But if you look at Part III, much of the argument is about not just management, but the effect of the combination of the companies' investment opportunity plus the effect of enjoying a broad turnaround in the economy: http://seekingalpha.co... http://seekingalpha.co...
In my view, both these companies will show their success by steady delivery than by some sudden realization. ACAS will grow funds under management while improving portfolio performance and portfolio positioning, while Berkshire will do the exact same thing, adding big portfolio companies so that its insurance business is no longer so overwhelmingly dominantly the driver of earnings.
Things to look at in ACAS are per-share metrics (NAV and NOI) and a return to dividend-paying status. One of the theses in ACAS that motivates some buyers is that the NAV discount will evaporate. But honestly, while the NAV discount persists I think Buffett had it right around page 99-100 of the 2012 Annual Report when in his letter he explained why Berkshire wanted IBM's stock price to languish following Berkshire's purchase of it: share buybacks work best for shareholders over time when the buybacks are cheap, because it retires a bigger percentage of the equity in favor of continuing shareholders. So I'm looking at ACAS as an opportunity to buy an investment I wouldn't buy directly (midsize portfolio companies) and to do it with "leverage" driven by a NAV discount.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
@HoopsAlpha As investors who've held ACAS for a long time are all too aware, the current discount was earned through a combination-punch of plummeting NAV, an eliminated dividend, and a bankruptcy scare. Everyone familiar with ACAS is once-burnt, and shy.
That said, the company is in a dramatically different position now than a few years ago: huge and growing fee-based funds management business, nicely-recovering debt portfolio, and near-nonexistant leverage. The question is whether management has its head on straight and will deliver more of the same recovery going forward, or whether a stopped clock is right twice a day and will be proven wrong the other twenty-two hours.
Obviously, the tenor of the article tells which camp I'm in. But the other folks' fears aren't based on a Tarot reading, just 4-year-old newspapers they didn't deeply read. The reason to buy ACAS is buried in complexity, which will make it a buy until the story gets so simple everyone gets it. Then, we'll have to re-visit and see whether something makes it an outstanding buy. But it'll be a while, yet.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
I try to write things I'd be interested in reading, and report what's driving my own thinking. If you'd like more, my articles are here: http://bit.ly/YKTURD
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
NMB: There's definitely some interesting math to try out on the possible ways one might split ACAS. I've written a little post on the blog comparing ACAS' hypothetical fund to AINV and musing on some concerns that might be raised by the restructuring. http://bit.ly/11YwIpj
Of course, if the fund is structured as a BDC it can have its own leverage ... if the debt is intended to be long-lived, this might be a good opportunity to match debt durations to secure attractive, known spreads without a lot of rate risk. But now we're really speculating :-)
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
I am hesitant to buy shares in publicly-traded companies on the theory someone else may want to take them private. This doesn't mean there's not a way to make money doing this, but it's not an area of expertise for me. I much prefer to identify things that make a company interesting from a competitive standpoint, but is widely misunderstood by the public (like Apple in the late '90s deciding to buy NeXT to migrate all its products to Unix). In the case of ACAS, the source of public confusion is the interplay of FAS 157 and the NAV discount – which is compounded by ACAS' status as a non-dividend-paying BDC (though its buyback program is much better for shareholders over time than a dividend).
I buy for the journey. If there's a white knight, I'd actually be bummed to miss out on the future of ACAS, which is a future I think looks too good to miss.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
There's a theory that ACAS intends dramatically restructuring to get better valuation of its parts, and that it would need to be able to unencumber its assets to perform the restructuring (and so can't build dependence on leverage before the restructuring). The theory has a lot going for it, but it's not an announced plan.
The interesting thing is how ACAS has managed to grow NAV as it's reduced leverage. Arguably management is doing better now then when I first got interested in the company before the crash.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
I think the 30% return number was quoted from the quarter the GDP turned positive. The idea is that ACAS is a proxy for the market, but is doing better than the S&P. I've written on that: http://seekingalpha.co... I've also written on the deal to be had at Berkshire: http://seekingalpha.co...
