Turnaround Stock Stories – Turn Back Time – Marvel Enterprises $MVL

Turnaround Stock Stories – Turn Back Time – Marvel Enterprises $MVL

I thought that I would look back at some of my past investments, before I started my blog and before I began to journal the investment thesis for purchases I make, and document some of my reasons for the purchase, and the outcome.  Of course I’m working on an outcome bias here, but I think it’s worth writing out some history lessons that I should keep in mind as I look for future businesses to invest in the future.  The first look back will be one of the best investment returns I have made by investing in Marvel Enterprises in the early 2000’s. I believe that everyone is familiar with Marvel Studios and the many movies that have been released over the past decade involving many of the Marvel superheroes.  The company is now a division of Disney, but at one point in time they were a public company and even declared bankruptcy.  That may be shocking since the current situation is going very well for Marvel Studios, especially with the recent release of Deadpool.  I’ll admit, I love finding turnaround companies and think the outcome can be very profitable if the right situation lends itself in the market.  Many…

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Critical Look at using DCF for Valuations

Professor Damodaran has written a ton of articles about Discounted Cash Flow (DCF) analysis over the years.  I don’t think another website has as much information about valuation and DCF as on his blog – so it is a wonderful resource to visit and use for investors.  His latest blog post on DCF which defends the use of DCF as a valuation technique is a good topic.  Many investors have discredited the use of the DCF technique and Damodaran tries to initially cover some of these myths and focus on the critical use of DCF in valuing companies.  It appears that he will cover, in detail, the myths of DCF over the upcoming year! It is my opinion that a DCF analysis, in theory, is the right way to value a business or asset.  An asset is only valuable if it will give a return to an investor.  An asset has a defined life, and the total amount of cash returned to an investor over the life of an asset, discounted for risk and time value of money is the final value of that asset.  The theory is solid, as is the basic DCF calculation process.  This simple chart is…

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Company Turnarounds are Hard

Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact – Warren Buffett   Turnarounds seldom turn. – Warren Buffett I’ll admit that I am interested in finding companies that are in a turnaround.  I feel that if I can locate a company that will be successful, it will result in a high return on my investment.  However, if you are experienced in the markets, or have worked for a company that is in a downward trend, you’ll know that it is very hard to turn a company around.  I have worked for a company that I would classify as in a “death spiral” where revenue and profit are continually decreasing and it is very hard to change the course.  This usually happens with a company that is in a market in decline and being overtaken substitute products or companies thus eliminating any advantages that the company had been relying upon. So, how come I hunt in territories where Warren Buffett and others have warned investors against?  Because for one, I think that it is an…

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100x The Power of Growth in Wealth Creation

100x The Power of Growth in Wealth Creation

Thanks to Ian Cassel from MicroCapClub for tweeting out a link to a paper produced by Motilal Oswal which is a study on companies that have gone on to become 100 baggers within that past 5 years.  A 100 bagger is a company whose share prices as increased 100 times the initial price, or in other words, the company has experienced tremendous growth that has translated into tremendous share price gains. A really great paper analyzing 100-baggers H/T @Anil_Tulsiram http://t.co/Qcoj5cq7Rx Wish someone would do this here in the US #investing — MicroCapClub (@iancassel) December 16, 2014   100x The Power of Growth in Wealth Creation is an excellent read and is under 50 pages long.  The companies used in the study are all in India, however, the study still produces some great insight.  The authors state that they are value investors, and often quote other prominent value investors throughout the paper.  Apparently  this study is written  every year and includes a new 5 year period ending with the current year.  This years study begins in 2009 and spans through 2014. My favorite section of the paper includes this chart: Here the authors have broken down the 5 elements that make up the…

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Critical Change within Value Investing?

Last month Barron’s published an article by Brendan Conway named Value Investing goes Back to the Future.  In the piece, Conway goes on to try to establish the premise that value investors have changed from using historical prices or backward-looking measures to more risky forward earnings or forward-looking measures. What exactly is value investing? Value investors buy attractively priced stocks, but there are backward-looking measures, as well as forward-looking ones. Lately, the forward measures are winning, and that fact tells an interesting story about what’s driving investors. When value investors start to use forward-looking measures, I immediately begin to think that investors have begun to use more risky predictions on future growth to value stocks and the market overall.  Actions that price stocks/businesses based upon risky future predictions have a high degree of variation and are highly inaccurate.  I’m hoping that value investors are not chasing stocks as prices have risen over the past 5 years since the Great Recession. I’ve noticed that I have caught myself thinking about justifying the stock price of a few companies that I really like, but the price is a little too rich for my liking.  I have an internal voice that tries and rationalize…

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Are Markets Efficient? – Comments by Howard Marks

Howard Marks’ latest memo is a good read and discusses two very interesting topics 1) Role of luck in investing and 2) Are market efficient?  I’m not going to cover the role of luck in investing in this post, but I do believe luck plays a role and luck happens to people who position themselves to take advantage of it. Market Efficiency The theory of efficient markets makes sense, as the more freely and quickly information flows, the market can incorporate that information instantaneously always providing “accurate” pricing using the latest information.  However, humans still play a role in the market and humans can act irrational.  With the proliferation of technology and specialized investment firms, it is hard to find markets that seem deeply undervalued.  In today’s world, I think the markets are close to efficient, but sometimes a wrinkle causes the market to become inefficient.  The latest “wrinkle” occurred during the 2008 Great Recession when the market did not know how to price securities based on the current information.  It is during these times that value investors can make strong positive expected value bets.  However, most of the time markets do not present these types of opportunities. I think that Marks’…

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Find the Metric

I was first introduced to the idea of finding the one (maybe two) most important metric that means the most for a particular company when I was attending SMU pursuing my MBA. I took a personal investing class that was taught by an adjunct professor and it was one of the top classes that I took. He didn’t cover the standard financial and portfolio theory that you hear in traditional finance classes. Instead, he ran his own investment outfit and used was in the investment group that owned the Texas Rangers with George W Bush. I learned a lot about investing from this class, and one of the things that has always stuck with me was to find the one metric that can be used to investigate a company (or industry). Some industries have a metric or two that is well-known, and can be used to measure the health of a company and potentially use to compare companies in the same industry. Sometimes you, as an investor, need to figure out what makes the company tick and come up with your own metric. Other times, a company will define a metric that is used in their Quarterly and Annual Reports.…

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Investment Checklist Reading

I’ve collected a list of blog posts related to value investment checklists.  I thought I might aggregate all the posts that I have saved and put them in a blog post in case other investors would like to review other investor’s checklists’. Portfolio 14’s Investment Checklist Frank Voisin covers Bruce Berkowitz’s Investment Checklist Guest Post on Old School Value – 40 Point Checklist Ben Graham Investment Checklist  

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