LC

Has anyone looked into buying local businesses? I periodically browse biz upswell.com and there are businesses, albeit not great ones, selling for 2-4x cash flow. The seasoned appraisers here will argue there is a reason for this (commodity businesses, geographic concentration, etc.) but for something like a convenience store or coffee shop, I would imagine it's not hard to manage. Does anyone on the boards have experience with this, or know of obvious pitfalls to look out for? Just curious, TIA.

IMHO, book value is just a yardstick. I use it more for capital heavy industries, i.e. how much operational capacity can this firm handle. If there is some capital intensive, cyclical company that trades for a fraction of book (let's say, because the cycle is on its way downwards), it can give me a clue that when the cycle turns, this company can handle XYZ amount of capacity. But that is just a yardstick to approximate future earnings (and obviously isn't exactly accurate, hence the yardstick approach). Or in the banking business, if the firm has a BV of 100billion but NIMs are terrible and they haven't been earning much based on the loans on their book, that obviously sucks. But it tells me if margins expand they have the capacity to earn a heck of a lot more because of the large asset base. But again, the end goal is to get a handle on what the company earns or can earn. For example, anyone here who owns/has owned a business...does your BV really matter on a regular basis? Not really. If I own a company with a BV of $100 mil but it only earns $100 thousand/year, am I a happy owner? Not likely. Will someone pay me BV for my company? Not likely. Even if I was able to grow BV at 10%/year in the past, that is useless information if there's no way future earnings will allow BV to grow in the future. I.e. I don't think anyone wants to be buying buggy whip companies with massive BV's and historical BV growth at a price based on historical BV.

I'm glad someone figured it out. The whole premise of an economy is centered around the owners of production "renting" the labor from "freed" folks. Turns out it's cheaper to pay someone a wage then actually owning them since wages can deflate in real terms, but having to feed, clothe, and put a roof over their heads actually keeps up with inflation. Karl Marx alluded to the final steps of capitalism is to completely displace human labor with machines in his Communist Manifesto. Of course the workers will feel disenfranchised and rise up beginning the age of communism. Pretty amazing foresight from someone writing in the 1800's. Maybe for society this is true, but take the business owner's perspective. I see it a lot like Buffett talking about Berkshire back when he bought it. All the textile mills buy new equipment to lower their cost but never see any of the margin expansion due to competition...all the cost savings eventually flow are passed on to their customers. Therefore a monopoly business would benefit most as they don't have as much competitive pressure to pass these cost savings on.

That's pretty much what I was trying to get at, with all the subtext of a :D symbol! If you're looking reduce the carrying costs of dry powder so you can pick up bargains, you have to realize what the situation that causes these bargains to exist will do to your dry powder. If you're looking to put excess funds somewhere because you have no better ideas and as racemize says, optimally a zero cash balance is probably the best option, maybe BRK is an option. You have to really define what you're trying to do because essentially it's a hedge and you have to know what you're hedging against and how your hedge will react.

Find out which monopoloy/oligopolies this will impact. More competitive industries will most likely pass the cost savings down the line.

BRK? ;D

Do SSS even matter anymore? If the entire margin of safety, and investment thesis, rests on the value of the RE, what do temporary sales issues even matter? What does SYW matter? The question is what will cause those RE values to be realized. IMHO, Sears as a retail entity is not going to unlock that value. Why do I say this? The way I see it, the majority of Sears stores are lower quality retail real estate. Poor locations, poor inventory, no modernization, etc. But have the people in those communities simply stopped buying things? I don't think so. I think they shop at Amazon or other retailers. So how does the value of that RE become realized? Does Eddie wait until the economy in that community turns around and then sell the asset? I have no idea, he has been reluctant to liquidate assets so the way I see it is he is waiting for these economies to turn around. I think that's the bet here, and I don't want to take it.

These are from my old notes so the numbers may be outdated: ___ GCI purchases 100m of assets from ALSK and contributes them to AWN GCI owns 66% of AWN and receives a yearly royalty fee as follows: -Y1&2: 4% -Y3&4: 6% -Y5+: 8% ALSK received a preferential payment from AWN for the first four years (i believe 50m/50m/50m/40m?) to total 190m, GCI entitled to excess distributions. Afterwards distributions are according to ownership % (66/33) GCI extends a 50m letter of credit to AWN ___ The deal was structured to help delever ALSK And at the time (again, about a year ago...#s may have changed), management was expectingAWN to generate 80m in FCF in year 1, GCI essentially receiving 30m (3.2m royalty + 26.8m excess) and ALSK receiving 50m.

