Updates, Looking For Anyone Who Might Want To Write A Guest Value Investing Article or Articles, And “Becoming So Good That You Cannot Be Ignored”

As you know over the past couple weeks I have been doing in depth research on a company and written an article that I planned to post on Monday.  I have several other companies I want to research and since in my personal account I am unfortunately fully invested at the moment, I need to make the best possible buy decision of the companies I am looking into before deciding which one(s) to buy into and came up with an idea today.

When I first started my blog and posting articles on Seeking Alpha I did a series of posts on Dole, Chiquita, and Fresh Del Monte comparing them and figuring out which one was the best buy at the time.  I have wanted to do another series of posts like that for a while now and decided that this is a perfect opportunity to do that.  Up to this point I have completely finished up one article, done a lot of research and probably will start to write an article on the next company next week some time, and have at least one for sure and maybe another company I want to do research on and write full articles on after that before I make my final buy decision(s).

As you might expect with the amount of research I do this process and my posting of articles may take a while so this is where I ask for some help from you.  While I am researching and writing my articles I am still going to keep posting links, but would like good content to keep flowing at least somewhat regularly on the blog while I am concentrating on researching and writing.

I am looking for anyone who would want to contribute an article, or articles, to be posted as guest posts on this blog.  I will give you full credit for the entire article and write an introduction introducing you a little bit to get you some recognition.  You will retain full ownership of the article and can post it anywhere else that you like.  I would really like to have newer investors who may want to start a blog some day but for some reason haven’t, to submit any write ups you might have to get you some recognition and some feedback on your articles so you can learn faster.  I wish I would have started writing my ideas down in depth a lot sooner because as I have talked about before I am shocked by how much better I have gotten just since last June when I stated this blog. I will consider any articles as long as it is a VALUE based investment idea, if it is of good quality, if it is your original written and researched idea, and you do not already have a blog.  Sorry value bloggers but I want to help new investors or people who do not have a blog already get better and get some recognition.

I do not care if you have just started out investing (Would actually prefer newer investors to get you some recognition and to help you learn faster) or have been doing this for years and may not have a blog but you would like to post something here to get a taste for blogging.  As long as I think the article is of good quality, you show some passion, and want to get better as an investor I will consider any article submitted.  The article does not have to be as in depth or as long as my articles either.  If you have multiple articles you would like to submit you are more than welcome to submit as many as you like.  I know that I am a bit weird in welcoming public criticism of my articles but it helps me learn faster.  To alleviate some of this concern I will also help you out by reading the article before posting it on this site and sending you an email with any thoughts, feedback, or advice I might have and keep them private just between us since I know a lot of people are afraid of public criticism, especially beginners.

As you know if you have been following the blog for any length of time one of my other passions is bettering education and helping others out as much as possible because of all the advice and help I have received from others online.  I have been thinking about this for a while and have finally decided that this is a good time to start this program and I hope a lot of you submit articles.  This is also going to become a regular thing so if you come up with an idea a month or months from now that you would like to submit for publishing please feel free to submit it.  Again, I would highly encourage especially newer investors and investors without blogs to submit articles not only for the recognition, but the sooner you start writing your investment ideas down the faster you will get better.

For any questions or if you would like to submit an article email me at my email address provided in the Contact Me page above and I hope to hear from many of you very soon.

Another quick update is that last week I received an email from the Value Investor’s Club about my application and that I had been rejected for admission to VIC again.  Once again this just serves as further motivation (As if I didn’t have enough already) to keep learning and getting better. On a side note Whopper Investments posted on Twitter that he has been accepted into the Value Investors Club so a big shout out and congratulations to a fellow value blogger for this impressive accomplishment.  I have heard that VIC accepts fewer than 10% of all applications received, I know most of the people on VIC are professionals, and I know of at least a couple individuals who have had their funds seeded by Joel Greenblatt (The founder of VIC and world renowned value investor) so getting accepted into VIC is a huge goal for a lot of us value investing bloggers and it is extremely impressive to get accepted.

I have always been the type of extremely competitive and self motivated person where I always pushed myself so hard (sometimes too hard and I have occasionally paid for it with health problems) to get better at whatever I was doing.  A couple examples are that 1) I remember when I was a teenager mowing the lawn and that I would time myself just to see if I could mow the lawn more efficiently and faster.  Not so I could go play sports, hang out with friends or a girlfriend, or do whatever else I was doing at the time, but just to get better at it. 2) When I worked at Burger King in high school, even if I was just washing dishes I always tried to figure out ways to get faster and better at it, even timing myself doing this as well.  This is how driven, some would say crazy including probably my wife, lol, I am about everything I do and when I saw this quote from Steve Martin it really resonated with me. Emphasis is mine.

