Politics, policy, economics, money, law, etc.
-->In this disjointed and frightened market, arbitrage opportunities in merger and acquisition simply abound. There are significant discounts even with the shareholders of the target company having voted “Yes” to acquisition. An investor using due diligence will be able to find good opportunities.
Take a look at this list of pending mergers for ideas.
For the past couple of weeks I’ve been reading a new blog I’ve found called Barel Karsan. The title is a combination of the surnames of the two authors. It’s a very good value investing blog with a great number of posts that details the different methods of valuation that are open to investors. It’s really inspiring to me how they have in the past found small, ignored stocks trading at a discount to fair value.
A recent post detailing the steps to take when performing a liquidation value analysis spurred me to perform some searching. I created a spreadsheet to help me do a quick analysis of about 40 stocks I felt had potential to be trading below liquidation value. I found a couple promising stocks, one of which was GSI Group (GSIG). GSI Group supplies precision motion component products, lasers, and laser-based manufacturing systems to electronics, semiconductor, medical, aerospace, and industrial markets worldwide. Some of their stuff has been used on NASA’s Shuttle Discovery!
The following commentary is meant to parallel Barel Karsan’s post on the liquidation value of Amisco. And just to warn any reader, I am not an investment advisor and you should not act upon anything I say without talking to a professional. Now, on to the results of my liquidation value analysis.
I calculated the liquidation value per share to be roughly $6.68. Compared to a current price of $3.6 per share, the discount is about 46%. Looks good, but is it too good to be true? One would have to take a closer look at the balance sheet and cash flows to ensure they are not stepping into a trap. However, I am not able to detect any signs that would point to trouble. Cash has steadily increased, along with operating cash flow and owner earnings. GSIG has a current ratio of 6.79, which is very healthy.
In conclusion, this was a useful exercise for myself. If anyone sees any possible mistakes, please let me know via the comments.
I am a shareholder of the DWS Global Commodities Stock Fund (GCS). The 2008 Annual Meeting is coming up and there is currently an interesting and important choice. The choice will be either to elect the current Board’s nominees or the nominees of activist investor Art Lipson and his Western Investment LLC fund. I made my decision to purchase GCS solely based on the arguments set forward by Art Lipson, but I want to set out the arguments made by each side in this upcoming vote.
First, GCS claims that the fund has performed well. YTD, “the fund has outperformed its peer group on both an NAV total return basis and on a market total return basis.” GCS experienced a -0.17% market return versus a -6.25% market return for the peer group. Since inception (Sept. ‘04), GCS delivered a total NAV return of 106.55% while the total market return has been 80.22%.
Second, GCS believes the Fund’s closed-end structure has helped contribute to its returns because it allows the Fund to remain fully invested in the markets and respond more quickly to market conditions.
Third, GCS is against the possibility of converting GCS into an ETF or ETN, open-ending, or liquidating the fund. GCS argues any of these actions would involve significant costs that would be borne by the fund.
Fourth, GCS claims that Lipson’s interests are not aligned with GCS stockholders. GCS calls attention to Lipson’s statement in an SEC filing where he says he has hedged out the commodity exposure and is just “playing the discount to narrow.”
Fifth, GCS argues that if Lipson and his nominees are elected to the Board, they will have have conflicting loyalties because they will owe allegiance both to the fund and its stockholders and also to the Western Investment funds.
First, Lipson feels that GCS’s NAV discount is unacceptable:
GCS’s Share price has traded at a persistent discount to its per Share net asset value that has averaged 13.3% between January 1, 2005 and June 30, 2008, and as great as 16.6% on August 17, 2007. Thus, when GCS stockholders sell their Shares they are forced to leave behind a sizeable portion of the value underlying those Shares. We believe that the persistence of this discount is, in part, due to the perception that the persistent and substantial NAV discount is not being addressed by the GCS Board. Any time a stockholder chooses to sell his or her ownership of a closed-end fund at a steep discount to NAV, that stockholder is harmed no matter what the fund’s discount was at the time the stockholder purchased their shares of that fund. When a NAV discount is excessive, a selling stockholder is forced to leave behind a substantial portion of the value underlying the shares at the time of sale. We believe the fair value of a share of common stock of a closed-end fund should be its NAV, or a value very close.
