tag:blogger.com,1999:blog-2149523431587168680.post8077733575380984645..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: Portfolio strategies: The definitive guide to net-netsNate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-2149523431587168680.post-22765694136343831902014-09-11T07:10:38.256-04:002014-09-11T07:10:38.256-04:00The best time to look for net-nets is after a majo...The best time to look for net-nets is after a major market dump. In 2002 and 2009, there were numerous stocks trading for less than cash minus all liabilities. You could pay off all liabilities, have cash left over, with inventories and receivables as gravy.<br /><br />Many of the few net-nets that remain today are fallen biotechs. These companies raised a lot of money, then had their main drug fail in trials. These companies generally have little or no revenue and basically exist to develop drugs. I've found management and BoD's of these companies determined to spend every last cent and even raise more in secondaries. I wouldn't touch them with a ten foot pole.Douglas Reifnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-32626675864645157862014-09-06T18:38:41.069-04:002014-09-06T18:38:41.069-04:00Sams ---
Search for 'Piotroski Score' to ...Sams ---<br /><br />Search for 'Piotroski Score' to see a list of criteria an accounting professor made for screening low Price/Book stocks.<br /><br />I don't think there's anything magical about his list, but its a good example of a checklist approach.Parker Bohnnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-63434006014934439322014-09-05T10:01:56.465-04:002014-09-05T10:01:56.465-04:00I have a question about net-net investing.
When I...I have a question about net-net investing.<br /><br />When I run a screen for net-nets, the P/E ratios of the companies that are listed vary from 4-100. Now, with other investment techniques, would low P/E net-nets make for better investments, considering the qualitative aspects are the same? <br /><br />In any case, would any of the valuation/financial ratios affect one's choice of net-nets? Especially, if there are not a lot of net-nets to choose from?Samshttps://www.blogger.com/profile/13941457520640473102noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-47096619313094029642014-09-04T23:53:01.606-04:002014-09-04T23:53:01.606-04:00Much thanks for this, Nate! Looking forward to the...Much thanks for this, Nate! Looking forward to the other posts in the series.<br /><br />Cheers!Samshttps://www.blogger.com/profile/13941457520640473102noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-40600855207093345402014-09-04T05:58:52.415-04:002014-09-04T05:58:52.415-04:00I've done plenty of asset-based investing.
I ...I've done plenty of asset-based investing.<br /><br />I also stick (mostly) to profitable companies, and I think there is a very sound reason to this (and its not entirely psychological). If you invest in a company that is destroying value, then you are entirely dependent on the market offering you a favorable exit at a reasonable time. This makes me very uncomfortable and feels a bit like gambling.<br /><br />I prefer investments where my money has some time value. If Time is the friend of the great business, then I prefer Time to be at least an acquaintance to a NCAV or other really cheap business. After all, I could get locked into the stock for years, and the difference between a company that is creating a few % in value per year vs one that is destroying a few % a year is HUGE over a several year period.Parker Bohnnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-91215175317512647142014-09-04T05:10:14.204-04:002014-09-04T05:10:14.204-04:00Hi Nate,
What you say it is not totaly true :
&q...Hi Nate,<br /><br />What you say it is not totaly true :<br /><br />"Unless a company has a unique real estate holding I don't give a company's real estate much weight. At times some real estate can be resold for book value, but that's only in certain circumstances."<br /><br />When you bought a business at book value, but... land are booked at historical value (for 20 years for example) and buildings amortized (for 20 years too), if the company decide to sell theses assets, that's mean you are going to do lots of cash !!<br /><br />We started a net-net portfolio experience in 2008 and included an approach with hidden real estate assets. The performance is today +660,77% (bank accounts avalaible).<br /><br />You can have a look here : http://blog.daubasses.com/category/portefeuille-2/ (french blog).<br /><br />Always nice to read you.<br />Thanks.<br /><br />FranckFranckhttps://www.blogger.com/profile/05275009579482808013noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-13282151254889609562014-09-03T12:01:58.558-04:002014-09-03T12:01:58.558-04:00Hi Nate,
Your post got me thinking about the &quo...Hi Nate,<br /><br />Your post got me thinking about the "root causes" of companies essentially going bankrupt or "eternally declining" stock prices. I'm sure you have more clear view about these causes than I do, so I was hoping you could shed some light on the matter. Certainly leverage is one of the root causes of trouble. Just curious cause I think (open to hearing opposite views) identifying these would spare investors from much pain. Many times you can read about different things but they simply don't seem to be the essential things, the base, as it could perhaps be called. Things that truly are the drivers, things at which you end up when you start walking back the chain from different things.<br /><br />Thanks for your insights!60°North Investmentshttp://seekingalpha.com/author/60-north-investmentsnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-23662063255422547842014-09-03T10:33:17.383-04:002014-09-03T10:33:17.383-04:00Hi Nate,
