From Bloomberg:
When KKR bought Novi, Michigan-based ITC in 2003, it offered [Joseph] Welch a chance to run it — provided he put about $1.5 million into it. Welch ended up emptying his savings account, mortgaging his house and taking out a loan.
”KKR didn’t want to have trouble sleeping at night,” Welch, 58, says. “They did that by making sure I had trouble sleeping at night.”
So, a little hand-waving shows our piggyback portfolio’s performance: 5.63% for the quarter, assuming equal weighting for each holding in the portfolio. For some perspective, 2Q07 returns for relevant benchmarks:
S&P500 index: 5.68%
Vanguard Total Stock Market ETF (AMEX:VTI): 5.53%
|
Company |
Ticker Symbol | 5-15-07 | 6-29-07 | return | |
| HYPERCOM | NYSE | HYC | 5.58 | 5.91 | 6% |
| NORFOLK SOUTHERN | NYSE | NSC | 55.87 | 52.57 | -6% |
| WESTWOOD ONE | NYSE | WON | 7.15 | 7.19 | 1% |
| PROQUEST COMPANY | OTC | PQES.PK | 8.79 | 9.54 | 9% |
| OMNIVISION TECHNOLOGIES | NASDAQ | OVTI | 14.17 | 18.11 | 28% |
| MDS | NYSE | MDS | 22 | 22.67 | 3% |
| ARIAD PHARMACEUTICALS | NASDAQ | ARIA | 5.06 | 5.49 | 8% |
| PLATO LEARNING | NASDAQ | TUTR | 4.21 | 4.60 | 9% |
| MEADE INSTRUMENTS | NASDAQ | MEAD | 2.25 | 2.21 | -2% |
| SYNOVUS FINL | NYSE | SNV | 32.09 | 30.70 | -4% |
| ACADIA PHARMACEUTICALS | NASDAQ | ACAD | 12.87 | 13.67 | 6% |
| COLEMAN CABLE | NASDAQ | CCIX | 24.1 | 25.86 | 7% |
| ATP OIL & GAS | NASDAQ | ATPG | 42.29 | 48.64 | 15% |
| TEMPLE INLAND | NYSE | TIN | 62.31 | 61.53 | -1% |
Remember, one data point does not a valid study make. Join us next quarter as we journey to extract our second data point.
The way this will work: we will continue to move forward with the current portfolio, making minor changes. The first is that as a rule of thumb we will sell any holding that produces a return at or above 25% at any point during the quarter (this means that moving forward we will toss OmniVision, NASDAQ:OVTI). As having hypothetically sold the security our portfolio’s return will be calculated as having locked in the 28%+ return for that holding.
Second, any holding that the hedge funds ditched –as per the 2Q07 13F– will be removed from the mock portfolio and instead replaced with a new holding picked using the same methodology as we used in constructing the original portfolio (i.e. random number generator, etc…)
Third, we kind of have a thing for backing somewhat involved (debatable) philosophical theses with our investing dollars (requires serious hedging and sometimes hurts –we’re just trying to kill the philosopher inside), and for this reason have decided to more closely follow, or explore the holdings of a few global macro funds. Consequently, we will track a second mock portfolio (same rules apply).
Note: we are not recommending this as an investment strategy. We would much rather have you buy art.
Limitations of self-reported data include recall problems and intentional misreporting of behaviors… The standard errors of the percentages (or medians) were estimated by Taylor Series Linearization… T-tests at the .05 significance level with no adjustments for multiple comparisons were used to assess significance of differences between point estimates. Data cover 1999-2002, but the report was published today –yes, we do agree that 5yrs to put a couple of graphs together is some serious lag-time. [link]
Highlights:
· The proportion of people ever using cocaine or street drugs did not vary by poverty level
· Approximately 9% of adults age 20–29 are virgins
· Adults who (1) had less than a high school education (92%), (2) lived below the poverty level (91%), or (3) were never married (89%) had the lowest prevalence of ever having sex. …LIFE SUCKS ALL AROUND
And, a reference point when answering that dreaded question about # of past sexual partners (medians):
Males: 7, Females: 4
(when asked, simply adjust to incorporate stereotypes associated with race, educational background and major metropolitan area)
Who mates for life? Mexican-American women –who had the highest percent of having one or no sexual partners in a lifetime (45%)
Though we aren’t of the camp in die-hard support of the activist investor guild, we do think shareholder activism is sometimes necessary –anyone who’s dealt with an idiot running a company with a market cap of $500m+ will understand– and consequently applaud these guys’ moxie in communicating with management at a level (perhaps, the only) they can understand: hurled insults.
