tag:blogger.com,1999:blog-2149523431587168680.post6878823085743413715..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: Value investing mythsNate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-2149523431587168680.post-77601714492244908492014-10-31T00:29:47.618-04:002014-10-31T00:29:47.618-04:00My comment was deleted and I'm not going to re...My comment was deleted and I'm not going to re-type with as much detail but, on Wells Fargo, the payout ratio is what allows Wells Fargo to grow at the rate of the economy/GDP while returning 15% on equity at a reasonable leverage ratio.<br /><br />Also, compounders are nice if the company returns 15% on capital then it only needs to sell at the same price multiple as you purchased to realize 15% returns. However, an average company realizing 5% return on capital needs a 10% compounded return on price multiple expansion to realize 15% returns. Although this can be defended as reversion to the mean or something it is ultimately a bit of speculation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-32471619974731053992014-10-28T11:29:00.690-04:002014-10-28T11:29:00.690-04:00The way to become rich is by doing hard things. I ...The way to become rich is by doing hard things. I know a value investing billionaire who made his fortune in a similar way to what you're describing; with difficult-to-stomach companies (also heavy into bankruptcies/restructurings and control positions).<br /><br />Conversely, I know another billionaire, in Silicon Valley, who made his fortune by taking extreme risks. While some of it looks smart in hindsight, at the time his positions (particularly the sizing) would've been seen as a huge gamble. But sometimes risk does equal reward—and some people do win lotteries.<br /><br />What doesn't make big money are common things. So yes, holding a high ROE stock like, say, IBM will not make you a billionaire. It will simply produce a better return on your savings, or perhaps edge out the S&P by a percent or two. <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-62570937480326991172014-10-28T02:53:15.320-04:002014-10-28T02:53:15.320-04:00Good stuff, Nate!Good stuff, Nate!Samshttps://www.blogger.com/profile/13941457520640473102noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-6237550202501060442014-10-27T17:14:52.926-04:002014-10-27T17:14:52.926-04:00Nice post. I'm partial to investing in "g...Nice post. I'm partial to investing in "good businesses" myself, but the view of high ROE/ROIC investing that you describe is a pet peeve of mine as well. For me, it's not just a problem of the sustainability of high ROE/ROIC (which is a big problem). It's that even if one believes a stock's returns should ultimately converge to the returns of the underlying business (i.e. stock return is approximately ROE in the long run), it takes a hell of a long time for retained earnings to grow large enough to drive the lions share of the returns.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-72990468654105023132014-10-27T12:26:53.448-04:002014-10-27T12:26:53.448-04:00I find the very last sentence of the post to be ve...I find the very last sentence of the post to be very true. There are some absolutely insane bargains out there. There is probably more junk to sort through than in more typical markets but the rewards are much more outstanding than in typical markets. <br /><br />Growth can definitely provide a margin of safety but one has to be extremely sure of the prospects or else is being given the opportunity at a reasonable price. A stock could potentially be a huge bargain if bought at 25x but it's a lot easier to buy something at 10x or less earnings. There are some excellent companies (QVCA or FTD for example) that are trading at 10x or less (after accounting adjustments). <br /><br />Aswath Damordaran says, I think rightly so, that there can be ginormous discrepancies between price and value in developing businesses. But it's not an easy game to play. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-10262853499166052182014-10-27T12:12:33.454-04:002014-10-27T12:12:33.454-04:00Thanks!Thanks!Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-18800241933418724102014-10-27T12:12:26.372-04:002014-10-27T12:12:26.372-04:00Thanks!Thanks!Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-12531040253258708702014-10-27T12:12:14.582-04:002014-10-27T12:12:14.582-04:00Sometimes value is obvious and languishes for year...Sometimes value is obvious and languishes for years. If you can spot it and are patient enough to wait you will do well.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-53916820809500938912014-10-27T12:11:42.595-04:002014-10-27T12:11:42.595-04:00I love comments like this. I completely disagree, ...I love comments like this. I completely disagree, but do what works I guess.<br /><br />If it were only as easy as buying high ROIC companies that wouldn't everyone be rich? And if those of us flipping cheap companies are going to lose out why do I know so many very wealthy individuals who used this method to build their wealth?<br /><br />This is completely anecdotal but I meet a lot of people through this blog. I meet a lot of younger investors who are obsessed with high ROIC and high ROE stocks. They're all out to make a name for themselves. I also meet a lot of older wealthy investors, universally they've made their money buying cheap stocks. Read what you want into it.<br /><br />I'll be content to pay the bills, no Ferrari for me..Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-13221630713364628152014-10-27T12:08:06.384-04:002014-10-27T12:08:06.384-04:00I have two thoughts on this. The first is that wh...I have two thoughts on this. The first is that what someone says or believes should stand alone. That is if what I write has value it shouldn't matter if I've made 2% or 200%.