Article Update and Weekend Reading Links

I have finished up all three articles in my now shortened series and will proofread and do some light editing over the weekend and post them as soon as possible after I am able to acquire the shares I want.

Psy Blog-How Long To Form A Habit.

Hardcore value-Amazon, Apple, and The Beauty Of Low Margins.

Distressed Debt Investing-One Of Warren Buffett’s Greatest Trades.

CSInvesting-Video Lecture Course On Security Analysis and The Intelligent Investor.

Share Sleuth-Finding Hidden Debt.

Can’t Eat Value’s Blog-What’s Your Investing Edge.

Oddball Stocks-Value Momentum, Speculating On Recovering Net Nets.

The Equity Desk-Benjamin Graham: An Investing Legend.

Ragnar Is A Pirate-Fraud, Bankruptcy, and Ethanex.

25iq.com-Charlie Munger On The Psychology of Human Misjudgement.

Basehitinvesting.com

Wexboy-Why I Write…

The Globe and Mail-Article By GreensKeeper Asset Management Principle Michael McCloskey.

Distressed Debt Investing-My Three Favorite Quotes From Baupost’s 2012 Year End Letter.

Graham And Doddsville-Legacy Of Benjamin Graham.

Wexboy-The Great Irish Share Valuation Project Part IV.

GuruFocus-Answers From Tom Gayner’s Interview With Guru Focus.  Thanks for the link Obtuse Investor.

Sahara Investing-Triyards Holdings.

World Financial Review-Repeatability: How Companies Create Enduring Businesses In A World Of Change.

CSInvesting-More Valuation Case Studies.

Advertisements

Some Links For The Week

Motley Fool-Monish Pabrai’s Lunch With Buffett and Munger.

Value Investing Blog-Alpha Pro Tech And The Value Of Optionality.

Cant Eat Value-Why You’re Undervaluing Good Capital Allocation.

Student Of Value-Investment Analysis Of Quality Products $QPDC The Mysterious.

Zero Hedge-Guest Post: A Short Lesson In Bad Decision Making.

The Daily Beast-Don’t Go To Business School!

Wexboy-The Great Irish Share Valuation Project (Part 1).

Oddball Stocks-CIBL is Undervalued Again, Is The Valuation Gap Enough?

Business Insider-Vitaliy Katsenelson Presentation On Why The Market Will Move Sideways For Another Decade.

Distressed Debt Investing-The High Yield Market “Is Completely Out Of Control”.

Philip Beeching-Why Companies Fail–The Rise And Fall of HMV.

Value Walk-Charlie Munger And The Art Of Stock Picking.

Sahara Investing-The Hour Glass.

OTC Adventures-Great Lakes Aviation Is Not Your Typical Airline $GLUX.

Grizzly Rock Capital-Why Selling Methodology Differs For Average Versus Great Companies.

Seraphin Group-When Do I Sell Stocks? Drawing Wisdom From Buffett To Zuckerberg.

CS Investing-Reading On Moats And Competitive Advantages.

Whopper Investments-Why Is Buying A Rising Stock So Hard?

Guru Focus-Geoff Gannon On How To Learn Everything You Need To Know About A Stock.

25iq.com-Charlie Munger On Investment Concentration Versus Diversification.

Weekend Reading Links

Oddball Stocks-What’s Your Real Business? The National Stockyard Story.

Geoff Gannon Guru Focus-Always Use Normal Numbers.

Shares and Stock Markets-How To Value A Business Like A Professional Money Manager.

The Aleph Blog-If You Want To Be Well Off In Life.

The Meta Picture-Learn To Read Korean In 15 Minutes.

Geoff Gannon Guru Focus-What Is The Best Way To Learn Accounting?

Oddball Stocks-Investing Like A Lender.

Graham And Doddsville-The Value Investing Gene-Buffett, Klarman, and Evolution.

The Guru Investing-Small, Illiquid, and Cheap: A Winning Combo.

Greenbackd-Quantative Value: A Practitioner’s Guide To Automating Intelligent Investment and Eliminating Behavioral Errors.  Have not read the book yet but plan to.

Micro Cap Club-Alter NRG Corp: Disposition Case Study With Ending Unknown.

