Grahamian Value Week in Review ― January 15, 2021
Grahamian Value Week in Review ― January 15, 2021
“Ben [Graham] would have, of course, been comfortable with Baron Rothschild’s summary of a lifetime’s learning: ‘Buy assets; sell earnings.’”
—Charles D. Ellis (Financial Analysts Journal; Vol. 38, No. 4)
PART ONE.
IN BRIEF: “WE’RE GROWING”
PART TWO.
WEEK IN REVIEW
PART THREE.
WEEKEND READING
In the past week —
No new businesses have been added to the list of Grahamian Value companies.
There have been no material developments at Grahamian Value listed companies.
I. IN BRIEF: “WE’RE GROWING”
Welcome to our new readership.
We are honored to welcome 300 new Grahamian Value subscribers in the past week; if just joining us, we encourage you to explore our 2020 Annual Letter — which explores where we’ve been and where we’re heading.
Expanding our team.
We currently seek to expand our Grahamian Value team and thereby improve upon our ability to both identify and deliver value for our readership. Please consider joining us as a project volunteer, inquire within.
Improving our platform.
In the coming week we will implement a series of platform improvements, please stay tuned for further detail in the next issue.
II. WEEK IN REVIEW
There have been no material developments at Grahamian Value listed companies.
III. WEEKEND READING
Expanded insights on “Buy assets, sell earnings” —
Wilmott Magazine — “Jerry Baesel and I spent an afternoon with Bruce [Kovner] in the 1980s in his Manhattan luxury apartment discussing how he thinks and how he gets his edge in the markets. Kovner is a generalist, who sees connections before others do. About this time he observed that large oil tankers were in such oversupply that the older ones were selling for little more than scrap value. Kovner formed a partnership to buy one. I was one of the limited partners. Here was an interesting hedge. We were partially protected against loss on the downside because we could always sell the tanker for scrap. But we had a substantial upside: Historically, the demand for tankers had fluctuated widely and so had their price. Within a few years, our refurbished 475,000 ton monster, the Empress Des Mers, was profitably plying the world’s sea lanes stuffed with oil.” Full Essay | Authored by Edward O. Thorp
Related: The Jim Tisch $5 Million Test
FPA Crescent Fund — “Capital intensive, cyclical businesses often trade at discounts to the value of the underlying assets when their respective industry is in distress (companies are either losing money or earning less than what’s expected in a more normal environment). When earnings rebound, the market seems to forget that the businesses are cyclical. Investors begin to value them on earnings as if another downturn isn’t in the cards. Our average cost in Ensco reflects rigs purchased at a discount to a fully depreciated replacement value. Since then, its stock price has increased, along with day rates (and earnings). The company is now beginning to be considered more on a P/E basis, while at the same time, the value of the underlying rigs has begun to trade through their replacement value, reflecting the value of existing contracts and hope for a continued robust demand environment. As our margin of safety has declined, we have reduced our exposure, consistent with our initial thesis and the manner in which we invest in such industries.” Quarterly Commentary (September 30, 2012) | Authored by Steven Romick, CFA
ABOUT GRAHAMIAN VALUE
Founded in 2020, Grahamian Value is a labor of love centered around our desire to openly share data and perspectives that we find helpful in our pursuit of Benjamin Graham-inspired investment ideas.
The co-editors of Grahamian Value, as of the date of this communication, may individually own shares of companies mentioned herein. The publishers do not receive compensation from the companies and people covered in Grahamian Value for such coverage. This communication is for informational purposes only. This is not intended to be investment advice. Seek a duly licensed professional for investment advice.