It’s just one data point. I can find a few notable value investors that are expressing extremely cautious outlooks on the current environment. It’s more difficult to locate those screaming opportunities today compared to the proverbial “for sale” sign from late '08 to early '09. Grantham (although he’s practically a perma bear) Mohnish Pabrai David Einhorn (via his large bet on gold) James Montier (also from GMO, previously at Soc Gen) I’ve managed to find a few interesting pockets of inefficiency today, but gone are the days where you can just look at everything and say, well that valuation is pretty illogical.
mossy695 Wrote: ------------------------------------------------------- > I’ve looked into PARL – their fragrances are a > very fickle buyer of their inventory and therefore > they may not be able to get much if anything from > existing inventory in the event of a liquidation. Agreed. Reported BVPS is approximately $5.38 per share compared to a current price of $1.78 per share with a market cap of around $37 million. A forced liquidation would occur only under a default scenario. Given that PARL only has 2mm in outstanding short-term borrowings versus 11mm in cash, default is remote. Cash burn rate wasn’t bad 9-mo ended Dec 31, 09. They’re also in the process of getting a new credit facility (supposedly). If you run various scenario’s on the different balance sheet accounts and attribute 100% to the liabilities, you can get some pretty compelling return opportunities for a limited downside. The company is pure crap, it’s a cigar butt, with equally suspect management. But it offers an asymmetric investment, its similar to a heads I win, tails I don’t lose too much opportunity – certainly doesn’t warrant a high % of one’s funds – but again, from a probabilistic standpoint, it’s worth placing a small bet on. I arrived at an adjusted balance sheet figure of 3.73 per share. On top of that, if via miracle or divine intervention, the retail market improves, you get optionality worth $2 per share (I assumed 25 cents per share in earnings and a 10x multiple). The 25 cents figure is by no means outrageous given the following earnings record: (9 mo ended) Dec 31, 09 -0.24 Mar 31, 09 -0.21 Mar 31, 08 +0.26 Mar 31, 07 +0.16 Mar 31, 06 +1.27 Mar 31, 05 +0.61 Sort of like an option, except you don’t lose the entire premium…
I made serious money in GGP, a Financial Stock(cannot disclose due to work) but a lot of small amounts in INSM, EIHI, DIS, WFC, MIM, VCLK, H, DITC, CBMX, RJET, PRXI, LUK, TRID, CRESY, BRK-B, PM, GRVY, AXP. I am not finding a lot of value now but at the same time I was not looking that hard because preparing for level 2. IMHO, deep value now is not a very good idea. I put all stocks into 4-5 categories ugly ducklings (these are realy cheap, most probaly will not make money for a year or two - DLIA and for a reason with some protection in B/S) Average stocks (STC) good stocks (like FICO but not the best) Princess (Coke, WMT -with a strong competitive advantage) Do not know Now I handicap every stock I see into one of these five categories what should their expected price should be. Then I read every damn thing I can get my hands on about that stock and look for catalysts. Then it is pretty simple just a matter of managing your emotions. I also do a lot of covered calls, tail hedging and spreads. I think this is a must due to our hedge fund friends and HFT (high frequency trading). I think tail hedging is must unless you own super good businesses. I am doing a lot of spreads (buy at the money leaps, sell slightly out of money STM calls and buy out of money puts). Once GGP plays out in next few months, then I will have good cash and figure out how I need to spend my excess cash. In the mean time I will concetrate in finding a new job. The more I do this, the more I can see how this is so close to poker. No wonder David Einhorn did so well in poker
PARL fragrances are essentially superstar branded products. looking at their line up, their superstars don’t look so super anymore. bring back Paris Hilton!!!
Some NNWC stocks I own: QXM BVSN PRLS drk & VA: thoughts on these companies?
> The more I do this, the more I can see how this is so close to poker. No wonder David Einhorn did so well in poker. Interesting. I assume you’re talking about control of emotions and also quick calculation of odds and asymmetric return probabilities. But I have to ask: how do you bluff the rest of the market (assuming you’re not the Fed or Pimco or someone like that).
90% of the time I play honest, unless you build the reputation it is tough to bluff. I compared it to Poker because, I do not need to play every hand unless I have the best cards. I do not need to buy a good stock unless it falls under the price I want. I wait, wait and sometimes wait more. But when I know it is very good hand, then I play aggressive. That’s why I normally take 5-10% positions and currently I have 60% of my networth in two stocks (ofcourse I hedge them). The only reason I could not take aggressive positions is when I do not have money or if it is ugly duckling, then I do a basket of stocks.
i don’t see it as poker. this is business. the only thing resembling poker is the odds involved but poker is really a game about people and not numbers according to some including myself. value addict definitely knows his stuff. but i question the premise that if retail markets come back you somehow get an option. to me, you have to rely on business fundamentals. unless someone is willing to pay you $5dollars for it, you will be stuck with a balance sheet full of cash you can’t access. there is no saying that unless business picks up, someone will pay you the liquidation value cause maybe this thing can’t be liquidated for one reason or another (though i have no clue why that might be). good luck to all those on Parl. i’m more interested in the stock we were discussing.
drk Wrote: ------------------------------------------------------- > 90% of the time I play honest, unless you build > the reputation it is tough to bluff. I compared it > to Poker because, I do not need to play every hand > unless I have the best cards. I do not need to buy > a good stock unless it falls under the price I > want. I wait, wait and sometimes wait more. But > when I know it is very good hand, then I play > aggressive. That’s why I normally take 5-10% > positions and currently I have 60% of my networth > in two stocks (ofcourse I hedge them). The only > reason I could not take aggressive positions is > when I do not have money or if it is ugly > duckling, then I do a basket of stocks. You can’t wait and wait and wait in poker. for one, there are blinds. ppl that do that won’t go very far in poker. all the pros tell you, if you can’t bluff, you won’t last long in poker.
