Seth Klarman – The Price You Pay Protects Your Downside – Here’s How

Johnny HopkinsSeth Klarman Comments

(Image Source, Investopedia, investopedia.com/news/who-seth-klarman, [Accessed 19 Mar, 2017])

One of our favorite investors here at The Acquirer’s Multiple – Stock Screener is Seth Klarman.

Klarman is a value investing legend who runs The Baupost Group, one of the largest hedge funds in the U.S. He also wrote one of the best books ever written on investing called Margin of Safety. Such is the popularity of Margin of Safety that at the time of writing there are 15 used copies selling for $940 and 6 new copies selling for $1500.

I was recently re-reading Klarman’s 1999 Baupost Shareholder Letter in which he discusses the importance of not overpaying in order to protect your downside.

Here’s an excerpt from that letter:

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Howard Marks – Investors Develop Amnesia In The Sharemarket – Here’s Why

Johnny HopkinsHoward Marks Comments

One of our favorite investors at The Acquirer’s Multiple – Stock Screener is Howard Marks.

Howard Marks is Chairman and Co-Founder of Oaktree Capital Management, the world’s biggest distressed-debt investor. He’s known in the investment community for his “Oaktree memos” to clients which detail investment strategies and insight into the economy, and in 2011 he published the book The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

One of our favorite memos is his May 2005 piece where Marks discusses why investors develop amnesia when it comes to share-market history. It’s a must read for all investors.

Here’s an excerpt from that memo:

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Tweedy Browne – Focus On The Knowable While Protecting Mightily Against The Unknowable

Johnny Hopkinstweedy browne Comments

One of the value investing firms we follow closely at The Acquirer’s Multiple – Stock Screener is Tweedy, Browne Company LLC (Tweedy Browne).

Tweedy Browne, a successor to Tweedy & Co., was first established by Forrest Birchard Tweedy in 1920 as a dealer in closely held and inactively traded securities. The firm’s 95-year history is grounded in undervalued securities, first as a market maker, then as an investor and investment advisor. The firm’s investment approach derives from the work of the late Benjamin Graham, co-author of the first textbook on investment research, Security Analysis (1934) and author of The Intelligent Investor (1949). Graham, through his investment firm Graham-Newman Corp., was one of the firm’s primary brokerage clients in the 1930s, 1940s, and 1950s. It was through Graham that the original partners of the firm developed brokerage relationships with investment legends Walter Schloss and Warren Buffett, and met Tom Knapp, who joined the firm in 1957 from Graham-Newman and led its conversion from broker to investor.

One of the best free resources available to value investors is the company’s annual reports and shareholder letters. In the March 2016 Annual Report I found the following gem from the Directors of Tweedy Browne which highlights the importance of knowing what you know (in investing) and protecting against what you don’t, using a quote from Benjamin Graham.

Here’s and excerpt from that letter:
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Undervalued InterDigital, Inc, Well Positioned For Growth In 5G And The IoT

Johnny HopkinsIDCC, Stocks Comments

One of the cheapest stocks in our All Investable – Stock Screener is InterDigital, Inc. (NASDAQ:IDCC).

InterDigital Inc (InterDigital) designs and develops advanced technologies that enable and enhance wireless communications and capabilities. Since 1972, InterDigital engineers have designed and developed a wide range of innovations that are used in digital cellular and wireless products and networks, including 2G, 3G, 4G and IEEE 802-related products and networks. The company is a leading innovator in the wireless communications industry and a recognized thought leader in 5G and the IoT technology.

A quick look at the company’s share price (below) over the past twelve months shows that the price is up 59% to $85.45 compared to March 2016. That is 17% off its 52 week high of $102.30.

(Source, Google Finance)

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Seth Klarman – Value Investing Doesn’t Apply Only To U.S. Companies

Johnny HopkinsSeth Klarman Comments

(Image Source, Investopedia, investopedia.com/news/who-seth-klarman, [Accessed 12 Mar, 2017])

One of our favorite investors here at The Acquirer’s Multiple – Stock Screener is Seth Klarman.

Klarman is a value investing legend who runs The Baupost Group, one of the largest hedge funds in the U.S. He also wrote one of the best books ever written on investing called Margin of Safety. Such is the popularity of Margin of Safety that at the time of writing there are 15 used copies selling for $940 and 6 new copies selling for $1500.

I was recently re-reading Klarman’s 1997 Baupost Shareholder Letter in which he discusses why value investing doesn’t apply only to U.S. companies.

Here’s an excerpt from that letter:

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Warren Buffett – Wall Street Makes Billions From Wealthy Investors With A ‘Superiority Complex’

Johnny HopkinsWarren Buffett Comments

(Image Source, Huffington Post, http://www.huffingtonpost.com/john-g-taft/the-warren-buffett-effect_b_5577685.html, [Accessed 8 Mar, 2017])

One of our favorite investors at The Acquirer’s Multiple – Stock Screener is Warren Buffett, and one of the best resources for any investor are the Berkshire Hathaway Inc. Shareholder Letters. In his 2016 letter Buffett explains how Wall Street firms generate billions from wealthy investors with a ‘superiority complex’. It’s a must read for all investors.

