Graham Deep Value Stock Review: XOHO Holdings (XOHO)


I was enjoying the Seattle Mariners baseball team beat the Texas Rangers and also had my laptop next to me. So I whipped open the stock valuation spreadsheet as well as the Graham net net spreadsheet and literally went through more than 80 stocks while watching the game, the results of which I will write in a later post.

Instead I want to focus on a previous stock I covered here and a few mistakes I made.

In case you’re wondering, most of the ideas were from Manual of Ideas, Nasdaq100 and previous lists and screens that I performed and wrote about. Of all the net nets I went through, not a single Graham Net Net exists anymore.

Looking Back on XOHO

Back in April, a reader asked me on Twitter for my opinion on XOHO which was a net net trading at $0.19 which was very much below liquidation value at the time. Today the stock is flat lined at $0.50 as Carl Ichan is trying to purchase the remaining shares of the company even though the company has announced bankruptcy.

The current price is also bang on target of my initial estimated liquidation value of $0.49. Had I bought it, the position would be up over 200%.

The image below is from the April post.

xoho-netnet

In the image above you will notice that XOHO was trading at a 61% discount but I chose not to invest. The margin of safety was huge even for a net net.

FYI I use the pure Graham net net working capital (NNWC) formula, I do not adjust the balance sheet to include long term assets such as property or other assets. This has worked well for me as it has protected and limited the downside.

Missed Opportunity

But looking back, I realize some mistakes I made which prevented me from capitalizing on a great opportunity. Let me go through them.

First, I was informed that Carl Icahn was actively pursuing to purchase the entire company. If you’ve followed this blog, you would have noticed that I don’t seriously follow activists. So this was another occasion where I ignored what Icahn was doing and didn’t bother to read anything on it. In hindsight it seems his interest in the company was quite big and something I should have caught onto.

Second, my education and professional background is in the telco industry and I’ve worked with many telco device manufacturers as well as the main telcos themselves. This led to overconfidence that I knew the industry and ultimately the fate of the company. I was right that the company would continually suffer but the mistake was that I didn’t think of XOHO as an investment vehicle.

Had I compared price to value, it would have been pretty clear that XOHO was trading at a huge margin of safety.

When Buffett is asked what his biggest mistakes are, he regularly answers that he was “sucking his thumb” and didn’t grab the opportunity. I hope to reduce this frequent habit of mine. I still seem to enjoy sucking my thumb.

Third mistake I make regularly is watching the price go up and feel like I missed the opportunity. This is exactly what happened with ASFI. I like the business and the valuation but wanted it a little cheaper and it just kept rising on me. Rather than swing the bat as hard as I could, I kept waiting and waiting all the way from $2.50 to over $6 now.

“There have been a few things where I’ve started to buy them and then they’ve moved up,” Buffett said. But instead of adding to his position in these great businesses, Buffett “stopped at a tiny fraction of where we should have gone.”

Hope you can learn from my mistakes.

Disclosure

No positions in any stocks mentioned

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