Sunday, November 8, 2015

Two dozen articles of interest

Auto loans
Harvest Investor writes that automotive debt, adjusted for the size of the labor force, has grown more slowly during the past decade than headline figures suggest. Auto debt per worker has grown dramatically over longer periods, however.

Book reviews
Inner Scorecard has a nice review of Robert Shiller's Irrational Exuberance that describes some of book's important ideas.

Bull, Bear & Value discusses Warren Buffett's investment in Stanrock Uranium, a uranium miner that went bankrupt in 1959 and reorganized during the early 1960s.

Vienna Capitalist argues that commodity traders' "one-time" losses are less one-time than they appear. Commodity traders sometimes invest in mining companies as a way of buying minerals at below-market prices, so the traders' trading and investment profits should be looked at together rather than discretely.

Steven Sinofsky dissects Blackberry's competitive failure, writing that "The case of Blackberry is interesting because the breadth of disruptive forces is so great.  It is not likely that a case like this will be seen again for a while." He notes that "description of disruption tends to lose all of the details leading up to the failure as things get characterized at the broad company level or a simple characteristic (keyboard v. touch) when the situation is far more complex."

Jim Chanos offers a bearish analysis of the energy market and argues that Shell, Cheniere Energy, and SolarCity are overvalued.

Ronald Redfield provides an archive of research reports on Enron that were published from 1996 until the company's bankruptcy in 2001.

Exchange-traded funds
Fritz explains why some ETFs may blow up. Arbitrage between ETFs and underlying investments can fail because the underlying securities are much less liquid. It's also possible for an ETF have a short interest many times larger than its outstanding shares, which can create problems if a lot of shares are redeemed.

Alpha Vulture links to a study that analyzes the relationship between intelligence and investing success. Smarter investors are more likely to buy stocks at their monthly lows and to sell their losers while holding onto winners. They also "exhibit superior market timing, stock-picking skill, and trade execution."

A number of compelling investor interviews are availiable online, including:
• An interview with Paul Tudor Jones from January 2000
• Interviews with members of Institutional Investor's "Hedge Fund Hall of Fame"
Bruce Berkowitz's interview with Outstanding Investor Digest in 1992, in which he recommends Wells Fargo stock
• Two Barron's interviews with Glenn Greenberg and John Shapiro from 1987 and 1988

Horseman Capital writes that "Tokyo will see larger expansion of office supply than any other major developed city in the world" during 2015 and 2016, even though Japan's working age population is set to decline significantly over the next 25 years.

Bear of Burrard Street is looking for an internship at an investing firm. If there are any investment managers read this, I would encourge you to take a look at his excellent blog.

Leveraged buyouts
Forager Funds calls Anchorage Capital's acquisition of Dick Smith the greatest private-equity heist of all time. Although Wesray's purchase of Gibson Greeting actually had higher returns, Anchorage's returns were still phenomenal-- a 5200% profit in a couple of years.

Elon Musk
Andrew Aurenheimer calls Elon Musk an obvious fraud and compares him to Eike Batista. Like Batista, Musk manages several large companies at once while making hyperbolic claims about the future. Another similarity the article doesn't mention is that Batista and Musk both pledged their stock holdings for significant loans.

David Merkel explains what the Panic of 1907 and the Crash of 1929 had in common and how Jesse Livermore was able to predict both.

The New York Times describes how Brazil's government-employee pensions are even more generous/outrageous than Greece's.

Horseman Capital notes that Pemex "had burned through all of the equity capital the company ever generated by 2004" and is now using its employees' pension contributions to finance distributions to the Mexican government.

Premier Foods
Investing Sidekick offers a case study of Premier Foods, a British company that made two large, ill-timed acquisitions in 2006 and has struggled to reduce its debt since then.

Kurt Eichenwald writes that Martin Shkreli became the subject of a criminal investigation by the US Attorney's Office after allegedly siphoning money out of Retrophin through phony consulting payments.

A message-board poster describes how Bill Ackman tried to effect a fraudulent merger to save his first hedge fund from failing:

[Ackman] had bet Gothman assets on golf courses that went down the toilet. When I got involved First union (FUR) was in liquidation and had enough equity to pay out all the common $2-$3/share and preferred whole. Ackman made an offer to buy FUR which had $100m in cash or so. His plan was down right fraud as i heard the story.

A friend of mine that bought a lot of the preferred very cheap sued Ackman because he was planning on merging a bankrupt firm into FUR. His apparent plan was buying out the common for cash and not ever paying the preferred a dime of dividends and [stripping] the rest of the preferred's expected payout cash out of FUR for his defaulted golf courses. So the preferred cash would go to gotham and the preferred paper would be backed [by] a bankrupt operation.

My friend said he spent $200k of his own money to litigate this and it came down to literally the last minute before the Judge saw Ackman's plan. He stopped the planned merger.

Mark Manson argues that "happiness requires struggle" and that success is less a result of how much people desire something than how much they're willing to sacrifice in order to get it.

Small caps
Irrelevant Investor marshals a lot of evidence to demonstrate that the historical data showing that small-cap stocks outperform large caps are less meaningful than they appear. Eric Falkenstein previously came to the same conclusion, writing that small-cap stocks' return premium "is an order of magnitude lower than what was originally discovered around 1980."

"Max Vision" argues that Regional Management faces the same challenges as its larger, more prominent peer World Acceptance.

Value and Opportunity is skeptical of SunEdison, writing that the company has no moat and that its "accounts are pretty much incomprehensible not only on the financing side but also cash flow wise." V&O also points of that, contrary to what David Einhorn has claimed, solar panels are depleting assets. Finally, he argues that SunEdison's business model depends on selling assets to yield vehicles that give their investors bad risk-adjusted returns.

Reuters reports that Sweden has "a household loan-to-disposable income ratio of more than 170 percent" and "70 percent of Swedish home owners have interest-only mortgages." A separate Reuters article describes how the Riksbank and the Swedish government have contributed to the country's housing bubble. (H/t Fritz for both articles.)

In a bearish report on Liquidity Services, Off Wall Street offers an anecdote about Wal-Mart that suggests the retailer is losing its famous emphasis on low costs:

[M]ost of Jacobs’ value comes from a contract with Walmart that accounts for about 70% of revenues. Coincidentally, Irwin Jacobs, the former owner of Jacobs Trading, is said to be close friends with Lee Scott of Walmart. It is unclear whether the contract was executed at arms length, just a few months prior to this acquisition, but given Jacobs’ profitability, one has to wonder. 

Anecdotally, we have been told by one of LQDT’s competitors that certain Walmart personnel involved in the reverse supply chain were furious when LQDT acquired Jacobs, as it became clear just how favorable the contract was for LQDT, presumably at Walmart’s expense.