Ragnar Is A Pirate

Guest Post: Rurban Financial

2012-02-10T15:25:00.000-08:00

One of the things that I love about this blog is that I often get the chance to talk to other value investors and we get the chance to bounce ideas off of one another. Recently, I had the privilege to discuss a whole lot of ideas with one of the readers of Ragnar.

While talking one afternoon, I told him that if he ever wanted to do a guest post, that he would be more than welcome to send something my way. He obliged. Frankly, I was pleased with the results. As I have said in a previous post, I never have a problem with people emailing with me to share ideas (or, in certain instances, do guest posts). I will add though, that sometimes stuff gets buried in my inbox, so, If I don't respond to you, feel free to send a follow up email.

Unfortunately, in regard to this post, I was wanting unable to post it immediately, so, earnings have since come out, and the market price has improved significantly (I got the post a few days before the last earnings release)... However, it is still a great read, and potentially a great investment.

Without further ado, here is a fellow value investor's (under the pen name: DTEJD1997) write up on an interesting little bank called Ruban Financial.

Disclosure/Disclaimer: I have no financial position or interest in or against, in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

Rurban Financial (RBNF $3/share 1.27.12)

I would propose that shares of Rurban Financial (RBNF $3/share), are an interesting example of a bank left for dead. RBNF has been through difficult and turbulent times. Investor and analyst interest in this company is non-existant, and thus we have a good opportunity for superior investment returns. RBNF is well capitalized and is quickly getting stronger, but this not reflected in the current market quote.

Rurban Financial is headquartered in NorthWest Ohio, Defiance Ohio specifically. RBNF has operations in North West Ohio, Central Ohio, and Central Indianna. Most of their locations are in rural communities, but they do some amount of business in the cities of Toledo, Columbus, and Fort Wayne. Rurban Financial is a holding company that consists of a bank division (The State Bank), Rurban Data Systems Inc., and some mortgage origination offices.

RBNF is a fairly small bank, with a market cap of about $15MM. The average trading volume is about 2800 shares a day, so this investment is probably suitable for personal accounts only.

RBNF has about $625MM of assets under management. Book value per share is about $9.76. TANGIBLE BOOK value is $5.91. Tier 1 capital ratio is approximately 8.57% and thus puts them in the "well capitalized" category. These figures are from September 2011. I strongly suspect that all forms of book value, and Tier 1 capital levels are higher than this at the end of January 2012.

Tier 1 capital is approximately 8.57%, 8% is the minimum requirement for a "well capitalized" bank. The important thing is that the bank is "well capitalized". It is also important that earnings & capital levels are trending in the right direction.

Rurban has actually been earning money this past year, it's loan book is getting better, not worse. This is supported by the CEO Mark Klein's statements in the 2011 3rd quarter report:

"Elevated costs associated with the administration of problem assets are fairly well behind us, and we are focusing more intensively on improving efficiencies within the Bank."

The 3rd quarter earnings were not a one quarter temporary bump. Here is what was said in the 2011 2nd Quarter report:

"Earnings, total revenue, Tier 1 and total risk-based capital, as well as services-per-household, all revealed positive movement while non-performing assets, delinquencies, and non-interest expenses were all down."

Finally, in the 1st Quarter of 2011 CEO Mark Klein wrote:

"The most compelling aspect of the improving trend, particularly in the current quarter, is that we are seeing less deterioration with our loan portfolio, and as a consequence, fewer additions to delinquent and nonperforming status."

The end result is that earnings and loan quality are improving for Rurban and have been trending that way for at least 3 quarters in a row.

Like most other banks, Rurban has not been without it's problems...

WHAT WENT WRONG WITH RBNF?

RBNF has had many problems these past four years. Some of them were self-inflicted, some were not. The primary problem with RBNF was it's RDSI (Rurban Data Systems Inc.) division. This division did transaction processing for small banks primarily in the Midwest. This was a boring, but profitable sideline. At some point in the distant past, RDSI decided that they were going to develop their own software to compete with Fiserv. This was most of the business going on in RDSI and was a major expense center.

In their quest to get this software developed, RDSI merged with another small software company, New Core Systems (NCS). This is a very long & complicated story. The end result is that the software development burned through a lot of cash and failed in the end. RBNF took a large charge to write down the value of this division in June 2010. Most of the people associated with this division were let go. As of late January 2011 there are about 32 people in this division vs. 110 when it doing software development. It has been scaled back to it's original position of doing boring transactional processing, and is now mildly profitable. RDSI is now a much smaller part of RBNF. Management does not anticipate taking any further charges here in the future.

The other thing that went wrong with RBNF is that they had a lot of loans go bad. This was a problem common to a lot of banks. RBNF has taken charges to write down and disposed of these loans.

RBNF also got hit with a large FDIC insurance charge.

RBNF has also had to deal with a very difficult economy in Ohio and Indiana.

Fortunately RBNF had a VERY strong capital levels before all these problems started. If RBNF did not have such strength and reserves, it would have enetered bankruptcy by now.

The end result is:

A). RDSI has been scaled back. People have been let go (32 now vs. 110). A charge was taken to write down the bad investments. This division is stabilized and mildly profitable.

B). The bad loans have largely been charged off and addressed.

C). Barring the general economy relapsing into further recession/depression, most of RBNF's problems are behind it.

Well, all of this sounds great, but what are the future possiblities for this bank?

In order to get an idea of what RBNF is capable of producing, we can look at the financial returns of other banks. I would propose that we look at the following:

A). Return on Assets

B). Return on equity & book value

C). Extrapolation of TTM results for RBNF

RETURN ON ASSETS:

Good & capable management of a bank can earn returns on their assets of about 1% in normal economic times. That would equate to net earnings of about $6.25MM ($1.30share) for RBNF. A very well run bank could earn a return of about 1.5% on it's assets, if RBNF could achieve that, earnings would be nearly $2/share. I don't think RBNF is a currently a well run bank, but it certainly could be a decently run bank in a year or two. This would indicated future earning potential of at least $1/share.

RETURN ON EQUITY & BOOK VALUE:

Rurban has a book value of almost $10/share. A well run bank, in normal economic times, could earn 15% on it's equity. That would put Rurban's earnings at close to $1.50/share.

Rurban has a lot of goodwill & intangibles on it's balance sheet as it has acquired smaller banks in the past and has a data processing division which has a lot of intangibles & goodwill associated with it. You could mark down all goodwill & intangibles to ZERO and be left with a book value of about $6/share. I am conservative investor and I don't much care for goodwill & intangibles, but I think marking it down to ZERO would be a bit too much. How about marking intangibles down by 2/3? That would give Rurban an "adjusted" book value of about $7.35/share. I think that is probably pretty accurate and fairly reasonable.

You could say that Rurban is an average/mediocre bank...OK I might be willing to concede that point. Average banks don't have 15% ROE. Yes, that is quite right, how about a 10% ROE for an average bank? I think that is probably a conservative estimate. With that estimate, Rurban would be earning about $.73/share.

You could argue that Rurban is an average bank, that it is operating in a difficult economic climate in a economically depressed part of the country, and you would be right. So maybe take that estimate of $.73/share and mark it down by 15%. You will still have earnings of $.62/share.

EXTRAPOLATION of TTM RESULTS:

In the latest 3 quarters, RBNF has earned $.29/share. I think 4th quarter earnings will be at least as good as third quarter earnings, probably a bit better even. That would equate to earnings of maybe $.14 or $.15/share. I think RBNF will have earnings of about $.45 for the last 12 months. That equates to a P/E ratio of about 6.5. I think earnings in 2012 will be higher as RBNF has put a lot of it's problems behind it, I think 2012 earnings will be at least $.62/share. That equates to a forward P/E of slightly less than 5.

Also note that RBNF is expensing about $180k a quarter in goodwill and intangibles resulting from the takeover of two smaller banks. These banks were the Exchange Bank and National Bank of Montpelier. These expenses will continue for another 4 to 5 years. What is important to remember is that these expenses are non-cash. If you add these back into earnings, RBNF is doing better than first glance.

I have spoken with top level management at RBNF and have found them to be receptive to shareholder questions and concerns. They appear to be very shareholder friendly.

FUTURE VALUE OF RBNF:

A bank that is well capitalized, earning money (probably $.62/share), has a loan book that is improving, is only trading for $3/share? I think Rurban will trade for a discount to other banks, but a P/E of 5?

I think an appropriate P/E for Rurban to trade at would be in the high single digits, maybe a 9 P/E. That would put Rurban at a price of about $5.50 to $6/share. I think that estimate is conservative, and at the low end of estimates.

In 3 years I think RBNF will easily be earning $1/share. At that point, I think RBNF will reinstate a dividend. RBNF has a history of paying dividends in normal economic times. Management has stated that this is reviewed by the board of directors every quarter. There is no intention to pay a dividend now, but that it will be seriously considered once regulatory capital levels have improved and business in general improves.

The end result is that RBNF is earning money NOW, growing it's business and is likely to earn more money in the near future. After a year or so of good earnings, a dividend will almost certainly be reinitiated. A bank with characteristics such as this will be trading for a P/E ratio higher than 5.

*NOTE* I personally own shares of Rurban in my investment accounts and may trade it at any time without notice. Please don't take my word as to the suitability of Rurban as an investment, please conduct your own research and due diligence.

Floored: The Movie

2012-02-07T10:30:00.000-08:00

"Floored" is a good documentary about the traders at the Chicago Mercantile Exchange. I found it last night while surfing around on Netflix and decided to give it a view (I say this, as a lot of you should be able to watch it for free). It was certainly entertaining and educational. It makes you see a ton about how people behave, as well as how technology and money have an effect us. Certainly, I am not so callous as to limit the effects of said things to certain people in some far off financial hub; we are all human and as a whole, will generally react in very similar ways to similar situations. Some, to a lesser extent than others...

It also did a good job of making you feel for the guys that lost everything-literally everything, not just their money. Certainly, it takes a different type of person to trade, just the same way that it takes a different type of person to do value investing.

Here's to drinking cheap bourbon and not smoking cigars...

Disclosure/Disclaimer: I have no financial position or interest in or against, in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

Running Like Hell From The Facebook IPO.

2012-02-01T16:54:00.000-08:00

Sooooooooo. I just went through the Facebook S-1 to take a look at what it said about second most popular site on the internet. While I had figured that the company would fetch some lofty valuation, I thought "well, I shouldn't judge them before I actually look at the numbers..."

After reading through the filing, I thought "Anybody that would value this company at $75-$100 BILLION dollars is either stupid or delusional to the point of historically needing to have been put on trial." Ok, so, that might seem a bit excessive. But, lets take a look at it before anyone says anything too rash.

Let me be clear, I have no idea as to how to accurately predict the growth of the company hence, I am going to take it to the almost illogical extreme for this thought exercise. Presently, it seems that their ad revenue growth is slowing considerably. In 2009, ad revenue was $764 million. In 2010, it's revenues from ads were up an impressive 145%, or, up to $1.686 billion. Then, in 2011, growth started to slow... to 69% providing us with a total of $3.154 billion in ads sold. While there will certainly be a long term shift from advertising in print to the internet, Facebook doesn't have a monopoly on ads. I highly doubt that they will ever have anything close to that. After all, Google had over $36.5 billion in advertising revenues last year... more than 10x the amount of Facebook.

Facebook presently boasts 845 million active monthly users, which equates to $3.72 dollars in yearly ad revenue per monthly active user (based on a 2011 total of $3.154 billion in ads).

So, lets say that everybody in the world magically had a computer with internet access- presently, 6.8405 billion people. Now, lets also assume that they all develop the same usage as our present average monthly Facebook user and that companies were willing to pay Facebook the exact same amount for advertising as they presently do per user... Facebook would then generate $25.4466 billion in ad revenue (don't get me wrong, is impressive, but, still not up to Google standards). If the company can keep the same margins of earnings related to the revenue (presently, ~21.2%: based on $3.154 billion in ads, which is slightly less than their total revenues, and $668 million in earnings for the A and B shares) then you are looking at a company that would earn just under $5.18 billion dollars a year.

Now, in what I don't think is a stretch to call an "overly rosy scenario" if the company is at that point valued at $75 billion, the stock would have a P/E ratio of ~14.5. If the company is valued at $100 billion, then the P/E ratio would become ~19.3. At that point, there would be very few ways for Facebook to justify a P/E that was at that level, unless you thought that they could juice margins, people will start spending a whole lot more time on Facebook (even though on page 3 of the prospectus, the company boasts that users upload 250 million pictures to the site PER DAY), we find an alien life form that would want to use the site, advertisers pony up more money for advertising on the site, or a few other various reasons. Maybe it get's infinitely cheaper for Facebook to add users in the future? But, due to how marginal cost works, I don't think that will last forever... Besides, their margins are already about as hefty as Googles!

Regardless, anyone buying the stock had better have some really good insights as to how the company can grow, because if the news stories are right in regard to it's coming market price, it will be trading between 112x and 150x 2011 earnings. In the meantime, I will stick to stuff that I have a very high degree of certainty is cheap and pass up any chance that I get to buy shares of Facebook on the open market. When comparing Facebook to Google, it almost seems like a bet on Facebook is not only a bet for Facebook, but, also a bet against Google; remember, Google has over 10x the ad revenue of Facebook, nearly 11.5x the cash on hand, and is nearly 15x as profitable, with a market cap that is ~2x what Facebook's is expected to be.

The bottom line seems to be this, Facebook is going to need to figure out alternative ways to make money; ads just won't cut it to justify the stock price that that has been predicted.

Good luck to all of you buying shares in the IPO.

Disclosure/Disclaimer: I have no financial position or interest in or against, in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

Iran, President Obama, and Spy Toys.

2012-01-29T09:15:00.000-08:00

The title of this post pretty much sums it up... Iran is sending a toy model of our country's recently crashed spy drone to President Obama. In doing so, they are trying to emasculate the president by sending him a toy that is pink. There is definitely a difference of culture being displayed here; what seems to the Iranians to be a huge slap in the face to the President, has actually become quite funny...

You just can't make this stuff up.

Full Disclosure: I agree with Ron Paul in regards to Iran (before you dismiss it, take a look at the video, and give it an objective viewing).

Sometimes, It's Best To Take A Pass (1.5): Signature Eyewear

2012-01-26T09:41:00.000-08:00

As I have previously discussed, Signature Eyewear is a company that has a lot of potential and seems cheap, but has horrendous communication with shareholders... I have continued to follow the company, but was just updated to the present situation there by a shareholder (thanks RP!).

Now, the company trades on the pink sheets, rather than the OTCBB. Interestingly, the only thing that we have heard from the company since this summer, came in late September. They said the following in a late filing notice for their 10Q:

The Company anticipates reporting a net loss of undetermined amount for the quarter ended July 31, 2011, as compared to net income of $115,000 in the comparable period of 2010.

Generally, when companies make NT 10Q filings, it is because they will be a just few days late in making a filing. This has happened in the past with SEYE, but, generally, they got the filing out within a week or so. Now, it is approaching 4 months. In that amount of time, they would need to make ANOTHER quarterly filing! Without giving shareholders the information that they need to deduce the value of the company, how can one comfortably allocate capital in the direction of the company? Is management trying to suppress the stock price in an effort to take the company private? There are a lot of questions to be asked here.

Stuff like this gives me very little incentive to own the stock. It seems to me that if shareholders would step up to the plate and exercise their rights, that the owners of the company (and likely, the stock price) would be a lot better off. Interestingly enough, the company always touts how many consecutive quarters it has been profitable. With the streak snapped, that may have bruised some egos. That certainly seemed to be the case when they lost the Bebe license agreement. However, this is no excuse for not letting the owners of the business know the operating performance of their company.

Disclosure/Disclaimer: I have no financial position or interest in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

Sometimes, It's Best To Take A Pass #3: The Problem With FCCC Inc.

2012-01-25T09:34:00.000-08:00

Often times, when looking at nano-cap companies, I come across some real shitty companies that trade at what strike me to be absurdly high prices. FCCC Inc, is almost certainly one of those.

FCCC Inc is a shell company, that is a nano-cap of nano caps. Here is it's most recent 10K.

When reading though, you come across a very few positive things... Mainly, a little bit of cash, no debt, and a pretty fair amount of net operating losses; there are over a million dollars worth of them.

You also come across a ton of negatives: The executive makes way too much money for what he does. Roughly $24K a year for doing to nothing (from what I can tell). This is part of an agreement that was struck in 2003. Have there really been no opportunities for the company in nearly a decade? Legal fees almost constantly make up $12K. Additionally, last year, the directors made $300 per meeting which totaled $1,800 dollars. Furthermore, the company is burning through ~$50K a year in book value with no sign of slowing down... At this rate, shareholders will be left with nothing in just a few years.

It seems that being public is a large expense for the company as well... Audit fees are $7.5K per annual report and another $2,000 per 10Q. This confuses me a little bit, as the company is presently wasting this and other monies by being public... that is, unless they actually do believe that they are going to do something with the company. Regardless, it seems that a whole lot of these little leaks are going to sink the ship.

If this isn't enough, the company more or less says that it won't be doing anything to start up business again:

It is anticipated that opportunities may come to FCCC’s attention from various sources, including its management, its stockholders, professional advisors, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals. At this time, FCCC has no plans, understandings, agreements, or commitments with any individual or entity to act as a finder in regard to any business opportunities for it. While it is not currently anticipated that the Company will engage unaffiliated professional firms specializing in business acquisitions, reorganizations or other such transactions, such firms may be retained if management deems it in the best interest of the Company.

So, by my reading, they are hoping that someone just brings them a golden goose and sits it in their lap... Even Warren Buffett engages companies to bring him ideas- and everybody knows that he is looking to buy!

The CEO does own ~16% of the stock, so, it isn't like it wouldn't be in his best interest to try to do something with the company. At this point, it almost seems as if management and the board are counting on bleeding the company dry, then doing some sort of reverse merger, which due to the change in control, would destroy the NOLs that (I would assume current buyers of the stock think) give the company a good chunk of it's value. Using a whole lot of debt seems to be the only way to do much in the acquisition realm and with the debt markets as they are, I would hope that these guys are well versed in issuing seller's paper. The could issue stock, but, there again, you lose the NOLs and the CEO gets diluted out. Who knows...

