Finding assets that are worth more than recorded

[Morgan]

These are the holy grail for asset investors, unfortunately there is no systematic way to find these.  Here are a few thoughts:

That's what I sort of assumed, but it never hurts to ask. I know people here know more than me. Hence you and Ragnars list list below. Thanks!  ;D

 

-Find companies with old operations, usually something has been in operation that long.

-Look for companies that are real estate heavy, Bowl America comes to mind, operating bowling alleys since the 1950s, most recorded on the books at cost (1950s & 60s cost).

-Look for neglected companies, or companies no one bothers to value, things like Texas Pacific Land Trust, Aztec Land & Cattle.

-Look for things with alternate uses, Aztec Land & Cattle comes to mind, most of their land is grazing land, but being investigated for wind farms.  Land was on the books for around $60/acre, selling at $30/acre last I looked.

-Look for family owned or controlled companies, they're usually much more tax conscious and try to minimize taxes by eliminating churn, they'll hold onto something rather than sell it.

 

The best way is to just turn over a LOT of rocks.  Be creative, go to the library, Carnegie Business Library (in Pittsburgh) has a ton of OLD Moody's manuals and stock reference manuals.  Look up real estate companies in editions from the late 1970s and early 1980s, then see who still trades.  I'm guessing 90% of the companies are gone, but the other 10% probably still have some of that original land on their books at cost.

 

I agree with Nate for the most part. LOTS of reading and research is the only way that you are going to do this. Develop your own skill set and then share it! Tax records are often a good place to start once you find the company that you find might have cheap items on the books. If you are looking for RE assets, think about the business and your research on it much as a RE investor would. One of those "I am a better investor because I am a businessman and a better businessman because I am an investor" sorta things.

 

I will add... Be weary of land trust type companies- this can extend to retailers as well, which can often be pretty "land trusty" in and of themselves.

 

I have often wondered how many companies there are out there that have REALLY odd assets on their books that are undiscovered.

 

*Cash is too obvious, and there are still A FEW companies trading for less than net cash. A few years ago, they were quite common.

*Real estate is the obvious goto, but that seems too easy.

*Some firms have more securities on hand than their market cap, but those are exceedingly rare.

 

FARM has/had a ton of coffee on their books that gave them a ton of hidden value due to LIFO reserves. You could do some sort of scan based on FIFO/LIFO or even cost average styles of accounting, depending on what kind of environment you are looking at.

 

 

Here's another angle, this is a hidden asset gimme..download the list of bank branches in the US, then sort them by age, there are a LOT from the 1800s and early 1900s.  I'm guessing you'll eventually stumble on a community bank that has four or five branches held at 1930 prices. 

 

I couldn't resist, so I ran a query and found that there are 4170 bank certs with more than 5 branches that were established before 1930, lots of potentially hidden value there.  I'll note that BAC is at the top of the list with 809 branches established before 1930.

Where did you get the list? From the FEDs website? I did a quick search but couldn't find the list.

 

 

When reading about Buffett, his arbitrage style of investments (with, say, soy warehouse receipts) just seem all too easy. Some sort of hindsight bias, I suppose. I wonder how rare those things actually were back in the day, especially when compared to now.

I agree. We almost exclusively read about their successful investments. Or the highlight reel if you will. Thinking about the Buffett/Soy bean arbitrage...how many other trades had he been involved in that were only moderately successful that we rarely hear about? And the book about Cudill is similar. I think in the first 15 years of his career they cover in the book, 5-7 investments are covered. Cundill says he'd usually have 10-20 securities at any given time, so that definitely his highlight reel. Definitely some hindsight bias involved, but it show that it's possible. Not to mention it's fun to read about!  ;D

 

True story! I bought a small, 50 year old manufacturing company out of bankruptcy a number of years ago. Bought the assets pennies on the dollar. While cleaning out an old filing cabinet I found stock cert (in the company's name) in a since de-mutualized insurance company. Turned out to be worth about 10% of entire purchase price. Now that was a hidden asset!

Care to share anymore details? What the process in buying the company? When you bought the bankrupt company they just left everything there and you went through it all and found this stock cert? Other than the stock, how did you go about liquidating the assets? Just selling stuff off to the highest bidder? Or did you have some industry connections? I'm pretty curious about your deal! And congrats!

[bmichaud]

Oddball - I'm legitimately curious how you are valuing the coal company....spot price or valuation multiple?

[oddballstocks]

Oddball - I'm legitimately curious how you are valuing the coal company....spot price or valuation multiple?

 

I'm not, I took a SWAG and figured that 92m tons of coal is worth more than $10m.  But the company has stated it will be 10 years before it's potentially mined.  In one filing they said it might never be mined, so I passed.

 

Your estimate seems the most scientific, if I'm reading right you'd say it's worth $300m or so, which is still 30x the current market cap.

[bmichaud]

Ill look for myself but id be curious to see what their liabilities look like and what other reserves they have. Plus are these reserves that may or may not be mined actually developed and ready to be produced or are they prospective?

 

Interesting stuff!