FRMO - FRMO Corp.

[Guest hellsten]

FRMO Corp. looks like an overlooked and interesting company:

http://www.frmocorp.com/

 

FRMO Corp., it will be recalled, has two dimensions. One of these is to invest its own capital.

…

The other business is the so-called intellectual capital business that is represented by our interests in various investment products and a small interest in Horizon Kinetics LLC.

 

http://www.frmocorp.com/_content/letters/2012.pdf

 

 

FRMO continued its practice of acquiring interests in the fee revenues of relatively new investment products. Such fees are like royalties that there are no associated operating costs and, so, are highly profitable.

 

The dollar cost to purchase such interests before they have proven successful at gathering a large base of assets is modest, such that failure to achieve critical mass should not meaningfully harm the company; FRMO has experienced more than one such failure.

 

Yet, should such a program succeed in securing a substantial quantity of fee-paying assets, the return can be many orders of magnitude greater than the original investment.

http://www.frmocorp.com/_content/letters/2011.pdf

 

The company is run by Murray Stahl (CEO) and Steven Bregman (president and CFO).

 

There's almost no information available online, which I find weird. The material on their site and Horizon Kinetics' site is very well written.

http://www.frmocorp.com/research.html

http://www.horizonkinetics.com/articles.asp?pageID=6

 

A random list of articles and essays:

- The Darkest Moments of the Greatest Investors

- John Maynard Keynes, Part II, October 2010

- Roger W. Babson, December 2009

- John Maynard Keynes, October 2009

- Benjamin Graham, November 2008

- Berkshire Hathaway, Part II, October 2008

- Berkshire Hathaway, Part I, October 2008: http://www.frmocorp.com/_content/essays/Berkshire%20Hathaway,%20Part%20I%20October%202008.pdf

- The Owner-Operator Company: A Superior Business Model, January 2011: http://www.frmocorp.com/_content/essays/The_Owner_Operator_Company.pdf

 

They have also written about (and recommended) AIG, JEF and SEB:

http://www.horizonkinetics.com/docs/Contrarian%20_Compendium_December_2011.pdf

http://www.horizonkinetics.com/docs/Stahl_Report_Compendium_May_2012.pdf

 

I spent the day reading their letters to shareholders and various essays and I'm very impressed by the quality.

[oddballstocks]

Probably not much of a surprise but I own shares of FRMO. The letters are a great read, the annual report is supposed to be interesting as well.

 

The company is really a bet on Murry and Steven. But they now have a solid base of capital. They've been successful in the past (kinetics) so we'll see if they can repeat in the future.

 

Just curious as to how you came across the idea.

[Guest hellsten]

Probably not much of a surprise but I own shares of FRMO. The letters are a great read, the annual report is supposed to be interesting as well.

 

The company is really a bet on Murry and Steven. But they now have a solid base of capital. They've been successful in the past (kinetics) so we'll see if they can repeat in the future.

 

Just curious as to how you came across the idea.

 

I found FRMO via http://valueprax.wordpress.com/2012/08/01/the-infinite-regression-investment-philosophy-frmo-dnb-spy-geoffgannon/ (seems to be the only article on the internet that mentions FRMO)

 

I had never heard of FRMO, so I decided to investigate. I was surprised to find a company that according to Google had infinite returns (reverse/forward split confused Google):

http://www.google.com/finance?q=PINK%3AFRMO

 

I was impressed by their website and couldn't stop reading.

 

FRMO could be a great investment if Murray and Steven are able to invest wisely the cash they have, or if they can develop new products (which they already have):

we have taken a small equity interest in WisdomTree, which is a company that manages assets passively

…

Although the FRMO investment in this firm is small to date, the ETF business has vast potential. We are exploring other possible investments in this area.

…

We are also developing our proprietary indexes for possible use in ETF format.

…

The return on capital of an index in success mode is extraordinarily high.

 

I think the reverse/forward stock split means the FRMO stock is owned by only around 300 people…

[giofranchi]

I read everything Mr. Stahl writes and I always find it very useful and interesting. I really would like to invest in FRMO.

