Friday, July 5, 2013
icahn and dell join forces
Can Icahn and Dell join force?
One of the possible outcomes is, you guess it, icahn and dell join forces.
I think the mistake M Dell made for his LBO is to abandon SAM. If he had chosen SAM as his partner, the LBO group owns a little less than 25% and the offer price can be as high as $17. I don't think anyone can stop that deal going through.
It is not too late yet. The combined ownership of M, Icahn and SAM is about 29%. If M chose this path, the deal can go through at $15 or higher. And Dell, the company will pay silver lake a small break up fee as this deal is "superior" as defined in the deal agreement. And less debt on dell's balance sheet.
The comparison between HPQ and Dell is not that easy as HPQ is debt laden and Dell has net cash on its balance sheet.
Why not have a dinner at Texas together, you two?
Monday, September 12, 2011
It is the time again!
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
It is time for reflection and meditation. The DOW has dropped from 12810 on April 29 2011 to today’s 10902. My portfolio has given up all the gains this year and then some. There are again talking heads on TV asserting the second dip. And again I believe there are a lot of low hanging fruits in the stock market.
There are a lot of things going for me now. My capital position is stronger with ample liquidity. I am gaining more man power and I got a small raise back in April. It is about the same time last year I wrote the piece “It is time!” And I am almost seeing the same things repeating themselves now.
Last year this time, I bought my second condo. If I waited longer, I might get a better deal. But the deal I did make is a good deal which is accretive to my earnings immediately. And I bought stocks at good prices with good dividend yield. For the first 6 months of 2011, I saw my cash income from rentals and dividend increased more than 50%.
Maybe I am the anomaly. And I believe many of you who were reading are anomalies too. We are holding up well while the world around us collapsing in slow motion. Last night, a friend asked me what the Greek Default would impact us. I thought hard then and I thought hard now. But still, my answer would be and should be “I don’t know”. Maybe it will cause EU to break up. Maybe EURO will drop in value. That might hurt US export. But it is unlikely it will hurt US in a big way. But the “unknown” danger caused more damage than the obvious risk.
Enough! I am not buying or selling based on my macro view. In the last few weeks, I have bought several stocks. And the low market provided yet another opportunity.
General Dynamics (GD) is a defense contractor with a forwarding p/e of 7.56. If there is one thing United States won’t outsource, it is defense equipment manufacturing. If there is one thing United States enjoys a compelling advantage over other nations, it is the defense industry. And among all the defense contractors, GD has the lowest debt to asset ratio. GD has a track record of allocating its capital rationally. The strong headwind towards the industry is the potential tens of billions of defense budgeting cut. And we don’t know how much. But GD has a reputation of controlling its costs, a substantial civil revenue base and a growing 3.25% dividend yield. I am buying the best company in the best industry at a very low price. I bought 300 shares at $58.37 a share.
It is the time again to reflect and meditate. Take a deep breath and keep charging forward. We may realize there are more anomalies than we expect.
1. Why I created this blog?
2. How am I going to operate this blog?
It is time for reflection and meditation. The DOW has dropped from 12810 on April 29 2011 to today’s 10902. My portfolio has given up all the gains this year and then some. There are again talking heads on TV asserting the second dip. And again I believe there are a lot of low hanging fruits in the stock market.
There are a lot of things going for me now. My capital position is stronger with ample liquidity. I am gaining more man power and I got a small raise back in April. It is about the same time last year I wrote the piece “It is time!” And I am almost seeing the same things repeating themselves now.
Last year this time, I bought my second condo. If I waited longer, I might get a better deal. But the deal I did make is a good deal which is accretive to my earnings immediately. And I bought stocks at good prices with good dividend yield. For the first 6 months of 2011, I saw my cash income from rentals and dividend increased more than 50%.
Maybe I am the anomaly. And I believe many of you who were reading are anomalies too. We are holding up well while the world around us collapsing in slow motion. Last night, a friend asked me what the Greek Default would impact us. I thought hard then and I thought hard now. But still, my answer would be and should be “I don’t know”. Maybe it will cause EU to break up. Maybe EURO will drop in value. That might hurt US export. But it is unlikely it will hurt US in a big way. But the “unknown” danger caused more damage than the obvious risk.
Enough! I am not buying or selling based on my macro view. In the last few weeks, I have bought several stocks. And the low market provided yet another opportunity.
General Dynamics (GD) is a defense contractor with a forwarding p/e of 7.56. If there is one thing United States won’t outsource, it is defense equipment manufacturing. If there is one thing United States enjoys a compelling advantage over other nations, it is the defense industry. And among all the defense contractors, GD has the lowest debt to asset ratio. GD has a track record of allocating its capital rationally. The strong headwind towards the industry is the potential tens of billions of defense budgeting cut. And we don’t know how much. But GD has a reputation of controlling its costs, a substantial civil revenue base and a growing 3.25% dividend yield. I am buying the best company in the best industry at a very low price. I bought 300 shares at $58.37 a share.
It is the time again to reflect and meditate. Take a deep breath and keep charging forward. We may realize there are more anomalies than we expect.
Sunday, April 3, 2011
MSFT and CSCO
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 400 shares of MSFT at $27.36 on Feb 10, 2011 and 600 shares of CSCO at $18.92 next day. I paid $7.95 for each transaction. Both were darlings of the Internet bubble era and are falling angles now no one likes.
Let me talk about MSFT first. It surprised me that it always falls on good news. For the second quarter, it increased its revenue, operating income and EPS by 15%, 20% and 28% comparing to the same quarter last year. On the date of earning release, it dropped. On Feb 10, 2011, it announced that one of the dominant cellphone handset producers which owns about 29% of the world market, would use its smart-phone operating system going forward. It fell harder.
Using the number presented by Tilson fund, it has $3.68 net cash per share sitting on its balance sheet. It reduces outstanding share count by 8% a year. And stripping off its net cash, it is trading for 10.1x trailing 12 month earning and 9.3x forward 12 month earning. And over the last five years, its revenue grew from $44B in 2006 to $62B and its cash dividend grew from $.35 per share per year to $.52 per share per year. That is 9% and 11% spanning over the deepest recession my generation ever experienced.
It is not as sexy as Apple but it is growing with a healthy net margin indicating a strong moat. Its success in consumer goods shows in Xbox, Kinect and the most recent smart-phone operating system customer sign up.
It faces many challenges. But it simply dominates in most markets it chooses to compete. It may not compete well with Google on search. But search is only a tiny slice of its revenue and profit anyway. It has the treasured AAA balance sheet and it has massive resources to compete in the market it’s chosen. And it takes advantage of this by issuing debt at ultra low interest rate environments. I will add to my holdings if it drops another 15% to 20%.
CSCO
CSCO has a smaller market cap, thinner margin and more debt on its balance sheet. It has similar amount of cash and investments on its balance sheet. Apparently it faces more competition, is less profitable than MSFT, and doesn’t pay a cash dividend which is supposed to change in the near future.
It has $4.37 net cash and stripping off its net cash from its current share price $18.92, it sells for 11.02x trailing 12 month EPS and 9.83x forward EPS. It has 70% overall Ethernet switching market and more than 50% share of overall routing market. However, it is not as dominate as MSFT is in the software market.
CSCO met consensus on its revenue while missed on margin in its recent earning release. The market is unforgiving by pushing down its share price by more than 15%. And over the last five years, its revenue grew from $28B in 2006 to $40B and its EPS grew from $.91 per share per year to $1.33 per share per year. That is 10% and 9% spanning over the deepest recession my generation ever experienced. It reduces 1.7% share count annually since 2006. Most analysts believe in a 10% top line growth going forward. I will add to my position if the price drops another 20% to 25%.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 400 shares of MSFT at $27.36 on Feb 10, 2011 and 600 shares of CSCO at $18.92 next day. I paid $7.95 for each transaction. Both were darlings of the Internet bubble era and are falling angles now no one likes.
Let me talk about MSFT first. It surprised me that it always falls on good news. For the second quarter, it increased its revenue, operating income and EPS by 15%, 20% and 28% comparing to the same quarter last year. On the date of earning release, it dropped. On Feb 10, 2011, it announced that one of the dominant cellphone handset producers which owns about 29% of the world market, would use its smart-phone operating system going forward. It fell harder.
Using the number presented by Tilson fund, it has $3.68 net cash per share sitting on its balance sheet. It reduces outstanding share count by 8% a year. And stripping off its net cash, it is trading for 10.1x trailing 12 month earning and 9.3x forward 12 month earning. And over the last five years, its revenue grew from $44B in 2006 to $62B and its cash dividend grew from $.35 per share per year to $.52 per share per year. That is 9% and 11% spanning over the deepest recession my generation ever experienced.
It is not as sexy as Apple but it is growing with a healthy net margin indicating a strong moat. Its success in consumer goods shows in Xbox, Kinect and the most recent smart-phone operating system customer sign up.
It faces many challenges. But it simply dominates in most markets it chooses to compete. It may not compete well with Google on search. But search is only a tiny slice of its revenue and profit anyway. It has the treasured AAA balance sheet and it has massive resources to compete in the market it’s chosen. And it takes advantage of this by issuing debt at ultra low interest rate environments. I will add to my holdings if it drops another 15% to 20%.
CSCO
CSCO has a smaller market cap, thinner margin and more debt on its balance sheet. It has similar amount of cash and investments on its balance sheet. Apparently it faces more competition, is less profitable than MSFT, and doesn’t pay a cash dividend which is supposed to change in the near future.
It has $4.37 net cash and stripping off its net cash from its current share price $18.92, it sells for 11.02x trailing 12 month EPS and 9.83x forward EPS. It has 70% overall Ethernet switching market and more than 50% share of overall routing market. However, it is not as dominate as MSFT is in the software market.
