. Other banks like BAC and IRE are already expensive. What other financials are you looking at?

 

Seems like you have a taste for risk.  There are a lot of cheap smaller banks with better loan books.

 

I took a 5m look at BPOP..at first glance it looks ok.  But what's concerning is the ballooning charge-offs, and the explosion of NPA.  Maybe I'm too conservative or something, but my preference is to invest in cheap banks where the credit quality metrics are getting better, not worse.  Any insight on this?  I'm guessing you're seeing something I'm not, what are your thoughts on this? 

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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer!  There are still many pockets of value but Financials should not be overlooked...

 

Tks,

S

 

What are you looking at? I think SUSQ looks cheap.

 

I looked at the numbers quickly, it seems they permanently issue shares, is that normal for a smaller bank?

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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer!  There are still many pockets of value but Financials should not be overlooked...

 

Tks,

S

 

What are you looking at? I think SUSQ looks cheap.

 

I looked at the numbers quickly, it seems they permanently issue shares, is that normal for a smaller bank?

 

You're right....I somehow missed that.

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I think this was posted in another thread but can't find it so credits go to original poster:

 

http://www.gurufocus.com/news/246779/7footers-in-a-sea-of-pygmies-why-concentrating-on-just-the-averages-obscures-true-market-insights

 

I thought the following findings were insightful:

 

GwRd1yFaFP0OsZdT5aamZx6xb_KT_Rvc7T6JvVs7QeDI5PPxfwUbaIdwwff8V8mAQR-1TndlwyER3HG1JBTyyjuj8MUPbAkCYmKdYXhI36wuynydbUozi8HCPA

 

Would love to see this analysis from a EV/FCF and/or ROIC perspective.

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I consider banks and financials to be the most complicated businesses to analyze (and don't consider myself sufficiently knowledgeable) and therefore tend to avoid them even if they look cheap.

 

I guess it depends on perspective.  Banks are relatively simple, and if you understand how to analyze one you suddenly have 1,200 other companies conducting the exact same business that you can compare them to.

 

The money center banks are complicated, lots of black box things there, but if you slide down the scale community banking is very straight forward.

 

Someone mentioned to me recently that with manufacturing leaving the US we now have a market that specializes in being financial intermediaries, so an investor needs to be able to understand banks and insurance companies because that's all that left. 

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what is deep value investing? Isn't that kind of redundant. Isn't valueinvesting pretty much buying at a discount already. The value part is already kinda redundant.

 

Sorry for the lack of clarification... my investments I normally label as 1 of 3 types

 

Compounders category: example would be TDG... great company / great economics / great management / good tailwinds... but the valuation isn't cheap (at least on face value)... it typically trades for a mid to low single digit free cash flow yield... despite the price I am willing to hold this company and periodically add to it when it becomes reasonably valued

 

Deep value category: this is my terms for stuff that is just ridiculously cheap at face value, but not necessarily a great biz. For example, I might be willing to buy a really crappy house in a crappy neighborhood if the price was just stupid low, but only at a certain price that is super discounted. Examples... I owned yellow media for a time. Despite the management being great, Fiat falls into this bucket for me.

 

Special sits category: I didn't mention this earlier, but sometimes I will put on risk arb plays and/or other investments that are impacted by corporate events. I guess you could also call this event driven.

 

I hope that makes more sense now. Yes it is redundant, but it is simply how I label/breakout my portfolio when I am thinking about it.

 

 

I agree on TDG.  I am thankfully that so far it has worked out even though I bought it a while ago at a somewhat expensive price.  I assume you have also looked at Wesco Aircraft Holdings as they are kinda similar?  Why do you like TDG more than WAIR?

 

Thanks. 

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I find it puzzling how people are having a hard time finding bargains when Financials are selling below book / TBV... It's almost a no brainer!  There are still many pockets of value but Financials should not be overlooked...

 

Tks,

S

 

Banks are already up a lot last year. The only one I have is BPOP. It is not up so much probably because of Puerto Rico worries. Other banks like BAC and IRE are already expensive. What other financials are you looking at?

 

Seems like you have a taste for risk.  There are a lot of cheap smaller banks with better loan books.

 

I took a 5m look at BPOP..at first glance it looks ok.  But what's concerning is the ballooning charge-offs, and the explosion of NPA.  Maybe I'm too conservative or something, but my preference is to invest in cheap banks where the credit quality metrics are getting better, not worse.  Any insight on this?  I'm guessing you're seeing something I'm not, what are your thoughts on this?

 

They had a bunch of FDIC assisted transactions, so the balooning of NPA is mostly acquired banks. The adjusted NPA is just 2% and keep dropping, and the reserve/NPA ratio is really high. I don't think this is balooning at all.

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Very difficult to find good ideas, more difficult than any other time.  People sometimes compare this to 2000, but that is misguided IMO.  In 2000, tech stocks were crazy, and the big indexes (and the stocks in those indexes) were up a lot and were not cheap.  But what was going on with the tech stocks and the indexes was not broad-based; everything else was ignored, especially small-cap non-tech stocks, and there were legitimate small-cap businesses trading at 5x earnings or less. 

 

That is why so many value investors did so well in the early 2000s -- the tail end of the dotcom bubble was actually one of the most fertile time periods to find value ideas despite what the indexes were doing, especially among small caps (although many value investors got fired by their clients for not living up to what the market was doing).  When the dotcoms and tech crashed, the rest of the market got more sane as well, meaning that those legitimate businesses at less than 5x earnings went up to a more appropriate valuation.

 

Now, the market rally is very broad-based.  Which has led to some cargo-cult value investing (go through the motions without a true understanding) and leads to people overestimating their abilities, because just about every stock has gone up a lot, no matter what it is.  I cringe when I see people say that it is still very easy to find ideas, or that certain things are a no-brainer.  I don't think there is a proper respect for the risks involved, and I think there is an overestimation of skill level based on individuals' performance over the past several years. 

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