In my last portfolio update I talked about three special situations I held, I had to sell one of those today.
Steve Madden had a tender offer where I could have tendered my shares for $20 per shares, I purchased my shares at $17.23 so this could have been a 17% return in just a few weeks.
Unfortunately, I have a custodial account so when I called in to tender the shares, I was told the custodian of the account would have to call. By the time I could have reached him and had him call the deal had expired and I just recently sold my shares, fortunately I sold the shares for about $17.80 this morning so I did not have a loss on them.
Currently. I have 4% in cash and 13% in special situations, which includes the 5% in Penn National. For now I will just let that cash sit and wait to see if I find more special situations, or if I decide to average down on K-Swiss.
This next part has nothing to do with investing, is completely about a government control issue, and may be considered political.
A Quick Rant
My real goal in this post is actually less on the portfolio changes, but to argue against another form of government control.
I'm not completely sure if this was just a Scottrade rule, of if it is government mandated regardless I'm pretty sure the government mandates that minors must have a custodial account.
Sorry, if I'm missing something, but in which way does this make any sense?
How does the fact that my age (17, currently) is less than a social norm (18) give the government right to say, "We know what's best for you - you don't and can't manage your money completely."
Wasn't the US government created to, "derive its rights from the people," not to decide that a minor (even one with almost five years of experience) shouldn't be able to call up his broker and ask that stock in a company he owns, with his money rightfully earned, be tendered, or for that mattered should he not be able to use options?
I had this discussion with my dad so I think I understand the sentiment of people. A minor is young and immature and couldn't possibly make a wise investment choice.
Using this to prohibit a minor from making his own choices in regards to money is wrong on so many levels it's maddening.
Regardless of this sentiment why would the government have the power to regulate what minors can and can't do with their money (purely from an investing standpoint, nothing with drugs, alcohol, etc.)? Part of my money is withheld from my paycheck to go to social security and medicare, money I'll likely never see and is squandered by congress on issues where I don't even have the right to vote to somehow try to have a say on where my money ends up.
And even if the government had the power to tell people how to use their money (regardless of age that's what it is doing) - which by the way I think is a partial definition of socialism - isn't beneficial to minors to fail when they are young and learn the lesson instead of making the mistake right after they turn 18 when they may need the money for college. If the minor is able to invest wisely and use options, or whatever else he decides to use, shouldn't he be given as much time to compound as possible, so he could possibly invest the proceeds into ventures in the future that could possibly vastly improve the economy.
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Monday, March 31, 2008
Saturday, March 29, 2008
Overstock's Moat
You'd think I was setting this up. George saw my Overstock post and commented his opinion that Overstock does not posses a moat, so like Netflix, I'll post my thoughts on Overstock's moat.
Shoppers
Overstock is a more shopper friendly site than most. At Amazon you know what you want and go search for it then buy it.
Overstock's site is geared more towards the shopping experience, of looking through all the deals for the day and things on big sales.
It has a more random selection of items then Amazon, because it's all overstocked stuff. It would be like going to a thrift store (in Utah it would be like going to DI, I guess in other parts of the country it's like Tuesday Morning or Big Lots) where a lot of the fun is in just shopping and looking around for good deals.
This is the main reason my Mom and Grandma like looking through it. About a year ago they were looking for a rug for a house in Chicago where my Grandma lives, they could never find one that they liked in combination with the best price, but when my mom looked on Overstock she found a good rug they both liked for a fraction of the price and low shipping costs. They were afraid it would take weeks to get to the house, but it was there inside one.
There are tons of stories like this, it is the reason women love the site, and probably the reason Wall St. doesn't understand it. Hoping she won't read this I'll add that I think my mom may be addicted to Overstock. We get 3-4 packages a week, but we actually save money because the stuff that is purchased is at a huge discount, and shipping is low.
Customer Service
This used to be a huge vice for Overstock. Because, they sell the overstocked inventory there can be a lot of stuff wrong with it. In the past their customer service was not friendly and generally pissed people off.
But, Byrne re-vamped the whole thing and they have been in the top five of the American Express customer service survey each of the past two years.
This great customer service allows them to take an angry customer, make her happy, then make her want to come back to the site and buy more.
The Ultimate Question: Driving Good Profits and True Growth
I'm not sure when exactly Byrne read this book, but for the past year or two he's been updating Overstock's progress on it in the conference calls.
I won't go deeply into the mechanics of the book - that would take a whole post on its own - the gist of it is:
A company can never be successful if it does not make customers happy. When customers are happy they become promoters of the store and tell all their friends to go there.
The book is about the Net Promoter Score, the author found that companies with high Net Promoter Scores, like Harley Davidson, eBay, or Costco, can use their customers to fuel growth, as opposed to banks or brokerages who get bad profits, like hidden charges, that undermine growth.
Byrne has been changing Overstock to become a Net Promoter and has been tracking its progress on the conference calls, it is currently not as high as the great companies like HOG, but is doing better than the majority of US companies.
A Different Brand
Overstock does not have as valuable a brand as Amazon, but it does have a valuable brand. Overstock has spent a lot of money since it was started (ironically it spent a lot less than Amazon did to get to a similar revenue level) to develop its brand through marketing and technology expenses.
As before stated Overstock is where you go to shop and find random under priced stuff.
Better than eBay for Stores
Overstock doesn't really compete with eBay (though it does have an auction site that isn't nearly as big as eBay so we'll ignore that here), because it isn't logical for companies to sell their inventory on eBay.
If it sells it on Overstock, Overstock collects the money and takes the risks.
On eBay it would have to use Paypal and deal with every customer individually.
Lets say Nike has a bunch of shoes it can't sell, if it goes to sell them on eBay it will have to make its own page for them - and one new page for each separate item it wants to sell. Then hope enough people search eBay for Nike shoes to buy all of them. Most people on eBay think they are buying something from someone like them self so they will want a low price and will bid for a low price. The when someone buys the item Nike will have to deal with that person's paypal address (usually) collect the money from them and then send the shoes. Basically, they do all the work then eBay takes a commission. If the person doesn't like the shoes they call Nike directly and Nike has to pay more people for customer service, then Nike has to refund the person separately through the Paypal account, then get the shoes back from the customer, who may not buy Nike shoes again because the customer service might be bad since Nike just had to start this new division.
If Nike used Overstock it would call them up say hey we've got a bunch of shoes we need to sell, Overstock says ok send me a pic. Then Overstock puts the item up on their website, and promotes it in the deal of the day, because of this a lot of customers see this and buy it. Overstock takes the money from the customer and deals with all the processing etc. (with eBay they have to pay a commission to eBay and to Paypal). The Overstock tells Nike where to send the shoes, covering the cost of the shipping and Nike does. Overstock then sends the money to Nike, in this case Overstock did the work and then took a commission. If the customer doesn't like the shoes they call up Overstock who has award winning customer service and Overstock gives them their money back.
First mover
Overstock is the first mover and by far the top-dog in the online liquidation business. They have spent billions developing their brand and relationships with suppliers over the past nine years to set themselves up as a player in online shopping.