Anyone knows if it is possible for foreign investors to do so, and how? FRMO is traded OTC, right?

Thank you very much!

 

giofranchi

[oddballstocks]

giofranchi,

 

I think the only limit on a purchase is a limit set by a broker.  There's no rule saying that pink sheet stocks can only be owned by Americans.

[oddballstocks]

Probably not much of a surprise but I own shares of FRMO. The letters are a great read, the annual report is supposed to be interesting as well.

 

The company is really a bet on Murry and Steven. But they now have a solid base of capital. They've been successful in the past (kinetics) so we'll see if they can repeat in the future.

 

Just curious as to how you came across the idea.

 

I found FRMO via http://valueprax.wordpress.com/2012/08/01/the-infinite-regression-investment-philosophy-frmo-dnb-spy-geoffgannon/ (seems to be the only article on the internet that mentions FRMO)

 

I had never heard of FRMO, so I decided to investigate. I was surprised to find a company that according to Google had infinite returns (reverse/forward split confused Google):

http://www.google.com/finance?q=PINK%3AFRMO

 

I was impressed by their website and couldn't stop reading.

 

FRMO could be a great investment if Murray and Steven are able to invest wisely the cash they have, or if they can develop new products (which they already have):

we have taken a small equity interest in WisdomTree, which is a company that manages assets passively

…

Although the FRMO investment in this firm is small to date, the ETF business has vast potential. We are exploring other possible investments in this area.

…

We are also developing our proprietary indexes for possible use in ETF format.

…

The return on capital of an index in success mode is extraordinarily high.

 

I think the reverse/forward stock split means the FRMO stock is owned by only around 300 people…

 

What a small world.  I mentioned FRMO to Taylor (the valueprax guy) and you found it on there, then I'm responding to you…

 

They're a very unique investment, the purpose was to setup a vehicle to invest with zero expenses.  So if you look the only expenses are audit fees and some book keeping fees.  There is a line item for a salary because according to GAAP it's required, but it's non-cash, they take nothing out of this company.  They've build up successful income streams from products in the past so it wouldn't be surprising if they can do it again.

 

Right now buying you get a bunch of investments which I'm told are CEF bonds that are decently high yielding, cash, and stakes in a few funds they manage.  They're reached critical mass with about $50m to manage so now they can do some bigger things.  I think it's apparently book value growth will be slower going forward, but now that the capital base is bigger even a lower growth could still be significant.

 

The biggest catalyst is what new products they're going to roll out, and the listing on NASDAQ.  I believe they're a year away from being able to be listed again.

 

To me this is a bet on the jockeys, and a chance to have Stahl invest your money.  I'd love to get shares at or below book value, but I doubt that's likely, so I paid up.

[giofranchi]

giofranchi,

 

I think the only limit on a purchase is a limit set by a broker.  There's no rule saying that pink sheet stocks can only be owned by Americans.

 

Thank you very much!

Just curious: why do you think they will get listed on the Nasdaq in a year? I mean, Mr. Stahl somehow hinted at it, or is it just something you guess is probable?

 

giofranchi

[oddballstocks]

giofranchi,

 

I think the only limit on a purchase is a limit set by a broker.  There's no rule saying that pink sheet stocks can only be owned by Americans.

 

Thank you very much!

Just curious: why do you think they will get listed on the Nasdaq in a year? I mean, Mr. Stahl somehow hinted at it, or is it just something you guess is probable?

 

giofranchi

 

They were listed and then due to a weird situation had to delist.  They owned 6% of Kinetics but since Kinetics wasn't publicly traded there was no market quote for their holding.  Kinetics wouldn't release audited financials so FRMO couldn't report exactly how much their position was worth.  Under GAAP they couldn't get a clean audit because of this and without the audit the NASDAQ didn't want them.  If you go back and read the shareholder letters you'll understand the whole mess.