CSCO met consensus on its revenue while missed on margin in its recent earning release. The market is unforgiving by pushing down its share price by more than 15%. And over the last five years, its revenue grew from $28B in 2006 to $40B and its EPS grew from $.91 per share per year to $1.33 per share per year. That is 10% and 9% spanning over the deepest recession my generation ever experienced. It reduces 1.7% share count annually since 2006. Most analysts believe in a 10% top line growth going forward. I will add to my position if the price drops another 20% to 25%.
Tuesday, November 23, 2010
Bought MDT
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I am not standing still. Besides buying a condo, I bought and sold a series securities. One of the most notable ones is the new purchase of 500 shares of Medtronic (NYSE: MDT) at $33.37 paying $7.95 commission on October 11.
MDT is serving more than 7 million people annually with over 40, 000 employees. From 2006 to 2010, its revenue increased about 40%, per share dividend more than doubled, diluted EPS increased 35% and shares outstanding reduced by 10%. And yet, it is trading at a range of high 40s to high 50s in 2006. Right now, it is changed hands at low 30s.
During the market weakness, MDT bought a lot of businesses. In the last year, it acquired INVATER, COREVALVE and VENTOR. Those acquisitions eliminated competitors at a good price, leveraged its global footprint and created natural synergy.
For 2011, the company expects to earn $3.4 per share. It raised debt under the unusually low interest rate environment and used the money to make more acquisitions. It is in a triopoly market mostly avoiding price competition. People can perhaps postpone the medical device operation because of the bad economic situation but can’t avoid it. The postponed sales will come back in the following years. And with more entrenched position, MDT is going to capture more of the sales. Once the growth comes back, I can reasonably believe the multiple may expand. While waiting, the stock is paying 2.6% dividend.
If in 5 years, the economy comes back to life, MDT will make about $5 per share. It may have 100% upside. Therefore, if the market continues to treat MDT without respect, I may add to my positions.
1. Why I created this blog?
2. How am I going to operate this blog?
I am not standing still. Besides buying a condo, I bought and sold a series securities. One of the most notable ones is the new purchase of 500 shares of Medtronic (NYSE: MDT) at $33.37 paying $7.95 commission on October 11.
MDT is serving more than 7 million people annually with over 40, 000 employees. From 2006 to 2010, its revenue increased about 40%, per share dividend more than doubled, diluted EPS increased 35% and shares outstanding reduced by 10%. And yet, it is trading at a range of high 40s to high 50s in 2006. Right now, it is changed hands at low 30s.
During the market weakness, MDT bought a lot of businesses. In the last year, it acquired INVATER, COREVALVE and VENTOR. Those acquisitions eliminated competitors at a good price, leveraged its global footprint and created natural synergy.
For 2011, the company expects to earn $3.4 per share. It raised debt under the unusually low interest rate environment and used the money to make more acquisitions. It is in a triopoly market mostly avoiding price competition. People can perhaps postpone the medical device operation because of the bad economic situation but can’t avoid it. The postponed sales will come back in the following years. And with more entrenched position, MDT is going to capture more of the sales. Once the growth comes back, I can reasonably believe the multiple may expand. While waiting, the stock is paying 2.6% dividend.
If in 5 years, the economy comes back to life, MDT will make about $5 per share. It may have 100% upside. Therefore, if the market continues to treat MDT without respect, I may add to my positions.
Monday, November 22, 2010
A small ad
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
It has been a while since I last updated my blog. Apologies to my regular readers! Buying and operating rental properties take a lot of time. But I am not standing still. I updated my old condo and rent it with a positive cash flow. I also rented one room of my newly acquired condo. Currently, two rooms are rented while I am occupying the third room. Operating rentals are continuous efforts. I now have one renter to move out (after fulfilling his one year lease) early next month. Shamelessly, I am putting a little ad for my room.
Here is my Craigslist ad:
http://columbus.craigslist.org/roo/2073193317.html
Roommate Wanted Available on Dec 6, 2010
Call 614-716-8325 Tom
One room in a 3 bedroom/1.5 Bath Condo for Only 359/m Best Value in
Worthington/Polaris
The place is freshly painted and cleaned
You are going to share with two quiet and clean guys
Total 1222 Sqft + 200 Sqft finished basement and spacious storage room
Close to everywhere, convenient
Walking distance to: Worthington Elementary School, dentist, urgent
care and parks;
3 minutes to library, Kroger and Laundry
5 minutes drive to shopping and large employers: Costco, Polaris Mall,
Chase, United Healthcare and more;
15 minutes drive to: Ohio State University, Otterbein College
Your share of utility bills include only gas and electricity. Water
and condo fee are paid by us $35 application fee and one month rent as
security deposit
7894 Woodhouse Ln Worthington OH 43085
1. Why I created this blog?
2. How am I going to operate this blog?
It has been a while since I last updated my blog. Apologies to my regular readers! Buying and operating rental properties take a lot of time. But I am not standing still. I updated my old condo and rent it with a positive cash flow. I also rented one room of my newly acquired condo. Currently, two rooms are rented while I am occupying the third room. Operating rentals are continuous efforts. I now have one renter to move out (after fulfilling his one year lease) early next month. Shamelessly, I am putting a little ad for my room.
Here is my Craigslist ad:
http://columbus.craigslist.org/roo/2073193317.html
Roommate Wanted Available on Dec 6, 2010
Call 614-716-8325 Tom
One room in a 3 bedroom/1.5 Bath Condo for Only 359/m Best Value in
Worthington/Polaris
The place is freshly painted and cleaned
You are going to share with two quiet and clean guys
Total 1222 Sqft + 200 Sqft finished basement and spacious storage room
Close to everywhere, convenient
Walking distance to: Worthington Elementary School, dentist, urgent
care and parks;
3 minutes to library, Kroger and Laundry
5 minutes drive to shopping and large employers: Costco, Polaris Mall,
Chase, United Healthcare and more;
15 minutes drive to: Ohio State University, Otterbein College
Your share of utility bills include only gas and electricity. Water
and condo fee are paid by us $35 application fee and one month rent as
security deposit
7894 Woodhouse Ln Worthington OH 43085
Tuesday, August 3, 2010
It is time!
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
Fellow Toastmasters and guests;
There were two condos for sale across the street from mine. On July 18, I took a look at one of them and made an offer on the spot. After negotiations, my offer was accepted. Buyer’s remorse overwhelmed me afterward. What if I can’t find a tenant? What if there are uncovered deficiencies? I was nervous, uncertain and even afraid, especially after I learned from a smart investor that I should have lowered the purchase price by another three, four thousand by offering cash. I can get a home equity loan later.
In May and June this year, the market was off significantly. Instead of a solid gain, my portfolio was at the break even point for the year. There were talking heads on the nightly business news convinced there will be a double dip and another recession. I was reminded that the US government had a lot of liabilities, medicaid, medicare and social security, unfunded promises. More taxes are on the horizon. Local government is going to lay off thousands of workers.
I met a pretty lady in my church group. Her name is Kate. She is trying to find a teaching job after getting her license. Kate has tried everywhere and couldn’t find one and now the new school year is starting in one or two weeks. I can feel the anxiety from her voices. She may have to take the substitute teaching position and the pay will be very very low.
I like reading. I got this new book, written by Hank Paulson, from a local library along with many titles dealing with property management, real estate tax laws and do it yourself guides. The former secretary of treasury didn’t use a collaborator. He recounted the crisis in such a clarity that I recommend this book to anyone. It is a 450 page book and I finished it in two settings in two days.
After reliving the painful experiences of the great recession through the regulator’s perspective, I know what topic I should give for an inspiring speech. The doomsayers will always focus on the negatives. Although the past decade was a difficult chapter in our nation’s economic history, it is just one chapter, and there will be many more that are marked by economic gains and rising prosperity if we learn from our mistakes and make the necessary corrections.
I pray for Kate to get a teaching job. But the tight fiscal situation at the school district will give a rare opportunity to the board to cut waste, renegotiate the labor contract, get rid of the ridiculous seniority rules, and refocus on the quality of the education. The key is not to spend more, but to spend where it really counts. And like the school board, the state and local governments across
the nation will have to do the same, stop providing services the private sector can provide more efficiently, stop unsustainable benefits to public workers and streamline all the overlapping bureaucracies. Those will make them stronger.
And yes, the federal government has a lot of unfunded promises. But it also holds a lot of assets understated or not stated at all in its balance sheet. For example, the federal government owns 650 million acres of lands, about 30% of the land area of United States. Lumber, minerals, gas and oil. The government also has rights for all the seashores. Those are tangible. How about the intangibles? How about the most productive labor force, the most flexible and dynamic financial, legal and political system? After successfully tackling the financial reform and health
insurance reform, I believe the current Obama administration has wisdom and prepared to reform the entitlement programs. It is effective and efficient. I support all its moves with sole exception for the immigration reform. But it is for another speech. Those will make our federal government stronger.
And for me. During the last three months, I bought Sanofi, Pfizer, GE, Johnson and Johnson, and Merck. Even after the condo purchase, I still have ample liquidity and a strong balance sheet. As long as the deal is good, I am open for business. I am ready to write a check and my check will clear. I can easily cover the principal and interest, property tax and condo fee. Those make me stronger.
And for you. Now some well maintained, ready to move in properties are selling for less than a fully equipped Corolla. If you have cash under the mattress, or in a checking account earning close to 0 return, you can’t wait. If you sit on the fence, you will miss the boat. Be greedy when fear dominates. Those will make you stronger.
Together, those will make us stronger.
Thank you.
Mr. Toastmaster.
1. Why I created this blog?
2. How am I going to operate this blog?
Fellow Toastmasters and guests;
There were two condos for sale across the street from mine. On July 18, I took a look at one of them and made an offer on the spot. After negotiations, my offer was accepted. Buyer’s remorse overwhelmed me afterward. What if I can’t find a tenant? What if there are uncovered deficiencies? I was nervous, uncertain and even afraid, especially after I learned from a smart investor that I should have lowered the purchase price by another three, four thousand by offering cash. I can get a home equity loan later.
