(Ep.100) The Acquirers Podcast: Jim Royal – Thrift Conversion, The Zen Of Thrift Conversions, Small Bank Stocks And Activism

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In this episode of The Acquirers Podcast Tobias chats with Jim Royal Ph D. He’s the author of The Zen of Thrift Conversions: How To Turn Hidden Bank Stocks Into Big Gains. During the interview Jim provided some great insights into:

  • Understanding Thrift Conversions
  • Thrifts – Supercharge Your Returns By Getting Top Professionals To Work For You For Free
  • The Zen of Thrift Conversions
  • Thrift Conversions Are Classic Value Investing
  • Valuing Thrifts
  • Spinoff Investing Today
  • What Drives Smaller Thrifts To Convert
  • Activism In Underperforming Thrifts
  • Peter Lynch – Hidden Cash In The Drawer Trick
  • Where Do Thrifts Come From
  • Discovering Thrift Conversions
  • Thrifts Are Worth More Dead Than Alive
  • Appearing On Jeopardy

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Full Transcript

Tobias: Hi, I’m Tobias Carlisle. This is The Acquirer’s Podcast. My special guest today is Jim Royal. He’ll be talking about his book, The Zen of Thrift Conversions: How To Turn Hidden Bank Stocks Into Big Gains. It’s an absolutely fascinating discussion about how you find these things, how you analyze the opportunity, who you should follow, and how to take advantage of what they do through the whole lifecycle, from the demutualization or the conversion to a public company through the IPO, to the sale. I’ll be talking to Jim right after this.

Appearing On Jeopardy

Tobias: Tell me about Jeopardy.

Jim: Yeah. I had really been trying to get on there for years and years and years. In fact, in 2007, I qualified for their audition. They finally started doing them around 2005, they started doing them online. I was like, “This is perfect.” If you were in LA, it was great, because you could just go to their open audition and things like that, and take the test and whatnot. Finally, they started doing them online.

It was great for somebody like me, who lived in Florida, and they did it once a year. I qualified like early on 2007, couldn’t go, because I was actually on my honeymoon. I had to skip the audition. Then, I got another callback in 2011, got another callback in 2014 or 2015, then got a callback in 2018. That finally led to getting on the show. But really, I wanted something to do since the 80s. [laughs]

Tobias: How was the experience?

Jim: Yeah, it was absolutely a blast. Meeting Trebek was of course the highlight.

Tobias: The legend.

Jim: Yeah, I was done last– so they do five tapings a day, so I get to see all the shows that would air that week, and then I was the Friday show. Yeah, it was a blast. You get up there and 20 minutes later, it’s done. It goes by so quick that you don’t even realize, it’s, “Oh, we’re already halfway through?” They’re taking a commercial break. It was so much fun though. I was glad that I got to stay the whole day and see everything, just absorb it all. Yeah, and it’s unfortunate, I would say, how it worked out for me.

Tobias: What question sunk you?

Jim: Oh, it was really one of my worst categories. It was female singers mononymous, one-name female singers. That’s how– on my Twitter handle, I’ve got that pinned at the top.

Tobias: Yeah, I see– [crosstalk]

Jim: Basically, at that point, I had about 45% or so, closing in on 50% of the money of the leader. I know there’s one more double Jeopardy out there, I’ve got to try to get it. I’m hunting around to try to get it. I do get it. I’m like, “All right, this is the time. I’ve got to bet it all now to have any shot of winning.” I do. To me, that’s the way you play the game. You use those other non-trivia elements to try to compensate or try to accelerate the performance.

It just didn’t work out. There was another question about steel. If it had been about a steel company, I would have nailed it. But no, it had to be about really my worst category. That’s what it was. But it’s been an absolute blast and super fun, and just really glad I finally got the opportunity to do it.

Tobias: The answer was Adele, right? What was the question?

