The 400% Man!

[thepupil]

ourkid, we actually totally agree! Perhaps I wasn't clear.

 

Backward looking, ANY fee structure would seem cheap on that kind of ridiculous and amazing performance. Forward looking, if you hired 10 guys at 2.45% flat or 1 + 15% w/ no hurdle, you'd have to be the world's best manager picker to meaningfully outperform.

 

I very much dislike allan's fee structure and much prefer Mohnish's, Sanjeev's, Todd's and Ted's (unfair since they are managing gigantic sums of permanent capital), and many other long only fee structures purveyed by managers that are far more favorable. 

[ourkid8]

oh, okay...  :)  I agree, I really like the hurdle as well.  This was all derived from Buffett's original fund structure...  I have a very large position in Chou Associates and the MER is 1.86%, i wish there was a hurdle but it is a relatively low fee structure for a Canadian mutual fund.  What i especially like is the fact that anyone who does not hold the fund for a minimum of 2 years, there is a 2% fee that goes back to the fund. 

 

Thanks,

S

 

ourkid, we actually totally agree! Perhaps I wasn't clear.

 

Backward looking, ANY fee structure would seem cheap on that kind of ridiculous and amazing performance. Forward looking, if you hired 10 guys at 2.45% flat or 1 + 15% w/ no hurdle, you'd have to be the world's best manager picker to meaningfully outperform.

 

I very much dislike allan's fee structure and much prefer Mohnish's, Sanjeev's, Todd's and Ted's (unfair since they are managing gigantic sums of permanent capital), and many other long only fee structures purveyed by managers that are far more favorable.

[argonaut]

Anyone know what their min investments is? 100k, 500k or 1mm+

[mhdousa]

It was 250k but that may have changed.

[Eye4Valu]

Think it might be a cool mill.

[JBird]

Anyone know what their min investments is? 100k, 500k or 1mm+

 

That's a good question for [email protected]. Or you can contact Ben Raybould directly at 801.505.6275.

 

Don't be surprised if they don't pick up. They're busy.

[Guest]

Think it might be a cool mill.

 

I'm pretty sure that's accurate now.

[Parsad]

Think it might be a cool mill.

 

I'm pretty sure that's accurate now.

 

See that's what I do!  I blow these guys up to million dollar limits quickly, so that other investors below that threshold have fewer places to go and some have to turn to me!  ;D  Nice guys, great results, good for them.  Cheers!

[Aurelius]

See that's what I do!  I blow these guys up to million dollar limits quickly, so that other investors below that threshold have fewer places to go and some have to turn to me!  ;D  Nice guys, great results, good for them.  Cheers!

 

Is there any economic rationale for not accepting less than 1M (or having limits in general)?

[Parsad]

See that's what I do!  I blow these guys up to million dollar limits quickly, so that other investors below that threshold have fewer places to go and some have to turn to me!  ;D  Nice guys, great results, good for them.  Cheers!

 

Is there any economic rationale for not accepting less than 1M (or having limits in general)?

 

Depending on which exemption or regulations the LP is filed under, they may be restricted in the total number of partners they can have.  Cheers!

[OracleofCarolina]

http://www.sec.gov/Archives/edgar/data/1568820/000160658714000094/xslForm13F_X01/form13InfoTable.xml

 

latest 13F is out...I see a new position in Alleghany

[Guest longinvestor]

http://www.sec.gov/Archives/edgar/data/1568820/000160658714000094/xslForm13F_X01/form13InfoTable.xml

 

latest 13F is out...I see a new position in Alleghany

35% in BRK. Rare concentrator. More power to them.

 

[karthikpm]

Anyone know what their min investments is? 100k, 500k or 1mm+

 

That's a good question for [email protected]. Or you can contact Ben Raybould directly at 801.505.6275.

 

Don't be surprised if they don't pick up. They're busy.

 

 

Their current minimum is 5 Mil. Their strategy sounds good, except they used a lot of leverage at 1.5% to buy their BRK position in 2008-09

[Guest]

Allan is the man.

 

It looks like he unloaded XPO (I bet in the $30s). Now it's sitting at $23.85. I'd love to know what he's thinking on VPRT right now.

[Philip Morris IV]

I think it's kinda funny they still have Deswell.

 

<0.1% of the fund just sitting there, collecting dust and the occasional few-thousand-dollar dividend.

 

I guess they figure it's thinly traded, why incur the cost if they don't have to.  ;D

[KCLarkin]

I'd love to know what he's thinking on VPRT right now.

 

I suspect his thoughts on VPRT are similar to Eric Khrom's:

http://www.scribd.com/doc/148405390/Eric-Khrom-of-Khrom-Capital-2012-Q3-Letter

 

• J-Curve: VPRT is investing heavily in upgrading their products, service, and pricing to appeal to a larger, less price-sensitive market. This is temporarily suppressing both revenue and earnings.
  