“Nobody ever takes note of [my advice], because it’s not the answer they wanted to hear,” Martin said. “What they want to hear is ‘Here’s how you get an agent, here’s how you write a script,’ . . . but I always say, ‘Be so good they can’t ignore you.’ “

The article is from Lifehacker and you can click here to read the whole article about becoming a “craftsman” and how Mr. Martin went about becoming a comedic craftsman.  So my new favorite quote and goal as it pertains to me getting a job in the investment world, opening my own firm, learning Mandarin, or whatever else I do is to become so good at it that I cannot be ignored.

I will post some more links over the coming days as I have gotten way behind in sharing some of the sites I have been learning from and think that you could possibly learn from, and I hope in the mean time to see that a lot of you have submitted articles to be posted on the blog.

Professional Analysis Versus My Amateur Analysis Of Jack in the Box

This first link from MarketFolly contains the presentation from the winner of the Value Investors Congress contest whose presentation and analysis was a bull case for Jack in the Box.

The above analysis is actually the one I voted for in the contest as I thought it was the best, and the analysis he did in his article is actually what led me to research JACK as a possible investment for myself as he laid out a very good bull case for the company.

This second link is my analysis which is a bear case for Jack in the Box.

We came to the same conclusions about future possibility which he counts on more than I like to.  I generally only count in my analysis what I can see now and do not base my valuations on speculation of what could happen in the future.

Please feel free to leave comments on the two articles: Where I might have gone wrong, what I could have done better, etc.  I would really appreciate your thoughts.

Second submission to Whopper Investments valuation and analysis challenege

This challenge is Coca Cola (KO) before Warren Buffett bought in 1989.  Since I have studied KO quite a bit, I know what they ended up doing, and why they made some of the decisions that they did.

Since I have studied Coke quite a bit, I will not go into detail on what I would have done too much.  All that I will say, is that I would have done what they did ended up doing and consolidated, sold off non-core businesses, and concentrated on the core business of selling, distributing, producing, and expanding the market of the Coke syrup and the Coke brand around the world.  With an emphasis on expanding internationally.

I would have treated them in the same way I am treating Vivendi now, which I detailed in my Seeking Alpha article on them.  The major difference between the two companies is that Coke is a producer of some of the major assets, and Vivendi is not.

Valuations:

All numbers are in millions of US dollars, except per share information, unless otherwise noted.

  • 1988 revenue-$8,338
  • Multiplied by:
  • Average 3yr EBIT margin of:16.45%
  • Equals:
  • Estimated EBIT of:1,371.6
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 8X
  • Equals:
  • Estimated fair value EV of KO:10,972.8
  • Plus:
  • Cash and Short term investment of 1,231
  • Minus:
  • Total debt: 2,124
  • Equals:
  • Estimated fair value of common equity: 10,079.8
  • Divided by:
  • Number of shares of 365
  • Equals:
  • A per share price of $27.62

That is the very low estimate of value.  I would only have used this estimate as my base case if we were in some kind of recession or depression.

  • 1988 revenue-$8,338
  • Multiplied by:
  • Average 3yr EBIT margin of:16.45%
  • Equals:
  • Estimated EBIT of:1,371.6
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 11X
  • Equals:
  • Estimated fair value EV of KO:15,087.6
  • Plus:
  • Cash and Short term investment of 1,231
  • Minus:
  • Total debt: 2,124
  • Equals:
  • Estimated fair value of common equity: 14,194.6
  • Divided by:
  • Number of shares of 365
  • Equals:
  • A per share price of $38.89

This is what I would have used as my base case estimate, and the value I think that is probably closest to the actual share price at that time.

  • 1988 revenue-$8,338
  • Multiplied by:
  • Average 3yr EBIT margin of:16.45%
  • Equals:
  • Estimated EBIT of:1,371.6
  • Multiplied by:
  • Assumed fair value multiple of EBIT: 14X
  • Equals:
  • Estimated fair value EV of KO:19,202.4
  • Plus:
  • Cash and Short term investment of 1,231
  • Minus:
  • Total debt: 2,124
  • Equals:
  • Estimated fair value of common equity: 18,309.4
  • Divided by:
  • Number of shares of 365
  • Equals:
  • A per share price of $50.16.

This is what I would probably estimate the intrinsic value to be, probably still a bit too conservative.  I would have wanted at least a 30% margin of safety to that, so I would have bought around $35 per share.

The margins are incredible.  Revenue, EBIT, and gross growth rates are very good.   Best of all, even then they had dominant competitive advantages and positions in the soft drink market.

