Posts Tagged ‘Greenbackd’

I’m considering launching a subscription-only service aimed at identifying stocks similar to those in the old Wall Street’s Endangered Species reports. Like the old Wall Street’s Endangered Species reports, I’ll be seeking undervalued industrial companies where a catalyst in the form a buy-out, strategic acquisition, liquidation or activist campaign might emerge to close the gap between price and value. The main point of difference between the old Piper Jaffray reports and the Greenbackd version will be that I will also include traditional Greenbackd-type stocks (net nets, sub-liquidation values etc) to the extent that those type of opportunities are available. The cost will be between $500 and $1,000 per annum for 48 weekly emails with a list of around 30 to 50 stocks and some limited commentary.

If you would like to receive a free trial copy of the report if and when it is produced in exchange for providing feedback on its utility (or lack thereof), would you please send an email to greenbackd [at] gmail [dot] com. If there is sufficient interest in the report I’ll go ahead and produce the trial copy.

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Welcome back to Greenbackd for 2010. I hope the holidays were as good to you as they were to me.

The break has afforded me the opportunity to gain some perspective on the direction of Greenbackd. Away from the regular posting schedule I found the time to write some Jerry McGuire The Things We Think and Do Not Say treatises, quickly consigning most of them to trash so that they couldn’t come back to haunt me at a later, more lucid and, perhaps, sober moment (I did say the holiday was good to me). Some (heavily edited) remnants of those rambling essays will filter through onto this site over the coming weeks. I’m charged up about several topics that I want to explore in some depth, which is a change from the net net ennui that was starting to creep in before the break.

The beauty of the Graham net net as a subject for investment is its simplicity. Conversely, that same characteristic makes it a poor subject for extended contemplation and writing. There is a limit to which the universe of Graham net nets, even those entwined in activist or special situations, can be subject to analysis before the returns to additional analysis diminish asymptotically to approaching zero. Note that in this context I don’t mean investment returns, but returns to the psyche, good feelings, the avoidance of boredom…in other words, the really important stuff. The investment returns in that area are good, but we all already know that to be the case. What am I contributing if I keep digging up undervalued net nets? Not much. Graham invented it. Oppenheimer proved it. Jon Heller writes about it better than anyone else. The rest of us are just regurgitating their work.

Really, this is old news. Greenbackd passed the point some time ago at which it was possible to hold off the tedium of net nets and evolved organically to embrace several related topics. I still love the activist dogfight for control or influence and I think a well-written 13D makes for excellent copy. I also still love finding blatantly misplaced securities, each one a little slash at the heart of the EMH. Greenbackd will continue to study individual securities and follow interesting activist situations, however, it will not be the sole focus of the site. For me, there are more interesting problems to tackle. My concern has been whether Greenbackd can contain the new topics or whether I’ll just annoy old Greenbackd readers with the new direction. My favorite blogger wrestled with same issue several years ago, and so I’m using her experience as a guide.

I think the smartest thinker and most lucid writer in the financial and political (in the broadest sense of the word) sphere is Marla Singer at Zero Hedge and occasionally Finem Respice (formerly Equity Private at Going Private). Marla, then writing as Equity Private, started out with a narrowly focussed blog about the “sardonic memoirs of a private equity professional,” but gradually expanded to cover only tangentially related topics like the role of government, economics, philosophy, literature, art, duelling, card sharping and cargo cults (the implications of which won’t be lost on most readers). For me, it was a thrilling departure, but Marla must have felt that Equity Private was too limited, and created Finem Respice before moving on to Zero Hedge. I was only too happy to follow, but I would have been equally happy for Equity Private to keep posting as Equity Private. (As an aside, I recommend following Marla at Zero Hedge. Her ability to tease out the hidden story from some granular detail in legislation or data is simply breathtaking and unmatched in the mainstream media.)

