ZINC - Horsehead Holding Corp

[rishig]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

And an analyst won't mess up?  I've read a lot of dumb things from a lot of analysts.  The best is when lousy portfolio managers decide to become analysts, or when bad analysts decide to become portfolio managers. 

 

Pabrai had more time and no analyst when he bought Delta Financial in 2007...the idea was wrong, not anything else.  Einhorn has a ton of analysts and he still bought and sat on the board of New Century.  Concentrated positions in good ideas is what made these fund managers, and that is part of the risk of investing in a concentrated portfolio...there will be volatility. 

 

People screw up and adding an analyst is like adding a sixth toe, because you think the other five toes are too busy!  We have one brain and one penis...adding more of either doesn't necessarily equate to being smarter or a better lover! :)  Cheers!

 

 

 

Just to add to Parsad's comments. Sequoia has (or may be had) one analyst to follow Valeant. He was hired in 2010 and he was their pharma analyst out of Harvard. His only job was to discover everything about Valeant. He spent 8 hours a day, 5 days a week for 5 years just following Valeant. Yet, he (they) missed the Philidor mishap and all the rest that went down.

 

Mistakes happen. Stay humble, learn from our mistakes (and from those of others), and move on. If I haven't made a mistake, then I haven't been in the business of investing long enough. It will happen - investing has a way of bringing humility in the best of us.

 

 

[tylerdurden]

I don't know, you can do many dumb things with lots of lots analysts. History is full of collective dumbness I guess so I can see where Pabrai is coming from on this. (He even thinks having an analyst could increase pressure on him to invest into the analyst's recommendations.) Anyways, what a painful lesson for him and myself! I sure hope I learned something from this. For Pabrai I'd just recommend toning down the campus visits etc. and marketing this cloning idea as if it is so easy. It is not and he should know better. He might also  want to get more active if circumstances warrant such action. If he was on the board, I wouldn't think he would be this clueless to make an additional investment back in July in Horsehead. Well I guess there is much more certainty with Mooresboro now in terms of ramp up :-)

[arcube]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

And an analyst won't mess up?  I've read a lot of dumb things from a lot of analysts.  The best is when lousy portfolio managers decide to become analysts, or when bad analysts decide to become portfolio managers. 

 

Pabrai had more time and no analyst when he bought Delta Financial in 2007...the idea was wrong, not anything else.  Einhorn has a ton of analysts and he still bought and sat on the board of New Century.  Concentrated positions in good ideas is what made these fund managers, and that is part of the risk of investing in a concentrated portfolio...there will be volatility. 

 

People screw up and adding an analyst is like adding a sixth toe, because you think the other five toes are too busy!  We have one brain and one penis...adding more of either doesn't necessarily equate to being smarter or a better lover! :)  Cheers!

 

 

 

Just to add to Parsad's comments. Sequoia has (or may be had) one analyst to follow Valeant. He was hired in 2010 and he was their pharma analyst out of Harvard. His only job was to discover everything about Valeant. He spent 8 hours a day, 5 days a week for 5 years just following Valeant. Yet, he (they) missed the Philidor mishap and all the rest that went down.

 

Mistakes happen. Stay humble, learn from our mistakes (and from those of others), and move on. If I haven't made a mistake, then I haven't been in the business of investing long enough. It will happen - investing has a way of bringing humility in the best of us.

+1

[Uccmal]

Odd that the CFO purchased shares in November. Didn't see this coming?

 

SCHERICH ROBERT D VP & CFO 2015-11-11 Buy 10,000 $2.41

 

I don't trust insider buys anymore unless they are large relative to the insider's salary (or cumulative salary over however long we have history for).

 

SCHERICH ROBERT D:

2014 - 776,676

2013 - 817,904

2012 - 765,595

 

Now, about 40% of those #s are equity compensation. But even backing that out, $20K of purchases in the light of $1.2MM cumulative comp over those years isn't super-high conviction IMHO.