All of this said, I was lucky to leave the tab in my browser containing their 10K open long enough that I had totally forgotten the market cap of the company... As such, when I finally got the chance to go to my favorite bagel shop and read some of their filings, I thought to myself "Well, if I somehow had control of the company to ensure that they would buy something (at this point, almost anything would be better than what they are presently doing), it might be worth, ohhhhhhh, call it a quarter of a million bucks. Since I don't, and the executives seem Hell bent on sucking the company dry and letting the NOLs get destroyed, I wouldn't pay (much more than) a cent for it. If I thought that they were actually trying to buy something (and would do so in the next few quarters), it might be worth as much as net cash... In which scenario, I might be willing to buy in if it were trading for, say, $50K. But, I would have to be able to 13D them at that price and then become way more than a beneficial owner just so it would make up enough of my portfolio to even matter to me. That would then constitute a change of control in the view of the IRS, and would destroy the NOLs, which would make my then very large stake in the company be worth a lot less!"

So, I sat back in my chair, took a sip of my tea and a bite of my bagel. Just for the sake of my own curiosity, I decided to look at the market cap of the company. An astounding $593K! For this much doubt, it seemed freakishly expensive.

Disclosure/Disclaimer: I have no financial position or interest in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

Firecrackers, Shareholder Activism, and Gadflys.

2012-01-24T08:36:00.000-08:00

Here is a story on smaller shareholders becoming activists that I found interesting. I found it through Frank Voisin's blog.

Frank is very skeptical about smaller shareholders doing much to change things at the companies that he owns. Honestly, I am with him. It doesn't seem that people are willing to do much to rock the boat; after all, they are the people that help to make up the collective "Mr. Market" who tends to get frazzled by the slightest of changes. As an example, I thought that Sardar Biglari had a great case against Cracker Barrel, but, he didn't get anywhere close to getting 1 seat, which made up less than 1/10th of the board! And this is a guy that has what can only be described as a fantastic track record for making things happen.

I am skeptical that much will happen in the future, and I think that Ben Graham sums up my thoughts pretty well (he almost always seems to do my thinking for me!):

"the only way to inspire the average American shareholder to take any independently intelligent action would be by exploding a firecracker under him."

Disclosure/Disclaimer: I have no financial position or interest in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

Rand Paul, Detention, & The TSA.

2012-01-23T16:50:00.000-08:00

It's probably going to get me on some sort of watch/black list, but, the TSA really screwed up in their treatment of Rand Paul. They couldn't have picked a worse guy to do this to either... as he is one of the most articulate guys in the Senate and doesn't mind getting a lot of attention, I hope that Rand does a good job making changes to the messed up system that we have.

I wish that he would have been on his way to Washington for a vote... That would have brought up some interesting constitutional issues, as Senators can't be arrested on the way to a vote... granted, this was a form of detention and a touch different, but, still would have been interesting.

Oh, wait, the TSA doesn't give a shit about the constitution, as they treat us like criminals every time that we fly. Honestly, I am kind of upset that they don't trust the people of my state to elect officials that are not terrorists, who don't pose any sort of threat to national security...

God bless you, Rand Paul. We in Kentucky are privileged to have you representing us.

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EDIT: Here is a link to a opinion piece that Rand Paul wrote. It's pretty good and will likely get some traction.

Ackman and Candian Pacific.

2012-01-15T09:55:00.000-08:00

If you have come across my site, then it should probably go without saying that you also read "My Investing Notebook." While it's literally not "my" investing notebook, it is a great site that is certainly worth reading. An email correspondance between Ackman and the Chairman of Canadian Pacific was recently posted...

As is always the case with Ackman, the message is well put and just rambunctious enough, without going so far as to be over the top. I think that the response from Cleghorn is on the verge of being comical... I can't fathom being the chairman of a board, and referring to the other members as "my board." They are not his board, they are the shareholder's board. Furthermore, I think that the phrase "advances the best interest of the company" is suspect. After all, it is the interests of shareholders that need to be furthered. While this may be me reading to much into phrasing, with Canadian Pacific's track record (which truly is pathetic), I would imagine that it is quite telling of the governance of the company.

While I have no investment in regard to this, as a by-stander (with no plans of investing in Candian Pacific), I hope that Ackman gets what he wants.

...

To: John Cleghorn
From: Bill Ackman
Subject: War and Peace
7:22 a.m. Wed., Jan. 4, 2012

John:

I woke up early this morning thinking about my favourite Canadian railroad and it is causing me to become more interested in military history. We have had what historians will likely call a border skirmish. Not clear who fired the first shot, but a few people have been hurt, some egos have been bruised and the arms dealers, the media, are calling for and attempting to ... a fight. They of course sell more papers if a fight occurs. Their motives are clear. When a border skirmish takes place some times it leads to full-out war and other times things die down, borders are redrawn and peace can remain in both lands. The choices from here as I see them are:

1. Representatives from our side and your side sit down and work things out promptly, working out in my view a quick addition to the board of true reps from our side. Hunter's hiring as CEO.

2. We will be forced to launch a proxy contest at upcoming annual meeting where we will seek to replace a greater number of existing directors with extremely highly regarded business execs who share our belief that management and board changes are necessary at CP.

In the proxy contest as a first step we will take the largest public hall available in Toronto and we will make a presentation to the shareholders and the public that will be simulcast on the Internet about management board failures over the last 10 years at CP. We will examine management's and the board's track record and history at CP and in previous career experiences. Among other issues, we will go into detail on the real reasons behind Ed Harris’s departure and compare with what the company said publicly at the time.

We will only do this in the most high-minded manner possible. We will not make any ad hominem attacks on anyone. The process is inherently an uncomfortable one for all parties involved. It is also expensive in time and money and a distraction for management particularly at a time when their focus is needed on operations, most importantly when it is snowing or flooding.

The proxy process will not go well for the board and Fred. The track record is very poor, shareholders are very disgruntled. We are offering an alternative with a legendary reputation. Analysts at Morgan Stanley, your adviser, are now writing a big super-bull case if Hunter is hired. Attached is a copy of the report to this e-mail. We will win the election by a landslide vote – don't rely on my opinion on this, just ask your proxy advisers. Based on yesterday and my not receiving a return call from you, the probability of war occurring has gone up meaningfully. War is not my preference. It has been extremely rare for us – we have only had two proxy contexts in 25 or so active engagements with public companies in the last eight years. War is also not inevitable. I think the failures so far have largely been ones of communication. ...

My impression of you when we met personally was quite favourable – you seemed like a solid good man. I would like to resolve this amicably in the best interests of shareholders. ...

Let’s avoid having a border skirmish turn into a nuclear winter – life is too short. Please call me when you can.

From: John Cleghorn
To: Bill Ackman

Bill thank you for your e-mail and for your phone message. Let me reiterate that we would like to reach an agreement which advances the best interests of the company. As you will appreciate I will be discussing your e-mail with my board.

Source: The Globe And Mail

Disclosure/Disclaimer: I financial position or interest in any regard, to any of the entities mentioned. This is not advice of any kind. Always do a ton of your own research before contemplating doing anything that I say, do, write, or so much as think about.

Salesforce.com & A Very Young Mr. Market

2012-01-12T08:08:00.000-08:00

I love this video... (h/t to Sheldon)

Disclosure/Disclaimer: I own no financial instruments in regard to any of the companies mentioned. Always do a ton of your own research before contemplating anything that I say, do, write, or so much as think about. If you buy any of the things that I link to, I will get a small commission, but, it doesn't raise the price you pay by a single cent.

Steak 'n Shake & David Letterman...

2012-01-11T07:49:00.000-08:00

Steak 'n Shake has a new store in NYC, right next to the Ed Sullivan Theater, which is also home to The Late Show with David Letterman.

To fully appreciate the magnitude of this, one might want to read this book Selling Steakburgers: The Growth of a Corporate Culture. In it, you learn a lot about the history of Steak 'n Shake and it's die hard fans... Through other sources, such as the article I posted, you will learn that Indianapolis native, David Letterman also loves the chain (and does sketches on the show in reference to Indiana based events and things). You think that this might give them a hint of free advertising by Letterman mentioning them on the show? After all, Rupert has probably been buoyed by Letterman for sometime.

How do you think that this will bode for Steak 'n Shake, given their previously stated plans to have over 1,000 franchised units in the coming years? When you couple that with the fact that they sell a burger AND fries for a paltry $4 bucks, even in NYC, I am guessing that it will go quite well.

Somehow, I doubt that happened totally by chance when Sardar Biglari and company were looking at opening the store.

If you want employment as a traffic counter for the unit, you might want to start with this:

http://nyctmc.org/google_popup.php?cid=421

Disclosure/Disclaimer: I own no financial instruments in regard to any of the companies mentioned. Always do a ton of your own research before contemplating anything that I say, do, write, or so much as think about. If you buy any of the things that I link to, I will get a small commission, but, it doesn't raise the price you pay by a single cent.

Padlocks, Lowes, & How People Make Their Lives Too Hard.

2012-01-10T13:36:00.000-08:00

Here is a post that I wrote a month or so ago, but, didn't post. Enjoy. It's along the same lines at this post, but with a much more unfortunate ending...

As a small time landlord, I have a lot of interesting interactions with people that often leave me baffled. Today was no exception; when offering a piece of advice that would not only have made a fellow landlord's life easier (and actually, would make the vast majority of home owner's lives easier) I was totally ignored.

It happened when I was standing in the return line at my local Lowes store. I overheard a conversation at the return desk. A man was talking to the cashier about how a Master Lock brand padlock had rusted up on one of the sheds at a rent house he owned. As a result, he wanted to exchange it for one that was of better quality.

Hearing this, I thought "Hey, this is something that I actually know a lot about... maybe I can help this guy out..."

I decided to open up a conversation with him as he was waiting for the cashier to finish the return:

Me: So, it sounds like you are having a time with that lock at your rent house...

Him: Yeah, look at this; the thing rusted up in just a few weeks on me. I need to get a new one.

Me: Yeah man, I can relate, I've got some rent houses too... What I have done with all of my padlocks, is gotten really nice almost totally weatherproof padlocks that are made to be keyed with a kwikset style key, rather than the ones that Master has which you lose all the time. I have had real good luck with them; I think that they would really help you out.

Him (looking really excited): Oh, really? What are they?

Me: They are made by Abus and like I said, the best part about them, is that they use a kwikset style key (here are the ones for Schlage, if you prefer a slightly nicer setup), so, I can key them to the same key that I give to the tenants, or, I can key them to the master key that I use for all of my properties... (pulling out my surprisingly small key ring for effect) Here is the master key that opens every lock that I have; and I can key them so that the tenants each have a different key too... Like I said, it's pretty conveinient to not have to keep track of a bunch of keys.

Him: Are they weather-proof?

Me: Yeah, pretty much. They are plated in a heavy duty chrome... I have had really good luck with them so far; if you really like the Master brand, they make one that is coated in a heavy plastic. But, you have to go to this place down the road for them. They are great; much better than anything they sell here; I have gone through quite a few from here, due to the same problem you had, actually.

Him: Well, I was just going to go to the hardware section here and ask them what they recommend...

Me: Ah. Ok. Well, have a good one, man.

He then turned around and walked to his fate... To be doled out by a person who is paid to sell him on what Lowes sells- not what is best for him.

So, here is what I find interesting. I basically told this guy how to not only get a lock that would preform better than what he was going to buy (I challenge ANYBODY to cut through one of the Abus locks with bolt cutters- I don't see how you could do much to them short of using a bad ass sawz-all, and even then, it would take a decent bit of work, I would bet that any thieves would be better off to cut through the latch itself), but, I also gave him a way to consolidate his rent house keys and save him a ton of money (not to mention, time) so that he would never have to pay to re-key his houses ever again. Furthermore, I was going to gain absolutely nothing (other than the utility I gain) from helping him... If anything, I was helping out a competitor of mine.

And what did I get in return for this free and help filled advice? He more or less brushed what I said off, gave me a terrible look at the end of the exchange, and went about his way, making his life much more difficult than it needs to be. For example, if he would have been inquisitive enough to ask about my master key system, he would have found out that rather than pay a locksmith $15 or $20 bucks a lock to get them rekeyed, you can buy a rekeying set for under $40 bucks and rekey dozens of locks to any key that you want in less time than it takes to drive the locks to your local hardware store. Plus, you get the add on of being able to have a master key for everything! (I went with the cheaper set, though, I wish I would have paid the extra money for the one that is color coded... trust me, color coding is a really nice thing when dealing with parts that differ in size by less than a millimeter)

Some might say that re-keying is hard to figure out... False. You can learn how to take the locks apart on YouTube. Hell, I learned how to rekey the locks while I was recovering from a pretty major surgery; it isn't like there isn't a PDF on the internet to show you how or anything... Literally, I was so worn out and drugged up on Roxicet during my recovery that I passed out sitting at my uncle's kitchen table while learning the trade. If I can do so just a few days after having a surgery that would warrant that sort of reaction, then anybody can.

Getting back on track...

I think that this lesson can be applied to investing. Often times, people don't want to do any leg work of their own, and as a result, lead a much more challenging and less rewarding life. Along these lines, I was, and to some extent, am still surprised that nobody had ever published the information that I did in regard to Syms' real estate (oh yeah, I forgot to mention that the post and majority of the research were done while recovering from the same surgery that I mentioned earlier). This type of thought is also evident from a post I made a while back on people watching a series of Warren Buffett videos.

Maybe his lack of faith in my suggestion that I was relatively wet and covered in mud from doing some work to correct the problem of a water logged crawl space. Maybe it was the fact that I hadn't shaved in a few weeks due to "Movember". Maybe it was the dirty and old clothing that I wear when I work on houses, which I know makes me look like a bum. Maybe it was the fact that I am a pretty young guy...

Who knows.

....

Oh yeah, if you hate keeping track of keys for your padlocks and just want the lock on your shed, garage, crawlspace entrance, barn, bike lock, or whatever (I even use them to chain my canoe to trees when I'm making my way around the Kentucky River) to be keyed to the same thing that your house is, use the links I posted and go buy some! Yeah, I get a little bit of the sale price, but it doesn't raise the price you pay by a cent. Plus, the least you can do is use my link, as I did turn you on to something that will likely make your life a bit easier.

Here are the items:
Abus 83/45 83 Series Rekeyable Brass Padlock, with Kwikset "KW1" Keyway 0-Bitted
Abus 83/45 83 Series Rekeyable Brass Padlock, with Schlage "C" Keyway 0-Bitted
Kwikset 272 Lock Keying Kit
Kwikset Compatible Rekeying Kit 4 Tool & 100 Pin Series By Olympia Hardware

Disclosure/Disclaimer: I own no financial instruments in regard to any of the companies mentioned. As things may go sour between you and somebody that has a key to your house, they might use your key to steal your lawnmower or something, so, I can't say that this is advice... But then again, you probably shouldn't have picked such a shitty person to give your house key to. Always do a ton of your own research before contemplating anything that I say, do, write, or so much as think about. If you buy any of the things that I link to, I will get a small commission, but, it doesn't raise the price you pay by a single cent.

Ideas...

2012-01-08T21:32:00.000-08:00

Due to a belief in not over diversifying and not finding many new stocks, I presently have a lack of new stock ideas that I feel worthy of an in depth post. Feel free to send some my way... The odder the better. It doesn't even have to be a long idea, a neutral or short position would be interesting as well.

If you have an investment thesis, send it my way, and if you want, I might put it up as a guest post! If you want to remain anonymous, that is just fine with me- Let me know.

Gatewood Galbraith Is Finally Set Free.

2012-01-04T22:48:00.000-08:00

Gatewood Galbraith, my favorite political figure ever, who was (unfortunately, never elected to office in my Commonwealth) passed on last night. The world has lost a gem, not to mention a great person.

Get his book here... Any proceeds that I get from your purchase, will be donated to a cause in which he supported. It is stuffed full of great Kentucky antidotes, knowledge (both worldly and other, and is one of my favorite reads ever.

The last free man in America has been set free... Gatewood, sir, you will be missed.

Ron Paul and Iowa.

2012-01-03T21:34:00.000-08:00

Because the media doesn't really care about Ron Paul... Here is a good speech. He is so cheery, that it could almost make you sick... I am glad to hear that they guy is moving on to other states and primaries. After all, he presents a point of view that the country needs to seriously consider. Even if he doesn't get elected, he gets good ideas, that should be thought about, out there. In Iowa, he did more than 2x as well as he did 4 years ago; which is saying something!

By the way, if you look in the background, of the video, you will see Rand Paul. If there was a call option (say, on intrade) where I could buy the chance that he will run for President in the near future (say, a decade) and stand a chance of winning, I would certainly be interested.. It seems like a near inevitability to me...

Commodities...

2011-12-31T06:47:00.000-08:00

Saj over at Barel Karsan, with a great piece (as usual) on commodities.

Disclosure/Disclaimer: None. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Appalachia, Dairy Farming, and Getting Stuck In Cow Manure.

2011-12-30T19:07:00.000-08:00

One of the things that I love about being from the foothills of Appalachia is that I have had the pleasure of knowing and being related to a great deal of interesting people- all of whom possess a host of differing perspectives on things. I can tell you from personal experience: people from Appalachia are different from people in a whole lot of other places in the country. Certainly, while the area does have it's problems (really, is there any place that doesn't?), I still love it, it is home, after all. I find the area to not be maddening- which is generally how I view places such as New York City or even Los Angeles to be.

Coming from a family that farmed a few generations back, there are still family members that remember what it was like to farm, as well as what it was like to not have some of the modern amenities that we take for granted- such as indoor plumbing. Take my great aunt for example, she remembers how her wedding day, she took a bath in a galvanized wash tub... If that isn't enough, the bath water was heated on the stove to provide her with a less frigid experience!

Given that there is a lot of oral history to be told, I have taken to recording it. The following story was told by my great uncle, who has been married to my previously mentioned great aunt for more than 50 years. It dates back to when he was a self described "know-it-all teenager" who more or less ran the family dairy operation. The story revolves around something that I think is really important: trying to realize what you don't know and being willing to listen for ideas, regardless of who they may come from. You never know, you might learn something that will make your life easier! This lesson is something that has served my uncle well in a lot of areas of his life, not just in his various business dealings. After all, if you can get ideas from other people, why try to re-invent the wheel? I took this to heart by more or less copying his real estate rental business, that my brother copied before me.

In this instance, listening to a near illiterate farm hand kept him from getting a tractor continuously stuck in piles of cow manure... a predicament that I would think one would wish to avoid.