Value guys: What is the point of owning horrible companies that trade below (WC less liabilities)? I don’t mean to be a jerk - I am curious. As a retail investor, you can’t force a liquidation or huge dividend payout. How are you going to benefit from the balance sheet cash? I just looked at the top owners of some of these companies mentioned (I don’t want to pick on anyone). Several of these companies don’t have much in the way of insider ownership. I don’t see management just handing out the cash.
mossy695 Wrote: ------------------------------------------------------- > Some NNWC stocks I own: > > QXM > BVSN > PRLS > > drk & VA: thoughts on these companies? I can’t comment on the top 2. Peerless… I looked at briefly in late 2008 and decided to pass on the opportunity. I’m not current on the company, however, I did have reservations regarding the future strategy of the company, namely, executives were discussing a search for potential take-over targets and changing direction of their business. Too much uncertainty at the time for me, given other opportunities. However, quick glance, the balance sheet looks solid, I’d have to dig into it more to give you anything meaningful on it.
joemontana Wrote: ------------------------------------------------------- > Value guys: > > What is the point of owning horrible companies > that trade below (WC less liabilities)? I don’t > mean to be a jerk - I am curious. > > As a retail investor, you can’t force a > liquidation or huge dividend payout. How are you > going to benefit from the balance sheet cash? > > I just looked at the top owners of some of these > companies mentioned (I don’t want to pick on > anyone). Several of these companies don’t have > much in the way of insider ownership. I don’t see > management just handing out the cash. Extremely valid point. No offense taken at all. I can’t speak for everyone else, but net-net situations only comprise a small portion of my portfolio (they all but disappeared up until the credit crisis hit actually). A catalyst certainly helps expedite value realization. If you can identify a company that is a net-net, you first, and foremost, are afforded downside protection via asset overcollateralization. If you can determine that the cash burn won’t significantly erode that margin of safety, its only a matter of time before the gap closes. Control definitely helps extract value, but as a retail investor, control isn’t always possible. In the case of PARL, there was an activist involved, Daniel Pike, so you just go along for the ride. The second benefit is that these stocks are so beaten down and out of favor, that they rarely decline in value as much as the market does, because expectations are just so damn low. You end up in a situation where any positive news sends the shares of the company up, and negative news is taken as business as usual. So you get a less correlated asset as a retail investor and potential an event driven position as a institutional investor. I prefer investing in good businesses vs. bad ones, but sometimes bad businesses can work out well as a one-night stand.
It creates a massive margin of safety. Assuming the books aren’t cooked, and cash has to be the hardest investment to fake (all you need to verify is some bank statements), then its almost impossible to suffer a permanent capital loss by investing in them. Its about playing the odds. Also, I funded half of my college expenses through poker and find the similarities to the investment skill set to be compelling. Yes, there are no blinds in investing – but if you can’t keep pace with the market, your investors are going to want their money back pretty quickly. So there is pressure to “act” from that angle. Also, beyond total morons that have obvious physical tells, poker at the high level is all about finding “betting tells” – figuring out what a player has based on how they bet. This process of putting together bits of incomplete information has parallels to the investment world as well.
VALUE INVESTORS UNITE!!
mossy695 Wrote: ------------------------------------------------------- > It creates a massive margin of safety. Assuming > the books aren’t cooked, and cash has to be the > hardest investment to fake (all you need to verify > is some bank statements), then its almost > impossible to suffer a permanent capital loss by > investing in them. Its about playing the odds. > BINGO – viewing risk as a permanent impairment of capital. I think I stated it previously, but value strategies are premised on avoiding loss (capital preservation).
FrankArabia Wrote: ------------------------------------------------------- > VALUE INVESTORS UNITE!! I’ve heard this before. Btw FrankArabia – sent you mail on gmail. The Investor Relations contact was out today … maybe some golf… yachting… sailing… i dunno So I left my contact information and he will get back to me
i certainly don’t view the air guns to be a cigar butt by any means. the fact it is “almost” trading like it is, makes it better. but as I was saying, i looked at that stock 6 months ago, and its down almost 20% since than along with a lot of the cigar butts i screened which makes me hesitant.
No worries my friend. As WEB says, there are no called strikes in investing.
FrankArabia Wrote: ------------------------------------------------------- > i certainly don’t view the air guns to be a cigar > butt by any means. the fact it is “almost” trading > like it is, makes it better. > > but as I was saying, i looked at that stock 6 > months ago, and its down almost 20% since than > along with a lot of the cigar butts i screened > which makes me hesitant. Do you define risk defined as short term volatility? If so, “cigar butts” may be quite risky.
i can care less about volatility. its business risk or permanent loss of capital. the risk of cigar butts is that they end up being money losing businesses forever with you unable to find another buyer or a guy who is either going to liquidate.