 

Also, the logic falls apart if management are poor at capital allocation. In general, management authorizes buybacks at (usually) the worst times. In the case of ZINC, management totally botched building this factory and communicating with shareholders. So why do we assume they are brilliant or inspired in their personal account?

 

"there are many reasons for insiders to sell but only one reason for them to buy" Here's a few more reasons: insiders are irrational, fraudulent, or plain dumb.

 

Yeah, Peter Lynch has alot to explain for.  I started buying shares of Caribou Resources, a BC oil company, maybe 8-9 years ago.  The balance sheet looked okay.  The CEO was buying big time and bought right up to the day before the company filed for bankruptsy.  I got out a couple of days ahead when rumors were circulating.  In 2007 when Potash was at its absolute peak during the food shortages, the CEO, CFO,and other executives were buying shares like crazy.  It crashed and has never come back.  It goes on alot more than people think. 

[investor-man]

i know mohnish takes great pride in hiring his six or so part-time housewives/grandmas, but at this point he may want to break out the bank and hire an analyst.  after a debacle like this (20+% position now close to 0), if i were a pabrai funds shareholder, i would like a few folks around him to keep him in check.

 

That's what has always been a red flag to me. He manages $500mil and he can't hire one single analyst? In an average year he should keep 1% which is $5mil, an analyst salary is chump change.  Ok if he is buried in paper all day reading fine, but I see him well dressed making speeches and even teaching courses at university......... he can't be devoting as much attention as his partners expect and deserve.

 

And an analyst won't mess up?  I've read a lot of dumb things from a lot of analysts.  The best is when lousy portfolio managers decide to become analysts, or when bad analysts decide to become portfolio managers. 

 

Pabrai had more time and no analyst when he bought Delta Financial in 2007...the idea was wrong, not anything else.  Einhorn has a ton of analysts and he still bought and sat on the board of New Century.  Concentrated positions in good ideas is what made these fund managers, and that is part of the risk of investing in a concentrated portfolio...there will be volatility. 

 

People screw up and adding an analyst is like adding a sixth toe, because you think the other five toes are too busy!  We have one brain and one penis...adding more of either doesn't necessarily equate to being smarter or a better lover! :)  Cheers!

 

 

 

Just to add to Parsad's comments. Sequoia has (or may be had) one analyst to follow Valeant. He was hired in 2010 and he was their pharma analyst out of Harvard. His only job was to discover everything about Valeant. He spent 8 hours a day, 5 days a week for 5 years just following Valeant. Yet, he (they) missed the Philidor mishap and all the rest that went down.

 

Mistakes happen. Stay humble, learn from our mistakes (and from those of others), and move on. If I haven't made a mistake, then I haven't been in the business of investing long enough. It will happen - investing has a way of bringing humility in the best of us.

 

Yes people are being way too harsh. Also I'm not sure anybody knows exactly how large ZINC was in Pabrai's holdings. The data you see is his US holdings, and I know that he has foreign holdings. Has anyone *really* bothered to figure out what his position sizing was here, or are you just slinging mud?

[Investmentacct]

Pabrai has been humble enough to share his (cloned or non-cloned) ideas.

I am thankful for that. I like his sharing of via university forums or google speeches etc.

Pretty generous for what it is worth and turned out to be serious money.

They have been pretty good over last 15 years he has been sharing openly.

In between few disasters (DFC or ZINC). 

However, if we are cloning Pabrai, what our job is to apply our own filter and take responsibility for outcomes.

 

[luck]

true, with analysts you never know what they'll come up with.  that said, having another person might yield some time for due diligence in the plant, contrary viewpoints, etc.  i believe guy spier is a mohnish sounding board to a certain extent.  wonder if anyone has heard anything from him?

 

personally, i appreciate pabrai quite a bit - even with zinc debacle.  i sized zinc at 1% and made far more than that in fiat, gm, goog, bac - which were initially sized much larger.  beyond money, i appreciate his sense of humor, generosity via lectures, etc. as well.  great guy.