Unintended Consequences Of The Death Of Kim Jong Il.

2011-12-20T17:45:00.000-08:00

While most people are weary of the succession plans that are coming about as part of the death of Korean Leader Kim Jong Il, I am curious as to what will happen to the sales figures of a hilarious movie called Team America...

As a side note, here is an interesting perspective on Kim Jong Il and his lifestyle, told by a former cook. It makes the decadence of all the Wall St. investment bankers look trivial (and, that is saying something!)

Disclosure/Disclaimer

Putting The AT&T/T-Mobile Breakup Into Perspective.

2011-12-19T20:37:00.000-08:00

All that I have to say about the deal, is that the breakup is going to cost AT&T $4 BILLION dollars... Put another way, that destroys more than the entirety of book value that AT&T was able to produce in the past year.

If you are a shareholder of T, you lost a year of gains in book value. If you look at the earnings of the company, you have lost significantly more than that.

That said, you did get a decent dividend that makes this a bit less painful.

All that for one botched acquisition.

I wonder how long the CEO will last.

Disclosure/Disclaimer: I own no financial instruments in regard to any of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Looking Backwards At Nevada Gold's Forward Earnings...

2011-12-15T16:56:00.000-08:00

I won't lie... On the face of things the financial results for Nevada Gold & Casinos (UWN) over the past quarter look pretty horrendous; especially when looking at the company's recent press release. However, once we take a look at the results a little bit deeper by diving into the 10Q, we quickly see that things are not that bad for the company. Despite being a huge contrarian, I actually believed management when they said on the conference call that they have "... positioned the company for long term success."

I will say that I will try to be brief and a lot of these statements are made as "all things equal statements". I realize that there will be nuances that can come out and change things a bit; this is meant to be kept simple. Every reader needs to think about the things that I say (and, to some extent things that I won't address due to brevity issues) and come to their own conclusion as to what they deem this company to be valued at and generating in terms of cash flow/owner earnings. This is after all, just a blog! :)

Lets first take a look at some the items that hit their income statement in the recent re-positioning of the company that likely don't reflect the future of the company:

First and foremost, the company had previously stated that it was impairing the value of a piece of land that it owns to the tune of $2,273,996 dollars... This is a non-cash expense and won't re-occur to this extent.

In the quarterly filing, they also noted that they lost $154,270 dollars on the extinguishment of their debt. Again, this has been expected, as the company previously announce that it had refinanced the bulk of it's debt load with Wells Fargo and that it had negotiated a new dew date with it's senior lender, this is expense is of no surprised. Given that their due dates are now in the fall of 2014 and the summer of 2015 let's throw these fees out, as they were part of the pre-payment penalty to Fortress (see section 2.7) and don't appear to be part of the newer Wells Fargo loan package. Furthermore, they amortized $33,336 of loan issuance costs due to the more than $800K they spent to get the Well's Fargo loan package. While this will be expensed for a while, it will be a non-cash charge, as the $800K has already been shelled out; don't get me wrong, it's a lot of money but it's a small price to pay for liquidity, breathing room, and better terms.

Next, let's take a look at the Colorado Grande which the company recently announced it was selling (for what I might add, is a VERY attractive multiple). The operation apparently lost $97,924 dollars during the last quarter. As these losses shouldn't be continuing this time next year (as long as the sale goes through) so, let's that part of the loss out as well. There was also a loss on the sale of assets for the amount of $22,340 dollars; again, likely an expense that doesn't reflect the future of UWN. In the sale of the Colorado Grande, the company will be getting approximately $36,000 per quarter (before amortization of the loan) in interest on the $2.4 million dollar note. Net cash inflows will actually be greater though, as the loan does have a decent degree of amortization to it.

Now, look at what they would have earned had these impairments not have been included. The company had a stated loss of $2,120,606, but when you add in just the one time impairments to income and losses from the Colorado Grande (which, the company only addressed one of in the press release and conference call) they would have generated cash of $427,924 dollars! If you use that as your run rate for the company (which, we can do for sometime, as they do have tax assets to offset future earnings) the company would have yearly inflows of $1,711,969 dollars. That, translated loosely as owner earnings gives the company a quite reasonable P/E of just a touch more than 10 (with a market cap barely above $17.3 million). That is a super simple calculation that is based on numbers for a quarter that isn't the best (but certainly, isn't the worst) in Washington. It also took place in a quarter that didn't give the company time to do much with operations at the newly acquired Red Dragon and they had a lower than expected hold percentage for the quarter (per the conference call). Additionally, they yet own AG Trucano. Once those items settle out, the earnings will likely look even better than I just highlighted.

Now, we can look at some other items. For example, the company doesn't need to invest much money in the card rooms it owns to keep them running well (per my interview with Bob Sturges), so, we can likely add back in a good deal of the company's not insignificant depreciation. The amortization expense of intangibles last year alone was well over $1 million dollars. In fact, for 2012, the amortization of intangibles (which consist of non-compete agreements, trade names, and "customer relationships" per page 45 of the 10K) is expected to be nearly $1.15 million! Any money used to service the items are already being expensed on the income statement as advertising (in the case of a trade name) or paying your workers to do their job (having good customer relationships), so, the amortization of intangibles is something that I feel comfortable adding back in to the income statement for owner earnings. There will likely be more depreciation and amortization to come from the acquisition in Deadwood... That all gets you to a Price/Owner Earnings that is has the strong likelihood of being in the single digits.

Presently, if financial results never improve (not just in operating efficiencies, but also in what the company believes to be a temporary low hold percentage), UWN doesn't get any management contracts (such as the development with Rialto), they don't get ELSTs in Washington state, they never acquire again and wait for the amortization to run out, and a host of other reasonably likely events don't come to fruition, the company is still not expensive by any means- in fact, I would argue that it is quite cheap.

If anything positive comes out for the company, I would figure that it would likely be viewed quite favorably, especially since there has been a lot of frustration expressed over the recent sale of stock. My back of the envelope analysis indicates to me that there is a ton of growth for this company that is being given away at present prices... It will certainly be interesting to see how the market reacts to this news. While I would hate to see my present holdings of the company go down in market value, I foam from the mouth in the hopes that the Mr. Market will give me the chance to buy more of the company at $1.00 per share.

In closing, I would like to make a few statements to management of the company. 1) The evening is a great time to have a conference call, please continue to have them after market close. 2) If you can give us a little more time to read (and mainly, digest) the 10Q, that would be awesome. :) 3) Your history of really breaking up the numbers in your financial statements is quite appreciated. Please continue to do so.

Disclosure/Disclaimer: I am long shares of Nevada Gold (UWN). I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Syms Is Getting Investigated.

2011-12-13T20:17:00.000-08:00

It looks like the managing of Syms is going to be investigated in the process of the BK... Good news!

Plus, it looks like the company may not be liquidated totally, there may be a type of reorganization- can you imagine this thing as a REIT? That might have the potential to do better than a liquidation, especially considering the types of valuations that REITs can occasionally get.

From here:

With this Motion, the Debtors seek appointment of an examiner to undertake a prompt, impartial investigation of any alleged mismanagement and breaches of fiduciary duty by the Debtors' current and former officers and directors, and others as
the examiner might determine. Such an investigation will benefit all parties in interest for at
least four reasons. First, all parties in interest will benefit from an impartial, prompt assessment
by an independent third party of whether there are any valuable officer and director claims that
might be a source of recovery for stakeholders.Second, the Debtors wish to move quickly towards formulation of a plan of reorganization or liquidation. An impartial, prompt assessment of the viability and value of such claims (if any) will be important for stakeholders in negotiating the terms of a plan....
Finally, appointment of an independent examiner should conserve estate
expenses. Because the Equity Committee and Esopus have made allegations that the Debtors'
board and management mismanaged the Debtors prior to the petition date, there is no question
that these alleged matters will be investigated. Each Committee has asserted that it should
conduct any such investigation. Accordingly, it is a foregone conclusion that estate funds must
be spent on an investigation.

Wow. This should be good stuff.

Disclosure/Disclaimer: I do not own any financial instruments in regard to any of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Smart and Dumb Reactions To Sardar Biglari and Cracker Barrel.

2011-12-12T11:37:00.000-08:00

Here, we see a rather idiotic view of Sardar Biglari's attempt to get on the board of Cracker Barrel, and here, we read a smart view as to why he should be on the board...

While I don't own shares of BH or CBRL, both companies have been of great interest to me for sometime. I would certainly be a lot more willing to invest in a company like CBRL if they actually seemed to care about allocating capital well. Which, as Mr. Biglari points out (in a painstakingly obvious manner, mind you: here, here, here, here, and here), they don't seem to.

If I was a shareholder of CBRL, there is no doubt that I would vote to oust a small minority of the CBRL board, which, wouldn't change the overall makeup by much, but, if history tells us anything, will greatly improve the company's intrinsic value, with the stock price likely following suite.

Disclosure/Disclaimer: I do not own any financial instruments in regard to any of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Farmer Brothers: The Coffee Stock That Was Left Behind.

2011-12-07T09:50:00.000-08:00

When looking at stocks, generally, my favorite ideas revolve around some form af accounting that the market doesn't seem to fully understand. Whether it is people going crazy about debt covenants and capital lease obligations at Steak 'n Shake, or moaning about Sym's never having a distribution of assets to shareholders to notice that their real estate was understated on their books- odd and out of favor companies are my favorite ideas... period.

I think that Farmer Brothers meets this description. Oddly, it's one of the few stocks that I can think of where the company is trading at a lower price than it was in March of 2009... in fact it presently trades within 50% of the level it was when the bottom of the market fell out, despite a recent run up in the price! In fact, it seems like this is the only coffee related company that has not reached astronomic levels of valuation in the past few quarters (cough* JVA & GMCR *cough cough). Shadow Stock originally did a post about the company, but, it has been a while, and the site is now down.

Here are some of the reasons why I am happily long FARM.

Coffee Is Addictive: I like that the company peddling the last addictive product that you can ethically and legally sell to teenagers. Furthermore, there aren't really any substitute items for coffee, so, end consumers should be pretty price insensitive. Certainly, these reasons alone are not enough to buy a stock, but that said, I do generally like the industry.

Low Float & A Lot Of Shares Short: Insiders own a ton of the company. According to Yahoo! Finance, ~86% of the company is owned by insiders and mutual funds; while that number is not necessarily important for the sake of people holding on to their stock, the controlling family owns roughly half of outstanding shares, and an employee stock plan has another ~14%... When high insider ownership is combined with some bigger mutual funds such as Franklin Resources, the float is quite low, so, it wouldn't take very much to make there be a huge movement in the stock... This is especially true with a short ratio that is presently above 10 (per Yahoo! Finance). I would argue that may be what has caused a lot of the recent run up in price.

Insiders Are Buying: By my count, since March of this year, well in excess of 35K shares of stock have been bought by insiders. Additionally, the dollar amount of those purchases was just shy of a quarter of a million dollars (net of a single sale); a not insignificant amount when considering the relatively small market cap of the company (under $100 million). This ratio of shares bought gets even more impressive when looking at the float of the company.

Understated Coffee Inventory: Have you ever wanted to do something similar to what Warren Buffet did with cocoa beans in 1954 (go about 3/5 of the way down to read the story)? Well, this is kind of an indirect way of doing so. I say this, because due to LIFO accounting, the recent dramatic increases in coffee prices, and the subsequent reserves that have been created on the company's balance sheet, their coffee bean inventory is dramatically understated. The quarter before last, their LIFO Reserve was an astounding $70 million dollars!

With this inventory, if prices of coffee continue going up, it will make earnings look bad, but, will effectively give the company a tax benefit, as they get the time value of NOT paying taxes on the increase of the value of their inventory. If prices fall, then that will decrease the value of their coffee, but, make their earnings "look" a lot better as they write down the reserve, which would likely sway investor sentiment to the company and give management something to tout. Don't believe me? Check out this explanation of LIFO accounting.

Additionally, if coffee prices would fall, I would imagine that the company would be able to use sticky prices to increase it's profitability...

A Glut Of Owned Real Estate: The company has a lot of real estate... PP&E is on the books for $108.7 million. Looking at tax records, we see that the Los Angeles County Property Assessor values the company's headquarters at just shy of $40 million. While the facility has recently gone through a great deal of improvements, looking at the tax data, the most recent of the improvements (the actual buildings) have been up since 1964... As such is the case, I can't imagine that the old improvements are on the books of the company for very much money (if anything). If that isn't enough, the company owns 45% of it's facilites, which mainly consist of warehouses that I would imagine would be readily salable if the company needed cash or had to liquidate. They range in price from a few hundred thousand a piece, to a few million. I feel quite confident that a lot of their PP&E on the books is justified by real estate, and that if anything, their assets are dramatically understated...

As have seen with Dewey Electronics in the past, old PP&E is a friend of the value investor. Especially if it is real estate that can be sold (well, in that since, not totally like Dewey). Warehouse facilites which are presently storing food product, should retain value pretty well, as they probably will be in decent sellable condition if need be. Farmer Brother's, as well Syms, a lot of the real estate is pretty spread out (even if it is in California), which eliminates some degree of geographic risks.

A Possible Turn-Around: The company is in the midst of a turnaround effort... Never a bad thing.

Even If Things Don't Work, I Should Be Safe: While it is certainly way too early for me to declare victory in regard to my previous statement on Syms: "Maybe I'm missing something along the line of earnings and cash burn; even if the company does manage to go insolvent, there there still seems to be little reason to worry." I am willing to make a similar statement with Farmer Brothers. Due to all the real estate on the books and the coffee bean inventory, I feel pretty safe from any near term insolvency issues, which, if the cash burn of the company again accelerates, may become an issue.

Conclusion: So, here, we have a company in an industry that I like, that is trading below a dramatically understated tangible book value, that is also turning around? Wow.

Disclosure/Disclaimer: I am long shares of Farmer Brothers and Syms. I do not own any other shares of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Snatching Up Pay Phones...

2011-12-05T19:46:00.001-08:00

The following is an interesting article on pay phones, which, kind of reminds me of Sitestar's internet business; but certainly not what they have been using their surplus cash flows from they dying internet business to invest in... distressed real estate!

Thanks to my uncle for telling me about this story, coming from here:

*SNIP*

"People tend to forget about pay phones, until their cellphone doesn't get a signal, until there's a natural disaster," Mr. Keane said. "We want to make sure there's a future with pay phones where Americans need them."

Mr. Keane said PTS hopes to keep most of Verizon's pay phones operating, though it will eliminate some of them, including some of Verizon's most-frequented phones on New York's underground subway platforms, where wireless signals mostly still don't reach.

The company plans to outfit other phones with touchscreens, credit-card readers or other applications. PTS views the pay phones as valuable real estate for selling temporary Internet access, advertising or for kiosks designed to market services to travelers.

Airports, truck stops, train stations and lower-income neighborhoods remain relative strongholds for pay phones. "Basically anywhere you can ring up an average of about 100 calls per month, you can be profitable," said Willard Nichols, president of the pay-phone trade group. Verizon estimates it takes 150 monthly uses for a phone to turn a profit.

Interesting stuff...

Disclosure/Disclaimer: I am long shares of Sitestar. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Kids Birthdays & Saving For College.

2011-12-03T10:18:00.000-08:00

Today, one of my oldest friends' (we go back to Sunday School at the rough age of 5) daughter celebrated her first birthday. As such is the case, I elected to give her a different type of gift which is actually quite similar to what my grandparents did for me; I am trying to get her on the track of investing. Whether or not she chooses to go about it in the way that I have, I don't care. But I know this: at some point, she at least needs to think about saving for college and retirement.

The way I figure it, rather than give a gift that will be thrown away or outgrown, I should give something that will grow with and stick with the child... It isn't like she doesn't already have a ton of toys and awesome clothes anyway. Do you really remember any of the toys that you got when you were a young child? I only remember a hand full of my favorites. Around my first birthday, I am told I was a really big fan of carrying around anything with an interesting texture (and for some reason, candles) but, have no recollection of it. The way I figure it, gifts really don't matter to a one year old and at that point, are much more about the parents and grandparents taking some nice pictures and making some good memories than anything else...

Later on in my childhood, I remember hating getting say, $50 to $200 dollar or so denominations of stock from my grandparents (a respectable, but not huge amount of money). It I didn't get T-Bills, it would be stocks such as Borg Warner, PPG, Pepsi, and Tricon- which was spun off of PEP and is now known as YUM!. However, due to the growth in the price of the shares, when it came time to buy a house, I had the down payment to buy a duplex and thus, start a business with. At that point, I realized just what I had been given. I saw the effects of compounding interest, dividends, and growth in the value of companies first hand. I also saw the various attitudes that came about from simply when a person was born...

Mom's mother, when opting to give me financial instruments as gifts, would give me government bonds or FDIC insured CDs, as she could remember the Great Crash of 1929 and losing their house during the Great Depression. From what I could gather, she thought that the stock market was some type of casino fraught with speculation, lies, skullduggery, and dash of pure evil. Dad's parents however, were born in the mid to late 20's. While they were greatly effected by the Depression, were small business owners and were not nearly as gun shy about investing in the markets. Great life lessons were to be learned from both types of gifts. For these and many other reasons, I was lucky beyond belief.

I encourage all of my readers to think about this sort of thing and consider it when giving gifts to the young ones that they know. But enough rambling. Here is the letter that I wrote to my friends' daughter. Hopefully, she will read it when she is 10 or so and it will get her thinking:

12.03.11

Adia,

HAPPY FIRST BIRTHDAY!

Rather than get you a toy that will eventually be thrown to the wayside (much like Woody or Buzz in the “Toy Story” movies) or clothing that will be outgrown. I have somewhat selfishly elected to make an investment in your future, which evident as being quite bright.

With the cost of education constantly on the rise, I hope that a meager gift of $20 dollars will be able to grow to offset a small part of your college expenses (if allocated properly, in a few decades, it might be able to buy you a semester’s worth of school supplies). While I have no idea what type of plan your parents will set up for you, I would imagine that it will be a plan along the line of a 529, but, there are many other ways to invest. I trust that they will go about choosing one that will greatly benefit your future. A calculator that I found online at http://www.archimedes.com/tiaa-cref/csp.phtml estimates that your college expenses for 4 years of schooling will be approximately $200,000 dollars! Best to get a head start on this!

