Nov 10, 2017: My mom used to say “buy gold, all this stock nonsense is for gamblers”. That I am not sure of, but options may just fit that bill. That said, if used in the right manner they can help you to create insurance for your portfolios. We shall leave that insurance part for the next post. Here is an “options for dummies”. If you know options and just want a link to the option value calculator, here is one.
While stocks and bonds are securities that are issued by the underlying company, stock options for the large part are derivative instruments and have not been issued by the underlying companies. The options that most of us buy/talk about are financial instruments that are created by the stock exchanges. They are called Options because if you own a stock option it gives you the Option to either buy (Call option) or sell (Put option) a stock at a given price. They are derivatives because the value of an option is linked to (derived from) the underlying stock value. Continue reading
Here is a small quiz for you:
- How many daily users did FB have in 2009?
- How many daily users does FB have today?
- What is the combined population of US & Canada?
- How many daily users does FB have in US & Canada?
We already looked at Amazon and Netflix. And the conclusion on valuation was similar: not sure how you justify such big numbers. Why stop there I thought? It would be worthwhile to look at the other FAANG+M (Facebook, Amazon, Apple, Netflix, Google + Microsoft) names. I reluctantly picked up Facebook. Every one of you can predict what I shall find. Well, it was different, very different. Continue reading
Yes, when the market responds so quickly and so emphatically, it is humiliating, and it hurts. I am still not over the crushing that Amazon gave me within hours of me having pressed the Publish button. An event like this makes you question everything: what you know, what you can do etc etc. I am shaken up. That said, I can take a consolation prize for the fact that this money losing post about Amazon was my most read. Well, my bet is on (and in the red) and I am trying to get my mojo back. The worst and most confounding part of this episode is that I still don’t get the price action. One thing is certain, don’t ever listen to my technical analysis. That was just plain wrong. Continue reading
Opportunity: Short Amazon and long a few beaten down but low levered retailers
Oct 25, 2017: This is controversial, to say the least. But I cannot avoid it. Even if it is partially the horn Einhorn has been blowing for 3 years. I can choose not to write this or to mellow it down. Not writing would be against the tenets of the blog: honesty and transparency of thought. And if the below is offensive, I want to apologize to some very close friends who work at Amazon and related companies. That said, here we go.
This all started with my promise of coming back to you with Costco (COST) equity. I wanted to look because parking lots in front of Costco continue to be full. People have complete trust in the Costco store when they walk in; both on pricing and expected quality. And COST continues to grow, slowly but steadily. Stock has traded down, and I am tired of writing about short ideas. I need longs. So I peeked. Numbers looked fine and seems like the investor worries are a little out of place. Don’t think people are going to walk away from COSTCO because of the membership price increase that COST announced recently. But the valuation is not exactly cheap. And margins are thin (it sells grocery! ). I had no context on how expensive or cheap on relative basis the stock is, so I decided to develop a comparable (comp) sheet of big box retailers. Here is the comp sheet I put together. (an aside: these guys pay significant taxes and could benefit a lot from tax cuts) Continue reading
Opportunity: 5%-6% yield for 5 years. Bonds at par or below. Small issue size, offer prices fluctuate
October 23, 2017: Virgin Media (VMED) is a UK company and a subsidiary of Liberty Global. Liberty Global acquired VMED in 2013 for £14.5bn. VMED has a very sizable presence in UK and Ireland. In UK, it is the third biggest broadband provider (~20% market share), second biggest pay-tv provider (~20% market share) and a significant player in fixed line telephony. It also has a respectable presence in the mobile phone business. The biggest competitors of VMED are SKY (satellite tv) and British Telecom (broadband). Company has been spending aggressively (Project Lightning) in last few years to improve the performance of the broadband network and increase its reach (incremental 4.0mm households, 13.75mm original households). VMED network reaches more than 50% of households in UK. VMED has been consistently adding broadband customers and has even started adding video customers recently (revamped its set-top box). Mobile has struggled although it continues to convert its pre-paid count into post-paid customers. Pricing in UK has been competitive and the promotional environment has prevented revenue numbers from growing at the same pace as customer adds. Below are customer count trends and summary financial data (in Pounds and not dollars given UK company) for the last few quarters: Continue reading
Opportunity: Seriously challenged company in the current environment, stock short
Oct 19, 2017: Happy Diwali everyone. And for those of you who always wondered what Diwali is, here is a funny summary of the legend that Diwali is. I apologize if it offends anyone, I just find it funny every time I read it. Back to PRA.
I have historically owned the preferred stock of a very small credit collection company called Velocity Portfolio. I owned it for a long time and it worked out. That convinced me that I Got IT. I came into this name almost convinced that the PRA 2020 maturity converts are money good investments. I even bought them, that is how slam dunk I thought it would be. They were checking every box: short maturity, recent capital market issuance by company proving access, decent liquidity, recent share buybacks and a lot of equity cushion. Then I started looking at the numbers. I cannot make sense of this. I may be making a big mistake on this one given the equity has taken a lot of pain already. But my XL is saying something different. If you are not one who has an appetite for a short idea, please move on. This one is a little convoluted and I don’t like the converts at all. For the rest, lets dive in. Continue reading
October 17, 2017: I have been running very nervous about this blog. Is someone reading it? Is it useful? etc etc. As you can imagine, I have been on my wife’s back to read it. Yesterday I confronted her. I asked her to share her thoughts on the content. She said it was good. I pushed her harder and the response I got was: “not sure for I don’t know what a bond is”. Well, that was a wake-up call. I apologize if this post is too basic for you but I think it’s worth penning down. The very next post will be PRA Group convertible bonds. And before you move on, here is some good light humor for you, straight from the south of Argentina, almost the South Pole! In this day and age of complex animation, this is refreshingly simple, creative and funny (I need these attributes in this blog and so I am borrowing!). Continue reading
Opportunity: MCY Stock overvalued by about 40%
Oct 16, 2017: As I mentioned in my previous post, here is another P&C insurance company idea. This time a short. Mercury General is a P&C insurance company that primarily underwrites personal auto and home insurance. It has other lines of business like commercial automobile/umbrella insurance/fire etc. The principal state of operation for Mercury is California, representing ~80% of its business. Below is a snapshot of the premiums written in 2016. Continue reading
Opportunity: Bonds at 75 cents. 7.25% annual return for 7 years
Oct 13, 2017 I am finally done and here is the post that I have dreaded the most! Amtrust is a P&C insurance company focused on workers compensation insurance, commercial auto, general liability and medical malpractice (primarily in Europe)/professional indemnity insurance. It was started in 1998 via an acquisition of a computer warranty business. Today it is a very sizable player in workers compensation insurance (top 15 commercial insurance company in US). It is also a big player in product warranty segment (think cell phones, cars etc). AFSI underwrites insurance both in US and oversees (primarily Europe, UK is the biggest). It conducts businesses through a myriad of operating insurance subsidiaries. There are a lot of moving parts in this one so let me start by a brief outlay of why I like these converts: Continue reading