Because of Overstocks culture of cutting costs a potential competitor would have probably have to pay more than they did to set-up a comparable site, get relationships with suppliers, and turn their customers into promoters.
Because, they company would likely lose a lot of money in the first bunch of years Overstock would have the high ground in defending their castle.
In other news
I set-up an Amazon.com a-store where I will be putting all the books I read and recommend.
It's currently a work in progress, but already has a lot of gems.
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
Shoppers
Overstock is a more shopper friendly site than most. At Amazon you know what you want and go search for it then buy it.
Overstock's site is geared more towards the shopping experience, of looking through all the deals for the day and things on big sales.
It has a more random selection of items then Amazon, because it's all overstocked stuff. It would be like going to a thrift store (in Utah it would be like going to DI, I guess in other parts of the country it's like Tuesday Morning or Big Lots) where a lot of the fun is in just shopping and looking around for good deals.
This is the main reason my Mom and Grandma like looking through it. About a year ago they were looking for a rug for a house in Chicago where my Grandma lives, they could never find one that they liked in combination with the best price, but when my mom looked on Overstock she found a good rug they both liked for a fraction of the price and low shipping costs. They were afraid it would take weeks to get to the house, but it was there inside one.
There are tons of stories like this, it is the reason women love the site, and probably the reason Wall St. doesn't understand it. Hoping she won't read this I'll add that I think my mom may be addicted to Overstock. We get 3-4 packages a week, but we actually save money because the stuff that is purchased is at a huge discount, and shipping is low.
Customer Service
This used to be a huge vice for Overstock. Because, they sell the overstocked inventory there can be a lot of stuff wrong with it. In the past their customer service was not friendly and generally pissed people off.
But, Byrne re-vamped the whole thing and they have been in the top five of the American Express customer service survey each of the past two years.
This great customer service allows them to take an angry customer, make her happy, then make her want to come back to the site and buy more.
The Ultimate Question: Driving Good Profits and True Growth
I'm not sure when exactly Byrne read this book, but for the past year or two he's been updating Overstock's progress on it in the conference calls.
I won't go deeply into the mechanics of the book - that would take a whole post on its own - the gist of it is:
A company can never be successful if it does not make customers happy. When customers are happy they become promoters of the store and tell all their friends to go there.
The book is about the Net Promoter Score, the author found that companies with high Net Promoter Scores, like Harley Davidson, eBay, or Costco, can use their customers to fuel growth, as opposed to banks or brokerages who get bad profits, like hidden charges, that undermine growth.
Byrne has been changing Overstock to become a Net Promoter and has been tracking its progress on the conference calls, it is currently not as high as the great companies like HOG, but is doing better than the majority of US companies.
A Different Brand
Overstock does not have as valuable a brand as Amazon, but it does have a valuable brand. Overstock has spent a lot of money since it was started (ironically it spent a lot less than Amazon did to get to a similar revenue level) to develop its brand through marketing and technology expenses.
As before stated Overstock is where you go to shop and find random under priced stuff.
Better than eBay for Stores
Overstock doesn't really compete with eBay (though it does have an auction site that isn't nearly as big as eBay so we'll ignore that here), because it isn't logical for companies to sell their inventory on eBay.
If it sells it on Overstock, Overstock collects the money and takes the risks.
On eBay it would have to use Paypal and deal with every customer individually.
Lets say Nike has a bunch of shoes it can't sell, if it goes to sell them on eBay it will have to make its own page for them - and one new page for each separate item it wants to sell. Then hope enough people search eBay for Nike shoes to buy all of them. Most people on eBay think they are buying something from someone like them self so they will want a low price and will bid for a low price. The when someone buys the item Nike will have to deal with that person's paypal address (usually) collect the money from them and then send the shoes. Basically, they do all the work then eBay takes a commission. If the person doesn't like the shoes they call Nike directly and Nike has to pay more people for customer service, then Nike has to refund the person separately through the Paypal account, then get the shoes back from the customer, who may not buy Nike shoes again because the customer service might be bad since Nike just had to start this new division.
If Nike used Overstock it would call them up say hey we've got a bunch of shoes we need to sell, Overstock says ok send me a pic. Then Overstock puts the item up on their website, and promotes it in the deal of the day, because of this a lot of customers see this and buy it. Overstock takes the money from the customer and deals with all the processing etc. (with eBay they have to pay a commission to eBay and to Paypal). The Overstock tells Nike where to send the shoes, covering the cost of the shipping and Nike does. Overstock then sends the money to Nike, in this case Overstock did the work and then took a commission. If the customer doesn't like the shoes they call up Overstock who has award winning customer service and Overstock gives them their money back.
First mover
Overstock is the first mover and by far the top-dog in the online liquidation business. They have spent billions developing their brand and relationships with suppliers over the past nine years to set themselves up as a player in online shopping.
Because of Overstocks culture of cutting costs a potential competitor would have probably have to pay more than they did to set-up a comparable site, get relationships with suppliers, and turn their customers into promoters.
Because, they company would likely lose a lot of money in the first bunch of years Overstock would have the high ground in defending their castle.
In other news
I set-up an Amazon.com a-store where I will be putting all the books I read and recommend.
It's currently a work in progress, but already has a lot of gems.
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
Thursday, March 27, 2008
Overstock's Turn
In keeping with this trend of using the Warren Buffett Way to evaluate all my investments, in this post I'll look at Overstock.
Business
Simple and Understandable
Overstock sells the overstocked goods from other companies on its website. Part of its revenue comes from inventory Overstock buys from companies, the rest comes from 'partner' revenue where companies sell their inventory on Overstock's site and Overstock gets a commission.
Consistent History
Not even close. After Overstock started it had extreme revenue growth for a few years, then Byrne got distracted and the company went to hell with negative revenue growth, currently it has come to kind of a stand still while the company attempts to turn-around.
I believe that when Overstock become profitable earnings growth will be huge for a few years then it will grow consistently over time.
Long-Term Prospects
There is a lot of uncertainty here which is a big part of why the stock price is so depressed.
I believe the company has good prospects and has already started a great turn-around. Profitability will serve as a catalyst for Overstock's business and share price in the future.
Revenue growth looks like it has dimmed over the past few years, but as the company fazes out the direct portion the total growth will fall to pave the way for the much higher returning partner revenue, which has grown 20% in the last two years - most of that coming over the last year when Byrne really got his head back in the game.
Management
Rational
This one could be looked at as so-so.
Byrne has a lot of expectations and a lot of lofty goals in turning-around the company, but so far I believe he has done well meeting his expectations and communicating the progress to shareholders.
Candid
Byrne could be called the best CEO for a shareholder because of his fight, against hedge funds that drove down the stock price, but I believe the best CEO is the one who runs a very profitable business and returns the cash to shareholders.
Since, Overstock has yet to be GAAP profitable he hasn't been able to do this, but I do believe he is extremely candid detailing his turn-around plans to shareholders and teaching how his metrics for evaluating the company should be used.
Resists Institutional Imperative
If there is a CEO who resists the institutional imperative the most it is Patrick Byrne, he could not care less about what any analysts care about him and has routinely let them know.