It is also my hope that this will get you thinking about saving and investment at a younger age than most. Here is part of an article that examines how much money you will have under different scenarios, by saving at various points in your life:

Consider this: Amy, a 22-year-old college graduate, saves $300 per month into an account earning 10% per year for six years. (That's the average annual return of the stock market over time.) Then at age 28, she starts a family and decides to stay home with the children full time. By then, Amy had kicked in $21,600 of her own money. But even if she doesn't contribute another cent ever, her money would grow to a million bucks by the time she turned 65. Compare that to Jason, who put off saving until he was 31. He's still young enough that becoming a millionaire is within reach, but it will be tougher. Jason would have to contribute the same $300 a month for the next 34 years to earn $1 million by age 65. Although Amy invested less money out-of-pocket -- $21,600 over six years vs. Jason's $126,000 over 34 years -- her money had more time to grow, or compound. http://www.kiplinger.com/columns/starting/archive/2007/st1107.htm#ixzz1fUhtiklk

While this example is applied to people that are roughly my and your parents age, I hope that the example serves you well at whatever point in your life that you read this letter. You are privileged to be have essentially “won” the genetic lottery: the odds of you being born in America were less than 1 in 30. The fact that you were born to loving and quite capable parents are even less. You have the whole world available to you and starting to save for college will help you in your journey, no matter what path you chose to go on.

Again, happy birthday. I wish you many more.

-Jeff

P.S. Here are some websites that might be of uses for your parents (but, are certainly not the only ones out there with decent information):
https://personal.vanguard.com/us/help/FAQCollegeContent.jsp#k
http://www.fool.com/college/college04.htm
http://money.cnn.com/magazines/moneymag/money101/lesson11/index.htm

Disclosure/Disclaimer: None. I have no position in any of the securities mentioned, though, that could change at any point. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Why I Am Staying (or rather, stayed) Away From RIMM.

2011-12-02T08:09:00.000-08:00

Below is a post that I originally wrote about Research In Motion on 6/21/2011. At the time, it seemed as if it was a favorite contrarian stock, but, for whatever reason, I never published the piece. As it has turned out, I am fortunate to have stayed away from the Canadian cell phone maker. The reasons for my publishing it now? Well, I was going through a bunch of what I thought were 1/2 written posts and found that it wasn't really 1/2 written- I probably had more that I was going to add, but never got around to it.

Still, time will tell how the stock preforms, but again, I wouldn't want to be an owner of the company, especially since it seems that they are more or less conceding that their phones don'e have a future and that they need to gat in the app business. I stick by most everything I said in the old post. Not that I am declaring victory here, I am not... Frankly, I don't wish for the company to dwindle away and eventually be sold (a la' PALM), but, that certainly seems to be the direction it is heading.

From where I sit, I just can't wrap my head around paying almost $9 BILLION for a company that has a dying hardware business and is attempting to enter the app business.Hell, it seems far fetched that a business that is actually good at making apps would be considered a value at $9 billion. You wouldn't have to pay that much more, and you could buy something like Adobe, which makes a product that everybody needs, rather, than needs to be sold on; as RIMM will have the upward battle of doing.

___________________________________________

Yes, Research In Motion is trading at what appears to be cheap 4.whatever times earnings... Yes, they are potentially in play for a take over at a 50% premium to where shares are trading... Yes, they have a FCF yield of ~36%...

And here I am, taking a pass at them; despite their numbers looking great. Basically, I am spooked by a past investment debacle.

This debacle that I mention goes back to a failed investment in Motorola that I made when Carl Icahn was attempting to overthrow management... Similarly, we were dealing with a company that was reliant on an outdated product; compare the Razr and the Blackberry.

I am sure that people will think I am crazy, but, I am staying out of this one... I am not saying that the stock won't do well- in fact, I think it probably will. I just wouldn't be able to sleep very well at night if I was an owner of the company.

Whenever revenue degrades in such a way that it looks like RIMM's might in the near future, I have no way of being able to figure out how much they are going to earn in the coming years... It is simply out of my circle of competence. I'm sorry, but, selling cell phones that no one wants (or rather, are a few apps away from being destroyed) is a lot harder for me to wrap my head around than something tangible...

As a side/ending note, the MOT annual meeting where Carl Icahn tried to get a few board sears was the first that I ever went to. It set an unfortunately high precedent for absurdity that the love child of the Gilbert Brothers and Evelyn Davis couldn't spawn... Don't worry, I will eventually get around to writing a summary of the meeting.

Disclosure/Disclaimer: I have no position of any sort (long, short, option, or otherwise) of the securities mentioned, but that could change at any point. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.

Syms Equity Committee Expanded.

2011-11-29T20:31:00.001-08:00

In what I regard to be good news coming from the US Trustee's Office, the Equity Committee in the Syms bankruptcy case has been expanded to 5 members. It now includes a representative from the Kahn Brothers, who have been long term shareholders of the Syms.

Smart move, especially when compared to this one.

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Syms To Auction Off "The Running Of The Brides"

2011-11-29T09:25:00.001-08:00

When a retailer like Syms goes bankrupt, it is beyond most value investors (especially when followers Ben Graham) to put much value on intellectual property. However, this may be one of the more interesting cases. Syms is auctioning off it's intellectual property, which includes the famous "Running Of The Brides".

I have no idea what the property is worth. In fact, I haven't the slightest clue. But, I do know one thing, watching what will unfold will be educational from an investment perspective.

Here is a video to give you an idea about "The Running":

It's almost as crazy as people letting their animal spirits run free over $2 dollar waffle makers...

The Black Swan That Is Cupcakes Meeting Groupon.

2011-11-28T11:57:00.000-08:00

As I am apparently a fan of articles on cupcakes, here is one on the downside of some small businesses using Groupon. I truly feel sorry for this lady.

From here:

SNIP*

A bakery owner was forced to make 102,000 cupcakes after being swamped by customers taking up her cut-price Groupon offer, according to reports Tuesday.
Rachel Brown offered a 75 percent discount on 12 cupcakes, which normally cost $40 (£26), the BBC reported.
However, Brown under-estimated the popularity of the deal and was unable to cope when 8,500 people signed up for the $10 (£6.50) bargain.
Video: Who gets the real deal with Groupon?
Brown's Need a Cake bakery, which employs eight staff in Reading, U.K., had to bring in temporary workers through an employment agency to fulfil the orders, at a cost of $19,500 (£12,500) — wiping out her profits for the year.
She also lost between $2.90 (£2.50) and $4.70 (£3) on each batch she sold, the BBC reported.
"Without doubt, it was my worst ever business decision," she told the BBC. "We had thousands of orders pouring in that really we hadn't expected to have. A much larger company would have difficulty coping."

Disclosure/Disclaimer: No position in any securities mentions, though, I do like cupcakes.

Syms: Creditors Seek To Disband Equity Committee.

2011-11-28T09:19:00.000-08:00

Basically, the Committee of Creditors in the Syms bankruptcy case are petitioning the court to disband the Equity Committee of Shareholders.

This petition is absurd in my mind. While the shareholder's committee will rack up various fees and such that will go against any pay out that I, as a shareholder will get, let's look at the facts:

1) The Committee of Creditors make the claim that shareholders are already represented by management in this case, due to Marcy Syms' control of more than 1/2 the company, along with the fact that she has a fiduciary duty to shareholders.

While it is true that management does control a lot of the company and should defend shareholder interests, I don't exactly have the most faith management to do a great job on my behalf... After all, they did manage to make not one, but 2 time tested retailers end up in bankruptcy (despite owning a huge amount of their buildings and operating in them rent free). Furthermore, it is noted that Syms' management had elisted the help of various firms when exploring strategic alternatives. I have no reason to think that they will defend my interests from any odd dealings where Syms management has had previous discussions with them.

Furthermore, when there is more or less an ongoing case to determine if there was any wrong doing on the part of management, it seems that the honoring of management's fiduciary duties is in question.

2) The Committee of Creditors claim that a lot of what the Equity Committee would do would simply be duplicating what is already being done in the court.

The Equity Committee members have likely already paid for themselves and can continue to do good things for all involved in the case. In the linked story, creditors and shareholders objected to a part of the liquidation and negotiated better terms- it stands to be a reasonable assumption that the members of the committee were involved in this negotiation.

3) The Committee of Creditors ultimately don't give a damn about shareholders: once they get paid their claims (which will be quite easy to do, especially since in court, it has been said that Syms shareholders are likely "in the money"), they have absolutely no economic interest in getting shareholders everything that is possible. As such is the case, they may be less inclined to fight tooth and nail for better terms in the ongoing liquidation. The shareholder committee however, will do this as they represent everybody that sits outside of Syms and the people that they have dealt with on a nearly daily basis (being their creditors, landlords, and advisors).

Disband Equity Committee

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

The Future Of Education.

2011-11-26T13:17:00.000-08:00

I am thoroughly convinced that things such as "The Floating University" should replace many of the concrete buildings that we use for our institutions of learning. From my own personal experience, I was held back due to lack of internet use- mainly, because it wasn't as extensive as it is today, and, even when it was, "teachers" were lambasting it as a way to learn. Additionally, a poor educational system in my state and not being able to learn what I wanted to didn't help out... A Floating University form of education would have been wonderful for people like me.

For example, I never got a degree in business, because of the ridiculous assumption that you need to take calculus or take 2 years worth of a foreign language (even if it is a dead one, such as ) to do well in the business world.

I needn't digress though, here is the video:

If you look around the site, there are snippets from the other courses. From what I read, these courses teach people how to think and learn on their own. Which is something that I my mind, Americans generally lack the ability to do, despite how easy it is to use Google search to figure things out...

Billionaires Make For Interesting Stories.

2011-11-22T18:21:00.000-08:00

Here is an article about one of the more interesting billionaires out there... Nicolas Berggruen.

SNIP*

“I understand the human instinct to want to create a nest and possess things, to show them off,” he says. “But for me personally, it became less and less interesting.”
So in 2000, Berggruen sold his houses, put his art collection in storage and gave away or sold most of his possessions, including his car. He says his decision to live a rootless existence wasn’t a means of dodging taxes; he says he pays them in the U.S.
The investor, who signed a pledge promoted by fellow billionaires Warren Buffett and Bill Gatesto donate at least half of their wealth, says he’ll give away all of it eventually.
“Everything I do now is about growing the pot to have more to give away,” he says.

Anybody who says something like that, immediately gets some of my respect. Plus, he goes on to talk about how he plans to take his genes out of the gene pool. Interesting guy.

Piss Poor Capital Allocation At Netflix.

2011-11-22T11:44:00.000-08:00

Netflix has had a heck of a ride the past few years. Here is a link to Whitney Tilson talking about management's move to issue stock.

Snip*

“When you’re betting on a medium- to long-term turnaround, you first have to make sure that the company doesn’t hit a cash shortfall in the short term. …[T]his capital raise is a good insurance policy.

That said, it is irritating to see a company we own issuing stock at 1/3 the price at which it was buying it only months ago – yet another example of the capital misallocation decisions that are all too common in Corporate America….Netflix should have done a big secondary and issued a lot of stock in the $200-$300 range.”

As we have seen in other areas, price, value, and the potential for returns generated elsewhere are about the only things that should matter when a company issues or buys back stock. When a company makes a boneheaded move, it destroys shareholder wealth. But, as Tilson points out, it will keep the company solvent. Though, Netflix does already have a nice bit of cash on the balance sheet; they must be getting ready to spend a ton on their expansion, or things may be getting REALLY bad for them operationally. Regardless, it's a shame for the company's shareholders that the management of Netflix doesn't appear to have seen how the situation was going to play out, as this dilution has effectively canceled out many quarters, even years worth of share repurchases... Keep in mind, that these previous share repurchases were all done pretty aggressively AND at a significantly higher prices. Granted, if they can re-allocate the raised funds in a manner that is better than the company would do without, it could be accretive to the company, but, still... they were repurchasing shares as recently as LAST QUARTER!

Now, contrast this with a company like Nevada Gold, which, when it issues or buys back stock, does so in a sensible manner: buying low, and selling on terms that make a fair to great amount of sense for the company. Whether it's the acquisition of the Red Dragon card room or AG Trucano, Sturges and Kohn (unlike Reed Hastings) have a history of good capital allocation, and have yet to become the subject of some pretty good satire.

When looking at the capital allocation of various corporations, what kind of company do you want to invest in?

EDIT: Adam, at The Investments Blog, does a good write up on the situation at Netflix as well. He even went to the trouble of adding in a nice chart that shows you where the previous buybacks were made.

Disclosure/Disclaimer: I have no position in Netflix, but do own shares of UWN. My positions can change at any time, for any reason. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

AG Trucano & Dilution At UWN.

2011-11-09T11:24:00.000-08:00

I have received a several comments (both here on Ragnar and on Seeking Alpha) and a lot of emails asking for my thoughts on the AG Trucano deal. Generally, readers are asking how I view the dilution, right after they talk about how much they dislike the deal...

While I generally dislike dilution and am somewhat surprised that the company couldn't have negotiated better terms, we do need to be level headed and view this from a practical standpoint...

First and foremost, we can't forget that Nevada Gold is a super small company. It isn't on the investment radar of most. Additionally, big investors that have more money that God to allocate (and to some extent, end up making the markets pretty efficient) are not able to invest $4-$5 million in this company and have it move the needle on their results. This vacuum of funds makes it hard for Nevada Gold to grow... Given that the company has used a lot of sellers paper and other means of creative finance, this shouldn't have come as much of a surprise to anybody. On this note, if I had $5+ million bucks to throw the way of Nevada Gold in this deal, I would have been willing to pay $2 bucks a share for the stock and warrants... but alas, I don't.

At the announcement of the deal, AG Trucano was trading at a lower EBITDA multiple than UWN. Thus, while UWN stock is by no means expensive (and, I back this up implicitly as Nevada Gold is by far the largest allocation in my stock portfolio), the company seems to have given stock to a group of investors, so that they can continue to keep a generous amount of cash on their balance sheet to have at their disposal for a couple of things:

*Keeps well over $6 million in dry powder for bargaining in acquisitions...

*Makes funds via the S-3 available sooner, rather than later (a time value of money thing).

*Raised some cash to keep in AG Trucano, which, I assume will go to improving operations.

*Gives the potential for even greater leverage to be available for a future mega acquisition (relative to the company's present size)

*Will likely improve earnings on both an absolute basis (good for bankers who they will be needing to lend them money) and on a per share basis (good for me and my fellow owners of the company).

*Leaves a lot of money to lobby the legislature in Washington State... Which, due to the potential for UWN, is likely the most important thing that the company can be allocating limited amounts of capital towards.

I view this transaction as a whole, being one where while my cut of the pie that makes up UWN goes down on a percentage basis, the whole of the pie gets bigger. This in turn, gives me a more full dessert plate. along these lines, I feel richer today than I did a few weeks ago, despite that my holdings have taken a significant hit. If I thought that the shares were cheap at $2/share, I don't see why I should think any different now.

Sure, the price of the shares that were issued was significantly below what the company was trading at, but again, I think that it is a win for the company in the long run. It gets people talking about what the casino operator is doing; never a bad thing for a growing company that likes to do deals. The interest and subsequent investment in UWN also shows that the company is beginning to garner attention in the investment community- the warrants that were attached to the deal were a nice way to juice the deal up for the new investors. I think that they will make a lot of money in the next 5 years. In the event that ELSTs in Washington are allowed in card rooms, this will likely occur in the next year and the transaction will look stupid to have done in retrospect, but the company can't make allocation decisions based on the whims of a legislature that is in a far off state. After all, that would be crazy to do.

I don't like that the warrants probably won't be traded, but, that is sheerly from a selfish standpoint, as if I could get them at the right price, I would be willing to buy a whole lot of them.

I have been surprised that the price of UWN has fallen below what the shares were issued at... It seems rather a sensical to me that people were willing to invest a consequential amount of money in the company and that the market is all of a sudden unwilling to pay that price for a company that seems to be in much better shape than it was. Again, the new investors got what appears to be a sweet deal and I am surprised that UWN couldn't have negotiated something better. However, for the reasons that I have outlined, the terms of the deal seem to be such that present dissenters may be squawking over pennies, and as a result, may end up missing the forest for the trees.

Overall, the more that I think about this deal, the more that I think that it signals that the company is getting close to doing something big... Only time will tell.

Disclosure: Long UWN. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about. I may buy or sell shares of this security at any time.

Occupy Oakland Turns On The Working People...

2011-11-03T08:10:00.000-07:00

Here we read of Occupy Oakland and how they effectively shut down the port of the city.

Now, Check out this picture:

Notice a problem with the sign on the right? Well, it seems to me that the protestors trying to shut down a port and vandalizing various businesses, is them waging war on working people... No?

C'mon people... I really want to support you, I really do. But, I just can't get behind keeping people from working and being productive.

Syms Is Bankrupt.

2011-11-02T08:14:00.001-07:00

Today, we learn that Syms is going bankrupt. I view this as a mixed bag of news, bordering on the line of great news, for the following reason:

"The filings today are the result of a process that has been taking place for several months. Our board has conducted a rigorous assessment of all the strategic options and alternatives available and after careful consideration has come to the conclusion that a bankruptcy filing and liquidation is the best way of maximizing value for all stakeholders," -Marcy Syms

From what I gather from this quote, it means that a liquidation valuation is in order. Going on the article that I wrote earlier, it seems that there could be room left for appreciation in the stock price, provided that this is an orderly bankruptcy. Often times, clothing in liquidation sales doesn't go for what said clothing is on the books for... At least they are going to be liquidating in the most favorable time of year to do so: the Christmas shopping season, where people are generally pretty price insensitive, meaning that they may recover more than they would have, in say, July.

Somewhat ironically, what was Syms' greatest operational weakness, may turn out to be one of their greatest assets in bankruptcy: constantly declining same store sales. Landlords may be happy to for Syms to leave their buildings due to how terribly the operations were going for Syms. After all, a landlord wants good tenants that draw people to their properties (which is especially true in strip malls). They generally loathe struggling retailers that almost constantly have double digit decreases in same store sales. Here is some info on leases in bankruptcy... Again, a net gain for Syms, I would argue. Plus, we have the advantage of them already getting out of several leases before this filing.

All this said, at least we in the US have access to (arguably) the best bankruptcy system in the world; it is quick, generally fair, and efficient. Here is my favorite book about the process (with some case studies, that really do shed some light on what may happen with Syms).

