Added to the position on Thurs and Fri. My perspective is there has been no change to the fundamentals of FLIR -- most analyst reactions to the FLIR analyst day on Thursday were positive. The stock has pulled back because most tech stocks are pulling back and because some investors may have expected some kind of upside from the analyst meeting that didn't occur.
I think there will be upside to Q4 estimates and that 2008 results will be higher than current estimates. no hard and fast data for that opinion -- just assuming that growth will not decelerate as fast as current estimates assume.
just now getting to the point where the position is almost half the size I would like to get to before I'm done. will need to see either further declines or the passage of time (stock flat yet growth still there) before buying more.
still believe this is a great long term growth story.
Monday, November 12, 2007
Friday, November 9, 2007
DFR -- good situation
I would rather own DFR then any of the large banks or regional banks. why? they pay a much higher yield; they have high quality assets in their mortgage portfolio; they are much more undervalued.
Interesting point from the call -- we knew that a lot of their alternative assets came from deals but on the call they reinforced that these are middle market deals -- they never got frothy in terms of interest rates or payment in kind like terms -- terms were getting easier but not to the same extent that the big loans did. middle market deals have less competition and better profitability.
liquidity looks good. they reduced the size of their RMBS -- and rebalanced towards agency so that their non-agency book has dropped as a percentage of the total -- that improves liquidity a lot because its the AAA part that could see rising liquidity issues and is what everyone is concerned about in terms of defaults -- well not their AAA part but others. no one is really worried about agency RMBS.
the stock could easily make its way back up towards $10-11 based on the new book value ratios.
interesting thoughts on the dividend -- they will pay out the undistributed earnings in a dividend either in Q4 or in Q1 of 2008. for 2007 that adds up to an extra 9 cents
more later -- over weekend.......
Interesting point from the call -- we knew that a lot of their alternative assets came from deals but on the call they reinforced that these are middle market deals -- they never got frothy in terms of interest rates or payment in kind like terms -- terms were getting easier but not to the same extent that the big loans did. middle market deals have less competition and better profitability.
liquidity looks good. they reduced the size of their RMBS -- and rebalanced towards agency so that their non-agency book has dropped as a percentage of the total -- that improves liquidity a lot because its the AAA part that could see rising liquidity issues and is what everyone is concerned about in terms of defaults -- well not their AAA part but others. no one is really worried about agency RMBS.
the stock could easily make its way back up towards $10-11 based on the new book value ratios.
interesting thoughts on the dividend -- they will pay out the undistributed earnings in a dividend either in Q4 or in Q1 of 2008. for 2007 that adds up to an extra 9 cents
more later -- over weekend.......
Monday, November 5, 2007
WGRNX
I just added a 2% position (roughly) to the Wintergreen fund based on the writeup in the latest Forbes (James Grant's column) and my reading of his shareholder letters. Fund has a great track record and likes to buy great businesses at cheap prices -- his mandate is he can own anything anywhere. From stocks to bonds to derivatives from the US to other developed countres to the emerging markets, this manager can own pretty much anything. Its one of the broadest mandates I have seen.
Energy -- Its supply stupid
"On an oil-equivalent basis, production decreased by 2% from the third quarter of 2006." Exxon Q3 earnings press release.
That about says it all -- at a time when the price of oil is over $90 a barrel, Exxon, the largest oil company in the world, is unable to increase production. Many analysts are arguing that the price of oil is unsustainably high due to speculation by hedge funds, geopolitical issues, temporary supply disruptions (nigeria, iran/iraq/turkey, etc. Truth is demand is up and supply can't keep up because production growth is too difficult. Too many old fields that are no longer able to produce at historical rates. Too many new fields that are smaller and unable to produce at the rates of previous finds for very long.
Will oil drop if the US has a recession? YES! - (a hilarious suggestion given that Q3 growth was almost 4% but many are absolutely convinced we are headed for recession. no way to know for sure in 2008 but as of now -- no way we are headed for recession in the next 6 months).
I remain quite comfortable with a large weighting in energy because I am optimistic on the economic front and pessimisstic on the oil supply front.
That about says it all -- at a time when the price of oil is over $90 a barrel, Exxon, the largest oil company in the world, is unable to increase production. Many analysts are arguing that the price of oil is unsustainably high due to speculation by hedge funds, geopolitical issues, temporary supply disruptions (nigeria, iran/iraq/turkey, etc. Truth is demand is up and supply can't keep up because production growth is too difficult. Too many old fields that are no longer able to produce at historical rates. Too many new fields that are smaller and unable to produce at the rates of previous finds for very long.
Will oil drop if the US has a recession? YES! - (a hilarious suggestion given that Q3 growth was almost 4% but many are absolutely convinced we are headed for recession. no way to know for sure in 2008 but as of now -- no way we are headed for recession in the next 6 months).
I remain quite comfortable with a large weighting in energy because I am optimistic on the economic front and pessimisstic on the oil supply front.
bill miller
Pride Goeth Before the Fall
I have only read a few quarterly commentaries from Bill Miller but they have all been interesting and worth reading. For the most part I have learned something about investing from each report I have read.