Businessweek-Ryan Morris, 28-year-old Activist Investor.

Gannon And Hoang On Investing-My Investment Process.

OTC Adventures-Calloway’s Nursery $CLWY.

Aswath Damodaran Musings On Markets-Acquisition Accounting II: Goodwill, More Plug Than Asset.

 

The Float Of The Companies I Own

Originally I was planning on evaluating the float of every company I have written an article on but decided to just focus on the companies whose stock I currently own.  Below I am going to give you an example of the full analysis on one company and then just do an overview and chart of the rest of the companies as the calculations are all the same.

Brazil Fast Food Company (BOBS)

All numbers for BOBS are in $R million unless otherwise noted.

  • Financial Assets: Cash and cash equivalents of 28.4+prepaid expenses of 1.2+advance to suppliers+deferred tax assets net of 6.8=38.5
  • Operating Assets: All other assets such as goodwill, IA, AR, inventories, etc of 89.3.
  • Total Assets=127.8.

Liabilities

  • Equity of 38.3
  • Debt of 21
  • Float-Accounts payable & accrued expenses of 9.7+payroll and related accounts 6.7+taxes 4.6+deferred income tax 0.2+current portion of deferred income 2.5+current portion of contingencies and reassessed taxes 2.1+other current liabilities 0.8+deferred income 2.4+long term contingencies and reassessed taxes 17.9+other liabilities 1.2=float of 48.1

Total liabilities are 69.4

Float/operating assets=53.86%.  BOBS float is supporting 53.86% of operating assets meaning that BOBS float is not completely free.  The float being completely free would mean that the company’s operations are being operated generally by completely free money if the ratio was over 100% and the float is costless.  A situation where float is costless is when an insurance company is earning an underwriting profit.  BOBS still has a pretty good portion of its OA operated by float, as you will see in the chart below, which is always a good thing.

Pretax profits/total assets=ROA

  • 17.4/127.8=13.62%

Pretax profits/ (total assets-float) =levered ROA

17.4/79.7=21.83%

BOBS MAIN CMT STRT VIVHY DOLE
Float/Operating Assets

53.86%

90%

27.27%

60.53%

37.68%

27.69%

Unlevered ROA

13.62%

9.59%

14.23%

10.65%

6.43%

1.29%

Levered ROA

21.83%

9.73%

19.25%

20.59%

9.67%

1.79%

As you can see from the chart, BOBS, MAIN, and STRT all have float supporting more than 50% of each companies operating assets and BOBS, CMT, and STRT’s levered ROA make the companies look even better than I already thought they were.

VIVHY and DOLE, my two spin off companies that I do not plan to hold for as long as the other companies above, have ratios that are generally quite a bit worse than the other four.  Looks like I have been doing a decent job of spotting float in my long term companies before I even knew what it was.

To tie this whole theme up of the past several weeks I am capping it off by analyzing and evaluating an insurance company, the ultimate providers of float and a big reason why Buffett was able to compound his returns at such a fantastic rate over the past four decades.  I started research last night on an insurance company whose market cap is under $75 million and will have the write up written as soon as possible.  It will take me longer than usual to get this article ready because this is the first time where I have truly tried to evaluate an insurance company and need to learn as I am going; the specific terms and best ways to evaluate this type of company.

In the mean time I will probably post some links but from now on I will not be posting updates on what I am doing anymore.  I am constantly reading, learning, and trying to find companies to research and evaluate so if I don’t post for a while, from here on out that just means I haven’t found a company I think deserves a full write up.

Floats, Moats, My Plans For This Year, Starting An Investment Partnership, And Looking For Partners

More About Floats And Moats

I am going to be taking another week or so away from researching companies to concentrate on learning more about floats and moats, and then start applying some of the lessons I have learned, especially about float, to the companies I have already written articles about.  Directly below is some of the material I have been learning from.

25iq.com-Charlie Munger On Circle of Competence, the Second Essential Filter.

25iq.com-Charlie Munger On Management With Talent And Integrity, The Third Essential Filter.

25iq.com-Charlie Munger On Margin Of Safety, The Fourth Essential Filter.