Of the two I think ACAS is more exciting, but Berkshire also has had phenomenal internal performance that's largely discounted by the market.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
There are definitely things to like in the restructuring possibilities. If ACAS becomes the asset manager for an AINV-like debt-heavy BDC, investors can pick whether they like the debt or prefer the asset management or what have you.
On the other hand, the risk of principal isn't as easily balanced against the reward of occasional huge returns when the debt and the equity are really split. ACAS' focus on what is knows is reassuring, but I recall its foray into the net optimization company that imploded when Google changed its ranking algorithm. It's like Rumsfeld said: there known knowns, known unknowns, and unknown unknowns. I like ACAS' effort to stay where the unknowns are known, but there's always risk in others' businesses.
One thing that accounting makes one realize is the artificiality of our measures of "asset" and "profit" in some businesses. I can understand a person who sees unrealized gains as "earned" but I worry that so many different treatments in so many different companies makes the apples-apples comparison tempting when the fruits are really grapes and grapefruits. But I guess that's how we identify bargains: by paying attention to the difference.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
The market share war is discussed in a pair of articles that explain Google's strategy and position: http://bit.ly/U0WJLl http://bit.ly/VmqkSR The upshot? The fact that there's a lot of handsets in the non-Apple segment of the market doesn't mean people will necessarily be buying applications or generating much profit share for the platform curators. The sales issues really turn on what hardware people buy. And I have three articles on the mobile hardware market: http://bit.ly/ULtFty http://bit.ly/11huYpr http://bit.ly/WPtlsi The upshot is that Apple has both a premium slice of the hardware market and a premium slice of the software-buying customer base, which in turn motivates quite a bit of development – which in turn makes the platform more valuable to consumers ....
In some ways, it's reminiscent of the attraction Windows acquired over the '90s: that's where the key apps were, so that's what people bought, so that's what developers targeted, so .... And Microsoft is still making money on that deal.
Apple has positioned itself as a major content vendor to its platform customers – music, movies, and now applications – which is paying dividends: http://bit.ly/YpMZvF ... big dividends: http://bit.ly/VeGZs2 Apple's success in Asia will continue to improve as Apple builds more of the storefronts that serve as its face in that region: http://bit.ly/12O8vRM Not that 100% growth is bad, mind you.
Thanks for coming by to read, and for the kind words.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
I read that NOK had made a profit last quarter, but I didn't look to see if it made so much profit it'd have done so without MSFT's quarterly payment. It'll be interesting to see how BBRY does with its launch. They report it's great, but they don't disclose numbers and they're withdrawing from Japan, so one must worry. A premium product will be hard to move in the third world, which had been a growth area for BBRY when it had keyboarded phones that played well with low-bandwidth networks. Will be interesting to see how the new platform impacts its addressable market.
Apple did really slay last quarter. Growing smartphones nearly 30% in volume despite having a week-shorter quarter is just incredible as a contrast against the tone of most of the headlines about the quarter: http://seekingalpha.co... One estimate had Apple at 69% of the cell profit last quarter: http://bit.ly/X6famD As to Samsung vs Apple, Apple actually has Samsung beat now in smartphone unit sales (Samsung's unit lead depends on the broader cell market. And the non-smartphone share is shrinking, so its overall unit volume lead looks to be at risk).
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
@gary03mw:
(1) Apple's lead in applications by volume is clear. Its lead in applications by quality is strongly suggested by competitors' efforts to secure for their platforms applications already existing on Apple's products.
(2) This advantage will grow and diminish in comparison to various competitive platforms. Against the platforms that fail, Apple's advantage will increase infinitely. Against the platforms that succeed, one must consider the market segment captured by the competitor and the profit to be had from those customers before ascertaining whether Apple's advantages remain effective. On the platform battle, I've written that freeware OSes like Android (and Samsung's upcoming competitor, developed with Intel) will gain in volume even if they don't necessarily drive much profit: http://bit.ly/U0WJLl http://bit.ly/VmqkSR
Toward the end of retaining advantages, Apple has built a huge content store to earn further revenue following sale of hardware units: http://bit.ly/YpMZvF Supporting that article is Apple's announcement of the 25 billionth song delivered to a customer through its store: http://bit.ly/VeGZs2
Apple has been working on the next competitive advantage for years, apparently.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
Functional cellular phones are less apt to collapse than well-made cars or brand-name sneakers, particularly as more of the world's population urbanizes and the information culture and its expectations of connectedness take broader hold.