Lipson notes that GCS has frequently been among the worst of all closed-end funds in terms of discount to NAV and has frequently traded in the bottom 1% of all closed-end funds in terms of discount to NAV.
Second, Lipson believes the current independent members of the GCS Board, who receive compensation from service on 133 funds, may be too beholden to the Fund’s investment manager. All incumbent independent GCS directors are a director of at least 133 of the 136 total funds in the DWS fund complex.
While the current composition of the GCS Board appears to satisfy applicable securities and investment company laws, Lipson questions whether service by each of GCS’s handpicked independent directors of at least 133 funds is in the best interests of GCS’s stockholders. Lipson believes an independent director should not be a director of 133 funds in the DWS fund complex. Also:
- we believe that in serving as a director of so many registered investment companies inherent conflicts may arise. For example, we believe a person serving in such multiple positions may become unduly beholden to the Fund’s investment manager, and less inclined to act in the best interests of GCS’s stockholders, although we have no direct evidence that any of GCS’s directors have acted in this way;
- we question whether directors who collect, on average, over $200,000 each in annual fees in the aggregate for their service on at least 133 DWS boards are too beholden to the investment manger to take decisive action that benefits stockholders if it would negatively affect the fees collected by Deutsche Investment Management, the Fund’s investment manager;
- we question whether the current directors are the best people to perform the essential task of evaluating the performance of the Fund’s investment manager
Third, contrary to GCS’s opinion that the Fund has performed will, Lipson points to the performance since inception as an indicator of sub-par performance. Annualized return for the GCS market price since inception is 16.53% compared to a return of 20.95% for the benchmark.
I am still going to vote my shares for Western Investment. I find Western’s arguments to be more persuasive. Western Investment has a history of creating shareholder value in closed-end funds trading at steep discounts to NAV. I feel that Western Investment’s interests are more aligned with the other shareholders of GCS because Western owns 11.29% of the outstanding shares. I do not believe that the interests of the current GCS directors are aligned with shareholders because they seem to earn a living from their hundreds of directorships on the boards of other funds. Also, pretty much every one of the GCS directors have a paltry stake in their own fund. Like Warren Buffett, I believe a director ought to have a sizeable stake in their company or fund.
Via Bloomberg:
Dell Inc. founder Michael Dell bought $100 million of shares last week after the personal-computer maker’s stock plunged following disappointing earnings.
Dell, the chairman and chief executive officer of the Round Rock, Texas-based company, bought about $71.5 million of shares on Sept. 4, and $28.5 million on Sept. 5, according to a regulatory filing yesterday. As of July 1, Dell had a 12.8 percent stake, making him the biggest shareholder.
Profit last quarter missed analysts’ estimates as the world’s second-largest PC maker said the U.S. slump in technology spending had spread abroad. The company has cut prices and increased sales through retail outlets to boost revenue and take market share from leader Hewlett-Packard Co.
After researching Dell over the weekend, I now own some Dell stock. Dell closed at $19.30 today.
Also, you should check out Dell’s new Inspiron Mini. It’s Dell’s first entry into the “netbook” category of products. Though I love looking at gadgets and electronics, I never purchase them. I don’t own an mp3 player and I don’t have a fancy cell phone. Anyways, if I had some disposable income, I would probably seriously consider purchasing a Dell Mini.
I forget how I stumbled upon the placeholder for Schiff’s Insurance Observer’s new website about 2 months ago, but I’m glad I did. Schiff’s has a great description:
Our Audience
Schiff’s is written for a select audience of tough guys, intellectuals, hepcats, existentialists, trumpet players, pastry chefs, and all others who have a keen interest in insurance.
