tag:blogger.com,1999:blog-2149523431587168680.post3868784374705547863..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: Is a sum of the parts valuation worthless?Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-2149523431587168680.post-48867229187773828912017-10-16T16:20:30.905-04:002017-10-16T16:20:30.905-04:00Nice sharing!Nice sharing!Norman Garciahttps://jamsonjames.weebly.com/home/the-best-mountain-bikes-which-your-perfect-onenoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-8710181707418658052016-02-08T11:37:47.466-05:002016-02-08T11:37:47.466-05:00Great post Nate! :)Great post Nate! :)Jonashttp://www.vardebyran.senoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-76817954431194036902016-02-01T16:13:54.311-05:002016-02-01T16:13:54.311-05:00Mohnish has now under-performed for 13 years (with...Mohnish has now under-performed for 13 years (with significantly more concentration/risk, regardless of what he may say), so the halo is wearing off fast and this includes 03 and 04, when he racked up against the indices. Over the last ten years, he is off massively against every benchmark. And this is through 12.31, so before the Horsehead zero. He make need to re-read some of his books on cognitive biases, because he is quickly becoming a living example of the Dunning-Kruger effect. Someone putting 10%+ of the bankroll into single names/50% into single industries had better be careful after so many zeros, or he risks turning into another case study. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-15167443078739176432016-01-29T13:01:50.243-05:002016-01-29T13:01:50.243-05:00Good question and article Nate.
When looking at ...Good question and article Nate. <br /><br />When looking at sum-of-parts valuations, I fall back on Walter Schloss' approach since he clearly mastered this area. If we think of a low price-to-book value as a proxy for a sum-of-parts valuation, then Schloss' other criteria are listed below. The obvious box that didn't get ticked for ZINC is long-term debt.<br /><br />http://www.aaii.com/journal/article/finding-value-amoung-the-lows-the-walter-j-schloss-approach.pdf<br />Criteria for Initial Consideration<br />• Ten-year track record<br />• No long-term debt<br />• A low price-to-book-value ratio<br />• A stock at or near its 52-week low price<br />• High insider ownership<br /><br />Similarly, Seth Klarman also lists 3 valuation models in his book - Margin of Safety - including a liquidation model which provides a sum-of-parts approach. He focuses on risk reduction around debt to ensure return of invested capital and also portfolio position sizing within the stock purchase decision.<br /><br />Mohnish Pabrai is a tremendous investor, but like all of us have at some point, he had an own-goal with ZINC. I could list my own failures, but let's stop this long comment here.<br /><br />- Phil<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-50763126459534052622016-01-26T13:40:33.120-05:002016-01-26T13:40:33.120-05:00What an absolute disaster for Mohnish. On somethi...What an absolute disaster for Mohnish. On something that you could clearly see coming. And boiling down his thesis--it evolved into taking management's word that the Mooresboro plant would generate $100 million in EBITDA at completion. Management that had chronically over-promised and under-delivered. Built a plant with 40+% cost overruns. Went from a great balance sheet to raising capital via dilutive equity. Consistently overestimated operating capacity after constant delays (you could count on it, literally every quarter). And he had the nerve to commend management and say he didn't learn anything from making the bet. Nothing about these guys deserved commending. And he was the largest holder and set by idly while the company took bet the company risk and failed. What an embarrassment to him and a slap in the face to his investors. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-41094788728792790562016-01-26T03:14:41.042-05:002016-01-26T03:14:41.042-05:00I haven't looked into Horsehead in detail, but...I haven't looked into Horsehead in detail, but I guess one of the problems seems to have been their full recourse debt. Sum of parts valuation is not very helpful if the company is in risk of default.meyouandihttps://www.blogger.com/profile/03943852173003769533noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-27278105493653771022016-01-25T18:43:48.981-05:002016-01-25T18:43:48.981-05:00An excellent post Nate. I'd like to add:
Sum ...An excellent post Nate. I'd like to add:<br /><br />Sum of the Parts is a great mechanical tool. But its all about context. Management attitude is one consideration, the other is time. Time is just as important because the longer the value sits unrealized, the less it may be worth. Its not just inflation that eats value, its change in market conditions. You see, valuing assets at market v book is heavily dependent on an informed market of sufficient depth. When cycles change, technology changes, or debt becomes due, time is not the friend of value.<br /><br />Generally, property is the best sum of the part asset to get value out of- even though of course, real estate valuation is still quite prone to interest rates and liquidity (debt availability). However, technology and inflation are generally not a problem. A related The problem to time, is quantity. If there is too much to liquidate, discounts are expected and sometimes if the meal is too big for the market to swallow, the discount on what otherwise seems like market value will evaporate with transaction costs.bloggerhttps://www.blogger.com/profile/05038324878123452863noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-87654609440374079762016-01-25T18:43:29.316-05:002016-01-25T18:43:29.316-05:00An excellent post Nate. I'd like to add:
