Highest levels of unemployment since the Depression and stocks go up. Terrible GDP print numbers and stocks go up. At the same time companies are laying off people, banks are seeing distressed borrowers and there are cracks in the economy. It's really hard to reconcile what's happening in the stock market with what's happening in the economy.
It's been said that the market is forward looking. It's also been said that it's fully efficient. And I've also heard that subprime is fully contained. That last statement was a joke if you were investing before the Great Recession.
One good thing about a market climb while our country is facing generational economic devastation is that it shows that investors are optimistic. I believe that ultimately outcomes are built on perspective. If one mopes through life they will experience less fulfilling outcomes than one who is eager for what lies ahead regardless of the difficulty.
I'm just as biased to optimism as anyone else. I badly want the virus to go away, for everything to return to "normal" and for life to continue as if this never happened. But is that realistic?
Most of life is built around narratives. People form narratives to help them understand what they're experiencing and what they're seeing. Most of these narratives are formed through first hand experience. If commentators on TV are proclaiming a recession but "all my local stores are full" one might create a narrative that "things aren't too bad." Conversely if one sees "Closed for good" signs on all their local stores they might form a narrative that a recession is severe.
These narratives drive our lives, and they drive the market. In 2008 the narrative on Wall Street was that the sky was falling. Why was this? To start with Wall Street itself was affected. Investors saw large banks closing, a frozen bond market and they dumped equities. This time around Wall Street seems untouched. Banks aren't failing, and hedge funds aren't closing, so investors seem to have formed a "how bad can it be?" narrative and bid up stocks.
Yet outside of markets the real economy is acting like investors did in the fall of 2008. Companies are looking forward and slashing people, expenses and any line item as quick as possible. They don't see a quick return to normal, they see a period of depressed revenue and depressed earnings. They're doing what they can to survive.
One company's capex is another company's revenue. It's a vicious circle. With each cut in capex another company might have to cut employees. This isn't the type of cycle that reverses quickly, it takes quarters if not years before companies gain confidence that revenue is here to stay.
All of this cutting, revenue, expenses, employees has the potential to lead us into a deflationary spiral. If company's don't have confidence in their revenue they will spend less on people and goods. If there is less demand for goods prices start to fall. As jobs are cut demand shrinks for consumer goods, and prices get cut in an effort to attract demand.
While the real economy appears to be deflating we still haven't seen deflation in the market. It's likely that's coming next.
In 2008 I was working for a telecom company. As the market fell apart life went on like nothing was happening. The company eventually hit a speed bump because they were debt financed and they struggled to get a bond deal done. But outside of that nothing really changed. Co-workers would discuss how horrible headlines were, but it didn't hit us directly.
Eventually after a barrage of bad headlines this telco started to get worried. Their actions lagged the market. In 2010 they were still worried about "the crash" and things coming back. But by that time the market had raced forward.
It's my speculation that something similar might happen now, but with the real economy leading the charge and the market lagging. Investors are expecting a quick bounce. The reason for this is as everyone is stuck inside it's really hard to build a narrative. Instead of building narratives from what people are seeing day to day they're building a narrative based off headlines and optimism that things are almost over.
I think a possibility is that the market is going to be shocked when companies don't turn around quickly in a quarter or two. And then a quarter or two later will be even more shocked that things are still depressed. By that time investors will have lost faith and sold out of stocks. While at the same time companies might be seeing green shoots and things might be turning.
The question is "what's an investor to do?" I don't know, but I can tell you what I'm doing. I came into this whole thing with about 50% in cash. As stocks fell in March I deployed some cash into bargains as I saw them. I've also shorted companies that look like they're on the brink of disaster. My thought is some of those shorts can be cycled into even cheaper names if stocks ever fall again.
But what happens if they don't? Let me make a wild and unsubstantiated speculation about that. I think if stocks keep climbing while we experience Depression level economic measures that it could be the breeding ground for civil unrest, or some sort of dark horse politician who imposes punitive taxes on wealth. I hope this doesn't happen, but the foundation for it already exists.
Ultimately though if I'm reflective on this whole thing I want to stick my head in the sand like everyone else and hope things turn out better on the other side.
Until we get there, stay nimble, and stay healthy!
Looking for value in the overlooked margins of the market.
Just Published: Issue 29 of the Oddball Stocks Newsletter
We just published Issue 29 of the Newsletter. If you are
a subscriber, it should be in your inbox right now. If not, you can sign up right here.
Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, and 27.
We also published a "Highlights Issue" in February. The "Highlights Issue" is available here for purchase as a single Issue. If you have been curious about the Newsletter, this is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.
Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, and 27.