There is also the issue of how much each location will bring in whatever manner they are sold off in; allowing time for properties to be listed versus auctioning them can yield very different results. Some of the stores that are owned, are already leased out to third parties (like Bed Bath and Beyond), which, should provide the company with cash flow to operate in corporate. I would imagine that these would be able to be sold off at a favorable cap rate for Syms, as Bed Bath and Beyond is a much stronger company that Syms ever was.

Here are the articles (1 & 2) where I outlined the tax record values for every piece of real estate that the company owns... And that doesn't value the Trinity Store in Manhattan at much of what it is likely worth. Obviously, the company has the potential of distributing more to shareholders than their precent book value.

In light of these facts, if the company only gets out of it's real estate the value that is on it's books in PP&E, and sells it's inventory for 2/3 of it's book value, then, you only go on the remaining tangible book value, shareholders are at a break even point as far as the present value of their shares go. There are obviously a ton of different variables to look at here (some of which were outlined above). But, it might be a good starting point for you to draw your own conclusions.

I fully expect more lawsuits, especially since the company failed so miserably and has mad so many shareholders mad, that I can only expect them to be chomping at the bit for a bit of revenge. This is especially true if the recovery is less than book value. The company may be trying to cover it's back here, as if the issue comes up in court, they can say something to the effect of "You sued us in the past since we weren't good operators. Now that we are liquidating so that we can not be retailers, you are suing us again... You are like ambulance chasers just digging around for cash!"

If I thought that management was good enough to operate a REIT, I would suggest that, but, then again, maybe not.

Personally, my disappointment exists on two levels. First and foremost, I feel for the employees that are losing their jobs solely due to management's incompetence and no fault of their own. Secondly (more tongue in cheek, and not nearly of the same gravity of people losing their livelihood in a time of high unemployment), I am upset that I will likely never get back the book that I left at HQ for Ms, Syms to sign and mail back to me to have as a souvenir of sorts from the research and trip to the annual meeting that I made (where they confiscated my cell phone)... By the way Ms. Syms, since I am betting that you are reading this, I would still appreciate getting it back.

The real fun here, is that we will see how accurate I was when I said that the company was worth more dead than alive.

The bottom line is this, shareholders should receive something.

Oh yeah, almost forgot, here is the filing for your reading pleasure:

syms bankruptcy

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about. I may buy or sell shares of this security at any time.

Occupy Wall Street & Some Police Brutality.

2011-10-28T16:47:00.000-07:00

From here:

While I have not talked much about Occupy Wall Street on here, regardless of your views on the movement, this kind of behavior by the police is completely unacceptable. Apparently, the Department of Justice isn't going to investigate...

I am not going to say that all police officers are bad, or even that they are all good. What I will say, is that the officer(s) that are responsible for this incident should be fired, barred from every form of governmental law enforcement, and held criminally responsible if any laws were broken.

Pearls Of Wisdom From YouTube Commenters...

2011-10-25T20:02:00.000-07:00

Here, we see a speech that Charlie Munger gave to USC Law students.

As usual, the wit and wisdom of Charlie Munger was great. However, something unusual bot surprised and stuck out to me. By chance, I happened to see a comment that was left about a year ago... It puts something that I said a while back in a different perspective (hint: my observation on page views holds true for this series!). Anyway, I liked the comment enough that I thought I would share it with you:

"It's quite amazing to think lady gaga has 150 million views and one that has profound life changing ideas and thoughts only has 6 thousand. Those that find the acquistion of wisdom as entertaining are at an enourmous advantage when it comes to success and achievment."

-Leejr2k1

AG Trucano

2011-10-25T12:06:00.000-07:00

Nevada Gold recently announced that it had come to an agreement to buy all of the outstanding shares of AG Trucano. Trucano is, by far, the largest operator of slot machines in Deadwood, SD. While most of the specifics of the deal have yet to be disclosed, I am presently optimistic...

I believe that the company has made an acquisition that is going to immediately generate a tremendous amount of revenue. When looking at the stats in this presentation that the company gave, the operator makes up approximately 24% of the slot machines in Deadwood…

Looking at the most recent annual report for gaming operation in South Dakota, we see that there was approximately $95.5 million in revenue generated by slot machines... If 24% of this went to AG Trucano (which, may not hold true due to revenue distribution) and there are no major changes in the South Dakota Gaming market, we can expect for Nevada Gold's revenues to go up by just a hair under $23 million... This is pretty significant for a company that has generated around $55 million dollars in revenue in the trailing 12 months.

Considering that the company paid ~4x trailing EBITDA, or $5.2 million (per the presentation that I saw at the annual meeting), that implies additional EBITDA of $1.05 million. If they get up to just 15% EBIDTA margins on, say, ~$25 million in revenue, that would imply additional EBIDTA of just under $4 million at some point in the future… Even if revenues for Trucano fall to $20 million, they will still be flying.

Another thing that I like about the acquisition is that the previous CEO remains with the company. I would imagine that to keep the purchase price down, that is part of why the company issued $100K in restricted stock, which may have some juicy conversion rights,will not only incentivize CEO to stay with the company, but, to also make it run well; he now effectively gets some of the upside of operations, plus whatever multiple the market assigns to it, which is something he didn't have nearly as much of as a private company! The debt structuring is also something that I really like. UWN used of a fair amount of cash in the purchase price, which indicates (to me) that management is sure of it's present operations and Nevada Gold's ability to grow using debt via Wells Fargo, seller's paper, stock, debt instruments via the recently filed S-3, etc...

Check this out to look at some of the legislation in effect in South Dakota for gaming. It seems that there are protections in place to shelter present operators from competitors coming in. Furthermore, if you look at the demographics of the area, there are a lot of older people there, who are typically the types of people playing slot machines. It is nice to know that generally, they have pretty steady incomes (pensions, Social Security checks, and the like), and, are living longer lives... As a result of this, I am hoping that this will keep revenues in the area relatively steady. Additionally, when looking at the demographics, while the population of Deadwood has been declining, the population of the county is more than making up for the decline. Furthermore, the populations of South Dakota and Wyoming (which is really close to Deadwood) have been growing. Again, not bad trends to see.

With all of this, is there any bad? While a smoking ban seemed to hurt revenues, it will ultimately keep the populous alive for a longer period of time, which, is never a bad thing (especially when it's one of the few places they can go to gamble). If we have learned anything from the company's filings, smoking bans don't kill operations in the long run; take a look at EBIDTA margins at the property in Cripple Creek.

As we have seen in the past, Nevada Gold generally does a great job of improving operations; just look at what they have managed to do with everything they have bought. I have no reason to believe that this acquisition will be any different. When a place is presently generating EBITDA margins of <5%, on a product offering that is generally pretty high margin, I am hopeful for there to be significant upside in operations...

All this said, the devil could lie in the details, which the company says it will disclose with their next 10Q. I anxiously await to read the filing. It will be the first one where we see operations for a full quarter of the Red Dragon.

Disclosure: I am long UWN. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

When Syms Loses, It's Shareholders Win...

2011-10-25T08:00:00.000-07:00

Below, we find out that Syms was denied an appeal that it requested in regard to a previous ruling over turning it's books over to it's largest independent shareholder. It seems that Andrew Sole at Esopus Creek has this crazy notion that where he needs to make sure that there is nothing funny going on with the company and that it is being run for all shareholders... After all, it isn't like Syms has historically been un friendly to shareholders.

Oh, wait a minute, Syms actually does have one of the worst reputations that I can imagine when it comes to the equal and fair treatment of shareholders (it's right up their with Itex and Northeastern Auto Holdings)... At the annual meeting, they took my cell phone from me!

Syms Denial Of Stay

Frankly, as a shareholder of the company, I am getting quite sick of Syms' management ignoring my, other shareholders, and the legal systems wishes for them to turn over their books. It is not only a waste of company resources (it isn't like they are drowning in cash or anything), but is also a waste of their efforts, as they should be focusing on unlocking value for shareholders. If the company would have pursued any strategy as intently as they have in not turning over their books, they might not of needed to sell off some valuable real estate and close 6 stores.

While I am guessing that Syms will continue doing all that they can to delay this decision, I will count this as another win for minority shareholders and corporate transparency.

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Syms Store Closings.

2011-10-18T10:40:00.000-07:00

Here is something that doesn't come as a surprise: Syms has made the decision to close 4 of it's Filene's stores. This has been something that I have been expecting, especially when looking at how the company's leases are expiring (from the 10K) and their mounting losses.

This will likely impair earnings, but, should be largely a non-cash charge... Anybody remember the "bargain purchase gain" that helped to make them profitable? Well, I am guessing that this will in part come out of that, and a decent bit from intangibles...

The inventory being liquidated should help out the cash position a bit, which, if the most recent quarterly is any indication of, will be nice, since the company doesn't have any individual assets left for sale... Rather, the whole of the company is supposedly for sale.

It is a crying shame that the company has gotten to this point... There are a plethora of ways in which to unlock value... Most of which, involve the company ceasing to operate as we presently know them.

EDIT: Add another 2 stores to that figure...

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Shit My Dad Says.

2011-10-12T13:04:00.000-07:00

OK, so, it isn't really Shit that MY Dad says, but, there is a great site, called "Shit My Dad Says." Basically, it is just this guy who writes all the hilarious shit that his dad says. And believe me, it's great... I would liken him to a less wealthy Charlie Munger who is more straight forward (who would have ever thought that?).

For example, the most recent thing that he posted was this: ‎

"There won't be humans in 500 years. Enough people choke themselves when they jerk off we gave it a name. We ain't a species made to last."

Here is another one:

‎

"You don't have to be good to succeed. You just gotta be the least shitty option. Example: We're eating at The Olive Garden."

...WOW...

Anybody that is that bold certainly deserves my respect. Well, maybe not my respect, but, they deserve something. Anyway, as it had been a while since I read the site and I wanted a break from other stuff, I figured I would read some older posts...

I was going through some older posts and came across one from the most recent Father's Day. I encourage you to read the whole thing (I'd post a snip of it for you, but, the formatting is really weird, and frankly, I don't feel like taking the time to fix it)... It's just a few pages and takes about 2 minutes to read.

I think that it really does a lot to show how different things are now than they were when the story took place. If the protesters on Wall Street would take a step back and realize how good we have it, they may look at things a bit differently.

The Frog's Kiss.

2011-10-10T10:28:00.000-07:00

Rather than link to the numerous posts on the site that I like, I will simply come out and say this:

"The Frog's Kiss is the best new investment blog out there. Period."

As for my one criticism, I think that it is unfortunate that the author (who I have not talked to) seems to be bent on getting an analyst job. He should probably just thumb his nose at the industry and open his own fund. From what I have read, I would rather him manage my money than most. Hell, generally speaking, I would generally rather a handfull or two of my favorite bloggers manage my money than most established firms out there. Unfortunately, some of them quit blogging once they started a fund or went into the industry in another capacity. But, I suppose that is a subject matter for a different post.

Disclosure/Disclaimer: None. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

ITEX Gets Sued.

2011-10-10T09:51:00.001-07:00

The activist shareholder group (the Polonitza Group) has finally come out with a derivative lawsuit against ITEX. It's hard to say what will happen, but hopefully, the company will begin to allocate capital in a method that doesn't seem to entrench management, but rather, benefit all shareholders.

The time frame for this is pretty much undeterminable (as we have learned with Syms), but at least the ball is rolling. If recent history continues to play out, this story will be great fun to watch unfold.

As an interesting side note, this previous article that I did was quoted in the suit.

Disclosure: No position in Itex, but I do own shares of Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Pirates of Silicon Valley.

2011-10-08T11:02:00.000-07:00

Good Film.

And just for shits and giggles...

Military Drones and Viruses...

2011-10-07T21:00:00.000-07:00

Holy crap... The idea that there is a keystroke recording virus on our military drones is pretty frightening.

Snip (from here):

The computers used to control Predator and Raptor drones used in Afghanistan and other war zones have been reportedly infected by a virus that captures the keystrokes of the pilots operating the unmanned aircraft.
Although detected two weeks ago by the military's network security systems, the military has been unable to purge its computers of the apparent keyboard logger, Noah Shactman reported Friday in Wired's Danger Room blog.
“We keep wiping it off, and it keeps coming back,” a source familiar with the network infection told Shactman. “We think it’s benign. But we just don’t know."

Just imagine if the virus could somehow transmit such activities to adversaries... It would certainly hurt the logistical use of drone planes. They would also potentially be a lot easier to detect, track, evade, and even shoot down. Certainly not desirable if trying to kill a terrorist.

Then again, knowing a virus exists on your system, and no way to get rid of it is kind of frightening for our government to have to deal with too...

Syms, A Terrible Quarter, And Why I'm Still Long.

2011-10-07T07:00:00.000-07:00

After reading the Syms' newest 10Q, I am almost (but not quite) shocked by how bad the results were. However, I am still long the stock.

In light of the mounting losses, it seems that the company will be forced to do something, which could involve the sale of a lot of assets... They did sell, since the end of last quarter, a small piece of their real estate pie (in Tampa) via a sale leaseback for $3.8 million, despite being on government tax records for well under $3 million. The lease only lasts until the end of the year and has a 1 year renewal option. This may indicate that they are trying to liquidate the inventory of the store this Christmas season, though, there is no way of knowing what is going on inside of the company.

Syms also sold off a store in North Randall Ohio, which, I believe to be a Filene's location. I am curious as to the specifics of this, as, I am not under the impression that they actually owned the real estate, which, would indicate that they literally just sold the store off to TJ Maxx or something alone those lines.

Looking at the screen shot below, the company doesn't appear to have any assets held for sale, which, is interesting to say the least. Additionally, it appears that the company has significantly less inventory now than they did a year ago, though, in the previous year, they did have a surge of it.

Overall, I am disappointed with results, but, am not unhappy with my decision to still be long the stock. The company may be getting it's back against the wall, and forced to do something drastic. That said, a turnaround is still possible. This filing, which showed a high amount of losses, is the epitome of why I will only invest in a turnaround play if there is already a huge margin of safety in the assets of a business... Specific to this situation, in the event that the turnaround doesn't happen, I am still relatively protected by a mound of real estate. On the positive, a lot of the losses were due to non-cash charges such as depreciation, so, the situation isn't necessarily so dire in the short term.

Disclosure: Long Syms. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Syms Appeals...

2011-10-06T06:35:00.000-07:00

In effort to keeps it's books out of the eyes of the very people that want to ensure that the company is being run for the benefit of all shareholders, Syms continues it's efforts to not turn it's books over to shareholders.

This comes, despite the fact that Esopus has provided more than enough evidence (as called for, by law) to warrant an examination of the company's books... It is a pity that Syms is continuing it's efforts and resources on things other than turning the company around and stopping mounting losses.

To pay homage to the late Steve Job's, my thoughts on Syms, the turnaround, and this court case are along the lines of his remarks on a certain executive that ran Apple when he was separated from the company.

"The management and board of Syms are continually trying to right the direction of the ship, while there is a big hole in the hull, causing the hole thing to sink."

Esopus - Oct 3- Appellate Reply Brf

Disclosure: Long Syms. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

The Big Deal: Electronic Scratch Ticket Games and Nevada Gold.

2011-10-04T13:00:00.000-07:00

Before my interview with Bob Sturges, I had absolutely no idea how good the legalization of Electronic Scratch Ticket Games (ESTGs) in Washington state could be for the casino market up there... I had an idea, but, nothing like I now think. As a result, I had no idea how good these new games could be for Nevada Gold.

After the interview and doing a little bit of math, it seems pretty apparent to me that if these things are legalized, it will be one of those moments where the company's profitability could go up by multiples and it's revenue could more than double. Before you get excited and say that I am overblowing this (in either direction), let's take a look at why I think this.

Please be sure to read my disclosure/disclaimer, as, there could be something incorrect in this post. The purpose of this post is for me to kind of outline my thoughts on the potential legislation, as well as it's potential reprecutions for the price of the stock. While value investors generally don't put much weight on developments that may or may not come, it is important in my mind, to think about such possibilities and to figure out how you would react. Many times, people will say something to the effect of "Hey! This stock just doubled! I should sell it!" without actually giving much thought as to the intrinsic value that would likely be created by such legislation if it is passed. For me, if the video lottery is legalized, and the price of the stock doubles, going on the information that I have now, there isn't a chance in Hell that I would sell my shares. In fact, I highly doubt that I would sell my shares unless they went well into the double digits... again, I can't stress enough that this is provided that the video lottery is legalized, based on the information that is out there about what the legislation will do. There are a million factors that can affect this to the positive, or, to the negative.

In respect to anything said by an executive of Nevada Gold, please heed this legalese from their website:

This interview may contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We use words such as "anticipate," "believe," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements. Forward-looking statements include, without limitation, our ability to increase income streams, to grow revenue and earnings, and to obtain additional gaming and other projects. These statements are only predictions and are subject to certain risks, uncertainties and assumptions, which are identified and described in the Company's public filings with the Securities and Exchange Commission.

Now, to the meat and bones of the article...

Here is a snip from my interview with Bob Sturges:

J: Let’s talk about slots in Washington. The legislation called for more than 7,500 slots to be authorized. How many of those do you think you all could... If it is legalized, which there’s a remote chance of, but how many of those do you think you could fit into your casinos, and what are the cannibalization effects that it will have on your existing business, and what about other operators coming in as a result of this legislation?

Sturges: OK. The number that was in the last bill of 7875, the way that they got to that number was to multiply at that time, the existing number of card rooms, which was 63- there are a couple of less right now, and take an average of 125 machines per location, that’s how they got to 7875 and it would allow up to 200 slots in any one location. We have- most of our properties either have the space, or the space could be readily added on without a major problem, in, I want to say- at least 7 of the 10 properties. So, in our thinking we are looking at immediately, with not too much of an effort, we can get to 1500 machines, under the old bill, if that were to happen. In terms of- we don’t see any cannibalization of our existing business. We really see an expansion of additional gaming opportunities where the table game business would still be there but you would supplement that with, you know, with a whole new product and frankly, stereotypically, attract a lot more women, who tend to favor slot machines. Men tend to favor table games; obviously, there are exceptions. Couples now come and both couples now have a gaming option. It would just, it would be a tremendous expansion of our product offering and a tremendous expansion of our business if this were to happen. I am always careful to say I couldn’t handicap it.

J: Right.