In May and June this year, the market was off significantly. Instead of a solid gain, my portfolio was at the break even point for the year. There were talking heads on the nightly business news convinced there will be a double dip and another recession. I was reminded that the US government had a lot of liabilities, medicaid, medicare and social security, unfunded promises. More taxes are on the horizon. Local government is going to lay off thousands of workers.
I met a pretty lady in my church group. Her name is Kate. She is trying to find a teaching job after getting her license. Kate has tried everywhere and couldn’t find one and now the new school year is starting in one or two weeks. I can feel the anxiety from her voices. She may have to take the substitute teaching position and the pay will be very very low.
I like reading. I got this new book, written by Hank Paulson, from a local library along with many titles dealing with property management, real estate tax laws and do it yourself guides. The former secretary of treasury didn’t use a collaborator. He recounted the crisis in such a clarity that I recommend this book to anyone. It is a 450 page book and I finished it in two settings in two days.
After reliving the painful experiences of the great recession through the regulator’s perspective, I know what topic I should give for an inspiring speech. The doomsayers will always focus on the negatives. Although the past decade was a difficult chapter in our nation’s economic history, it is just one chapter, and there will be many more that are marked by economic gains and rising prosperity if we learn from our mistakes and make the necessary corrections.
I pray for Kate to get a teaching job. But the tight fiscal situation at the school district will give a rare opportunity to the board to cut waste, renegotiate the labor contract, get rid of the ridiculous seniority rules, and refocus on the quality of the education. The key is not to spend more, but to spend where it really counts. And like the school board, the state and local governments across
the nation will have to do the same, stop providing services the private sector can provide more efficiently, stop unsustainable benefits to public workers and streamline all the overlapping bureaucracies. Those will make them stronger.
And yes, the federal government has a lot of unfunded promises. But it also holds a lot of assets understated or not stated at all in its balance sheet. For example, the federal government owns 650 million acres of lands, about 30% of the land area of United States. Lumber, minerals, gas and oil. The government also has rights for all the seashores. Those are tangible. How about the intangibles? How about the most productive labor force, the most flexible and dynamic financial, legal and political system? After successfully tackling the financial reform and health
insurance reform, I believe the current Obama administration has wisdom and prepared to reform the entitlement programs. It is effective and efficient. I support all its moves with sole exception for the immigration reform. But it is for another speech. Those will make our federal government stronger.
And for me. During the last three months, I bought Sanofi, Pfizer, GE, Johnson and Johnson, and Merck. Even after the condo purchase, I still have ample liquidity and a strong balance sheet. As long as the deal is good, I am open for business. I am ready to write a check and my check will clear. I can easily cover the principal and interest, property tax and condo fee. Those make me stronger.
And for you. Now some well maintained, ready to move in properties are selling for less than a fully equipped Corolla. If you have cash under the mattress, or in a checking account earning close to 0 return, you can’t wait. If you sit on the fence, you will miss the boat. Be greedy when fear dominates. Those will make you stronger.
Together, those will make us stronger.
Thank you.
Mr. Toastmaster.
Tuesday, June 22, 2010
Bought OSG
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold my last Coach holding on June 15, 2010 for $8,824.90 and paid $5.10 commission. And finally, I got my hands on OSG. I bought 100 shares on March 26, 2010 for $3, 990.
If a public listed company in the last five years reduced shares outstanding by one third, doubled its revenue, book value and dividend, what valuation should Mr. Market assign it to? Let me add its current asset plus two years of free cash flow can pay off all its debt!
What if I add that its net margin is 18.6%, return on equity is 18.4% and return on capital is 8.2%?
Currently, its stock is sold for half of its book value, less than 3X free cash flow and about 3X earning. Furthermore, it yields 4.88%.
Yes, it is Oversea Shipping Group (NYSE: OSG). Its management is very smart, selling OSP for $19 per share in 2007 and are buying them back at $10 per share in 2009. The company owns the most modern fleets in the industry and 100% of the fleet is double hull. It has a strong balance sheet with ample liquidity. It is buying back its own shares like crazy and it is buying back shares of its subsidiaries. In Nov 2009, its book value is $68.90.
Why is it trading at this low? It is in a highly cyclical industry and 65% of its revenue is from highly volatile spot market charter rates. In the last 10 years, it lost money only once, in 2002, it lost 51 cents per share. Now, if the world economy keeps deteriorating, energy price goes out of the bottom, OSG will continue to sell its ships, reduce its operating expenses and paying its dividend. I believe it can do these things for at least 3-5 years. Actually, I am not that permissive to believe the global economy will remain in the dump. But I will not try very hard to convince you otherwise either.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold my last Coach holding on June 15, 2010 for $8,824.90 and paid $5.10 commission. And finally, I got my hands on OSG. I bought 100 shares on March 26, 2010 for $3, 990.
If a public listed company in the last five years reduced shares outstanding by one third, doubled its revenue, book value and dividend, what valuation should Mr. Market assign it to? Let me add its current asset plus two years of free cash flow can pay off all its debt!
What if I add that its net margin is 18.6%, return on equity is 18.4% and return on capital is 8.2%?
Currently, its stock is sold for half of its book value, less than 3X free cash flow and about 3X earning. Furthermore, it yields 4.88%.
Yes, it is Oversea Shipping Group (NYSE: OSG). Its management is very smart, selling OSP for $19 per share in 2007 and are buying them back at $10 per share in 2009. The company owns the most modern fleets in the industry and 100% of the fleet is double hull. It has a strong balance sheet with ample liquidity. It is buying back its own shares like crazy and it is buying back shares of its subsidiaries. In Nov 2009, its book value is $68.90.
Why is it trading at this low? It is in a highly cyclical industry and 65% of its revenue is from highly volatile spot market charter rates. In the last 10 years, it lost money only once, in 2002, it lost 51 cents per share. Now, if the world economy keeps deteriorating, energy price goes out of the bottom, OSG will continue to sell its ships, reduce its operating expenses and paying its dividend. I believe it can do these things for at least 3-5 years. Actually, I am not that permissive to believe the global economy will remain in the dump. But I will not try very hard to convince you otherwise either.
Friday, May 21, 2010
I am back
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I am slow in new posts recently because I am planning a major life change event. Now, the dust has settled, I would like to catch up. First, I would like to talk in details on the GSK purchase I mentioned in my last post. Here is a speech I gave in a local toastmaster club.
There are bulls and bears in the market making noise on the mass media daily. While the large audience ruminates over deficit, interest rate and unemployment, a lot of abnormalities are ignored. With abnormality opportunity comes along. Coach versus GSK exemplified this abnormality.
I had a history with both. I have been owning GSK since 2006 and most recently added my position in February 2010. GSK is a global healthcare company selling products from toothpaste to vaccine. If you watch news, you can't escape the bombast of its ads. I have been owning Coach since 2008. It is a popular handbag brand for ladies. I most recently trimmed my position.
While people must brush their teeth and take their pills every day, it is always a mystery to me how many handbags a lady needs. Right now, there are only two types of vaccine for cervical cancer. On the other hand, there are more than 10 handbag brands selling at higher price point than Coach, more than 10 brands selling at lower price point and more than 10 brands selling at the price point.
Both GSK and Coach are highly profitable. They have similar net margins: GSK is 19.5% and Coach is 20%. While GSK spends heavily on R&D, Coach pays lavishly for its creative staff.
Coach's balance sheet is excellent. It can easily pay off its liability using its cash. GSK's balance sheet is not pristine but decent. It has global reach, diversified businesses and regulatory protection.
Coach is expected to grow fast. It is said that it has great potential in China and other emerging market. GSK is facing regulatory headwind. Its asthma treatment drug is under scrutiny, the new healthcare regime is trying to cut drug price and FDA is dragging its feet approving new drugs. But as senior citizen becomes larger and larger share of the population, the healthcare industry and GSK will keep growing.
Here comes the abnormality. GSK is selling for a p/e ratio of 11 yielding 5%. Coach is selling for a p/e ratio of 21 yielding about just a hair over 1%. And most analysts on the street call GSK a "HOLD" and Coach a "Strong Buy". Even after substracting the cash on Coach's balance sheet, it is selling for a p/e ratio of 18.27.
Let's summarize the case. Coach has one focused product line, faces more competition, selling almost twice as rich as GSK. GSK is paying out more cash, providing essential products and expanding in emerging market. As long as the abnormality exists, I will keep exploiting the opportunity by adding GSK and trimming Coach.
1. Why I created this blog?
2. How am I going to operate this blog?
I am slow in new posts recently because I am planning a major life change event. Now, the dust has settled, I would like to catch up. First, I would like to talk in details on the GSK purchase I mentioned in my last post. Here is a speech I gave in a local toastmaster club.
There are bulls and bears in the market making noise on the mass media daily. While the large audience ruminates over deficit, interest rate and unemployment, a lot of abnormalities are ignored. With abnormality opportunity comes along. Coach versus GSK exemplified this abnormality.
I had a history with both. I have been owning GSK since 2006 and most recently added my position in February 2010. GSK is a global healthcare company selling products from toothpaste to vaccine. If you watch news, you can't escape the bombast of its ads. I have been owning Coach since 2008. It is a popular handbag brand for ladies. I most recently trimmed my position.
While people must brush their teeth and take their pills every day, it is always a mystery to me how many handbags a lady needs. Right now, there are only two types of vaccine for cervical cancer. On the other hand, there are more than 10 handbag brands selling at higher price point than Coach, more than 10 brands selling at lower price point and more than 10 brands selling at the price point.
Both GSK and Coach are highly profitable. They have similar net margins: GSK is 19.5% and Coach is 20%. While GSK spends heavily on R&D, Coach pays lavishly for its creative staff.
Coach's balance sheet is excellent. It can easily pay off its liability using its cash. GSK's balance sheet is not pristine but decent. It has global reach, diversified businesses and regulatory protection.