We also published a "Highlights Issue" in February. The "Highlights Issue" is available here for purchase as a single Issue. If you have been curious about the Newsletter, this is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.
Just Published: "Highlights Issue" of the Oddball Stocks Newsletter
We've recently had some new subscribers join the Oddball Stocks Newsletter community. Several of
them have said that they had been reading the OddballStocks.com blog for years (it has been around for
more than a decade) but they did not know what to expect if they subscribed to the Newsletter.
It's understandable. The truth is that there is nothing quite like the Newsletter – especially as we have expanded it over the past two years – and so we have put together a collection of sample pieces from the back catalog to demonstrate what the Newsletter is, or what it hopes to be: topical, philosophical, talking about companies that the market ignores, pounding the table for value investing while grappling with problems like rapacious managements that are consuming value.
The "Highlights Issue" is available here for purchase as a single Issue. If you have been curious about the Newsletter, this is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.
This is a "highlight reel," but it is not a victory lap or a tout of what we have written about. A lot of these highlights are our thinkpieces: on shareholder rights, on banking as a business model, on value investing. There are pieces about companies that got taken out at a premium but also about ones that are trading lower now some years later... of course, those may be the most interesting to pay attention to now. There are two companies – Scheid Vineyards and Enterprise Diversified (formerly known as Sitestar) – where we warned about significant risks that ended up materializing.
If you are a subscriber, the Highlights Issue should be in your inbox right now. (If you are not a subscriber yet, you can sign up right here.) Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, and 27.
Some comments from happy subscribers:
The excerpts were on The Coal Creek Company, Tower Properties, Bank of Utica, small banks, Avalon Holdings, Boston Sand and Gravel, Conrad Industries, and Sitestar / Enterprise Diversified.
Don't miss the recent Oddball Stocks blog posts on: Pico Holdings and the Bank of Utica Annual Report (and investors' reactions to it).
It's understandable. The truth is that there is nothing quite like the Newsletter – especially as we have expanded it over the past two years – and so we have put together a collection of sample pieces from the back catalog to demonstrate what the Newsletter is, or what it hopes to be: topical, philosophical, talking about companies that the market ignores, pounding the table for value investing while grappling with problems like rapacious managements that are consuming value.
The "Highlights Issue" is available here for purchase as a single Issue. If you have been curious about the Newsletter, this is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.
This is a "highlight reel," but it is not a victory lap or a tout of what we have written about. A lot of these highlights are our thinkpieces: on shareholder rights, on banking as a business model, on value investing. There are pieces about companies that got taken out at a premium but also about ones that are trading lower now some years later... of course, those may be the most interesting to pay attention to now. There are two companies – Scheid Vineyards and Enterprise Diversified (formerly known as Sitestar) – where we warned about significant risks that ended up materializing.
If you are a subscriber, the Highlights Issue should be in your inbox right now. (If you are not a subscriber yet, you can sign up right here.) Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, and 27.
Some comments from happy subscribers:
- "You need to raise the price!"
- "I think you guys are selling yourself short on your company visits. Saying that you are visiting or reporting from a company in your marketing, doesn’t give justice to the insight and analysis you are providing."
- "The quality of the writing (even including your new contributors) is really top-drawer."
- "Great newsletter! - you guys are either providing too much info or not charging enough..."
The excerpts were on The Coal Creek Company, Tower Properties, Bank of Utica, small banks, Avalon Holdings, Boston Sand and Gravel, Conrad Industries, and Sitestar / Enterprise Diversified.
Don't miss the recent Oddball Stocks blog posts on: Pico Holdings and the Bank of Utica Annual Report (and investors' reactions to it).
Small Bank Investors React to the Bank of Utica Annual Report $BKUT $BKUTK
We posted the Bank of Utica annual report for 2019 yesterday. Here are some investors' reactions:
How does a banker buy $86MM worth of stocks for his own bank’s account and neglect his own bank’s shares trading for 45% of book value? $BKUT $BKUTK— Phil Timyan (@TimyanBankAlert) February 16, 2020
Has he no faith in himself?
I spend way too much time railing on second and third generation bankers who are very poor stewards of shareholders’ capital.— Phil Timyan (@TimyanBankAlert) February 16, 2020
Gates Little $SRNN
Chevis Swetman $PFBX
Tom Sinnott $BKUT
John Demyan $GLBZ
But by owning their stocks I am also being a poor steward of my own capital.
