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Why Spinoffs


rukawa

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Topics like who's the best investor between Buffett and Greenblatt are really interesting. I bet if it's discussed over a few dozen more posts a clear winner will emerge.

 

More importantly though, who's the best lead singer, guitarist, bassist and drummer of all time?

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Topics like who's the best investor between Buffett and Greenblatt are really interesting. I bet if it's discussed over a few dozen more posts a clear winner will emerge.

 

More importantly though, who's the best lead singer, guitarist, bassist and drummer of all time?

all in one video.

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Topics like who's the best investor between Buffett and Greenblatt are really interesting. I bet if it's discussed over a few dozen more posts a clear winner will emerge.

 

More importantly though, who's the best lead singer, guitarist, bassist and drummer of all time?

 

I don't know if you are talking about my post, but my point was the exact opposite of what you may have gleaned from it.

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Topics like who's the best investor between Buffett and Greenblatt are really interesting. I bet if it's discussed over a few dozen more posts a clear winner will emerge.

 

More importantly though, who's the best lead singer, guitarist, bassist and drummer of all time?

 

As for drummer, Ginger Baker is sure it is Ginger Baker (http://en.wikipedia.org/wiki/Ginger_Baker)

 

This documentary from a couple years ago is worth a look (not safe for work or family):

 

http://en.wikipedia.org/wiki/Beware_Of_Mr._Baker

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Couldn't say it any better.  Buffet talked about the guy in camp who are really good at net balls in table tennis.  Sometimes, you just got to find these niches where you're that net ball guy and just have fun. 

 

I was at a conference once and Greenblatt spoke.  The way that he talks about dealing with investors while running a concentrated portfolio, you can tell it was mentally exhausting despite the numbers that he put up.  He talks about how at times, he's down 20% upon waking up and he would feel depressed.  It's amazing how someone with 50% gross CAGR can openly admit to such "tough grinds" at times 

 

 

 

BG2008,

 

Fascinating comment. Do you recall Greenblatt talking about how he was able to maintain positive annual returns (which were incredible) despite the large monthly drawdowns?

 

 

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  • 4 weeks later...

By getting spun off from LLL, the EGL business was no longer subject to that constraint, and projects that previously would have been off-limits to them (because the hardware business was going to bid on it or was already working on it), could now be bid on.

 

(The SAIC spin was done for the same reasons.  But it was done a little over a year after the EGL spin was done and by that time the general rally had progressed to where it wasn't common to see spin-offs really sell off much.)

 

I am guessing the Vectrus/Exelis(EGL) is being done for the same reasons.

 

Rukawa:  Any thoughts on the spinoff you mentioned?  I read through the form 10 and noticed a few interesting items...

~The split is 1 per 18 shares.  The numbers I found look like as of June 30 VEC had 29% of the revenue, 15% of the Net Income and only 5% of the BV of XLS.  I always find it interesting where the spinoff ration comes from.

 

~VEC will get substantially all of its rev from the DOD, and 60% is from just 4 contracts.  Could be risky--I don't have any way of handicapping the risk those contacts go away or are reduced.

 

~There will be no fractional shares issued, the transfer agent will combine all fractional shares and sell them on the open market.  This could obviously cause undue pressure on the stock, as could the fact the VEC will have a mkt cap of under 500m(probably) vs XLS of 3.5 billion.

 

~I don't haven't looked at any details of the LLL and EGL spinoff, but it looks like EGL fell from 22(or 17 in another charting package) down to 14 for a few days, then rallied back nicely.

 

Any thoughts would be greatly appreciated.

 

 

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  • 3 weeks later...

These guys keep forgetting that Buffett uses leverage through a holding company structure which means his returns are not comparable to those who are running funds. I think it's obvious that somebody running a public MF like Peter Lynch is going to have a different return profile than somebody investing insurance company float...If we use Fund Manager Buffett rather than Grandpa Buffett, he'd be closer to where Greenblatt is.

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I think the key points have been covered for the original question, but I'll offer this summary of the structural advantages of (many) spin-offs:

 

- Forced selling due to restrictions from funds receiving the spin-off from the parent

- Management focused on what is usually a much simpler business

- Often a management team better aligned with shareholders' interest

- Freedom from corporate inefficiencies and bureaucracy; for example no longer having to compete for capital against other divisions or business units, or going through months of a corporate budgeting process, etc.

- Usually very limited analyst coverage for the new firm, creating pockets of market inefficiencies

 

Two key things to watch for with spin-offs that come to mind: 1) make sure the spin-off is a viable business (i.e. not loaded with an unmanageable debt from the parent), and 2) verify that management is incentivized to do the right thing.

 

DPS and PSX are two very good examples of extremely interesting and profitable spin-offs (caught the first, snoozed on the second...)

 

By opposition (could this be the "invert" someone was looking for earlier?), IPOs often have similar structural disadvantages (often priced at top of range, motivated "rich on paper" owners looking to sell as soon as lock-up expires, tons of media/analyst coverage, etc.)

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I think the key points have been covered for the original question, but I'll offer this summary of the structural advantages of (many) spin-offs:

 

- Forced selling due to restrictions from funds receiving the spin-off from the parent

- Management focused on what is usually a much simpler business

- Often a management team better aligned with shareholders' interest

- Freedom from corporate inefficiencies and bureaucracy; for example no longer having to compete for capital against other divisions or business units, or going through months of a corporate budgeting process, etc.

- Usually very limited analyst coverage for the new firm, creating pockets of market inefficiencies

 

Two key things to watch for with spin-offs that come to mind: 1) make sure the spin-off is a viable business (i.e. not loaded with an unmanageable debt from the parent), and 2) verify that management is incentivized to do the right thing.

 

DPS and PSX are two very good examples of extremely interesting and profitable spin-offs (caught the first, snoozed on the second...)

 

By opposition (could this be the "invert" someone was looking for earlier?), IPOs often have similar structural disadvantages (often priced at top of range, motivated "rich on paper" owners looking to sell as soon as lock-up expires, tons of media/analyst coverage, etc.)

 

Thanks, this is a great summary!

:)

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These guys keep forgetting that Buffett uses leverage through a holding company structure which means his returns are not comparable to those who are running funds. I think it's obvious that somebody running a public MF like Peter Lynch is going to have a different return profile than somebody investing insurance company float...If we use Fund Manager Buffett rather than Grandpa Buffett, he'd be closer to where Greenblatt is.

 

Good point.  That's why Pabrai says Greenblatt has perhaps the best audited record of any unleveraged investor on the planet.

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