<br /><br />Of course in the world of investing only people with good returns are to be believed. Which I think is a mistake.<br /><br />I published 2013 returns here: http://www.oddballstocks.com/2013/12/looking-back-at-2013-how-did-my-13.html<br /><br />I don't run a fund, I'm investing my own money. So calculating performance isn't something I do often. According to Fidelity at the end of September I was up about 15% YTD. That slightly under-reports my performance because they have some issues tracking how foreign stocks do. In January I'll probably sit down and figure out exactly how well did.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-84956566105139961852014-10-27T12:04:27.015-04:002014-10-27T12:04:27.015-04:00Thanks, it'd be nice to be doing this full tim...Thanks, it'd be nice to be doing this full time...hopefully soon enough.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-10882627046477713792014-10-27T12:04:08.252-04:002014-10-27T12:04:08.252-04:00I agree that most larger or professional value man...I agree that most larger or professional value managers need to drift to what works. But smaller funds and individuals shouldn't waste their time trying to mimic large funds.<br /><br />Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-88167459419086655922014-10-27T11:25:10.954-04:002014-10-27T11:25:10.954-04:00Nate the reason why some folks focus on high ROIC ...Nate the reason why some folks focus on high ROIC (leverage neutral) is that's the only way to get wealthy. Flipping cheap average (<10% ROIC) companies will pay the bills and helps you get by, but that's about it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-46166001041610381402014-10-27T02:51:38.232-04:002014-10-27T02:51:38.232-04:00Thank you for this great post.
I have not been abl...Thank you for this great post.<br />I have not been able to find your own performance in your blog. Have you published it?<br />Thanks againMaxnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-87265108052969974732014-10-26T16:11:58.273-04:002014-10-26T16:11:58.273-04:00This is a great post, particularly the following:
...This is a great post, particularly the following:<br /><i>If I could encourage value investors, or aspiring value investors to do one thing it would be to use their imagination. Acquiring companies, private equity firms, and budding managers use their imagination to take many sleepy companies to great companies by thinning the ranks, introducing new products, or selling unprofitable divisions. Yet many value investors invest as if what is happening now will happen forever. </i><br /><br />By coincidence I've spent the past couple of days looking at Ball (BLL). It's been a great performer over the past fifteen years, rising 1600% since 2000. But in the fifteen years before that the stock price was flat. Ball has always paid a minuscule dividend, so anyone who owned it in the 80s and 90s lost money after inflation. The stock was cheap in 2000, trading at 6x fcf, but no one who'd looked at its history and extrapolated the past forward would have imagined it doing as well as it did.Jameshttps://www.blogger.com/profile/06597727760854955867noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-83889237233192143492014-10-26T11:58:37.575-04:002014-10-26T11:58:37.575-04:00This post is so well-written that it makes me susp...This post is so well-written that it makes me suspicious you got Carol Loomis to proofread and edit it!<br />What if your CompleteBankData and other side start-ups start raking in so much cash flow that you can quit your day job? With the size of the float your businesses will generate, soon you will have no choice but to evolve into a Buffett-type compounder investor.<br /><br />Wouldn't it be ironic if the writing of this article marks the beginning of the end of your oddball-style investing? Regardless, great job! And thanks for writing!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-8173895309180639122014-10-26T11:24:33.206-04:002014-10-26T11:24:33.206-04:00The issue is the no-growth economy. That's why...The issue is the no-growth economy. That's why investors have been paying premiums for growth—of course this is a cyclical phenomenon as well, and in many cases they're exposed to extreme downside. <br /><br />It strikes me that in modestly inflationary, growth economies, value investing performs very well. This was the case in the early 2000s: consider deals like Wilbur Ross's steel rollup, the Kmart bankruptcy, and many others. The reason is that the asset values are carried upward—but I'm not sure those deals would work today, in a more deflationary environment.<br /><br />Japan was an example where net nets persisted for something like a decade or more. That's what investors are worried about nowadays, and there's a very real "career risk" involved...<br /><br />Perhaps two years of lackluster performance is enough to cause a major drawdown in AUM; consider what happened to Bruce Berkowitz, and he's a prominent name with a clearly expressed approach. <br /><br />Most "value" managers need to drift into whatever works at the moment, because there's so little truly patient, value-oriented capital. <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-71614394737061544212014-10-26T04:15:18.641-04:002014-10-26T04:15:18.641-04:00One of your best posts yet. One of your best posts yet. Jordholmenhttps://www.blogger.com/profile/09558266756672696633noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-80698879339586565212014-10-26T02:47:12.753-04:002014-10-26T02:47:12.753-04:00Great articleGreat articleAnonymousnoreply@blogger.com