Repurchases are a win-win yet they still don’t undertake them. The Sinnotts gain a higher stake in the company and reduce pesky shareholders meanwhile the balance sheet gets optimized for better returns. I think I’ll be moving on to greener pastures.— Shadowridge Value (@Shadow_Value) February 16, 2020
— Shadowridge Value (@Shadow_Value) February 2, 2020
Shareholder letters from Tom Sinnott @ $BKUT Bank of Utica are always cringeworthy. @MidwestHedgie pic.twitter.com/8Wzk2uGYls— Phil Timyan (@TimyanBankAlert) March 16, 2019
Bank of Utica - 2019 Annual Report
Most Oddball investors will know about Bank of Utica. We've talked about it before on the blog and in the Newsletter.
We just received their 2019 annual report in the mail, included below. More detailed analysis and commentary will be in the March Issue of the Oddball Stocks Newsletter.
We just received their 2019 annual report in the mail, included below. More detailed analysis and commentary will be in the March Issue of the Oddball Stocks Newsletter.
Bank of Utica - 2019 Annual Report by Nate Tobik on Scribd
PICO Holdings, Inc.
In Issue 14 of the Oddball Stocks Newsletter, we had a writeup by Nick Bodnar about an Oddball company called PICO Holdings. There was an activist campaign, a special dividend, and the board of directors of the company is now in much stronger hands - and it is in liquidation mode.
In the past, we have described PICO as a "rare Oddball that combines a sum-of-the-parts cheapness, a catalyst, appropriate management incentivization (bonus formula of a time value of money charge against invested capital), and even ongoing share repurchases." As they have disclosed,
In Oddball Stocks Newsletter Issue 24, we published an extensive piece on PICO Holdings, and have written other updates subsequently. If you are curious about PICO Holdings and you are not already an Oddball Stocks Newsletter subscriber, a back issue of Issue 24 would be a research starting point. (Don't miss our most recent Issue 28 and other back Issues, either!)
In the past, we have described PICO as a "rare Oddball that combines a sum-of-the-parts cheapness, a catalyst, appropriate management incentivization (bonus formula of a time value of money charge against invested capital), and even ongoing share repurchases." As they have disclosed,
Any significant additional monetization proceeds [are] anticipated to be returned to shareholders through tender offer, and/or open market repurchases, and/or special dividends depending on facts and circumstances existing at the time of monetizationThe executives of the company are incentivized to wind down the company with a bonus formula that provides for a time value of money charge against invested capital. Yesterday (January 31st), PICO put out a press release with an update on its share repurchase program:
PICO Holdings, Inc. (Nasdaq: PICO) announced today that its Board of Directors has approved the repurchase of up to an aggregate of $100 million of its common stock which would be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market, as capital becomes available.We also saw an interesting (provocative) comment on this announcement on the Corner of Berkshire and Fairfax message board:
The Company's Board of Directors had previously authorized in November 2015 an aggregate of $50 million for its stock repurchase program and to date the Company has repurchased 3,494,443 shares for approximately $38.9 million.
Lost amongst the pandemonium Friday after the close PICO announced and expansion of its share repurchase program. PICO is a bad investment and basically a slow liquidation play at best, but they've been remarkably consistent repurchasing their shares at prices averaging mid 10s and even 11s. With firepower authorization equal to basically half of the current market cap and ~$60M remaining plus a lot of bag holders with no interest selling shares around here, buying at/around/under $10 seems like a pretty reasonable and safe trade, even if its only for a few percent back to this mid 10s. This has no correlation to all the current hysteria either, and really only relies on the continuance of the status quo in Vidlers core markets.We do not know what makes this particular commenter believe that PICO is a bad investment, although there are certainly risk factors. The biggest concern with PICO would seem to be that its investment in the 35 mile long water pipeline from Fish Springs Ranch to Reno, Nevada needs new home development there in order to be monetized, and as they say: "To date, we have sold only a small amount of the water credits, and we cannot provide any assurance that the sales prices we may obtain in the future will provide an adequate economic return, if at all."
In Oddball Stocks Newsletter Issue 24, we published an extensive piece on PICO Holdings, and have written other updates subsequently. If you are curious about PICO Holdings and you are not already an Oddball Stocks Newsletter subscriber, a back issue of Issue 24 would be a research starting point. (Don't miss our most recent Issue 28 and other back Issues, either!)
Oddball Stocks Newsletter Excerpt: The Coal Creek Company
Here is another sample piece from the Oddball Stocks Newsletter. This is
an excerpt from Issue 25, published in June 2019, about The Coal Creek Company (CCRK).
Coal Creek shares have declined and are currently trading at the same level they were in the summer of 2006.
Coal Creek shares have declined and are currently trading at the same level they were in the summer of 2006.
ODN 25 - CCRK by Nate Tobik on Scribd
You can subscribe here to the Oddball Stocks Newsletter, and we also have some a la carte samples of back issues available.
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