LC

You would rather the guy running your company be dishonest rather than honestly play the hand he was dealt? We may have to agree to disagree. Pardon me for interjecting, but what is dishonest about that scenario? Did Warren offer the deal or did BOA to go him? Has that ever been published?

Right but if you were put to EVERYTHING, that scenario would most likely be a market-wide sell off. Which means your other holdings would drop in value...so if you estimate you would be at a 10% margin of today's values, you have to factor in how your margin limit would drop under a systematic event...have you thought about that?

http://femalehealth.investorroom.com/2013-03-27-The-Female-Health-Company-Declares-Second-Quarter-Cash-Dividend-at-17-Higher-Payout-Rate Highlights: Dividend increase from $0.06 to $0.07 per share "The Company also announced that it plans to increase the activity under its stock repurchase program" (they have one million shares remaining under the plan which expires 12/31/13)

I like this mental model. Buy good "boxes", put them on your "store shelves", and someone will buy them for a good price.

I really like your store analogy! If I may, what percentage of your portfolio does your largest positions hold? Do you have a mental limit on how much that limit usually is?

Zimmer Holdings is the leading manufacturer of orthopedic implants (hip, knee implants, etc.) worldwide. Here's the breakdown of their market position: http://i.imgur.com/kj95EWu.png There is a VIC writeup from 2009 (http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/15033) which outlines the majority of the thesis. Surprisingly it hasn't changed much in the last three years. Over that time they have repurchased about $2b worth of shares and in 2012 instituted a small dividend of $94m annually. They have a relatively conservative balance sheet. About $2b worth of debt against $1.5b of cash/securities. Revenues averaging around $4-4.5b/year and they have excellent margins. Majority of their expenses are selling related. They have quite a patent & product portfolio which I would assume is protecting their margins: As to what could disrupt their business, I think it falls into two categories: 1. Their products falling behind: Their R&D spending seems low for a company of its size. I am not sure what to make of this. Additionally, they don't really delve into their patent expiration risk in the 10-k and what effect that might have. 2. Sales/Market share slipping. In the 2009 VIC write-up, Zimmer was the #1 provider of hip implants, per their latest 10-k they have fallen to #2. Also this is taken from the VIC writeup: So there is the issue of losing relationships with physicians, although given Zimmer spends about $1.8b/year on SG&A, I think this issue may have passed. I think the industry dynamics are favorable to whomever offers the best products. By Zimmer's marketshare, they appear to do so. Physicians will use the most reliable products and will be discouraged from switching from what works. Due to the complexity and personal nature of the product Zimmer can maintain their impressive margins. As to valuation, they are trading at what looks like a fair price. 17x earnings and about 14x FCF. Management also has a history of buying back stock, and I believe their decision to initiate a dividend shows they believe their cash flows are relatively secure. Criticism is always welcome!

I don't think this amendment says much about Buffett's opinion on whether GS is undervalued or not. According to the original terms Berkshire would pay 5 billion and get 43 million shares of GS in return. According to the amended terms, Berkshire pays nothing and gets 9 million shares or so (depending on the GS share price in October). I think the article Jay quoted is wrong when it suggests that GS will now be paying in stock rather than in cash; there was never going to be any cash payment from GS, as I understand the warrant terms. If anything, this indicates to me that Buffett would rather own a modest position in GS than a big one. Not so bullish for GS stock, perhaps. But as a GS shareholder, I am happy that the dilution will probably be less than I anticipated (assuming GS is still trading under IV in October). I think this post hits on the biggest points. 1. Buffet is receiving less shares than if he exercised. 2. This probably tax efficient. Not sure what his basis is, but this should be a taxless transaction and he would owe a good chunk of taxes if he converts to cash. 3. The dilution to the common is less than anticipated. #3 I find the most interesting because I am wondering if he will do something similar with BAC. If i were a GS holder, it would say to me, he would rather own $x of GS than receive $(x-y) in cash. y being taxes. It must be for tax and simplicity reasons....GS could in theory issue all 43mln shares to BRK and then immediately buyback & retire 34mln to leave BRK with the 9mln...it's just a whole lot easier (and again, probably tax efficient) this way. Either way, nothing is stopping BRK from simply selling their stake, or selling the warrants before they exercise. So either WB wants a stake in GS, or there is some mutually beneficial tax issue which I'm not aware of.

paying in shares instead of cash...if buffett agreed he must think GS is still undervalued?

Yeah I've got to say I really liked it too. Sorry to add to the confirmation bias :) Here's some questions I pose to the board: Where is the line between "trying too hard" and keeping it simple? Do I even need to do analysis? Deep dives of financial statements? If an investment is not simple, is it a bad investment? What does "simple" really mean? The COBAF thread on BAC is 200+ pages long, and yet the thesis is seven words long ("earnings power hidden by legacy costs").