I remember one he wrote for Q3 in 2005 that foretold his underperformance -- if you were paying attention. I wasn't at the time but in hindsight it is clear he was getting a little too prideful.
This report was right around the time of the Legg Mason buyout of Citigroup's money management business. He wanted to welcome new shareholders with a description of his process which included his thoughts on cyclical value (traditional value stocks) and secular value (growth stocks). He also included a story about his willingess to average down -- or keep buying more shares as a stock drops to lower his average cost. Someone asked him how does he know when a stock has fallen too far to average down -- his reply was when he can no longer get a quote.
This was partly said in jest but it was an accurate reflection of his views. Problem: it means he would never be willing to admit he was wrong or possibly worse -- that he was NEVER wrong. Either way that lack of humility is why he has underperformed and why I believe he will continue to underperform. His most recent note suggests financial stocks will be the winners going forward and that people are panicking out of their financial stocks including Countrywide Financial (CFC). He has the audacity to assume CFC is worth $40 rather than the $14 it is trading for. How he knows that CFC will even have the liquidity to survive let alone be worth $40 is beyond me. I wonder if Bill would use that valuation for CFC if he assumed mortgage originations equaled only half of their recent annual levels.
Bill has no energy, no consumer staples stocks and has 30% of the portfolio in consumer cyclical stocks (discretionary). The secular value investor has 0% in consumer discretionary stocks plus a bunch in energy -- could we be any more different in our views of the future?
time will tell who is right.
Regardless of what you think of my Bill Miller analysis, one critical point for value investors is to never ever have valuation be your thesis for buying a stock. If you say, I own stock XYZ because its cheap then when can you be wrong? if the news comes out bad and the stock keeps dropping but your thesis is I own it because its cheap then you can't sell. You have to give yourself an intellectual out for admitting defeat. Cheap stock is necessary but what you need for a thesis are catalysts for why the valuation will improve -- new products, improved pricing, new management team, etc. That way if those catalysts do not come to pass you have a legitimate reason for selling a "cheap" stock.
I have only read a few quarterly commentaries from Bill Miller but they have all been interesting and worth reading. For the most part I have learned something about investing from each report I have read.
I remember one he wrote for Q3 in 2005 that foretold his underperformance -- if you were paying attention. I wasn't at the time but in hindsight it is clear he was getting a little too prideful.
This report was right around the time of the Legg Mason buyout of Citigroup's money management business. He wanted to welcome new shareholders with a description of his process which included his thoughts on cyclical value (traditional value stocks) and secular value (growth stocks). He also included a story about his willingess to average down -- or keep buying more shares as a stock drops to lower his average cost. Someone asked him how does he know when a stock has fallen too far to average down -- his reply was when he can no longer get a quote.
This was partly said in jest but it was an accurate reflection of his views. Problem: it means he would never be willing to admit he was wrong or possibly worse -- that he was NEVER wrong. Either way that lack of humility is why he has underperformed and why I believe he will continue to underperform. His most recent note suggests financial stocks will be the winners going forward and that people are panicking out of their financial stocks including Countrywide Financial (CFC). He has the audacity to assume CFC is worth $40 rather than the $14 it is trading for. How he knows that CFC will even have the liquidity to survive let alone be worth $40 is beyond me. I wonder if Bill would use that valuation for CFC if he assumed mortgage originations equaled only half of their recent annual levels.
Bill has no energy, no consumer staples stocks and has 30% of the portfolio in consumer cyclical stocks (discretionary). The secular value investor has 0% in consumer discretionary stocks plus a bunch in energy -- could we be any more different in our views of the future?
time will tell who is right.
Regardless of what you think of my Bill Miller analysis, one critical point for value investors is to never ever have valuation be your thesis for buying a stock. If you say, I own stock XYZ because its cheap then when can you be wrong? if the news comes out bad and the stock keeps dropping but your thesis is I own it because its cheap then you can't sell. You have to give yourself an intellectual out for admitting defeat. Cheap stock is necessary but what you need for a thesis are catalysts for why the valuation will improve -- new products, improved pricing, new management team, etc. That way if those catalysts do not come to pass you have a legitimate reason for selling a "cheap" stock.
Friday, November 2, 2007
fed, dollar, japan, narrow market, oil etc.
Fed cut rates again -- is it me or have you noticed that most bank stocks are hitting new lows. I have told you repeatedly that fed cuts will not save the problem industries but it will make the good industries soar -- think energy, industrials, technology, materials, etc.
Everyone still freaking out about the dollar -- there are 3 factors that drive the dollar -- 1. interest rate differentials; 2. investment return expectations and 3. fund flows. right now the focus is on interest rates and maybe fund flows (those focused on trade deficit) but return expectations are also important -- our rates might be low but if our asset returns are high then money will flow to the US. we might not beat asia but we should do well vs. europe in terms of return competitions.
