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Shares / Re: Overall Investment Strategy
« Last post by galumay on April 17, 2019, 12:27:32 PM »
more from Burgundy assets

Four Underlying Investing Principles
The first step in our protocol development is to agree to the facts and assumptions underlying the Buffett approach. If we cannot agree on the basics, then the quality/value system is not for us.
1. Long time horizons are absolutely necessary. If we want to earn returns that are better than bond yields, then we need to adopt the very long time horizon that is appropriate when investing in stocks. If that is not possible, then this is a signal to opt out of the Buffett system.
2. Earning equity returns without being exposed to equities is impossible. We must own equities to earn equity returns. Expecting to jump in at market bottoms and out at tops is unrealistic and risky because equity returns are discontinuous. We don’t want to miss the few really big “up” days. While there may be many ways to get to heaven, there are no shortcuts.

Success at “timing the market” could only come from success at repeatedly predicting the short-term future. In a complex, adaptive world where any spontaneous order is temporary and many of our earthly systems are often operating at the edge of chaos, predictions about the future are more difficult than they seem. Repeatedly getting them right is impossible. In financial markets, as in life, surprise is the rule, not the exception.
We are not aware of any study or long-term track record concluding that anyone has repeatable expertise in market timing. Even Buffett likes to say he attempts to price, rather than time, his investments. Again, if we cannot agree with being long-term stock owners, here is another chance to opt out of this approach.
3. Quality stocks are the only way to go. While there are always a few who get lucky guessing on speculations, there are many more who lose it all. We must agree that only quality franchise companies with persistent competitive advantages and strong management will be owned.
4. A buy-and-hold approach is best. We will buy these quality franchises when they are cheap, with the plan to hold them forever if nothing changes.
Shares / Re: Companies I didnt buy
« Last post by galumay on April 14, 2019, 03:15:38 PM »
SKT Sky NZ, $1.16. I think it is worth nearer $2.50 on current earnings and cash flow at a quick glance, but a fair bit of debt and consistently falling earnings put me off. A definite potential contrarian turn around play.

CROIC is not bad either, above 10%.

What would earnings have to drop to for $1 something to be fair value? My guess is under 10c EPS, thats a significant amount less than current earnings, in fact its half the guidance for 2019.

Its hard to see a near future where SKT isnt a viable business in NZ, they have 40% penatration and while the Netflixs of the world will eat away at their margins and revenue with a high quality and real NBN, as long as they have the rights for sports they will survive. So what are the odds of sport going to streaming? Well I dont think its happened on a national scale anywhere in the world so far, but it could happen.

The Rugby world cup should give them a bump in revenue for first half 2020, NZ is such a rugby mad country and the World cup is in Japan in October.

The market hated the impairment writedown last year, and I would imagine there are more of them to come, so that is a potential negative,

On the upside a price of $2.50 is not a stretch if they meet guidance, so probalistically, maybe a 10% chance of sport moving totally to streaming seeing a collapse of the business , 10% * 0 =0 plus a 20% chance they meet guidance & impair again, 20% * $1 = 20c plus a 60% chance they meet guidance, no impairment and market rerates - 60% * $2 = $1.20 and 10% chance they exceed and market rewards 10% * $2.50 = 25c for a total expectancy of $1.65
- which is a reasonable return.

Trouble is this sort of calculation is so wooly, I could easily modify, 10% * 0, 50% * $1.20 (no change) , 20% * $2, 10% * $2.50 for a total of $1.25 - about where it is now.
General Discussion / Re: Things People Say...
« Last post by galumay on April 10, 2019, 07:05:37 AM »
"Successful investing is about having people agree with you ... later."  Jim Grant
Shares / GLB
« Last post by galumay on April 08, 2019, 04:55:57 PM »
Bought initial parcel of 2166 @ $1.78

click here to view decison journal notes on GLB
Shares / Re: Overall Investment Strategy
« Last post by galumay on April 07, 2019, 11:02:04 AM »
Burgundy Assets

We look for companies that deliver high returns on shareholders’ capital consistently, which are well financed and run by trustworthy and competent people. We try to find a number of these investments and then hold them for the long term.
General Discussion / Re: Decision Journal
« Last post by galumay on April 06, 2019, 02:13:20 PM »
Looking at starting to build a position in a new business, Global International (GLB). It is an Australian company, that is a global producer and distributor specializing in purpose-built apparel, footwear and skateboard hardgoods (decks, wheels, trucks, etc.) for the boardsports, street fashion and workwear markets with products sold in more than 100 countries worldwide. Founded in 1985 by three Australian brothers, Globe International’s core business is divided between proprietary brands, licensed brands and distributed brands.

It meets many of my investing criteria, it has a superior ROE, strong free cash flow, no debt, owner run and managed with the 3 brothers holding about 70% and the top 20 holding 90%, growing revenue and earnings, stable share count with no issues since float, an executive management scheme based on cash payments which i prefer to issuing shares, or even worse options. (the brothers took no salary at all for many years after floating in 2001) Its also cheap by any metric, trading around $1.75 i have a range of intrinsic value between $2.70 and $2.90. Its on a p/e of 8.5 and E/EV of 12.75. NTA is over $1 ROE is around 20%.

Its an easy business to understand, and while fashion is not a popular industry these days, good businesses with good management can prosper in this space.