Jim: Exactly. It was basically something like, “This singer said I don’t want to look like– I’m happy with how I look. I don’t want to look like– because I represent everyday women.”

Tobias: Yeah, that’s– [crosstalk]

Jim: One of the strange things though, I mentioned is that watching it three months later when it actually aired, I was like, “I don’t know the answer to that question.” There I am on screen answering the question right. I’m forgetting, you’re just so zoned in. You’re just super focused, and so it was stuff sometimes come to you that you even know you know.

The Zen of Thrift Conversions

Tobias: You’ve written a book, this is why we’re chatting, also because we’ve known each other for a little while via Twitter. I’ve always been a big fan of your special situations approach, but your book is, I’m just holding up to the camera now. It’s The Zen of Thrift Conversions, I’ve been searching for the Zen in the art of thrift conversions over and over again, but I found it. It’s The Zen of Thrift Conversions. What prompted you to write an entire book about thrift conversions?

Jim: Yeah. The thing was is– ultimately, it’s multiple impulses here. Basically, one is, there’s no book out there about it.

Tobias: I’m shocked.

Jim: Yeah. It’s been a special situation for 30 years. There’s nothing really out there comprehensively discussing it. It was, I think, an opportunity to collect all the knowledge of about it, about how to do it in one place, and really, the book is so much a practical guide about how to do it. Here’s what it is, here’s the structure, here’s why it creates value, here’s why you have an opportunity.

Also, let’s hear from what the investing greats have said about it, Klarman and Peter Lynch previously in some of their writings, and then let’s look at the guys who dominate the activist investors who dominate the space. You get this comprehensive picture about thrift conversions, how to do them, how to make money, what to watch out for, etc.

For me, it took me probably 10 years before I stumbled onto thrift conversions. It’s really backwater of the market. I finally got there, like, “Hey, these are really interesting.” These are really low-risk plays with some medium– at least medium upside here, and sometimes high, depending on pricing. I thought, “Hey, this is a great opportunity. Why did it take me 10 years to catch on to this?” It’s really written for somebody who’s not familiar with these to try to get them up to speed, it’s really a crash course on how they work.

Understanding Thrift Conversions

Tobias: Well, why don’t we start at the start? What is a thrift conversion?

Jim: [chuckles] Yeah. A thrift conversion, basically, you have this whole class of banks that are mutually owned. They’re owned by their depositors. They’re really private banks, there’s about a little more than 450 of them left in the US today. Previously, there were more than 1000. Its owned mutually by the depositors, and at least in theory, legally, they own the capital in that business, but that really doesn’t mean very much. They don’t get to access it.

They really don’t have a lot of say in how it’s used or anything. For all intents and purposes, really nobody owns the bank. What happens is basically these banks then go public. It’s a recapitalization transaction, and the depositor-owners get to subscribe in the IPO offering. Usually, it’s mostly restricted to the depositors who can participate in the IPO.

Actually, it’s a really great setup, as you can imagine, the depositors are really selling it back to themselves. Management is on board. The economics are tremendously favorable here, because in many cases, you’ve got an already profitable bank, usually it’s got plenty of capital already. And then they add more capital into it. Basically, shareholders who participate in these get a bunch of capital in their bank for free, which is to say they get to buy an overcapitalized bank usually at a below tangible book price. It’s hard to go wrong ultimately.

Tobias: Is it a matter of they’re using it as customers of the bank– they’re using it because they want to take advantage of the services, then they get given the shares and then they’re not necessarily, they just view that as found value and they tend to just sell them and grab it at the time. It’s a little bit like a spinoff where folks aren’t necessarily interested in holding it. Is that what creates the opportunity?

Jim: There’s definitely some of that because a lot of the depositors in these banks really don’t know a lot about this. Plenty do, so I don’t want to sort of paint too broad a brush here, because there’s a lot of investors who do put their deposit their money in the mutual and then try to participate in the IPO, but there’s plenty who don’t. Plenty are just in there for the first-day pop if you get them 15% to 20% upside, and then they’re just gone, and they’re not interested.

