tag:blogger.com,1999:blog-2149523431587168680.post7060674661464424796..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: Is it worth investing in net-nets?Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-2149523431587168680.post-39340220725500555212013-12-13T23:56:03.472-05:002013-12-13T23:56:03.472-05:00Actually I did not have any idea that is it worth ...Actually I did not have any idea that is it worth investment to net-nets or not but the allocation you did here makes me fully knowable about this issue. Thanks dude :)Peterhttp://www.easyinvestmentservices.comnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-29903911737793277442012-06-18T22:15:50.343-04:002012-06-18T22:15:50.343-04:00Hey Nate, love your blog! You asked for "comp...Hey Nate, love your blog! You asked for "companies that traded below NCAV and have never risen above it since". One company that fits that description is ALTX.<br /><br />Two other NCAVs you might want to look at are ENTN and MTLK...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-39144624287834689252012-06-14T11:07:10.892-04:002012-06-14T11:07:10.892-04:00would you like to look at a net-net in Hong Kong -...would you like to look at a net-net in Hong Kong - 0264.hk?<br /><br />http://finance.yahoo.com/q?s=0264.hk&ql=1<br /><br />it looks insanely cheap.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-45048851417497624492012-06-14T09:58:08.780-04:002012-06-14T09:58:08.780-04:00nshamapant,
Thanks for the comment. They can be ...nshamapant,<br /><br />Thanks for the comment. They can be tough to find, but have you ever looked at grahaminvestor.com? That site has all of the US net-nets and it's updated daily, probably the best site out there for them.<br /><br />I would disagree that they're hard to analyze. I look for two things, do I have a solid margin of safety, and secondly is there anything that would impair my margin of safety. So if a tangible asset discount exists I want to make sure the operations aren't jeopardizing that. A company that's losing a lot of money does for sure, but one that's been consistently cash flow positive isn't. As long as I have a margin of safety and the operations aren't hurting my margin I can look at making an investment.<br /><br />The biggest thing which a lot of people have commented on is the investor composition, I didn't mention this but it's key. The ability to hold a portfolio of small ugly companies through thick and thin.<br /><br />NateNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-34624440932502293592012-06-14T09:54:48.325-04:002012-06-14T09:54:48.325-04:00Yes, time period is a key factor. For me I try to...Yes, time period is a key factor. For me I try to follow two rules, either a 50% discount so trading at 2/3 NCAV or 2/3 BV or an investor return greater than 10% a year (ROE/BV).<br /><br />If an investor buys at 2/3 NCAV and it takes 5 years for NCAV to be realized that's a gain of 10% a year which is respectable. Throw in some dividends and suddenly it's an incredible investment.<br /><br />With regards to cash and management yes you need to be aware of those. I like companies with a significant insider ownership though they are less likely to shoot the company in the foot, because it's their foot. Of course these issues aren't isolated to net-nets, non net-nets face the same issues, bad management and empire building. Caveat emptorNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-29277005905756810112012-06-14T09:49:45.355-04:002012-06-14T09:49:45.355-04:00LC,
This is a common complaint, no catalyst exist...LC,<br /><br />This is a common complaint, no catalyst exists how will value ever be realized? Ben Graham talked about this in a Senate hearing that the mechanism for a stock to move towards it's fair value is mysterious but it always happens over a period of 2-5 years.<br /><br />I have issued the challenge to a few people in the past to show me a list of companies that traded below NCAV and have never risen above it since. I will point out that sometimes a company's IV declines to the NCAV price so what used to be a net-net is actually a fair value. <br /><br />I guess in short these are a mean reversion play.<br /><br />NateNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-91666742709691022352012-06-14T09:43:18.511-04:002012-06-14T09:43:18.511-04:00Yes, these lists have become a bit more junked rec...Yes, these lists have become a bit more junked recently due to the China issues. <br /><br />So I don't consider the China fraud's real companies, and I exclude anything from China from any consideration. I would highly advise others to do the same.<br /><br />If someone does just buy all the US net-net's and doesn't pick out the China ones I agree results will be disappointing. I don't think the same could be said if they bought all of the net-net's that aren't Chinese.