Microsoft: Undervalued with catalysts for outperformance

Shares of Microsoft Corporation (MSFT) are currently trading at around half the price it achieved during the 1999 tech bubble peak. The net earnings-per-share almost quadrupled during the last twelve years - $0.71 (’99) to $2.69 (’11). Read more at Seeking Alpha...

IBM's Business Transformation Status and Outlook

IBM Inc. was the intrepid pioneer of the industry that created the market for utilizing computers for business purposes from the 1960s to the early 1980s. None could have envisaged then that within a decade, this mighty muscle would be fighting for relevancy. Read more at Seeking Alpha...

Valuing Growth Stocks – Introduction to a Dividend Discount Based Model

The Dividend Discount Model is a conservative way of estimating the fair value of a mature dividend paying stock. The base formula requires using an estimated long-term dividend growth rate:

FV = D/(DR-LDGR)

FV – Fair Value,
D – Current Annual Dividend,
DR – Discount Rate – The weighted average cost of capital (WACC) is a good estimate for this number,
LDGR – Projected Long-term Dividend Growth Rate.

For growth stocks that are not paying a dividend currently, the model can still be used by making a few additional assumptions:
  • Discounting Period – period of expected growth phase of the company when no dividends are paid,
  • Projected Earnings Growth Rate – projected earnings growth during the discounting period,
  • Projected Dividend – projected initial dividend paid after the discounting period,
  • Long-term Projected Dividend Growth Rate – average dividend growth in perpetuity after the growth phase (discounting period when no dividends are paid).
The idea is to do a fair value estimate based on a future date when dividends will be initiated and discount that fair value back to the present period. The steps are:

  1. Project the length of the growth phase in years (discounting period when no dividends will be paid),
  2. Use the growth phase period along with a projected growth rate for that period to come up with an earnings number at the end of the growth phase,
  3. Project the first dividend amount – base it as a percentage of the earnings number above.
  4. Use a projected long-term dividend growth rate and the first dividend amount to come up with a fair value estimate at the end of the growth phase,
  5. Discount the fair value estimate at the end of the growth phase back to the current period.

Below is a look at a spreadsheet that uses these assumptions to get a Fair Value Estimate for Google (GOOG) stock:

The base parameters are:

  1. EPS – Current Earnings per Share (trailing-twelve-months). For Google, this is $29.33,
  2. DP – Discounting Period (Growth Phase Period) – for Google, we assume the company will start paying a dividend in 5 years - the growth phase (discounting period) is 5 years,
  3. GRn – Growth Rate during the discounting period – For Google, this is taken as 15%, a conservative estimate, given the current growth rate is 19.13%.
  4. LPDGR – Long-term Projected Dividend Growth Rate. For Google, we take this to be 8%. Well-run companies increase dividend at a double-digit pace in the initial years. So, this should be a good conservative figure.
  5. DR – Discount Rate – Weighted Average Cost of Capital – 9.79% for Google.

The calculated paremeters are:

PED – Projected Earnings after Discounting Period which can be calculated as:

PED = EPS*(1+GRn)^DP
         = 29.33*(1+0.15)^5
         = $58.99

PD – Projected Dividend after discounting period. For Google, we assume Google’s initial dividend will be one-fourth of the earnings after 5 years.

PD = PED * 0.25
      = 58.99 * 0.25
      = $14.75

FVn – Fair Value at the end of the discounting period. This gives what the fair value of a company will be after the discounting period. For Google, since we are assuming Google will start paying a dividend after 5 years, the number gives an estimate for the fair value of Google 5 years from now. The value uses the basic Dividend Discount Model formula:

FVn = PD/(DR-LPDGR)
        = 14.75/(0.0979-0.08)
        = $823.93

FV – Fair Value – Dividend Discount Model. To get the current fair value, we discount the fair value at the end of the growth phase (discounting period) back to the present period:

FV = FVn/(1+DR)^DP
      = 823.93/(1+0.0979)^5
      = $516.50

The valuation comes to $516.50, which is somewhat below the current stock price. So, the stock is not a Buy.