Japan is your only hedge. Given increased corelation of assets throughout the world -- i.e. hedge funds have bid up the value of most assets around the world -- nothing is really cheap right now according to many smart folks so if the markets drop then all will drop -- no safe havens is the theory. That has largely been true this year except for a key exception -- Japan. The yen carry trade unwinds whenever stocks get smacked. Unwinding a Yen carry trade means investors buy Yen -- that leads to good returns for anyone with Yen assets -- like a Japanese equity fund. if you want to have some part of your portfolio up on the day the markets get whacked then please buy some Japan stocks.
the secular value investor portfolio is doing very well this year -- as of today I am outperforming the S&P 500 by over 800bps. That is due to large holdings in Asian funds up 40% this year plus a holding in energy stocks like the vanguard energy fund up a similar amount. some strong individual stocks this year such as NVT, GOOG, MMP, EPD, and a bunch more. in some ways I'm brilliant for having these exposures but in many ways I'm just in the right place at the right time -- I like growth and so does the market. You may have noticed that very few stocks are doing well right now -- if you don't own something like GOOG or CME or that ridiculous horse FLIR then your portfolio might be sad. Technology is huge -- a couple of months ago energy went on a huge tear. industrials, commodities, etc -- even utility stocks have been strong. narrow markets last longer than people expect but eventually that which is bid up gets dumped.
oil -- part of the increase is dollar driven -- priced in dollars world wide if the price of oil doesn't rise as the dollar falls then the price of oil is being effectively cut for most of the world -- can't have that given the current supply demand situation for oil so the price rises.
lots of talk about oil driven by geopolitical issues or speculation by hedge funds or whatever -- bottom line is that there is a shortage of oil. It will last until more oil is produced than is demanded. when will that be? who knows. I don't think it will be soon -- that's why I own CLB and other energy stocks (VGENX). It will take time to find oil and to set up production infrastructure, etc. finding the oil is the hard part -- production at existing wells declines each year which adds to the difficulty in really ramping up supply. supply is in ugly places that like to tax oil companies so that even at current prices it may not be worth it to drill for oil. that's why you see such large share buybacks at most of the large oil companies -- they find it hard to effectively spend any more on finding or producing more oil.
Everyone still freaking out about the dollar -- there are 3 factors that drive the dollar -- 1. interest rate differentials; 2. investment return expectations and 3. fund flows. right now the focus is on interest rates and maybe fund flows (those focused on trade deficit) but return expectations are also important -- our rates might be low but if our asset returns are high then money will flow to the US. we might not beat asia but we should do well vs. europe in terms of return competitions.
Japan is your only hedge. Given increased corelation of assets throughout the world -- i.e. hedge funds have bid up the value of most assets around the world -- nothing is really cheap right now according to many smart folks so if the markets drop then all will drop -- no safe havens is the theory. That has largely been true this year except for a key exception -- Japan. The yen carry trade unwinds whenever stocks get smacked. Unwinding a Yen carry trade means investors buy Yen -- that leads to good returns for anyone with Yen assets -- like a Japanese equity fund. if you want to have some part of your portfolio up on the day the markets get whacked then please buy some Japan stocks.
the secular value investor portfolio is doing very well this year -- as of today I am outperforming the S&P 500 by over 800bps. That is due to large holdings in Asian funds up 40% this year plus a holding in energy stocks like the vanguard energy fund up a similar amount. some strong individual stocks this year such as NVT, GOOG, MMP, EPD, and a bunch more. in some ways I'm brilliant for having these exposures but in many ways I'm just in the right place at the right time -- I like growth and so does the market. You may have noticed that very few stocks are doing well right now -- if you don't own something like GOOG or CME or that ridiculous horse FLIR then your portfolio might be sad. Technology is huge -- a couple of months ago energy went on a huge tear. industrials, commodities, etc -- even utility stocks have been strong. narrow markets last longer than people expect but eventually that which is bid up gets dumped.
oil -- part of the increase is dollar driven -- priced in dollars world wide if the price of oil doesn't rise as the dollar falls then the price of oil is being effectively cut for most of the world -- can't have that given the current supply demand situation for oil so the price rises.
lots of talk about oil driven by geopolitical issues or speculation by hedge funds or whatever -- bottom line is that there is a shortage of oil. It will last until more oil is produced than is demanded. when will that be? who knows. I don't think it will be soon -- that's why I own CLB and other energy stocks (VGENX). It will take time to find oil and to set up production infrastructure, etc. finding the oil is the hard part -- production at existing wells declines each year which adds to the difficulty in really ramping up supply. supply is in ugly places that like to tax oil companies so that even at current prices it may not be worth it to drill for oil. that's why you see such large share buybacks at most of the large oil companies -- they find it hard to effectively spend any more on finding or producing more oil.
TSRA Q3 07
good report -- upside to revenues and earnings although guidance for Q4 and 2008 was somewhat confusing. The reality is that 08 is all about the litigation -- if they win the revenue growth is huge and if they don't the stock will collapse. odds of success are high -- similar court to previous victories, same issues, etc.
over next several months this will hopefully be a big winner -- could easily be $50 in 6 months.
over next several months this will hopefully be a big winner -- could easily be $50 in 6 months.
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