Welcome to the Vancouver Value Investing Group!
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Transcript of Welcome to the Vancouver Value Investing Group!
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Welcome to the Vancouver Value Investing Group!• Objectives of the Group:
– LEARN strategies for making profitable investments.– DISCOVER quality public investment opportunities.– NETWORK with local investors and share experiences.
• The central idea of value investing is to view stocks as part-ownership in a business instead of pieces of paper to be casually traded.– Finding the intrinsic value of investments using both quantitative and qualitative methods.– Staying away from charting, market timing, short-term trading, rumors, speculative ideas, and IPO’s.
• The philosophy of the group is to have an attitude of opportunity tempered by a healthy dose of skepticism and critical analysis.– “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and
reasoning are right.”
• Don’t be afraid to speak your mind, especially if you have a different point of view.• The quality of each meet-up depends upon your participation so share your passion for
investing with others!
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Bruce Greenwald of Columbia University introduces the central ideas of Value Investing (5 minutes)
Jason Zweig talks with Consuelo Mack of WealthTrack on common mistakes investors make. (13 minutes @ 1.24 min)
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The Truth about Peak Oil and our Energy Future.
By Nawar Alsaadi, Founder of the Actionable Intelligence Investment Club
Peak Oil
By Nawar Alsaadi
Escalating supply costs
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TravelCenters of America LLC (AMEX: TA)Market Cap when purchased in mid August: $43 million ($2.6/share)
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Typical Property Profile• Showers and restrooms featuring marble tile and
Corian countertops, brilliantly lit mirrors • Locations situated close to highway entrances and
exits • Branded gasoline and diesel fuel • Open 24 hours a day, seven days a week • A "to go" snack bar area with coffee, cappuccino,
sodas, hot dogs, bakery products, sandwiches and salads
• A large, fully stocked travel store with an "Odd Town, U.S.A." theme - neon lights and lighthearted signage featuring real towns such as Sweet, Idaho and Salty,Texas, that guide customers through the shopping experience
• Fast food courts - typically featuring two to three branded fast food restaurants
• Full-service restaurant - offering 24-hour table service and buffet dining options from one of three distinct network restaurants
• Ample, well-lit parking areas • Game room • Separate driver and motorist entrances • For the Professional Drivers • 24-hour truck repair and maintenance service • In-cab conveniences such as phone service, Internet
access, cable TV • Comfortable, spacious drivers` lounge
11,900 Employees233 combined sites. 185 sites owned and leased from Hospitality Properties Trust and operated by TA. 9 company owned + 8 company owned land parcels for future development.
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NOTE:
$22/share book value. Vs $3.4/share market price =Selling for 15 cents on the dollar.
$7.32/share in net cash deducting cash for deferred rent.
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NOTES:
$54 million - $32 million (deferred rent) = $22.4 million - $13 million cap ex = $9.4 million liquidity after change in working capital.
Assume working capital is unchanged from 12/31/08 = 9.4 million - 20 million (working capital removal) = (11) million for first half 2009.
$5 million investment is a 16.7% interest in a new insurance venture. CEO says to offset some losses and also save on some insurance costs of TA’s business.
Bottom Line: TA may not be profitable yet, but it has more than amble liquidity.
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Some considerations…• Fuel gross margin per gallon has increased
from 7.5 cents in 2006 to 13 cents over the last 2 years. They keep low inventory on diesel. Problem is lower volumes and other costs due to recession.
• Non-Fuel gross margin / gallon has increased from $0.30 to $0.36 over the last 2 years.
• TA is not recording a deferred tax asset.• Thesis: TA non-fuel margins should
increase with a recovery from the recession. It would only take a 10% increase in non-fuel margin with fuel margin being constant for the company show a net profit and Free Cash Flow.
• A fast increase in oil prices is a risk. It means lower non-fuel spending and more competition with non-trucking transportation.
• TA has more fixed than variable costs, as such it cannot cut costs fast enough in the recession.
• TA does not own its real estate and must rent it from HRPT Property Trust. The rent is quite high given the recession (~$200 million per year). They are deferring $60 million of rent/yr (but booking it as a liability) so it has no effect on cash-flow. In 2010, they must pay 12% interest, and in 2011 must pay all the deferred rent.
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Summary
Mental Models – “You’ve got to have models in your head and you’ve got to array your experience – both vicarious and direct – onto this latticework of mental models.” – Charlie Munger
• Source ideas from others, especially those you admire and trust. Investment is a field where ego doesn’t necessarily make you more money.
• #1 Question when considering an investment – eliminate the catastrophe risk. Debt and liquidity is a big cause of catastrophes.
• An undervalued stock should “scream out” at you and not require a calculator to be obvious. If you are using spreadsheets and doing calculus, you are seeking a false precision and probably working too hard!
• When in doubt about a management, bet on the business (i.e. a recession causes the tide to go out for all boats, conversely a recovery raises all boats, you can bet on things outside of management control or things within management control, and management is notoriously difficult to evaluate).
• Any stock whose ownership has a ‘control group’ should give an investor some concern with respect to realizing the value of their investment in a reasonable time frame, unless that group shows some sort of special brilliance.
• Have a long term perspective – quarterly results are largely meaningless and random. The media has an anti-investment bias. Remember to get the extraordinary return of 20% per year, your investment can take 3.5 years to double. There is a difference between being lucky and doing the right thing.
• Source ideas from others, TA came from looking at a 13-F filing (which shows public stock positions held within other public companies), not from a screen.
• Eliminate the catastrophe risk. TA has amble cash and liquidity to whether a prolonged recession, with a wide margin of safety.
• An undervalued stock should “scream out” at you – TA has a market cap of $55 million against shareholder equity of $369 million. More than $55 million of this equity is in cash.
• When in doubt about a management, bet on the business – I do not have enough information on the management, except quarterly transcripts where the CEO says he doesn’t like the “red ink”. However, they also started a new insurance business. I am betting that the economy will dictate TA’s margins, not management’s skill.
• Any stock whose ownership has a ‘control group’ should give an investor some concern – TA has a balanced ownership profile, without any >10% owner. It also has change of control/takeover provisions that are very anti-control.