One limitation with the formula is that estimates for the discounting period, initial dividend, and the long-term projected dividend growth rate are educated guesses. Minor changes to the long-term projected dividend growth rate, initial dividend, and discounting period can cause big changes in the estimated fair value. For example, taking a long-term projected dividend growth rate of 7% instead of 8% will result in a fair value estimate of $331.38. On the other hand, taking the rate to be 9% will result in a fair value estimate of $1170.31.


Angra - Travel/Philately/Numismatics/Memorabilia Profile

Angra was an administrative district of the Azores that consisted of the islands of Terceira, Sao Jorge and Graciosa. Currently, it is a municipality and city within the Portuguese autonomous region of the Azores with a total area of 92.3 square miles and a population of over 35,000. Angra is the historical capital of the Azores and the city dates back to 1450 – the oldest city in the archipelago. It is classified as a UNESCO World Heritage site as of 1983. Officially called Angra do Heroismo, the word ‘Heroismo’ (heroism) was added by Queen Maria II of Portugal around 1833 in recognition of the bravery of the people of Angra in their struggle that helped form a liberal constitutional monarchy in Portugal.

Philatelic Profile:

Angra used Portuguese stamps overprinted ‘Azores’ during the period from around 1868 to 1892. The first stamps of Angra per se were a set of fourteen stamps depicting King Carlos in different colors and denominations issued during the period from 1892 to 1893. The set (Scott #1 to #13) catalogs for around $280 Mint and around $180 Used. The Angra and denomination inscriptions are part of the original design in this set. Perf varieties exist for most of the denominations and the higher denomination varieties are rare and sought after cataloging upwards of $70. Angra also issued another long set of twenty two stamps during the period from 1897 to 1905. That set (Scott #14 to #35) catalog for around $110 MNH and around $85 Used. The set had a very similar King Carlos portrait design but were different in that they were key-types with both the denomination and ‘Angra’ overprinted on the base design. A perf variety also exists for the highest denomination on this set as well and that catalogs in the $30 range for Mint. The 5r orange (Scott #15) is unique in that there are examples of those used on newspapers and circulars with the diagonal half used as 2.5 Reis. Those used on newspaper or circular catalog in the $30 range. Angra went back to using Azores stamps during the period from 1906 to 1931. Portuguese stamps replaced stamps of Azores from 1931 onwards.


Collectible Memorabilia:

Historically relevant postcards area a good collectible theme of the area.



Last Updated: 12/2015.

Analysis of Google's 3rd Quarter Report and Fair Value Estimates

The Q3 2011 earnings call kicked off with Larry Page, Google's (GOOG) co-founder and CEO categorizing it as a "gangbuster quarter". The year-over-year numbers are phenomenal for such a huge company with 33% revenue growth and 24% GAAP earnings growth. Read More at Seeking Alpha...


Holyland Trip Report – Israel – Jerusalem (Day 4)

 The front region of the 7-Arches hotel is a popular vista point for its sweeping views of the city. It is a choice spot for shots with the Jerusalem skyline in the backdrop and the Dome of the Rock as the centerpiece. We had our group photo taken from this vantage point before proceeding on the Palm Sunday Walk that was next in our agenda. One cannot but notice on the walk down, the three cemeteries on the left belonging to Jews, Muslims, and Christians – this is THE premium location when it comes to cemeteries for it is at the site where Jesus/Savior/Redeemer is believed to come back. The first stop was at Dominus Flevit, a Franciscan church in the western slope of the Mount of Olives. Dominus Flevit (Latin for “The Lord Wept”) was designed and constructed by the Italian architect Antonio Barluzzi between 1953 and 1955 in the shape of tear drops to symbolize the Lord’s tears. It is believed to be the site where Jesus wept after being overwhelmed by the beauty of the Second Temple, and predicting its future destruction (Luke 19:37-42). Jesus has dual nature – as human being, he cried as he knew what will happen. The western window of the church located on the ruins of a 7th century church has a beautiful view of the Temple Mount.

