How to invest

Written by

Jae Jun

At the top of the list of must read links is a new blog I am highly recommending to any student of investing.

If the author continues to post the stuff that he is putting up, I expect his following to increase quite rapidly.

Case Study Investing aka csinvesting

The valuation method taught on this site focuses on EPV.

Bridge & Buffett, Poker, and Investing

I’ve picked up playing poker recently and agree with many of the points made here. You should seriously learn to play. It will help you understand quickly your temperament, money management and analytical ability.

Sealed Air Case Study

You can’t get better than 10 pages of detailed notes and explanations on a valuation.

Video Lecture on Valuing Liz Claiborne

Video lecture as well as detailed explanations of valuing Liz Claiborne EPV style.

This should last you ALL weekend but just for good measure…

Other Links

John Paulson Q3 2011 Letter

Howard Marks – It’s all very taxing (PDF)

Bill Ackman Pershing Square Q3 2011 Letter (PDF)

Written by

Jae Jun

I’m always after quality links and lately there has been a burst of them. Here are the ones I found to be excellent and helpful. None talk about the market or Europe thank goodness. A few spinoff analysis posts in this one. Enjoy it over the weekend or whenever you have time.

How the iPhone Got Tail Fins [Brilliant]

It was the most advanced consumer product of the century. The industry started with its innovators located in different cities over a wide region. But within 20 years it would be concentrated in a single entrepreneurial startup cluster. At first it was a craft business, then it was driven by relentless technology innovation and then a price war as economies of scale drove efficiencies in production. When the market was finally saturated the industry reinvented itself again – one company discovered how to turn commodity products into “needs.”

Gravity Ltd.: another look

I first mentioned Gravity, a Korean developer, licensor and publisher of on-line games, last December (2010). At that time I had, over the prior 6 months, accumulated a small position based on a simple thesis: the company had over $1.90 in cash on its balance sheet, was operating on a cash flow positive basis, had no debt and I could buy shares at about $1.58 or 83% of cash. In retrospect my post was a bit flippant. There were some negatives about the company that I didn’t fully analyze. The most important, of course, was the majority ownership by GungHo Entertainment (a Japanese entity controlled by SoftBank). I say ‘negative’ because with a majority shareholder there is little or no possibility that an activist investor can influence management to adopt a more shareholder-friendly capital allocation stance. Furthermore, GungHo is a Japanese company and the most important licensee of Gravity’s primary on-line game, Ragnarok, so there are potential conflicts of interest at every twist and turn.

Value Investing Congress: Slideshow Presentations & In-Depth Notes

Value Investing Congress notes and summaries with the actual slideshow presentations and/or in-depth notes from each speaker. We’ve also posted up links for day 2’s speakers.

NFLX: Tilson Antes Up (again)

Whitney Tilson was very public about his short position in Netflix (NFLX). Come to think of it, is there anything that Tilson isn’t public about? Don’t get me wrong, I’ve always enjoyed his presentations, particularly when they agree with my investment stance.  We all like validation.

Notes on Marriott International: Deja vu all over again?

Those of you who have read Joel Greenblatt’s book “You can be a stock market genius” will remember his case study on Host Marriott/Marriott International. (.. and those who haven’t, should!). Well, Marriott’s doing it again. Last February they announced that they would be spinning off their timeshare business, Marriott Vacations Worldwide, from Marriott International by the end of 2011. The first Form 10 for the spinoff was filed  in June, and now we are on edition 3 (Sept.  30, 2011), so the spinoff looks likely to be finalized before year-end.

PostNL spinoff opportunity in the parent

The reason that TNT Express was spun off was that Express and PostNL had grown into two different businesses, one struggling with growth, the other decline.  The directors realized this and split the companies, as the company itself states Express is now a growth stock and PostNL a value stock.  PostNL has been hit by selling due to European fears, in addition they’ve been hit with selling as investors dump their shares in a seemingly dead or declining business.

Conoco Details Its Spin

While speaking at a recent Barclay’s Energy Conference, ConocoPhillips (COP) CEO Jim Mulva provided an update on the company’s broad strategic repositioning plan including some additional details on its upcoming spinoff.

The plan is to create a pure-play E&P company (retaining the Conoco name) along with a new downstream company. The spinoff company will also include COP’s chemical JV (with Chevron) and midstream JVs in an attempt to make it more ‘integrated’.