At this point in the evolution of connected mobile devices, their sudden collapse is not really a source of imminent concern.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
I don't have a fixed timeline. I am watching the business and its competitors. The re-entry of MSFT and BBRY into the market is something to watch: can these platforms succeed in finding a profitable niche for the hardware on which they depend? What will it do to the high-end market segment's attraction to Apple and its products?
The only thing to do is to keep paying attention. I was first interested in Apple when I heard it'd bought NeXT, and it's been anything but a calm ride. I've bought at lots of prices since my first late-'90s entry, and I like this price, too.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
http://bit.ly/YKTURD
and on my blog:
http://bit.ly/VKtJgk
Enjoy!
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
I agree this is a bet on management, much as I bet against the management of another BDC here:
http://seekingalpha.co...
http://seekingalpha.co...
And for an example of another company which is a bet on management, I wrote this:
http://seekingalpha.co...
But if you look at Part III, much of the argument is about not just management, but the effect of the combination of the companies' investment opportunity plus the effect of enjoying a broad turnaround in the economy:
http://seekingalpha.co...
http://seekingalpha.co...
In my view, both these companies will show their success by steady delivery than by some sudden realization. ACAS will grow funds under management while improving portfolio performance and portfolio positioning, while Berkshire will do the exact same thing, adding big portfolio companies so that its insurance business is no longer so overwhelmingly dominantly the driver of earnings.
Things to look at in ACAS are per-share metrics (NAV and NOI) and a return to dividend-paying status. One of the theses in ACAS that motivates some buyers is that the NAV discount will evaporate. But honestly, while the NAV discount persists I think Buffett had it right around page 99-100 of the 2012 Annual Report when in his letter he explained why Berkshire wanted IBM's stock price to languish following Berkshire's purchase of it: share buybacks work best for shareholders over time when the buybacks are cheap, because it retires a bigger percentage of the equity in favor of continuing shareholders. So I'm looking at ACAS as an opportunity to buy an investment I wouldn't buy directly (midsize portfolio companies) and to do it with "leverage" driven by a NAV discount.
Thanks for reading, and the kind words.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
As investors who've held ACAS for a long time are all too aware, the current discount was earned through a combination-punch of plummeting NAV, an eliminated dividend, and a bankruptcy scare. Everyone familiar with ACAS is once-burnt, and shy.
That said, the company is in a dramatically different position now than a few years ago: huge and growing fee-based funds management business, nicely-recovering debt portfolio, and near-nonexistant leverage. The question is whether management has its head on straight and will deliver more of the same recovery going forward, or whether a stopped clock is right twice a day and will be proven wrong the other twenty-two hours.
Obviously, the tenor of the article tells which camp I'm in. But the other folks' fears aren't based on a Tarot reading, just 4-year-old newspapers they didn't deeply read. The reason to buy ACAS is buried in complexity, which will make it a buy until the story gets so simple everyone gets it. Then, we'll have to re-visit and see whether something makes it an outstanding buy. But it'll be a while, yet.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
I tried to write some thoughts on an external buyout here as a response, and it went long. It's now a blog post:
http://bit.ly/YVjnrE
Enjoy :-)
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
http://bit.ly/YKTURD
Thanks for the kind words and for stopping by.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
There's definitely some interesting math to try out on the possible ways one might split ACAS. I've written a little post on the blog comparing ACAS' hypothetical fund to AINV and musing on some concerns that might be raised by the restructuring.
http://bit.ly/11YwIpj
Of course, if the fund is structured as a BDC it can have its own leverage ... if the debt is intended to be long-lived, this might be a good opportunity to match debt durations to secure attractive, known spreads without a lot of rate risk. But now we're really speculating :-)
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
I buy for the journey. If there's a white knight, I'd actually be bummed to miss out on the future of ACAS, which is a future I think looks too good to miss.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
The interesting thing is how ACAS has managed to grow NAV as it's reduced leverage. Arguably management is doing better now then when I first got interested in the company before the crash.
Thanks for reading, and for the kind words.
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
http://seekingalpha.co...
