Howard Marks Interview, Laura Templeton, Intrinsic Value, Seth Klarman’s Investment Framework, Vitaliy Katsenelson, and the Value Investing Challenge

Now that I am done with the overview of my portfolio I can get back to the business of researching companies.  Up first though are some links that I think can help us all learn.

Free download of an interview with Howard Marks from Oaktree Capital.

Laura Templeton on How to Retain Conviction When The Market Goes Against You.  This is a three minute video with some very good insights for value investors.

Intrinsic Value: A Range, Not a Precise Figure is a great write up from Greg Speicher’s blog on the dangers of trying to pin down a companies exact valuation.

Seth Klarman’s Investment Framework is something every self respecting value investor should probably read.

Value Investing Challenge links to download the three finalists analysis and valuation articles.  The detail in the articles and how clearly two of them put forth their analysis is absolutely amazing and something I hope to learn from.  Possibly a few companies to do further research on as well.

Helmerich & Payne Analysis is a fantastic valuation and analysis article from Vitaliy Katsenelson at Contrarian Edge.  Again, pay attention to the amount of detail, how he thinks, and his process, absolutely amazing.

Now that I have finished up doing my portfolio overview I am going to dive right back into researching companies.  I will update you when I find something interesting, and I already have a few companies in mind to research.

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Vivendi News, Aswath Damodaran Valuing the Iphone Franchise, Warren Buffett, Great Investors, and Memory

Vivendi Studies Strategy After Two-Way Split Ruled Out is an article from Bloomberg Businessweek about what Vivendi might do now that it has allegedly ruled out breaking the company into two separate entities.  The interesting part of this article is that one of the scenarios states that Vivendi is looking at breaking up the entire company which would mean a sum of the parts valuation would be used.

My sum of the parts valuation done on 4-21-2012, written in my article here, came to a per share estimate of intrinsic value of $43.07 per share.  Looking back on the post now, I think that is a very conservative estimate.

Also on the Vivendi front, while I was reading Martin Whitman’s Third Avenue fund 3Q shareholder letter, I found that they have bought into Vivendi.  Here are their reasoning for buying into Vivendi at this time:

Also during the quarter, the Fund initiated a position in the shares of Vivendi S.A. (“Vivendi”), a company that has intrigued various members of our team for more than five years. The Fund had avoided investing in Vivendi’s shares for a variety of reasons, not the least of which were the company’s long-running addiction to debt-financed acquisitions and the absence of any discernible strategy for building shareholder value. In retrospect, the discipline paid off. The stock has performed very poorly over a long period of time. Vivendi spent much of its life as a French water utility, but in the mid-1990s was set on a path to become one of the world’s largest media and telecom empires. The improbable but very rapid transformation of Vivendi into a telecom and media giant was driven by a number of audacious debt fueled acquisitions. By the early 2000s, the tech, media and telecom bubble began to burst and the Vivendi empire famously came crashing down under a mountain of debt. The company spent much of the next decade languishing in the absence of strong management and a reasonable strategy. Most recently, though, considerable change is afoot at Vivendi. The company dismissed the CEO of its largest subsidiary, SFR, which is the second largest telecommunications company in France. SFR had been one of the epicenters of Vivendi mismanagement; the telecom company performed particularly poorly in the areas of cost management and in its failure to adequately address and confront the threat of new and increased competition. Shortly after the dismissal of SFR’s CEO, Vivendi’s board dismissed Vivendi’s own CEO, apparently as a result of irreconcilable strategic differences. Vivendi’s Chairman, who, during his own brief stint as CEO of Vivendi in the early 2000s, deleveraged the company considerably, has become the public face of the company and declared a strategic about-face. It appears that none of Vivendi’s underlying operating businesses are sacred any longer. As part of a broad restructuring effort, a number of its businesses have become subject to possible disposal in the effort to reduce Vivendi’s debt load and make headway in closing the gap between the share price and the underlying value of the company’s investee businesses, several of which are crown jewels within their respective industries. As it stands today, the company controls France’s second largest telecommunications company which, when combined with its control of the incumbent telecommunications company in Morocco and a highly successful Brazilian telecommunications company, would comprise a formidable global telecom business were they to be separated into an independent entity, as has been speculated. Vivendi also controls Canal +, France’s largest television business, as well as Universal Music and ActivisionBlizzard, the world’s largest music and video game businesses, respectively. There is considerable scope for dispositions as well as a sensible reconfiguration of the business into various components, all of which seem increasingly likely. Shares of Vivendi are trading at a considerable discount to our conservative estimate of its net asset value, essentially the current liquidation value of the company, and it appears that the mounting pressure on the company’s board has made value enhancing transactions and debt reduction increasingly probable.