Coach is expected to grow fast. It is said that it has great potential in China and other emerging market. GSK is facing regulatory headwind. Its asthma treatment drug is under scrutiny, the new healthcare regime is trying to cut drug price and FDA is dragging its feet approving new drugs. But as senior citizen becomes larger and larger share of the population, the healthcare industry and GSK will keep growing.
Here comes the abnormality. GSK is selling for a p/e ratio of 11 yielding 5%. Coach is selling for a p/e ratio of 21 yielding about just a hair over 1%. And most analysts on the street call GSK a "HOLD" and Coach a "Strong Buy". Even after substracting the cash on Coach's balance sheet, it is selling for a p/e ratio of 18.27.
Let's summarize the case. Coach has one focused product line, faces more competition, selling almost twice as rich as GSK. GSK is paying out more cash, providing essential products and expanding in emerging market. As long as the abnormality exists, I will keep exploiting the opportunity by adding GSK and trimming Coach.
Wednesday, March 3, 2010
The other purchases in Feb
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I also bought 100 shares of GSK at 38.74 and another stock which I will keep anonymous for now since I am not done building my positions yet. Once I finish building a full position, I will post all the history with that stock. For now, I can only say that it is an industry leader in the process of splitting itself and is way undervalued.
I owned 300 shares of GSK before I made the recent purchase. GSK is a healthcare conglomerate. I am buying it at a P/E of 11.36 and a yield of around 6. The healthcare industry as whole is facing political headwinds and GSK is having its own controversies. However, I believe it is one of the most undervalued stocks out there.
1. Why I created this blog?
2. How am I going to operate this blog?
I also bought 100 shares of GSK at 38.74 and another stock which I will keep anonymous for now since I am not done building my positions yet. Once I finish building a full position, I will post all the history with that stock. For now, I can only say that it is an industry leader in the process of splitting itself and is way undervalued.
I owned 300 shares of GSK before I made the recent purchase. GSK is a healthcare conglomerate. I am buying it at a P/E of 11.36 and a yield of around 6. The healthcare industry as whole is facing political headwinds and GSK is having its own controversies. However, I believe it is one of the most undervalued stocks out there.
Thursday, February 18, 2010
Bought LM
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 200 shares of LM at $26.26 on Feb 03 2010 paying a commission of $4.95.
I owned 400 shares of LM before this purchase.
Legg Mason, one of the world largest asset managers, is trading at less than 10x trough earnings. Currently LM has approximately $700Bn under management, with 55% invested in fixed income products, 22% in money market, and the remainder in equity. LM is structured in an affiliate model: this means that it operates as a holding company and owns a number of relatively independent money managers. The affiliates keep a percentage of their revenue generation with the rest going to LM Corporate. This percentage varies, but most believe approximately 30% is kept by the affiliates' employees. The holding company provides certain shared services as well as retail and international distribution.
The shares had been traded around $100 before the crisis. Here is what happened:
The Company's largest affiliate, Western Asset Management, needed to be bailed out due to its exposure to structured investment vehicles. Because of the reduced liquidity for these products, Western suffered a run on its money market funds and required a costly bailout from its parent, Legg Mason. Compounding this, LM's all-star manager Bill Miller suffered the worst performance of his career. Miller saw significant outflows as a result and was ridiculed for calling the bottom of the market on multiple occasions. Legg Mason's total outflows were $225Bn from 2007 to Sept 2009, representing 22% of AUM at Sept 2007. Further, the market didn't help matters driving AUM down a further $190Bn. At its bottom, AUM had gone from over $1T to $630Bn. All this occurred under watch of a new management team that stepped in just as the markets were collapsing. More recently, Trian Investments, headed by Nelson Peltz, has taken a 4% stake in LM. As part of a standstill agreement, Trian is required to buy up to 8% of the outstanding shares and has been awarded a board seat.
A private equity heavyweight, KKR was involved too. Nelson Peltz is a very savvy investor and now has a board seat. Moreover, Peltz has agreed to buy more shares through his standstill contract. He is required to own 8% of the company by April of next year.
While a downturn in the market would be a negative, LM has a number of levers they can pull to help offset the decline in earnings. Hypothetically, if AUM's were to fall to $500Bn, or a 30% decline from where they are today, LM will generate, at worst, cash EPS of $1.50/sh (which implies an 80% incremental margin). At this point, it would be apparent that their distribution group was not fulfilling its duty, and this unit could be cut lose, saving an additional $1.20/sh. This alone helps to justify the current valuation in a downside case. However, as a little extra incentive, this decline in AUM would bring about added pressure from Peltz and may accelerate a sale or spin-off of one of the affiliates.
Giving further comfort to the downside, LM earned $1.80 cash EPS in 2005 on an apples to apples basis (stripping out performance fees and adjusting for the share count - this was also prior to the tax shield which has been excluded from the above EPS). 2005 was the year prior to the CAM acquisition, and while times were very different, LM was operating with an average AUM of $330Bn. Again, times are different, but this is prior to the distribution group joining and shows what the business can generate if such a scenario presents itself.
The bottom line is fund management companies are able to achieve reasonable size and also enjoy reasonable persistence in terms of AUM. And I am buying a fund management at very attractive valuation.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 200 shares of LM at $26.26 on Feb 03 2010 paying a commission of $4.95.
I owned 400 shares of LM before this purchase.
Legg Mason, one of the world largest asset managers, is trading at less than 10x trough earnings. Currently LM has approximately $700Bn under management, with 55% invested in fixed income products, 22% in money market, and the remainder in equity. LM is structured in an affiliate model: this means that it operates as a holding company and owns a number of relatively independent money managers. The affiliates keep a percentage of their revenue generation with the rest going to LM Corporate. This percentage varies, but most believe approximately 30% is kept by the affiliates' employees. The holding company provides certain shared services as well as retail and international distribution.
The shares had been traded around $100 before the crisis. Here is what happened:
The Company's largest affiliate, Western Asset Management, needed to be bailed out due to its exposure to structured investment vehicles. Because of the reduced liquidity for these products, Western suffered a run on its money market funds and required a costly bailout from its parent, Legg Mason. Compounding this, LM's all-star manager Bill Miller suffered the worst performance of his career. Miller saw significant outflows as a result and was ridiculed for calling the bottom of the market on multiple occasions. Legg Mason's total outflows were $225Bn from 2007 to Sept 2009, representing 22% of AUM at Sept 2007. Further, the market didn't help matters driving AUM down a further $190Bn. At its bottom, AUM had gone from over $1T to $630Bn. All this occurred under watch of a new management team that stepped in just as the markets were collapsing. More recently, Trian Investments, headed by Nelson Peltz, has taken a 4% stake in LM. As part of a standstill agreement, Trian is required to buy up to 8% of the outstanding shares and has been awarded a board seat.
A private equity heavyweight, KKR was involved too. Nelson Peltz is a very savvy investor and now has a board seat. Moreover, Peltz has agreed to buy more shares through his standstill contract. He is required to own 8% of the company by April of next year.
While a downturn in the market would be a negative, LM has a number of levers they can pull to help offset the decline in earnings. Hypothetically, if AUM's were to fall to $500Bn, or a 30% decline from where they are today, LM will generate, at worst, cash EPS of $1.50/sh (which implies an 80% incremental margin). At this point, it would be apparent that their distribution group was not fulfilling its duty, and this unit could be cut lose, saving an additional $1.20/sh. This alone helps to justify the current valuation in a downside case. However, as a little extra incentive, this decline in AUM would bring about added pressure from Peltz and may accelerate a sale or spin-off of one of the affiliates.
Giving further comfort to the downside, LM earned $1.80 cash EPS in 2005 on an apples to apples basis (stripping out performance fees and adjusting for the share count - this was also prior to the tax shield which has been excluded from the above EPS). 2005 was the year prior to the CAM acquisition, and while times were very different, LM was operating with an average AUM of $330Bn. Again, times are different, but this is prior to the distribution group joining and shows what the business can generate if such a scenario presents itself.
The bottom line is fund management companies are able to achieve reasonable size and also enjoy reasonable persistence in terms of AUM. And I am buying a fund management at very attractive valuation.
Tuesday, February 16, 2010
February 2010 is eventful
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold one stock so far and bought four.
I sold out LTD on February 04, 2010 at $20.24. Since it is in my Welltrade account, I didn't pay a commission. I first bought LTD in Oct 2007. During the holding period, I received $510 in dividends and $581.89 capital gain. It is an acceptable but certainly not brilliant return.
LTD has been consistently paying out a healthy dividend even in the most turbulent times. I believe it has two wonderful businesses although I think its recent discounting at Body and Bath Works is overdone. I believe its Victoria's Secret business has the potential to grow internationally. And I applauded the management's decision not to overextend itself. All that been said, I think LTD is still undervalued. Its intrinsic value is closer to $30 rather than $20.
I still sold it because I believe I find something cheaper.
In his most recent comment, Bill Nygren said,
" AMAT is the largest supplier of capital equipment used to manufacture semiconductors and LCD panels. It has the dominant market share across the vast majority of its product line, a world class service infrastructure, and a pristine balance sheet with over $2 per share in cash. Despite those positives, its business is wildly cyclical, and in the recent downturn, not many new semiconductor factories were built. In the technology frenzy a decade ago, AMAT stock reached a high of $57 which was 10x sales per share (yes, sales per share – it was almost 50x earnings per share). Sales in 2009 were about half the 2000 level, and AMAT lost money. But this is a growing industry, so we believe a strong cyclical recovery will soon produce sales and earnings that exceed the prior peak. On the basis of this business alone, we believe AMAT is undervalued at $14. In addition, AMAT has an emerging business selling equipment used to manufacture solar panels. The future of solar energy is hard to predict, and the value of AMAT’s solar division could range from almost nothing to half the current stock price if it were valued consistently with publically traded competitors. Though we aren’t comfortable valuing it at such a high level, it’s clearly worth something, and we don’t believe we are paying anything for it. "
I bought 500 shares on Feb 4, 2010 at $11.73 about 17% discount from what Bill Nygren's entry price without paying a commission. I think AMAT's fair value is closer to north of $20 rather than north of $10 it is currently trading at.