At the foothills of the Mount of Olives is Gethsemane (translates to symbol of peace and eternity) – it is believed the tears and sweat of Jesus turned into blood the night before his crucifixion here. The church built here has the rock where he sat. This place of worship, designed to portray agony, has a garden in front with trees dating back to the time of Jesus. Closer views of the Russian Orthodox Church (Gold Onion Tops) and the Golden Temple are on offer here. Beyond them are the Calvary and Holy Sepulcher Church Onion Tops, the Wailing Wall, and the Compound Wall built around Old Jerusalem during Turkish times. Adjacent to the Garden of Gethsemane is the Church of All Nations with a strikingly colorful facade – it enshrines the section of rock where Jesus is believed to have prayed before his arrest. We also visited the site of Mary’s tomb and the grotto where Jesus was arrested (betrayed by Judas) in Kidron valley area in the foothills of the Mount of Olives. The site of the tomb of Mary is maintained by Orthodox churches – the belief is that Christ lifted her to the heavens from this site fifteen days after she breathed her last. Catholic tradition has it that this happened in Mount of Zion.

Our next visit was to John the Baptist Church (St John Ba Harim) and Mary’s Well. John’s mother Elizabeth and her husband Zaccharia were a very elderly couple. Zaccharia who went temporarily mute started talking after the birth of John and his first words were a strong prayer that is inscribed along the walls in different languages. Mary was Elizabeth’s cousin and she visited Elizabeth for three months until Elizabeth gave birth to John the Baptist. Mary’s Well or Mary’s spring is probably where Mary and Elizabeth came to fetch water. The Greek Church of St. John the Baptist in Jerusalem’s Christian Quarter is not regularly open to visitors – distinct with its silvery dome, it is one of the oldest churches of Jerusalem. The next church in our agenda for the morning was the Chapel of Ascension (Ascension of Christ to Heaven) on the Mount of Olives. The church is built on the site where Christians and Muslims believe Christ ascended to Heaven. Ascension Rock, believed to have a foot step of Jesus that points toward Jerusalem is inside the Chapel – at one point, it had an open sky – a dome was later added by Muslim rulers and was used as a mosque. Lunch was at the 7-Arches hotel – basic food for a change – rice, chicken, and salad sans dessert.

Jerusalem is believed to be a city chosen by God himself and King David took this city to become King of Jews thousand years before Christ. He built the city to the South. After his death, his son King Solomon moved the city north. The Temple Mount and the Golden Dome were built by Solomon. Temple Mount is the most important religious site in the area – Judaism regards it as where God chose the Divine Presence to rest while Sunni Muslims considers it as their 3rd holiest site. Inside the Temple Mount is the the "Holy of Holies" – the arc of covenant, manna, the tablet containing the 10 commandments, and the stick of the father of Moses. The original temple was destroyed by the Babylonians in 6th century BC and was rebuilt by Herod the Great during the time of Jesus. The Byzantine church was rebuilt and is turned toward west and reminds people of two things – destruction of Jerusalem and the empty tomb at the Holy Sepulcher Church. The city has eight gates – Damascas Gate, Herod’s Gate, St. Stephen’s Gate, Golden Gate, Dung Gate, Mount Zion Gate, Jaffa Gate, and New Gate. Golden Gate is closed – it is believed that the gate will open when the Savior returns.

