How to Value a Company and, Everyone Should go Shark Fishing [metaphor] – Mario Gabelli

Johnny HopkinsMario Gabelli, Research, Resources Comments

(Image Credit, wsj.com)

If you follow this blog regularly, you’ll know that I’m a big fan of The Columbia Business School and their student newsletters.

These newsletters are an awesome resource for value investors. Every newsletter contains a number of interviews with some of the smartest value investors on the planet.

One of my favorite investors and a past student of Columbia is Mario Gabelli.

Mario Gabelli CFA, started his career as an automotive and farm equipment analyst at Loeb Rhodes & Co. In 1977 he founded GAMCO Investors (NYSE: GBL), where he’s currently Chairman and CEO, as well as a portfolio manager and the company’s largest shareholder. GAMCO now manages roughly $36 billion dollars across open and closed-end mutual funds, institutional and private wealth management, and investment partnerships.

So, I think he’s worth listening to!

He was interviewed in the Fall 2011 newsletter. Let’s see what he has to say…

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How to Succeed in Investing, and Why You Shouldn’t Listen to Analysts – James Chanos

Johnny HopkinsJames Chanos, Research, Resources Comments

I recently read an interview with James Chanos, which was conducted by The Heilbrunn Center for Graham & Dodd Investing, in the Spring of 2012.

James Chanos is the founder and Managing Partner of Kynikos Associates, a firm he founded in 1985. Throughout his career, Chanos has identified and sold short the shares of numerous well-known corporate financial disasters; among them, Baldwin-United, Boston Chicken, Sunbeam, Conseco and Tyco International. His most celebrated short-sale of Enron shares was dubbed by Barron’s as “the market call of the decade’. He’s also been a Lecturer in Finance at Yale School of Management.

So in short, he’s a really smart guy.

I was particularly interested in his views on what skills are essential to succeed in investing and his thoughts on analysts.

Lets see hat he has to say…

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How do we hand-pick the 90 best Deep Value Stocks for our Screens

Johnny HopkinsResearch, Resources, Stock Screener Comments

(Image Credit, www.123rf.com)

One question we always get asked is, how to we hand-pick the 90 best Deep Value Stocks for our screens?

Hand-picking the 90 best Deep Value opportunities from 1000’s of stocks is like trying to find a needle in a haystack but, we know that historically once they’re found, these stocks provide investors with great opportunities for out-performance.

We use a valuation ratio called The Acquirer’s Multiple® to find attractive takeover candidates.

This ratio examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization.

The Acquirer’s Multiple® is calculated as follows:

Enterprise Value / Operating Earnings*

* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.

It ‘s based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by the Founder of this site, Tobias Carlisle.

Lets take a look at how we do it…

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50 of the Best Value Investing Resources (plus a few more)

Johnny HopkinsResources Comments

(Image Credit, whytoread.com)

People always ask me, what are my favorite investing resources. Things like articles, videos, bloggers, books etc.

So today I’ve put together a list of 50+ investing resources that I’ve found very useful on my investing journey. It’s by no means complete but, it will give you a great starting point if you’re looking for good information to help you on your value investing journey.

Categories include:

  • Letters, Papers, Memos, Articles
  • Bloggers
  • Podcasts
  • Books
  • Resources
  • Videos
  • Tools

Let’s take a look…

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FreightCar America, Inc. trading at a discount to its tangible book value $RAIL

Johnny HopkinsStocks Comments

Last week FreightCar America, Inc (NASDAQ:RAIL) released its Q2 2016 quarterly report.

FreightCar is a diversified manufacturer of railcars and railcar components. The company designs and manufactures a broad variety of railcar types for transportation of bulk commodities and containerized freight products primarily in North America, including open top hoppers, covered hoppers and gondolas along with intermodal and non-intermodal flat cars.

Lets take a closer look at its performance…

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There are three central elements to a value-investment philosophy – Part 1 – Seth Klarman

Johnny HopkinsResearch, Resources, Seth Klarman Comments

(Image Credit, advisoranalyst.com)

One of the best books on investing is Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investorby Seth Klarman.