Sturges: Because, you know, it’s politics. Who knows? It could never happen. It could happen, in January. There is a special session in November, that has just been called by the governor to plug a $2 billion dollar budget gap- mostly through cuts. Then in January, as I understand it, they are going to be talking seriously about where there are revenue opportunities and the slots in the mini casinos is definitely going to be part of that conversation... Whether it gets across the finish line, who knows, but, it is definitely going to be part of the conversation.

J: OK. With the slots is there a feel for the amount of revenue that can be generated by said slots, and also, what kind of margins do slot machines generally have? I remember in a radio interview, where you talked about kind of the logistics of slots and whatnot, but, I was looking for a little bit more clarity on that, if it was at all possible.

Sturges: Well, you know, it’s very market specific in terms of what kind of margins you can expect. It depends upon so many factors and that's why I would not want to speculate in Washington, because we don’t know what they tax structure is going to be. We proposed 35%, but we don’t know where that winds up and hopefully, it wouldn’t be any larger than that, because that’s the point where it makes business sense. Once you start getting above that, it becomes problematic. What are the restrictions on promotional activities? What’s your competitive set going to look like? But in terms of win per unit, with only 7,800 slot machines in Washington, being such a huge market, I think it’s safe to say that you should be in the $200 to $300 dollar win per unit range. So, you can kind of do the math based upon the win per unit in terms of a top line. And then margin wise, obviously, slots are far more efficient than table games. But again, there’s so many factors I don’t know that will be in place in Washington that I wouldn’t want to speculate. But I can tell you, the 20-30% margin that we run between sometimes with our table games in our WA 1 properties should be easily achievable with slots.

In a follow up email, I asked:

In the event that slots are legalized, how much additional expense do you see coming from them (replacement of units, maintenance, administrative, ect)

To which, Sturges responded:

As far as the operating margins, I would only say at this point that they should be superior to the Washington I margins which have been in the 20% range. This assumes no more than a 35% tax rate on slot revenue. On the capital side, we don't know whether it will be our responsibility to buy the equipment or if the lottery officials will front that expense as is the case in some states. The replacement cycle varies from 5-7 or 8 years depending on a lot of factors. One machine with all the bells and whistles including signage would cost close to $20k.

Since Bob didn't want to speculate, I will... First, let's take a look at and analyze the legislation and then take a look at the effects that the potential legislation will have on Nevada Gold (I suggest that read the article I just linked to).

The Political Battle...

Lets take a look at just what the legislation would do (here is the full text of the bill). Since gaming is already legal in the state, all that the proposed legislation would do, is let places where you can already go and blow your money by playing cards give you another way to lose money. Instead of having face to face contact with a card dealer and other players, you simply press a few buttons after putting money in a machine, and over time, the machine will give you less back... Basically, these things are the "U-Scans" of the gaming world and only make a digital for of what people can already buy on their way home from work, at their local gas station.

The beauty of this legislation is that it isn't really an expansion of gaming in the traditional sense. The machines are only going to be allowed in places where people already go to gamble. Legalizing ESTGs in non-tribal areas should be more popular than closing down monuments, cutting support for the elderly/disabled, those that can't afford basic necessities such as food, or even police salaries, which have historically been the arguments used in the past to push through legislation of this nature. Furthermore, the big issue here, according to Representative Charles Taylor, is that at present, Native American Tribes have a monopoly on video lottery terminals, which, in his mind, is an unfair advantage over other businesses, that the state isn't actually able to give.

Furthermore, when looking at the specifics of the legislation, the revenues that it generates would help out kids: ~50% of the taxes raised from the proposed legislation would go to funding K-12 education, another ~30% to "the most vulnerable" or, more specifically, Health and Human Services, and the remaining ~20% to Public Safety (here is the announcement from the legislature). Other allocations will be for those needing gambling treatment and for administrative costs. How can any reasonable person with any semblance of a heart dislike that?

Keep in mind, these machines are already all over the state, but, they just sit inside of casinos that sit on various Indian Reservations. While talking about the reservations, how will this affect the various tribes? Some reports say that they will experience a ~9% decrease in revenues, but, it is apparent that even a loss such as that will hardly destroy their operations- everywhere else in the state, there is generally at least a 10% tax on gaming revenue (which tribal gaming operations don't pay), so, at worst, they should still be doing better than their counterparts throughout the state. When talking with Representative Taylor, he didn't seem to buy the argument that the various tribes would be dramatically affected. He said that most all of the tribal locations were destination spots complete with hotels, whereas, the card rooms are generally locals only, where many of the patrons can stop by on their way home from work.

When looking to let card rooms have these units, it would certainly do a lot to spur growth in the Washington economy. Nevada Gold, not to mention many other card rooms, would need to alter their present locations or even expand their buildings to accomodate the new machines, which would generate investment from outside of the state. It would help out regional banks looking to make construction loans, it would employ a host of contractors... the very contractors who have been slaughtered by the downturn in the housing market and the broader economy. In a day in which people need work, this legislation would provide it and do so in a manner that doesn't spend money the state doesn't have or raise the mandatory tax burden on anybody by a single cent.

The bottom line is this: it makes a whole Hell of a lot of sense for the state to pass the bill, as it is a way of not only containing slot machines to buildings where gaming is already allowed, but, is also an activity that people actively engage in, but due to where they do it at, doesn't contribute to the tax coffers of the state. By industry estimates, slots could generate $160 million in revenue for the state. As if this wasn't enough, it will spur economic activity through out the state!

Clearly, legalizing slot machines in Washington is not only the ethical thing to do, but, it also is one that puts people to work, and would decrease the budget shortfall by as much as 15%!

Now, to the potential effects for UWN:

If we take a look at this table, under an average scenario (the one highlighted in green) being 1500 slots, generating $250 in wins per unit (which, I feel comfortable with, based on the numbers from other states, such as Pennsylvania, and even Las Vegas, where the market is extremely competitive, driving down WPU and by extension, margins), we will see an additional $136.88 MILLION in revenue for the company. Slap a 25% EBITDA margin on that (which is the middle of the margins for table games at the Washington 1 properties) and you get over $35 million in what I will loosely refer to as "profit". Take out 20% of that for various cash expenses like interest, non-cash charges such as depreciation (which, essentially gives the company a float), and another 40% for income taxes (a guesstimation, based on other casino operators), and you end up with ~$17 million (or, ~$1.29/share) in what I will loosely call "earnings".

Now, this is a pretty big deal for a company that is trading for under $25 million, or ~$1.90/share...

Put another way, if you value the present company at nothing... Then slap a 10x multiple on the potential earnings of my average scenario from slots, the company shoots from $25 million in market capitalization to $170 million in market capitalization, or, up nearly 700%. Again, this values the present company, which is doing a stellar job operationally (and is growing by leaps and bounds), in formerly hyper inflated Zimbabwe Dollars...

If the scenario that I lay out in regard to earnings from slots is something that Mr. Market believes is feasible, then, he is implicitly putting a very slim chance on the legislation passing. From what I can gather from various readings, talks with legislators in the state, and a look at the Washington budget, I think it should be closer to a coin flip (that's even what one of the legislators said). It is believed that there are the votes to pass the bill, even. It just needs to get to the floor for a vote. To get an idea of how the populous could feel about it, in 2004, for example, a move to legalize slots barely missed the mark. The initiative was not only a lot more liberal than the one that is presently being proposed, but, was also during a time when deficits were not the issue that they are now, which should make the legalization much more probable.

What about other operators coming into the state and stealing a piece of the ESTG pie? This is something that I am not worried about, as, the legislation caps the number of video terminals at 7,875... With that kind of cap, it essentially gives present operators control of the market. Then, on top of that, it puts a drag on further expansion of card rooms, as, if new locations can't get video slot terminals, it limits their product offering. Making them significantly less competitive and less likely to destroy the margins that present operators enjoy. Culturally, with the implied limit of card rooms, you actually keep gaming from expanding, and destroying the ethos of the state, as many worry about (the link is a document download).

In regard to the expense of actually installing and buying slots, even if the state doesn't front the money for the machines, as has occurred elsewhere and the company must buy the machines for as much as $20,000 dollars a piece, I am not concerned. The company's newly filed S-3 could be a way to get quick funds. The company could borrow from Wells Fargo, which has apparently expressed interest in a long term relationship with the company. Certainly, if the company believes it can produce numbers that are anything close to that which I think are possible, people would likely line up to give the company money in the form of debt If the company would have some sort of a rights offering, even, I would be far from upset. This kind of offering is something that would take money from outside of the state, and put it directly into Washington. I for one, would be likely be willing to invest- which would take money out of my local economy (where I have been buying limited amounts of real estate) and sending it off to help people in Washington.

If Nevada Gold doesn't want to go the dilution route, there is always the options of leasing the slot machines from various vendors. Sure, it would reduce the amount that the company would earn, but, not by so much that a huge upside wouldn't be left for the stock; again, looking at the table from earlier, under the most conservative scenario that I can imagine; being 1,250 units, with a WPU that is like those in the over saturated Las Vegas market, and an EBITDA margin that is 75% of that at the Washington 1 properties (~15%), the company's revenue will more than double (going up in excess of $68 million dollars)...

From where I sit, my investment in Nevada Gold was an investment with a margin of safety before I knew the extent to which slots could help the company... Now, it is an investment with a margin of safety that also has one of the nicest looking call options that I could imagine, which is essentially being given to me for free. While I would never invest in a company solely on the hope the actions of a legislature that sits over 2,000 miles from where I reside, it is certainly a nice bonus.

Disclosure/Disclaimer: I own shares of UWN. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about. While I try to get everything correct, I am human, and may have botched something up.

Interview of Bob Sturges, CEO of Nevada Gold.

2011-10-02T13:15:00.000-07:00

A week or so ago, I was fortunate enough to have the opportunity to interview one of the most talented gaming executives that you will come across: Robert (Bob) Sturges of Nevada Gold. The following post contains a mix of the interview and my commentary. As my commentary is interjected with snips from the interview, I may well have made some inferences that I should not have or are inaccurate. If you are wanting something that has little to no bias, check out my recording of the interview which does have a few edits due to problems with my software and to help the overall flow of the interview... from me to you, for your listening pleasure. :)

I'll go ahead and tell you that I have purposely omitted our discussion of the pending legislation regarding the legalization of the video lottery in Washington state (video lottery, loosely meaning slot machines in non-tribal casinos). The reason being, I am working on another post that specifically adresses the subject. It is such a huge topic, with such vast repercussions for the company (potentially, well more than doubling their revenue) that I feel it is best to split apart from rest of the interview.

As always, here is the legal mumbo jumbo that I more or less lifted from the company's website:

Now, on to the interview...

The first thing that I asked of Bob, was for him to tell us a little bit about his background. This is something that I have previously addressed in other posts. Honestly, the more that I hear about him, the more that I am impressed. Sturges, originally a young lawyer, became the chief prosecutor of organized crime in New Jersey. After working his way through the gaming regulatory agency in New Jersey, he left and began working as both a lawyer and a consultant in the gaming industry, saying that "The actual practice of law was really not anywhere near as interesting to me as the business world". During this time, he attracted the attention of none other than Ted Arison (the founder of Carnival Cruise Lines), who was Bob's business mentor and came to refer to Sturges as his "right hand man".

Additionally, he spoke of previous experience with a $30 million dollar EBITDA riverboat project, as well as a "million dollar a day casino, up in the Toronto market". This is something that is always nice to hear that the CEO of a small but growing gaming company has experience with. Once Carnival sold off assets to Penn National Gaming, he was slated to be the Chief Operating Officer of the acquiring company, but parted ways, largely due to his family being located in Southern Florida. Through his consulting work, he eventually came to cross paths with Nevada Gold. After the board asked him to be the CEO of the company, he then tapped Jim Kohn from knowing him through Carnival to come in as CFO. At the time that his newly assembled team came in, it was no stretch to say that the company was in shambles; the team had to do a ton of work to make the company stop bleeding money. After paying off their previously thought insurmountable amount of debt, they had hoped to use the capital markets to borrow money to grow a great business. Then, came The Great Recession, as a result, they needed to be a lot more creative in their purchasing; largely, this has involved the use of seller's paper, rather than traditional lending from various banks.

After the introduction and talking about the various members of the management team, who when combined, have experience in well over 20 gaming jurisdictions, I asked a question that was give to me by a reader, which is also coincidentally one of my favorite's that Phil Fisher would ask: "What other operators do you admire?" After careful reflection, Sturges mentioned Steve Wynn and Ted Arison. He first talked of billionaire Steve Wynn, referring to the tight ship that he has historically run, as well at as his "tremendous track record". When listing various qualities (of operators in general), mentioned items such as the attention to detail and focus on the bottom line, saying, it "...is something I learned from Ted Arison, who was really a master in that regard... He was an incredibly successful businessman, and that's something I have tried to implement here, and always followed as a philosophy. Let's put ego aside, let's not do stuff to make ourselves feel good or because we make emotional decisions, but, because we see it really building our bottom line."

Struges also noted that he liked to see stability in the staff of an organization. He is a person who considers himself to be nurturing, yet serious- not very "Hell-raising" in regard to his managing style. I then asked his intent with the company (in terms of his working time horizon), to which he gave me the impression of being in for the long haul. Specifically saying it would likely be his last job, that he had a 5-7 year time horizon, and that he wanted to see the company become a big player- all the while implying that his holding of stock and options are a huge incentive for him to do good things with the company.

Who knows? He's by no measure an old executive and at the ripe young age of 63, may well have more than just 5-7 years at Nevada Gold. Obviously, with the newly filed S-3, he is incentivized by these very options to not do anything stupid, such as blow company resources on an overpriced acquisition. He later characterized the S-3 as "a weapon in our arsenal, that for the right opportunities, for this to be waiting on the shelf... it's something that we've got 3 years to decide what to do with it, and we just thought that it would be a good weapon to have, without any preconceived notions about when, where, and how it's used." These, plus the rest of what he said about the registration, should put weary shareholders to rest about the ill-effects of any potential dilution.

The new credit line with Wells Fargo is going to be entered into, giving the company breathing room with the due date of their debt, despite being at roughly the same interest rate. The real kicker here, is that Wells Fargo has expressed an interest in a long term relationship, especially for the right deal, as they like what the company has done and is comfortable with the management team. While the deal has yet to close, an announcement will be made with the terms. Given that the company was shopping the deal around to several banks (per various conference calls), it is likely that the held out for the best deal and implied banking relationship. It isn't like Wells Fargo is a stranger to lending to gaming operations.

When I asked Sturges about the status of the Las Vegas Motor Speedway project, it came out that the new owners of the property, Rialto, are indeed the guys with strong ties to home builder Lennar. Despite Whitney Tilson being bearish on home builders (and, I would presume developers of virtually anything), I view this as a net positive for the development, as they have a lot of experience with property development. Just because the outlook is bearish on a price to value ratio with one (well, actually, numerous) fund managers, doesn't mean that the people that are involved in the development of properties dont' know how to develop; which, in my mind, is all that matters in this scenario with Nevada Gold. If there is anything that we can learn about Rialto, it's that they actually do know how to get stuff done.

While the previous contract for the project is with the previous owners, and, more or less done with, it does seem that the prospects for the development are getting juicier for Nevada Gold. In this press release, the company noted that it is attempting to negotiate a greater equity stake and management contract. Sturges made sure to say that the company is willing to take on minority stakes where they can also get a management contract in order "to control our own destiny", with no interest in simply buying a minority stake and not being able to ensure that operations run smoothly (and profitably).

Additionally, I questioned him about the ~$250K in the company's latest 10Q that were allocated to "Capitalized Development Costs". While Sturges wasn't readily able to answer the question and readily admitted it, rather than bumbling around about it; which, to be fair, is a question that is much more suited for the CFO the company. He emailed me the response of "The 250k is comprised of expenses associated with the Las Vegas Speedway project and licensing expenses in Nevada and a few other minor expenses." I view this as a net positive, as the company has more or less tapped out the total amount that they were contractually bound to spend under the old contract. This spent money may give UWN a degree of leverage that they can use in the new negotiations. After all, if they have spent money on things for the project, why would the new owners want to re-spend the money on the same thing? While I don't know exactly what the money was spent on, I would imagine that there was a certain amount of time dedicated to the items that the money was spent on. If this holds true, I would also imagine that Rialto would like to have a quicker process for the development. Nevada Gold has no learning curve whatsoever for this project, which any other company coming into the project would have.

Moving along, I asked about the process for getting a gaming license in the state of Nevada. Sturges estimated that the company is "well past the 1/2 way mark". Basically, this means that around the beginning of 2012, they should have a license. In this vein, the company is still actively looking for deals "where we can exert operating leverage" and more specifically, due to capital constraints, they seem to feel comfortable making an acquisition in the $10-$15 million dollar EBITDA range.

One thing that I found of interest was the company's imagination for uses of the land in Colorado, located off of the Central City Parkway. While presently in an appraisal process (for mineral rights and such), the company had the thought of potentially using it for a golf course. Sturges pointed out that the carry on the property was only $20K, so, they are waiting for the right opportunity to dispose of it. Regardless, from talks I have had with a person in the area, it is apparently a really pretty parcel of land. Don't believe me? Travel the whole thing via Street View on Google Maps.

Moving along to Washington, Bob had actually just returned to Texas from a trip to the properties in Washington state. We talked about the sorts of things that he goes through on his regular trips to the Pacific Northwest, which occur "at least once a month". Items such as day long roundtable discussions with the general managers of the properties and various company executives, visits to the gaming sites, and updates as to the politics going on in Washington occupied the bulk of his 3 day visit. He mentioned that the company continually does hospitality training (they are doing a refresher course after having one just a year ago) - Sturges saying "I'm not a believer that training is a one shot deal... that you do once a decade or once every 5 years. It's gotta be a constant process to remind everybody- top of mind awareness, that we are in the hospitality business."

As previously mentioned, he visited every property in the eastern part of the state (which make up the vast majority of the company's card rooms) to personally verify that the properties are preforming and looking as they should be, and to also get a feel for the customer experience.