Walking the Path of the Cross (Via Dolorosa - way of suffering) with 14 stations was our itinerary for the afternoon – of these, nine stations are en route and the last five are inside the Church of the Holy Sepulcher. We entered Old Jerusalem through Herod Gate. Unlike our imagination, the path of the cross is through a cobbled pathway filled with souvenir shops on either side. The stations are more like popular tradition as opposed to authentic spots where the events actually happened. The variety of souvenirs, curios, and food available at these shops is indeed impressive and no other place in Israel comes close. The stations commemorate:
  1. 1st & 2nd Station – Jesus’ encounter with Pontius Pilate – first is a memorial of Jesus’ trial and its subsequent scourging and the second a memorial of the Ecce Homo speech. A mass was arranged for our group at the Church of the Condemnation and Imposition of the Cross. Two other 19th century Roman Catholic Churches are also at the site – Church of Flagellation and Church of Ecce Homo.
  2. 3rd, 7th, and 9th Stations - Jesus is believed to have stumbled three times during his walk along the route. The first fall (3rd station) is adjacent to the 19th century Polish Catholic chapel. The second slip (7th station) at a junction close to a Franciscan Chapel. The third trip up (9th Station) is off Via Dolorosa at the entrance to the Ethiopian Orthodox Monastery and Coptic Orthodox Monastery.
  3. 4th Station - Jesus meets Mary – the account is not in the New Testament. It is however a part of popular tradition,
  4. 5th Station – Simione helping Jesus carry cross,
  5. 6th Station – Veronica’s encounter with Jesus – legend about getting an image of Jesus supernaturally imprinted on the cloth used by Veronica to wipe away the sweat,
  6. 8th Station – Jesus giving a sermon to pious women as described in the Gospel of Luke where he says ‘do not cry for me, cry for you and your children’.
  7. 10th Station –Jesus being stripped off most of his garments,
  8. 11th Station – The station is inside the Holy Sepulcher church on the south side and is regarded as the site of Jesus’ crucifixion,
  9. 12th Station – The cross being put up. The Rock of Calvary can be seen under glass and there is a hole where it is believed the cross was raised, (one can touch the location by poking your hands inside.)
  10. 13th Station – The place where Jesus’ body was removed from the cross and given to his family. An alternate viewpoint is that the Stone of Anointing at the Entrance where Jesus’ body was prepared for burial as the 13th station,
  11. 14th Station – The place where Jesus was buried.

The Station 10 through 14 is inside the Holy Sepulcher Church. Only 4-5 people are allowed at a time inside the inner room (no cameras) accessible through a very small entrance (exit is also via the same way).

The cross of Jesus is believed to have been identified by Queen Helena – legend has it that the three crosses were tossed into a badly maintained well and in order to urge people to seek it out she threw gold coins into the well. Those who went in found the three crosses - and from it the correct cross was identified by letting them all touch a person on the point of death – the person’s condition improved after making contact with one. The whereabouts of the cross is unknown although it is speculated at-least some part of it is in Vatican. The 13th station is special as people from different parts of the world bring different things to make holy – the faithful believe rubbing the stone with any article makes it holy. Nearby is a Syrian Orthodox Church that claims to be the first church of Christianity and there one can find original pictures of Mary and Jesus drawn by Luke – as a doctor and artist, he went to see Jesus’ mother following His death – that is believed to be the reason why some of Mary’s testimony are only in Luke’s Gospel in the Bible. The site also has the upper room (Last Supper), an alternate location to the one in Mount Zion. Per the caretaker of the church, many miracles are attributed to this church over the years. Dinner was again back at the hotel – full-fledged menu with mushroom soup, salads, rice, lamp, chicken, fish, rolls, coffee, and desserts aplenty.


 Related Posts:

  1. Holyland Trip Report - Jordan - Mount Nebo, Madaba - Day 1.
  2. Holyland Trip Report – Israel - Yardenit, Tiberias, Tabgha, Cappernaum, Ginosar, Sea of Galilee (Day 2).
  3. Holyland Trip Report - Israel - Nazareth, Cana, Tel Aviv, Jaffa, and Bethlehem (Day 3).
  4. Holyland Trip Report - Israel - Jerusalem (Day 4).
  5. Holyland Trip Report – Israel – Jerusalem, Jericho, Dead Sea (Day 5).
  6. Holyland Trip Report – Egypt – Red Sea, Sinai (Day 6).
  7. Holyland Trip Report – Suez Canal, Cairo - Day 7.
  8. Holyland Trip Report - Old Cairo - Day 8.
  9. Holyland Trip - Gotchas to avoid.  
  10. Holyland Trip - Jordan - Other Sites
Last Updated: 12/2012.