According to Forbes:

Investing legend Seth Klarman runs Boston-based firm Baupost. With $27 billion under management, Baupost is one of the largest hedge funds. It posted small losses in 2015. An avid philanthropist, his foundation’s assets hit $350 million as of the latest public filing. An admirer of Warren Buffett, Klarman is seen as an expert in value investing. His book “Margin of Safety,” a cult classic among investors, sells for as much as $4,000 on Amazon.

One of the best chapters in this book is Chapter 7 – At the Root of a Value-Investment Philosophy.

Chapter 7 covers his three central elements to a value-investment philosophy.

The article is Part 1 in the series, There are three central elements to a value-investment philosophy.

Seth Klarman writes:

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Lame and boring value stocks outperform ‘glamour’ stocks – Patrick O’Shaughnessy

Johnny HopkinsPatrick O’Shaughnessy, Research, Resources Comments

Another one of my favorite bloggers is Patrick O’Shaughnessy. Patrick is a CFA and portfolio manager at O’Shaughnessy Asset Management. He also has an awesome blog called The Investors Field Guide which is a must read for all investors.

Last year he did an excellent piece on the comparative performance between value stocks and glamour stocks called, Lessons from Market Extremes.

O’Shaughnessy provided some really interested findings in the ongoing battle between value and glamour stocks.

Lets see what he found…

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Does the current climate make markets vulnerable to a black swan event? – The Royce Funds

Johnny HopkinsResearch, Resources, The Royce Funds Comments

(Image Credit, www.mirror.co.uk)

This month The Royce Funds Portfolio Manager, Charlie Dreifus discussed how the current climate of slow growth, high valuations, and interventionist monetary policy makes the markets potentially vulnerable to black swan events.

Charlie Dreifus manages the firm’s Special Equity mutual funds that attempt to combine classic value analysis, the identification of good businesses, and accounting cynicism. In 2008, he was named Morningstar’s Domestic-Stock Fund Manager of the Year.

Investopedia defines a Black Swan as:

“A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict; the term was popularized by Nassim Nicholas Taleb, a finance professor, writer and former Wall Street trader.”

Let’s see what he had to say…

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Dividends are making you poorer – Meb Faber

Johnny HopkinsDividends, Meb Faber, Research, Resources Comments

One of my favorite bloggers is Meb Faber. Meb has an awesome blog at mebfaber.com.

Back in May this year Meb released the results of his study into dividend stocks. He wanted to research the ‘real’ returns of a dividend strategy when we consider tax.

“Dividends are taxed every year whereas capital gains are only taxed when a position is sold.  So if one could find a strategy that avoids dividend stocks yet replicates their returns, a taxable investor would realize higher returns by not having to pay Uncle Sam every year.”

His results surprised him, and will surprise you!

Let’s see what he found…

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Being contrarian is not enough, you must be very sure you are right – Philip Fisher

Johnny HopkinsPhilip Fisher, Research, Resources Comments

(Image Credit, youtube.com)

One of my favorite investment books is of course, Common Stocks and Uncommon Profits and Other Writings, written by investing legend Philip Fisher.

Philip Fisher was an investor best known as the author of Common Stocks and Uncommon Profits, a guide to investing that has remained in print ever since it was first published in 1958. He began his career in 1928 when he dropped out of the newly created Stanford Graduate School of Business (later he would return to be one of only three people ever to teach the investment course) to work as a securities analyst with the Anglo-London Bank in San Francisco.

He switched to a stock exchange firm for a short time before starting his own money management company, Fisher & Co., founded in 1931. He managed the company’s affairs until his retirement in 1999 at the age of 91, and is reported to have made his clients extraordinary investment gains.

Fisher wrote one of the best pieces on contrarian investing and managing his investors expectations with his Three Year Rule.