One of the items that I had previously suspected, but finally got the chance to verify, was that the company doesn't have to put a whole lot of money back into the properties. In fact, despite giving a face lift to 2 of the properties (Mill Creek and Seatac) to get rid of what Sturges described as a "half baked tropical theme, that used to be in there from the old days", the company only allocated a $250K budget for the properties for the year. This is a big deal, as it certainly sheds light on the future cap ex expectations that the company will need... "They're not very capital intensive" according to Sturges. If you look at the recent depreciation and amortization expenses for the past few quarters, a lot of it comes from things such as customer lists, and is in excess of $425K for just the last quarter, after taking out $62.5K (1/4 of $250K in yearly cap ex, also deducting some stuff like the capitalized development costs)... Furthermore, when asking about the accounting for such maintenance, Sturges said that it was a combination between repair and cap-ex... so, in my mind, an even greater amount of the cap-ex on the balance sheet can come through to the owners of the company company, as some was of the maintenance was already expensed.

While the EBITDA margins of the Washington 1 casinos are ~20%, he does not believe that the Washington 2 properties will be able to get up to the same margins due to geographical differences in the properties- the Washington 1 properties, mainly being in the west, less densely populated part of the state, have a different set of economics. However, he does seem to believe that the Washington 2 properties have a lot of room left to run, with a goal of 75% of the EBITDA margins that Washington 1 presently operates at... or, roughly 15% EBITDA margins, which, still leaves a lot of room for operational improvement.

After talking about margins, we moved on to the financial performance of other card rooms in the state. Sturges noted that there is at present, a great deal of financial distress in the card rooms of the state, and as a result there could be more buying opportunities. While more than receptive to expanding in Washington, especially since the company presently has great infrastructure for taking on a greater role in gaming market of the state, he noted that "We keep our eyes open for sure... to buy something at what we call 'a reasonable multiple'... the only caveat I have in my own mind is, becoming a totally Washington based gaming company. We really would like to keep some level of geographic diversity and not put all of our eggs in that basket." He mentioned that 3-5x EBITDA "seems reasonable", though, there could be exceptions.

And, pretty much, that's it... other than the talk of slots, which, as I have already mentioned, deserves it's own post. So, come back in a few days (or, just add me to your reader program of choice via RSS) to read about it. The coming post is ~90% finished, I just have to do a touch more research and number crunching.

I am sure that it comes as no surprise from this, and my previous postings, that UWN is my favorite stock at the moment. They have a really bright future that I believe I have not paid a single cent for. I believe that due to a lack of understanding about a host of things (management, acquisition criteria, income vs. cash flow, certainty of contracts, debt issues, and others) in regard to the company, Mr. Market has been perpetually discounting the security. For me, it is amazing that the company can borrow money at interest rates that are solidly in the double digits, and still cash flow like crazy- which, not only shows how selective they are in acquisitions, but also how good of operators they are.

While a lack of coverage is frustrating for the company (after all, it was mentioned by Bob), I find comfort in the fact that the stock is almost totally uncovered in the press, the blogosphere, and even in message boards. Generally, it seems that my best ideas have been small, uncovered, and unloved. Until suddenly, they weren't.

Disclosure: I am long shares of UWN. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

The Economy's Coffin Corner

2011-09-28T21:25:00.000-07:00

At times, it seems like our government in economy is at a "coffin corner".

From my vantage point, it doesn't seem like the government can stimulate the economy much more than it already has, without quite literally flooding the streets with money. Additionally, with the downgrade of US credit, it is hard to see there being the borrowing that we have historically ben used to. Yet, on the flip side, it doesn't seem as if they can cut off the Keynesian spending binge by pulling trillions of dollars out of the economy- printed, borrowed, or otherwise, without some pretty disastrous effects.

Lost decade? Take a look at a chart for the S&P: we have lost the better part of 15 years. That said, Dell and Microsoft trading at single multiples of earnings should make for a nice bull case. Individually, there are a ton of really nice stocks out there.

Disclosure: None. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Japanese Businesses Are Worth More Dead Than Alive...

2011-09-26T12:29:00.000-07:00

Here is a link to a great article written by an e-mail buddy of mine. While I have no investment (or present plans to invest) in Japanese companies, Jake has put together one of the most thought out pieces that I have read in a while.

Disclosure: None. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Buffett Buys Back Stock.

2011-09-26T07:57:00.000-07:00

This is one of the most exciting things that I have seen, and, I am not even a shareholder of Berkshire! I am getting ready to dismiss what the crowds say, when they start chiming something to the effect of "Warren Buffett is a hypocrite... he once said that he wouldn't buyback shares due to it being unfair treatment of BRK shareholders!"

Yeah, whatever...

Anyway, this repurchase plan is exactly the kind that I would institute: indefinite, and with no cap as to the amount that can be repurchased. It is nimble and from the wording of the press release, Berkshire (surprise surprise!) actually cares about how the capital is deployed- as in, they care if Berkshire is a better investment than, say, buying some company in India or even additional shares of Johnson & Johnson.

As I have long said, repurchases, just like issuance of stock for an acquisition, is all about what you pay (or give) versus what you get in return. In this case, BRK is obviously going to be getting more in intrinsic value than it pays out of it's hoard of cash.

Does this make me want to go long BRK stock? Well, I am a lot more inclined to now than I was yesterday, however, the ultimate answer is no. Simply put, while Berkshire is seemingly almost always undervalued for the past few years, I keep finding better opportunities. Plus, when it comes to growing earnings, book value, and a host of other metrics that value guys look for, Buffet and Berkshire have constraints due to the large cash hoard that they have. I, and every single company that I invest in, don't have that, yet, they are on sale significantly more than Berkshire is.

That said, if I had a few billion dollars under management, I would probably have already thrown a good deal of money at BRK.

Disclosure: None. This is not advice or a recommendation of any kind.

Faster than the speed of light.

2011-09-22T13:53:00.001-07:00

It's looking like something may actually be able to travel faster than the speed of light.

I hope to God that these claims are true... If for no other reason, than to show just how stupid humans really are. For a skeptic of everything such as myself, it's always nice to see a pillar of the scientific community potentially being torn down.

The Syms Legal Battle Continues On...

2011-09-22T09:12:00.000-07:00

With Syms, there always seems to be some sort of wrangling going on... The recent court battle is no exception.

A few weeks ago, Judge Thomas Oliveri gave an order for Syms to turn over it's book to Esopus Creek (Page 1, 2, and 3 of said order)... This was after the company and the activists went back and forth in the courtroom over keeping the company's books hidden from shareholders. When the judge ruled for the plaintiff, Syms immediately requested a stay, which was denied on the spot.

Now, it seems that the parties involved in the case are still going back and forth as an agreement has yet to be reached. Due to the judges scheduling, it seems that there won't be any more clarity until the first week of October. With all of this said, the case has yet to be appealed.

This is particularly interesting, as, during the original hearing on August 1st, it was made known (at several points during the hearing) that there is the potential for a derivative lawsuit against Syms. Here is a quote from Judge Oliveri in the case:

"And the plaintiff seeks to examine books and records of account and minutes of Syms' in order to investigate potential mismanagement of Syms and to investigate the filing of a derivative action."

In addition to this quote from the case, it is reassuring for shareholders everywhere that a case like this (which references club deals and LBOs, similar to that of what Syms could, and arguably, has tried to do) is getting some life breathed into it by a federal judge. This combination could prove to be a catalyst coming to fruition much sooner than I had originally expected... Though, with that said these court cases can go on for a long time. In the meantime, the company is trying to revitalize operations... Plus, there is the mound of real estate that is tremendously understated on their books!

From where I sit, with Syms comfortably selling below tangible book value (and, with what appears to be room to bleed for a while) shareholders presently have a nice margin of safety... Everything else- the activism, the chance of a management buyout, and the chance of a turnaround, is purely icing on the cake that isn't paid for when buying the stock.

Disclosure: Long Syms. This is not advice or a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Changes...

2011-09-21T18:59:00.000-07:00

In light of everybody freaking out about the changes to Netflix and Facebook, I think that this may be a pertinent book for me to read.

Interview Questions for the CEO of Nevada Gold.

2011-09-19T11:05:00.000-07:00

Readers,

I will be interviewing Bob Sturges, the CEO of Nevada Gold on Friday and will be posting the interview shortly thereafter. I thought it would be interesting to ask him some questions from the readers of this blog, so, feel free to email any to ragnarisapirate[at]gmail.com

Disclosure: Long UWN. This is not advice of any kind. This is not a recommendation of any kind. I have received nothing to write/post these notes. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Brief Update (IBAL and UWN).

2011-09-12T09:20:00.001-07:00

I just read International Baler's quarterly... about all I can say is: "Wow... fucking amazing."

Well, that isn't exactly all that I can say.

But in all seriousness, these results are spectacular and totally exceeded my expectations for the company. Just look at the backlog of $4.7 million. Next quarter is going to be great. With their NOLs getting ready to be eaten up (potentially, in a quarter) I won't be a bit suprised if they will be in play to be taken private by the controlling shareholder. After all, it could be done at a significant premium to today's market price, as the company has a glut of cash that could be paid out to Leland Boren; he just needs to buy under 1/2 of the shares... If the share price doubles for the buyout, then he would effectively only have to pay ~$4 million dollars, net of the cash on the balance sheet for the remaining shares. And, that is a number that doesn't include customer deposits, significant amounts of inventory, cost efficiencies of not being public, and a fair amount of accounts receivable...

Literally, the share price could double and he would be getting a good deal the company, especially with the bright future of the baling industry.

Nevada Gold (UWN) is reporting on Wednesday, and has a conference call the following day. I expect good things from them as well. They are a turnaround that makes a whole lot of sense to me and I have been desperately trying to get ahold of shares. But, alas, I am having trouble getting my orders filled.

It will be interesting to see how the market will be reacting to both IBAL and UWN. I won't be shocked if they continue to lag in their march towards intrinsic value, as I think that often, events tend to not be appreciated enough. As I have said before with UWN, right now, with last quarters run rate, you are basically buying the company for ~20x earnings. While on the face of things, this isn't exactly cheap, you are getting a company that is growing like crazy, is buying great properties that they can run efficiently, and a glut of other catalysts where, if say 2 or 3 of the many would occur, you are looking at a stock that should probably trade for multiples of what it is presently at.

And the best thing about UWN, is that everybody and their brother seems to hate them. In all the emails I have received and the many conversations that I have had 2, maybe 3 people actually agree with me on UWN. From what I can gather, the non-bulls on the stock simply don't like the previous performance of the company, or, they don't get the expansion strategy, or, the scalability of their Washington state operations. I am practically giddy at the prospects for the Red Dragon Casino that they just purchased; they now have a monopoly on casinos in the city it is located in as a result. Even with UWN at a multi year high, I still like them. In fact, I like them a lot. With that said, I can't say enough that I have no idea what will happen with the stock in the short term.

I will have some more to write about UWN on Weds/Thurs... Come back for an update. :)

Disclosure: Long IBAL and UWN. This is not advice of any kind. This is not a recommendation of any kind. I have received nothing to write/post these notes. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Obama, the republican.

2011-09-08T16:23:00.000-07:00

Just a quick thought:

As I watch President Obama's jobs speech, all that I can think is how much of a republican that he sounds like. He may not sound like a TEA Partier, but, certainly more conservative than John McCain did just a few years ago.

His promise to come out with a new budget proposal and challenging congress to pass further budget cuts is politically brilliant. I doubt that any implementation of this will be good (after all, politicians have a way of botching even the most simple of things up). Still, politically, it's brilliant.

Unimaginative Students...

2011-09-07T08:03:00.001-07:00

More bothering to me, than the fact that 7 out of 10 students don't buy a text book due to the costs, is that they are apparently apathetic or unimaginative.

When I was in school, I would often goto the teacher and say something to the effect of "Hey, I won't want to spend $150 bucks on the new edition of this book... since I doubt that much has really changed in this class, is there anyway that I can use the last edition, which was published 2 years ago, and costs 35 cents on Amazon?"

It might be that teachers in Kentucky care a little bit more, or are even a bit more polite than others in the country, but, I never had an issue doing this. If nothing else, I would buy the books used on Amazon.com, rather than at the book store (which always inflated the prices).

Even if a teacher is un-helpful, it may show that we as a society are screwed, since students will often be willing to spend thousands of dollars to take a class, but are unwilling/unable to buy a book for it, costing just a few hundred dollars (small by comparison). A lot of times, I get the feeling that people just don't want to spend the money, when they actually can; it has just become so acceptable to blame problems on money, that everyone seems to do it.

Food for thought, from somebody that was in college a few years ago...

Biglari Seeks Board Seat At Cracker Barrel.

2011-09-05T12:20:00.000-07:00

Here is Sardar Biglari's newest letter to Cracker Barrel.

It seems as if he builds positions in companies, waits for a nominal period of time for the to screw up, and then uses their own inept words against them...

My favorite snippet:

In your settlement offer you afforded us the opportunity to present names of individuals for consideration to the board…provided that these nominees were “unaffiliated with Biglari Holdings or any other restaurant company.”

It is unfortunate (at best) that CBRL's board is un-receptive to taking on a member that not only has a huge ownership interest, but, is also a smart guy who could add a lot to the discussion. Oh yeah, and he's been integral to the turning around of numerous restaurant companies...

If I were a shareholder of BH of CBRL, I would be thrilled at this most recent letter, since Biglari has announced he is seeking to be on the board. No doubt, if elected, Biglari will be able to unlock intrinsic value for CBRL.

Best of luck, Biglari.

Disclosure: None. This is not advice of any kind. This is not a recommendation of any kind. I have received nothing to write/post these notes. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Rosewood, Guitars, and Federal Seizure...

2011-08-31T18:30:00.000-07:00

The US Government is now in the vintage guitar seizing business...

Snip:

Others in the guitar world aren't so upbeat. Attorney Ronald Bienstock says the Gibson raids have aroused the guitar builders he represents because the Lacey Act is retroactive. He says they're worried they might be forced to prove the provenance of wood they acquired decades ago.

Nice. So, let's say somebody has a guitar that was their grandfather's, and they go out of the country with it... Should they have to prove that it was their grandfather's? How would you prove that it was a family heirloom? A receipt? Hell, I have a ton of instruments and receipts for few of them... A lot of them are old, and, I have no idea if they have some type of illegal wood in them. Does this mean I should be locked up if one of them has a component that my government says is bad? Personally, I don't think so.

I find it interesting that this act involving guitars are retro-active, but, ones on guns (which, I presume, are involved in more deaths than guitars) have historically not been. For example, when the last assault weapons ban was passed in the US, there was nothing wrong with selling high capacity magazines or even owning them, so long as they were old... But, the manufacture and sale of new high capacity magazines was prohibited. After the law sunset under George W. Bush (one of the few things he didn't botch up), Americans could again buy 33 round magazines for our Glock hand guns, 100 round drums for our M16s, and 75 round mags for our AK-47s.

While I think that both the Lacey Act and the last assault weapons ban are pretty terrible pieces of legislation, it would be nice if our leaders would actually think when it comes to making laws.

Debt Clock

2011-08-28T21:44:00.001-07:00

Check it out...

http://www.usdebtclock.org/

Buffett and BAC

2011-08-25T16:19:00.001-07:00

This article almost perfectly mirrors my own thoughts on Buffett buying in to BAC.

SNIP*

Do you remember a time when you were a child and and you wanted to do something but your mom prevented you from doing it? Then, you responded, “Mom, but John is doing it. Why can’t I do it?” Your mother responded, “If John jumped off of the top of a building, would you follow him?” What a great lesson this has been for me.
Unfortunately, the majority of people never learned this lessons that their mothers tried to teach them. Instead, they keep following others, refusing to think for themselves. However, this time around, they are too old to have their mothers follow them around and prevent them from doing stupid things like giving their wealth away by selling dirt cheap stocks just because other people are selling them. It becomes even more ridiculous – they graduated from following other people to following brainless computers who are responsible for many of the trades on the exchanges...
If you think that Bank of America is a good investment at these price levels, then buy. If you think it is a bad investment, then don’t buy it. But don’t blindly follow other investors. Remember to do your own thinking. Bank of America will succeed or fail with or without Buffett’s involvement. He does not run the company and is nothing more than an outside investor...

The Fool and SVU.

2011-08-24T21:37:00.000-07:00

From here:

SUPERVALU (NYSE: SVU ) -- avoid it
Going against the very compelling case fellow Fool Jim Royal made in favor of SUPERVALU last week, I see a drastically different outlook. This is one case where a large short ratio, currently 20% of the float, serves as a stern warning to future shareholders.
SUPERVALU is a work in progress, and for the most part, I prefer to avoid such companies in sectors with razor-thin margins. SUPERVALU's 2012 guidance calls for a 1.5% to 2.5% decline in same-store sales. Also, during its most recent quarter, gross profit dipped from the year-ago period and net cash flows fell to $245 million. Despite a plan to reduce debt, the company still carries $7 billion worth of crippling debt.
Even worse, SUPERVALU was forced to slash its dividend in half when its business turned unprofitable. Though it still yields over 5%, with cash being funneled to pay down debt and a strike looming in Southern California, don't look for that dividend to improve any time soon.

So, with the company having reduced cash flow in the past year, when accounting for debt payments and such (adding them back in), they are still trading at under 3x cash flow... Not exactly what anybody would call expensive.

In addition, it seems that the comments on the short ratio are only comments that care about other people's thoughts on the company, not the author's own (which, arguably, should be all that matter when investing). While I am aware that the company may do poorly and may even have to re-organize (though, I view this as VERY unlikely), I do think that the prospects for the stock are stupendous- especially when comparing operational results to the market cap. After all, this isn't Bank of America (which, may well be hugely undervalued) where we don't know the value of the tangible book... It is pretty cut and dry with SVU. It may have a TB that is negative, but, it is one that is improving significantly...

Disclosure: I own LEAPS of SVU. This is not advice of any kind. This is not a recommendation of any kind. I have received nothing to write/post these notes. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Biglari and Cracker Barrel.

2011-08-24T19:28:00.000-07:00

Here, Sardar Biglari talks about the reporting of Cracker Barrel... Here, Cracker Barrel responds.

I will say that it is fortunate for all parties involved that Cracker Barrel took the high road, and didn't personally attack Biglari, saying something to the effect of "the allegations are baseless, and he is a corporate raider... blah blah blah..."

Instead, CBRL addressed the issue at hand in a civil way. Except for one thing... They didn't address the company's CEO offering to disclose the inside information to Biglari and not the other shareholders.