Financials
Return on Equity
Overstock is not yet profitable, but because of its great partner business (which has a working capital model like Dell or Costco where it receives the cash for sold products within a week, but doesn't have to pay the company for a month) just a 1% profit margin would bring a 28% Return on Equity were they to achieve the margin of Amazon (very likely in a few years) of 3.2% it would have a return on equity of 90% (its likely by this point the company would have had to invest more money into the business and there would be more equity, revenue growth may or may not keep up with the capital growth).
Owner's Earnings
Overstock does not have positive Owner's Earnings, but it the trailing twelve months it produced $10 million in operating cash flow, while paying $2.6 million in capital expenditures this is free cash flow of $7.4 million.
Profit Margin
Overstock's profit margin is currently negative 6%. The company currently has a 17% gross margin which is low, but has been increasing and the new focus is on trimming down costs. This margin should reach 20-23% .
The company also paid 15% of revenue on technology and marketing expense - variable costs that will fall as the revenue increases.
Valuation
This can be called a crap shoot with Overstock. It's very easy to say they are since they trade for 2/5ths of sales.
But, since the occurrence of profitability is unknown pinning an exact value on Overstock is very difficult.
In an attempt to remain simple I have valued it in two ways:
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Business
Simple and Understandable
Overstock sells the overstocked goods from other companies on its website. Part of its revenue comes from inventory Overstock buys from companies, the rest comes from 'partner' revenue where companies sell their inventory on Overstock's site and Overstock gets a commission.
Consistent History
Not even close. After Overstock started it had extreme revenue growth for a few years, then Byrne got distracted and the company went to hell with negative revenue growth, currently it has come to kind of a stand still while the company attempts to turn-around.
I believe that when Overstock become profitable earnings growth will be huge for a few years then it will grow consistently over time.
Long-Term Prospects
There is a lot of uncertainty here which is a big part of why the stock price is so depressed.
I believe the company has good prospects and has already started a great turn-around. Profitability will serve as a catalyst for Overstock's business and share price in the future.
Revenue growth looks like it has dimmed over the past few years, but as the company fazes out the direct portion the total growth will fall to pave the way for the much higher returning partner revenue, which has grown 20% in the last two years - most of that coming over the last year when Byrne really got his head back in the game.
Management
Rational
This one could be looked at as so-so.
Byrne has a lot of expectations and a lot of lofty goals in turning-around the company, but so far I believe he has done well meeting his expectations and communicating the progress to shareholders.
Candid
Byrne could be called the best CEO for a shareholder because of his fight, against hedge funds that drove down the stock price, but I believe the best CEO is the one who runs a very profitable business and returns the cash to shareholders.
Since, Overstock has yet to be GAAP profitable he hasn't been able to do this, but I do believe he is extremely candid detailing his turn-around plans to shareholders and teaching how his metrics for evaluating the company should be used.
Resists Institutional Imperative
If there is a CEO who resists the institutional imperative the most it is Patrick Byrne, he could not care less about what any analysts care about him and has routinely let them know.
Financials
Return on Equity
Overstock is not yet profitable, but because of its great partner business (which has a working capital model like Dell or Costco where it receives the cash for sold products within a week, but doesn't have to pay the company for a month) just a 1% profit margin would bring a 28% Return on Equity were they to achieve the margin of Amazon (very likely in a few years) of 3.2% it would have a return on equity of 90% (its likely by this point the company would have had to invest more money into the business and there would be more equity, revenue growth may or may not keep up with the capital growth).
Owner's Earnings
Overstock does not have positive Owner's Earnings, but it the trailing twelve months it produced $10 million in operating cash flow, while paying $2.6 million in capital expenditures this is free cash flow of $7.4 million.
Profit Margin
Overstock's profit margin is currently negative 6%. The company currently has a 17% gross margin which is low, but has been increasing and the new focus is on trimming down costs. This margin should reach 20-23% .
The company also paid 15% of revenue on technology and marketing expense - variable costs that will fall as the revenue increases.
Valuation
This can be called a crap shoot with Overstock. It's very easy to say they are since they trade for 2/5ths of sales.
But, since the occurrence of profitability is unknown pinning an exact value on Overstock is very difficult.
In an attempt to remain simple I have valued it in two ways:
- If Overstock can grow revenue 15% over the next two years, and achieve 2% profitability it would have $17.5 million in earnings, a 20x multiple on this is $350 million, add net cash of about $25 million and you have a market cap of $375 million, this is a 44% increase or 18% per year. I believe the 20x multiple is conservative because at this point the company will have ~56% return on equity, will have killed Wall St. doubts of its profitability and will have the benefit of millions of shares currently sold short being bought back.
- Secondly, I believe a sophisticated businessman or company would easily pay 1x sales for Overstock, because of its wide moat in the online liquidation business and the potential for a high return on capital, this equates into a $760 million dollar market cap which is a 192% return.
Conclusion
In conclusion, Overstock is a classic Mohinsh Pabrai investment, the company is low risk - it has great relationships with partners and a big moat keeping its customers and is well on the way to achieving profitability as proven by it positive free cash flow, plus the stock priced is depressed to the point that it's trading for less than half of sales - but has high uncertainty - Wall St. thinks it will never become profitable.
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Wednesday, March 26, 2008
The Entreprenurial Investor
These are my notes to the first nine chapters of The Entreprenurial Investor they are not intended to take the place of the book in any way, and I recommend everyone purchase the book - it's by far the best I've read on investing and business in a while.
Entreprenurial Investor
Chapter 1 Eyes Believe What You See, Ears Believe Others
· Buffett said, “You’re neither right nor wrong, because other people agree with you; you’re right, because your facts and reasoning are right.”
· Bernard Baruch: “Every man entitled to his own opinion, but not his own facts.”
· Education w/o experience = knowledge w/o wisdom
· “Your eyes believe what they see; your ears believe others” – Fortune Cookie
· Kodak didn’t miss the digital cameras trend – simply mishandled it.
· Ad industry reacted to TiVo w/ in-program ads, what’s future for Viacom, Disney and NBC if people have the power to avoid ads?
· Wal-Mart & Costco and specialty retailers like Trader Joe’s and Whole Foods taking share form traditional grocery stores.
· Large companies should watch companies in stead of listening to consultants
· Good investors need not know everything, but ought to know what’s going on.
Chapter 2 Irrationality is Opportunity
· At best stock market democratizes capitalism
· At worst it’s a gambling den
· Irrational exuberance works with irrational fear
· Logical investors must take irrational behavior into account
· Don’t blindly follow herd, but pay close attention to its movements
· LT trends allow greater perspective and improve ability to evaluate probabilities
· Excellent advise: “Don’t panic,” from Hitchhiker’s Guide
· Sometimes market is irrational because of mod mentality. Prudent investors stay independent and keep watch list of quality companies for price drops
Chapter 3 Dirty Harry’s Investment Philosophy
· Dirty Harry said, “a mans got to know his limitations.” Investors must know what they own
· Improve odds of success by investing in simple businesses
· Before buying a company one must ask, can I explain this to a four-year old?