I think that there’s really two aspects to this. The first is, there’s an alignment between insiders and outsiders here. Basically, you’re buying on the same terms as the insiders, because in a traditional IPO, what you’ve got is a bunch of insiders selling to outsiders, either their own shares or raising new capital. That’s not the situation in a thrift IPO because, in some sense, effectively, nobody kind of owns it. You’ve got different motivations.

The insiders, those are the bank insiders who are participating, are participating on the same terms as the outside shareholders. You don’t have that same sort of inside-outside dynamic that you have in a traditional IPO. They’re also interested, as you might imagine, as we see in other spinoff realms, where they’re interested in giving themselves cheaper options, and things like that, which you’ve got here, they’ve got their thumb on the scale a little bit in terms of valuation. There’s a nice setup there where they can keep the valuation a little bit lower. That’s the first part.

Peter Lynch – Hidden Cash In The Drawer Trick

The second part here, though, is really it’s because a lot of the value comes from, you’ve got this inaccessible capital so that when I put up new capital, I then suddenly get access to this previously, untouchable capital. I’m just really being given free money as the bank. Peter Lynch calls this ‘the hidden cash in the drawer trick’ basically. You buy a house, and then you go in, and you’ve got your purchase price back in cash in a kitchen drawer in the house. That’s the sense in which there’s free money here. To conceptualize it a little bit differently, the bank basically promises to give you that access to that capital if you put up a little bit more, so you’re always getting something in excess of what you put in.

Tobias: To summarize, the inside is unlike a normal IPO, where the insiders are trying to get the highest price they possibly can. These insiders, because they want to participate because they’re basically employees becoming owners, they want to participate, they’re also interested in keeping the price low, so they’re sandbagging a little bit. Who ends up control– does there ever end up being a big, concentrated controlling shareholder or is it a very dispersed shareholder base?

Jim: Yeah, it tends to be fairly dispersed. There are certain rules on how much management can own. I think it’s around 25%. It usually doesn’t come into play a lot. I mean, one of the things you can see certainly in the prospectus for the offering. You can see how much management has taken down in the offering. You’d love to see, of course, them hitting their maximum. There’s certain maximum thresholds that any shareholder can buy in the offering, and you’d love to see that those 8 or 10 named executive officers just taken down to full allotment.

But yeah, it tends to be pretty dispersed. You’ll get some activists come in, Joe Stilwell, Larry Seidman, Rich Lashley, or others potentially, but those are really the three biggest names, I would say. Sometimes, those guys will buy an 8 or 9 or 9.99% position if they really want to affect change, but they tend to be pretty large shareholders. Then another large shareholder, although it’s a little bit of a different beast, is a pension plan or something like that, or an options plan for employees that might take down 6% or 8% of the stock right out of the offering, but a that tends to be really passive shareholder.

Discovering Thrift Conversions

Tobias: How do you go about hunting for these things? How do you search for them?

Jim: Yeah, multiple ways, I would say. A lot of times, people focus on the specific conversion aspect, but a real part of the value here is later on too. Years one through five is typically when most of these things eventually got bought out. There’s really two key distinct lifecycles here. Really, you can search for these, if you’re looking for S1s or things like that off the EDGAR database.

If you’re looking for the IPOs, to keep those on your radar, and it’s got pricing in there and everything, so you can figure out a range of where it’s going to be priced. Often, these IPOs come off between 60% and 80% of tangible book value. You look for the IPO prospectus, or then you look in the secondary market.

Basically, I follow all of the recent ones, whether it’s IPO or upcoming IPO, or stuff that trades in the public markets on thezenofthriftconversions.com. That’s like a super easy place to go and just see what’s going on. Normally, you have four, five, six, maybe up to 10 IPOs a year. So, it’s not a particularly hectic schedule.

