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Grahamite In Training's  Instablog

Grahamite In Training is an investor using the methodology of value investing on common and preferred shares with the objective of achieving superior long term investing performance.
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Value Investing Experiments
  • A Small Year for iStar Financial
    A couple of weeks ago, I wrote an article about a REIT I am currently invested in that goes by the name of iStar financial (NYSE: SFI). The position of a long term investor gives the advantage of having quick access to financial statements as soon as they are issued. This year, I have been very disappointed by the performance of the management of, this REIT, which was, before 2008, the soundest of such companies in my opinion.
     
     
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    Tags: SFI
    May 31 12:51 am | Link | Comment!
  • Liddy Intends to Step Down

    As it is now common knowledge, AIG (AIG) has been considered by the US government as being the only company that was not involved in the banking business, but was big enough to affect the global financial system due to the seize of its credit default swaps portfolio. It thus acquired the critically recognized expression of being too big to fail in November 2008, at the moment the whole financial world got scrambled. At that precise moment, the US government was forced to bail out AIG, providing it the staggering rescue amount of $185 billion. That is an amount larger than any single bank received to better manage the financial crisis. In exchange for the 80% ownership stake that the government got at that time, the Obama administration appointed Edward Liddy as the chairman and CEO of the troubled firm.

     

    Liddy used to be the chairman of the insurance company Allstate and served on the board of Goldman Sachs. He has been a seasoned leader for insurance and financial companies and was definitely the right person to occupy such a critical position in the leadership of AIG. His announcement about his pending resignation after the end of the restructuring at AIG was quite surprising. It is happening sooner than expected, but it is fully understandable for two reasons. First, due to all the scandalous events surrounding former AIG executives, Edward Liddy got a total compensation of... $0. That includes his salary, stock options and warrants. His only financial solace came from about $500000 of tax advantages from a government who wanted to make sure Liddy did not end up paying to work as chairman and CEO of AIG, which would have been pretty embarrassing for the treasury department. A second reason that would justify a resignation is that Liddy was actually in retirement at the time he was asked to step up to the plate.

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    Tags: AIG, insurance
    May 22 07:17 pm | Link | Comment!
  • Microsoft’s Surprise $3.75 Billion Debt Offering
    Times like those of a recession leave many companies in desperate need of liquidity to bolster their operations. But it came to my surprise this morning to notice that a powerhouse such as Microsoft Corporation (MSFT) isissuing their first ever lot of corporate bonds.
     
    In more details, the proposed offering of $3.75 billion senior unsecured notes is composed of five-year, 10-year and 30-year notes and got the top notch "AAA" rating by Standard & Poor’s Rating Services. In a press release, Microsoft said the offering would be divided as follows: there would be $2 billion of 2.95% notes due June 1, 2014; $1 billion of 4.20% notes due June 1, 2019 and $750 million of 5.20% notes due June 1, 2039. For a company that has generated a 52% return on average shareholder’s equity in a year as bad as 2008, that is pretty cheap financing.

    A press release from the Microsoft Corporation says that the proceeds from the offering will be used for general corporate purposes, including funding for working capital, capital expenditures, share buybacks and also potential future acquisitions.

    The real move I can see here is probably that when the board of directors of Microsoft saw interest rates at such historically low levels in September 2008, they allowed the company to take on up to 6 billion in debt. It is a pretty good idea since the company has showed that it could generate very high returns for its shareholders at a very low price.

    What I am not quite getting is that the company doesn’t really need the money. With 7 billion dollars in cash and 18 billion in short term investments that are very liquid, I wonder what an extra 3.75 billion would change in the investment strategy of the company to increase returns for shareholders. It might increase the value of the firm but not necessarily in a useful way.
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    Tags: MSFT
    May 18 02:43 pm | Link | Comment!
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