· If you can understand the company so can all the other people involved
· In LT Wall St. rewards simplicity
· When buying shares be sure you would buy the whole company
· Ask: “What if you were the CEO?”
· Learn what you can about company from co-workers and customers
Chapter 4 Adversity in Diversity: Portfolio Concentration
· Most critical aspect of investment style is commitment to concentrated portfolio
· At any time may hold only 10 stocks never more than 15
· Wide diversification doesn’t eliminate risk: it presents a different kind of risk
· If you owns a lot of companies your unsystematic risk almost diminishes but so does chance at beating the market
· Instead of safety in numbers seek safety in knowledge
· Unsystematic risk can be greatly reduced just by owning 15 companies
· Small portfolios more likely to outperform the market, but also to underperform so stock selection is important
· Munger, “When you mix raisins with turds you’ve still got turds.”
Chapter 5 Just buy the best (doesn’t include most funds)
· Funds and advisors use small-cap and large-cap portfolios to compel people to buy multiple funds entrepreneurial investors use, “Small custom portfolios of stocks, selected for individual quality of value.”
· They don’t care about market cap, use a broad range of criteria to judge risks and rewards
Chapter 7 Who Really Manages the Brand
· From The Thin Blue Line, “It takes a great prosecutor to convict an innocent man.”
· Ad spending generally varies inversely to a product’s value
· For valueless products branding is the challenge
· Brands are built through customer experience (not marketing) and destroyed by customer experience (not competition)
· Investors should look at a company through the customer’s eyes and be a customer whenever possible
· Brand should instantly telegraph everything good and valuable about the company
· J&J Tylenol
· Poor customer experience, arrogant management, and misplace values will eventually destroy even the best brand
Chapter 8 What Makes You Special?
· When obsessively focusing on competition the best you can create is parity; when focusing on customers you can innovate and create a competitive advantage
· Competitive advantage – any organization that consistently profits more than any other organization
· Differentiation = attributes that separate one company from another
· Cost structure produce cost savings unavailable to competitors
· Strategic planning is really the process of imagining new competitive advantages in the future
· Recurring revenues strategic alliances and LT commitments create competitive advantages
· Patentable innovation is one of steepest competitive advantages
· In general technology companies must constantly re-invent themselves to sustain competitive advantages
Chapter 9 Company Culture
· CEO’s still exhibit an, “ends justify the means” approach to management
· Company culture will reflect the personality of the CEO
· Wiring CEO is the single most important task in management
· Carly Fiorina was arrogant, dictatorial and elitist, bad for company culture but what the board of directors ordered
· Company culture is the least appreciated factor in judging a business; but is the most important
Chapter 6 is an investor profile I encourage you to buy the book and check it out.
The managers at West Coast Asset Management are the authors of the book, their free newsletters and podcast are available at their website.
src="http://pagead2.googlesyndication.com/pagead/show_ads.js">
Entreprenurial Investor
Chapter 1 Eyes Believe What You See, Ears Believe Others
· Buffett said, “You’re neither right nor wrong, because other people agree with you; you’re right, because your facts and reasoning are right.”
· Bernard Baruch: “Every man entitled to his own opinion, but not his own facts.”
· Education w/o experience = knowledge w/o wisdom
· “Your eyes believe what they see; your ears believe others” – Fortune Cookie
· Kodak didn’t miss the digital cameras trend – simply mishandled it.
· Ad industry reacted to TiVo w/ in-program ads, what’s future for Viacom, Disney and NBC if people have the power to avoid ads?
· Wal-Mart & Costco and specialty retailers like Trader Joe’s and Whole Foods taking share form traditional grocery stores.
· Large companies should watch companies in stead of listening to consultants
· Good investors need not know everything, but ought to know what’s going on.
Chapter 2 Irrationality is Opportunity
· At best stock market democratizes capitalism
· At worst it’s a gambling den
· Irrational exuberance works with irrational fear
· Logical investors must take irrational behavior into account
· Don’t blindly follow herd, but pay close attention to its movements
· LT trends allow greater perspective and improve ability to evaluate probabilities
· Excellent advise: “Don’t panic,” from Hitchhiker’s Guide
· Sometimes market is irrational because of mod mentality. Prudent investors stay independent and keep watch list of quality companies for price drops
Chapter 3 Dirty Harry’s Investment Philosophy
· Dirty Harry said, “a mans got to know his limitations.” Investors must know what they own
· Improve odds of success by investing in simple businesses
· Before buying a company one must ask, can I explain this to a four-year old?
· If you can understand the company so can all the other people involved
· In LT Wall St. rewards simplicity
· When buying shares be sure you would buy the whole company
· Ask: “What if you were the CEO?”
· Learn what you can about company from co-workers and customers
Chapter 4 Adversity in Diversity: Portfolio Concentration
· Most critical aspect of investment style is commitment to concentrated portfolio
· At any time may hold only 10 stocks never more than 15
· Wide diversification doesn’t eliminate risk: it presents a different kind of risk
· If you owns a lot of companies your unsystematic risk almost diminishes but so does chance at beating the market
· Instead of safety in numbers seek safety in knowledge
· Unsystematic risk can be greatly reduced just by owning 15 companies
· Small portfolios more likely to outperform the market, but also to underperform so stock selection is important
· Munger, “When you mix raisins with turds you’ve still got turds.”
Chapter 5 Just buy the best (doesn’t include most funds)
· Funds and advisors use small-cap and large-cap portfolios to compel people to buy multiple funds entrepreneurial investors use, “Small custom portfolios of stocks, selected for individual quality of value.”
· They don’t care about market cap, use a broad range of criteria to judge risks and rewards
Chapter 7 Who Really Manages the Brand
· From The Thin Blue Line, “It takes a great prosecutor to convict an innocent man.”
· Ad spending generally varies inversely to a product’s value
· For valueless products branding is the challenge
· Brands are built through customer experience (not marketing) and destroyed by customer experience (not competition)
· Investors should look at a company through the customer’s eyes and be a customer whenever possible
· Brand should instantly telegraph everything good and valuable about the company
· J&J Tylenol
· Poor customer experience, arrogant management, and misplace values will eventually destroy even the best brand
Chapter 8 What Makes You Special?
· When obsessively focusing on competition the best you can create is parity; when focusing on customers you can innovate and create a competitive advantage
· Competitive advantage – any organization that consistently profits more than any other organization
· Differentiation = attributes that separate one company from another
· Cost structure produce cost savings unavailable to competitors
· Strategic planning is really the process of imagining new competitive advantages in the future
· Recurring revenues strategic alliances and LT commitments create competitive advantages
· Patentable innovation is one of steepest competitive advantages
· In general technology companies must constantly re-invent themselves to sustain competitive advantages
Chapter 9 Company Culture
· CEO’s still exhibit an, “ends justify the means” approach to management
· Company culture will reflect the personality of the CEO
· Wiring CEO is the single most important task in management
· Carly Fiorina was arrogant, dictatorial and elitist, bad for company culture but what the board of directors ordered
· Company culture is the least appreciated factor in judging a business; but is the most important
Chapter 6 is an investor profile I encourage you to buy the book and check it out.