Thrifts Are Worth More Dead Than Alive

Tobias: [laughs] They’re listing these things that 60% to 80% of tangible book value. I know you’ve got a reference on a site to finding these things that are worth more dead than alive. Is that what you’re referring to? Why are they doing that at a discount to tangible book? Surely, you just get it away at book?

Jim: Yeah. It’s really the nature of something being given away for free. How can I charge a tangible book price when I’m giving you something for free on top of it? It’s just a basic– The thing is regulators have struggled with this for years because they don’t want these windfall profits, but there’s almost no way to get around it. I actually go through a little bit of the mathematics very briefly in the book showing how regulators have struggled with this previously.

Again, if I give you something for free, and you pay what looks like a fair price for it, you’ve still got something for free on top of that. You still got the bank’s capital on top of whatever you paid. The mathematics of the valuation just don’t make any sense. To really balance the equation, you have to assume the bank destroys capital. That really just doesn’t happen. It’s just the nature of that transaction, where you get something as a bonus for what you put out.

Valuing Thrifts

Tobias: Let’s say you find one of these opportunities, how do you then size that up? How do you determine whether it’s an interesting opportunity for you? What are you looking for?

Jim: Yeah, so I think, in the book, one of the things I go through is a nine-step checklist to really give you a good first rough cut on whether the thrift looks interesting. If I really had to boil that down to three qualities, I’d look at price to tangible book value, return on equity, and equity to assets. Price to tangible book will give you some sense of what upside you might have.

One of the great things about investing in thrifts is this is not an open-ended growth opportunity. If you sell today, it’s not probably likely to double, but you have some range in which your value is. Based on whatever your buy price is, if you can buy at 70% of tangible book, you know you probably have good upside at least until 100% of tangible book.

Then a lot of these over time, the average multiples of round 140% of tangible book that these get bought out at. It can be relatively easy to calculate your potential returns and potential IRRs here. Price to tangible book is one great quality to look for. Return on equity, you want to see consistent record of profitability here so that they aren’t burning your margin of safety with taking down book value.

Tobias: What sort of returns on equity do they tend to have because I imagine if there are mutual– they’re not necessarily run for profitability? How do you make that translation from mutual to now for profit?

Jim: For some, it’s difficult. In many cases, these banks are raising 150% more capital than they already have. They’re suddenly like, we’ve got all this money, returns on equity plummet. In any case, they’re small, they’re subscale, they’ve got a stretch of fixed costs against a basically small revenue base, small customer base. The returns on equity, a good one might be 5% or 6% in general because you’re dealing with banks that have $250 million in assets, $500 million in assets, maybe sometimes a billion in assets.

They’re just not really upscale, and then I’ll point out the final one, equity to assets is a great metric to look at here because that gives you some idea of how much buybacks they can do, how much excess capital they have in the business.

The equity assets also give an activist who comes in, some room to work with in terms of pushing stock repurchases, which is a really a big tool in the activist playbook, pushing more of that money, either buying back the tangible book, or buying back up to tangible book value, and just getting that money back to shareholders. Of course, then it provides safety, gives you some margin of safety if they write some bad loans or things like that. The equity assets is a great one to look at.

Tobias: What do you look for there? What’s the outer limit of where you feel it’s safe?

Jim: The strange thing is that these banks have a serious problem when they go public. They have ridiculous amounts of cash. It’s really not at all unusual. I’ve got my spreadsheet of thrifts, and you’ve got these new thrifts with easily 15% to 16% equity to assets. It’s not unusual to see them with 20% equity to assets, one that completed its second-step conversion, I think it was last year, has over 30% equity to assets.

When you start getting down to 10 or below, the activist doesn’t have a lot of room to work there, can’t force a big buyback. Even if the company was or management was predisposed to do a buyback, they just don’t have a lot of room to work, a lot of room to manoeuver.

Tobias: Do you spend any time examining the nature of the assets that they have? Is it checking accounts and things like that? Or do you look at the loans that they’ve made against commercial real estate somewhere a bit racy, like Las Vegas or something like that?

