The Manual of Ideas'  Instablog

Read an excerpt of the latest issue of Portfolio Manager's Review, entitled "The Superinvestor Issue." The report, published on November 20th, includes a proprietary review of the top holdings of more than twenty top investors. Also inside is a discussion of five superinvestor companies that offer compelling value, as judged by the Manual of Ideas research team.

The report also includes an interview with micro-cap value investor and Columbia Business School professor Paul Sonkin. In the interview, Sonkin discusses the secrets to success in microcap investing and outlines the thesis behind some of his top investment picks. Sonkin also cites his favorite books for investors: Hermann Simon's Hidden Champions, Ben Graham's The Intelligent Investor, and Paul Strebel's In the Shadows of Wall Street.

Superinvestor portfolios highlighted in the report include:

• William Ackman, Pershing Square
• Zeke Ashton, Centaur
• Brian Bares, Bares Capital
• Bruce Berkowitz, Fairholme
• Warren Buffett, Berkshire Hathaway
• Ian Cumming & Joe Steinberg, Leucadia
• David Einhorn, Greenlight
• Glenn Greenberg, Chieftain
• Brian Gaines, Springhouse
• Tom Gayner, Markel Gayner
• Mason Hawkins, Southeastern
• Chris Hohn, Children’s Investment Fund
• Carl Icahn, Icahn
• Seth Klarman, Baupost
• Eddie Lampert, RBS (ESL)
• Dan Loeb, Third Point
• Steve Mandel, Lone Pine
• Mohnish Pabrai, Pabrai Funds
• Rich Pzena, Pzena Investment
• Kenneth Shubin Stein, Spencer Capital
• Prem Watsa, Fairfax Financial
• Wally Weitz, Weitz Funds
• Marty Whitman, Third Avenue

Companies mentioned in the report include Abbott Labs, Aetna, Alcatel-Lucent, Alleghany, Allegheny Energy, Alliance One, Allstate, AmeriCredit, ATP Oil & Gas, Baldwin & Lyons, Becton Dickinson, Boeing, BreitBurn Energy, Brookfield Asset Management, Brookfield Properties, CA, Campbell Soup, Capital Southwest, CapitalSource, Cardinal Health, CarMax, Chesapeake Energy, Citigroup, Columbia Banking, Contango Oil & Gas, Crosstex Energy, dELiA*s, Dell, DENTSPLY, Diageo, Dillard's, DineEquity, DIRECTV, Domtar, DreamWorks Animation, Enzon Pharma, Fair Isaac, Fairfax Financial, Forest City Enterprises, Forest Labs, Gastar Exploration, General Electric, Hartford Financial, Heritage-Crystal, Hertz, Humana, Huntsman, International Assets, International Coal, Investors Title, ITC Holdings, J.C. Penney, Jefferies Group, John Bean Tech, Johnson & Johnson, Kraft Foods, Leucadia National, Level 3 Comms, Lockheed Martin, Markel, McDonald's, MI Developments, Microsoft, MTS Systems, Multimedia Games, News Corp., Northrop Grumman, Omnicom, Orange 21, Overstock.com, Paychex, Pfizer, Pioneer Natural, Pool Corp., Resource America, RSC Holdings, Sears Holdings, Spirit AeroSystems, St. Joe, Syneron Medical, Theravance, Thomas Properties Group, TravelCenters, tw telecom, Tyco Electronics, United America Indemnity, United Parcel Svc, USG, Viad, ViaSat, Wal-Mart, Walt Disney, WellCare, Wells Fargo, Wendy's Arby's, Yum! Brands, Zenith National, Zoran, and more.

Learn more about Portfolio Manager's Review.

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Bloomberg has an interesting article quoting John Reed, the man who was at the helm of commercial bank Citicorp when it merged with Sandy Weill's Travelers Group in 1998, creating the ill-fated behemoth Citigroup (C).

One of the most striking revelations in the article is Reed's admission that the repeal of Glass-Steagal should never have happened. Reed, of course, advocated for the repeal in 1999. Says Reed now, "When you're running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen."

Should corporate executives always look at big decisions as citizens first and as shareholders second? That might be a nice outcome for society, but it is neither possible nor is it necessary. If senior executives thought about what was right for shareholders, we might not have the kind of crisis we have had recently. The problem is that executives did not think about what was right for shareholders. Instead, they thought about what was right for their own bonus compensation in any given year. If Reed had done the right thing for Citigroup shareholders with respect to Glass-Steagall in 1999, he would have opposed the repeal. The latter has not exactly benefited Citigroup shareholders over the past ten years.

Disclosure: No positions.

The always lucid commentary and analysis by Emerging Value Capital Management founder Ori Eyal once again includes some eye-opening insights. This time, Eyal looks at the rapid increases in the U.S. money supply and government debt. Eyal's investment case for Israeli payroll processor Hilan Tech is also worthy of consideration.

How to protect yourself from the explosion in U.S. debt and the monetary base? You might consider shorting long-dated U.S. Treasury bonds by buying the ProShares UltraShort Lehman 20+ Year Treasury ETF (TBT). Another investment that might provide insurance against the sharp increase in the U.S. monetary base and the potentially resulting inflation is the SPDR Gold Trust (GLD). Better yet, you may seek long-term inflation protection by buying a home financed with a long-term fixed-rate mortgage.

Disclosure: No positions.

Imation (IMN) is a consumer-focused technology firm with leading market share in removable storage products, such as recordable DVDs. The company has a strong balance sheet and owns the widely recognized Imation and Memorex brand names. Trading well below book value and in line with “net net” working capital, the shares strike us as simply too cheap to ignore.

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This morning, Berkshire Hathaway (BRK.A) announced the acquisition of railroad Burlington Northern Santa Fe (BNI) for a transaction value of $44 billion and an equity value of $100 per share in cash and stock. Read the public announcement and coverage by Bloomberg and Reuters.

Profile of Burlington Northern Santa Fe (BNI)

Burlington Northern provides freight rail transportation of coal and consumer, industrial and agricultural products.

Primary Routes*

^{* Includes trackage rights. Source: Company.}

Business Highlights

• One of North America’s largest rail networks, with 32,000 route miles in 28 states and Canada.
• Balanced revenue base, with four major sources of freight revenue: intermodal, industrial products, coal, and agricultural products.
• Competitive advantage versus trucking. The company’s intermodal transport lags the delivery time of trucking slightly but offers big cost savings.
• Strong intermodal franchise, with one-third of revenue from consumer products transportation, which interfaces with other types of transportation.
• Balanced agri business, with 26% and 8% of segment sales from corn and ethanol, respectively.
• May benefit from higher infrastructure spending under Obama, particularly in industrial products.

Business Risks

• Industrial franchise exposed to housing slump, as 26% and 37% of segment revenue comes from building and construction products, respectively.
• Nearly one-half of consumer products revenue relates to imports, exposing the company to a decline in Americans’ appetite for imports.
• Affected by coal market dynamics. Declines in coal shipments hurt BNI. Coal is expected to remain strategic to U.S. electric power generation. The EIA expects coal supply to increase one-third from 2007 to 2030 to more than 1.5 billion tons.

Major Holders
Insiders 1% │ Berkshire Hathaway 23% │ Cap Re 7% │ Barclays 3% │ State Street 3% │ Vanguard 3%

Key Operating Metrics, 2006-2008

^{1 Calculated as thousand gross ton miles divided by avg number of employees.
2 RTN = revenue ton miles.
3 Net debt to capital, adjusted for long-term operating leases and other items.}

Access Burlington Northern Santa Fe's latest investor presentation here.

Disclosure: No positions.