So why is it so cheap? The long standing chairman passed away suddenly, he had been with the company for 14 years and as a older and very experienced businessman, was a contrast to the young entrepreneurial founders of the business, but that event didnt seem to impact the price much. Also his replacement would appear to be equally qualified, experienced and competent. The main drop in the last 12 months was after the ½ yearly report which showed growth in earnings and revenue, but extrapolating those results would see less top line growth for the full year after a stellar 2017-18. So maybe its cheap because the market doubts its ability to continue to grow at the historical rate of the last 5 years. The illiquid nature of the company also means its more volatile and this would explain the sharp fall on the HY1 results.

No doubt operating in the retail clothing sector also makes it out of favour in the current climate, add youth fashion as a sector and there is probably even more (deserved) nervousness about the business.

So what can go wrong? The biggest risk seems to me to be simply the capricious nature of youth fashion, they could quickly find themselves just as uncool as they have been cool historically. Also a severe economic downturn probably effects this end of the clothing market more as its more discretionary than basic clothing. Poor capital allocation or management missteps is another risk, but both look unlikely based on the track record and amount of skin in the game. There is also some FX risks and exposure to economic circumstances in their global markets - but equally there are not insignificant opportunities from the same.

One thing to look at was what has gone wrong in the past, 2013-14 were tough years with losses recorded, looking back it was a less diversified business and there were substantial costs with growing the business and some heavy impairment charges that made marginal earnings report as significant losses. Its worth noting that even though profit was marginal and revenue base was 33% less than today, the share price was still over $1.35.

An interesting insight out of researching the old reports, in 2014 management had 2 strikes in voting on renumeration, management as holders of over 70% of the votes couldnt vote in the second renumeration vote and subsequent spill motion! So a tiny minority of shareholders were able to force a spill of the board! Of course the subsequent vote where management were able to exercise their votes, they were basically unanimously re-elected. Only 6 shareholders voted against it. It seems that Solomon Lew might have been the activist fiddler! He held about 6% It does highlight an issue I had never considered with companies where the directors hold most of the shares - activist shareholders have the potential to cause significant annoyance!

That leads to a probalitic consideration, it seems not unreasonable to assume the downside for the share price would be at worst the previous lows when it was a smaller business making a loss - around $1-35, which represents a drop of around 25% from current price. On the other hand a move towards the range of IV i have for the business sees an upside of at least 50% - and thats without any meaninful growth in revenue, profits or cash flow. So whats the liklihood we might assign to things going tits up? In such a well run business with no debt and hands on, skin in the game management I would have thought maybe 30% chance, so 30% * $1.35 = 0.41c + the chance that the business will at least tick along as is and no bad news seeing a close on the IV, I would think that is a 60% chance, so 60% * $2.80 = $1.68 and maybe a 10% chance of a strong increase in metrics and the IV being exceeded, so 10% * $3.00 = 0.30c  for a price expectancy of $2.40 which makes $1.75 look reasonably cheap.

Shares / Re: Overall Investment Strategy
« Last post by galumay on April 05, 2019, 08:25:26 PM »
Buffett on Ben Graham - 3 basic principles,

1. that you should look at stocks as part ownership of a business;
2. that you should look at market fluctuations in terms of his “Mr. Market” example and make them your friend rather than your enemy by essentially profiting from folly rather than participating in it; and finally
3. the three most important words in investing are “margin of safety,” which Ben talked about in his last chapter of The Intelligent Investor – always building bridges that can carry 30,000 pounds but only driving 10,000-pound trucks across it.
Shares / Re: Overall Investment Strategy
« Last post by galumay on April 05, 2019, 08:23:02 PM »
Picked this up reading the Canadian firm Burgundy Assets

• Invest in companies in which the estimated intrinsic value exceeds the stock price by a significant amount. This is what Ben Graham referred to as the “margin of safety.”

• Invest only in companies you understand. This is Buffett’s circle of competence concept.

• Invest in companies in which you have confidence in the management with respect to their honesty and competence. Examine in particular their capital allocation actions – when to pay out and when to retain.

• Seek out managements that stress share price performance and return on shareholder’s equity (ROE), rather than the absolute size of the company (many large Canadian companies fall into this trap of size versus per share progress).

• Pay careful attention to the quality of earnings, and the ability to generate free cash flow and its deployment.

• Seek out companies that have a strong competitive position or barriers to entry. If you don’t have wide “moats” around your “grand castle,” competitors will penetrate your territory, erode your profitability and eventually cause your downfall.

• Watch for brand names and natural oligopolies of various types. These are rare but extraordinarily valuable over time, especially if purchased when they are out of favour in the marketplace.

• Be a willing buyer of good companies when they are under pressure and when most investors are selling because of bad short-term news.
Shares / Re: Companies I didnt buy
« Last post by galumay on March 31, 2019, 07:55:16 PM »
As at March 2019, 14 businesses I analysed and researched to the point of considering taking a position, and chose not to. Of them 3 would have made me money, 1 of which was taken over, only 2 would have made meaningful returns. 10 would have made a loss. 1 break even.
Shares / Re: Companies I didnt buy
« Last post by galumay on March 31, 2019, 06:52:53 PM »
GLB & HIT are 2 i had on watch list.
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