The managers at West Coast Asset Management are the authors of the book, their free newsletters and podcast are available at their website.
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Tuesday, March 25, 2008
Finding Stocks to Research
In this post I'll look at how I found all the stocks I currently own.
Sears Holding
I can't find the specific article and VInvesting won't come up on my computer, but I originally got interested in Sears Holding when I read an article on that site about Eddie Lampert, his returns and the hidden value in Sears Holding.
American Express
This idea came from my friend Joe Koster, he loves the business and couldn't believe how undervalued the stock was.
After talking to him I saw a Joel Greenblatt article in this issue of Value Investor Insight, that piqued my interest and I decided to research the company.
K-Swiss
This pick was 100% Lynchian. I decided to research it days after the second time I read One Up On Wall Street
.
I got my idea my just paying attention as I walked around school and the mall. A lot of people were wearing K-Swiss shoes, and what really got me interested was the fact that they were the 'cool' shoe to wear.
Netflix
I originally saw this on the 52-week low list, and just wrote-it off in my mind as another potential candidate that probably didn't work.
But eventually I read a write-up on the Value Investor Club that claimed it had a great business model and was deceptively undervalued, this made me curious and I basically wanted to find out for myself if it was.
Overstock.com
I originally found Overstock in this article in Pabrai's book Mosaic: Perspectives on Investing
.
After that first caught my interest Anre Alsin's articles pushed me to research the company further.
Western Sizzlin'
I had heard about the Lion Fund about two years ago and liked Sardar Biglari after reading his letters to shareholders.
After I read some posts about Western Sizzlin' on this board I decided to try to value the company.
Penn National
This post first got me interested I subsequently read about five different articles (all found on Google Finance) that made me decide to look at it then buy.
Tandy Leather
Joe Koster also liked this one. The company where he's an analyst has held shares for a few years.
Special Situations
As previously stated all the special situations I own were found on the Fat Pitch Financials Contributor's Corner.
Conclusion
The way to find good value ideas is simple - read constantly. All of the above ideas (K-Swiss stems form reading the Lynch book) come from reading. Even if some ideas came originally from talking to people in e-mails or on a discussion board I didn't give them serious thought until I read something about them or did more research.
Sears Holding
I can't find the specific article and VInvesting won't come up on my computer, but I originally got interested in Sears Holding when I read an article on that site about Eddie Lampert, his returns and the hidden value in Sears Holding.
American Express
This idea came from my friend Joe Koster, he loves the business and couldn't believe how undervalued the stock was.
After talking to him I saw a Joel Greenblatt article in this issue of Value Investor Insight, that piqued my interest and I decided to research the company.
K-Swiss
This pick was 100% Lynchian. I decided to research it days after the second time I read One Up On Wall Street
.I got my idea my just paying attention as I walked around school and the mall. A lot of people were wearing K-Swiss shoes, and what really got me interested was the fact that they were the 'cool' shoe to wear.
Netflix
I originally saw this on the 52-week low list, and just wrote-it off in my mind as another potential candidate that probably didn't work.
But eventually I read a write-up on the Value Investor Club that claimed it had a great business model and was deceptively undervalued, this made me curious and I basically wanted to find out for myself if it was.
Overstock.com
I originally found Overstock in this article in Pabrai's book Mosaic: Perspectives on Investing
.After that first caught my interest Anre Alsin's articles pushed me to research the company further.
Western Sizzlin'
I had heard about the Lion Fund about two years ago and liked Sardar Biglari after reading his letters to shareholders.
After I read some posts about Western Sizzlin' on this board I decided to try to value the company.
Penn National
This post first got me interested I subsequently read about five different articles (all found on Google Finance) that made me decide to look at it then buy.
Tandy Leather
Joe Koster also liked this one. The company where he's an analyst has held shares for a few years.
Special Situations
As previously stated all the special situations I own were found on the Fat Pitch Financials Contributor's Corner.
Conclusion
The way to find good value ideas is simple - read constantly. All of the above ideas (K-Swiss stems form reading the Lynch book) come from reading. Even if some ideas came originally from talking to people in e-mails or on a discussion board I didn't give them serious thought until I read something about them or did more research.
Changes
As some may have noticed I've changed the site a little bit, I updated the template on Blogger and then cleaned the sidebar and bottom of the page up.
I also told it to only show five posts at a time, the archive on the side will link to previous posts, and this change will help the page to come up faster.
I put my holdings on the side with their allocation percentages, and links to write-ups or posts about them. Starting with netflix, I will be putting the stocks I've sold with their respective gains or losses (starting now since I'm trying to follow how my holdings return with a change in the amount of research I do before buying, so none of the coal comapnies or other crap I lost a lot on will be there).
Also, I currently have ads on the page, but am making something like 2 cents a day on 100+ views, which I think is probably extraordinarily bad. I'm going to read some stuff on better placing the ads, but if it doesn't improve in say a month I'll probably start selling some stuff to make up for the fact that the ads are kind of worthless.
Things I'm considering selling:
I also told it to only show five posts at a time, the archive on the side will link to previous posts, and this change will help the page to come up faster.
I put my holdings on the side with their allocation percentages, and links to write-ups or posts about them. Starting with netflix, I will be putting the stocks I've sold with their respective gains or losses (starting now since I'm trying to follow how my holdings return with a change in the amount of research I do before buying, so none of the coal comapnies or other crap I lost a lot on will be there).
Also, I currently have ads on the page, but am making something like 2 cents a day on 100+ views, which I think is probably extraordinarily bad. I'm going to read some stuff on better placing the ads, but if it doesn't improve in say a month I'll probably start selling some stuff to make up for the fact that the ads are kind of worthless.
Things I'm considering selling:
- A pdf of all the posts on the blog, organized into different topics, of portfolio updates, stock research, concentration, special situations, etc. I'll also consider sending printed copies, for more just to cover the cost of copying and sending.
- I have a huge spreadsheet I use that has only two input pages, and then shows 25+ different ratios over ten years, growth rates on basically everything, multiple different valuations and then different pages for authors or fund managers (there's a Lynch page, Buffett, Pabrai, Quality of Earnings, Greenblatt, Klarman, etc.) I haven't figured out how to make it pull data striaght form the internet, but will probably do this over the summer
- Specific company reports, this summer I may make specific company reports based on requests. Each company would have to be easy to understand, etc. and the reports would be pretty generic, but would have subjective opinions on the business model, valuation etc.
In the past I haven't cared much about the money I make from the site, but next year I'll be going to college and want to expand the site, post more often and have a lot of writing for resumes. The college where I'm going - Westminster - is pretty expensive so I'm trying to add some more income to help pay for it.
If anyone would be interested in the above suggestions or has other suggestions, I'm open to all comments.
Portfolio Changes
I sold half of my Netflix shares to fund a Penn National purchase, Penn National is a merger arb. play with huge potential (40% gain), but some risk on the funding. The price is at $46 which is already up $5 this week.
I believe the potential gain is worth more than the potential risk.
Sunday, March 23, 2008
K-Swiss in the Buffett Way
Following the Netflix re-examination, I've decided to use the same test and try to find if K-Swiss still deserves a spot in my portfolio.
