Well, it’s certainly been a while since my last blurb, so it is my hope, first, to formally let readers know that I have intentionally decided to cease posting indefinitely after this post for a variety of reasons, not least of which have to do with compliance constraints as they relate to my forthcoming employment. I would like to thank everyone for their loyal readership and support, and inform you that I will leave the site up for posterity for at least the foreseeable future.
That said, hopefully I can leave you with one final stock pick that might prove intelligent and wallet-fattening.
Monarch Services (MAHI.PK) is a tiny company which has recently sold all of its operating subsidiaries and currently sits on a pile of cash and a notable chunk of acreage in Maryland that is significantly greater than its current share price. MAHI has around $1.6 million in cash (~$1.00/share) and a 14.7 acre parcel of land in Phoenix, MD on the asset side of the balance sheet. Vacant acreage in the area appears to sell for around $100,000 per acre, which would value this unsold land parcel at nearly $1.5 million. Thus, with around just $500K in payables, the company has a net asset value of some $2.6 million, or $1.60/share.
For the record, this entirely discounts the $900K receivable from the buyer of one of the company’s recently sold subsidiaries, Girl’s Life Magazine, which is currently overdue and may prove in default. If that is the case, though, the company re-inherits the business, which served as collateral for the loan extended to the purchaser. Thus, assuming that $900K valuation is reasonable, net asset value may actually approach $2.20/share. As of today, shares are trading at a mouth-watering $0.64.
In any case, of course, the stock is not without its risks. First, management has announced no plans for the future. This means, then, that they may well choose to burn cash on ill-conceived acquisitions or new business ventures. It also means that there is no real time-frame for the realization of intrinsic value. Second, the company may not be able to sell the parcel of land for anything close to $1.5 million, in which case net asset value will prove substantially lower than reported. Last, but not least, liquidity (and getting shares in the first place) should be any shareholder’s concern. With a market cap of $780K, the stock trades quite infrequently and bid-ask spreads can be large. Nonetheless, the enormous margin of safety should more than compensate investors for these risks, and the stock appears by any measure cheap.
So, with that final nugget, I sign off from JoeCit.com for good. Thanks again to everyone for their support. I hope reading this site has been even half as fun and rewarding for you as it has for me.
Concord Camera (LENS) has sold off dramatically in the past few weeks on no news and relatively unextraordinary volume. The company still represents my largest holding, and I’m preparing to double down and load up more on the heels of this unjustified further mispricing. In short, I find the shares to be highly undervalued, and if only management were to return the hoards of cash to shareholders, LENS could easily be worth $8-9 per share in a pretty short period of time. Yes — that cash return catalyst is an apparent long shot, yet I still think the margin of safety is more than sufficient to offset the risk of continued thumb-sucking on the part of management.
That said, I will assert that I think it’s time for a change in the approach to running this company. There is simply no excuse for the struggling stock price given its significantly higher intrinsic value and the hard underlying asset values. I’d encourage shareholders (including CEO Ira Lampert, other company executives, and MT Trading) to seriously consider strategic financial alternatives and responsible uses of cash in order to unlock value.
There are tons of options: A special cash dividend, share repurchase, sale of the company, asset sale, or (in all its unlikelihood) a liquidation. While the company may realize cost savings through layoffs, new revenue streams through other product sales, e.g. OnGuard, and perhaps the exit from the business of major competitors, I am utterly unconvinced that any of these will happen with any significant likelihood and I am underwhelmed by the long-term viability of the single-use camera business. I find it within the fiduciary responsibility of executives to work to unlock the obvious but for some reason dormant, value here.
Fair warning: I’m still working on the research here, but I’ve come up with an idea on profiting from the homebuilders’ continued weakness and overselling.
It’s fairly simple: buy the builders trading below book value (Beazer, CHCI, etc, etc) and short an appropriate amount (i.e. buy puts on) of the Case-Shiller housing price index.
The thesis is as follows: several of the builders are trading at mere fractions of book, largely due to the fact that investors anticipate plenty more writeoffs of inventory, consisting of unsold homes and land, going forward. This inventory comprises the vast majority of these companies’ tangible asset values, so it naturally makes sense that discounts to book are largely due to fear that the asset values are overstated. Normally I’d simply buy and hold such cheaply priced companies, but the truth is that I haven’t a clue where housing prices are headed going forward or how much in charges to inventory the builders will take.
What I do know is that a company like Beazer Homes (BZH), for instance, has a geographically diversified portfolio of decidedly normal homes which I believe, on average, to be well-representative of the typical American house. The average unit price is listed on the company’s books at around $220,000, and, interestingly, the average composite home price can be shorted via Case-Shiller at around the same price.
This means a savvy investor can effectively profit from the spread/discrepancy between book value and price of Beazer’s stock by hedging out the writedown risk via a short position in the Case-Shiller composite. While I’m not positive, I’m fairly confident that an inefficiency in the smaller homebuilders’ pricing exists since most investors are not considering how they can come close to eliminating the risk of writedowns. Of course, this is assuming that investors are also willing to stomach the risk of heavy debt, poor management, etc., but for some it may be worth these risks.
Note: I do not currently have a position in Case-Shiller futures or any homebuilding stocks.
Okay, I just wrote about iPhone hype, but I can’t help do a little hyping myself. I don’t mean to be the pot calling the kettle black, but I’ve got to share something I think is going to be really, really big one day.