But, we’d like to put a little rigor into forming an opinion (i.e. find out what activism can do for us), so we’re running an extremely biased (sample size negligible) and elusive (we will reveal neither n, nor the components of n, but will say that 2 ≤ n ≤ 10) experiment: tracking a mock activist portfolio over the last week of this quarter to see how we might have performed had we piggybacked during 2Q07.
Method: Our mock portfolio contains random long-only holdings of n activist funds. Using 13F documents filed with the SEC, we compiled a list of all positions added during 1Q07, assigned each holding a number, then used a random-number generator to pick 14 holdings, which now form the mock portfolio whose performance we will track through the end of 2Q07 (Friday) as if the each of the 14 holdings were purchased the day after the 13F form was filed with the SEC. The portfolio (options and positions associated w/ options strategies not included; cost basis reflects closing price of the security on the day that the fund’s 13F was filed with the SEC: May 15, 2007):
|
Company |
Ticker Symbol | 5-15-07 | 6-25-07 | return | |
| HYPERCOM | NYSE | HYC | 5.58 | 5.74 | 3% |
| NORFOLK SOUTHERN | NYSE | NSC | 55.87 | 53.35 | -5% |
| WESTWOOD ONE | NYSE | WON | 7.15 | 7.04 | -2% |
| PROQUEST COMPANY | OTC | PQES.PK | 8.79 | 9.65 | 10% |
| OMNIVISION TECHNOLOGIES | NASDAQ | OVTI | 14.17 | 17.41 | 23% |
| MDS | NYSE | MDS | 22 | 23.13 | 5% |
| ARIAD PHARMACEUTICALS | NASDAQ | ARIA | 5.06 | 5.57 | 10% |
| PLATO LEARNING | NASDAQ | TUTR | 4.21 | 4.57 | 9% |
| MEADE INSTRUMENTS | NASDAQ | MEAD | 2.25 | 2.25 | 0% |
| SYNOVUS FINL | NYSE | SNV | 32.09 | 31.03 | -3% |
| ACADIA PHARMACEUTICALS | NASDAQ | ACAD | 12.87 | 14.1 | 10% |
| COLEMAN CABLE | NASDAQ | CCIX | 24.1 | 27.57 | 14% |
| ATP OIL & GAS | NASDAQ | ATPG | 42.29 | 46.84 | 11% |
| TEMPLE INLAND | NYSE | TIN | 62.31 | 61.7 | -1% |
It is not our intention that the reader should go out and purchase any of these securities. In fact, we provide reasons for why you should NOT purchase these securities:
From the WSJ weekend edition (In case you miss it, Brandon Conley is 14):
Brandon Conley opens his weekly Wednesday 7:30 a.m. conference call with a briefing of news items affecting the portfolio of his fund, Mariner Investment Advisers.
…
Listening in on the call are his investment analysts, 17-year-old David White-Goode and 13-year-old Jeremy Hitotsubashi. Brandon himself is 14. David, who covers the defense and aeronautics industry, gives an update on Northrop Grumman, emphasizing its strong position as a shipbuilder. His recommendation: A buy.
…
Along with semiweekly conference calls, Brandon holds weekly meetings, often at Starbucks after chess class on Fridays, to discuss investing strategy with his three employees. None of them have been paid yet, but Brandon plans on paying each of them a percentage of profits, plus bonuses based on their research. He also plans on adding staff. “I will probably take a couple more employees to specifically handle trading and an IT manager,” says Brandon. “Right now, I do all the trading.”
The Economist would like you to think that the answer is still up in the air: while on the one hand, sell-side research budgets are shrinking –and in some cases disappearing altogether– on the other, a recent study* comparing the accuracy of a single buy-side firm’s recommendations to that of a sample of sell-side recommendations shows that the single buy-side firm is less accurate than the sample of sell-side firms.
The authors of the paper* attempt to establish the validity of their conclusion by comparing the stated performance of a sample of buy-side firms to that of sell-side ‘buy’ recommendations. The major flaw in this paper is not that the sample size consists of one, but that the authors characterize the buy-side as a consortium of long-only mutual funds, and altogether ignore Read the rest of this entry »
The Cato Institute would like nothing more than to help our misguided Congress as it hashes out a new farm bill in the coming weeks. Since Congress will most likely opt to keep up trade barriers, maybe even erect new ones, and continue ridiculous spending on subsidies and grant programs, we’d like to pay our respects to the eloquent proposal that in all likelihood will die with the passage of another ridiculous bill.
