Great conglomerates

[Partner24]

Hi,

 

It's been a while since I've posted! My portfolio is very quiet..I just hold 4 conglomerate stocks and that's it. One of them was managed by the South African Brian Joffe, one of the best investors of our times (what he has done with Bidvest is terrific). He's been the CEO of Long4life since a few years, what he has done instrinsicaly is very good, but the stock price has not reflected that. And unfortunately, it's gonna be sold and unlisted. The others conglomerate stocks that I own are Berkshire, Markel and Clarke, wich I will keep.

 

I would like to have some of your similar ideas. Great investors who manage a conglomerate and who have a great track record. That manage the business for the long term intrinsic value per share gain. I'm looking forward to replace Long4life with one or two conglomerate stocks.

Your ideas will be much appreciated. Cheers!

 

Edited March 10, 2022 by Partner24

[KJP]

IAC, though it is focused on online-to-offline transition rather than a go-anywhere conglomerate

 

Also, if Clarke's relatively small size doesn't bother you, FRP Holdings may interest you, though the controlling family doesn't have the same style as Armoyan and is more focused.

 

Going even smaller, Volvere PLC in the UK, though the track record isn't nearly as long.

 

Finally, Exor (Agnelli family) or the various Vincent Bollore companies may interest you, though the latter have alot of interlocking shareholding and governance complexities that give me pause.

 

Edited March 10, 2022 by KJP

[Spekulatius]

CMCSA is mostly broadband, but with media properties like Sky and NBCU one could regard them as a conglomerate. I own them and they do have a pretty good track record over the long run (mid teens returns since IPO).

Edited March 10, 2022 by Spekulatius

[KPO]

45 minutes ago, Partner24 said:

Hi,

 

It's been a while since I've posted! My portfolio is very quiet..I just hold 4 conglomerate stocks and that's it. One of them was managed by the South African Brian Joffe, one of the best investors of our times (what he has done with Bidvest is terrific). He's been the CEO of Long4life since a few years, what he has done instrinsicaly is very good, but the stock price has not reflected that. And unfortunately, it's gonna be sold and unlisted. The others conglomerate stocks that I own are Berkshire, Markel and Clarke, wich I will keep.

 

I would like to have some of your similar ideas. Great investors who manage a conglomerate and who have a great track record. That manage the business for the long term intrinsic value per share gain. I'm looking forward to replace Long4life with one or two conglomerate stocks.

Your ideas will be much appreciated. Cheers!

 

GHC is an interesting one. Several of their holdings should benefit from the post Covid world (e.g. Kaplan, restaurant holdings, etc.), they have about 30% of their market cap in stocks like Berkshire & Alphabet, plus they have a sizable pension surplus invested in similar names.  The Graham’s control the company, but their actions have generally been shareholder friendly (e.g. Cable One spin, repurchased ~9% of shares outstanding the last two years, etc.). Going forward I could see them selling the TV stations and hopefully finding creative ways to monetize the pension surplus. 

[CorpRaider]

Good one Spec. 

 

Echo GHC.  I'm not sure about the son in law yet and the apparent new(ish) pattern of granting him big options packages. 

 

I liked Greg's idea of having BERK and GOOG as two holding co./conglomerates and just going fishing.  I've not done it of course, but I liked it a lot.  Pity that Goog split the stock.

Edited March 10, 2022 by CorpRaider

[Spekulatius]

I think one that gets very little recognition is SONY. SONY used to be a consumer goods company, but now they do consumer goods, gaming (both software and hardware), financial services, sensors, media (music and film). They also compounded with a 20.5% CAGR over the last 10 years if my tikr.com is correct.

It's a quite well managed company now. I don't own it, but it's definitely on my "close look" list.

[scorpioncapital]

Broadcom, Danaher, Liberty

[Xerxes]

RTX

 

they are in business of selling picks and shovels, anything aerospace. Fully platform-agnostic. The commercial side is well balanced by the former Raytheon defense assets. 
 

most people gravitate toward Boeing and the likes for aerospace exposure (guess because of name recognition), far better to have a business where the aftermarket earnings goes over multi decade than the one that is lump sum with delivery of the aircraft. 

[Coleman]

Brederode.

[oscarazocar]

On 3/10/2022 at 9:59 AM, CorpRaider said:

Good one Spec. 