It’s a new, simple, and innovative way for investors everywhere to get (and give) distilled, important, story-form research on companies, concepts, and trends by use of an easy-to-use wiki. I myself have contributed articles on Anheuser-Busch, Molson Coors, Moody’s, Harley-Davidson, McGraw-Hill, Black & Decker, and others. Rather than repost them here, I strongly encourage everyone to check out the site. I don’t often get excited about things like this, and I may be biased due to my personal experiences speaking with the remarkably bright, personal, and talented founders of the company, but I’m convinced this is a great tool worthy of any investors research time.
I believe Wikinvest will a) cut down on time spent trying to understand the main drivers, risks, and story behind a company and b) provide a great deal of cumulative wisdom of investment research in one (FREE) place. Check it out, browse around, read up on some ideas/companies, and contribute!
I think you’ll be hearing alot more about this in the coming weeks…
Clearly I checked out from writing in June. But I’m back from that little hiatus, and I’ve decided to write more concise, to-the-point articles that will allow me to be more prolific in July. I’ve been thinking that I’m at the point where I have a bunch of ideas, but just don’t have time to share them in the the standard, longer article format. I’ll start with a few rapid-fire posts…
I was having a conversation with a reader earlier this week, and we both got to talking about the vast number of investment schemes peddled everywhere from newsletters to the internet to television. There’s a surprising lack of good advice on how to spot it and a disturbing failure on the part of many consumers to research products and advice. So I’d like to provide my own checklist of things to look out for when considering the purchase of advice, services, or products promising to make you tons of money. These are a few telltale signs of ripoffs and garbage that simply isn’t worth your time or money. The list is not exhaustive, but offers what I believe are some good things to investigate or think about when considering the purchase of investment advice or education.
1) Promises or guarantees of excess returns, especially in a short period of time. Whenever you read or here some charlatan sharing his “magic formula” for investing success that made him millions or some “testimonials” from “average folks” going from rags to riches and making a fortune in the market, be aware. If you believe their claims are genuine or you’re not sure, always ask yourself both how long it took them to do it and how much they started with. After all, anyone could make a hundred thousand dollars in a year if he started with $2 million. But if someone says he started with $1000 and in two years turned it into $1 million, run and run fast — never trust claims of 100,000% returns. There is simply no method that yields huge returns which is not extraordinarily risky and leveraged, meaning that that person could just as well have been in debt $1 million.
2) Lack of SEC registration as an Investment Advisor. A really simple way to spot something that might be shady is to check whether the seller has registered with the SEC. It is illegal for anyone or any entity to directly sell investment advice without notifying and filing with the SEC as a Registered Investment Advisor (RIA), and, trust me, anyone who is legit will surely share it with their customers, usually upfront and center. Now, things get a bit fuzzy because general investing education programs, newsletters, etc. usually do not require registration and can still charge for services. Nonetheless, if you don’t see the SEC’s stamp of approval, consider avoiding it. It’s also important to note that the presence of RIA status should likewise not be taken as a green light — plenty of registered advisors are not to be trusted. In any case, it’s just another clue to take a look at.
3) Lack of documented and verifiable returns or success stories. If an investment advice peddler is charging for services, be sure to get or ask for a track record, study, or other verifiable data demonstrating that the system or advice is sound and, well, works. Any idiot can start a website with a stock-pick newsletter, or a “system” for large, imaginary profits, but of the many, many programs out there, few will show you documented or audited results and even less will share any study indicating that their way works (for instance, by back testing). Of course, it’s easy to fudge numbers and take some liberty in creating phony returns, so the more rigorous and verifiable the data, the better.
4) Lack of a free trial. If someone is offering a “system” or regular newsletter for investing success, they’ll usually offer some sort of free trial period if they are legitimate, to allow you to test out the product before committing to buy it. If they want to get you locked in to the product and don’t offer the opportunity to test it, think long and hard before buying it.
5) Money back, satisfaction guarantees. I’m honestly a bit conflicted on this point, but here’s what I think. On one hand, if a company is not willing to put its own money where its mouth is, why should you? On the other hand, because around 70% of products are never returned even when fraudulent or stupid, even a scam artist can make such a guarantee and come out on top. So while most companies offer either a money back guarantee or a trial period (but not both), all things equal, I prefer the trial period. If it’s missing either, don’t bother.
If a company does offer a money back guarantee, it’s important to note that they should be guaranteeing “satisfaction” and not excess profits, since, as we discussed above, that’s usually another sign of a ripoff. No legitimate source — not even the best investors themselves — would ever tell you they can promise excess returns. Remember, you can still lose a ton when someone promises you profits, and simply getting your $200 back from the guarantee won’t recoup the $10,000 you lost using crappy systems, advice, or stock picks. And in some cases, the company may never even respond to your request to get your money back. Which leads me to the last point:
6) Check the BBB. The Better Business Bureau is a great resource for consumers looking to investigate the actual satisfaction of customers. It’s not perfect since many dissatisfied customers fail to report (indeed, many consumers in general don’t even think about reporting). But it’s another indicator. A fair number of irate customers is a definite red flag, so keep an eye out.
I’ll try to edit and fill into the list based on reader’s suggestions and anything else that comes to mind. So if you can think of anything you’d like to add, contact me.