I’ll persist with Greenbackd because I like this boat, but it will be embarking for new shores. Pure net net investors are well served by other sites, so it’s probable that some readers will depart. This site will always be dedicated to deep value, but I want to find some uncharted territory. The voyage might not yield any new land, but I think it will be more fun than continuing to orienteer on Graham’s old maps. I have an inkling there is something interesting out there at the intersection of Montier, Montaigne, Taleb and Graham. Tomorrow, I’ll start to sketch out the new world. It also coincides with a personal change for me. Working in someone else’s fund has been enjoyable, but I feel it’s time to graduate to principal. I’m presently considering entering into an established partnership or starting my own fund. Whichever direction I go will likely have some influence on Greenbackd.

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Happy holidays, folks

I’m taking a two-week break. See you back here January 11th, 2010.

In the interim, please feel free to comment or drop us a line at greenbackd [at] gmail [dot] com. I’ll be checking email and the comments on the site throughout the break, and will respond sporadically.

Thank you for supporting Greenbackd in 2009.

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I find it interesting to see which posts on Greenbackd attract the most attention and I thought you might too. To that end, here are the 10 most popular Greenbackd posts of 2009:

  1. The best unknown activist investment of 2009
  2. Seth Klarman on Liquidation Value
  3. Tweedy Browne updates What Has Worked In Investing
  4. Marty Whitman’s adjustments to Graham’s net net formula
  5. Walter Schloss, superinvestor
  6. Sub-liquidation value ten baggers
  7. VXGN gifted to OXGN; VXGN directors abandon shareholders, senses
  8. Valuing long-term and fixed assets
  9. Where in the world is Chapman Capital?
  10. Counterintuition

Why was The best unknown activist investment of 2009 the most popular post of 2009, attracting 5 times the traffic of the Seth Klarman on Liquidation Value post, which is number 2 on the list? Who knows? It seems you guys like stories about idiosyncratic investors who trade in odd securities found off the beaten track.

Here are four near misses:

  1. The end of value investing?
  2. Buffett on gold
  3. Marty Whitman discusses Graham’s net-net formula
  4. John Paulson and The Greatest Trade Ever

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November 30, 2009 marked the end of Greenbackd’s fourth quarter and first year, and so it’s time again to report on the performance of the Greenbackd Portfolio and the positions in the portfolio, and outline the future direction of Greenbackd.com.

Fourth quarter 2009 performance of the Greenbackd Portfolio

The fourth quarter was another satisfactory quarter for the Greenbackd Portfolioup 14.3% on an absolute basis, which was 9.8% higher than the return on the S&P500 return over the same period. A large positive return for the period is great, but my celebration is tempered once again by the fact that the broader market also had a pretty solid quarter, up 7.4%. The total return for Greenbackd’s first year (assuming equal weighting in all quarters) is 136.8% against a return on the S&P500 of 34.2%, or an outperformance of 102.6% over the return in the S&P500.

It is still too early to determine how well Greenbackd’s strategy of investing in undervalued asset situations with a catalyst is performing, but I believe Greenbackd is heading in the right direction. Set out below is a list of all the stocks in the Greenbackd Portfolio and the absolute and relative performance of each from the close of the last trading day of the third quarter, September 1, 2009, to the close on the last trading day in the fourth quarter, November 30, 2009:

*Note the returns for SOAP and NSTR include special dividends paid. See below for further detail.

You may have noticed something odd about my presentation of performance. The S&P500 index rose by 7.4% in the fourth quarter (from 1020.62 to 1,095.63). Greenbackd’s +14.3% performance might suggest an outperformance over the S&P500 index of 6.9%, while I report outperformance of 9.8%. I calculate Greenbackd’s performance on a slightly different basis, recording the level of the S&P500 Index on the day each stock is added to the portfolio and then comparing the performance of each stock against the index for the same holding period. The Total Relative performance, therefore, is the average performance of each stock against the performance of the S&P500 index for the same periods. As we discussed above, the holding period for Greenbackd’s positions has been too short to provide any meaningful information about the likely performance of the strategy over the long term (2 to 5 years), but I believe that the strategy should outperform the market by a small margin.