Read the book Repeatability and here is the accompanying site.  Would highly recommend the book as well as the site.  I also plan to read the authors other books as well.

NPR-Warren Buffett Explains The Genius Of Float.

Fool.com-Warren Buffett Plays The Float With Blue Chip Stamps And Private Jets….And Wins.

Seeking Alpha-Berkshire Hathaway Worth Its SALT 2012 Update, about float.

Seeking Alpha-Buffett On Insurance And Investing: Its About The Float.

Corner Of Berkshire And Fairfax-Munger On Deferred Tax Liabilities and Intrinsic Value.

These things along with the information on floats and moats that I have previously posted from the Fundoo Professor, are the types of things I have been learning from recently.  Now I am going to go back over all the companies I have written articles on to determine if they had any float and will report back to you sometime in the next week about my findings and then it is on to finding more companies to research.

I also found two fantastic blogs that I highly recommend going back and reading all of their blog postings.

Monte Sol Capital

Sahara Investing

Also Sahara Investing has recently published an article on Strattec, which is a company I own, and he came to a differing conclusion than I did and I wanted to share his fantastic article with you.

Plans For This Year

I am a very simple guy with simple wants and needs so I only have two plans and one goal for this year.

  • Continue to learn something new and improve in every aspect of life every single day.
  • To get completely healthy.

My one goal for this year is that by this time next year I want to have started my own investment partnership/hedge fund.

If any fellow value investors would like to collaborate on something like this please let me know as I have already started the process of looking into what I legally need to do to start an investment firm, I have already talked to my buddy who is a lawyer who said he will look into what exactly I need to do, and would be very interested to listen to any potential opportunities you may have thought of.

Seeking Advice, Offering My Services, And Sharing Links

Seeking Advice

If you have ever read the goals page on this blog you know that I plan to open up my own investment partnership or work at a value fund as an equity research analyst as soon as my health gets completely better.

My health is still not completely better so opening my own firm will have to wait, and unless I can get an outsourced research analyst job where I can stay at home that also will have to wait a bit longer.

Thus far I have sent emails to some value investment firms showing them my work in the hopes of becoming an outsourced research analyst for their firms and have so far received no replies.  Thinking about getting some packets together and sending physical information to them because I am sure these firms get hundreds or thousands of emails per day.

As I have been gaining experience, knowledge, and confidence in my ability to analyze companies, I have been looking more and more into what I can possibly do to make some money while I wait for my health to get completely better.

So far I have come up with two ideas while I wait to open my firm:

  1. Starting some kind of research firm where I could sell my ideas and analysis articles to value investment firms, or work for them from home doing research on specific companies that they want me to look into.
  2. Some kind of consulting firm where I could offer my services to local businesses offering to analyze their businesses to see where they could maybe cut costs, and give them some ideas about how they could become more profitable.

So far I have gone over the various pros and cons of both and wanted to ask if any of you have any experience doing either of those two ideas above, what those experiences have been like, and if you might be able to offer any advice about potentially starting one of those firms.  Also if you might have any other ideas of how I could put my knowledge to use while I wait for my health to get better please let me know.

If any one of you are looking for someone who loves to research and dig deep into companies please let me know as I would be very interested in learning about your company and hearing those opportunities as well.

Any advice or help would be very much appreciated as I think I could be an asset to companies and help make them money.

Weekend Reading Links

Greenbackd-The Brick Valuations and Analysis Report.

Oddball Stocks-The Problem With Linear Thinking.

CNN Money-The Best Investor You Have Never Heard Of.

Geoff Gannon at GuruFocus-What Is Your Investing Goal?

Geoff Gannon at GuruFocus-How Would Warren Buffett Invest If He Was Starting Over Today?

Farnam Street-General Failure.

Old School Value-How To Invest In The Stock Market-Reflections.

Barel Karsan-Insight Into A Buffett Moat.

Microfundy-Buybacks Vs Dividends.

OTC Adventures-IECH Corporation.