Here’s an excerpt from that 2016 letter:

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Undervalued Vectrus Inc, FCF/Price Yield 15%, Solid Prospective Pipeline and Backlog

Johnny HopkinsStocks, VEC Comments

One of the cheapest stocks in our All Investable – Stock Screener is Vectrus Inc (NYSE:VEC).

With a market cap of $240 million, this micro-cap remains undiscovered by a lot of investors and too small for investment by large institutions.

Vectrus provides infrastructure asset management, information technology and network communication services, and logistics and supply chain management services to the U.S. government worldwide. Its main business is providing base operations, logistics, information and communications services to the military.

A quick look at the company’s share price (below) over the past twelve months shows that the price is up 12% to $22.36 from $20.53 in March 2016. That is 36% off its 52 week high of $34.98.

(Source, Google Finance)

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(Month 5) – Up 12% – TAM Deep Value Stock Portfolio

Johnny HopkinsTAM Portfolio Money Game Comments

Firstly, sorry about the delay in getting this month’s update to you.

Today is the end of month five of The Acquirer’s Multiple $45,000 – Deep Value Stock Portfolio – Real Money Game, and the portfolio is up 12% since inception.

The Deep Value Stock Portfolio – Real Money Game means I’m investing my entire superannuation valued at $45,000 into a real life Acquirer’s Multiple Portfolio and documenting it here.

The plan is to build my portfolio over the next twelve months and ongoing. After twelve months I’ll have thirty stocks equally weighted in the portfolio, then I’ll re-balance each position after one year and one day to minimize tax.

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Warren Buffett – Bubbles Happen When Price Action Overtakes Common Sense

Johnny HopkinsWarren Buffett Comments

(Image Source, Huffington Post, http://www.huffingtonpost.com/john-g-taft/the-warren-buffett-effect_b_5577685.html, [Accessed 7 Mar, 2017])

One of our favorite investors at The Acquirer’s Multiple – Stock Screener is Warren Buffett.

I recently re-read an awesome interview that Buffett did with the Financial Crisis Inquiry Commission back in 2010, where the commission was charged with the task of understanding the causes behind the 2009 financial crisis. Part of this interview includes Buffett’s thoughts on what causes such bubbles. It’s a must read for all investors.

Here’s an excerpt from that interview:

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Michael Mauboussin – Common Mistakes Even Smart Investors Make

Johnny HopkinsMichael Mauboussin Comments

(Image Source, YouTube.com, [Accessed 5 Mar, 2017])

One of our favorite investors here at The Acquirer’s Multiple – Stock Screener is Michael Mauboussin.

Mauboussin is the Managing Director and Head of Global Financial Strategies at Credit Suisse. He’s also written three books, he’s been an adjunct professor of finance at Columbia Business School since 1993, and received the Dean’s Award for Teaching Excellence in 2009.

One of my favorite Mauboussin interviews was one he did with Barbara Kiviat at Time back in 2009 where he discusses how investors, like any other group of people, are prone to make mistakes that stem from faulty approaches to decision-making.

Here’s an excerpt from that article:
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Robert Robotti – DCF Should Be Renamed The “Deliberate Certainty Fabricating” Model

Johnny HopkinsRobert Robotti Comments

(Image Source, YouTube.com, [Accessed 5 Mar, 2017])

One of our favorite investors at The Acquirers Multiple – Stock Screener is Robert Robotti.

Robotti is the President and Chief Investment Officer of Robotti & Company. Robotti & Company has been in the securities business since 1983.  Robotti specializes in identifying undervalued securities often in cyclical businesses that are cyclically depressed. He prides himself on a disciplined bottom-up approach and holds a BS from Bucknell University and an MBA in Accounting from Pace University. Some of his areas of coverage include Special Situations, the Energy Industry and Home Building.

One of our favorite Robotti interviews was one he did with Value Investor Insight earlier this year. It’s a must read for all value investors.

Here’s an excerpt from that interview:

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Undervalued Micro-Cap Network-1 Technologies Inc, FCF/EV Yield 134%

Johnny HopkinsNTIP, Stocks Comments

One of the cheapest stocks in our Small & Micro Cap – Stock Screener is Network-1 Technologies Inc (NYSEMKT:NTIP).

With a market cap around $89 million, very few investors have ever heard of this great little company. Network-1 Technologies Inc (Network-1) has a remarkable record of taking on and beating technology behemoths like Apple and Microsoft in court.

Network-1 is engaged in the development, licensing and protection of its intellectual property assets.  The company presently owns twenty-eight (28) patents including, The Remote Power Patent, The Mirror Worlds Patent Portfolio, The Cox Patent Portfolio, and The QoS Patents.

A quick look at the company’s share price (below) over the past twelve months shows that the price is up 104% to $3.80 from $1.86 in March 2016. That is 10% off its 52 week high of $4.15, but closer inspection shows that the stock remains undervalued.