Relationship between CEO incentive compensation and future stock price

We find evidence that industry and size adjusted CEO pay is negatively related to future shareholder wealth changes for periods up to five years after sorting on pay. For example, firms that pay their CEOs in the top ten percent of pay earn negative abnormal returns over the next five years of approximately -13%. The effect is stronger for CEOs who receive higher incentive pay relative to their peers. Our results are consistent with high-pay induced CEO overconfidence and investor overreaction towards firms with high paid CEOs.

Written by

Jae Jun

Click on each of the headings to read the recommended articles in full.

What Shareholder Value Really is About

Most CEOs, as well as some of the other contributors to this forum, appear to have a false sense of what creating shareholder value means. CEOs need to understand the principles of shareholder value and why they are so important in judging difficult trade-offs, learn about the relationship between the financial performance of the company and the company’s stock, and communicate clearly and act appropriately when expectations gaps open.

Ten Ways to Create Shareholder Value

It’s become fashionable to blame the pursuit of shareholder value for the ills besetting corporate America: managers and investors obsessed with next quarter’s results, failure to invest in long-term growth, and even the accounting scandals that have grabbed headlines. When executives destroy the value they are supposed to be creating, they almost always claim that stock market pressure made them do it.

6 Rules to Select Better Stocks

You like the idea of trading infrequently — buying a stock in the hopes of never selling. You’re tired of making stock brokers a little rich, and making market makers (the people who profit from the bid-and-ask price “spreads”) a lot richer, and you’re thinking there might be a lot of long-term money in all this. But, of course, an investment approach that steers you into holding a stock possibly for decades should make you awfully picky about which stocks to buy! Pick the wrong one, or few, and you might get very little return for a very long time.

These Investors Are About to Get Slaughtered

Yields on Treasury bonds have plunged in recent weeks, thanks to fear of recession, chaos in the Eurozone and assorted other unsavory news. That buying has driven 10-year yields sharply lower – from 3.25 percent to less than two percent just in the past few weeks. Investors, of course, aren’t buying these bonds for their potential return. They’re buying them for the perceived safety.

Yet their statement values will plunge in the months (and years) ahead.

Bogle: Market Is a “Giant Distraction” for Investors in the Short Term

Vanguard founder Jack Bogle says the stock market is a “giant distraction to the business of investing”. Over the long run, he tells Fox Business Network, stock returns depend on how well Corporate America does; but in the short term, stocks have “inexplicable ups and downs” based on people’s opinions — not facts. He says that given the current situation, the market is poised to deliver average investment returns of about 7% or so for the next decade, based on corporate earnings growth and dividend yield. But in the short term, it will deviate sharply above and below that figure based on investors’ mood swings.

Written by

Jae Jun

Lately I’ve been getting this nagging feeling that everything I touch turns to dirt. Every time I buy a stock that is already down a lot, the one that my analysis leads me to believe is cheaper than dirt, it declines more. Did I completely lose my ability to value stocks? Did I start ignoring Will Rogers’ advice to buy stocks that go up, and if they don’t go up, don’t buy them?

Sound familiar? Well you’re not the only one. It has been and will continue to be a tough year for value investors. If you are still positive or even above the market at this point, you have done an excellent job and you deserve a big round of applause.

In the meantime, for people like myself, continue reading the full post by Vitaliy Katsenelson and remember that this is all psychological.

Written by

Jae Jun

SEC: Pandora Is “Unsustainable” Due to Reliance on Legal Strategy

The SEC told Pandora (P) in March that its music licensing agreements make its “current business plan unsustainable,” according to copies of correspondence disclosed by the company. The disclosures underline BNET’s earlier report that a crippling rise in Pandora’s music fees is set to kick in in 2015, making it highly unlikely the company can survive without some sort of miracle performed by its legal and lobbying teams.

Profit From Special Situations – Spinoffs

Spinoffs can take many forms but a simple definition can be defined as a corporation taking one of its subsidiary or business division and then separating it to create a new company. A spinoff usually occurs because the company wants the public to fully recognize the underlying assets of the division and to get a better valuation of the whole company. The newly created company is then valued by the market independently.

REE Risk List 2011

The risk list highlights a group of elements where global production is concentrated in a few countries. The restricted supply base combined with the relatively low political stability ratings for some major producing countries significantly increase risk to supply. The list highlights economically important metals which are at risk of supply disruption including rare earths, platinum group metals, niobium and tungsten. The list also shows the current importance of China in production of many metals and minerals.

The Working Capital Position

For investors, the strength of a company’s balance sheet can be evaluated by examining three broad categories of investment quality: working capital adequacy, asset performance and capitalization structure. In this article, we’ll start with a comprehensive look at how best to evaluate the investment quality of a company’s working capital position.