Let’s see what he has to say…

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G Willi-Food International Ltd trading at a discount to its NCAV $WILC

Johnny HopkinsStocks Comments

(Image Credit, www.investopedia.com)

On July 29 we reported that, “The best value stock in the Small and Micro Screener is WILC G Willi-Food International Ltd (NASDAQ:WILC) on a multiple of -0.42 times operating income”.

Willi-Food is a company that specializes in the development, marketing and international distribution of kosher foods.

The company’s share price is up over 25% in the past 3 months to $4.49 from $3.60 on May 2 this year.

(Source: Google Finance)

Today we’ll take a look at WHY?

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If contrarian strategies do so well, why doesn’t everyone use them? – David Dreman

Johnny HopkinsDavid Dreman, Research, Resources Comments

(Image credit – authors.simonandschuster.co.uk)

I was recently re-reading one of my favorite investment books by David Dreman, Contrarian Investment Strategies – The Next Generation.

David Dreman is the founder and Chairman of Dreman Value Management. He’s published many scholarly articles and has written four books. Dreman also writes a column for Forbes magazine and he’s on the board of directors of the Institute of Behavioral Finance, publisher of the Journal of Behavioral Finance.

Over the past 30 years, Dreman has been at the forefront of research into contrarian value investing and behavioral finance, proving that over virtually every time period measured, stocks which were out of favor, as reflected by their price/earnings multiple, did significantly better than stocks considered to have more favorable outlooks.

While I was reading through this classic investment book, I came across this piece covering, “If contrarian strategies do so well, why doesn’t everyone use them?”.

RULE 14

Buy solid companies currently out of market favor, as measured by their low price-to-earnings, price-to-cash flow or price-to-book value ratios, or by their high yields.

You might wonder: If these strategies do so well, why doesn’t everyone use them?

This lands us smack in the realm of investor psychology (or Behavioral Finance, as it is now called by economists). Though the statistics drag us toward the value camp, our emotions just as surely tug us the other way. People are captivated by exciting new concepts.

The lure of hitting a home run on a hot néw idea overwhelms caution. The sizzle and glitz of an initial public offering like a Planet Hollywood at 140 times earnings and 13 times revenues, or a Spyglass, an Internet search engine designer priced at 175 times estimated earnings, is just too great.

While these are extreme examples of investor evaluation run amok, they show why value strategies have worked so well over the years. People pay for concept, whether in the absurd cases of Planet Hollywood or Spyglass, or in consistently overpricing the trendy industries of the day.

Investors just as surely want to stay well away from companies whose outlooks seem poor. Most investors have a negative reaction to contrarian stocks. Recall that these companies violate just about every idea of proper investment theory. “Do you know what’s down there?” a major money manager once asked me, shaking his head in disapproval, “How can any prudent man look at companies like these with such unthinkably poor visibility?”

The favored stocks, on the other hand, present the best visibility money can buy. How then can one recommend such a reversal of course?

The psychological consistency of the error is remarkable. There are of course, excellent stocks that justify their price-to-earnings ratios, and others that deserve the slimmest of multiples. But, as the evidence indicates, these are relatively few, and the chances of recognizing them are very small.

Contrarian strategies succeed because investors do not know their limitations as forecasters. As long as investors believe they can pinpoint the future of favored and out of favor stocks, you should be able to make good returns on contrarian strategies. Human nature being what it is, this edge should continue for a few years longer.

We have seen how consistently contrarian strategies have worked for investors over the years. The good news for you is that this wave of discoveries provides strong evidence that there are consistent high-odds ways to beat the market.

Get started with your contrarian investing strategy. This month you can get FREE access to the top 30 value stocks in the Large Cap 1000 universe.

A concentrated portfolio of value stocks, like the ones provided here at The Acquirer’s Multiple, have historically proven to be one of the most successful methods of achieving long term out-performance in the stock market.

This month you can get FREE access to the top 30 value stocks in the Large Cap 1000 universe. To get FREE access to the Large Cap 1000 Stock Screener, simply subscribe here. (No credit card required).

What can Pokémon Go teach us about irrational investing?