Remember it works the other way too. What happens if his long lost cousin cures cancer and the world forever loves the name Biglari?

Re #2 You probably know this but in case you don't, if you click the "new" icon next to each thread it will take you to the oldest unread post in that thread.

Also screening is just one tool in the toolbox. Sometimes it doesn't turn up obvious bargains like Apple when it was 400/share (pre-split). Cash adjusted p/e was really low but a screen wouldn't show that. That's why I use business metrics, make straightforward adjustments (excess cash, accrual vs cash flow, etc.) to find a rough multiple for the business, and then try to decide whether any "cheapness" is due to temporary or permanent issues.

I really only look at screens for business metrics (margins, sales growth, etc.) and not valuation metrics. So I wake up one day and say, today I feel like reading about a company with really nice gross margins, let me go find one and see what it looks like.

It's for publicity.. Net assets peaked years ago at 1,494, now at 1,177 I tend to agree. I also think getting his name/fund in front of cameras was a contributing factor in his opposition to the KO compensation package.

watch out using OCF, you have to figure out if working capital changes are permanent or temporary.

To me that depends...what does more good, feeding 1 hungry family today or 100 hungry families in 10 years? How the heck does one even answer that? I don't know and so I try to do a little of both, I suppose.

I find giving to charity helps, because it reiterates the point that SD regularly makes: money is the servant not the master. Pick a % or dollar amount to regularly donate that you can afford and stick to it, it's worked for me in terms of redefining the "value" component of value investing that goes beyond just money in a brokerage account. Pretty much the "tithing" principle that Packer mentioned...it's been part of human history for millennia because it adds value for society and for yourself.

It's also the crown jewel of the company, it brings instant prestige to the entire lineup. Spinning it off would be silly IMHO and I personally would have to re-evaluate the investment. Most of what I like about Fiat (aside from the low current valuation) are the brands. I think they create value long-term above and beyond what Marchionne can do with Chrysler in terms of manufacturing synergies.

No you're not :D

Good read, thx CorpRaider

That's only one possible reason. Other times the parent company can be undervalued as its true earnings power emerges. The general point is that spinoffs create confusion as investors have to decide which of the parts they want. The enterprising investor can do the work and see which parts are more attractively valued.

RIP... His most endearing moment (to me) was when he named his daughter Zelda. From that moment on I knew the guy was a good one.

Well, my thoughts are... I have no idea about 99% of what I read in the original post. So already I am at a huge disadvantage here because I am no doctor. My naive, rudimentary and probably incorrect understanding of the situation is this: 1. They make a drug that inhibits some proteins? which are bad for the heart. That is good. 2. The way they measure the amount of proteins inhibited is something called PAV. Lower is better. 3. RVX had some tests done, which they needed to hit -.06 PAV, but they only hit -.04. Bad news. 4. Full results offer a silver lining: apparently RVX's drug plus Crestor made the PAV -1.43%!! That is good. So what's left is a drug which is apparently (key word: apparently...) really good when combined with Crestor. So is the end game here that RVX get's acquired or does some awesome licensing deal with Astra Zeneca? Crestor is a blockbuster drug so...the runway is huge. The risk I guess, is that word apparently. I know nothing of the medical world other than I have to go to the doctor every year. What are the chances that this awesome result of RVX + Crestor is just an aberration? I have no idea how to discount that. For me, with my layman's brain, this is a lotto ticket with the payoff seemingly skewed to the upside. Am I even close to understanding the situation correctly?

Thanks for posting. This is the first time I'm seeing Mohnish's stake on paper! Glad to be in good company :)

Probably in the too hard pile. It is for me, anyways. Warren B. has boatloads of cash sitting around, and meanwhile here in Amazon we have the low cost retailer of the present and future. Even if he was "right" or "wrong" about investing in Amazon 10 years ago, why doesn't he pull the trigger now? Maybe he just hates retail? Who knows! C'est la vie. Edit: i think my point is...it's annoying enough to figure out why I personally did or didn't buy something. why waste time wondering why someone else does or doesn't do something!?

Taxact and mono price are both low cost competitors in their industry. I like both businesses as a customer and owner. I disagree about the stickiness other posters mentioned. It's not hard at all to switch tax preparers, they are only sticky as long as the prices are low. Otherwise it's easy to move elsewhere. Same with mono price. Not harder to check amazon and see if the cable is cheaper there. Mono price has a spot in the game as long as they keep prices low and customer service satisfactory. Both areas are commodity businesses and low cost providers will retain marketshare