[Picasso]

I think that if a filing comes out indicating Pabrai has taken a new stake in company XYZ, it would actually go down on the news.

[str8shot]

true, with analysts you never know what they'll come up with.  that said, having another person might yield some time for due diligence in the plant, contrary viewpoints, etc.  i believe guy spier is a mohnish sounding board to a certain extent.  wonder if anyone has heard anything from him?

 

personally, i appreciate pabrai quite a bit - even with zinc debacle.  i sized zinc at 1% and made far more than that in fiat, gm, bac - which were initially sized much larger.  beyond money, i appreciate his sense of humor, generosity via lectures, etc. as well.  great guy.

 

my disappointment with Pabrai is not personal. and i can only blame myself for following his lead on ZINC. i think he's a good guy who is overrated as a value investor. he acknowledged last month that he asks his LPs to judge him on the past five years performance, and that he's underperforming his benchmarks the past 5 years. and with PIF4 i believe he's underperformed since 2004. he used to talk about compounding at 26% a year but that dialog has long gone silent.

 

he may not have an analysts but the fact is that he uses Guy Spier as a sounding board, and they both went down on this one. Guy disclosed at his recent annual fund mtg in Sep that he was going to ride out Horsehead (HH) because he believed it had a sustainable business model and they could bridge the ramp-up. i emailed with Guy in late Dec and even then he offered that HH had more options than the market was giving them credit for. But it doesn't look like they're going to avoid filing at this stage.

 

i think it is fair to question Mohnish for investing an additional $15M (for Dhando) last July, on top of the $62M he'd invested for the Pabrai Funds to date, and only 6 months later the fat lady is singing. granted we saw a perfect storm - the zinc (and nickel) markets tanked over the past 6 months while HH mgmt continued to mismanage the ramp-up egregiously. and even as recently as the end of Oct mgmt indicated they had a 12 month runway assuming they could leverage the ATM facility, which was a bigger IF than originally thought.

 

but to continue to hold the ZINC position as mgmt continued to over-promise and under-deliver was in retrospect a huge mistake. and i mistakenly assumed that Pabrai had good reason to believe that pattern would be reversing itself when he decided to double down in July.

 

 

[str8shot]

 

Yes people are being way too harsh. Also I'm not sure anybody knows exactly how large ZINC was in Pabrai's holdings. The data you see is his US holdings, and I know that he has foreign holdings. Has anyone *really* bothered to figure out what his position sizing was here, or are you just slinging mud?

 

overall he had 8.3m shares -> 6.3m shares for Pabrai Funds at a cost of $62M and 2m shares for Dhandho at a cost of $15M. $77M invested in total.

[Patmo]

Pabrai has been humble enough to share his (cloned or non-cloned) ideas.

I am thankful for that. I like his sharing of via university forums or google speeches etc.

Pretty generous for what it is worth and turned out to be serious money.

They have been pretty good over last 15 years he has been sharing openly.

In between few disasters (DFC or ZINC). 

However, if we are cloning Pabrai, what our job is to apply our own filter and take responsibility for outcomes.

 

Anybody that went into ZINC following Pabrai I would say has 110% responsibility for what happened here and should not give an ounce of blame to anyone or anything in the world but themselves. Maybe a little less so as an investor into his fund as Pabrai apparently went against some of his stated principles going into this company, and investors could understandably feel duped for a 20% position going doughnut, rather than a 10%, for example . Was it officially a part of his mandate/charter/whatever it's called? Either way there will be lawsuits

[str8shot]

Today after market closed, Form SC 13G/A Horsehead Holding Corp was filed by: Dalal Street, LLC

 

Reported at this link (http://www.emqtv.com/dalal-street-llc-owns-stake-in-horsehead-holding-corp-zinc/153673/):

Dalal Street, LLC recently revealed that they own 4.5% of Horsehead Holding Corp. (NASDAQ:ZINC) in a Form 13G/A disclosure that was filed with the Securities and Exchange Commission (SEC) on Friday, January 22nd. The investor owns 2,549,919 shares of the stock valued at approximately $994,213. The reporting parties listed on the disclosure included Dalal Street, LLC and Mohnish Pabrai. The disclosure is available through EDGAR at this link:

 

http://archive.fast-edgar.com/20160122/AWUZB22CZ222V2Z2222U2WZZSRVPZI827S82

 

Indicates that Dalal Street, LLC has shared dispositive power of 2,549,919 shares (4.5%) and Pabrai has shared dispositive power of 1,966,835 shares (3.5%).