HistoryDavid Schiff started Schiff’s in 1989. It was originally called Emerson, Reid’s Insurance Observer, after the wholesale insurance firm Schiff owned. Its goal was to promote Emerson, Reid’s business. That worked, and Emerson, Reid prospered.
In 1991, Schiff said to hell with promoting Emerson, Reid’s business and decided to write a great newsletter instead. (That turned out to be even better promotion for Emerson, Reid’s business.)
Schiff sold Emerson, Reid at the end of 1996 but kept the publication and changed its name to Schiff’s Insurance Observer. The famous bulldog logo was added at that time.
Publication Schedule
Schiff’s has always had a somewhat erratic schedule. In 2000, after switching from print to emailed .pdf files, Schiff’s gave up on any semblance of a schedule. Why publish just because it’s the first and fifteenth of the month? Instead, we published when we had something to say, which turned out to be about twenty times a year.
The Present
Schiff’s has been on hiatus since 2007. David Schiff hasn’t decided if he wants to continue writing the publication.
Though Schiff’s is pretty much defunct at the moment, the archive of articles is awesome. One can learn a lot about investing and financial history just by reading through the articles and essays.
I started off with Volume 14, Number 8, released on June 4, 2002. The issue starts off with an analysis of Buffett’s seemingly uncharacteristic all-stock deal with General Re. Next, Schiff’s questions why investors often fail to see deals that arise in the bond market. Last is an admonishment of insurance company directors who gave stock options to CEOs—as “incentives”—priced far below book value of their companies.
Great stuff.
Last night I stayed up way past my normal bed time listening to excerpts of the Longleaf Partners Funds’ most recent annual presentation. Though the presentation took place back in May, I’m glad I eventually got around to listening. Mason Hawkins and Staley Cates are the two main guys who run Longleaf and they are true-blue value investors.
The two qualities that impressed me the most - aside from their impressive investing record at Longleaf - were their confidence in themselves and their wit. Hawkins and Cates responded to questions with commanding knowledge and reiterated their investing philosophies in a way that their audience could easily understand.
Turning now to stocks, Dell (DELL) is the top holding of the Partners Fund (LLPFX), taking up 9.3% of the portfolio. This is a huge stake, and after listening to the excerpts of this year’s presentation, I am pretty convinced that Dell is presenting a great opportunity for investors.
Cates and Hawkins go into some detail on the reasoning behind their Dell investment during their response to a general question about technology investing. According to Longleaf, Dell has:
Hawkins says that Dell isn’t a tech company—it’s more an assembler or retailer.
Additionally—and more tantalizingly—Hawkins feels that Longleaf has “an eight- to ten-bagger” with Dell. Hawkins made this statement in May when Dell was at $20. Today, Dell is back at $20 after plunging the most in almost eight years after saying the U.S. slump in technology spending has moved abroad. I think this is probably another opportunity for Longleaf, Dell, and perhaps other like-minded investors to purchase even more shares.
MagicDiligence makes the case that Rupert Murdoch’s News Corp is a wide moat media company that is offering supreme value:
News Corp is one of the largest and most diversified media conglomerates worldwide. The company’s diversification covers both product line and geography. The lion’s share of sales come from it’s 20th Century Fox movie studio, it’s FOX television network, and the growing array of cable television channels such as Fox News, FX, and Fox Sports Network (or FSN). Recently, News Corp has also made a move into business media, purchasing Dow Jones (the publisher of The Wall Street Journal) and launching the Fox Business Network to compete with CNBC. The diversification doesn’t stop here, however. News Corp also owns SKY Italia, a direct broadcast satellite network in Italy, book publisher HarperCollins (one of the largest English language publishers worldwide), the Star TV network in Asia, several newspapers primarily in the U.K. and Australia, many well known websites such as MySpace.com and IGN, and so on. The full list of News Corp’s businesses takes several pages in the 10-K!