Business
Simple, Understandable
K-Swiss makes extremely comfortable and long-lasting leather shoes. more than 2/3rds of their sales come from their classic brand which has changed little in design over the past forty years.
They also are starting to focus more on tennis and hired Anna Kournikova to promote their shoe.
Consistent History
Though earnings have dropped lately the margins and returns on capital have stayed around the industry average.
Long-Term Prospects
Very favorable, they are just starting to expand internationally and management has confessed it made some bad moves domestically which are partially responsible for the earnings drop of late and will not make these same moves internationally, which spells huge growth continuing into the future.
Also, new advertising, including commercials that will debut during March Madness, looks great and I think will be a big boost to earnings in the coming quarters.
Management
Rational
Management realizes they are in turnaround mode right now and know how to get back into growing smoothly mode - as they have gone threw three down cycles like this so far.
Candid
In the three years I've owned them I've never felt they were keeping anything from the shareholders.
Resist Institutional Imperative
K-Swiss does not try to impress Wall St. in the short-term, as proved by their discipline in not reducing prices to help their ST earnings.
Financials
Return on Equity
K-Swiss has no debt and rapidly falling earnings yet it still returned 11% on capital last year. This is a deceptive number, it seems low but it would be a lot lower had management reduced prices to get a short-term boost.
Look for K-Swiss's ROE to rise to above the shoe industry average again once it regains earnings growth.
Owner's Earnings
Net Margin
K-Swiss had a 10% net profit margin, down from their industry leading numbers of the past.
Valuation
PE + Excess capital
Using Pabrai's method, 16x owner's earnings plus excess capital gives a value of $21.31 per share, which is a 24% discount, the company's cash hoard compared with no debt is the reason behind the high value.
DCF
Using Pabrai's DCF method, this does ten years of earnings, starting with negative growth going to no growth before growing at 2% in year five, eventually 4% by year ten discounted back to the present at a rate of 10% then assuming it is sold for the current excess capital in ten years K-Swiss is currently worth $29.50 per share. Which a little over a week ago was double the share price.
Conclusion
Right now, K-Swiss is essentially a turn-around bet. It's earnings have been almost halved in the past year, and it has paid the price dropping from as high as $33 in the last year. But, the company has 52% of its market cap in cash with no long-term debt to pay. Wall St. clearly believes K-Swiss won't turn-around or it will take a long time to do it, I believe it could start growing earnings this year, and I know I have the margin of safety to make that bet.
Business
Simple, Understandable
K-Swiss makes extremely comfortable and long-lasting leather shoes. more than 2/3rds of their sales come from their classic brand which has changed little in design over the past forty years.
They also are starting to focus more on tennis and hired Anna Kournikova to promote their shoe.
Consistent History
Though earnings have dropped lately the margins and returns on capital have stayed around the industry average.
Long-Term Prospects
Very favorable, they are just starting to expand internationally and management has confessed it made some bad moves domestically which are partially responsible for the earnings drop of late and will not make these same moves internationally, which spells huge growth continuing into the future.
Also, new advertising, including commercials that will debut during March Madness, looks great and I think will be a big boost to earnings in the coming quarters.
Management
Rational
Management realizes they are in turnaround mode right now and know how to get back into growing smoothly mode - as they have gone threw three down cycles like this so far.
Candid
In the three years I've owned them I've never felt they were keeping anything from the shareholders.
Resist Institutional Imperative
K-Swiss does not try to impress Wall St. in the short-term, as proved by their discipline in not reducing prices to help their ST earnings.
Financials
Return on Equity
K-Swiss has no debt and rapidly falling earnings yet it still returned 11% on capital last year. This is a deceptive number, it seems low but it would be a lot lower had management reduced prices to get a short-term boost.
Look for K-Swiss's ROE to rise to above the shoe industry average again once it regains earnings growth.
Owner's Earnings
Net Income $39,073
+ D&A $ 2,303
- CapEx $10,489
=Owner's Earnings $30,887
Net Margin
K-Swiss had a 10% net profit margin, down from their industry leading numbers of the past.
Valuation
PE + Excess capital
Using Pabrai's method, 16x owner's earnings plus excess capital gives a value of $21.31 per share, which is a 24% discount, the company's cash hoard compared with no debt is the reason behind the high value.
DCF
Using Pabrai's DCF method, this does ten years of earnings, starting with negative growth going to no growth before growing at 2% in year five, eventually 4% by year ten discounted back to the present at a rate of 10% then assuming it is sold for the current excess capital in ten years K-Swiss is currently worth $29.50 per share. Which a little over a week ago was double the share price.
Conclusion
Right now, K-Swiss is essentially a turn-around bet. It's earnings have been almost halved in the past year, and it has paid the price dropping from as high as $33 in the last year. But, the company has 52% of its market cap in cash with no long-term debt to pay. Wall St. clearly believes K-Swiss won't turn-around or it will take a long time to do it, I believe it could start growing earnings this year, and I know I have the margin of safety to make that bet.
Netflix Moat?
There was a comment on my Netflix post questioning the moat, here is my response:
Netflix has multiple moats:
Netflix has multiple moats:
- It has a network effect. Each movie has reviews from multiple users on it and Netflix shows you what percent your likes and dislikes correlate with that user. This is a tremendous help in picking movies and is exponentially better than what any competitor could start with because of its millions of users.
- Netflix has a great rating system where one can rate each movie they rent from 1 to 5 stars, Netflix then uses this to guess how you might rank other movies, in my experience and that of many people I've talked to it is never more than one star off. This is a great lead to finding movies and its algorithms are a lot better than Blockbuster's (I've used both).
- The Netflix user is not usually one who keeps the service based on its cheap price; rather the Netflix quality.
Some differences I've noticed with Netflix and Blockbuster Total Access include:
- The quantity of movies, Netflix just has a lot more movies than Blockbuster. It has over 70,000 titles from which to choose, this is a huge advantage for finding users that love movies that may not be available anywhere except Netflix.
- The quickness, if I wanted to I could receive a movie in the mail on Monday around noon, then have it in the mail by 3, so it would get mailed that day, on Tuesday I would get an e-mail saying they received the movie and they were sending the next on my queue. With Blockbuster there were usually three or four days in between.
- As before stated the network effect and ratings system is a huge advantage, for people that really like movies this community is great and I have seen a lot of reviewers with hundreds of reviews that love to show they could be a critic, they never leave Netflix based on price because this community is likely not available
- And customer service, I haven't dealt with either, but Netflix has been mentioned in numerous surveys as having among the best in the industry.
Finally, proof of Netflix's moat has been shown Wal-Mart spent a bunch of money trying to create its own Internet rental service, it just lost a bunch more money and ended up selling its customers to Netflix. The result of this was Amazon killing any thought it had of a movie rental business.
Also, Blockbuster has spent hundreds of millions of dollars in an attempt to break into the industry, pricing their plans lower than Netflix's and offering free movies at brick-and-mortar locations - they effectively leveraged their brick-and-mortar business in their vain attempt, no doubt killing a lot of margin - and still have just one-third of Netflix's market share, at a margin much lower than Netflix.