 

[Vish_ram]

Looks like Pabrai has bought and sold a dozen commodity companies last 10 years.

 

Catastrophic losses

-------------------

Harvest natural, Cryptologic, Pinnacle airlines, Delta financial, Compucredit, ABX air, Horsehead,

 

Near deaths (80% or more down)

-----------------------------

ATSG, SGU, Universal alloy,

 

50% haircut

-----------

Cresud, Potash, Posco

-------------------------

 

Others

ICO got bought by Arch Coal, now bankrupt

 

 

It is strange to see a Buffett admirer get attracted to commodities, subprimes, airlines etc. Heads I win, tails LP's get hosed.

[LC]

Looks like he needs to take Mungers advice about figuring out where he will die and not going there.

[ERICOPOLY]

Looks like Pabrai has bought and sold a dozen commodity companies last 10 years.

 

Catastrophic losses

-------------------

Harvest natural, Cryptologic, Pinnacle airlines, Delta financial, Compucredit, ABX air, Horsehead,

 

Near deaths (80% or more down)

-----------------------------

ATSG, SGU, Universal alloy,

 

50% haircut

-----------

Cresud, Potash, Posco

-------------------------

 

Others

ICO got bought by Arch Coal, now bankrupt

 

 

It is strange to see a Buffett admirer get attracted to commodities, subprimes, airlines etc. Heads I win, tails LP's get hosed.

 

Maybe it's because high uncertainty companies can be traded profitably if you time it right.  Swing trading, but you could convince yourself that there is value and that you are a value investor if you approach the POS (piece of shit) company with the right biases.

 

[ERICOPOLY]

Somebody else might do the same trade under the guise of "technical analysis", buying something oversold amid panic and fear, and the "value investor" might come along with his own bible (Security Analysis) and biases that tell him it's undervalued and below intrinsic value by 50%.

 

Exact same company, both people buying the same thing for the same basic reason -- it's dropped heavily in price during massive fear/pessimism.  They both buy, one person sells when his "technicals" tell him to, and the other sells when his "IV estimate" is reached.

 

It's just a delusion when you are taking IV estimates on highly uncertain companies -- might as well go the technical analysis route.

 

You have a fighting chance of seeing a reasonably accurate glimpse of IV if you approach only the companies that have a high degree of certainty.  Compare that to Pabrai's approach chasing "high uncertainty" stocks -- it doesn't surprise me that he's got the IV so completely wrong when he's trying to value a highly uncertain situation.  Of course it's hard if you do that -- you want to make it harder and be wrong even more often, I have some advice for you:  seek out even more highly uncertain stocks!

[SnarkyPuppy]

http://www.sec.gov/Archives/edgar/data/1385544/000115752316004260/a51264710ex99_1.htm

[walt373]

Somebody else might do the same trade under the guise of "technical analysis", buying something oversold amid panic and fear, and the "value investor" might come along with his own bible (Security Analysis) and biases that tell him it's undervalued and below intrinsic value by 50%.

 

Exact same company, both people buying the same thing for the same basic reason -- it's dropped heavily in price during massive fear/pessimism.  They both buy, one person sells when his "technicals" tell him to, and the other sells when his "IV estimate" is reached.

 

It's just a delusion when you are taking IV estimates on highly uncertain companies -- might as well go the technical analysis route.

