Disqus - Latest Comments for highwaysix

Re: My New Setup

Tariq — Sat, 21 May 2011 15:17:03 -0000

I disagree with you. I think early on some analysts get a false sense of confidence in their models because they end up doing so much work -- they end up with these massive overly complex files. Google Docs is actually a pretty good way to force you to simplify your approach.

A good investor does not require much by way of modeling. It's all about focusing on the cash flows and not complicating things too much. The more complicated you get and the less margin of safety you require leads tends to lead to suboptimal results.

I actually think modeling should be used more as a sanity check -- just as a means of seeing some of the past historical financial details and projecting a bit into the future, with assumptions for growth, working capital, and capex/depreciation. That gives you a back of the envelope FCF value which is what an investor typically wants to see.

From there doing a DCF in your head is pretty simple after making conservative assumptions on growth and the discount rate you require. Warren Buffett got pretty far without having to use Excel and Charlie Munger routinely says the way business valuation is taught in business schools is often incorrect.

Re: Assessing a Company’s Management

Tariq — Tue, 25 Jan 2011 20:28:02 -0000

So don't bother investing in massive companies.

If you are a small investor, look at small companies. When I was an undergrad I was able to speak with CEOs with market caps up to $620M.

Re: Mobile Economics Will Trend Toward Web Economics

Tariq — Thu, 30 Dec 2010 11:08:30 -0000

I agree with you on magazines Fred. I've had a chance to sample certain magazines and newspapers in ipad app form and have been pretty disappointed. Most of the time the content is displayed in a way that looks visually appealing from afar or in pictures but isn't for someone trying to read an entire WSJ or NYT.

I wish instead, the NYT, WSJ, and others would focus on creating a web experience that plays up to the strength of the device. AVC's current design is a great example of this.

For now though, I usually end up using readability on articles before I read them on my ipad.

Re: Assessing a Company’s Management

Tariq — Wed, 29 Dec 2010 22:43:20 -0000

I agree. I like to find situations where you are getting it as a bonus.

There are plenty of CEOs that are exceptional but operate businesses in industries that I absolutely hate. In those cases, I usually pass.

I think though, that in situations where a business is distressed (but cheap), assessing the quality of management is pretty key. Their decisions can kind of make or break your returns in that case.

Re: Chasing Returns

Tariq — Sun, 28 Nov 2010 10:59:02 -0000

I feel like just the fact that you had to live through the dot com bubble, especially in NYC, must really give you a leg up in a frothy market because you've seen what can go wrong when investors aren't cautious.

Re: Chasing Returns

Tariq — Sun, 28 Nov 2010 10:56:55 -0000

Seth Klarman is definitely the best example. That guy will go 50% cash when he gets worried and in general, it seems to really pay off. After all, he's managing over $20B now!

But there are others out there, especially when you hit the smaller end of the market (think 100-200M in AUM). Most of these fund managers were value investors that focused mostly on special situations/event driven investments, who also paid attention to the macro. So overall, they were looking for investments that were much less correlated to the broader market.

Still, there were plenty of long-only value guys that ignored the macro and took a very ultra-concentrated approach (5-10 portfolio positions). Some of these guys were really just operating as ultra concentrated versions of the S&P which is why they took 60-70% hits that year. L/S investors faced the same issue, even though they called themselves L/S, at the time, most were net long the market. So I think it takes a constant paranoia and discipline to always look at overall market valuations to see how much cash/long/short you should be.

Re: Chasing Returns

Tariq — Sun, 28 Nov 2010 10:49:58 -0000

That's true - I had a meeting a few months ago with a large fund and they mentioned in passing that they have to keep their cash allocation very low because that's what their consultants push for.

I think that is another side of the equation, when you run a fund you really need to cultivate the right group of investors -- the kinds of people that will allow you to sit out frothy/bubble periods. Because if you don't, you'll end up having your assets walk out the door.

Re: Chasing Returns

Tariq — Sun, 28 Nov 2010 09:50:19 -0000

Just wanted to chime in and say that Too Big to Fail was my favorite book on the crisis -- it's just a great study of decision making under pressure.