Allenstein - Travel/Philately/Numismatics/Memorabilia Profile

Allenstein is an area in present-day northeastern Poland covering around 4500 miles. It was a district of East Prussia from 1905 until 1945. The territory is currently part of the Polish Warmian-Masurian Voivodeship. Following World War I, a plebiscite was held here (East Prussian plebiscite) in 1920 to determine whether the areas population wished to remain in East Prussia or become part of Poland. The plebiscite was held on July 11 and almost 98% of the voters chose to remain part of East Prussia. Following the defeat of Germany in World War II, the area was placed under Polish administration and renamed as Olsztyn. The German population of the area was expelled in October 1945.

Philatelic Profile:

A number of stamps issued in the area to publicize the plebiscite of 1920 form the entire set of stamps of Allenstein. None of the stamps were original issues, but rather were overprints on German stamps from the 1906 to 1920 timeframe. The first issues were a set of fourteen stamps that were ‘Plebiscite Olsztyn Allenstein’ overprints on German stamps. The set (Scott #1 to #14) started selling on April 3rd 1920 and became invalid on August 20. Despite the fact that the stamps were used only for a few months, the first set is remarkably inexpensive, cataloging at around $50 MNH and around $30 Used. The designs on the original German issues included Germania allegory, General Post Office in Berlin, Union of North and South Germany, Unveiling Kaiser Wihelm I Memorial in Berlin, etc.

Another set of fourteen stamps using a different overprint design was also issued. That set (Scott #15 to #28) on the same original issues of Germany featured a different overprint that read ‘Traite De Versailles Art .94 et .95’ inside an oval border that had the inscription of the plebiscite commission. The overprint refers to the Treaty of Versailles Articles 94 and 95 that dealt with Allenstein’s right to hold a vote to self-determine their national preference. The set (Scott #15 to #28) catalogs for around $70 MNH and around $50 Used. Inverted and Double Overprint varieties are known to exist and they fetch a huge premium that runs well into the 100s for each example. Overprints that were not regularly issued are also known to exist for certain denominations and they also catalog in the $100 range for MNH.

Collectible Memorabilia:

Historically relevant photographs and reproductions from the early 1900s are a good collectible item from the area.




Last Updated: 12/2015.

Tracking Stocks In Mohnish Pabrai's Investment Funds: Part III

This article is the final piece of a 3-part series. (Click here for Part 1 and here for Part 2). The most intriguing performance of Mohnish Pabrai’s Investment Fund in the last five years was its free fall in 2008 where it disgracefully lost 60% of its value, followed by the outstanding rally in 2009 when it returned well over 100%. Even that performance of 2009 could not eclipse all of the losses from 2008.Read More at Seeking Alpha...


Tracking Stocks in Mohnish Pabrai's Investment Funds - Part II

This article is Part 2 of a three-part series. The first part can be accessed here.

At the Pabrai Investment Funds annual meeting of 2004, Mohnish Pabrai described his evolution as a focused “special situations” based value investor. Read More at Seeking Alpha...

Quick Take on Frontline Limited (FRO)

Hemen Holding Ltd, a company indirectly controlled by trusts established by John Fredriksen controls one-third of Frontline. The company has a total of 74 vessels as of the end of the 2nd quarter of 2011 excluding six new buildings on order: Very Large Crude Carriers Double Hull (VLCC DH) – 44, Very Large Crude Carriers Single Hull (VLCC SH) – 3, Suezmax DH – 21, and Ore-Bulk-Oil Carriers (OBO) – 6. They are valued at around $2.6B in the books – around $35M per ship. This is fairly reasonable – new builds are valued upwards of $100M, five-year old VLCC are assessed at $76M, and 10 year-old at around $40M – the latter valuation has come down significantly in the last six months because of low tanker rates. Scrap values are upwards of $20M. Frontline’s tanker fleet has an average age of 11 years compared to the industry-wide average of 9 years.

Break even rates for Frontline stands at $29.8K for VLCC, $24.8K for Suezmax, and $21.7K for OBO. For 2010, VLCC rates averaged $45K. For 2nd quarter 2011, the average rates quoted are below the lows for the last twelve years with VLCC at just $8K per day, and Suezmax at $13.5K per day – the 1st quarter averages were $20K/day and $19.8K/day respectively. Third quarter rates are expected to be in the same range. This accounts for the large loss reported. The key factors contributing to low rates are: a) Oversupply of ships estimated to be around 50 - ~10%, b) oil demand is low because of global slowdown, and c) The decision by the International Energy Agency (IEA) to temporarily release 60 million barrels from global strategic petroleum reserves proved negative for tanker demand and we noticed a decrease in long-haul imports to the US. Further, the current international situation has delayed the economic recovery and future oil demand might suffer. The rates peaked in July 2008 when it commanded $177,000/day. At that time, a 5-year-old supertanker went for $162M.