 

So long story short, Horizon and Kinetics merged, the holding is now .5% of the combined firm instead of 6% which means the reporting requirements are different.  The company never wanted to delist but were essentially forced to.  They changed their fiscal year to end in Feb because NASDAQ requires 2 clean audits before a listing.  So this have this clean audit, and then they'll have the clean audit next Feb and after that they can relist.  They wanted to stay listed, but due to the external circumstances couldn't remain listed, they fully intend to relist.

 

So there's the backstory. I went from memory on it, so I'd recommend reading those letters, it lays it all out much better than I did.  Just read from the start to the end, it might take an hour at most.

[giofranchi]

giofranchi,

 

I think the only limit on a purchase is a limit set by a broker.  There's no rule saying that pink sheet stocks can only be owned by Americans.

 

Thank you very much!

Just curious: why do you think they will get listed on the Nasdaq in a year? I mean, Mr. Stahl somehow hinted at it, or is it just something you guess is probable?

 

giofranchi

 

They were listed and then due to a weird situation had to delist.  They owned 6% of Kinetics but since Kinetics wasn't publicly traded there was no market quote for their holding.  Kinetics wouldn't release audited financials so FRMO couldn't report exactly how much their position was worth.  Under GAAP they couldn't get a clean audit because of this and without the audit the NASDAQ didn't want them.  If you go back and read the shareholder letters you'll understand the whole mess.

 

So long story short, Horizon and Kinetics merged, the holding is now .5% of the combined firm instead of 6% which means the reporting requirements are different.  The company never wanted to delist but were essentially forced to.  They changed their fiscal year to end in Feb because NASDAQ requires 2 clean audits before a listing.  So this have this clean audit, and then they'll have the clean audit next Feb and after that they can relist.  They wanted to stay listed, but due to the external circumstances couldn't remain listed, they fully intend to relist.

 

So there's the backstory. I went from memory on it, so I'd recommend reading those letters, it lays it all out much better than I did.  Just read from the start to the end, it might take an hour at most.

 

Great! Very useful information! I will surely read all the letters!

 

giofranchi

[oddballstocks]

I finally got around to typing up my thoughts on them:

 

http://www.oddballstocks.com/2012/11/investing-in-horizon-kinetics-through.html

 

Was anyone here on the quarterly call?  I heard one or two other individuals, I was wondering if I knew any of them virtually.

[Guest hellsten]

I finally got around to typing up my thoughts on them:

 

http://www.oddballstocks.com/2012/11/investing-in-horizon-kinetics-through.html

 

Was anyone here on the quarterly call?  I heard one or two other individuals, I was wondering if I knew any of them virtually.

 

Thanks for posting. Always nice to hear more about FRMO.

 

Here's a link to the transcript:

http://www.frmocorp.com/_content/letters/2012_FRMO_Transcript.pdf

 

FRMO is still a well kept "secret":

During the brief period before the meeting began, I had a chance to talk to some of the attendees. It seemed to me that not everyone

was acquainted with what FRMO does, which is, I think, rather unusual for a shareholder meeting.

 

The transcript contains some really great discussion on owner-operators, LUK, BAM, Liberty Media, etc. Highly recommended...

[giofranchi]

The transcript contains some really great discussion on owner-operators, LUK, BAM, Liberty Media, etc. Highly recommended...

 

Thank you for posting! As always, very interesting!

 

giofranchi

[MrB]

So for this thing to be worth what it trades for today, a quick look would suggest that,

 

1. These fellas need to compound the existing investments of $60m at, at least 10%-15%, and

2. Net non-investment earnings of $2m needs to grow significantly.

 

a. Do they have a track record of compounding at a high rate over the long term and if so, where do I find it?

b. Why do you expect non-investment earnings to grow?

 

Anyone willing to clarify it please?

[giofranchi]

So for this thing to be worth what it trades for today, a quick look would suggest that,

 

1. These fellas need to compound the existing investments of $60m at, at least 10%-15%, and

2. Net non-investment earnings of $2m needs to grow significantly.

 

a. Do they have a track record of compounding at a high rate over the long term and if so, where do I find it?

b. Why do you expect non-investment earnings to grow?