BTW, my friend, Allen, recently set up a website for shopping deals.
Here is the link:www.dealam.com.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold one stock so far and bought four.
I sold out LTD on February 04, 2010 at $20.24. Since it is in my Welltrade account, I didn't pay a commission. I first bought LTD in Oct 2007. During the holding period, I received $510 in dividends and $581.89 capital gain. It is an acceptable but certainly not brilliant return.
LTD has been consistently paying out a healthy dividend even in the most turbulent times. I believe it has two wonderful businesses although I think its recent discounting at Body and Bath Works is overdone. I believe its Victoria's Secret business has the potential to grow internationally. And I applauded the management's decision not to overextend itself. All that been said, I think LTD is still undervalued. Its intrinsic value is closer to $30 rather than $20.
I still sold it because I believe I find something cheaper.
In his most recent comment, Bill Nygren said,
" AMAT is the largest supplier of capital equipment used to manufacture semiconductors and LCD panels. It has the dominant market share across the vast majority of its product line, a world class service infrastructure, and a pristine balance sheet with over $2 per share in cash. Despite those positives, its business is wildly cyclical, and in the recent downturn, not many new semiconductor factories were built. In the technology frenzy a decade ago, AMAT stock reached a high of $57 which was 10x sales per share (yes, sales per share – it was almost 50x earnings per share). Sales in 2009 were about half the 2000 level, and AMAT lost money. But this is a growing industry, so we believe a strong cyclical recovery will soon produce sales and earnings that exceed the prior peak. On the basis of this business alone, we believe AMAT is undervalued at $14. In addition, AMAT has an emerging business selling equipment used to manufacture solar panels. The future of solar energy is hard to predict, and the value of AMAT’s solar division could range from almost nothing to half the current stock price if it were valued consistently with publically traded competitors. Though we aren’t comfortable valuing it at such a high level, it’s clearly worth something, and we don’t believe we are paying anything for it. "
I bought 500 shares on Feb 4, 2010 at $11.73 about 17% discount from what Bill Nygren's entry price without paying a commission. I think AMAT's fair value is closer to north of $20 rather than north of $10 it is currently trading at.
BTW, my friend, Allen, recently set up a website for shopping deals.
Here is the link:www.dealam.com.
Sunday, January 31, 2010
Have Faith in the System
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a speech I gave at a local toastmaster club.
I received an email last Thursday for the citizenship interview. I am going to be a United States citizen.
Becoming a US citizen is really hard for an immigrant from China like me. It took me 12 years. Actually, if I earned something really hard, I will treasure it. And often, if I get something out of nothing, I trash it. That's human nature.
According to a Gallup survey last year, 37% Americans consider China to be the world's leading economic power; only 39% choose the United States. I am waiting for the 2010 numbers. And Americans as a whole are pulling their investment dollars from domestic equity funds and putting them into China fund and other emerging markets last year. They voted by their dollars.
In 2009, all my savings stay in the United States. I voted by my dollars and my application for the US citizenship. I believe in the long run, the United States will maintain her status as the number one economic powerhouse because she has a wonderful self-adjusting system. The self correcting system will ensure long term prosperity despite the current economic difficulties.
Three recent events strengthened my faith in the system.
Event number one: The presidential proposal to reestablish the great wall between commercial bank and proprietary trading.
After lessons from depression, people learned that unchecked greed backed by other people's money will cause disaster. And congress passed laws to separate commercial bank and speculative trading. The United States is depression free for 50 years until people began to take it for granted. In 1996, the great wall was torn down. And after only 10 years, the United States had her first real encounter with depression over more than half a century. To save time, I don't even want to dive into the serious conflict caused by peeking into your clients' trading account while trading for your own account.
Event number two: The new healthcare reform.
The link between health insurance and employment is preventing employees from becoming entrepreneurs. If I can find affordable health insurance without pre-existing condition restraints outside my employment, I am more likely to set up my own business and hire people.
Event number three: The election of Scott Brown.
Although the healthcare reform has many potential benefits, the huge cost and pork barrel spending in a high deficit environment worry most people. People elect Scott Brown to break the super majority enjoyed by Democrat in the Senate. And the congress has to reduce the scope of healthcare reform and hopefully eliminate all the pork barrel spendings.
I see a pattern. After fixing a problem, the system goes on smoothly for a while. And then it goes astray and has another problem. Then the system finds a solution to fix the new problem with minimal social and economic cost. Of course, after a while, the system will go strayed again. And I believe, it will find a solution and fix itself again.
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a speech I gave at a local toastmaster club.
I received an email last Thursday for the citizenship interview. I am going to be a United States citizen.
Becoming a US citizen is really hard for an immigrant from China like me. It took me 12 years. Actually, if I earned something really hard, I will treasure it. And often, if I get something out of nothing, I trash it. That's human nature.
According to a Gallup survey last year, 37% Americans consider China to be the world's leading economic power; only 39% choose the United States. I am waiting for the 2010 numbers. And Americans as a whole are pulling their investment dollars from domestic equity funds and putting them into China fund and other emerging markets last year. They voted by their dollars.
In 2009, all my savings stay in the United States. I voted by my dollars and my application for the US citizenship. I believe in the long run, the United States will maintain her status as the number one economic powerhouse because she has a wonderful self-adjusting system. The self correcting system will ensure long term prosperity despite the current economic difficulties.
Three recent events strengthened my faith in the system.
Event number one: The presidential proposal to reestablish the great wall between commercial bank and proprietary trading.
After lessons from depression, people learned that unchecked greed backed by other people's money will cause disaster. And congress passed laws to separate commercial bank and speculative trading. The United States is depression free for 50 years until people began to take it for granted. In 1996, the great wall was torn down. And after only 10 years, the United States had her first real encounter with depression over more than half a century. To save time, I don't even want to dive into the serious conflict caused by peeking into your clients' trading account while trading for your own account.
Event number two: The new healthcare reform.
The link between health insurance and employment is preventing employees from becoming entrepreneurs. If I can find affordable health insurance without pre-existing condition restraints outside my employment, I am more likely to set up my own business and hire people.
Event number three: The election of Scott Brown.
Although the healthcare reform has many potential benefits, the huge cost and pork barrel spending in a high deficit environment worry most people. People elect Scott Brown to break the super majority enjoyed by Democrat in the Senate. And the congress has to reduce the scope of healthcare reform and hopefully eliminate all the pork barrel spendings.
I see a pattern. After fixing a problem, the system goes on smoothly for a while. And then it goes astray and has another problem. Then the system finds a solution to fix the new problem with minimal social and economic cost. Of course, after a while, the system will go strayed again. And I believe, it will find a solution and fix itself again.
Bought FNF
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 500 shares of FNF at $12.99 on January 28, 2009. Since I moved my account from Scottrade to Wellstrade, I get 100 commission free trades annually.
I had a little history with FNF. I first bought 400 shares at $15.85 on December 12, 2007. And I sold all my FNF at $18.32 on February 5, 2009. During the holding period, I received $420 dividend. I paid about $14 for the two transactions. All in all, that is 21.96% annual return in 2008. Not too shabby. At the time of selling, I wrote to myself:
"FNF is the largest title insurance company. It acquired the third largest player Land America, which landed in the bankruptcy court in the 2008 financial storm, on the cheap cementing its top spot in this industry. Its management focuses on returning value to shareholder. You can see this through its series buying and selling businesses. It pays a healthy dividend. It maintains the highest margin in the industry through tight cost control. It is a great bargain if I can buy it at a big discount of its book value (about $12.72 per share). It was sold at $18 per share at a reasonable gain."
Fast forward to Sep 2009, its book value grew to $14.09. The company has not reported its 4th quarter results yet. But I will not be surprised if their book value is around $15 at the 4th quarter 2009. I am buying at about 15% discount at its book value. To finance its purchase Land America, FNF sold shares at $19. So how much does FNF worth now? I believe its intrinsic value is somewhere higher than its book value, maybe around $19.
1. Why I created this blog?
2. How am I going to operate this blog?
I bought 500 shares of FNF at $12.99 on January 28, 2009. Since I moved my account from Scottrade to Wellstrade, I get 100 commission free trades annually.
I had a little history with FNF. I first bought 400 shares at $15.85 on December 12, 2007. And I sold all my FNF at $18.32 on February 5, 2009. During the holding period, I received $420 dividend. I paid about $14 for the two transactions. All in all, that is 21.96% annual return in 2008. Not too shabby. At the time of selling, I wrote to myself:
"FNF is the largest title insurance company. It acquired the third largest player Land America, which landed in the bankruptcy court in the 2008 financial storm, on the cheap cementing its top spot in this industry. Its management focuses on returning value to shareholder. You can see this through its series buying and selling businesses. It pays a healthy dividend. It maintains the highest margin in the industry through tight cost control. It is a great bargain if I can buy it at a big discount of its book value (about $12.72 per share). It was sold at $18 per share at a reasonable gain."
Fast forward to Sep 2009, its book value grew to $14.09. The company has not reported its 4th quarter results yet. But I will not be surprised if their book value is around $15 at the 4th quarter 2009. I am buying at about 15% discount at its book value. To finance its purchase Land America, FNF sold shares at $19. So how much does FNF worth now? I believe its intrinsic value is somewhere higher than its book value, maybe around $19.
Thursday, January 21, 2010
Sold KMX
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
On Friday, Dec 18, 2009, Carmax (KMX) reported a good quarter.
From its earning release, it states,
"Net sales and operating revenues increased 19% to $1.73 billion from $1.46 billion in the third quarter of last year. Comparable store used unit sales increased 8% for the quarter. Total used unit sales rose 9% in the third quarter. The company reported net income of $74.6 million, or $0.33 per diluted share, compared with a net loss of $21.9 million, or $0.10 per diluted share, in the third quarter of fiscal 2009."