Frontline has seven new-buildings (Five VLCCs and two Suezmax) on order for delivery in 2012 and 2013 (after accounting for 4-5 months delay). They have paid around $200M out of the total order of $650M. The $450M remaining is expected to be financed - $145M is secured and the rest are un-drawn. If business conditions continue to worsen, this can turn out to be a risk – they will lose money (up to the $200M – one secured deposited), if they cannot come up with the $450M when it comes time for delivery. Below is the Capex projection for the coming years:


Frontline has around $540M of current assets and around $400M in short-term liabilities. The current capex requirement is stable. Below is a look at the balance sheet over the last three quarters:



The vessels are valued at ~$2.6B which comes to around $35M per ship – this may be about right, as the average age of the fleet is around 11 years. Total debt MINUS cash-on-hand is comparable to this figure. There are 80M shares outstanding and the net equity is around $720M. So, the liquidation value should be around $9. Frontline is trading at a 50% discount to current liquidation value. The seven ships on order will result in a cash-outlay of $450M between now and 2013. Also, at current rates, the company will take substantial losses at roughly the $25M run-rate. These factors may be contributing to the depressed market valuation of Frontline shares.

Fair Value Estimates:

Fair value estimates can’t be estimated well as the business shows negative earnings for the current year and next year.

Checklist:

  1. Is it a business I understand very well squarely within my circle of competence? – Mild yes.
  2. Do I know the intrinsic value of the business today with a high degree of confidence? – No, the business is very volatile.
  3. Is the business priced at a large discount to intrinsic value today and in two to three years? – Don’t know.
  4. Would I be willing to invest a large portion of my net worth into this business? – No.
  5. Is the downside minimal? – No.
  6. Does the business have a moat? – Frontline has 74 ships – but, the market is very fragmented. Eventually, Fredriksen who controls the company might attempt to consolidate and that could result in significant moat. Until then, no moat.
  7. Is the business run by able and honest managers? – Yes.
  8. How much is the Margin of Safety? – A good investment needs good downside protection – do not know.
  9. Is it a simple easy to understand business? – Yes. 
  10. Are the revenues and cash flows of the business sustainable? Are you looking at normalized earnings or boom-time earnings? - NA.
  11. Is it a Graham Net/Net play? – Bought below net working capital. Special Situation – good downside protection and chance of high returns, but probability is very low - Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities. No – it is a large negative number (540M + 0.75*80M+0.5*60M-3B = -2.37B).
  12. Is the company’s business becoming unregulated that could cause the moat to quickly evaporate? – NA.
  13. Assets to Equity – Is the company too leveraged? – the ratio is very high and so is highly leveraged (3.8B/760M)
  14. Could the company have made bad lending decisions? – Bank specific – NA.
  15. How much will high unemployment and recession hurt the business? – Global recession will hurt the business as oil shipments will go down.
  16. Is the investment correlated to one or more of your existing holdings? – Holding many businesses that are correlated can result in an un-diversified portfolio – Yes, the portfolio has DryShips (DRYS), another shipping company.
  17. Can this business be decimated by low-cost competition from China or other low-cost countries? – NA.
  18. Is this a win-win business for the entire ecosystem? – Yes.
  19. How much leverage does the company have?, What are the covenants? Are they recourse or non-recourse?, etc. – Do not know – the company is leveraged and can run into trouble if things worsen – but, JohnFredriksen   is expected to infuse cash if needed.
  20. There are five questions on management - Management Compensation? Interests of Management – Is it aligned with shareholders? Management’s historical track-record? Does Management have a large stake in the company? – generally positive opinion on management.
  21. Unions & collective bargaining issues related questions – Does the company have union issues? – No.
  22. What is insider sentiment? - Insiders – Monitor significant insider buying & selling activity to find out.  John Fredriksen is expecting a collapse of the tanker rates and so is bearish on the stock.