The problem with Netflix, currently, is in no way its moat or business it the overvaluation.
Saturday, March 22, 2008
Netflix
With Netflix's recent run-up I decided to take a look at it using the rules from, Warren Buffett Way.
Other posts I have done in this manner are:
Profit Margins
Netflix has about a 9% margin which is constricted from Blockbuster, it should raise in the future.
Valuation
DCF
Using Owner's Earnings, a 10% discount rate, growth starting at 18% next year than falling from there and then adding excess capital I get a value of $28 per share.
Conclusion
Netflix looks overvalued right now, but I remain confident in their abilities. I will consider selling part or all of my position and hoping to buy again soon if someone else comes into the picture and Wall St. pushes the price down again.
However, I will not sell until I find a better company than Netflix in which to invest my money.
.Other posts I have done in this manner are:
- Netflix in June of last year, with incorrect valuation numbers
- Best Buy
- Western Union
Business
Simple, and Understandable
They have an inventory of a crapload of movies and they rent them out to people on monthly plans.
Using this model they don't have to pay huge capital expenditures to grow - by building brick-and-mortar stores - just to acquire subscribers.
Consistent History
Very consistent, even though they were attacked by Blockbuster twice they still have managed to grow subscribers.
With Blockbuster paying more attention to their margins and less to spending non-stop to create growth, Netflix should be able to return to its more consistent past.
Favorable Long-Term Prospects
Very. Netflix is on the cutting edge of Internet VOD.
They currently have more than 8,000 movies available to watch on demand. This feature is limitless and well worth the price of subscribing - especially for young people like me who may be in college and using their computer constantly.
Any battle over video formatting also benefits Netflix, because it ads more time to the disc rental market.
Netflix was the first-mover in Online DVD rental, and is currently the best at VOD, I wouldn't be surprised if they start a straight to the TV type rental service soon, even if they don't soon it will still bring huge growth.
Management
Rational
I really like Netflix management. They've showed their ability by destroying Wal-Mart and Amazon's attempt and by fighting off Blockbuster.
I also like their shrewdness in not entering the economically unsound video game rental business.
Candid
They did well on their Conference Call, and I liked how they talked about each different competitor and how they have reacted.
Resists the Institutional Imperative
Their press release always read " Netflix release xquarter results," and they did not seemed focused on the short term in the Conference Call.
Financials
Return on Equity
ROE is currently 16%, pretty good, but I expect it to increase in the future.
Owner's Earnings
Income $66,952.00
+ D&A $224,962.00
- CapEx $223,436.00
= Owner's Earnings $68,478.00
Profit Margins
Netflix has about a 9% margin which is constricted from Blockbuster, it should raise in the future.
Valuation
DCF
Using Owner's Earnings, a 10% discount rate, growth starting at 18% next year than falling from there and then adding excess capital I get a value of $28 per share.
Conclusion
Netflix looks overvalued right now, but I remain confident in their abilities. I will consider selling part or all of my position and hoping to buy again soon if someone else comes into the picture and Wall St. pushes the price down again.
However, I will not sell until I find a better company than Netflix in which to invest my money.
Wednesday, March 19, 2008
Portfolio again
- First Time
- Last Time
Good News
First, some college stuff. I don't know if anyone's keeping track, but I am a senior this year, so will be graduating high school in one term - 2 months and twelve days actually.
I only applied to one college, but my aunt and two cousins went there, plus I got a 28 on the ACT so I was admitted :-)The college is Westminster which is a small liberal arts college in Salt Lake with a like a 10:1 student to teacher ratio.
The business school was named after the guy who invented Gore-Tex - an alum pretty snazzy, huh.
At the open house for admitted students they had a 30-minutes class about picking companies - you wouldn't believe my relief that was companies not stocks. In the class the professor went over some stuff to look thru on Yahoo! Finance, like earnings growth, margins and PEG, then through some stuff on Factset - the software they had in the lab.
Unsurprisingly, I knew the answers to all of her questions and was even conviniently reading One Up on Wall St. (5th time I'm trying to set a record ;-) when she started talking about Peter Lynch.
Surprisingly, but very OK in my book is the fact that my admission to a college with a value program pretty much fell into my lap. They also have one of like three stock tickers west of the Mississippi, which is a fun-fact.
Bad News
I still have a term left in High School. Currently, I am taking Art and Photography which are totally and utterly worthless, but I have to take them to graduate. For example, even though (I'm pretty sure, but not 100%) 0% of Americans use pin-hole cameras, then develop them in a dark room. Also, if you didn't know a line can also be known as a moving dot, and making a cube and cylinder out of play-dough for an hour and a half qualifies as High School art.
And, if that wasn't the worst of it I also have to re-do English 9 because Utah has something against homeschoolers.
But, to the stocks:
Positions
I don't think I put the portfolio or positions sizes in the last posts, but I'm going to so I can track it easily.
Current total portfolio: $7,915.75 (up to $12,000 at one point has been mostly between $7,900 and $8,500 over the past month)
American Express $917.62 12%
Not to brag - or give away anything - but, let’s just say this is like the 4th time one of my holdings as been picked by a current newsletter ;-) Anyway, not a whole lot of change in the general thesis since last time so I won't bore you with anymore details.
Also, I think 12% allocation may be a little high for a large cap since I only have eight grand and all, but it is too cheap to sell any of it now, if this goes up to like $50 something soon I'll probably sell some of it to invest in special situations.
Assorted Special Situations $973.66 12%
This is spread over three different situations (currently), but because I get my ideas from Fat Pitch Financials so I won't go into them.
K-Swiss $703.2 9%
Still heinously undervalued.
I've seen some good commercials from them lately - mainly on ESPN and MTV which is good. I have a feeling the tides will change sooner than people are predicting, but I also have a crapload of cash and margin of safety to back me up if it takes longer - best of both worlds, huh.
Netflix $923.72 12%
Has had a little bit of a run lately, which has kept me from shooting my computer. It's a great company, I'm actually a very satisfied customer (only a few of their predictions for star ratings for me have been off, and never by very much) and still see a lot of room for them to expand. The valuation isn't as appealing for a first-time, but not near high enough for a sell.
Overstock.com $843.72 11%
Ya, this one's getting kind of annoying. Not gonna go over the stuff I've written about 1200 times so far. But, two quick good things, also improved commercials with overstock and I heard Byrne sometimes speaks at Westminster which is a plus.
Sears Holding $1,524.3 19%
WOOOO SAAAH
Tandy Leather $582.06 7%
Good story, small company with local niches. I need to learn more though, have general knowledge, and an annual report I haven't gotten around to reading.
Western Sizzlin' $1,430.7 18%
Was the biggest holding until I added some to Sears and it dropped. Biglari and Cooley got on the SNS board, but for some reason it dropped $3 per share. Even if they own a small percent of the company, doesn't this prove they have shareholders on their side, and at the very least they'll know when to sell if that's what it comes to?
Cash $16.69 very negligible%
Gettin' pretty lonely, but I'm finding a lot of attractive special situations.
