Old School Value Nugget Fest (August 1st Edition)
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Well, the Fed has done its thing, and US markets initially reacted with relative equanimity. Then the presser started, and Powell did not make it sound like another couple rate cuts are imminent, so, as of press time, markets are dropping like it’s hot.
Markets and the real economy are not always connected, but I’m still feeling pretty good about where we’re at. I think the companies in my portfolio will continue to produce solid results, and I’m always happy to buy on the dip.
Enjoy this week’s reads!
Michael Burry: How To Make 7x Plus On Your Investment (The Acquirer’s Multiple®)
“In fact, at all times I strive to buy stock at prices per share that no acquirer could ever pay for the whole company — not because the prices are too high, but because the prices are so low that a potential acquirer proposing them would be laughed out of the boardroom.”
- Hedge Fund Presentations By World’s Renowned Activist Investors (10xebitda.com)
A ton of investment theses by lots of great funds going back more than a decade.
- On the other hand by Howard Marks [PDF]
Can the Feds keep market dislocation at bay or stop it outright? “The Fed usually acts in response to the overall outlook for the economy: In other words, there’s the risk of being unresponsive or over-responsive, along with the risk of doing too much or too little, and of doing it too soon or too late.”
Markets & Investing
Mispriced Innovation – Patents as a Leading Indicator for Earnings Growth (O’Shaughnessy Asset Management)
Another tour de force from OSAM. In this one, they show how a composite patents + R&D spend metric can be a leading indicator for growth that generates serious outperformance. Combine it with Value metrics, and it’s even better.
With Stocks at Fresh Highs, Investors’ Portfolios Look Alike (WSJ)
“The overlap in the top 50 stockholdings between mutual funds and hedge funds—two types of investors whose styles typically differ—now stands at near-record levels, a study by Bank of America Merrill Lynch found.”
There’s Two Places In The Market Where Book Value Is Still The Best Metric For Valuation (The Acquirer’s Multiple®)
A quick argument for using the out-of-fashion price to tangible book value for banks and for small stocks.
The hidden costs of using free-trading apps like Robinhood (The Seattle Times)
“There’s an old saying in business that if you’re not paying for a service, then you are the service, and I wondered who Robinhood’s customers were being served to. You won’t find clear answers on the app or the company’s web site.”
Company & Strategy Analysis
- Wells Fargo: Not All Boring Ideas Turn Out to Be Boring (Saber Capital Management)
“Wells Fargo is likely going to buy back around $40 billion worth of stock in the next couple years. Again, assuming the current level of overall earnings (no growth), we’ll have a business with over $6 of earning power and at 11 or 12 times earnings, a stock worth somewhere between $65 and $75. Including the hefty 4%+ annual dividend, that is 50-75% upside for a boring, staid bank.”
- We Need a New Government Agency to Fight Facebook (NYT)
“If you squint, it looks a bit like justice served…But unfortunately, here in 2019 on Earth-One, this month’s fines aren’t shows of strength but telling admissions of weakness. When it comes to funding, influence and size, the government is simply outmatched by the internet’s largest data guzzlers.”
- The Resilience of Costco (Mine Safety Disclosures)
“For 40 years, Costco has succeeded with a simple formula: reinvest merchandising profits into lower prices and better products; be a disciplined operator; and treat customers and employees well.”
- The Hottest Phones for the Next Billion Users Aren’t Smartphones (WSJ) “While global smartphone sales began sliding last year as markets became saturated, smart feature phone shipments tripled to around 75 million from 2017, according to research firm Counterpoint. Some 84 million are likely to be shipped this year.”