Jim: Yeah. If you’re looking at deposits on the liability side, one of the big things is how valuable is that franchise. Definitely looking for– this is one of my nine metrics. You want to see how much is timed deposits versus non-timed deposits. If you’ve got a lot of stuff in checking, savings, money markets, that’s more valuable for an acquirer than your CDs and things like that.

That definitely gives you an idea of how valuable or whether it would be more valuable to an acquirer. Since that’s largely the endgame here, that’s something you want to be aware of. Then, yeah, if you’re looking at assets, so many these are really focused on residential type of stuff, like really plain vanilla kinds of stuff. I admit, that’s a pretty broad brush, but a lot of these thrifts are located in relative– they’ve got one or two or three or four branches, and they’re small rural areas, in some cases, not all, so they don’t usually have particularly, especially risky lending generally.

Activism In Underperforming Thrifts

Tobias: The activists in this space, they’re looking for a big discount to tangible book and then they want very conservative equity assets, and then their playbook is to basically go in and say, “Buy back stock until we hit tangible book or we get to that sort of limit of equity to assets. The three big players, I recognize Joseph Stilwell, because he’s active outside of that. Do you just want to give us a little thumbnail sketch of who they are and how they tend to operate?

Jim: Yeah, sure. I’ll just give a couple broad things. A lot of the activists really go into stocks that are fundamentally mismanaged, and not even necessarily the cheapest things, but the stuff where they can actually have an effect for some good governance. One of the key problems here for activists is you’ve got insiders who haven’t run a public company. They’ve got no experience. The governance is really not very good.

You look at the board of directors, and it’s the CEO’s friends from around town. So, there’s significant governance issues that need to be addressed. Just generally, for many of these guys, the bank, it’s their bank, and they’ve been at the bank for 20 or 25 or 30 years, and they see it as theirs, when it’s actually owned by shareholders. A lot of what the activists go in and do is really have to shake up that mentality.

Seidman basically is the guy who invented activist investing in thrifts back in the 80s, and kind of completely inadvertently. He just got into the activism, inadvertently, which he goes into the backstory in the book, and that’s a great reading, in terms of how he gets into it.

Whether it’s Lashley, or Stilwell, or Seidman, they’re really highly focused on the governance aspects of the bank, and so much of their playbook– It’s not exclusively, but so much is about getting these banks sold, because they’re just really never going to be of scale, make a suitable return on equity, and things like that. Now, you might think, “Hey, why is this an attractive place to invest?” It’s largely because an acquirer can come in and cut a lot of costs and things like that. The value to an acquirer is much more than being reflected in the public markets.

Spinoff Investing Today

Tobias: You’ve been a long-term special situation investor, and anybody who’s read Greenblatt’s book has probably started out doing– some of those strategies have sort of gone out of favor a little bit, possibly because they’ve become so popular and it used to be when there was a spinoff, you bought the spin because that was the orphaned– But I think that management teams got smart to that, and so they really started loading all of the junk into the spin. So, all investors became aware of the opportunity and aggressively bought the spin. What are your special situations? What are you interested in these days besides the thrift conversions?

Jim: I definitely, historically, was more interested in spinoffs, or that’s where I initially approached this from. I think one way, actually, maybe nowadays is you buy pre-spin, and that gives you some optionality on the pricing. If you’ve got a spinoff that comes out overpriced, then basically by nature, you’ve got a parent company if you find it attractive that’s unpriced.

I think there’s some ways to compensate for that dynamic, although maybe not as attractive as it was, you say. As far as things right now that are interesting, I don’t know. I feel like a few years ago, we were getting some really interesting spins, I think of 2015 with the PayPal spinoff, and that’s one actually where we played– we bought early, and then PayPal came off, perhaps– that everybody knew that was the attractive part.

eBay, I think, came off initially a little underpriced, and so you could play that optionality via eBay. We had Cable One a few years ago, which was tremendously attractive. Both PayPal, Cable One are up five times since then. In the recent years, I haven’t found a whole lot that I found interesting.