Stuff I got rid of
Cryptologic
Kinda sick of wondering what was going on here. I know the business, but don't have the time or patience to figure out all the laws and different countries it’s involved with.
I sold this one a while ago and it’s gone down from there. If I get time in the summer to learn all about it I may buy it again.
Washington Mutual
Thought I could figure out its business and involvement in everything and stuff in spare time, didn't happen.
On the bright side it will go up a lot soon because I sold it and we can hear Nygren's 80/20 stuff all over again.
Pfizer
I'm not really sure if I ever actually said I bought this. I did and decided that special situations had better returns then this did with basically no growth and 5% yield.
Potential Stuff
This will be short because I have to read acts 2&3 of Rosencrantz & Guildenstern are Dead, then write about its diction. Which is at the epitome of excitement.
Penn National
Merger Arb. I need to figure out the Wachovia stuff, but really want to get involved with this so I can het some hands-on experience.
Good stuff here: http://www.fwallstreet.com/blog/114.htm
Google
Really good business, that I think people may be underestimating - long shot I know. But, I saw a YouTube thing about android and read a book about them.
Unfortunately, there is no logical way to value them - people who say they can are lying, or stupid you pick - and this is probably a negative.
Best Buy
I wrote about them a while ago.
I got a gift certificate for them a while ago and decided that Best Buy is the best possible store for a gift card, which is most likely a positive.
Pep Boys
Read some stuff about them being an asset play combined with a turnaround which i am unusually obsessed with, but the asset stuff is probably too complicated.
McGraw-Hill
Wrote about this and posted here a while ago. I'm not sure about what may happen to it ratings business so I haven't purchased any of it yet.
- Last Time
Good News
First, some college stuff. I don't know if anyone's keeping track, but I am a senior this year, so will be graduating high school in one term - 2 months and twelve days actually.
I only applied to one college, but my aunt and two cousins went there, plus I got a 28 on the ACT so I was admitted :-)The college is Westminster which is a small liberal arts college in Salt Lake with a like a 10:1 student to teacher ratio.
The business school was named after the guy who invented Gore-Tex - an alum pretty snazzy, huh.
At the open house for admitted students they had a 30-minutes class about picking companies - you wouldn't believe my relief that was companies not stocks. In the class the professor went over some stuff to look thru on Yahoo! Finance, like earnings growth, margins and PEG, then through some stuff on Factset - the software they had in the lab.
Unsurprisingly, I knew the answers to all of her questions and was even conviniently reading One Up on Wall St. (5th time I'm trying to set a record ;-) when she started talking about Peter Lynch.
Surprisingly, but very OK in my book is the fact that my admission to a college with a value program pretty much fell into my lap. They also have one of like three stock tickers west of the Mississippi, which is a fun-fact.
Bad News
I still have a term left in High School. Currently, I am taking Art and Photography which are totally and utterly worthless, but I have to take them to graduate. For example, even though (I'm pretty sure, but not 100%) 0% of Americans use pin-hole cameras, then develop them in a dark room. Also, if you didn't know a line can also be known as a moving dot, and making a cube and cylinder out of play-dough for an hour and a half qualifies as High School art.
And, if that wasn't the worst of it I also have to re-do English 9 because Utah has something against homeschoolers.
But, to the stocks:
Positions
I don't think I put the portfolio or positions sizes in the last posts, but I'm going to so I can track it easily.
Current total portfolio: $7,915.75 (up to $12,000 at one point has been mostly between $7,900 and $8,500 over the past month)
American Express $917.62 12%
Not to brag - or give away anything - but, let’s just say this is like the 4th time one of my holdings as been picked by a current newsletter ;-) Anyway, not a whole lot of change in the general thesis since last time so I won't bore you with anymore details.
Also, I think 12% allocation may be a little high for a large cap since I only have eight grand and all, but it is too cheap to sell any of it now, if this goes up to like $50 something soon I'll probably sell some of it to invest in special situations.
Assorted Special Situations $973.66 12%
This is spread over three different situations (currently), but because I get my ideas from Fat Pitch Financials so I won't go into them.
K-Swiss $703.2 9%
Still heinously undervalued.
I've seen some good commercials from them lately - mainly on ESPN and MTV which is good. I have a feeling the tides will change sooner than people are predicting, but I also have a crapload of cash and margin of safety to back me up if it takes longer - best of both worlds, huh.
Netflix $923.72 12%
Has had a little bit of a run lately, which has kept me from shooting my computer. It's a great company, I'm actually a very satisfied customer (only a few of their predictions for star ratings for me have been off, and never by very much) and still see a lot of room for them to expand. The valuation isn't as appealing for a first-time, but not near high enough for a sell.
Overstock.com $843.72 11%
Ya, this one's getting kind of annoying. Not gonna go over the stuff I've written about 1200 times so far. But, two quick good things, also improved commercials with overstock and I heard Byrne sometimes speaks at Westminster which is a plus.
Sears Holding $1,524.3 19%
WOOOO SAAAH
Tandy Leather $582.06 7%
Good story, small company with local niches. I need to learn more though, have general knowledge, and an annual report I haven't gotten around to reading.
Western Sizzlin' $1,430.7 18%
Was the biggest holding until I added some to Sears and it dropped. Biglari and Cooley got on the SNS board, but for some reason it dropped $3 per share. Even if they own a small percent of the company, doesn't this prove they have shareholders on their side, and at the very least they'll know when to sell if that's what it comes to?
Cash $16.69 very negligible%
Gettin' pretty lonely, but I'm finding a lot of attractive special situations.
Stuff I got rid of
Cryptologic
Kinda sick of wondering what was going on here. I know the business, but don't have the time or patience to figure out all the laws and different countries it’s involved with.
I sold this one a while ago and it’s gone down from there. If I get time in the summer to learn all about it I may buy it again.
Washington Mutual
Thought I could figure out its business and involvement in everything and stuff in spare time, didn't happen.
On the bright side it will go up a lot soon because I sold it and we can hear Nygren's 80/20 stuff all over again.
Pfizer
I'm not really sure if I ever actually said I bought this. I did and decided that special situations had better returns then this did with basically no growth and 5% yield.
Potential Stuff
This will be short because I have to read acts 2&3 of Rosencrantz & Guildenstern are Dead, then write about its diction. Which is at the epitome of excitement.
Penn National
Merger Arb. I need to figure out the Wachovia stuff, but really want to get involved with this so I can het some hands-on experience.
Good stuff here: http://www.fwallstreet.com/blog/114.htm
Really good business, that I think people may be underestimating - long shot I know. But, I saw a YouTube thing about android and read a book about them.
Unfortunately, there is no logical way to value them - people who say they can are lying, or stupid you pick - and this is probably a negative.
Best Buy
I wrote about them a while ago.
I got a gift certificate for them a while ago and decided that Best Buy is the best possible store for a gift card, which is most likely a positive.
Pep Boys
Read some stuff about them being an asset play combined with a turnaround which i am unusually obsessed with, but the asset stuff is probably too complicated.
McGraw-Hill
Wrote about this and posted here a while ago. I'm not sure about what may happen to it ratings business so I haven't purchased any of it yet.
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