 

Echo GHC.  I'm not sure about the son in law yet and the apparent new(ish) pattern of granting him big options packages. 

 

I liked Greg's idea of having BERK and GOOG as two holding co./conglomerates and just going fishing.  I've not done it of course, but I liked it a lot.  Pity that Goog split the stock.

I find the GHC CEO to be unimpressive.

 

For starters, note how they handed him the big option package in 2014 and then announced the CABO spin (which people had been asking for for years) a month later, with a big pop in the stock.

 

I also find his communications with shareholders to be weak.  For example, in the December 2021 investor day, someone asks him point blank about capital allocation with GHC being down 10% since the CABO spin in 2015 and the S&P being up big.  He gives some hand wavy answer about a better starting point being 6 months after the spin after the stock had "settled back down" and then says they have a 5% CAGR from there.  This is nonsense.

 

The earnings releases are telling.  They are a mess, with page after page of numbers and adjustments without the important numbers being listed clearly, which are the Adj Operating Earnings of each business and how much capital is employed in each one.  I just get a sense that he isn't that smart and is all over the place.  I don't think he would be within a mile of this job if he wasn't married to Graham's daughter.

 

I have owned this in the past.  They have some good assets and it got crazy cheap in 2020.  I think the mediocre results under the CEO's tenure are not just bad luck and are largely an accurate report card on how well he was done his job.

[Xerxes]

So no one is going to say it .... Fairfax !

 

[CorpRaider]

1 hour ago, oscarazocar said:

I find the GHC CEO to be unimpressive.

 

For starters, note how they handed him the big option package in 2014 and then announced the CABO spin (which people had been asking for for years) a month later, with a big pop in the stock.

 

I also find his communications with shareholders to be weak.  For example, in the December 2021 investor day, someone asks him point blank about capital allocation with GHC being down 10% since the CABO spin in 2015 and the S&P being up big.  He gives some hand wavy answer about a better starting point being 6 months after the spin after the stock had "settled back down" and then says they have a 5% CAGR from there.  This is nonsense.

 

The earnings releases are telling.  They are a mess, with page after page of numbers and adjustments without the important numbers being listed clearly, which are the Adj Operating Earnings of each business and how much capital is employed in each one.  I just get a sense that he isn't that smart and is all over the place.  I don't think he would be within a mile of this job if he wasn't married to Graham's daughter.

 

I have owned this in the past.  They have some good assets and it got crazy cheap in 2020.  I think the mediocre results under the CEO's tenure are not just bad luck and are largely an accurate report card on how well he was done his job.

 

Yeah, I agree.   Thanks for your response.

 

I don't own any because I'm not sure about him yet.  He kind of sounds like a typical "suit."  I guess he gets some credit for the megaphone business and sale and they do have some kind of interesting tech related business (e.g., Leaf) they've acquired.  I also saw they bought another dealership late last year, so it's not like he's turned 180 degrees into tech stuff (which was a concern of mine).  Did Don Graham participate in the annual meeting at all?

[Cevian]

Power Corporation (POW.TO)

[oscarazocar]

58 minutes ago, CorpRaider said:

 

Yeah, I agree.   Thanks for your response.

 

I don't own any because I'm not sure about him yet.  He kind of sounds like a typical "suit."  I guess he gets some credit for the megaphone business and sale and they do have some kind of interesting tech related business (e.g., Leaf) they've acquired.  I also saw they bought another dealership late last year, so it's not like he's turned 180 degrees into tech stuff (which was a concern of mine).  Did Don Graham participate in the annual meeting at all?

Leaf was probably a terrible acquisition.  It was public and they acquired it in June 2021.  If you look at any competitors (say RedBubble), their stocks have tanked since then as a lot of the 2020/2021 e-commerce boom looks like it was more one-time due to Covid.  Clyde's Restaurant Group - oof - no real discussion of that by them.  Code3 was co-founded by Laura Graham O-Shaughnessey, the CEO's wife and Don Graham's daughter.  Have you ever tried telling your wife it's time to shut down her money-losing company?  Again, I don't think he's totally clueless.  The manufacturing & healthcare acquisitions look okay, and auto dealerships seem reasonable.

 

Don Graham would speak at the UBS conference in December when he was CEO, he no longer participates in that kind of investor stuff.

