Finally, An Investment Idea (and not just talk about why no one is posting)

Frank,
You’re right. I have blinded myself. I think its because of all the defending I have had to do in the face of criticism. There is a very good chance that things can get worse operationally. In fact I was thinking of taking your advice and entering on the debt side. Its 2024’s are selling at 62 and 2018s at 71.5 yielding approximately 14.15% and 15.5% each. Do you think it will be a better risk than the equity? Either I will get paid or wont - that prospect is more attractive.
Zuran,
Very good observation, I will have to look at how much of their orderbook they need to pay off.
 
There is a thin line between having conviction and being blinded by passion, a good investor knows how to balance between that line but most of the time it is not obvious to an outsider whether it is conviction or blindness so we need not to be so harsh on ubermensch. Seth Klarman puts it best
“An investor must have more confidence in his or her own opinion than in the combined weight of all other opinions. This borders on arrogance, the necessary arrogance that is required to make investment decisions. This arrogance must be tempered with extreme caution, giving due respect to the opinions of others, many of whom are very intelligent and hard working.”
 
I think that you need to be intrinsically arrogant to be an investor, aka you really need to believe you have the abilities to better everybody else in the markets, yet when you actually look at data I think you need to be pretty dispassionate. That’s part of why I don’t think it’s a great idea to grill someone about his stock picks, because the natural tendency is to get defensive and end up “pulling” for your stock.
Personally I have no idea about OSG, but I hope it works out for you.
 
Zuran is too a value guy like us….and very astute……
I know some ppl who put a lot of time in than refuse to let go of the idea…they tell me “i put x amount of time, and it got nowhere”….part of the game is saying “no” even after putting in a lot of time….i normally go through about 10-15 companies after filters before making a buy……..
 
FrankArabia wrote:
….part of the game is saying “no” even after putting in a lot of time….
Click to expand...
This. I have maybe about 3 actionable ideas a year, that’s after searching daily……….which is probably extreme but I’m very picky.
 
i am in the same boat right now….i think i’ll go back into a name I bought earlier this year….TEVA….earnings came out today and its good from where i am standing…..
 
Teva looks promising, and they have good growth in FCF, the thing that turns me off about them is their long term trend in ROA, it’s erratic, I’d like to see it go up smoothly, which I believe to be a good indicator of management judgement in reinvesting cash.
 
you have to do some adjustments and understand the business to use those ratios as they’re not a one size fits all. if all you’re doing is going to the financial engine and running on ratios, that’s only 5-10% of the work. I use to do that too, look up the ratios and check to see how nice they look. high ROEs, low book, low p/e, growth in revenue etc.
On the investment here, they have a tendency to pay high multiples for strategic assets where they believe will pay off in the long term (ratiopharm, taiyo, celp, barr). yes, they paid a lot but its to capture market share and establish themselves in a market some (including myself) feel its growing. if you look at their b/s, its filled with GW/Intangibles. essentially, this is not an “asset heavy” company though they do have distribution/manufacturing plants. the ROA is erratic due to growth in the company’s assets and the way GAAP records its earnings from M&A (inventory expenses, research in progress etc) activity.
 
I dont disagree, part of why I didn’t bother to go too deep into it is because these pharma firms use (as you noted) acquisitions as a form of research. IMO then those acquisitions need to be added to CapX when calculating FCF, which makes their free cash flow a lot less impressive.
 
I disagree…..easy just to use standard formulas but once again, gotta understand things…..Capex is for sustaining current period results, not growing them.
would you consider GOOG’s acq of motorola, or MSFT acquisition of SKYPE as a part of Capex? its the same thing really……getting into emerging industries, markets etc to drive growth leveragining organic fundamentals…..
 
Yes, I definitely consider Skype acquisition a form of Capex. I was just about to mention that as an example.
Motorola though is a different story, I wouldn’t be able to evaluate that, so I can’t say for sure.
It’s a grey area for sure, but in my view if they’re buying companies just to get a toehold into nascent markets, then it’s research.
 
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