Lead in underground cables and other nothing burgers

[Saluki]

I'm reading a classic, John Neff on investing. If we return to 1970s stagflation or 1980s double digit interest rates, it would be interesting to follow the play book of someone who crushed it then. 

 

This passage caught my eye and reminded me of the tanking stock prices of several cable companies. Several billion dollars in market cap wiped out overnight based on a wall street journal article that had a lot of scary words, but not a lot of facts. 

 

 

If you're wondering how it worked out, the SP500 went up 29% while his Cigna pick went up 54% in the same period. Reminds me of an investor who said "if you smell smoke, run towards it, that's where the money is." 

 

Just as there is hype in things like crypto and AI there is fear in things like China (they can just steal your BABA VIE shares) or North Korea (CPNG is in Seoul, which is within artillery range of North Korea), or ESG (oil companies are shrinking ice cubes, EVs will replace cars and no one will need auto mechanics so dealers will go bust). 

 

I'm working on figuring out better guard rails for myself as an investor. A behavioral psychologist I was watching on YouTube said "if you're excited about a stock, don't buy it" and "and if you're worried about it, don't sell it". It's not bad advice. Decisions should be made rationally. 

[ValueArb]

Written by someone who doesn't eat a lot of telephone cable.

 

More seriously, having a rule of running towards smoke will have you end up in a lot of fires. I can't speak to the Cigna case, but in the case of the Salad Oil Scandal Buffett could run into the smoke confidently knowing that the losses were contained in a subsidiary and the cost of shutting the subsidiary down was dwarfed by the value of the credit card business. So yes, run into smoke only whenever you can have a very high confidence there isn't a fire (or that its already out).

[Saluki]

@ValueArb yes I agree, you shouldn't be reckless, you should be informed.  Ackman made a big pile in Wachovia during the great financial crisis when it was announced that Citi was buying the banking subsidiaries.  He realized that the holding corp parent had a lot of valuable stuff and it was worth 10 or 11, and it was trading for $1.  I was recently re-reading Supermoney and the author spoke to a friend of Buffett named Herbert (no last name given) who was a Graham disciple who had never been to college, but took the course at the NYIF when it was offered. He had invested a bunch of money in the bonds of the bankrupt Penn Central Railroad.  He explained that MOST of the bonds were garbage, but that the bonds he bought were guaranteed by another railroad, which had been depositing funds into an account to be paid when the court ordered it.  Because the bankruptcy case was so complicated, he didn't think he would get paid for several years, but knew that in the meantime that account was racking up interest at 12-14% per year.  The people who bought energy companies when oil went negative (not me) did the work, had a variant perception and nerves of steel, and they deserve whatever riches came their way. I'm just trying to keep learning and getting better every day. 

 

 

[ValueArb]

2 minutes ago, Saluki said:

 He had invested a bunch of money in the bonds of the bankrupt Penn Central Railroad.  He explained that MOST of the bonds were garbage, but that the bonds he bought were guaranteed by another railroad, which had been depositing funds into an account to be paid when the court ordered it.  Because the bankruptcy case was so complicated, he didn't think he would get paid for several years, but knew that in the meantime that account was racking up interest at 12-14% per year. 

 

 

 

Ok, don't just run towards smoke, but run twice as fast if smoke is coming from something promising delayed gratification. When you can't get paid for years a lot of people stop their research right there, leaving some juicy juicy deals for those who research deeply and persistently.

[Haryana]

 

This is what is happening with AT&T (T) and Verizon (VZ) that have become undervalued due to negative press on Lead liabilities.