 

There is an argument that Don Graham's CEO record was pretty mediocre as well.  I believe that WPO/GHC underperformed the S&P during his tenure.  He rode the newspaper into the ground.  The big area of capital allocation for them, acquiring education companies, which absorbed a few billion dollars, was a huge bust.  That's two pretty important whiffs.  The two wins - cable & broadcasting, had a lot to do with Buffett.  When Tom Murphy bought ABC in 1986, Capital Cities had to divest their cable operations as a condition for the deal to go through.  Buffett arranged for a sweetheart deal where WPO got the only look and was able to buy them for $350 million, a lowball price (I believe this is detailed in the Thorndike book and one of Capital Cities books).  So good for him for purchasing it, but it was with more than a little help from a friend.  Even with that, he underperformed.

 

This is an interesting topic in general.  Don't get me started on this generation of the Tisches at Loews.  To get good results, you can be like Berkshire and buy good businesses and hold them.  Or you can be like Leucadia and buy bad businesses and sell them well.  But you can't buy bad businesses and hold them.

[Spekulatius]

@oscarazocar Great summary on GHC and I fully agree. GHC‘s Management is at best mediocre. I owned this for a while and they do some talk that sounds good, but their capital allocation is below average and capital allocation is what it's about with a conglomerate.

Edited March 14, 2022 by Spekulatius

[Partner24]

Thanks for the suggestions! I agree that GHC track record over the last years is not appealing. Volvere so far seems like an interesting company. A small business with interesting potential. Management seems to be disciplined with their capital allocation decisions. Seems more like a Leucadia kind of thing (but underperforming assets, turnaround, etc.). And when the stock get low, they buyback some shares. 

Regarding size, I prefer when the size is small or medium. Big size companies has to shoot elephants, they need big things to move the needle and it's difficult. In this big size category, Berkshire is great! 

Danaher, what a dumb decision from me. I studied it years ago and did not invested in it. It's been a big multibagger since then. 

[Spekulatius]

40 minutes ago, Partner24 said:

Thanks for the suggestions! I agree that GHC track record over the last years is not appealing. Volvere so far seems like an interesting company. A small business with interesting potential. Management seems to be disciplined with their capital allocation decisions. Seems more like a Leucadia kind of thing (but underperforming assets, turnaround, etc.). And when the stock get low, they buyback some shares. 

Regarding size, I prefer when the size is small or medium. Big size companies has to shoot elephants, they need big things to move the needle and it's difficult. In this big size category, Berkshire is great! 

Danaher, what a dumb decision from me. I studied it years ago and did not invested in it. It's been a big multibagger since then. 

Danaher / DHR is not a conglomerate imo. It's a life science rollup playing in a slightly different business lines than TMO. A conglomerate would typically operate in different unrelated business. That's not the case with TMO or DHR.

[oscarazocar]

On 3/11/2022 at 7:07 PM, oscarazocar said:

Leaf was probably a terrible acquisition.  It was public and they acquired it in June 2021.  If you look at any competitors (say RedBubble), their stocks have tanked since then as a lot of the 2020/2021 e-commerce boom looks like it was more one-time due to Covid.  Clyde's Restaurant Group - oof - no real discussion of that by them.  Code3 was co-founded by Laura Graham O-Shaughnessey, the CEO's wife and Don Graham's daughter.  Have you ever tried telling your wife it's time to shut down her money-losing company?  Again, I don't think he's totally clueless.  The manufacturing & healthcare acquisitions look okay, and auto dealerships seem reasonable.

 

Don Graham would speak at the UBS conference in December when he was CEO, he no longer participates in that kind of investor stuff.

 

There is an argument that Don Graham's CEO record was pretty mediocre as well.  I believe that WPO/GHC underperformed the S&P during his tenure.  He rode the newspaper into the ground.  The big area of capital allocation for them, acquiring education companies, which absorbed a few billion dollars, was a huge bust.  That's two pretty important whiffs.  The two wins - cable & broadcasting, had a lot to do with Buffett.  When Tom Murphy bought ABC in 1986, Capital Cities had to divest their cable operations as a condition for the deal to go through.  Buffett arranged for a sweetheart deal where WPO got the only look and was able to buy them for $350 million, a lowball price (I believe this is detailed in the Thorndike book and one of Capital Cities books).  So good for him for purchasing it, but it was with more than a little help from a friend.  Even with that, he underperformed.

