Recently, This American Life on NPR aired a very intriguing episode about Americans on disability. It's worth an hour of your time.
Unbeknownst to many, a great investment battle raged during the 1960s between two future greats. Buffett bested his old co worker every year except one.
Quote from Ackman, "I'm rich already. I don't need this. This is a moral obligation."
Herbalife, a company that sells weight loss shakes, vitamins and other similar products, is worth billions of dollars. The company has been around for more than 30 years, and it's traded on the New York Stock Exchange.
Bill Ackman thinks the whole thing is a pyramid scheme.Not surprisingly, Herbalife disagrees.
Ackman manages a hedge fund that has shorted more than a billion dollars' worth of Herbalife stock. If the stock falls — and Ackman says he thinks it will fall all the way to zero — the fund will make money.
On today's show, we talk to Ackman and to Herbalife. And we consider what it means when an investor bets that a company will fail
Classic. I personally love when he keeps rolling through the outro music.
@Valueprax posed a great question to me on Twitter over the weekend-
I actually have two answers to this one. On a high level, my overall portfolio is based upon Walter Schloss's investment philosophy of investing in a wide array of cheap stocks like SCND*. As Schloss said, “I also liked the idea of owning a number of stocks. Warren Buffett is happy with owning a few stocks and he is right if he’s Warren but you aren’t, you have to do it the way that’s comfortable for you and I like to sleep nights.” Generally with pink sheet stocks there’s always a problem, it’s just a question of how big. I make the assumption that a few of these investments will blow up, most will do OK, and few will fix their issues and become home runs. At the end of the day, the winners will outpace the losers.
To get more company specific, my first concern with all my investments is liquid assets. I really like knowing that the company has minimal to no debt and that I could roll in there, liquidate the firm, and turn a profit. SCND fits the criteria by having 1.11/share in cash and a debt to equity ratio of .05. On a similar note, it pains me to pay more than tangible book value on any investment. SCND exceeds here again by selling for .55 of TBV. I know what you’re thinking, “But Jeff, what about the earnings?” Truth be told they’re currently horrible and it remains unclear if their acquisition of Fluorometrix will add any value. We know it has increased their costs, which further melts our ice cube, but at least I’m not standing in lukewarm water….yet. I could run some numbers, make a projection, and give myself a false sense of hope but at the end of the day the world remains a very unpredictable place. Let’s look at some scenarios.
World 1-Revenue stagnates further, operating costs continue to increase, and profits continue to suffer. Much of the desirable cash balance recedes along with TBV. Obviously, at this point, the stock is a sell but I take comfort knowing my losses will probably be minimal as I’m purchasing at an already steep discount to the current TBV.
World 2- The company gets bought out, the acquisition adds value, management cuts costs, or etc. Champagne rains from the sky and I’m hailed a hero and a prophet. In this world, we’re looking at least getting back to 1x tangible book value if not more. That means at a minimum, the return is 80%+ from the current valuation.
To sum up, I’m not worried because this just seems like an attractive risk/reward situation where management has skin in the game. Could this blow up on me? Sure. However, I take comfort in knowing I have a little time to review how the company progresses over the next year while minimizing my downside due to the discounted price I paid.
*(Side note: Tweedy Brown wrote a paper about this a while back. You can find it by clicking here)