• Stock Lending: Short sellers were paying double digit rates to borrow the stock (as of 2012)
  

 

Glenn Greenberg at Brave Warrior Advisors also has 6% of his portfolio in VPRT. I have 3% of my portfolio in VPRT.

[Packer16]

But this idea is just baloney in my mind.  The business is a terrible business and you can't change a terrible business into something good.  They tried to go after the low-end of the market and got smoked.  There is no profit at the low-end because customers make decisions based upon price.  They have the same FCF as 2009 and CF margins that are down by over 50%.  So growth took away value.  Now they are trying to go up market.  The only problem is profitable upmarket niches are already occupied by digital printers who have technology and customer requirement expertise and the larger profitable jobs are already dominated by salesfolks from the large printers.  What is Vistaprint going to provide that everybody else doesn't already have?  How is this anything but a printer valued at 11x EBITDA?

 

Packer

[Valuebo]

+1 Don't see it either and didn't bother reading further after glancing over their latest quarter results.

[WolfOfMainStreet]

Just discovered Allan through this post. Amazing guy, I can't stop reading about him. It made me smile when he mentioned Dan Ariely's Predictably Irrational. I read it a few months ago and I loved it. Took a couple of pages of notes on the interview and some of what he is saying it straight out of Graham's Security Analysis. In the 2010 interview he mentions that he stress tests a company's staying power based on macroeconomic events such as changes in interest rates or employment. Can anyone give me a specific example as to where this would apply? I can see how an increase in interest rates might be good for an insurance company investing out the float into bonds but bad for a retail company that relies on borrowing to fund inventory. How about unemployment? Any other macro events that he may be referring to?

 

Also, some of the stocks such as DFZ, CHRW, CPRT, and VPRT are trading at a significant premium to book value (excluding intangibles). For Mecham, does the staying power, Porter's Five Forces model, and management support buying at this premium? Or does he somehow look at the past relationships between P/BV and create some sort of range? I'm just trying to grasp his investment method. I understand that stock price fluctuates much more than BV but what justifies a company as being too cheap or too expensive when paying such a premium to BV?

[KCLarkin]

+1 Don't see it either and didn't bother reading further after glancing over their latest quarter results.

 

  :D

 

Glad to hear! (assuming you are referring to VPRT). This is why I like the stock so much. Superficially, it is terrible and I want all the bad news to be priced into the stock.

 

The bear case is pretty obvious (at least superficially):

• Broken growth story: Negative 76.60% Q/Q eps
  
• Expensive: PE = 30 (ttm), EV/EBIT = 11
  
• Terrible quarter: Huge earnings miss, revenue miss, big write-off, bad guidance
  
• No momentum: Stock has went sideways since 2007
  
• Horrible industry: Print is dying. Marketing is going online. Low margin. Capital intensive
  
• Bad execution
  
• No dividend
  
• Small cap, tech stock in the midst of a small cap, tech correction
  
• Poor sentiment: Most analysts rate it hold or underperform, huge short positions
  
• No moat: printing is a commodity business
  

 

Who would buy this dog? And if nobody is buying and everyone is shorting, wouldn't all of the above be priced into the stock?

 

But this idea is just baloney in my mind.  The business is a terrible business and you can't change a terrible business into something good.  They tried to go after the low-end of the market and got smoked.  There is no profit at the low-end because customers make decisions based upon price.  They have the same FCF as 2009 and CF margins that are down by over 50%.  So growth took away value.  Now they are trying to go up market.  The only problem is profitable upmarket niches are already occupied by digital printers who have technology and customer requirement expertise and the larger profitable jobs are already dominated by salesfolks from the large printers.  What is Vistaprint going to provide that everybody else doesn't already have?  How is this anything but a printer valued at 11x EBITDA?

 

With the huge short position, it wouldn't take much for the stock to pop. So let's use some Howard Marks / Charlie Munger second level thinking to see if there is something we are missing:

 

Terrible business? Actually seems like a terrific business (if it weren't so capital intensive):

- ROE of 20% for most of the last five years.

- Operating EPS growth at 20% since going public

- 65% gross margins

- Have bought back 25% of stock since 2010

 

Expensive? Need to normalize earnings (this is where the J-curve comes in):

- Earnings temporarily depressed due to investments in product, service, pricing

- Earnings temporarily depressed due to investments in asian markets

- Revenue temporarily depressed due to shifts in pricing / marketing

- Net Income Margin fell from 10% to 2.5% due to these investments

- If NIM rebounded to historical 10%, 2014 normalized GAAP EPS would be $3.78, PE = 10.5

 

Broken growth story?

- Hard to tell, but results from Canada (where they tested the new strategy) are very promising

- Anecdotally, my wife works for one of Canada's largest hospitals. Their charitable foundation ($120M revenue) used Vistaprint for a recent small project (even though Vistaprint is targeted at much smaller companies). Seems like there is some combination of convenience / cost that current large printers aren't providing.