 

This is an interesting topic in general.  Don't get me started on this generation of the Tisches at Loews.  To get good results, you can be like Berkshire and buy good businesses and hold them.  Or you can be like Leucadia and buy bad businesses and sell them well.  But you can't buy bad businesses and hold them.

 

Notes from a review of the most recent annual report and proxy:

When O'Shaugnessy  was hired as CEO in 2014, Don Graham made a big show in the annual report about the stock option package being tied to a 5% annual hurdle.  The grant was for 77,258 options (1% of the company) with 10 year duration and the CABO spin-adjusted price of those options that expire 11/3/24 is $719.15.

 

On 9/10/20, O'Shaughnessy was awarded a brand new 10 year stock option package for the same number of options (77,258 - now over 1.6% of company due to share repurchases) with expiration 9/10/26.  This time there is no hurdle and the strike price is $426.86.  There has been no mention by Graham or O'Shaughnessy of this apparent change in philosophy and literal lowering of the hurdle that I have seen.  Alas, O'Shaugnessey did not make a fortune on his last grant, as Graham had hoped, because GHC stock returns have been terrible.

 

In summary, O'Shaughnessy was way underwater on his old options so they gave him a heapload of new ones at a far lower strike, many years later, without commenting on it.  It's poor governance.

 

GHC 2014 annual report commentary by Don Graham:

https://www.ghco.com/static-files/8179d51c-f45e-42e2-885a-b0031e9aa73c

 

"A key part of Tim’s compensation is a unique stock option. He joined the Company on November 3, 2014. The stock closed at $787. Tim’s option is at $1,111—the closing price the day he joined plus 3.5% a year for ten years. Adding our dividend (then roughly 1.3%), Tim won’t get any reward unless shareholders first gain about 5% per year over the life of his option. This is quite different from more common stock options, typically granted at the market price of the company on the day of the grant. As Warren has pointed out for years: companies retain some of their earnings, and by earning a normal—or even a slightly subnormal—amount on their capital employed (including retained earnings), executives can earn quite a bit over ten years even if shareholders get no reward at all. Tim will have an option on nearly 1% of our stock, but won’t begin getting rewarded for it until shareholders do. You and I should hope he makes a fortune."

[CorpRaider]

Thanks for pulling that history together.  Would love to hear them answer a question about that.

 

GHC starts handing out options to the son in law who begins rolling up sub-scale tech businesses.  MKL starts publishing goals for insurance premiums written.  BOC launches a new fund raising initiative/SPAC ~monthly. 

 

My list of potential berk-alikes is currently at or around zero.

 

Edited April 18, 2022 by CorpRaider

[oscarazocar]

23 hours ago, CorpRaider said:

Thanks for pulling that history together.  Would love to hear them answer a question about that.

 

GHC starts handing out options to the son in law who begins rolling up sub-scale tech businesses.  MKL starts publishing goals for insurance premiums written.  BOC launches a new fund raising initiative/SPAC ~monthly. 

 

My list of potential berk-alikes is currently at or around zero.

 

NNI is pretty impressive and walks the walk.  Management owns a lot of stock and has a long track record.  The education technology business (Nelnet Business Services) is outstanding and worth a lot.  It takes a little bit of effort to sort through the various pieces but it's worth the effort.

 

https://www.nelnetinvestors.com/home/default.aspx

 

[Xerxes]

24 minutes ago, oscarazocar said:

NNI is pretty impressive and walks the walk.  Management owns a lot of stock and has a long track record.  The education technology business (Nelnet Business Services) is outstanding and worth a lot.  It takes a little bit of effort to sort through the various pieces but it's worth the effort.

 

https://www.nelnetinvestors.com/home/default.aspx

 

there was this podcast on it as well. 
 

https://www.fool.com/podcasts/industry-focus/2021-05-12-wildcard-is-nelnet-a-hidden-gem

[CorpRaider]

8 hours ago, oscarazocar said:

NNI is pretty impressive and walks the walk.  Management owns a lot of stock and has a long track record.  The education technology business (Nelnet Business Services) is outstanding and worth a lot.  It takes a little bit of effort to sort through the various pieces but it's worth the effort.

 

https://www.nelnetinvestors.com/home/default.aspx

 

Thanks!