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Jay Unni  

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  • Bargain Hunting In Thailand  [View instapost]
    I think if one was going to take the statistical approach, you'd weight based on the degree of undervaluation - i.e. the lowest p/ncav highest, then the next lowest, etc. Joel Greenblatt said weighting based on valuation had a little better returns than an equal weighting (of course, his formula is a little different than Carlisle's - Greenblatt includes ROIC, while I think Carlisle insists that a simple enterprise multiple performed better).

    I'll have to read more of Carlisle's writing; I've really wrestled with the idea of statistical investing vs more concentrated qualitative + value investing.

    Anecdotally, I've found the value plays that work a little better usually have good stories attached. Logically, I think a value play has to attract investors to move in price, and a good story attracts investors. Plus, I think a little coverage by a few authors, like you and Chris, can sometimes provide a nice catalyst in itself. But, who knows - could be recall bias, and I don't know of any academic studies that test "story-based" investing.

    Btw, very interesting idea! Now if only I could get a borrow on a Thai stock...
    Sep 15, 2015. 06:04 PM | Likes Like |Link to Comment
  • The Best Things In Life Are Less Than Free [View instapost]
    Very nice find, Chris.
    Sep 10, 2015. 08:49 PM | 1 Like Like |Link to Comment
  • BNCCorp: A Cigar Butt That's Worth The Risk [View article]
    Thank you.
    Dec 27, 2014. 12:18 AM | Likes Like |Link to Comment
  • Momentum Stock Bust Is Self-Reinforcing [View article]
    You make some very good points. A rising rate environment itself, and the paradigm shift from risk assets, is not a foregone conclusion. I consider it a working hypothesis, and it accords with the overall perception of analysts at this time. Whether that perception turns out to be true or false will be proven with time.

    You bring up an interesting point about institutional risk taking. In the larger economy, no, institutions are probably still not taking enough risk. That leads me to the question whether lending has improved enough to warrant an end to QE.

    However I believe this momentum stock boom was partially a side effect of this - in order to stimulate institutional lending, the Federal Reserve actually stimulated the purchase of risky equities by retail investors and large funds. I believe this strength in the equity markets may actually lead to the end of QE before it has really had the chance to stimulate the lending it was intended for.

    I am confused by your last point. It sounds like you are skeptical of the ability of these companies to leverage middle class prosperity?
    Apr 2, 2014. 12:24 AM | Likes Like |Link to Comment
  • Momentum Stock Bust Is Self-Reinforcing [View article]
    Yes, I believe expenses would decrease on the income statement, since stock options are expensed at fair market value.

    However cash flow would decrease if the price is in a downtrend; if the options cannot be exercised, the company would not be able to collect the excess tax benefits associated with stock options, nor the cash flow associated with issuance of the shares at the strike price.

    The bigger concern is that a protracted downturn in momentum stocks can decrease their attractiveness to new employees. Right now, the brightest minds in the tech world want to work for these companies, in no small part because being paid in their stock options can make employees rich. However, in periods of downturn, employee pay effectively gets cut to a fraction of what it was. This can lead to a flight to companies that pay a higher base salary.
    Apr 2, 2014. 12:08 AM | Likes Like |Link to Comment
  • Momentum Stock Bust Is Self-Reinforcing [View article]
    In the short run, the effects of the bust in and Amazon were very similar. Amazon lost 92% of its market cap, from peak to trough, in the Dot-com bust.

    However, companies can recover from such a bust, as Amazon has proved, provided they generate enough cash flow to grow from operations alone.

    There is a very good chance that 3D Systems may resemble Amazon in the scenario you describe; I believe it will emerge from the bust with operations intact. However, a 92% decline in the meantime is disastrous for short-term portfolio results.
    Mar 27, 2014. 07:58 PM | 2 Likes Like |Link to Comment
  • Is Facebook Really Worth $58 Billion, Maybe [View article]

    I actually take the opposite viewpoint on this issue. If a company is trading above its intrinsic value, then it is actually a positive to use stock-based compensation. Why? Rather than spend cash on salaries, they can use overvalued stock to essentially get a discount on their SG&A expenses and R&D expenses.

    Actually, if you dig in to the 10-K, you can see that the majority of their R&D expenses (60%) are covered by issuing shares. This introduces a "reflexive" component - increases in share price can lead to bigger discounts on new product development, thus justifying the high share prices.
    Jun 15, 2013. 07:41 PM | 1 Like Like |Link to Comment
  • Traditional Stock Analysis Will Not Work For Tesla Motors [View article]
    Good point. I simply used the Mid point of the loan range. It's not a perfect assumption, and your spreadsheet is more comprehensive.
    Jun 1, 2013. 04:29 PM | Likes Like |Link to Comment
  • Traditional Stock Analysis Will Not Work For Tesla Motors [View article]
    It is a fascinating phenomenon to simply watch. However, I view my own participation as an essential test to verify/deny my thesis.
    May 27, 2013. 02:33 PM | Likes Like |Link to Comment
  • Traditional Stock Analysis Will Not Work For Tesla Motors [View article]
    I am not sure I understand your comment. I am still working with my original investment thesis.