Where do your estimates of IV stand for Zix? I'm trying to figure out what a private owner would be willing to pay and I'm having difficulty...here's my thinking: Qualitative 1. As mentioned, Zix's selling point is (I believe) the convenience and security offered by their directory service. Financial/healthcare employees can safely communicate within this directory network and be in compliance without having to enter more passwords and usernames. The convenience factor is key, and the more they add to the network the stronger it becomes. High renewal rates are a very good sign. 2. Obviously extremely capital light. No debt. No major assets. It's all cash flow (less R&D and salaries). Now, this also makes it a huge target for competitors. So their moat is their network of customers. 3. They are (in my estimate) a huge takeover target as well. Why wouldn't a huge software company (Oracle for example) just buy them up, integrate their own products and cross-sell? Or offer ZixMail along with Oracle's suite of products? Makes sense to me... Quantitative 1. $20mm cash. $50mm of DTAs. 2. Adjusted earnings of about $10mm last year. So pull out the cash and haircut the DTAs about 50% and the EV is about $180mm, earnings multiple of 18x. Not cheap, that's for sure. Additionally Zix is guiding 2013 revenue on the lower end of expectations (http://www.reuters.com/finance/stocks/ZIXI.O/key-developments/article/2696585) I think at these prices you're buying the belief that their network will provide a moat. An EV of $180mm seems like a fair value in a private transaction, I think the downside and upside are both equally evident in this price. There is room to drop if they can't continue acquiring customers or revenues drop, and there is room for the price to move up if they can continue to build their network. Whether I buy it, I'm still undecided!

So to recap the facts (in a slightly humorous manner): We have Mr. Gad, who has pled guilty to stealing $4K of company funds and siphoning another $40K of company funds through his non-profits for his own benefit, is now attacking Mr. Kidston, who is apparently grossly overpaid, has no real job function, and recently attempted to wage a proxy war that was labeled “disingenuous” and “wholly unworthy of support”... It sounds like these guys are all made for each other...

Coach has been on my radar for a few months. I generally tend to avoid fashion companies and personally I think Coach offers a poor value in terms of price vs. quality. That however does not make it a bad investment. They are a staple, have an established business operation, and are worldwide. Strong balance sheet, not too capital intensive...I think their only major risk is a global economic issue. That said the equity isn't cheap so you're probably correct in writing puts.

That is very interesting...might be interesting to find an average advertising rate per user of cable providers and then apply a high/mid/low range of those multiples to DTV and see what ad revenue looks like...

Oracle (ORCL) This is my weekend homework, thanks :)

Yes I sort of agree. I am reading Howard Mark's "The Most Important Thing..." and one section he characterizes risk as that being unobservable. He references Taleb and describes risk as the possibility that an alternate history which could have occurred but never developed. So can I envision a potential future where the market drops 20%? Yes, but it seems a lot of other people certainly are talking about this risk as well. Now that doesn't mean anything in and of itself, so I simply try to go back to the fundamentals...Market cap-to-GNP is about 104%. That I believe is fully valued. Additionally I am not finding any screaming bargains (is anyone else!?). Now, I'm not a professional and there are far superior investors out there who may be finding undervalued businesses...I've mostly been trolling for special situations to eek out some small percentages. On the flip side I don't see many radically overpriced businesses either. There's always a few of the high-flying tech stocks, but in terms of more traditional businesses, they all seem to sell around 20x earnings. So yes, that's somewhat overvalued, but not a screamingly high price (or is it? perhaps buyers are paying solely for the status quo and assuming a lot of downside risk). But I take a look at the "short ideas" thread...not too too many names mentioned. It's turned into the Lululemon thread. I am curious as to how everyone sees the corporate reinvestment environment going forward. Will it be cheap to reinvest? Will reinvestment be directed abroad? Is there some inflationary pressure on corporations which individuals are not experiencing? Sales and profits are high but I wonder if businesses will sustain those.

Well, Buffett's "indicator" of Market Cap to GNP is 104% (http://www.gurufocus.com/stock-market-valuations.php) Now, as to whether GNP is being artificially propped up by low interest rates...

Punny :)

Thanks for your perspective, boilermaker75. I think my parents, as teachers, would both generally agree were I to ask them. I would also encourage you to write a textbook!

Can Harvard etc. use their top professors to "teach" these classes, charge a fee for a "certificate of completion", and just slap the Harvard name of it?

Can you sell short something related? Not sure what that something would be given the special position Freddie/Fannie are in...

Let's say then that I succeed in rolling into at-the-money LEAPS when the stock hits $20, but you were holding out for $30 with your warrants. Then the crash happens. Now you lose with the warrants. Possibly not everything you put into it, but remember I'm locked in at $20 strike (with $8 safely taken off the table) and you are at $13.30 strike. You only have one chance to pull the trigger on your gains. I will be locking in whatever gains are there once a year. Yep, you're right. The warrant holder would have to be trimming their position to solidify some gains. Whereas the LEAP holder can simply take gains off the table by rolling over into a higher strike-price. Good freakin thinking, man. And you only are only exposed during a two-year (or one year given the new LEAP issues) window to a loss. I.e. as the stock tanks, you can roll into the next issue of LEAPs at a lower strike price for a lower cost. Yep, good freaking thinking...

Anyone have the Tarp prospectus link saved? I'd be glad to post the summary statistics for group reference in return...otherwise my hunt through the EDGAR jungle begins! Where is my machete...

You lock in gains with the warrant as you sell them. Let's say the stock is at $30 in late 2018 and you simply sell your warrants rather than hold until expiration. Gains locked in. Let's remember this is that this is a value investing forum...when an undervalued stock becomes fairly valued, it can be sold :) You can also sell a proportion of the warrants you hold at various points from now and 2019 to "lock in" gains along the way. Now, the warrants still imply a higher cost as you have shown, and the options offer more chances to adjust the strategy due to the rollovers of the contracts, so I believe the LEAP strategy is still superior. I still hold a bunch of warrants though, lol.

Can't you theoretically defer taxes forever with this technique?

http://www.insidermonkey.com/blog/what-ceo%E2%80%99s-probable-removal-means-for-sandridge-energy-inc-sd-89817/ TPG wins board...