Update on the holdings in the Greenbackd Portfolio

There are currently ten stocks in the Greenbackd Portfolio:

  1. TSRI (added November 12, 2009 @ $2.10)
  2. CNVR (added November 11, 2009 @ $0.221)
  3. NYER (added November 3, 2009 @ $1.75)
  4. ASPN (added October 1, 2009 @ $0.985)
  5. KDUS (added September 29, 2009 @ $1.51)
  6. COSN (added August 6, 2009 @ $1.75)
  7. FORD (added July 20, 2009 @ $1.44)
  8. DRAD (added March 9, 2009 @ $0.88)
  9. SOAP (added February 2, 2009 @ $2.50. Initial $3.75 dividend paid July 30)
  10. NSTR (added January 16, 2009 @ $1.91. Initial $2.06 dividend paid July 15)

Greenbackd’s investment philosophy and process

I started Greenbackd in an effort to extend my understanding of asset-based valuation described by Benjamin Graham in the 1934 Edition of Security Analysis. (You can see a summary of Graham’s approach here). Through some great discussion with Greenbackd’s readers, many of who work in the fund management industry as experienced analysts or even managing members of hedge funds, and by incorporating the observations of Marty Whitman (see Marty Whitman’s adjustments to Graham’s net net formula here) and Seth Klarman (the Seth Klarman series starts here), I have refined Greenbackd’s process. I believe that the analyses are now pretty robust and that has manifest itself in satisfactory performance.

Tweedy Browne provides compelling evidence for the asset-based valuation approach. In conjunction with a reader of Greenbackd I have now conducted my own study into the performance of sub-liquidation value stocks over the last 25 years. The paper has been submitted to a practitioner journal and will also appear on Greenbackd in the future.

The future of Greenbackd.com

Greenbackd is a labor of love. I try to create new content every weekday, and to get the stock analyses up just after midnight Eastern Standard Time, so that they’re available before the markets open the following day. Most of the stocks that are currently trading at a premium to the price at which I originally identified them traded for a period at a discount to the price at which I identified them. This means that there are plenty of opportunities to trade on the ideas (not that I suggest you do that without reading the disclosures and doing your own research). If you find the ideas here compelling and you get some value from them, you can support my efforts by making a donation via PayPal.

If you’re looking for net nets in the meantime, here are two good screens:

  1. GuruFocus has a Graham net net screen, with some great functionality ($249 per year)
  2. Graham Investor NCAV screen (Free)

I look forward to bringing you the best undervalued asset situations I can dig up in the next quarter and the next year.

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Happy Thanksgiving, Folks

See you Monday.

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We’ll be in San Diego next week for the Hedge Fund Activism and Shareholder Value Summit. If you’re going too, and you’d like to catch up, we’d love to hear from you. You can reach us at greenbackd [at] gmail [dot] com.

We’ll be posting intermittently next week, but we’ll be back to our regular schedule starting from Monday, 28 September. Hopefully we’ll have some new insights to share.

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We’re back in the office after hiking some of the John Muir Trail through Yosemite. There have been some interesting developments in a number of our holdings and we look forward to updating our open positions over the course of this week.

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We’re getting on the Twitter train. Catch us here: http://twitter.com/Greenbackd

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You may have noticed that the frequency with which we post new ideas on this site has slowed somewhat over the last month or so. Our earlier ideas are generally up substantially, but that’s nothing to crow about given that the market as a whole, after falling 56.8% from its peak, is up 24.4% from its trough. Anyone who thinks that the bounce means that the current bear market is over would do well to study the behavior of bear markets past (quite aside from simply looking at the plethora of data about the economy in general, the cyclical nature of long-run corporate earnings and price-earnings multiples over the same cycle). They might find it a sobering experience.

CalculatedRisk has an ongoing series of graphs from Doug Short showing how the current bear market compares to three other bear markets: the Dow Crash of 1929 (1929-1932), the Oil Crisis (1973-1974) and the Tech Wreck (2000-2002) (click for a larger version from dshort.com via CalculatedRisk):


The current bear market has been deeper and faster than either the Oil Crisis or the Tech Crash, but it really pales into insignificance beside the Dow Crash of 1929 (maybe not insignificance, but you get the picture. If this was the Dow Crash of 1929 we’d have another third to go). We’re not sure what one can deduce from the graphs, other than several big (>20-30%) rallies in the middle of a bad bear market is nothing unusual and there’s no obvious price behavior that heralds the end of a bear market. We think it’s worth keeping in mind.

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