(Source, Morningstar)

Network-1 is a great little company with a impeccable record of winning litigation settlements against tech heavyweights Apple, Microsoft and Dell. With a market cap of $89 million the company is way too small for most institutions with just 10% institutional ownership. Network-1 clearly has a good eye for acquiring the right patents to add to its portfolio. Recent favorable settlements have included Apple ($25 million), Dell ($6 million) and Alcatel and ALE USA Inc. ($1.9 million). Current litigation with Google and YouTube is also proceeding well.

In terms of its patent runway, Network-1 has recurring revenues from quarterly or annual royalties associated with the company’s Remote Power Patent which expires in March 2020. It is reasonable to expect that these revenues will be further boosted by favorable court rulings against the four remaining defendants for infringement of the company’s Remote Power Patent.

Add to this the October decision by the PTAB in favor of Network-1 regarding the company’s Cox Patent Portfolio. The PTAB ruled that Google had failed to show that any of the thirty-four (34) claims of U.S. Patent 8,904,464 were unpatentable. The company continues to grow its patent portfolios highlighted by the February 2017 announcement that Network-1 had received a new patent from the U.S. Patent Office expanding its Cox Patent Portfolio to seventeen patents.

The company is an extremely low cost operation with a strong balance sheet and ability to generate a loads of free cash flow. A quick look at the Network-1’s balance sheet ending September 2016 shows that Network-1 had cash and cash equivalents of $59 million and zero debt. If you could buy the entire company at its current market cap of $89 million and you would get $59 million in cash and cash equivalents.

In terms of Network-1’s valuation. The company is currently trading on a FCF/Price Yield of 45% (ttm), a FCF/EV Yield of 134% (ttm) and an Acquirer’s Multiple of 2.62, or 2.62 times Operating Earnings*. Add to this the company’s P/E of 3.72, a P/B of 1.7 and a P/B of 1.44 and Network-1 remains clearly undervalued despite the 104% growth in the company’s share price over the past twelve months.

You can read our full stock analysis on Network-1 at ValueWalk here.

Buffett scorns tricky Wall Street accounting, but defends buybacks

Johnny HopkinsWarren Buffett Comments

(Image Source, Huffington Post, http://www.huffingtonpost.com/john-g-taft/the-warren-buffett-effect_b_5577685.html, [Accessed 1 Mar, 2017])

One of our favorite investors at The Acquirer’s Multiple is Warren Buffett.

I just read a great article on Reuters where Buffett shares his thoughts on two things; corporate America’s misuse of GAAP accounting principles, and share re-purchases.

Here’s an excerpt from that article:
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Seth Klarman – Margin of Safety – Trading Sardines and Eating Sardines

Johnny HopkinsSeth Klarman Comments

(Image Source, Investopedia, http://www.investopedia.com/news/who-seth-klarman, [Accessed 28 Feb, 2017])

One of our favorite investors here at The Acquirer’s Multiple is Seth Klarman. Klarman wrote one of the best books ever written on investing called Margin of Safety. Such is the popularity of Margin of Safety that at the time of writing there are 12 used copies selling for $1349 and 6 new copies selling for $1779.

One of my favorite parts of his book focuses on what he calls, Trading Sardines and Eating Sardines: The Essence of Speculation.

Klarman writes when purchasing stocks, “You may find a buyer at a higher price—a greater fool—or you may not, in which case you yourself are the greater fool.”

Here’s an excerpt from Klarman’s book, Margin of Safety, in which he discusses the importance of doing your homework and avoiding speculation when it comes to investing:

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Howard Marks – Random Thoughts on the Identification of Investment Opportunities

Johnny HopkinsHoward Marks Comments

(Image Source, CNBC, http://www.cnbc.com/2014/12/19/howard-marks-oil-prices-expose-debts-weaknesses.html. [Accessed 27 Feb. 2017])

One of our favorite investors at The Acquirer’s Multiple is Howard Marks.

Howard Marks is Chairman and Co-Founder of Oaktree Capital Management, the world’s biggest distressed-debt investor. He’s known in the investment community for his “Oaktree memos” to clients which detail investment strategies and insight into the economy, and in 2011 he published the book The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

One of our favorite memos is his January 1994 piece where Marks discusses his Random Thoughts on the Identification of Investment Opportunities. It’s a must read for all investors.

Here’s an excerpt from that memo:

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Undervalued Ternium SA (ADR) Well Positioned For Growth With Its CSA Acquisition

Johnny HopkinsStocks, TX Comments

One of the cheapest stocks in our all All Investable – Stock Screener is Ternium SA (ADR) (NYSE:TX).

Ternium is a leading steel producer in Latin America, with an annual production capacity of approximately 11.0 million tons of finished steel products. The company manufactures and processes a broad range of value-added steel products for customers active in the construction, automotive, home appliances, capital goods, container, food and energy industries. With production facilities located in Mexico, Argentina, Colombia, the southern United States and Guatemala, Ternium serves markets in the Americas through its integrated manufacturing system and extensive distribution network. In addition, Ternium participates in the control group of Usiminas, a Brazilian steel company.

A quick look at the company’s share price over the past twelve months (below) shows that the stock has risen 109% to $26.30 just 7% off its 52 high of $28.04.

(Source, Google Finance)

While the twelve month rise in the company’s share price has been phenomenal, closer inspection shows the company still remains undervalued.

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