Update and Links From Mark Lin, Oddball Stocks, Guru Focus, Farnam Street, ValueFolio and Old School Value

The most recent company I was researching turned out to be another no go as I found it to be overvalued at the low end by as much as 30%.  Since then I have turned my attention to Dole and have been getting my updated article on them prepared.  I have already written a portion of the article and with Dole releasing its most recent results later today I should be all good to go and have the whole article up by early next week.

Until then here are some links.

The One Thing That Can Kill Your Portfolio

ROE, ROIC, and CROIC

All Roads Lead To Rome: Bridging the Graham Buffett Divide

Alternative Information Sources

Analyzing Working Capital-The Key To Successful Investing In Net Nets

Why Net Cash Is The Most Misleading Indicator Of Balance Sheet Strength

Characteristics of Value Stocks and Value Traps

The Principle of Incomplete Knowledge

Charlie Munger…..”If I Were Teaching Business School”

Psych Plays and Bayesian Probability

Weekend Reading Links

With all the research I have been going lately I have gotten way behind on posting links so here are a bunch that I think are very good.

Atul Gawande: Excellence Is Recognizing Details, Failures

The Price Of Paying Attention

How Not To Run A Hedge Fund: Geoff Grant Edition

Advice From Jeff Bezos

How Did R.A. Dickey Master The Knuckleball

Jason Zweig Interviews Seth Klarman

How Did I Come Up With My 16 JNets

What Drives Operating Metrics?

Free Ebook: 115 Profitable Investing Ideas

How Buffett Made Money In Bad and Volatile Markets

Two Hour Buffett Interview, Loss Aversion, Ted Weschler, Toll Bridges, And Amit Wadhwaney on Martin Whitman

I am almost done with Mobs, Messiahs, and Markets and would highly recommend it to everyone.  It covers topics from history, politics, and the financial markets and gives you reasons why you should be skeptical of people in power and especially people who say their ideas will help better the world.

I should finish up the book today and then tomorrow it is off to researching companies again.  While I love learning new things and seeing ideas that I haven’t thought about before, I have become kind of a 10-K junkie and even though I have found the book very interesting and entertaining, my mind has been continually wandering thinking about companies I want to research and how to expand my knowledge about companies.  I think I am sick :).

Anyways on to the links.

Warren Buffet Two Hour Interview On CNBC from Valuewalk.

Selling Stock At A Loss and Our Loss Aversion Bias.  Very important lessons for investors.

Ted Weschler Rise From Grace Leads to Role Advising Buffett.  This is from Bloomberg and profiles Mr. Weschler, one of the people who might take over for Warren Buffett at Berkshire Hathaway after Buffett steps down.

I Don’t Want To Be  A Toll Bridge, I Want To Be Its Meaning.  This is a very interesting article from the Fundoo Professor.  This is about Buffet’s metaphor about how he wants to invest in toll bridges, pay special attention to the discussion in the comments section as well.

Amit Wadhwaney on Martin Whitman.  This is an interview of Mr. Wadhwaney about Third Avenue Funds approach to investing.

Weekend Reading Links: Klarman, Munger, Buffett, Valuation, and Learning

The new company I was researhing turned out to be another bust after valuation.  I found the Australian company to be in a range from fairly valued at the high end of my intrinsic value estimate to overvalued by as much as 70% from my low estimates of value and have decided to not do any further research on it at this time, especially since its margins were not very good either.

For now I am going to be reading some books over the coming days and then its back to searching for more companies to research.

Seth Klarman On Leadership.  This video is from ValuePrax and contains some very valuable insights from the reclusive Klarman.

Charlie Munger Lecture at the Harvard-Westlake School.  This interview is from Santangel’s Review and contains Mungers thoughts on the recent financial crisis.

Alice Schroeder On How Buffett Values a Business and Invests.  This is yet another article from Greg Speicher that contain Ms. Schroeder’s thoughts on how Warren Buffett looks at business.

Valuation: Valuing Growth and the Petersburg Paradox.  This is from Csinvesting and the page also has some links to papers that talk about different things valuation related.

I Learned To Speak Four Languages In a Few Years: Here’s how.  This is a write up from LifeHacker about the techniques that helped the author learn four languages in a relatively short amount of time.  This is fascinating to me because I have always wanted to learn a new language and have recently started learning a bit of Spanish.