Johnny HopkinsResearch Comments

(Image Credit: www.pokemon.com)

A lot has been written about the irrationality of investors.

To help them out, they can head over to the SEC website and read the nine investing behaviors that can undermine investment performance. The article’s titled, Investor Bulletin: Behavioral Patterns of U.S. Investors.

“The Library of Congress report identifies nine investing behaviors that can undermine investment performance.  These behaviors include: active trading; the disposition effect; focusing on past performance and ignoring fees; familiarity bias; mania and panic; momentum investing; naïve diversification; noise trading; and inadequate diversification.”

One of my favorites is Noise Trading:

Noise trading occurs when an investor makes a decision to buy or sell an investment without the use of fundamental data (that is, economic, financial, and other qualitative or quantitative data that can affect the value of the investment).  Noise traders generally have poor timing, follow trends, and overreact to good and bad news in the market.”

Seems pretty obvious right…

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Apple Inc jumps 6.5%, 23% drop in iPhone sales $AAPL

Johnny HopkinsStocks Comments

(Image Credit: www.theregister.co.uk)

Apple Inc (NASDAQ:AAPL) released its 2016 third quarter results Wednesday. The company recorded revenue of $42.4 billion for the quarter, down 15% from $49.6 billion for the previous corresponding period. Net income was also down 27% for the quarter to $7.8 billion from $10.7 billion for the previous corresponding period.

Clearly the news was better that expected with the company’s share price jumping 6.5% to $102.95. The company’s share price has continued to rise over the past month, up 11.85% from $93.59 on June 28 this year.

Let’s take a quick look through the company’s third quarter 10Q to find out more…

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Is the CAPE Ratio providing a warning for investors – OFR

Johnny HopkinsResearch, Study Comments

While no single tool, ratio or source should be used to evaluate the economy and its financial stability. The Office of Financial Research (OFR) provides a free bi-annual report, and a really cool heat-map, on their version of what’s happening in the economy. Its called the Financial Stability Monitor, here’s their latest report and here’s their really cool heat-map.

This monitor displays a snapshot of weaknesses in the financial system based on five functional areas of risk: macroeconomic, market, credit, funding and liquidity, and contagion. The monitor is not designed to predict the timing or severity of a financial crisis but to identify underlying vulnerabilities that may predispose the system to a crisis.”

Their latest report states that, “Risks Still in the Medium Range, But Pushed Higher by U.K. Referendum Result”.

About the OFR

From their website, “The OFR has a Director appointed by the President and confirmed by the Senate, and an organization built around a Research and Analysis Center, and a Data Center.”

“The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the OFR to support the Financial Stability Oversight Council, the Council’s member organizations, and the public.”

“The Office of Financial Research (OFR) helps to promote financial stability by looking across the financial system to measure and analyze risks, perform essential research, and collect and standardize financial data.”

“Our job is to shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose, and provide policymakers with financial analysis, information, and evaluation of policy tools to mitigate them.”

Let’s take a look at their latest report…

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Pendrell Corporation trading close to its NCAV $PCO

Johnny HopkinsStocks Comments

(Image Credit: http://pendrell.com/)

Pendrell Corporation (NASDAQ:PCO) was the biggest mover in ‘The All Investable Screener’ yesterday, up a whopping 14.8%.

Who is Pendrell Corporation?

For the past five years Pendrell has invested in and acquired IP rights, and continues to monetize those IP rights.

For example, during the second quarter of 2016, the company licensed its memory and storage patents to Toshiba Corporation to permit the manufacture and distribution of embedded Multimedia Cards (eMMC) and secure digital memory cards (SD Cards).

The license covers more than 160 patents and patents pending, and enables Toshiba to use both standards essential and implementation technologies.

With the Toshiba license concluded, it has completed four license agreements with manufacturers of memory and storage devices since acquiring the bulk of its memory and storage patent portfolio from Nokia in 2013.

Pendrell has had a great run over the past 3 months, with its price jumping over 30% since April 26.

The question is, WHY?

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