Sum ...An excellent post Nate. I'd like to add:<br /><br />Sum of the Parts is a great mechanical tool. But its all about context. Management attitude is one consideration, the other is time. Time is just as important because the longer the value sits unrealized, the less it may be worth. Its not just inflation that eats value, its change in market conditions. You see, valuing assets at market v book is heavily dependent on an informed market of sufficient depth. When cycles change, technology changes, or debt becomes due, time is not the friend of value.<br /><br />Generally, property is the best sum of the part asset to get value out of- even though of course, real estate valuation is still quite prone to interest rates and liquidity (debt availability). However, technology and inflation are generally not a problem. A related The problem to time, is quantity. If there is too much to liquidate, discounts are expected and sometimes if the meal is too big for the market to swallow, the discount on what otherwise seems like market value will evaporate with transaction costs.bloggerhttps://www.blogger.com/profile/05038324878123452863noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-3295129112456181462016-01-25T18:43:16.742-05:002016-01-25T18:43:16.742-05:00An excellent post Nate. I'd like to add:
Sum ...An excellent post Nate. I'd like to add:<br /><br />Sum of the Parts is a great mechanical tool. But its all about context. Management attitude is one consideration, the other is time. Time is just as important because the longer the value sits unrealized, the less it may be worth. Its not just inflation that eats value, its change in market conditions. You see, valuing assets at market v book is heavily dependent on an informed market of sufficient depth. When cycles change, technology changes, or debt becomes due, time is not the friend of value.<br /><br />Generally, property is the best sum of the part asset to get value out of- even though of course, real estate valuation is still quite prone to interest rates and liquidity (debt availability). However, technology and inflation are generally not a problem. A related The problem to time, is quantity. If there is too much to liquidate, discounts are expected and sometimes if the meal is too big for the market to swallow, the discount on what otherwise seems like market value will evaporate with transaction costs.bloggerhttps://www.blogger.com/profile/05038324878123452863noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-62861410710002985782016-01-25T16:57:38.561-05:002016-01-25T16:57:38.561-05:00I like your conclusion, especially about back up s...I like your conclusion, especially about back up systems/triangulating value. <br /><br />However, I disagree with your initial example. The example of selling your bicycle messenger equipment is more akin to replacement cost analysis than to sum of the parts. Typically, SOTP is applied to different operating units/entities (except in real estate spin offs which seem to be in vogue right now). These businesses are able to operate and generate income on there own. I don't believe your example works b/c your bike, cell phone, bag, etc. all should have separate income streams to really apply SOTP effectively.<br /><br />I also disagree with saying they are worth 1.6k/month b/c that ignores the what the person doing the work is worth or at least the opportunity cost of their time.<br /><br />That being said, aside from my nitpicking on your example, I think the conclusion you reach is entirely valid and your article is thought provoking.BlackLionhttps://www.blogger.com/profile/14992571713332276242noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-9957589035349636742016-01-25T16:16:22.470-05:002016-01-25T16:16:22.470-05:00This is an excellent post and I'm glad you wro...This is an excellent post and I'm glad you wrote about it, because it can be applied in many scenarios including analysis of net-nets.<br /><br />I don't know the details of Du Art Films, but a caveat to applying the sum of parts analysis is that you have to be able to see it through, or count on someone else to do it. If you have the capital, and the market will sell you the amount needed, then you can buy a controlling stake and make it all happen yourself. Otherwise, you have to count on someone else doing it or management changing their mind, because like in your example, they may have a passion for being a bike messenger and it can become tough to make good financial decisions when there are other considerations like a person's own passion/desires. (Why else would diamonds have jewelry value?)<br /><br />Anyway - great post, keep it up.Ankit Guptahttps://www.blogger.com/profile/02258415457971042051noreply@blogger.com