I think that when you have an influx of new capital into a market you invest in, it always makes things a bit more difficult for the investors in that space. The biggest mistake I saw during the crisis, by investment funds, was an inability to go to cash/maintain discipline. Instead, they argued that maybe we were experiencing a new period which warranted higher valuations and they agreed to pay up. They didn't give any thought to mean reversion, they just wanted to keep being active. And as a result, when the market tanked, some of these guys were down 60-70% for the year which is just terrible performance.

Re: Warren Buffett invests in Bank of New York

Tariq — Wed, 17 Nov 2010 15:27:30 -0000

I think BK is in a good business, but they are one of the weaker players. To me, State Street and Northern are much better and have proven their ability to do well with growing earnings.

I think so far, the Mellon transaction has not been accretive, so maybe the jury is still out on that.

As for the Auction Rate Preferred biz, I don't think they should get a free pass from investors for that. It was a bad business decision on their part. It would be akin to giving Countrywide a free pass for their involvement in the housing mess.

Re: The Fallacy Of Bimodal Returns

Tariq — Fri, 29 Oct 2010 10:19:37 -0000

Fred, I love this post. I have been a bit puzzled by all this talk about doing every deal because it just doesn't make sense from the other areas I've studied in investing.

I'd love to see a post where you talk about how you avoid those bad deals.

Re: Todd Combs of Castle Point Capital to join Berkshire Hathaway

Tariq — Wed, 27 Oct 2010 13:01:17 -0000

Well, between starting Castle Point and graduating from Columbia he was heading up the financials group at Arch Capital. Usually such roles are filled by people who have already been working in the HF biz as PMs, but occasionally they do go to people with domain expertise - which he had.

Actually, if you look at some of the most accomplished analysts/PMs for financials, a few have come from bank examiner/regulatory backgrounds. So I think that financials are just unique in this manner, but Combs had a lot of luck in terms of meeting the right people and making the right connections which got him the job at Arch and allowed him to then get the Castle Point opportunity.

Re: Generalists vs Specialists

Tariq — Mon, 25 Oct 2010 12:12:10 -0000

Yeah, that's true. I think that when you are young and have less obligations, you are much more mobile (as long as you are willing to live cheap).

Re: Thoughts on Gold

Tariq — Thu, 21 Oct 2010 13:11:33 -0000

SUNH and WMB are two that I've been researching.

Re: Sardar Biglari bids for Fremont Michigan InsuraCorp (Again)

Tariq — Thu, 14 Oct 2010 12:46:14 -0000

Whitman,

HALL was pretty good 6-12 months ago. At the time, Schwarz was having to sell some off in order to liquidate some of his LPs, so you had this technical factor making it undervalued.

PZZI seems like an interesting biz because its almost a 100% franchise business. There are write ups for PZZI and HALL on Value Investors Club which are good primers to get into learning the individual businesses.

The one thing I would say is that the difference between BH and I think HALL/PZZI is I think there is a greater sense of urgency with Biglari to get things done quickly to grow BH. He seems more aggressive. That may or may not be a good thing when you compare the two.

Re: A Conversation with Charlie Munger (UMich)

Tariq — Fri, 17 Sep 2010 16:00:29 -0000

You might need to DL the Microsoft Silverlight plug in

Re: Fairfax Financial Bets Deflation

Tariq — Thu, 26 Aug 2010 12:38:10 -0000

I think Prem & co will take the appropriate steps if they see deflation turning into inflation. They could do a variety of things - take on different types of hedges and also possibly adjust the allocation between equities/bonds. I am not too worried about them being caught off guard.

Re: Fairfax Financial’s Prem Watsa on Market Valuations

Tariq — Tue, 03 Aug 2010 10:38:27 -0000

Yeah, despite their size they still have a low profile I think. If you saw the conference call there were only 2 analysts on the line asking questions.

The business has a really interesting history - they started up by acquiring distressed insurance operations and restructured/turned them around. They had a 7 year stretch where there were some issues stemming from bad acquisitions and short sellers began pegging the stock as a fraud. But towards the end of 2006/2007 they emerged from that and have been thriving since.

If I had to fault the company, I'd say they need to work on improving their insurance underwriting.