I'm a new follower on your blog and ...Hi Nate,<br /><br />I'm a new follower on your blog and I just want to say first that I thoroughly impressed by the level of thought and effort you put into your posts. I particularly like this one.<br /><br />I am a value investor who is terrified of net-nets, so perhaps I can shine some light on why guys like me are so apprehensive about investing in them. First off, I run a very concentrated portfolio of maybe 10-12 stocks maximum. I believe running such a concentrated portfolio precludes investing in net-nets. Due to the largely binary outcome of net-nets, I think investing in them only makes sense if you spread your capital across a lot of them; I simply cannot afford a blow-up, which is a very real possibility with a net-net. Of course, you did touch upon that very topic in your post. Something else that bothers me about net-nets, and this is also something you mentioned, is the short time horizon for exiting them. Almost every net-net I've seen is a cash-burning business with a highly questionable value proposition or precarious competitive position. Admittedly, most great investments have some sort of ugly quality that scares off investors (which in turn is what makes the investment a bargain), I believe that time is a very brutal enemy of net-nets and I'd rather not have to watch my stocks like a hawk every day looking for the nearest exit.<br /><br />I think superior investment performance can be obtained not just through hitting grand slams, but by avoiding big [permanent] losses of capital. And net-nets, on an individual basis, are just too prone to blow ups. I totally agree with your overall post though; net-nets definitely make sense in a large, diversified portfolio.Ravareknoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-17787765297463404282014-09-03T08:16:15.705-04:002014-09-03T08:16:15.705-04:00Yes, that's the report I was talking about. T...Yes, that's the report I was talking about. There's another one on net-nets that I have that shows that buying all net-nets at 2/3 of NCAV and selling at NCAV results in similar returns to the money losing net-net strategy.<br /><br />In the post I addressed why I stay away from these, which is the emotional aspect. Now it's probably true that I should dedicate a portion of my portfolio to just 2/3 net-nets and do it mechanically or something. I find it easier to hold a stock if I know the company will be around in the future because asset value isn't disappearing.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-33720943232794444292014-09-03T08:02:45.269-04:002014-09-03T08:02:45.269-04:00This is a good question, and the answer is that it...This is a good question, and the answer is that it depends. It depends on what the rest of book value is comprised of. If a company has almost no value beyond NCAV it'd be prudent to buy with a bigger discount. If a company has a lot of potential value (possible earnings, other non-current assets) NCAV purchasing with a smaller discount could be alright.<br /><br />ThanksNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-21315104258621704902014-09-03T08:01:23.739-04:002014-09-03T08:01:23.739-04:00Don,
The formula I have for a bank's liquidat...Don,<br /><br />The formula I have for a bank's liquidation value includes a number of discounts to things like loans, loan loss reserves, OREO and securitization residuals. The formula makes sense on paper, but in essence it's really just dictating that a bank's liquidation value isn't 100% of book value.<br /><br />As you said I tend to work off of book value as a liquidation value for banks. This is two fold, right now banks are well capitalized and they've dumped their bad assets, so their balance sheets are good. Secondly the market is doing well, we don't see banks being sold off for 60% of BV with the acquirer doubting the value of what they've purchased.<br /><br />Banks are only liquidated in very rare circumstances. If a bank isn't profitable and is liquidated the FDIC takes care of it and shareholders are completely wiped out. In this market if the bank has any value it's easier to find an acquirer rather than go through lengthy liquidation proceedings.<br /><br />I think the same could be said for insurance companies. <br /><br />NateNate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-14609698908757064242014-09-03T03:58:47.152-04:002014-09-03T03:58:47.152-04:00Nate,
I would love to hear more about your thought...Nate,<br />I would love to hear more about your thoughts on banks or a financial services company trading below liquidation value. From your previous posts it seems you use book value as an estimate of a banks liquidation value... Is this fair? What do you think about insurance companies?Donnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-52460319525090367722014-09-03T03:53:37.622-04:002014-09-03T03:53:37.622-04:00Hi Nate,
Thanks for you wonderful blog.
I have a ...Hi Nate,<br />Thanks for you wonderful blog.<br /><br />I have a question regarding the net-net stocks, what is the spread between the NCAV and MKT Cap that you will consider to invest in ?<br />For example, RELL - NCAV of 163M vs MKT Cap of 142 which give us 13% NCAV.<br />This is not something that offer a big return to investor, but still - a net net.<br /><br />Thanks,<br />BaruchBaruchhttps://www.blogger.com/profile/13100933073429581317noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-58569334520231560882014-09-03T01:53:46.608-04:002014-09-03T01:53:46.608-04:00Hi Nate,
Thanks for you wonderful blog.
I have a ...Hi Nate,<br />Thanks for you wonderful blog.<br /><br />I have a question regarding the net-net stocks, what is the spread between the NCAV and MKT Cap that you will consider to invest in ?<br />For example, RELL - NCAV of 163M vs MKT Cap of 142 which give us 13% NCAV.<br />This is not something that offer a big return to investor, but still - a net net.<br /><br />Thanks,<br />BaruchBaruchnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-59666009560277290852014-09-02T19:12:20.464-04:002014-09-02T19:12:20.464-04:00I'd also would love to hear Nate's comment...I'd also would love to hear Nate's comments on the research, one of which is this paper by Tobias Carlisle: http://www.scribd.com/fullscreen/120327973?access_key=key-v87koheb7bxg1r8rob5&allow_share=true&escape=false&view_mode=scroll<br /><br />Thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-2843466162591048152014-09-02T17:15:07.059-04:002014-09-02T17:15:07.059-04:00Hi Nate,
Could you add more color on the research ...Hi Nate,<br />Could you add more color on the research report that suggests that unprofitable net-nets might result in higher investment returns...<br />ThanksAnonymousnoreply@blogger.com