It took the market by surprise. Its share shoot up 7% or $1.53 in one trading session. I sold all my shares at $23.22 and paid $7.24 for this transaction. I bought KMX first in December, 2007 and added in June 2008. In the two years holding period, I made about 39.48%, satisfactory but not extraordinary. KMX has a unique business model, a strong balance sheet and a great management. It stands to benefit from current environment grabbing more market shares from its competitors. Its margin expanded, its sales increased and its cost reduced. Moreover, I don't think its current valuation, at almost two years high, is too rich.
I am selling primarily for portfolio management purpose. I am raising cash at my taxable account for a bigger opportunity, a more undervalued opportunity and a more controllable one.
A friend has asked the merit of stop loss order. Here is what Seth Klarman said in his famous and expensive book -- "Margin of Safety".
"Although this strategy may seem an effective way to limit downside risk, it is, in fact, crazy. Instead of taking advantage of market dips to increase one's holdings, a user of this technique acts as if the market knows the merits of a particular investment better than he or she does."
1. Why I created this blog?
2. How am I going to operate this blog?
On Friday, Dec 18, 2009, Carmax (KMX) reported a good quarter.
From its earning release, it states,
"Net sales and operating revenues increased 19% to $1.73 billion from $1.46 billion in the third quarter of last year. Comparable store used unit sales increased 8% for the quarter. Total used unit sales rose 9% in the third quarter. The company reported net income of $74.6 million, or $0.33 per diluted share, compared with a net loss of $21.9 million, or $0.10 per diluted share, in the third quarter of fiscal 2009."
It took the market by surprise. Its share shoot up 7% or $1.53 in one trading session. I sold all my shares at $23.22 and paid $7.24 for this transaction. I bought KMX first in December, 2007 and added in June 2008. In the two years holding period, I made about 39.48%, satisfactory but not extraordinary. KMX has a unique business model, a strong balance sheet and a great management. It stands to benefit from current environment grabbing more market shares from its competitors. Its margin expanded, its sales increased and its cost reduced. Moreover, I don't think its current valuation, at almost two years high, is too rich.
I am selling primarily for portfolio management purpose. I am raising cash at my taxable account for a bigger opportunity, a more undervalued opportunity and a more controllable one.
A friend has asked the merit of stop loss order. Here is what Seth Klarman said in his famous and expensive book -- "Margin of Safety".
"Although this strategy may seem an effective way to limit downside risk, it is, in fact, crazy. Instead of taking advantage of market dips to increase one's holdings, a user of this technique acts as if the market knows the merits of a particular investment better than he or she does."
Thursday, October 15, 2009
Update: reduced index fund
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold 61.943 shares VIIIX at 100.1 on October 14, 2009, when Dow first settled above 10, 000 since October, 2008. I bought 481.028 shares DODIX at $12.89 using the proceeds. I paid no commissions or transaction fees for these transactions are in my 401K account. I generally don't like mutual fund. Please take a look at this post: Sell Your Mutual Fund! The following is my general view on index fund.
The case against index fund
After my speech on "Sell Your Mutual Fund", I was stopped by a fellow member asking my opinion on index funds. I didn't have time to contemplate and elaborate since I am usually very hungry after the toastmaster meeting. I am writing the following piece to give my viewpoints on index funds.
First of all, paying an index fund is against my moral principle. An index fund, by definition, is a fund holding all of the securities in the index, in the same proportions as the index regardless of market conditions. The manager of an index fund, therefore, spends no time or any other resources, adds no value but collects a fee. Since the manager has no overhead, puts in no efforts and adds no value, usually he or she collects less management fee percentage wise comparing to actively managed equity funds. Some argue lower fee is an advantage of index funds. However, to me, paying any fee at all for no effort, no value added is morally wrong.
Secondly, anyone in this room with enough money can easily outperform an index fund. Just buy everything in the index in the same proportion. Replace holdings whenever the index committee announces its decision. Since you don't need to pay yourself a management fee, over time you will do way better than any index fund you can find. Piece of cake. For those of us with limited resources wanting instant diversification, we are doomed to do way better. Just buy Berkshire Hathaway, or any other similarly managed conglomerate. We get solid business, strong balance sheet, skilled management and most importantly, the lowest paid CEO and Chairman in Fortune 500. Remember, you don't need to do all the profitable trades in the world to be rich.
Last but not least, an index fund gives you a false sense of security. An index fund is a basket of stocks. With so many stocks, it is unlikely you know any one of them very well. The big blackbox approach hides behind the diversification assumption most people accepts as gospel. People blindly settles for mediocre results. I don't know if any people needs 500 stocks to diversify. Furthermore, most index funds are cap weighted meaning they are more overvalued than general funds when index is at its highs.
In summary, I don't like index fund. I only buy an index fund when I don't have better options.
1. Why I created this blog?
2. How am I going to operate this blog?
I sold 61.943 shares VIIIX at 100.1 on October 14, 2009, when Dow first settled above 10, 000 since October, 2008. I bought 481.028 shares DODIX at $12.89 using the proceeds. I paid no commissions or transaction fees for these transactions are in my 401K account. I generally don't like mutual fund. Please take a look at this post: Sell Your Mutual Fund! The following is my general view on index fund.
The case against index fund
After my speech on "Sell Your Mutual Fund", I was stopped by a fellow member asking my opinion on index funds. I didn't have time to contemplate and elaborate since I am usually very hungry after the toastmaster meeting. I am writing the following piece to give my viewpoints on index funds.
First of all, paying an index fund is against my moral principle. An index fund, by definition, is a fund holding all of the securities in the index, in the same proportions as the index regardless of market conditions. The manager of an index fund, therefore, spends no time or any other resources, adds no value but collects a fee. Since the manager has no overhead, puts in no efforts and adds no value, usually he or she collects less management fee percentage wise comparing to actively managed equity funds. Some argue lower fee is an advantage of index funds. However, to me, paying any fee at all for no effort, no value added is morally wrong.
Secondly, anyone in this room with enough money can easily outperform an index fund. Just buy everything in the index in the same proportion. Replace holdings whenever the index committee announces its decision. Since you don't need to pay yourself a management fee, over time you will do way better than any index fund you can find. Piece of cake. For those of us with limited resources wanting instant diversification, we are doomed to do way better. Just buy Berkshire Hathaway, or any other similarly managed conglomerate. We get solid business, strong balance sheet, skilled management and most importantly, the lowest paid CEO and Chairman in Fortune 500. Remember, you don't need to do all the profitable trades in the world to be rich.
Last but not least, an index fund gives you a false sense of security. An index fund is a basket of stocks. With so many stocks, it is unlikely you know any one of them very well. The big blackbox approach hides behind the diversification assumption most people accepts as gospel. People blindly settles for mediocre results. I don't know if any people needs 500 stocks to diversify. Furthermore, most index funds are cap weighted meaning they are more overvalued than general funds when index is at its highs.
In summary, I don't like index fund. I only buy an index fund when I don't have better options.
Thursday, October 8, 2009
Stop raising taxes
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a piece I will talk at a local toastmaster club.
Thank you, Toastmaster! Fellow member and distinguished guests!
The current issue of Forbes carried a story on how taxes change human behavior! That got me thinking about the rising tax burden facing all of us!
Yes. We are all nice people. Who wouldn't want to provide high quality education for our kids, free healthcare for seniors living under poverty and fancy sport facilities for all Ohioans? All noble causes! And all these good deeds don't cost that much. The new Worthington school levy will only cost $530 more on top of the $4537 we are already paying a year. I mean, who doesn't have additional $500 flowing around in his house, or hers. The added city income tax will only cost $500 more a year. A little bit here, a little bit there. But if we add each and every tax up, the figure is staggering. Remember, every tax dollar collected by the government is one dollar you can't spend on your kid, your parents and yourself.
The ever increasing tax is supporting waste, duplication and other irresponsible fiscal behaviors in our government. It is impossible to list all the extravaganzas in 7 minutes. I will only list three examples. In Worthington school district, the enrollment is down and expected to continue, but the labor contract contains element guaranteeing an automatic 5% annual raise. Revenue is down, the need is down, but the cost is up. The trend is continue. How irresponsible! Another one, can anyone tell me why we have so many layers of government? We have state government, city government, county government and township government, school board, sport board and bill board! When a company gets bloated, it is wise to cut the middle layers to make the structure more flat, more effective. The same for Ohio government! Another one, trash removal. Aren't we going to save a buck if the city pay Waste Management to do it? If so, why not sell the equipment and personal to Waste Management? Cut the refuse division!
The ever increasing tax burden will also drive jobs out of Ohio! As communication technology advances, a lot jobs no longer require worker stay in a certain location. Working from home becomes more and more popular. Given a choice getting the same salary, performing the same function for the same boss from Florida where I pay no income tax or from Ohio where I pay 7%, I will choose working from Florida. Here is a more extreme scenario. I can stop working or work on less pay but more flexible jobs. My living standard will not go down. Actually, it will go up! Since I have more time, I can enjoy the sport facilities, public library and metro park more often. Those are funded by tax while I pay no tax or very little tax. Not a bad deal! Also, the state and local law subsidizing poor seniors regardless if they ever paid taxes before will only attract people around the globe to retire in Ohio, people who pay no Ohio tax or as a matter of fact, no US tax when they are working but enjoy the benefits funded by Ohio tax when they are not working.
In summary, raising tax will tempt both government and individual with unproductive behaviors. More importantly, we can't afford more taxes in Ohio!
1. Why I created this blog?
2. How am I going to operate this blog?
The following is a piece I will talk at a local toastmaster club.
Thank you, Toastmaster! Fellow member and distinguished guests!
The current issue of Forbes carried a story on how taxes change human behavior! That got me thinking about the rising tax burden facing all of us!