Tobias: Fiat Chrysler, does that factor into your– Is it too old? Fiat Chrysler was like a pinata for a while. There was some good stuff coming out.

Jim: Right. Yeah, that’s not what I’m super familiar with.

Tobias: Anything else besides spins and thrift conversions?

Jim: Those tend to be the biggest and– I like both of those because they keep happening. We’ve got a cycle of spinoffs, we’ve got a cycle of thrifts. You’ve got those patterns there that you can keep watching for. I do look for others, but a lot of them tend to be a little more idiosyncratic. There’s a specific structural factor that is not as thematic as a spinoff, or not as thematic as a thrift conversion. Those tend to be– I like the structure on it, and I try to get that advantage, that edge when I can, but those, I think, are a little bit more difficult to find.

Tobias: Is it concerning at all that there were 1000 thrifts– I didn’t quite catch the time period, but there were 1000 thrifts a few years ago, now there’s 350, or is this a cyclical thing where they tend to, for whatever reason, they expand and contract over time?

Jim: The 1000 is really, yeah, quite a few years ago. These have slowly been trickling out 2% or 3% of the market every year. There really aren’t mutuals being created exactly. One of the things you’ve got with credit unions, credit unions can convert to mutuals and then ultimately go public that way. That’s one, in fact, quite interesting recent thrift conversion. HarborOne took that approach. In 2015, 2016 or so it converted from the credit union to a mutual, and then went public in two steps over a period of three years. That’s a quite interesting one. That’s another.

There are literally thousands of credit unions out there that could ultimately take this path. It’s a little bit cumbersome because you’ve got to get members to vote on the conversion. One of the things that we’ve seen for a long time is the consolidation in the sector, it just does not make a lot of sense economically to have all these small little banks hanging around. So, if regulators try to push a little bit more, we might see more mutuals and things like that. Should we be worried? Maybe, but there’s still a pretty long runway on thrift conversions as the situation.

What Drives Smaller Thrifts To Convert

Tobias: What about just banking generally? Low-interest rates and flat yield curve kind of makes it hard for them to make money. Is that part of what drives these smaller thrifts to convert?

Jim: The interest rate environment is certainly not helping, and that’s part of it. There’s multiple aspects here too. Compliance costs, whether that’s cost of being listed on the exchange, accounting costs, there’s tech costs that are involved. If you’ve got $250 million in assets, it’s not really feasible for you to continue as a separate entity. One of the things that you’ve seen a little bit behind the scenes here is these thrifts can merge with each other.

Some of what they’re doing is consolidating some of the back-office operations and then the depositors if the bank ultimately does decide to go public, still get a piece of the IPO action there. The cost structure is just really prohibitive for small institutions. The economics of consolidation are really only getting more favorable and so perversely poor operators are actually more attractive buyout targets.

There’s this just strange dichotomy, strange irony there in that situation. You’ve got these really ugly kinds of banks, and that’s not what I call them in the book. I just say these are just ugly banks, but actually, it can make you pretty attractive returns.

Tobias: A bank, or a little thrift that’s generating 5% or 6% on assets, there’s a reasonable argument to be made that that should be trading at a reasonable discount to tangible book value, probably should be 40% or 50% of tangible book value. The opportunity, I guess, is that you see that they can be run much better than they have been, they can be run for profit. Once the insiders start working, in that sense, it becomes a much more attractive opportunity.

Jim: Yeah, absolutely. In many cases, the insiders here are owners. To get this payday as owners, you have to go public, there’s really not a good alternative. You can’t own stock, it’s not a stock corporation. So, you’ve got insiders. The game plan here is well known. If you go public and you’re not running things properly, you’re going to get a knock on your door from Larry Seidman, or Rich Lashley, or Joe Stillwell, or some other guys. “All right, you’ve got to clean it up.” The other aspect is, as I said, they’re owners, and they do have some upside here.