 

No Moat?

- Vistaprint specializes in low cost, small batch printing

- Traditional printers can't produce small batches cost effectively

- No other small batch printer has Vistaprint's scale (5.5 billion business cards per year, 90,000 orders per day)

- Vistaprint is the cost leader in small batch printing (each business card pack only takes 10 sec)

- Economies of scale allow VPRT to make investments that no other printer can make (e.g. national TV ads)

 

Gannon took a pretty good first stab at describing their moat:

http://www.gurufocus.com/news/161898/vistaprint-vprt-the-makings-of-a-moat

 

How is this anything but a printer valued at 11x EBITDA?

 

How was Nucor anything but a steel company?

How was Southwest anything but an airline?

How was Amazon anything but a low margin book retailer?

 

Not saying that VPRT is in the same league but if you can find a misunderstood company in a terrible industry, the payoff can be huge. At 12x forward earnings, I'm willing to make the bet.

 

P.s. If Allan can lend his stock out at 10%, then the risk/reward becomes more compelling.

 

 

 

 

[KCLarkin]

Also, some of the stocks such as DFZ, CHRW, CPRT, and VPRT are trading at a significant premium to book value (excluding intangibles). For Mecham, does the staying power, Porter's Five Forces model, and management support buying at this premium? Or does he somehow look at the past relationships between P/BV and create some sort of range? I'm just trying to grasp his investment method. I understand that stock price fluctuates much more than BV but what justifies a company as being too cheap or too expensive when paying such a premium to BV?

 

Based on his portfolio, I think Mecham is more focused on earning power than book value. He might be willing to pay a significant premium for a company with high ROE and promising reinvestment opportunities (AKA "compounder").

[WolfOfMainStreet]

Also, some of the stocks such as DFZ, CHRW, CPRT, and VPRT are trading at a significant premium to book value (excluding intangibles). For Mecham, does the staying power, Porter's Five Forces model, and management support buying at this premium? Or does he somehow look at the past relationships between P/BV and create some sort of range? I'm just trying to grasp his investment method. I understand that stock price fluctuates much more than BV but what justifies a company as being too cheap or too expensive when paying such a premium to BV?

 

Based on his portfolio, I think Mecham is more focused on earning power than book value. He might be willing to pay a significant premium for a company with high ROE and promising reinvestment opportunities (AKA "compounder").

 

So basically what you're saying is that he pays the premium and the bet is that management/moat will compound growth so that the firm will still trade at a premium in the future but he will have paid a lot less for that company since he bought and held. His is a more qualitative approach than quantitative. What if management dies/changes or there is no longer a moat due to some technological/other change? Graham wrote that paying such a premium automatically assumes risk since you are betting the company will keep growing. In the case of liquidation or downsizing a company will lose the premium and then some due to these events. Seems risky.

[Packer16]

+1 Don't see it either and didn't bother reading further after glancing over their latest quarter results.

 

  :D

 

Glad to hear! (assuming you are referring to VPRT). This is why I like the stock so much. Superficially, it is terrible and I want all the bad news to be priced into the stock.

 

The bear case is pretty obvious (at least superficially):

• Broken growth story: Negative 76.60% Q/Q eps
  
• Expensive: PE = 30 (ttm), EV/EBIT = 11
  
• Terrible quarter: Huge earnings miss, revenue miss, big write-off, bad guidance
  
• No momentum: Stock has went sideways since 2007
  
• Horrible industry: Print is dying. Marketing is going online. Low margin. Capital intensive
  
• Bad execution
  
• No dividend
  
• Small cap, tech stock in the midst of a small cap, tech correction
  
• Poor sentiment: Most analysts rate it hold or underperform, huge short positions
  
• No moat: printing is a commodity business
  

 

Who would buy this dog? And if nobody is buying and everyone is shorting, wouldn't all of the above be priced into the stock?

 

But this idea is just baloney in my mind.  The business is a terrible business and you can't change a terrible business into something good.  They tried to go after the low-end of the market and got smoked.  There is no profit at the low-end because customers make decisions based upon price.  They have the same FCF as 2009 and CF margins that are down by over 50%.  So growth took away value.  Now they are trying to go up market.  The only problem is profitable upmarket niches are already occupied by digital printers who have technology and customer requirement expertise and the larger profitable jobs are already dominated by salesfolks from the large printers.  What is Vistaprint going to provide that everybody else doesn't already have?  How is this anything but a printer valued at 11x EBITDA?

 

With the huge short position, it wouldn't take much for the stock to pop. So let's use some Howard Marks / Charlie Munger second level thinking to see if there is something we are missing:

 

Terrible business? Actually seems like a terrific business (if it weren't so capital intensive):

- ROE of 20% for most of the last five years.