Re: Li Lu Emerges as Possible Buffett Successor

Tariq — Fri, 30 Jul 2010 14:12:39 -0000

Don't have any links to the video. I watched the video a couple of times and my notes are pretty close.

Re: Metrics for analyzing Restaurant Companies

Tariq — Tue, 27 Jul 2010 19:45:45 -0000

JACK is really struggling with comps in an environment when competitors are doing pretty well. I think they are guiding that CapEx will be around $125 to $135M for the next two years. If we assume comps continue to do bad you're looking at only $25 to $45M in FCF generated. So optimistically they are trading at around 25x FCF.

I think if comps continue to stay poor, it will make their efforts to franchise off company locations more difficult.

So I'd try to see how their latest promotions are translating into sales to see if the situation will turn.

Re: Comment Spam and False Positives

Tariq — Tue, 27 Jul 2010 10:25:28 -0000

I use Disqus and have noticed some spam coming in from people trying to increase their link-backs (sort of a black hat SEO technique?). They really have been getting more clever about it with how they hide their links. I mostly moderate my comments via e-mail, like you, so I was just getting the text of their message and not the actual HTML. Is there a feature I could enable that would e-mail me the HTML of the message content instead? That would be pretty good.

Re: More on Large Cap Stocks

Tariq — Fri, 23 Jul 2010 13:28:25 -0000

I think the only company in the O&G sector that I might buy would be Ensco. I just think comparatively, I'd pick Exxon over BP.

I actually really dislike most commodity businesses -- to me over the last few years it's been the one area where most value guys screwed up. The only one I've owned was BBEP and that after they discontinued the dividend. Right now I am looking at a business that sells products to O&G exploration companies without actually doing any of the capital intensive exploration. That is the kind of business I prefer.

Re: Wilbur Ross: Value Opportunities in Insurance Stocks

Tariq — Tue, 20 Jul 2010 00:23:10 -0000

You know with holding times, it really depends on the type of insurer.

I think with reinsurers you are never going to want to hold them for the long term. If a huge catastrophe occurs you can lose everything. I would say that reinsurers typically need to be held for shorter periods... Sometimes, you will see them stay depressed even after hurricane season. That might be a good time to start looking at the group. But I would not own most reinsurers through hurricane season because of that black swan catastrophe risk.

With short-tail insurers, like in car insurance which you refer to - I think that holding periods can be extended. If you can find an auto insurer that is conservative with their reserving practices, great record of combined rations, has a history of profitability, and is trading below book because of some temporary dislocation you might have an opportunity to grab a great holding that will grow for years.

You might want to look at insurance brokers. They tend to be profitable in soft and hard markets, but can really earn a lot if the market turns hard. They allow you to remove the need to figure out one insurer and instead bet on the overall market. Willis Group (WSH) is one that I was looking at because it seems to have that quality.

Re: John Malone and Starz Entertainment

Tariq — Mon, 19 Jul 2010 22:35:44 -0000

I think you're right Charlie. I know they say it is expected to happen around end of 2010/early 2011, but hopefully we will get a bit more detail. The other thing I wonder about is the Starz Media assets which are held by LCAPA. There seems to be a bit of uncertainty on whether those will be sold or reattributed to LSTZA (and what that cost could potentially be)

With LCAPA could get some artificial selling but I still think it will be on the hard side to analyze just because of the non-public and debt investments. That might create an excellent opportunity for someone who is sharp and willing to do the work to figure out the values of those assets.

Re: Restaurant Accounting Quirks

Tariq — Fri, 16 Jul 2010 21:54:57 -0000

I heard about that. I'll hopefully get some time to read and post a review of the new book. It certainly looks interesting.

Re: Metrics for analyzing Restaurant Companies

Tariq — Fri, 16 Jul 2010 00:10:54 -0000

To me, the biggest difference between the two is that EAT has probably topped out in terms of their concepts and cannot grow any more without self-cannibalizing and you point out that they are divesting non-core brands / not expanding. That is not a bad thing. You just need to monitor what the cashflows are going to be spent on.

RRGB is younger and there is potential that if activists put the company on the right course - you can have a value stock that eventually has decent growth prospects as well.

But I haven't looked deep enough at EAT to say whether it is better than RRGB.