Where Do Thrifts Come From

Tobias: Where do thrifts come from? Why would they have these small things established? Is it a small community that didn’t have some sort of banking function and they just got together as a group and created it?

Jim: Yeah. I mean, just tremendously, it’s a very anachronistic kind of situation. The first one was back almost 200 years ago, I think, in the Massachusetts area, and really you had a bunch of people with capital who could put it up, and help people get started.

Some of it is about civic virtue. We, the wealthy, have some money and we can help other people who are willing to buy [distorted audio [00:37:16] and start a business, and improve [distorted audio [00:37:17] capital for what doing. I think just a sort of a sense of helping the community, and you still got that perspective that lasts through today.

A lot of mutuals also come out of the 20s and 30s. A lot of the charters there are really to make very conservative loans and help consumers buy houses. It’s really about helping the community in a way that may not be always aligned with making money.

Thrifts – Supercharge Your Returns By Getting Top Professionals To Work For You For Free

Tobias: They were looking forward 200 years in the future, where the eight generations– in eight generations, there’s going to be a windfall when you finally convert that checking account into shares in this bank. One of the things that you said that you can do in the book is supercharge your returns by getting top professionals to work for you for free. Are you referring to the activists, or who are you talking about there?

Jim: That’s exactly right. Really, I don’t think there’s a sector in the stock market where activists so dominate as they do in thrifts. The guys I mentioned, Stilwell, Seidman, Lashley very closely are really devoted to this, market to small banks, banking, generally. If you watch the activist campaigns that they’re running when they run them, when they take shares in a bank, those are great opportunities.

If you follow those campaigns, one of the things I do in the book, is discuss specific activist campaigns that I’ve invested in run by these guys. First Financial Northwest, for example, with Joe Stilwell, about 9, 10 years ago. You could follow along with the actions that he took. Ultimately, gets the chairman and CEO ousted from the company. In many cases, you can see really positive developments in the activist campaign and not have to pay for them.

Whether that’s buybacks or getting better governance, or pushing for a sale, these guys really are the bulldogs that don’t let go. They’re just going to hang around until they get a positive resolution. They’re pushing for really the shareholder-friendly moves. You can really ride these guys coattails, and they’re going to direct you to attractive stocks.

Tobias: That’s two of my favorite things, undervalued stocks with an activist involved. I think that that’s a really good way to get some pretty reasonably safe good returns in the market.

Jim: Yeah, exactly. You’ve got an activist who’s getting stock repurchase., and you’re buying below tangible book, and on and on and on. There’s just multiple, multiple ways to win here, I think. In a lot of ways, I think it’s classic value investing.

Thrift Conversions Are Classic Value Investing

Thrift conversions are classic value investing, but I think perhaps, maybe unlike classic value investing, there’s a clear lifecycle in terms of you buy cheap, and then you get that sellout, that acquisition by a rival. There’s a clear endgame or a catalyst to that value that’s well understood. And yet, these things still pop up in the market. As I said, a couple months ago, I was buying a stock at 70% of tangible book value that was consistently profitable and had a ton of equity.

Tobias: Fantastic discussion. Absolutely fascinating. If folks want to follow along with what you’re doing, or get in contact with you, what’s the best way of doing that?

Jim: I would point to two ways. Either Twitter @JimRoyalPhD, I’m all on Twitter and tweeting out thrift IPOs when they happen. But then, also at thezenofthriftconversions.com. I’ve got spreadsheets that super accessible so you can follow what’s out there. Even if you want to participate by depositing money in the thrift before it goes public, you can access the mutuals and see which ones are in your state and which ones you might be able to participate in.

Tobias: I’ll link all of that up in the show notes so folks can follow along. James Royal, PhD. Thank you very much.

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