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-55502020127569308292012-06-14T09:26:05.523-04:002012-06-14T09:26:05.523-04:00While I do agree with almost the whole article, I ...While I do agree with almost the whole article, I do think that fraud is more common with net-net's than with any other business for the simple reason that suspicion of fraud is one of the reasons that a company can be trading as a net-net. <br /><br />The China RTO stocks illustrate exactly that point. If you blindly buy a basket of net-nets you will buy an above average amount of fraudulent companies.Alpha Vulturehttp://alphavulture.comnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-33428780249867990002012-06-14T00:48:14.781-04:002012-06-14T00:48:14.781-04:00Nate
Great read. In theory, what is to stop a net...Nate<br /><br />Great read. In theory, what is to stop a net-net always trading as one? Doesn't there need to be some catalyst to drive value upwards..or do you believe that the market will eventually revalue undervalued companies based on mean reversion?LCnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-78386593053636177922012-06-14T00:46:40.501-04:002012-06-14T00:46:40.501-04:00I have invested in some nets-nets. I see few issue...I have invested in some nets-nets. I see few issues 1. Time is the essence, no matter how cheap you buy them. More time it takes lesser the return. How to figure out how long the market will take it to recognize , Something must happen for it to be recognized like a catalyst, change in management, etc ? 2. value of the net-nets is mostly in cash and management can do really bad stuff with cash like acquisition, keep losing money in current operations or will just sit on it forever. Again how to figure that out, mostly we depend on historical perspective and decision making of the management. 3. Most of the net-nets are owned by some individuals who run it like a private company and may do nothing to unlock value and what can a shareholder do in that respectumer guroonoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-26061614408739791822012-06-14T00:31:29.532-04:002012-06-14T00:31:29.532-04:00Nate,
I'm a relatively new investor(opened my...Nate,<br /><br />I'm a relatively new investor(opened my eyes to the world Feb 2011), since then I've looked at net-nets and I must say that I think 1 thing is overdone when talking about them. They aren't easy. There are great profits here but I think the objections you raised aren't the biggest objections to make. Here are my problems with net-nets.<br />1. They're hard to find.<br />An investor wanting to find a net-net has to work quite hard. Screening for them can find a few, but most of the screenable ones are terrible(my next point) and even the screeners that find net-nets aren't easy to find. In terms of free screeners I only know of Robotdough(on and off free...i think they're free now?) and OldschoolValue. I think stockscreen123 has some but I've found the screener there very tough to use.<br />2. They're hard to analyze<br />So you're going to devote the long hours to finding net-nets. Some people have it, they love it(count me as one of them). But some people find that extremely difficult. Next though, once you've found them, there is the obvious problem that the market believes that every dollar in the bank for the company is worth 0.667 in market value, and the business is worth nothing. Usually this means something is terribly wrong with the business. Many net-nets I've seen are either losing money or about to start losing money. Once you're good at stock analysis and can work your way in and out of SEC Filings,etc and have the time to do so, it's probably worth your while, but with net-nets I think you'll agree that every foot note counts, as there is no analyst to pick up your mistakes for you.<br /><br />on the other hand, I personally love net-net investing, I love the thrill of finding net-nets and analyzing them. To your competitive advantage point, I think Geoff Gannon pointed out that PARF is a hidden champion b/c it has 80% market share in its little niche. I'd say that maintenance of market share is a type of competitive advantage, so I guess it's possible...but needless to say I get your point about competitive advantages, I think the lower quality of the businesses isn't a reason to avoid net-nets, but it definitely brings risk. <br /><br />Buying dividend paying net-nets works best in my opinion. THis means they have income, growing balance sheet and you get paid to wait so you can still beat inflation while waiting.<br /><br />Good work though! I love your blognshamapanthttps://www.blogger.com/profile/18069959948701756020noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-72473433656913627492012-06-13T13:52:25.308-04:002012-06-13T13:52:25.308-04:00Blaine,