Personally, I am shocked that the company would offer to show the information to Biglari, but not the rest of the shareholders (as long as Biglari's accusation is true, which, I have no reason to think it isn't). And honestly, I think that Biglari has a good case for why the info should be disclosed. What I will add, though, is that while more info is a great thing, I do wonder what the ultimate intent is. Is this an effort to get the company to lower the footprint of the retail store? What about expanding it? I think that will prove to be a hard mix to mess with, as, I don't believe that you can look at margins and revenue figures, and figure out how they interact with one another... It almost seems like a take it or leave it scenario. Let me explain...

Having frequented the company's locations virtually my whole life- whenever on family vacations and such, I can't imagine the locations being much different than they already are... My family generally loves going through the retail store as much as they like the food (and, I have watched them do it at multiple CBRL's in the same day!). All this said, I don't see how having a larger retail area would help operations (for existing units), and I don't see how a smaller one would do much either. Though, I may be missing something; which more reporting could let us know... I have a feeling that the mix is what makes the company so attractive to consumers, though. While my family is kind of weird, I can't imagine that we are so different that an observation of CBRL's mixed operations isn't viable... Furthermore, if a new concept CBRL was build, and it was markedly different from the others (say, with no retail space), I would imagine a lot of disappointment on the motorist's part.

Despite my disdain for touristy merchant crap, if it weren't for the retail store, I would imagine that my family, and a lot of other southerners, would be a lot more likely to eat at Bob Evan's, rather than Cracker Barrel. But, that is merely a guess. One interesting scenario, which, I don't know the practicality of, would involve the spinning of the retail assets, and effectively leasing 1/2 or so of the restaurants to the other entity... Far fetched (and, I fully admit, is unlikely), but, an interesting concept to think of the logistics of.

With all of this said, I won't be a bit surprised if Biglari has a set of board seats in the next year... Even if he doesn't, the cash flows that the company is capable of generating are impressive, to say the least.

Disclosure: I have no positions in or against any of the securities mentioned. This is not advice of any kind. This is not a recommendation of any kind. I have received nothing to write/post these notes. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Steve Jobs, Value Stocks, & Being A Heartless Bastard.

2011-08-24T19:01:00.000-07:00

It's official. Steve Jobs is no longer the CEO of Apple. This is no doubt a very sad day, as it is likely due to his deteriorating health... Honestly, my deepest of sympathies go out to Jobs, his family, and his friends.

With this said, the stock is down 5% in after hours trading. It does make me wonder what will happen to it in the coming days and weeks. While I don't like the situation that Jobs is in, I have no qualms with the idea of making money as the result of the markets reaction to such news. Likely, if the company drops much below 10x earnings, I will probably buy stock and/or LEAPS.

I do wonder what will happen to the company's huge cash hoard in the event that Jobs is no longer involved in the company... Furthermore, with Jobs as chairman, I wonder if he will push to deploy the cash in the near term.

It seems to me that we have a company that has products that people actually like (against, say RIMM) which might be getting into extreme value territory. Then again, Motorola used to have products that people loved, and we know what happened to them... They were broken up by Carl Icahn, with 1/2 the company being sold to Google. While this probably won't happen to Apple, there are a lot of variables at play here, some of which could greatly effect the company and others, that won't.

With all of this said, if I were forced to bet on things, I would say it would be strange to imagine a world in which Google won't dominate almost everything... In fact, I won't be a bit surprised if the company will eventually be split up (anti-trust style); it seems to me that it is quickly becoming the Standard Oil of our time. 100 years ago, oil was to be the basis of our growing economy, internet search is the basis of our future (as far as company products go, I use Google more than anything else; actually, I am probably one of the few people that they lose money on). After all, they control my phone, email, calender, blog, and internet browsing... which when combined, take up the bulk of my time; often, more so than I even sleep.

Then again, I used to say this about Wal-Mart... And now, my thoughts seem juvenile, at best.

Speaking of Wal-Mart, it will be interesting to see what Apple does, versus what Wal-Mart did, in the years after their founder stepped down.

Regardless, there are a lot of variables here and the screwd investor should make effort to monitor the situation. If nothing else, it will be an intellectually stimulating situation to watch unfold- no matter how unfortunate it is. In spite of the lengthy post about how AAPL stock might collapse, I won't be a bit surprised if it doesn't- I have no idea what other people will do with the new information. A few weeks ago, one would have thought that if Treasuries were down graded that they would have fallen in price, not gone up! Maybe a similar situation will hold true for Apple.

Does the Internet Make You More — Or Less — Connected?

2011-08-24T13:04:00.000-07:00

A great article from NPR, which pretty closely mirrors my own thoughts on the matter...

Snip*

The Internet has had a dual effect on the level of connectedness I feel with the people I know in my offline life. On one hand, the basic communication tools now available make distance almost a non-issue. My conversation with Mordy that led to this post took place over instant messenger where we communicate nearly every day – far more often than we ever did before the Internet, even though back then, we were only separated by a few blocks, not a few thousand miles.
On the other hand, when I am actually with my friends and family, I find myself (and increasingly, my companions) distracted by a smartphone that's either the object of my gaze or being fingered in my front pocket....
The only time I really experience any self-reflection these days is when my computer sleeps and my screen goes dark.....
That's the Internet's reverse placebo effect: you feel as though you were missing something important before you signed up for the latest service. It's a drug for an ailment you never had...

Cracking Gold...

2011-08-24T11:45:00.000-07:00

Apparently, people are saying that the gold trade is cracking...

Snip*

It was fun while it lasted, but it looks as though the gold trade is finally unwinding. The precious metal booked a record high close just two days ago, settling at $1,891.90 an ounce on Monday. Today it took a fast and furious 5.6% dive to close at $1,757.30/oz; it's biggest single-day drop since March 2008.

While I don't have much of an opinion on the price movements of gold, I have long been critical of owning it. That said, I won't be surprised by anything that happens in the gold markets...

Ron Paul Gets Screwed...

2011-08-16T07:50:00.000-07:00

The Daily Show
Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Apple, Exxon, And Bank of America.

2011-08-10T14:50:00.000-07:00

Apple is now larger than Exxon (by market cap) and can now use it's current assets and buy more than 2/3 of Bank of America... which has more than $1 trillion dollars of deposits. If Apple and Google would form a partnership, they could basically pay cash for all of Bank of America's common stock at it's closing price today.

Who would have ever thought that would happen, just 10 years ago, when "i" anything was only something in Steve Job's and some geeky Apple engineers' minds, and "Google" was probably more known as a number, than a search engine...

Crazy, but fun times to live in. :)

Disclosure: None. This is not advice of any kind. This is not a recommendation of any kind. I have received nothing to write/post these notes. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Notes (& Thoughts) From The 2011 Syms Annual Meeting...

2011-08-09T12:00:00.000-07:00

Disclaimer: These come from my hand written notes of the meeting. I can not give any assurance as to the absolute accuracy of the notes, as I am human; I may have not heard something correctly, interpreted something the wrong way, or, may be mis-remembering something. With this said, I have strived to to my best with the accuracy of this post.

The meeting was held at 1 Syms Way, in New Jersey. Upon walking into the headquarters of Syms, I was greeted by a table of ladies who were checking people in to the meeting. I was asked for identification and proof of ownership of shares; pretty standard fare for meetings like this. After presenting the info, I was told that I would have to leave my cell phone an any other electronic device that I possessed at the table, as they were not allowed in the meeting. After removing my phone battery, I reluctantly left my phone at the table.

I am disgusted that the company did this. I think that it is pathetic that they treat the owners of the business in such a way. After all, I personally own more of the company than all of the board of directors combined (when you exclude Marcy Syms)- which isn't hard... If you have more than $1,000 dollars worth of Syms stock, you too own more of the company than the board of directors (per the latest proxy) owning a minuscule 100 shares... I wonder if they were treated in such a hostile manner.

At the meeting, there were roughly 35 people in attendance, plus the board. There were several posters displayed that more or less said: "No recording devices, comments will be limited to 3 minutes, disruptions will be asked to leave, and no written materials may be distributed."

To put it lightly, I the mood of the room was tense.

After the go around that involved the voting and business portion of the meeting, it was adjourned, with all matters that were up to vote passing. After this, as with most annual meetings, there is a Q&A session for shareholders.

Marcy Syms read a prepared statement, in which she expressed her view that company sales were dissapointing, with "progress being neither fast nor considerable enough." She went on to more or less say "while the economy isn't an excuse, high gas prices have put our customers in a bind." I found it somewhat unfortunate that the company couldn't capitalize on rising gas prices. It seems to me that if people are feeling a pinch in their wallets, it would be prime time for a discount retailer such as Syms, to take business away from Macy's, JCPenney, Saks, and the like.

Moving along, Ms. Syms proclaimed that there had been some hard lessons learned, and as a result, the company was working to change merchandising and brands, while bringing in new talent. Furthermore, they were working to reduce back office expenses and infarstructure costs (reducing distribution related jobs as previously talked about on this blog, citing this story, have gone a long way). She expressed the view that inventory management would help company results, as well. It does seem by my being in the Trinity store for the 3rd time in 3 years, that they are reducing inventory levels (check out this album). Furthermore, there is some scaffolding around the neighboring building that they acquired a few years ago. Additionally, there has been an "x" spray painted on the front of it... It may mean nothing, and I have yet to check permits in the city, but, something may be happening to the crown jewel of Syms' real estate.

I was dissapointed that Ms. Syms stated that she would not comment on the exploration of strategic alternatives and simply advised shareholders to read the Risk & Management sections of the company's public filings... Syms expressed her discontent with the (at the time) pending lawsuit against the company by saying: "due to the pending litigation against the company, answers to questions will likely be brief."

There was an older gentleman there that asked a few questions in regards to the opening of new stores in the area, which, apparently Syms investigated doing, but didn't follow through with due to worries of cannibalizing sales of their other stores. He also had several back and forths regarding the cost of rescheduling the meeting (apparently, around $2K) but ultimately seemed to be little more than a wordy gadfly. I am always astonished at how people can get up in arms, as was the case here, over a paltry $2 thousand dollars. The real problem, is that Syms likely broke the law with not giving enough notice of the meeting, which came after making the original date to far from the 2010 annual meeting. Furthermore, I am a lot more concerned about the company's $200 million+ in real estate that is presently being under utilized... but, I needn't digress.

There were a few Syms family members in attendance, who expressed their disdain for the way that Marcy Syms was running the company. Additionally, there was some sparring over the separation of the family, some things that Marcy Syms said roughly 2 decades ago in her book (which, is in my opinion, vital reading if you are looking at the company; it made me realize that Marcy isn't the idiot that news reports and message boards would have you think, actually, it is quite the opposite!), and the control of the various estate's common stock (which, apparently, each of the grandchildren got 5% of). I am under the impression that part of the dissent is due to how Marcy controls the company in such a way that it has caused a riff in the family. Based on this and the general mood of the meeting, I gather the impression that Marcy Syms may be looking for a way out. After all, already being a millionaire who has worked her whole life, she is nearing the age where it might be time for her to move on to her next (and less contentious) project.

After that exchange, Andrew Sole, the managing member of Esopus Creek had a tense back and forth with Maryc Syms, asking "How much control has been ceded since A&M were retained by the company?"

Syms then read a long prepared statement that didn't address the question at all. After this, Sole said what everybody in the room was thinking, which was more or less "that is obviously a prepared remark and it doesn't answer my question... How much control of the company has been ceded to A&M?"

Seeming to sense that Sole wasn't going to be satisfied with anything short of a straight answer, she said "I have not ceded any..." Which, came to me as no surprise. Furthermore, I wouldn't expect it of her.

Sole then asked another question: "When was Alvarez and Marshall retained and how many of their employees are working in the company?"

Marcy, living up to her previous promise of brevity, replied with "April, 3."

There was a bit more back and forth between Sole and Syms, due to the strange wording of the answer, but, ultimately, it came out in such a way that the company retained A&M sometime in April, that there are 3 employees working with Syms.

A representative of Franklin Resources asked if the NY Post report of the company only reviewing bids for the whole company was true. Marcy responded with "We have not limited the scope of strategic alternatives." This was a relief to hear.

And there you have it, that's pretty much all that happened at what can be called the most tense annual meeting since the time I ventured to Chigago for the Motorola meeting where Carl Icahn attempted to get board seats (the first time... the one that he lost).

Overall, it seems that the company is fighting tooth and nail to keep it's cards to it's chest. However, in light of losing the most recent court case it seems that they are failing; which I view as a big net positive for shareholders. Furthermore, while the tone of the meeting was very tense and there were some heated exchanges, I view this as a net positive for the stock, but, a negative for the people involved. Surely, anytime that people don't get along, it is unfortunate. However, sometimes, if one of the parties wins, there can be gains. It seems that Syms is losing the legal battle, and as a result, has less ground to stand on than ever before. In fact, if losses at the company continue, I can make a strong argument that the company will be more in play for a sale than ever before; a net positive for shareholders.

With all of this said, I am more confident of things going well for shareholders than at any point in the past. While I don't know what is going to happen, I have feeling that something should happen. Even if the company goes temporarily insolvent, my investment should be more than protected by the plethora of real estate that the company owns; so, it seems like a "heads I win, tails, I don't do badly" type of scenario- especially when I consider that I was lucky enough to have my average purchase price be in the low 7 dollar range.

There is blood in the water and it seems as if the dam is beginning to show signs of wear.

Like this post and want to learn about a shareholder meeting of a company that you own some stock of, but, don't have the time or interest to attend? Check this page out, shoot me an email (ragnarisapirate[at]gmail.com), and maybe we can work something out...

Disclosure: I am long shares of Syms. This is not advice of any kind. This is not a recommendation of any kind. I have received nothing to write/post these notes. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Buffett & Buying Back Stock...

2011-08-07T15:02:00.000-07:00

Here, Warren Buffett almost perfectly highlights my views on not only selling a stock despite it's undervaluation (for example, if you have a better place for the proceeds) as well as that of a company buying back it's own stock when it is cheap.

*SNIP*

"Well most of them are. But in the end our price is figured relative to everything else so the whole stock market goes down 50 percent we ought to go down a lot because you can buy other things cheaper. I’ve had three times in my lifetime since I took over Berkshire when Berkshire stock’s gone down 50 percent. In 1974 it went from $90 to $40. Did I feel badly? No, I loved it! I bought more stock. So I don’t judge how Berkshire is doing by its market price, I judge it by how our businesses are doing.

...

I think if your stock is undervalued, significantly undervalued, management should look at that as an alternative to every other activity. That used to be the way people bought back stocks, but in recent years, companies have bought back stocks at high prices. They’ve done it because they like supporting the stock…"

Disclosure: None. This is not advice of any kind. This is not a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

The Insanity That Is Market Volatility.

2011-08-05T10:15:00.000-07:00

The recent turbulence in the financial markets has spurred a lot of people to thinking and saying a lot of different things about stocks... Certainly, the downturn of a market often sinks the price of all stocks-regardless of quality. Value stocks often have a sick way of becoming more of a value.

This has made a lot of investors move to cash, which seems to further the problem of a falling market.

However, every security that I own could likely liquidate, even in a bad market, for more than it is trading at. They generally sit on a glut of cash (so, I don't really feel like I have to, since I essentially own said cash), they generally earn or are getting ready to earn a nice bit of money, AND they will likely be able to weather most any storm that comes their way.

So, this leads me to the question: "Am I going to sell off any of my significantly undervalued dollar bills, in the hopes of buying them back at cheaper prices?"

Unless I have a better place to put the money, my answer is "Hell no!". I certainly don't have any way of saying with any authority or accuracy that I know how the stock market will preform... What I do know is this: the analysis I have made of the situation of each of my owned securities is an analysis that I am comfortable with, regardless of the price that Mr. Market offers me for my stocks. Furthermore, a few percentage points difference in the price of the Dow does little to effect my mood.

As such is the case, I will likely re-allocate funds from other areas (such as my rental business) to these and other stocks that I watch. This is especially true if their price/intrinsic value gets deeper into the levels that already make me froth at the mouth.

The prospects for Nevada Gold alone, nearly numbs me (in a good way!). In light of the fact that at last reporting of results for the state of Washington, well over 1/2 of the card rooms in the state lost money, there will likely be further industry consolidation. Due to the set up and discipline of Nevada Gold, the industry could consolidate right into their arms... Which would be freakishly profitable for the company.

While I don't think that the company is fairly valued, let's assume it is, and base that assumtion on the earnings that they just posted. Going forward, if they manage to get juice just a single million dollars in additional earnings out of their 10 card rooms (which seem to have a lot of room to run), casino, or buy it via acquisition (how the company is, and has been growing), and then assign a 1o multiple to it, that is essentially a 50% increase in the market value of the company. This doesn't even begin to value any future management contracts, mega acquisition, or their development project (all of which, they talk about in in their conference calls). For me, this is not a bad way to place a bet, especially when the markets are going to shit...

EDIT @ 2:08 PM: When writing this, I walked off for a little bit, and didn't check out the gyrations of the stock market... Apparently, it went from being nicely down, to being marginally up, in a matter of just a few hours. Go figure. It just highlights my point that market volatility is a crazy thing!

Disclosure: I am long shares of IBAL.OB, UWN, SYMS, and SYTE.OB (all of which, I linked to various write ups of). This is not advice of any kind. This is not a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

The Specialist's Dilemma.

2011-08-02T07:55:00.000-07:00

From here (a great, latticework-esque piece):

*Snip*

This is what I call the Specialist’s Dilemma. The stronger your competitive position, the more vulnerable you are to eventually being disrupted and replaced.
Let me explain further. Out of the universe of companies that have strong competitive moats, many of them have advantages originating from the niches they occupy. (Which can lead to barriers like economies of scale, brand attachment driven by habit, and being ahead on the learning curve.) These advantages are durable only as long as the niche itself remains viable. In other words, the more specialized a company’s dominance is, the stronger its advantages are — but the higher the odds of the niche itself eventually disappearing. Not disappearing due to competitors within the industry, but due to the niche being completely destroyed and replaced by something else. The timing of when this happens partially depends on the “clockspeed” of innovation within the industry (more on that in my last post).

Syms Court Ruling

2011-08-02T06:03:00.000-07:00

Syms was ordered in court yesterday to turn over it's books to Esopus Creek Advisors.

This is great news for shareholders... It is getting us one step closer to the company realizing it's full value.

Disclosure: I am long shares of SYMS. This is not advice of any kind. This is not a recommendation of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.