I've also written on the deal to be had at Berkshire:
http://seekingalpha.co...
Of the two I think ACAS is more exciting, but Berkshire also has had phenomenal internal performance that's largely discounted by the market.
Thanks for stopping by and reading!
Understanding American Capital's 4Q2012 Earnings Announcement [View article]
On the other hand, the risk of principal isn't as easily balanced against the reward of occasional huge returns when the debt and the equity are really split. ACAS' focus on what is knows is reassuring, but I recall its foray into the net optimization company that imploded when Google changed its ranking algorithm. It's like Rumsfeld said: there known knowns, known unknowns, and unknown unknowns. I like ACAS' effort to stay where the unknowns are known, but there's always risk in others' businesses.
One thing that accounting makes one realize is the artificiality of our measures of "asset" and "profit" in some businesses. I can understand a person who sees unrealized gains as "earned" but I worry that so many different treatments in so many different companies makes the apples-apples comparison tempting when the fruits are really grapes and grapefruits. But I guess that's how we identify bargains: by paying attention to the difference.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
http://bit.ly/U0WJLl
http://bit.ly/VmqkSR
The upshot? The fact that there's a lot of handsets in the non-Apple segment of the market doesn't mean people will necessarily be buying applications or generating much profit share for the platform curators. The sales issues really turn on what hardware people buy. And I have three articles on the mobile hardware market:
http://bit.ly/ULtFty
http://bit.ly/11huYpr
http://bit.ly/WPtlsi
The upshot is that Apple has both a premium slice of the hardware market and a premium slice of the software-buying customer base, which in turn motivates quite a bit of development – which in turn makes the platform more valuable to consumers ....
In some ways, it's reminiscent of the attraction Windows acquired over the '90s: that's where the key apps were, so that's what people bought, so that's what developers targeted, so .... And Microsoft is still making money on that deal.
Apple has positioned itself as a major content vendor to its platform customers – music, movies, and now applications – which is paying dividends:
http://bit.ly/YpMZvF
... big dividends:
http://bit.ly/VeGZs2
Apple's success in Asia will continue to improve as Apple builds more of the storefronts that serve as its face in that region:
http://bit.ly/12O8vRM
Not that 100% growth is bad, mind you.
Thanks for coming by to read, and for the kind words.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
Apple did really slay last quarter. Growing smartphones nearly 30% in volume despite having a week-shorter quarter is just incredible as a contrast against the tone of most of the headlines about the quarter:
http://seekingalpha.co...
One estimate had Apple at 69% of the cell profit last quarter:
http://bit.ly/X6famD
As to Samsung vs Apple, Apple actually has Samsung beat now in smartphone unit sales (Samsung's unit lead depends on the broader cell market. And the non-smartphone share is shrinking, so its overall unit volume lead looks to be at risk).
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
(1) Apple's lead in applications by volume is clear. Its lead in applications by quality is strongly suggested by competitors' efforts to secure for their platforms applications already existing on Apple's products.
(2) This advantage will grow and diminish in comparison to various competitive platforms. Against the platforms that fail, Apple's advantage will increase infinitely. Against the platforms that succeed, one must consider the market segment captured by the competitor and the profit to be had from those customers before ascertaining whether Apple's advantages remain effective. On the platform battle, I've written that freeware OSes like Android (and Samsung's upcoming competitor, developed with Intel) will gain in volume even if they don't necessarily drive much profit:
http://bit.ly/U0WJLl
http://bit.ly/VmqkSR
Toward the end of retaining advantages, Apple has built a huge content store to earn further revenue following sale of hardware units:
http://bit.ly/YpMZvF
Supporting that article is Apple's announcement of the 25 billionth song delivered to a customer through its store:
http://bit.ly/VeGZs2
Apple has been working on the next competitive advantage for years, apparently.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
At this point in the evolution of connected mobile devices, their sudden collapse is not really a source of imminent concern.
Apple Scores By Skating Where The Puck Is Going Internationally [View article]
The only thing to do is to keep paying attention. I was first interested in Apple when I heard it'd bought NeXT, and it's been anything but a calm ride. I've bought at lots of prices since my first late-'90s entry, and I like this price, too.