 

Always nice to see a big time value fund buying into the companies you own.

Aswath Damodaran’s: Apple’s Crown Jewel: Valuing the Iphone Franchise is amazing valuation piece which could be used as a template to value other powerful franchises.

Warren Buffett Reflects on why he stayed in Omaha.

How to Gain an Investment Edge with Quotient’s Andre Bertolotti is a 4 minute video clip from The Manual of Ideas on how Bertolotti gains an edge in his investments.

How I got Religion and Dropped My Series 7 is a very interesting 6 minute video interview with the Reformed Broker about what he sees as the failings of holding the series 7 and the problems it can create in investment firms and Wall Street.

The Science and Psychology of Memory is a short write up from Farnam Street on things that you can do to improve your memory.

More links to come until I figure out if either of the two companies I have found to research deserve full article treatment.

Weekend reading links

Reading Links

Investing In Wide Moat Businesses is a free download from the Manual of Ideas that talks about characteristics of wide moat businesses and how to spot them.  I have not finished reading this yet, but I can tell the knowledge inside will be very good.

Warren Buffett’s Evolution and His Three Investment Styles is a write-up from http://can-turtles-fly.blogspot.com/ about how Warren Buffett invested in the past and how he invests now, the differences in his thinking and why he has had to change over time.  Good read for anyone interested in Buffett.

The Theory of Investment Value: Four Enduring Takeaways on Dividend Investing from John Burr Williams is a write-up from the CFA Institute on dividend investing from the perspective of the 1930’s and how the principles still apply today.

The Value Gene is an interview of Paul Isaac talking about Walter Schloss, his father Irving Isaac, what he is investing in now, and what he thinks of the overall economy.

Activision Joins Game Industry Search For New Ways People Play is an article from Seeking Alpha where the author goes into detail on the declining video game industry.

7 Things Highly Productive People Do is an article from Farnam Street on how you can become more productive.

Hope you enjoy the links.  Now it is time for me to search for another company to research.

New valuation techniques

Finally I can get to the new valuation techniques I have been working on lately, some are from the Manual of Ideas free download that I wrote about here, and see how they apply when used on Vivendi.

I will only put the base case on here and explain how you can change the values higher and lower if you would like to incorporate some of these into your use.

First up is a revenue and EBIT based valuation:

• TTM revenue=28.8 billion
• Multiplied by:
• Average 7 year EBIT %: 18.24%
• Equals:
• Estimated EBIT: 5.11 billion
• Multiplied by:
• Assumed fair value multiple of EBIT: 8X
• Equals:
• Estimated fair enterprise value of VIVHY:40.86 billion
• Plus:
• Cash, cash equivalents, and short term investments:4.85 billion
• Minus:
• Total debt: 15.71 billion
• Equals:
• Estimated fair value of common equity of VIVHY: 29.99 billion Euros.
• Equals:
• $36.60 billion.
• Divided by
• Number of shares: 1.242 billion
• Equals:
• $29.47 per share.

If you want higher and lower estimate of values than you just change the EBIT multiple.

Second technique is a book value and P/B technique.

• Book Value: 23.75 billion
• Minus:
• Intangibles: 6.814 billion
• Equals:
• Tangible book value: 16.94 billion
• Multiplied by:
• Industry P/B: 2X
• Equals:
• Industry multiple implied fair value: 33.88 billion (27.28 Euros per share)
• Multiplied by:
• Assumed multiple as a percentage of industry multiple: 95% (1.9X multiple of tangible book.
• Equals:
• Estimated fair value of the common equity of VIVHY: 32.19 billion Euros.
• Equals:
• $39.4 billion
• Divided by:
• Number of shares of 1.242 billion
• Equals:
• $31.72 per share.

To adjust this valuation change the industry multiple percentage.

As you can see, using these techniques I am still finding VIVHY to be very undervalued to its current price of $18.33 per share.

I was originally planning on putting more on here, but I will save those for my next company analysis and valuation.  I used five different valuation techniques to value the company I am researching right now, including one that is not in the MoI publication.