Yes. We are all nice people. Who wouldn't want to provide high quality education for our kids, free healthcare for seniors living under poverty and fancy sport facilities for all Ohioans? All noble causes! And all these good deeds don't cost that much. The new Worthington school levy will only cost $530 more on top of the $4537 we are already paying a year. I mean, who doesn't have additional $500 flowing around in his house, or hers. The added city income tax will only cost $500 more a year. A little bit here, a little bit there. But if we add each and every tax up, the figure is staggering. Remember, every tax dollar collected by the government is one dollar you can't spend on your kid, your parents and yourself.
The ever increasing tax is supporting waste, duplication and other irresponsible fiscal behaviors in our government. It is impossible to list all the extravaganzas in 7 minutes. I will only list three examples. In Worthington school district, the enrollment is down and expected to continue, but the labor contract contains element guaranteeing an automatic 5% annual raise. Revenue is down, the need is down, but the cost is up. The trend is continue. How irresponsible! Another one, can anyone tell me why we have so many layers of government? We have state government, city government, county government and township government, school board, sport board and bill board! When a company gets bloated, it is wise to cut the middle layers to make the structure more flat, more effective. The same for Ohio government! Another one, trash removal. Aren't we going to save a buck if the city pay Waste Management to do it? If so, why not sell the equipment and personal to Waste Management? Cut the refuse division!
The ever increasing tax burden will also drive jobs out of Ohio! As communication technology advances, a lot jobs no longer require worker stay in a certain location. Working from home becomes more and more popular. Given a choice getting the same salary, performing the same function for the same boss from Florida where I pay no income tax or from Ohio where I pay 7%, I will choose working from Florida. Here is a more extreme scenario. I can stop working or work on less pay but more flexible jobs. My living standard will not go down. Actually, it will go up! Since I have more time, I can enjoy the sport facilities, public library and metro park more often. Those are funded by tax while I pay no tax or very little tax. Not a bad deal! Also, the state and local law subsidizing poor seniors regardless if they ever paid taxes before will only attract people around the globe to retire in Ohio, people who pay no Ohio tax or as a matter of fact, no US tax when they are working but enjoy the benefits funded by Ohio tax when they are not working.
In summary, raising tax will tempt both government and individual with unproductive behaviors. More importantly, we can't afford more taxes in Ohio!
Tuesday, October 6, 2009
How to get seed money?
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I would like to tell my own story first. When I first landed on the most fortunate land on the world, I had $1, 000 borrowed money in my pocket. I was guaranteed about $1, 000 a month through a research assistantship. For the first two years, wealth building is simply not on my agenda. I improved my oral English, learned the culture and custom of the new land and saved. Saving money is part of my childhood training since there was never enough money flowing around in my family.
I began to realize I need to build wealth when I had a car accident five months after I landed my first job. I got a new car to transport me to work every day. My networth became negative between a car loan and a couple thousand dollars in my checking account. According to an old Chinese saying, troubles always follow one another while delight never comes in pairs. About four months later, my then employer lost a contract from a State government, rumors of layoffs flied around the workplace. I soon changed jobs.
The sense of insecurity and instability grabbed me. I lost several nights' sleep. I decided to establish my financial freedom. I saved more diligently and control my spending more rigorously. I had about $50K in 2003, five years after I came to the States. One year later, I have about $100K in saving and I began to buy stocks. By 2005, I had about $170K. Before the severe recession, I had about $400K in October, 2007. On the date of my writing this blog, I still had about $400K. Of course, I expect much more once the recession ends. Excluding taxes, I spend about $17K per year. You can see I no longer worry about layoffs since I can live on my savings until social security and medicare kick in.
As you can see, I got my seed money by saving. Saving is the most reliable source but may not be the quickest one. Now looking through the rare view mirror, I always wondered what if I used a little more leverage, LEAPs for example. I may have come to my current status quicker. But most people are risk averse when offered the opportunity to double his money or lose all of it. After two incidents I may lose my salary income (I had an experience I nearly lost my assistantship in the graduate school besides the layoff rumor), I became more risk averse. If I had known I would keep my jobs this long, I probably should have risked more money since my then salary should cover the potential loss easily.
For you, readers of my blog, how to get your seed money? I expect most of you should get through rigorously budgeting and saving. A small percentage of you may get it through gifts or inheritance. I expect extremely small percentage of you will get it through adding leverage in your portfolio.
1. Why I created this blog?
2. How am I going to operate this blog?
I would like to tell my own story first. When I first landed on the most fortunate land on the world, I had $1, 000 borrowed money in my pocket. I was guaranteed about $1, 000 a month through a research assistantship. For the first two years, wealth building is simply not on my agenda. I improved my oral English, learned the culture and custom of the new land and saved. Saving money is part of my childhood training since there was never enough money flowing around in my family.
I began to realize I need to build wealth when I had a car accident five months after I landed my first job. I got a new car to transport me to work every day. My networth became negative between a car loan and a couple thousand dollars in my checking account. According to an old Chinese saying, troubles always follow one another while delight never comes in pairs. About four months later, my then employer lost a contract from a State government, rumors of layoffs flied around the workplace. I soon changed jobs.
The sense of insecurity and instability grabbed me. I lost several nights' sleep. I decided to establish my financial freedom. I saved more diligently and control my spending more rigorously. I had about $50K in 2003, five years after I came to the States. One year later, I have about $100K in saving and I began to buy stocks. By 2005, I had about $170K. Before the severe recession, I had about $400K in October, 2007. On the date of my writing this blog, I still had about $400K. Of course, I expect much more once the recession ends. Excluding taxes, I spend about $17K per year. You can see I no longer worry about layoffs since I can live on my savings until social security and medicare kick in.
As you can see, I got my seed money by saving. Saving is the most reliable source but may not be the quickest one. Now looking through the rare view mirror, I always wondered what if I used a little more leverage, LEAPs for example. I may have come to my current status quicker. But most people are risk averse when offered the opportunity to double his money or lose all of it. After two incidents I may lose my salary income (I had an experience I nearly lost my assistantship in the graduate school besides the layoff rumor), I became more risk averse. If I had known I would keep my jobs this long, I probably should have risked more money since my then salary should cover the potential loss easily.
For you, readers of my blog, how to get your seed money? I expect most of you should get through rigorously budgeting and saving. A small percentage of you may get it through gifts or inheritance. I expect extremely small percentage of you will get it through adding leverage in your portfolio.
Monday, September 28, 2009
Last Investment Thought of September, 2009
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
This is a fruitful weekend. I watched Ken Burns' new spectacular – “The National Parks”. You have to admire the wisdom of the Americans designing such a wonderful system contrasting to the park system elsewhere. A friend just back from China told me the abusive fees charged by the Chinese parks. I also visited the Polaris Mall Sunday afternoon. I was pleasantly surprised by the traffic. I saw no signs of recession at the mall. Although the recession certainly was not over as I continued to see little traffic in the local casual dining restaurants, my spirit got lifted.
Will the rally continue? Should I buy now or should I wait for a dip? Those questions always get asked. For the first one, even the prominent investors I always admire don't have consensus. Last week, James Grant of "The Interest Observer" penned a piece on Wall Street Journal arguing that the harder the market falls, the higher the rebound jumps. Therefore, the loss of 2008 is so horrendous that it enable the bouncing of 2009 to keep propelling. John Hussman, among others, continue to hold that the current market is overvalued on his weekly comments. And Warren Buffet contends that while the businesses stopped getting worse, he doesn't see a quick recovery.
For the second question, it is a more practical one. As Buffet insists on no recovery, he is buying stocks on the same day. He buys regardless of the interest rate outlook, general economic condition or the likelihood of dips. As long as he feels he is financially flexible and he can find something cheaper than its intrinsic value, he buys. We should do the same.
Humans are always tempted by the unpredictable and the uncontrollable. Some want to find the most complex schemes to hedge. They believe US dollar will continue to devalue against Chinese Yuan. But if you earn US dollar and spend US dollar, why introduce currency risk? Even if you are right, how do you know the devaluation of US dollar against Chinese Yuan will be disruptive enough for you to earn satisfactory return? Are you going to use leverage to add more layers of risk? Some use the stop loss order at, for the sake of argument, let's say at 8%. I always wonder how we know if a stock drops exactly 8%, the next move it makes must be downward.
For me, as long as I have enough cash at hand, by "enough", I mean if I have 5 years' spending cash, and I can find attractive opportunities, I will keep buying.
1. Why I created this blog?
2. How am I going to operate this blog?
This is a fruitful weekend. I watched Ken Burns' new spectacular – “The National Parks”. You have to admire the wisdom of the Americans designing such a wonderful system contrasting to the park system elsewhere. A friend just back from China told me the abusive fees charged by the Chinese parks. I also visited the Polaris Mall Sunday afternoon. I was pleasantly surprised by the traffic. I saw no signs of recession at the mall. Although the recession certainly was not over as I continued to see little traffic in the local casual dining restaurants, my spirit got lifted.
Will the rally continue? Should I buy now or should I wait for a dip? Those questions always get asked. For the first one, even the prominent investors I always admire don't have consensus. Last week, James Grant of "The Interest Observer" penned a piece on Wall Street Journal arguing that the harder the market falls, the higher the rebound jumps. Therefore, the loss of 2008 is so horrendous that it enable the bouncing of 2009 to keep propelling. John Hussman, among others, continue to hold that the current market is overvalued on his weekly comments. And Warren Buffet contends that while the businesses stopped getting worse, he doesn't see a quick recovery.
For the second question, it is a more practical one. As Buffet insists on no recovery, he is buying stocks on the same day. He buys regardless of the interest rate outlook, general economic condition or the likelihood of dips. As long as he feels he is financially flexible and he can find something cheaper than its intrinsic value, he buys. We should do the same.
Humans are always tempted by the unpredictable and the uncontrollable. Some want to find the most complex schemes to hedge. They believe US dollar will continue to devalue against Chinese Yuan. But if you earn US dollar and spend US dollar, why introduce currency risk? Even if you are right, how do you know the devaluation of US dollar against Chinese Yuan will be disruptive enough for you to earn satisfactory return? Are you going to use leverage to add more layers of risk? Some use the stop loss order at, for the sake of argument, let's say at 8%. I always wonder how we know if a stock drops exactly 8%, the next move it makes must be downward.