- Operating EPS growth at 20% since going public

- 65% gross margins

- Have bought back 25% of stock since 2010

 

Expensive? Need to normalize earnings (this is where the J-curve comes in):

- Earnings temporarily depressed due to investments in product, service, pricing

- Earnings temporarily depressed due to investments in asian markets

- Revenue temporarily depressed due to shifts in pricing / marketing

- Net Income Margin fell from 10% to 2.5% due to these investments

- If NIM rebounded to historical 10%, 2014 normalized GAAP EPS would be $3.78, PE = 10.5

 

Broken growth story?

- Hard to tell, but results from Canada (where they tested the new strategy) are very promising

- Anecdotally, my wife works for one of Canada's largest hospitals. Their charitable foundation ($120M revenue) used Vistaprint for a recent small project (even though Vistaprint is targeted at much smaller companies). Seems like there is some combination of convenience / cost that current large printers aren't providing.

 

No Moat?

- Vistaprint specializes in low cost, small batch printing

- Traditional printers can't produce small batches cost effectively

- No other small batch printer has Vistaprint's scale (5.5 billion business cards per year, 90,000 orders per day)

- Vistaprint is the cost leader in small batch printing (each business card pack only takes 10 sec)

- Economies of scale allow VPRT to make investments that no other printer can make (e.g. national TV ads)

 

Gannon took a pretty good first stab at describing their moat:

http://www.gurufocus.com/news/161898/vistaprint-vprt-the-makings-of-a-moat

 

How is this anything but a printer valued at 11x EBITDA?

 

How was Nucor anything but a steel company?

How was Southwest anything but an airline?

How was Amazon anything but a low margin book retailer?

 

Not saying that VPRT is in the same league but if you can find a misunderstood company in a terrible industry, the payoff can be huge. At 12x forward earnings, I'm willing to make the bet.

 

P.s. If Allan can lend his stock out at 10%, then the risk/reward becomes more compelling.

 

The issue here is these guys are not exceptional printers.  I'll address the major points to why you think it is good investment:

 

All printers have high ROE look at RR Donnelly and the other printers.  Why is this the case?  From what I see the technology becomes obsolete and there a huge amounts of overcapacity in the industry.  This overcapacity leads to price competition (just look at Vistaprint's margins going from 25% to 11% - more in line with the industry average).  The only way Vistaprint was able to grow was to accept lower margin jobs.  Why do think these jobs will all of sudden become higher margin jobs?  The printing business does not have many long term contracts so you are competing job to job.  They say reduced margins say it is due to temporary higher costs (I think this is bogus because I see the increased costs as a cost of doing more business.  If you stop spending then business will go elsewhere where others are will to spend.)

 

The moat you mention has no profitability associated with it.  The reason Vistaprint can make a profit is you can't change anything as a customer for your job or you get charged to print it again.  This is a terrible way to build customer loyalty.  The customers are so small with no lock-in, I doubt they make much money on them.  If you look at the turnover stats, the retention is terrible, there repeat customer count is only 42%.  The incremental revenue they have acquired since 2009 has resulted in negative OCF growth so I am not sure low cost matters if you are incrementally losing free cash flow. 

 

VPRT sells at a premium multiple to other mainline printers like RR Donnelly (6x EBITDA) when they are smaller and less profitable.  I just think the price includes a rosy outlook (11x EBITDA is not a bargain price to me) and if the only way you get to a lower multiple is to assume some costs away (which I questions they can remove and keep the same level of revenues) then that adds additional risk.  I could never figure out why some value guys liked this company.  BTW my dad owns a short run digital printing company so he is very familiar with the printing business so we have some insight some outside the industry may not.

 

Packer

[Packer16]

Also, some of the stocks such as DFZ, CHRW, CPRT, and VPRT are trading at a significant premium to book value (excluding intangibles). For Mecham, does the staying power, Porter's Five Forces model, and management support buying at this premium? Or does he somehow look at the past relationships between P/BV and create some sort of range? I'm just trying to grasp his investment method. I understand that stock price fluctuates much more than BV but what justifies a company as being too cheap or too expensive when paying such a premium to BV?

 

Based on his portfolio, I think Mecham is more focused on earning power than book value. He might be willing to pay a significant premium for a company with high ROE and promising reinvestment opportunities (AKA "compounder").

 

I agree with his logistics pick as the model has worked before, however, Vistaprint is closer to SHLD and JCP in that what they are trying to do has never been done but has been tried in the past and found not to work out.

 

Packer

[jouni1]

what if management dies? :D

 

what if the world ends tomorrow? would bonds or stocks be better? :D

 

on a more serious note i couldn't get comfortable with vprt either. i have a pretty good feeling he did though. i don't see it as a failed retailer, but a disruptive force in a very fragmented industry.