 

Anyone willing to clarify it please?

 

MrB,

I think that what oddballstocks wrote about FRMO in his blog might answer your questions:

http://www.oddballstocks.com/

Mr. Stahl at 58 is still relatively young and, with a little of good luck, he should be able to go on compounding for the next 20 years.

Also I like their investment process. As you very well know, a good track record is very important, but can sometimes be misleading, if you don’t understand the investment process, and if you don’t agree with it.

 

giofranchi

[MrB]

So for this thing to be worth what it trades for today, a quick look would suggest that,

 

1. These fellas need to compound the existing investments of $60m at, at least 10%-15%, and

2. Net non-investment earnings of $2m needs to grow significantly.

 

a. Do they have a track record of compounding at a high rate over the long term and if so, where do I find it?

b. Why do you expect non-investment earnings to grow?

 

Anyone willing to clarify it please?

 

MrB,

I think that what oddballstocks wrote about FRMO in his blog might answer your questions:

http://www.oddballstocks.com/

Mr. Stahl at 58 is still relatively young and, with a little of good luck, he should be able to go on compounding for the next 20 years.

Also I like their investment process. As you very well know, a good track record is very important, but can sometimes be misleading, if you don’t understand the investment process, and if you don’t agree with it.

 

giofranchi

 

Ok, tnx.

[biaggio]

Thanks for posting idea

 

Just started reading on FRMo yesterday.

 

Interesting interview/ideas in Barrons with Murray stahl

 

(Google Murray stahl or steven Bergmen individually to find other reading material)

[cashisking]

So for this thing to be worth what it trades for today, a quick look would suggest that,

 

1. These fellas need to compound the existing investments of $60m at, at least 10%-15%, and

2. Net non-investment earnings of $2m needs to grow significantly.

 

a. Do they have a track record of compounding at a high rate over the long term and if so, where do I find it?

b. Why do you expect non-investment earnings to grow?

 

Anyone willing to clarify it please?

 

Mr B - the answer to your question 1a is in the 2011 letter to shareholders - it looks like they have compounded TBV at rates well above 10-15% since inception. Just like Buffett, the key to this track record is not only good performance on the asset side, but also prudent use of the (near) permanent liabilities and tax efficiency. The answer to part b is in the latest (and only) quarterly call. IMO - there is big optionality to the index data providing business. If the AUM of the investment products linked to their owner-operator index is a even a mild success, the non-investment earnings would enjoy a big rise without any offsetting expenses. Return on capital is very very high (since capital employed is all intagible - the experience and know-how of the operators does not show up as an expense or an asset in financial statements)...

 

http://www.frmocorp.com/_content/letters/2011.pdf

 

Good discussion of potential near term catalysts in the call as well

 

cheers

[augustabound]

I haven't noticed these posted.  Somebody has compiled Murray Stahl's writings from 1995 to 2006. 

Lots of reading to do...................  ;D

 

http://www.scribd.com/doc/33821202/Third-Edition-Volume-1

 

http://www.scribd.com/doc/34032487/Third-Edition-Volume-2

 

http://www.scribd.com/doc/34032517/Third-Edition-Volume-3

[Guest hellsten]

I haven't noticed these posted.  Somebody has compiled Murray Stahl's writings from 1995 to 2006. 

Lots of reading to do...................  ;D

 

http://www.scribd.com/doc/33821202/Third-Edition-Volume-1

 

http://www.scribd.com/doc/34032487/Third-Edition-Volume-2

 

http://www.scribd.com/doc/34032517/Third-Edition-Volume-3

 

Thank you!