    The turning point I discussed in my original article on Tesla was related to the step-down of the government credits after Tesla hits the 250,000 car mark. This article discusses components of the boom phase that I stated would occur before this mark.

    The only components that have changed is that Tesla can now rely on an additional market, the debt market, for extra leverage to fuel the boom, and the company is getting better terms on its financing than I had anticipated. I believe this could significantly lengthen the boom phase.

    I have not seen any events yet that are dramatically out of sync with the thesis of an eventual turning point.
    May 27, 2013. 02:29 PM | Likes Like |Link to Comment
  • Traditional Stock Analysis Will Not Work For Tesla Motors [View article]
    Probably true. I think we will take a small pullback when the demand from short covering dries up. But I agree that it will probably be small, there are a lot of on-lookers who would like to jump in for the ride.
    May 27, 2013. 01:53 AM | Likes Like |Link to Comment
  • Traditional Stock Analysis Will Not Work For Tesla Motors [View article]
    Your questions about the gross margins and labor costs have been addressed by other commenters. A company cannot create a short squeeze in its own stock.

    The ZEV credits are a concern for the immediate future, and the decrease of credit sales will be a significant test for Tesla - can it remain profitable with decreased credit sales next quarter? A "no" would lead to a pullback of the trend, a "yes" would lead to a continuation.

    I believe the trend is strong enough to continue, even if the lowered ZEV credit sales push them into the red and lead to a stock pullback. The trend has a way of reinforcing itself, as pointed out in the article.
    May 27, 2013. 01:50 AM | 1 Like Like |Link to Comment
  • Traditional Stock Analysis Will Not Work For Tesla Motors [View article]
    Even if the car production numbers do not increase enough to justify a 100 P/E this year, as long as the price stays above the intrinsic value, the company can continue this process with rounds of new financing, in both the equity and debt markets.

    I never meant to imply that future earnings do not matter. I don't think traditional models do a very good job of describing the course of stock prices in certain situations. Even in the late 1990's internet bubble that you cited, discounted future net earnings models would not predict a massive rise, then fall in stock price.

    You may hold the opinion that all excesses in the market must eventually be corrected. My point is that the company has a mechanism by which the excess can be maintained for quite some time.
    May 27, 2013. 12:25 AM | 2 Likes Like |Link to Comment
  • 3D Systems Corporation: The Boom Isn't Over [View article]
    Perhaps you should read the previous article - it outlines the process in more detail:

    Also, perhaps read chapter 2 of Alchemy of Finance, "Reflexivity in the Stock Market".

    I apologize if I did not fully explain the process - I did not want to restate much of the previous article.
    May 13, 2013. 06:18 PM | Likes Like |Link to Comment
  • Tesla Motors: Long Now, Short Later [View article]
    Glenn - if I understand your model correctly, you outline several scenarios at various valuations and probabilities, and use those valuations and probabilities to calculate a risk/reward ratio. I believe this is a valid model. I think you should reconsider the importance of the underlying assumptions of probabilities and valuations that you are plugging in to those models. I would argue that the end result is largely dependent upon those initial assumptions.

    Also, have you considered that there may be possibilities you have not outlined? For example, have you considered a possibility where Tesla dominates the automobile market, but still suffers a huge collapse in stock price prior to this eventual outcome? In such a case, Tesla might end up at a very high share price in, say, 2020, but a very low one in, say, 2016? Are there not other examples like this case that may not be accounted for in the scenarios you have outlined?

    The reason I take an approach based on logical argument is that the structure of the argument can be changed over time. The conclusion is based on several premises; if a premise does not hold, the conclusion must be revised. Thus it is a process of constantly testing and refining the investment thesis - you test by investing according to the theory. If it is working, then the theory is provisionally valid; if it stops working, then something in the thesis is wrong, and the trade must be altered.

    If, for example, no risks mentioned in the article materialize, then I would never switch to a short position - I would not have reason to do so. If new components of the boom emerge, I would be compelled to strengthen my argument for a bull run in the stock, if new risks emerge, this strengthens my argument for an eventual bust.

    Perhaps the difference between our approaches is this: the scenario based approach is concerned with determining the eventual outcome for the company, whereas my approach is more concerned with how it gets there, how this process happens. To me, being able to go long, short, and, perhaps, long again is the essence of "seeking alpha" in the market.
    Apr 30, 2013. 12:02 PM | 1 Like Like |Link to Comment