Please read the full article. Also, one should be reassured by value investor Seth Klarman owning a very large stake in News Corp. Its Klarman’s second largest holding taking up about 9.3% of his entire portfolio.
Disclosure: I own News Corp stock
Bloggingstocks writes about ten stocks that are better than CDs. There are two separate posts: this one and this one. Most of them are related to the energy sector, a couple of banks, and one consumer discretionary pick.
However, if you feel safe trusting your money with WaMu, they are offering 5% for a 12 month CD in an environment where few banks are offering more than 4.25%.
I just finished reading Mobs, Messiahs, and Markets by William Bonner and Lila Rajiva. The authors are pretty staunch libertarians, which means they like gold, dislike fiat currencies, dislike George W. nearly as much as they dislike Stalin, rail against the so-called “wisdom of crowds”, etc., etc.
Despite these divergent views, I liked the book because it was very well-written. The authors opined on a multitude of topics in definitively witty manner. There were a bunch of great metaphors used to highlight the absurdity of human nature and the ease with which man can compound public spectacles and make a fool out of himself.
Two examples…
About investment newsletter business, the authors write, “If you really want to appreciate the media, though, you have to get close enough to see how things work—like a prairie dog peering into a hay bailor—but not so close that you get caught up in it yourself. The newsletter business is perfect; it is a part of the media, but no one would mistake it for the most respectable part.”
On conflicting desires: “Watching a fat man with the keen eye of a zoologist observing a species of dumb animal, you would come to the conclusion that losing weight is not his primary concern. He also desires other things—such as Krispy Kreme donuts and Aunt Jemima’s pancakes. The two desires, he knows as well as you do are incompatible. It is his preferences you see in his waste size, not his desire for weight loss.”
So, getting to main topic of this post, which is the uselessness of experts and efforts to predict the future as it relates to investing. Physiologically, the human brain was not designed for the complex world in which we live today. The authors write, “In order to think, people are forced to start simplifying and eliminating a lot of the detail. They have to abstract…theorize…generalize.” Though the heuristics of our brains are extremely useful in helping simplify a complex world to a point where we can understand it, I feel that simplification does not necessarily lead to good results or accurate predictions.
Because modern society “forces human beings to interact in groups far larger than their brains can handle effectively”, individuals will seek out the experts in hopes of gaining some sort of guidance in their lives. But the experts seem to be no good. The authors cite the work of political psychologist Philip Tetlock, who conducted a 20-year study of 287 political experts whom he asked a range of questions: “Would there be a nonviolent end to apartheid in South Africa? Would the United States go to war in the Persian Gulf? Would Canada disintegrate?”
Tetlock found that these experts were terrible in their predictions. Even more amazingly, “specializing” in a field of knowledge tended to make for worse predictions. The moral of the story here is that there is that the law of diminishing returns applies to knowledge and learning. The authors write, “Too much knowledge can actually trip you up, because it gets enlisted on behalf of your favorite hunches—or fears—instead of being evaluated objectively.” Lay persons are just as good as the experts at making predictions.
So, in relation to investing, one cannot and should not hope to achieve perfect or near-perfect knowledge of a company or potential investment. Time spent trying to gain near-perfect konwledge is inevitably a waste and would have been better spent in evaluating several other companies that you feel might be presenting a bargain. Furthermore, I am even more convinced that attempts at predicting the future are clearly a waste of time and a needless source of worry.
If you’re a trader, Gold Stock Bull lists three areas where one should probably be able to profit: financials, the dollar, and energy. With energy, Petrobras is the particular stock mentioned right now that seems to be a both a good trading and investing opportunity.
I also agree with the general outlook on energy. Oil was greatly overvalued, but now it seems that there has been an over-correction. But perhaps not, as I have been hearing that there is some evidence of a greater worldwide economic slowdown, and thus a decrease in demand for energy.
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