 

You have a fighting chance of seeing a reasonably accurate glimpse of IV if you approach only the companies that have a high degree of certainty.  Compare that to Pabrai's approach chasing "high uncertainty" stocks -- it doesn't surprise me that he's got the IV so completely wrong when he's trying to value a highly uncertain situation.  Of course it's hard if you do that -- you want to make it harder and be wrong even more often, I have some advice for you:  seek out even more highly uncertain stocks!

 

Any trader worth his salt wouldn't be caught dead losing 95% in a stock like this considering their rule #1 is to cut losers. In contrast, many value investors start with the base assumption that they are right and the market is silly/irrational/wrong, meaning a decline is an opportunity to buy more. That is the most glaring dichotomy between the two sides. In my opinion, neither side has a monopoly on wisdom. In this case, I have to say I agree more with the traders. At least they have humility rather than arrogance built into their system. Of course, the most important thing is to be right. But if you are wrong, misplaced conviction is what does the damage.

[LC]

I think Buffett realized that and stopped buying crappy companies. Decent companies you don't lose 95%. Buy a business even an idiot could run (because eventually one will). Ever think Buffett was referring to himself as the "idiot"?

[TheAiGuy]

(...) Ever think Buffett was referring to himself as the "idiot"?

 

+1 Probs. I don't normally like posts referencing he who shall not be named but that's a good insight.

[oddballstocks]

Plant idled

 

http://www.post-gazette.com/business/pittsburgh-company-news/2016/01/23/Horsehead-cites-low-zinc-prices-idles-N-C-smelter/stories/201601230052

[Txvestor]

I think its pretty obvious they are out of money and out of credibility. This management is pathetic. They can blame anything they want, but their ineptitude, poor planning and execution and constant misrepresentation of the facts is either incompetence or delusional or both.

On what basis would any lender or equity investor give them $$ now for them to reopen. They will flush that down the toilet too with a cockamanie story, thats their expertise.

The number of management missteps here is downright laughable. These are sequential errors of commission. Sadly there is no accountability in the c suites and boardrooms of america. It is sad that managements can still leave these sorts of absolute failures as millionaires. As handsomely as they are paid they should have to have skin in the game.

Anyone see any other result but Bk here?

[Guest longinvestor]

Looks like Pabrai has bought and sold a dozen commodity companies last 10 years.

 

Catastrophic losses

-------------------

Harvest natural, Cryptologic, Pinnacle airlines, Delta financial, Compucredit, ABX air, Horsehead,

 

Near deaths (80% or more down)

-----------------------------

ATSG, SGU, Universal alloy,

 

50% haircut

-----------

Cresud, Potash, Posco

-------------------------

 

Others

ICO got bought by Arch Coal, now bankrupt

 

1) It is strange to see a Buffett admirer get attracted to commodities, subprimes, airlines etc. 2) Heads I win, tails LP's get hosed.

 

IMO, 1) the public admiration for Buffett is a cultivated one, because it is a subtle marketing scheme to attract 2) OPM. The marketing machine was also helped in that Pabrai had a good start off the gate. The rest of it is very ordinary investor behavior.

 

If you clone a (poor) cloner, wth are you?

[valueinvestingideas]

 

IMO, 1) the public admiration for Buffett is a cultivated one, because it is a subtle marketing scheme to attract 2) OPM. The marketing machine was also helped in that Pabrai had a good start off the gate. The rest of it is very ordinary investor behavior.

 

 

Whether you like Pabrai or not, this is pretty spot on in my opinion - and an evidently excellent way to attract AUM/attention.

[Picasso]

 

IMO, 1) the public admiration for Buffett is a cultivated one, because it is a subtle marketing scheme to attract 2) OPM. The marketing machine was also helped in that Pabrai had a good start off the gate. The rest of it is very ordinary investor behavior.

 

 

Whether you like Pabrai or not, this is pretty spot on in my opinion - and an evidently excellent way to attract AUM/attention.

 

+1. Whenever I listened to his "lectures" they were so bizarre. The advice and stories are so crazy sometimes. I should make a compilation of Pabrai quotes to college students that are likely to end their careers.