For me, as long as I have enough cash at hand, by "enough", I mean if I have 5 years' spending cash, and I can find attractive opportunities, I will keep buying.
Saturday, September 26, 2009
How to generate new ideas?
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I always have more ideas than cash. It is my desire to turn this situation around. I believe once I have more cash than ideas, my struggle against poverty is near its end. But some of my friends rely on BBS stock board for ideas. It is an awful choice. BBS stock board is full of rumormongers, penny stock promoters and day traders. The stock tips on BBS stock board offer no concrete analysis but some conglomerates of fear, greed, anxiety and boast. If you are looking for ideas for your money, here are some places you can start your search.
1.Steal from prominent investors
Some prominent investors disclose their investments every quarter. Here is one area I like about US security law. Some of those investors are so convinced on their ideas that they take huge positions. Usually, it takes more than a quarter before the idea produces extraordinary returns. Let's say Warren Buffet takes on a big position at $X. Three months later I have an opportunity to buy the same security only 25% cheaper than Warren has paid. I usually will jump on the wagon for a ride. Some my friends are logical thinkers. The only fact that Warren takes a big position is not logical enough for them. The bad news is that Warren rarely comments on the securities he is buying or selling. But some other prominent investors do highlight some of their best ideas in their shareholder letters, sometimes in great details. I don't know why they are doing that. But I don't care. As long as the case is convincing and I have ample fire powder at hand, I will fire. However, be sure you are following the right one. I don't think a certain celebrity throwing chair on TV is a prominent investor. And some my friends are certainly going to disagree. Here are two of the website I visit periodically for ideas.
1. Baron's funds
1. Ariel funds
2.Read some good magazines
I go to local library every weekend. I can almost guarantee you that you can find Barron's, Fortune and Forbes in any US library you visit. This is another area I love US. You can easily find a library and the library is usually well equipped. For an article to show up in those high quality magazine, a lot of fact checks happen behind the scene. I am not saying that all the facts are 100% accurate. But I think the situation are way better than the anonymous world wide web. This is for some detailed account for current events. You can find enormous information on some spin offs and merger and acquisition activities. The most recent stories I read including: the failed attempt for EXC to buy NRG and CAH's spin off of CFN. I didn't act on either case but perhaps I should.
3.Read Joel Greenblatt's book
"You can be a stock market genius" listed more places you can look for ideas. But some of those are not free. I am a cheapskate with the belief “Free is the Best”. I only list free and simple things. Remember, you don't need all the profitable ideas to build wealth. If you have 20 good ideas and you act on them in your lifetime, you are going to have a very successful investing career. By the way, continue to read my blog may be another way to generate good ideas.
PS
It is close to the end of September, the only activity for the month is buying LUK.
1. Why I created this blog?
2. How am I going to operate this blog?
I always have more ideas than cash. It is my desire to turn this situation around. I believe once I have more cash than ideas, my struggle against poverty is near its end. But some of my friends rely on BBS stock board for ideas. It is an awful choice. BBS stock board is full of rumormongers, penny stock promoters and day traders. The stock tips on BBS stock board offer no concrete analysis but some conglomerates of fear, greed, anxiety and boast. If you are looking for ideas for your money, here are some places you can start your search.
1.Steal from prominent investors
Some prominent investors disclose their investments every quarter. Here is one area I like about US security law. Some of those investors are so convinced on their ideas that they take huge positions. Usually, it takes more than a quarter before the idea produces extraordinary returns. Let's say Warren Buffet takes on a big position at $X. Three months later I have an opportunity to buy the same security only 25% cheaper than Warren has paid. I usually will jump on the wagon for a ride. Some my friends are logical thinkers. The only fact that Warren takes a big position is not logical enough for them. The bad news is that Warren rarely comments on the securities he is buying or selling. But some other prominent investors do highlight some of their best ideas in their shareholder letters, sometimes in great details. I don't know why they are doing that. But I don't care. As long as the case is convincing and I have ample fire powder at hand, I will fire. However, be sure you are following the right one. I don't think a certain celebrity throwing chair on TV is a prominent investor. And some my friends are certainly going to disagree. Here are two of the website I visit periodically for ideas.
1. Baron's funds
1. Ariel funds
2.Read some good magazines
I go to local library every weekend. I can almost guarantee you that you can find Barron's, Fortune and Forbes in any US library you visit. This is another area I love US. You can easily find a library and the library is usually well equipped. For an article to show up in those high quality magazine, a lot of fact checks happen behind the scene. I am not saying that all the facts are 100% accurate. But I think the situation are way better than the anonymous world wide web. This is for some detailed account for current events. You can find enormous information on some spin offs and merger and acquisition activities. The most recent stories I read including: the failed attempt for EXC to buy NRG and CAH's spin off of CFN. I didn't act on either case but perhaps I should.
3.Read Joel Greenblatt's book
"You can be a stock market genius" listed more places you can look for ideas. But some of those are not free. I am a cheapskate with the belief “Free is the Best”. I only list free and simple things. Remember, you don't need all the profitable ideas to build wealth. If you have 20 good ideas and you act on them in your lifetime, you are going to have a very successful investing career. By the way, continue to read my blog may be another way to generate good ideas.
PS
It is close to the end of September, the only activity for the month is buying LUK.
Operating principles
If you are a first timer, please read the following pieces first. It will provide you with important background information.
1. Why I created this blog?
2. How am I going to operate this blog?
I have been contemplating on real estate investments for some time. I am not handy. If I want to do real estate without being ripped off by a contractor, I have to found some partners who are handy. It is really hard to find the right partner. The following is the operating principles I wrote for some potential partners. If you know a lot about how to fix houses and agree with my principles, email me and we may be partners.
1. Cost Control
Operating a business is simple but not easy. We want to increase revenue while lowering cost. However, growing revenue is a trial and error process. We are going to try many things but not knowing which one will produce the results we have wished. Cost control is usually more predicable. If we can reduce labor and use a less expensive brand of tools, we know what the saving will be. Buying, fixing and renting houses is a simple business. We will compete with numerous experienced veterans and a lot of would be investors. Being the lowest cost producer will give us competitive advantage helping us grow our business. Our goal should be to use the most durable, easy to install, simple material and process to fix houses.
2. Leverage
Leverage is risky. It runs two risks: default risk and interest risk. But in real estate, we have to use leverage to produce acceptable returns due to its inherent nature: heavy initial investment and low yield. We should use non-recourse and fixed rate financing whenever possible. We will use government subsidized financing whenever possible. And we don't overgrow ourselves. If we are wrong, we only lose what we can afford to lose. For example, if we have $1m funding (our equity and borrowings), we should not do over 4 projects at the same time (if each projects costs $150K).
3. Commitment
Building a business needs commitment. No matter what kind of equity we put in, sweat or monetary capital, it takes time before the investments yield satisfactory returns. We also need to prepare for drawbacks due to happen and build enough reserves to seize opportunities when they present themselves. Before we can enjoy the fruit of our investments, we must retain our earning for the minimum of three years. There are going to be clauses in our bylaws to ensure the commitment to the business, the company and our partners.
4. Cash flow
We are going to focus on cash flow. We are a small operation with limited resources. To ensure the viability of the business, we must only do deals with safe positive cash flow from the very beginning. Bigger companies sometimes do long term project without positive cash flow for the first several years and reap the handsome return later. We don't have that luxury. Some smart firms have one subsidiary produce positive cash flow to support long term strategic investments in another subsidiary. When we become bigger, we may do something like that. But for now, we must focus on the projects which can produce positive cash flow in the first 6 months.
1. Why I created this blog?
2. How am I going to operate this blog?
I have been contemplating on real estate investments for some time. I am not handy. If I want to do real estate without being ripped off by a contractor, I have to found some partners who are handy. It is really hard to find the right partner. The following is the operating principles I wrote for some potential partners. If you know a lot about how to fix houses and agree with my principles, email me and we may be partners.
1. Cost Control
Operating a business is simple but not easy. We want to increase revenue while lowering cost. However, growing revenue is a trial and error process. We are going to try many things but not knowing which one will produce the results we have wished. Cost control is usually more predicable. If we can reduce labor and use a less expensive brand of tools, we know what the saving will be. Buying, fixing and renting houses is a simple business. We will compete with numerous experienced veterans and a lot of would be investors. Being the lowest cost producer will give us competitive advantage helping us grow our business. Our goal should be to use the most durable, easy to install, simple material and process to fix houses.
2. Leverage
Leverage is risky. It runs two risks: default risk and interest risk. But in real estate, we have to use leverage to produce acceptable returns due to its inherent nature: heavy initial investment and low yield. We should use non-recourse and fixed rate financing whenever possible. We will use government subsidized financing whenever possible. And we don't overgrow ourselves. If we are wrong, we only lose what we can afford to lose. For example, if we have $1m funding (our equity and borrowings), we should not do over 4 projects at the same time (if each projects costs $150K).
3. Commitment
Building a business needs commitment. No matter what kind of equity we put in, sweat or monetary capital, it takes time before the investments yield satisfactory returns. We also need to prepare for drawbacks due to happen and build enough reserves to seize opportunities when they present themselves. Before we can enjoy the fruit of our investments, we must retain our earning for the minimum of three years. There are going to be clauses in our bylaws to ensure the commitment to the business, the company and our partners.
4. Cash flow
We are going to focus on cash flow. We are a small operation with limited resources. To ensure the viability of the business, we must only do deals with safe positive cash flow from the very beginning. Bigger companies sometimes do long term project without positive cash flow for the first several years and reap the handsome return later. We don't have that luxury. Some smart firms have one subsidiary produce positive cash flow to support long term strategic investments in another subsidiary. When we become bigger, we may do something like that. But for now, we must focus on the projects which can produce positive cash flow in the first 6 months.
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