Summary & Recommendation:

John Fredriksen predicted that the tanker market will plummet in the next two years in June 2011. He also said once that happens, he will start buying. In hindsight, that was an indicator for shareholders to get rid of Frontline and wait for a cue from him to get back in – he will probably infuse cash into Frontline at a future point when it will become necessary – he indirectly owns 33% now. So, an obvious strategy might be to hold off on purchasing any shares right now but instead wait for cues from insiders to make a purchase decision.

Related Posts:

1. Dry Bulk Shipping Companies & Baltic Dry Index (BDI) – Comparative Stock Analysis.


Tracking Stocks in Mohnish Pabrai's Investment Funds: Part I

Mohnish Pabrai is the managing partner of Pabrai Investment Funds. As per the 13F filing of June 30, 2011, the overall value of the reported stock investments (spread over four funds) stood slightly above $307 million. These funds are, Pabrai Investment Funds I through IV. Read more at Seeking Alpha...

Related Posts:
  1. Mohnish Pabrai's views on how to buy and sell stocks.


Alexandretta - Travel/Philately/Numismatics/Memorabilia Profile

Alexandretta (present day Hatay province of Turkey) is an area in Southern Turkey in the Mediterranean coast bordered by Syria to the South and East and the Turkish provinces of Adana and Osmaniye to the North. In Ottoman period, the area was part of the Vilayet of Aleppo in Ottoman Syria. It became of the French Mandate of Syria after World War I and became autonomous while being confirmed as a Syrian territory in the Treaty of Lausanne in 1924. In 1937, Alexandretta was recognized as an independent state when Kemal Ataturk (first President of Turkey: 1923-1928) brokered a deal with the French. The state renamed as the Republic of Hatay in 1938 was annexed to Turkey in 1939 following a rigged referendum. Syria considers the area its territory and is indicated as such in its maps.

Philatelic Profile:

Alexandretta started issuing stamps in 1938 and it lasted only for a few months. There were no original issues. All the stamps issued were ‘Sandjak D’Alexandrette’ overprints on Syrian stamps from the 1930 to 1936 timeframe. The first stamps were a set of twelve stamps (Scott #1 to #12) issued on two separate dates. The first nine stamps were issued on April 14 and the last three on September 2nd. The set is sought after and catalog for around $100 MNH and around $40 for Used. The host set consists of a set of 24 stamps (Scott #208 to #230) and twelve different denominations from that set was used for the overprints. The designs show major landmarks of Syria including View of Hama, Great Mosque of Aleppo, Minaret of Hama, View of Alexandretta, Citadel of Aleppo, Great Mosque of Damascus, View of Antioch, Ruins of Bosra, Mosque at Homs, Square at Damascus, Mosque at Hama, View of Sednaya, Citadel at Aleppo, Ancient Bridge at Antioch, Mosque at Damascus, Ruins of the Monastery of St. Simeon the Stylite, and the Ruins of Sun Temple in Palmyra. The last stamps of Alexandretta were a set of five stamps released on November 10, 1938 that were overprints on stamps from the same set of Syria. The set (Scott #13 to #17) catalogs for around $300 MNH and around $135 Used. These stamps have an additional date overprint that reads ’10-11-1938’ signifying the death of Turkish President Kemal Ataturk.

Collectible Memorabilia:

Charts and Maps of the area from the 18th century and prior dates are a good collectible item.



Last Updated: 12/2015.