They had huge opportunities for growth outside of the US.  They had more suppliers and distributors coming online all the time.  They were improving relationships with the local economies.  They had dedicated people willing to go to extremes to sell the product.  More importantly they had customers who were buying more and more Coke every year.  Meaning they could make more money from each can they sold overseas.

I would have been constantly evaluating my investment thesis and waiting for a buying opportunity.

Whopper Investments analysis of DQ, and a course from a CFA

Whopper Investments analysis of Dairy Queen

I suggest everyone go over to whopperinvestments.com to see the analysis he did of DQ before Warren Buffett bought it.  The first link is WI’s readers analysis and valuations.  The second link is Whopper’s analysis and valuation.

I especially think we should learn from Whopper’s, Red’s, and ABVs’ analysis and valuations as those are the best in my opinion.  Pay attention to how they think about DQ, and the reasons they gave for why DQ was such a great business to buy.

Course from a CFA and author

I have to admit I have not checked this guy out yet so I cannot vouch for the quality of either this course he is offering or the book he wrote.  However, I thought I would put this up here in case anyone wanted to take his course.  The information about the course and the link is here.

Please let me know what you think about the course and the book if anyone decides to look into them.

My submission for Whopper Investments first challenge

Here is my submission for this weeks challenge: Dairy Queen before Warren Buffett bought it.  I am going to give the valuations first and then my thoughts afterwards.

Dairy Queen valuations done using 1997 10Q and 1996 10K that were provided.  All numbers in millions of US dollars, except per share information, unless otherwise noted.

Assets: Book Value: Reproduction Value:
Current Assets
Cash 61.2 61.2
Marketable Securities 0 0
Accounts Receivable (Net) 47.4 40
Inventories 6 3
Other Current Assets 4 2
Total Current Assets 118.6 106.2
Notes Receivable & Other (Net) 28 14
Franchise Rights & Goodwill 97.4 40.4
Rental Properties 5 2
Total Other Revenue Producing Assets 102.4 50
PP&E Net 12.7 6
Total Assets 364.1 218.6
  • Total Shares are 22
  • 218.6/22=$9.94 per share reproduction value.

Second Valuation

  • Cash and cash equivalents are 61.2, including marketable securities.
  • Short term investments are 0
  • Number of shares are 22
  • Total current liabilities are 46.5

Short term investments + Cash and cash equivalents – Total current liabilities=

  • 61.2=0-46.5=14.7
  • 14.7/22=$0.67 in net cash per share.

Dairy Queen has an TTM EBIT of 49.3+15=64.3

Taking the TTM EBIT by 5X, 8X, 11X, and 14X and adding Cash and cash equivalents=

  • 5X64.3=321.5+61.2=382.7
  • 8X64.3=514.4+61.2=575.6
  • 11X64.3=707.3+61.2=768.5
  • 14X64.3=900.2+61.2=961.4
  • 382.7/22=$17.40 per share.
  • 575.6/22=$26.16 per share.
  • 768.5/22=$34.93 per share.
  • 961.4/22=$43.70 per share.

I am guessing that before Warren Buffett bought Dairy Queen it was selling for around $20 per share.  Warren Buffett probably bought Dairy Queen for between $25-28 a share.

  • Estimate of market cap is 440.
  • Estimated enterprise value=440+5.2+.6+0-61.2=384.6
  • Enterprise value estimate includes market cap+ debt, minority interest, preferred shares – total cash and cash equivalents.

Estimated EV/EBIT of 6

  • EBIT margin of 14.8%
  • Net margin of 9.4%

Normally being a very conservative investor I take the lowest value I get, in this case the reproduction value, and use that as my base estimate of intrinsic value.  I then need at least a 30% margin of safety from that and preferably a 50% margin of safety.

However, seeing as how Dairy Queen had high margins at that time, I would have used the $17.40 per share as my base estimate of intrinsic value.  I would only have bought DQ at that time if it was selling for under $12 per share.

I doubt it was selling for that low of a price.  I would have continued researching DQ since it had high margins, had a low estimated EV/EBIT, was paying down debt and was almost debt free after paying it down, had a decent amount of cash on hand, and had been buying back shares.  I also liked that shareholder equity and sales had been growing steadily as well.  I would have reevaluated buying them if they got close to that $12 per share price.

I also would have needed to do research into McDonald’s, Burger King, Wendy’s, etc before even contemplating buying.  I am guessing DQ had about a 10 or 15% market share at that time and were competing against goliaths who had more resources than they did.

I am excited to read the solution and to see what other people figured out.  Fastest way to learn what you could be doing better is through critique and learning from others examples.

For those who want to follow along in the comments section or attempt the challenge themselves please go to his site.