I will hopefully have the analysis up at the latest by Monday since I am going to be at one of my best friends weddings this weekend.

This is just a sample of some of the techniques in the Manual of Ideas free publication.  There are several more, including some industry specific ones, like how to value gas and oil reserves.  I highly recommend downloading the free publication from MoI to hone some of your techniques and maybe learn some new ones.

Hope you enjoy

Shifting gears, Dole news, and my latest article published

Shifting Gears

Recently I have been concentrating pretty heavily on trying to find, assess, and value new companies that I could invest in.  I am now going to be shifting gears for a bit to expand my knowledge.

The Manual of Ideas that I posted about a few days ago, and the 32 free books from csinvesting are amazing,  I am most of the way through the MoI free publication and the information in it is incredible.

I am going to be studying specifically from the MoI publication the valuation techniques that they go over, try to learn them, revalue some of the companies I have already valued, and incorporate some of them into my valuation techniques.

When I feel comfortable with the new techniques I will post some of the new valuations here, and see if that changes my assumptions on some of the stocks I have already talked about.

After I finish up with the MoI, I am going to start one of the free books that I downloaded yesterday from csinvesting’s site, so it will probably be a little while before I look for a new company to evaluate.

In the meantime I will still be posting any news I find on companies I own, my random thoughts, and any new, good information I find from websites and blogs.

Dole News

The first article talks about the best and worst boards in the country, Dole came out as one of the worst.  The main reason being that Dole, being majority owned by one person, is not a very transparent company.

The second article is another article, from another analyst, saying that if Dole decides to do some kind of asset sale or spin off they could be worth $16 a share, and talks about how the packaged fruit business has amazing margins. I have specifically talked about all of this in my article here.  So why am I posting this?  Because stated in the article from Dole CEO David DeLorenzo “Our goal would be to accomplish something by the end of this year. We have come across some opportunities that, if we are able to execute, would be good for both the packaged foods business and the commodities business.” That is new news.  Emphasis is mine.

For those who are interested in the company, which I am, it looks like we have the rest of this year to accumulate shares before they announce anything on the spin off or asset sale front.

Latest article posted

My latest article, on L.B. Foster, has been posted to Seeking Alpha and can be viewed here, for those who want to follow the discussion in the comments section.

An Amazing Free Offer, More Vivendi News, and Investing Lessons from a stock up almost 1500% since 2002

Free offer from the Manualofideas.com

The Manual of Ideas put out a free offer of their monthly publication.  I had never heard of them before but the information in the free publication is incredible.  Manual of Ideas gives investing ideas, goes over valuation and analysis of those companies, giving three different valuations of the companies, talks about the risks of the company going forward, and shows you holdings of top hedge fund managers that you could get more ideas from.

At the very least I highly recommend that you should download the free publication to get some ideas to research, and look at how they value and analyze companies to see what we could all be doing better and what we might be missing from our analysis.

Too bad that if you like MoI, which I do a lot, is pretty expensive if you want to subscribe to it.  The price for one year of subscription to the regular monthly publication is just under $1300.

I will learn from the free publication and when I am able to start my own firm or work for someone else, this is going to be one of the first things I buy to get ideas from.

More Vivendi News

This article on Vivendi again talks about which of their businesses they should sell or spin-off and lists some of the companies that they are talking with about the potential sale.

The main thing that caught my eye is that they are talking with Microsoft to see if they are interested in buying Activision Blizzard.

Any reasonable sale of ATVI would be good for Vivendi shareholders.  However, the only way Microsoft buying ATVI could be good for the console gaming industry would be if it meant some kind of gaming merger between the Playstation and Xbox brands, eventually leading to a one console future, and the gamers winning out.

Most likely though, if Microsoft were to buy ATVI that would probably lead to Sony having to buy EA, and each company trying to acquire the best gaming companies they could to keep them out of the hands of the other.  A very bad scenario for the gamers.

Sony and Microsoft have been pretty antagonistic to each other over the past decade when it has come to their consoles, so although I hope there is some kind of console merger with a one console future, at this time I do not see that happening.

Lessons from a 15-bagger

This article is from the Motley Fool and goes over some of the original reasons they bought Amazon in 2002 and how since then the stock is up almost 1500%.

Any stock pick that goes up by that amount should be analyzed and learned from.

Feel free to post your thoughts.  Enjoy