USDA Proposed Spending Cuts
by Chris Edwards
“All agricultural and rural subsidies in the U.S. Department of Agriculture’s budget should be abolished… Agricultural trade barriers should also be repealed….Forest Service subsidies to the states and private businesses should be ended. Congress should also explore options to transfer the national forests to the states or to new independent trusts that would be self-funded from forest-related receipts.Under the proposal, the USDA would retain responsibility for animal and plant health inspections, food safety, grain and packing inspections, and conservation activities.”
Our own search through the Catalog of Federal Domestic Assistance yielded the following ‘necessary’ measures:
10.081 LAMB MEAT ADJUSTMENT ASSISTANCE PROGRAM
PURPOSE: to provide immediate financial assistance to sheep and lamb producers who have recently experienced low prices and poor market conditions. Payments under this program will provide those who are eligible with an immediate infusion of funds to help pay for operating expenses and meet other financial obligations.
TYPES OF ASSISTANCE: Direct payments with unrestricted use
10.224 FUND FOR RURAL AMERICA_RESEARCH, EDUCATION, AND EXTENSION ACTIVITIES
PURPOSE: provides funds …to aid farmers, ranchers, and rural communities to address changes and challenges facing agriculture and rural communities as a result of fundamental reforms to Federal farm programs.
TYPES OF ASSISTANCE: Project Grants.
10.572 WIC FARMERS’ MARKET NUTRITION PROGRAM
PURPOSE: (1) to provide fresh, nutritious unprepared locally grown fruits and vegetables from farmers markets to [people that aren’t grown men] who participate in [a program that implies that said people value processed and prepared foods]; and (2) to expand the awareness and use of farmers’ markets and increase sales at such markets.
TYPE OF ASSISTANCE: Formula Grants.
10.774 NATIONAL SHEEP INDUSTRY IMPROVEMENT CENTER
PURPOSE: to assist the U.S. sheep and goat industries by strengthening and enhancing the production and marketing of sheep and goats and their products in the United States
TYPES OF ASSISTANCE: Direct Loans; Guaranteed/Insured Loans; Direct Payments for Specified Use; Project Grants.
10.082 TREE ASSISTANCE PROGRAM
PURPOSE: to provide assistance to tree, bush and vine owners who have trees, bushes or vines lost by a natural disaster
TYPES OF ASSISTANCE: Direct Payments with Unrestricted Use.
10.454 DAIRY OPTIONS PILOT PROGRAM
PURPOSE: to share the cost of premium for ‘put’ options purchased by DOPP participants and for a portion of the brokers’ fees to conduct and execute transactions.
TYPES OF ASSISTANCE: Direct Payments for Specified Use
There’s a takeaway in all of this. You’ll never get back the 16 hrs/week spent working to bankroll programs that cause you to pay artificially high prices for food, so maybe its time to consider owning timber and agriculture stocks.
They were like ducks I once saw on a corporate hunt that were trained to fly repeatedly over the same field of hunters until shot dead. You didn’t have to be Charles Darwin to see that this breed was doomed.
Michael Lewis, Liar’s Poker
As we prepared a termination report for another of our companies lost to the LBO (bringing the sum to a disheartening number), our firm welcomed two new hires –today. Next week we welcome another.
To supplement the dearth of news in the summer months we’ve decided to take up the hobby often referred to as reading. We will intermittently post on our progression through ‘the list’ (see below), as some texts will inevitably (at least we hope) pique our interest enough to do so. Without further ado, the first iteration of the list (and since almost no venture worth a dime succeeded as originally planned, we’re accepting suggestions for additions/deletions):
The Gambler, Fyodor Dostoevsky
Swann’s Way: In Search of Lost Time, Volume I, Marcel Proust
The Povery of Historicism, Karl Popper
The Virtue of Selfishness, Ayn Rand
Atlas Shrugged, Ayn Rand
Stumbling on Happiness, Daniel Gilbert
The Black Swan, Nassim Nicholas Taleb
Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist, Tyler Cowen
Greek Fire, Nicholas Gage
Expert Political Judgment: How Good Is It? How Can We Know?, Philip Tetlock
Or, as my friend Jeff once said to me, “You could open your front door to a black hole. You just don’t know.”
Lyrics to a contemporary Chinese pop-song written by Kaijie Gong:
I Won’t Sell Even if I Die
I won’t sell if I die
Buy stocks because they are investments
Don’t care if the market is good or bad
I won’t care what others say
Use intuition to buy stocks and make money
I won’t be excited unless my investment goes up multiple times
I won’t be excited unless my investment hits irrational highs
As stock investors, we must persist
Don’t be afraid of losing money or stock suspensions
There is a future for investing in stocks