Thanks for the comments, no offense taken...Blaine,<br /><br />Thanks for the comments, no offense taken, I understood what you meant. I agree, temperament is probably the most important thing with holding a net-net. While the outlook appears terrible looking at the asset value and being able to think clearly that this company doesn't merit this valuation, then holding through the bad news. And there will be bad news, these companies aren't this cheap for no reason.<br /><br />I saw the Moat article, it was good. I've owned and held and hold some moat stocks and can attest that the Fisher style does work. If someone can find a true Fisher franchise stock, but and hold they will do very well.<br /><br />The flip side is most people see moats everywhere they turn and buying a mediocre business at a fair price will give an average return at best. For most people who hold a portfolio like this an index fund would be a much better investment.<br /><br />I'd enjoy holding the Fisher stocks, but I also love getting in the dirt finding net-nets as well. The net-nets keep me busy and are far more exciting, but I'm not an exclusive investor one way or the other.<br /><br />Thanks for the comments!<br /><br />NateNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-22113395846723202102012-06-13T13:45:10.439-04:002012-06-13T13:45:10.439-04:00I just reread that last line and I wanted to clari...I just reread that last line and I wanted to clarify that it wasn't intended to come across as offensive at all. You are obviously hard working, and skilled at identifying undervalued securities, in addition to having an iron stomach.<br /><br />I just meant that your calm approach may increase your advantage.Blainenoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-25775536462348959102012-06-13T13:24:21.800-04:002012-06-13T13:24:21.800-04:00Nate,
I completely agree with the rational argume...Nate,<br /><br />I completely agree with the rational arguments you make above. Backtesting indicates that you are almost certainly correct, and for that reason I believe you will earn excess returns in net-nets.<br /><br />But... aren't those same objections precisely the reason why most investors should avoid net-nets? Most investors are incapable of rationallity when sitting on ugly stocks like these. The painful psychological aspect of net-net investing leads most to sell net-nets at a loss.<br /><br />On the other hand, most investors will have no problems at all riding a Fisher-style stock to riches. They can be a riot to own.<br /><br />Have you read the recent post by Aswath Damodaran on investor's competitive "moats"? <br /><br />http://aswathdamodaran.blogspot.ca/2012/06/passive-value-investing-screening-for.html<br /><br />It appears your "moat" in investing could simply be your iron stomach.Blainenoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-90830571895959691682012-06-13T12:40:22.837-04:002012-06-13T12:40:22.837-04:00Nate,
Great post, this is a great resource for in...Nate,<br /><br />Great post, this is a great resource for investors of all stripes. Thanks!Taylor Conanthttps://www.blogger.com/profile/18270678440957992085noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-83930663538331308542012-06-13T11:39:22.510-04:002012-06-13T11:39:22.510-04:00Thanks for the comment. You have a good point abo...Thanks for the comment. You have a good point about the discount to NCAV and book being important.<br /><br />I am usually looking for a 50% return if possible. So something at 2/3 NCAV or 2/3 book value will give that.<br /><br />Sometimes if the business is decent and book value is growing I will need less of a discount if I plan to hold for a while. In this case I'm looking for 10-12% return. So if book is growing at 7% I will try to pay around 60% of book value or less.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-15159269237433636882012-06-13T11:31:10.441-04:002012-06-13T11:31:10.441-04:00I have invested in some net-nets but I prefer ones...I have invested in some net-nets but I prefer ones that are increasing book value.<br /><br />My thoughts are how long will it take the market to recognize this particular net-net is cheap? If I own a net-net that is trading at a discount to NCAV of 10% and discount to book of 20% and it goes to book value (without any growth in book value) in 5 years, big deal. If that net-net is increasing its book value at 4% per year, the return is decent. <br /><br />Of course if the market realizes the value in 1 year I am happy, or there can also be some homeruns where the market values the stock significantly above book (or receives a buy out). <br /><br />Do you look at a certain hurdle rate? Or do you figure a portfolio of net-nets work out over time?Joshhttps://www.blogger.com/profile/12028228587020987588noreply@blogger.com