 

Had a quick look at the contents can't wait to read chapters like:

Jun. 1997 Chapter 2 - Why Doesn’t Someone Buy Apple Computer?................103

Jul. 1997 Chapter 3 - The Strange Paradox of Western Union............................105

Dec. 1997 Chapter 6 - Japan As a Contrarian Investment.....................................113

May. 2004 Reflections on Dell Computer and Other Matters .................................5

Oct. 2004 Google and Yahoo as Toll Roads ........................................................59

[giofranchi]

I haven't noticed these posted.  Somebody has compiled Murray Stahl's writings from 1995 to 2006. 

Lots of reading to do...................  ;D

 

http://www.scribd.com/doc/33821202/Third-Edition-Volume-1

 

http://www.scribd.com/doc/34032487/Third-Edition-Volume-2

 

http://www.scribd.com/doc/34032517/Third-Edition-Volume-3

 

Thank you!

 

Had a quick look at the contents can't wait to read chapters like:

Jun. 1997 Chapter 2 - Why Doesn’t Someone Buy Apple Computer?................103

Jul. 1997 Chapter 3 - The Strange Paradox of Western Union............................105

Dec. 1997 Chapter 6 - Japan As a Contrarian Investment.....................................113

May. 2004 Reflections on Dell Computer and Other Matters .................................5

Oct. 2004 Google and Yahoo as Toll Roads ........................................................59

 

Yes! Thank you for posting! Very interesting!  :)

 

giofranchi

[LC]

I haven't noticed these posted.  Somebody has compiled Murray Stahl's writings from 1995 to 2006. 

Lots of reading to do...................  ;D

 

http://www.scribd.com/doc/33821202/Third-Edition-Volume-1

 

http://www.scribd.com/doc/34032487/Third-Edition-Volume-2

 

http://www.scribd.com/doc/34032517/Third-Edition-Volume-3

Would anyone have a scribd login or a downloadable link?

[racemize]

I've been looking through this one this morning (yay stock day!).  I'm really confused why this is even a public corp?  Perhaps their ownership of Horizon isn't great enough to compensate them for their investment ideas, but then why not just keep it private and keep their own IP/money?

 

Edit: just for posterity, the answer is, from the owners anyway, that he/they wanted to create a legacy and allow his trust/descendants/whatever else have a liquid way to sell pieces of it.

[constructive]

Virtus Wealth Masters only launched with $1.13M and I see one article since launch. A little underwhelming.

 

http://finance.yahoo.com/q?s=VWMAX&ql=0

http://finance.yahoo.com/video/wealth-masters-fund-invests-buffett-100000890.html

[giofranchi]

I haven't noticed these posted.  Somebody has compiled Murray Stahl's writings from 1995 to 2006. 

Lots of reading to do...................  ;D

 

http://www.scribd.com/doc/33821202/Third-Edition-Volume-1

 

http://www.scribd.com/doc/34032487/Third-Edition-Volume-2

 

http://www.scribd.com/doc/34032517/Third-Edition-Volume-3

Would anyone have a scribd login or a downloadable link?

 

Find them in attachment!

 

giofranchi

33821202-Third-Edition-Volume-11.pdf

34032487-Third-Edition-Volume-21.pdf

34032517-Third-Edition-Volume-31.pdf

[jay21]

When I looked at the Balance Sheet of this company I thought it would be easy to value.  However, I am really confused by it. 

 

The two biggest assets are cash (~20m) and investments (~40m).

 

Investments are the following:

 

Bond and equities - 27.6m  - I am assuming these are similar securities to what is held in their funds?

Horizon Multi Strategy LP - 5.2m - An investment in a hedge fund they run. 

Polestar Fund - 7.3m - What is this?

 

And then, they have a small investment in Horizon Kinetics LLC, which gives them a share of the fees generated by Horizon Kinetics?

 

 

I guess my biggest problem is identifying where the fees are coming from.  I want to make sure I apply an appropriate multiple to them and that I am not double counting them (i.e. counting the FV of Horizon Kinetics in the valuation when the fees received are the inputs to come up with the FV).  The investments and cash are straightforward and give you a floor value.  I am having trouble seeing what value should be placed on the fees, but know it should be more than 10x.  So it a minimum this is worth 80m to me.