Mohnish Pabrai’s views on how to buy and sell stocks

Mohnish Pabrai divulged his views on how to buy and sell stocks through a series of interviews and lectures done over the years. The two books he has written also provide some information. He follows these few basic rules :
  1. Never take a loss if the position is held within two years. Should be willing to hold for three years for a stock to reach intrinsic value. Never place a stop loss order. Strive for long-term gains – minimize taxes.
  2. After two years, consider selling only if intrinsic value is below the current stock price.
  3. If a well-understood business is offered to you at half or less than its underlying intrinsic value two to three years from now, with minimal downside risk, take it. If not, pass.
Chapter 17 of his book “Mosaic – Perspectives on Investing” titled “Yes, But I Like to Punt!” provides several clues based on Warren Buffett's quotes:
  1. Rule #1: Never Lose Money, Rule #2: Never Forget Rule #1.
  2. We are perfectly willing to trade a big payoff for a certain payoff.
  3. Be fearful when the world is greedy and be greedy when the world is fearful.
  4. We don’t get paid for activity, just for being right.
  5. As for how long we will wait, we will wait indefinitely.
  6. It is not important how big one’s circle of competence is; knowing its boundaries, however is critical.
  7. I don’t try to jump over seven foot hurdles. I look for one-foot bars that I can step over.
  8. The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and above all the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.
  9. We can take our capital and move it into businesses that make sense.
  10. I am a better investor because I am a businessman and I am a better businessman because I am investor.
  11. When a management team with a reputation of brilliance joins a business with poor fundamental economics, it is the reputation of the business that remains intact.
  12. I did be a bum on the street with a tin cup if the market were always efficient.
  13. If they need my help to manage the enterprise, we are probably both in trouble.
  14. My idea of a group decision is looking in the mirror.
  15. Never ask your barber if you need a haircut.
His book “The Dhandho Investor: The Low Risk Value Method to High Returns” has a series of seven questions:

1.    Is it a business I understand very well squarely within my circle of competence?
2.    Do I know the intrinsic value of the business today with a high degree of confidence?
3.    Is the business priced at a large discount to intrinsic value today and in two to three years?
4.    Would I be willing to invest a large portion of my net worth into this business?
5.    Is the downside minimal?
6.    Does the business have a moat?
7.    Is the business run by able and honest managers?

Mohnish Pabrai started using a check-list in the 3rd quarter of 2008. His check-list is known to have around 80 questions. Although, he has never made the check-list public, he has revealed a number of items in the check-list in interviews and presentations. Below is a list we have compiled:
  1. Margin of Safety – A good investment needs good downside protection.
  2. Moats – A good investment needs to have a good upside earnings engine. Is there a solid moat? Could the moat be shrinking/evaporating?
  3. Is it a simple easy to understand business?
  4. Are the revenues and cash flows of the business sustainable? Are you looking at normalized earnings or boom-time earnings? – Example Cort Furniture purchase by Wesco – the volumes were high due to Internet bubble – Buffer/Munger mistake.
  5. Is it a Graham Net/Net play? – Bought below net working capital. Special Situation – good downside protection and chance of high returns, but probability is very low - Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities.
  6. Is the company’s business becoming unregulated? – that could cause the moat to quickly evaporate  - regulated businesses have high cost structures which would be disastrous in a competitive unregulated landscape – an example of such a mistake is Warren Buffet’s investment in US Air which he acknowledged as a mistake in the 1996 letter to shareholders.
  7. Assets to Equity – Is the company too leveraged?
  8. Could the company have made bad lending decisions? – bank specific.
  9. How much will high unemployment and recession hurt the business?
  10. Is the investment correlated to one or more of your existing holdings? – holding many business that are correlated can result in an undiversified portfolio.
  11. Can this business be decimated by low-cost competition from China or other low-cost countries? – example – Warren Buffett’s investment in Dexter Shoes.
  12. Is this a win-win business for the entire ecosystem? – avoids tobacco, gambling, predatory lenders, etc.
  13. Mohnish Pabrai has said he has ten check-list questions on leverage – How much?, What are the covenants? Are they recourse or non-recourse?, etc.
  14. There are five questions on management - Management Compensation? Interests of Management – Is it aligned with shareholders? Management’s historical track-record?, Does Management have a large stake in the company?
  15. Unions & collective bargaining issues related questions – Does the company have union issues?

Readers, if you know of other check-list items, please drop in a line and help us complete this list.

Related Posts:
  1. Tracking Stocks in Mohnish Pabrai's Investment Funds - Part I.


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