LKI was a cigar butt all the way - a profitable net-net with a lot of diamonds in inventory. I took my puff and am probably selling it late as it hasn't moved in about two months. I have a limit order set to sell at $9.5 per share, which will net me a 21% gain in just under a year.
Potential IRA to be Opened
I have about $2,000 sitting in my checking account - even after buying Christmas presents - waiting to be used or invested . I'm thinking of putting $1000-1500 of that into a Roth where I would limit myself to one buy per year, and not allow myself to sell within three years of any investment. I believe these rules would improve my returns and force me to only swing at the fattest pitches.
Books
The Blind Side: Evolution of a Game
- Michael Lewis's newest bestseller has nothing to do with investing. The book is about the evolution of blind side pass rushers – in the NFL -, starting with LT (Lawrence Thomas), and the Left Guards who block them. It also tells the story of a black offensive lineman who was adopted into a white family in Memphis and is destined to make millions one day. I give it 4 out of 5 stars and recommend it to any football fan.Ugly Americans
- Ben Mezrich is currently my favorite author, and I read this thriller in 2 days during Thanksgiving vacation. Though it can be graphic at times, it is a great look into the world of Japanese Hedge Funds and Americans who make millions by trading indices, or lose millions by investing in Yakuza infested buildings. I give it 3.75 out of 5 stars and encourage any fan of thrillers to read it.The Goal
- My dad recommended this book to me and I was fascinated by it. The book is about how an Israeli Physics Professor helps one of his old students turn around a struggling plant. I don't know how many people are fascinated by business stories but anyone who is should be required to read this book. 3 out of 5 stars.Net-Net
While looking through the GrahamInvestor Screens I found a potential Cigar Butt to add to my portfolio.
Boss Holdings (BSHI.OB) trades below its Net Net Current Assets. After seeing this and the fact that it was a profitable non-financial I decided to take a look.
Boss makes gloves, Pet supplies, balloons and head lights (on hats not cars). The company’s main business is importing and distributing the gloves, the balloon and head light businesses were acquired within the last three years. The barriers to entry in these businesses are small and the company must compete to import the products at advantageous prices. It also must predict well ahead of time how much to buy.
It made just $690 thousand on $55 million dollars of revenue last year for a profit margin of just over 1%, Return on Equity is not much better at 2.6%. The business model is already bad and the numbers prove it.
Current Assets are $27,122,000 (17,000,000 of it inventory and none of it cash) and total liabilities are $9,763,000, thus net net working capital is $17,359,000. Currently the market cap is $12,730,000. So it’s trading at 73% of net net working capital.
One of the things I have learned in the past few months to do different is to try to poke holes in an investment story, instead of building it up. I could probably spend a few pages poking holes in this company and more in management’s lack of corporate governance materials on the web site and then more on the lack of quality in the working capital – no cash almost all inventory. Suffice it to say I see no catalyst and believe Boss is a value trap, it will not see my portfolio anytime soon.
Options
I sent my options application to Scottrade today and expect to be able to use options next year. For a review of options strategy I intend to use review these two posts.
Yet another mistake
A while ago I felt antsy to buy a special situation so I bought shares of the first GPT I could find with a worthy potential return. The stock was HYPR, which I purchased 562 shares for $.80 per share. Subsequently the company filed for bankruptcy and now I own 562 shares at $.025 per share, less then three cents per share and I am down 97%. Right when my portfolio was starting to click and I was closing in on up for the year I lost $450 in a matter of days and am down almost 17% on the year.
I want to ask when the learning will stop and the money making will begin, but I know this will happen when I focus on research and not the buy price. I am in the process of building a going private transaction spreadsheet that situations must pass for me to buy them, I will post this with the next transaction I research.
Watch-List
I may not have time to research all of these but if I intent to buy one of them I will post my research:
Home Depot - Lampert rumors got me interested, read Kevin’s write-up.
Louisiana-Pacific - Down on housing fall, still a good company.
Nike - Read a lot of good stuff, but am not sure about owning two shoe companies in my concentrated portfolio.
Sears Holding - I recently bought a subscription to Half-Price Stocks (which I highly recommend, but am not an affiliate of) and read their brilliant write-up of Eddie Lampert and the reasoning behind his Sears and K-Mart buys. I am convinced of Lampert’s investing brilliance and want to research his business management skills as well.
