tag:blogger.com,1999:blog-2149523431587168680.post5308284558425678018..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: Could value investors be the reason a stock's cheap?Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-2149523431587168680.post-74718356490494892312012-06-11T18:19:06.368-04:002012-06-11T18:19:06.368-04:00I think the key to most situations, especially sma...I think the key to most situations, especially smaller stocks is actually transferring the cash flows to shareholders. If a security is a stream of cash flows, returning those flows to shareholders over time (dividends, buybacks) will drive the stock price and help it trade (up presumably) with intrinsic value. That is how I think of value being its own catalyst. The risk in many of these situations is the cash sits on the balance sheet or is reinvested and wasted. A dollar on a the balance sheet of something you don't have access to is not worth a dollar in a lot of cases. ITPC is a good example. Pink sheet with a negotiated buy back in place.Ehttps://www.blogger.com/profile/13636914424181878584noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-83316416287071440032012-06-08T11:51:33.141-04:002012-06-08T11:51:33.141-04:00David,
Thanks for the comment. I think the two k...David,<br /><br />Thanks for the comment. I think the two keys to what you said are investors press for change, and management isn't shareholder unfriendly. <br /><br />I don't think value investors make a stock cheap, but I wonder if the shareholders are mostly insiders and value investors if that could keep the price down.<br /><br />NateNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-32801776672948525172012-06-08T11:10:47.143-04:002012-06-08T11:10:47.143-04:00Often value is its own catalyst, as investors mobi...Often value is its own catalyst, as investors mobilize over a cheap situation, and press for change. Patience is good if you have a management team that is motivated to do well for outside passive minority investors, and has the talent to do it.<br /><br />A cheap stock attracts value investors; value investors do not make a stock cheap. If they are too patient when management is not motivated/talented, yes, the stock will remain cheap -- that's a value trap, and avoiding them is what the better value investors do. <br /><br />But the cheap stock is not the fault of the value investors directly; it is the fault of the management / controlling shareholders.David Merkelhttps://www.blogger.com/profile/05073877918072914309noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-21096034497781344132012-06-07T12:29:49.570-04:002012-06-07T12:29:49.570-04:00Nate,
Sorry for comment spam but your underlying ...Nate,<br /><br />Sorry for comment spam but your underlying point is an interesting one. I was having this same discussion/realization with another investor last week. We were discussing companies that might be good for a takeover and he pointed out that one I mentioned was actually a bad target because there was too much insider ownership.<br /><br />So, you're right-- institutional, insider and retail ownership value is always contextual. Are you attempting a control buy? Activism? Catalyst? Wait-and-see? Etc. Each strategy requires a different ideal shareholder structure and a lot of the time there's a mismatch.<br /><br />I think it's one more part of the investment art worth considering before plunging in. A company could be cheap, but if you're approaching it as a control situation which it is really only cheap to an activist, you might get frustrated.Taylor Conanthttps://www.blogger.com/profile/18270678440957992085noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-10915310944778831322012-06-07T12:26:03.726-04:002012-06-07T12:26:03.726-04:00Ian,
Respectfully, I disagree.
I have sat in on ...Ian,<br /><br />Respectfully, I disagree.<br /><br />I have sat in on so many "investor road shows" and, while I enjoyed the free steak lunches and unlimited iced tea refills, I couldn't help but think, "THIS is what management thinks is a good use of shareholder resources? To attempt to instigate a Ponzi-lite buying frenzy of their stock?"<br /><br />It's just "greater fool investing" by other means. Instead of writing newsletters pumping a company's stock, you are asking management to do it for you.<br /><br />If a public company is not going to make use of being public, they should be private. In fact, most company's should probably be private. I think it's actually insane there are as many publicly traded companies as there are. I think this is a consequence of "financialization"... something that seems modern, progressive and good but which is probably mostly a stunt and a game that adds little to no value (and may even subtract value from the equation in many instances).<br /><br />Better to have the company go private (keep buying back shares until there aren't any), distribute dividends (especially if the company has securities it could spinoff to shareholders tax-free, like Graham's Northern Pipeline example), search for a private or public buyer or liquidate itself.Taylor Conanthttps://www.blogger.com/profile/18270678440957992085noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-85933660037791215012012-06-07T12:20:29.031-04:002012-06-07T12:20:29.031-04:00Nate,
I think you stumbled upon the answer right ...Nate,<br /><br />I think you stumbled upon the answer right at the end there without realizing it:<br /><br />It could be value investor activism!<br /><br />These value investment situations are almost always cases where the management is stagnating and not fully realizing opportunities for value maximization. It behooves value investors in these situations to get active, try to get on the board and agitate for management to do something positive (buybacks, dividends, liquidation) to unlock the value.<br /><br />Because these are mostly small companies, this is not only probably the "only" way to make something good happen, it's probably the most appropriate. It wouldn't take too many value investors working together and coordinating their efforts to roam around the value world looking for value castles to lay siege to and eventually conquer.<br /><br />What do you think?Taylor Conanthttps://www.blogger.com/profile/18270678440957992085noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-49504663890823382482012-06-07T11:46:20.047-04:002012-06-07T11:46:20.047-04:00Ian,
I agree management is the other half of the ...Ian,<br /><br />I agree management is the other half of the problem. Sometimes they're much more than half, unfortunately often investors in general are afraid to engage management. Shareholders are afraid of management and managers are afraid of shareholders, not a good situation for anyone.<br /><br />Thanks for the comment, very thought provoking.<br /><br />NateNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-49123638647781117032012-06-07T11:36:16.087-04:002012-06-07T11:36:16.087-04:00Good blog post. I believe half the reason is what...Good blog post. I believe half the reason is what you stated. The other half is managements inability to act like a "public" company. There are too many public companies running their companies like private companies. These companies are always undervalued for a reason. If most management teams would simply let people know they exist I think a greater number would reap the rewards. I view a public management team as having a fiduciary duty to let people know they exist. If they don't take the time to do so, why should I waste my time as an investor. This is one of those intangible things I look for when investing in any stock and took a few years to figure out. But then again, I'm not really a value investor either and I would never buy something based on Book Value, Trading at Cash, or other metrics :) I get bored easily and often. Good blog post. <br /><br />Ian Cassel<br />MicroCapClubAnonymoushttps://www.blogger.com/profile/14171365991053025486noreply@blogger.com