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The Unintelligible Investor

 
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  • Fannie Mae: Round One To The Government [View article]
    i have to disagree with you. I think it isn't that difficult to value. Its no different than valuing any other investment, except that in addition to a standard valuation for the company as a going concern, you have to weight the value for a binary outcome. Either its worth $0 or its worth the value as a going concern.

    The point is determining if the expected value is greater than the current price.

    The horse you bet on at the track might PAY 100-1, but its actual odds are probably even worse. You shouldn't make the investment.

    FNMA will probably pay 20 to 50-1 (especially from a $1.50). And I think the odds of that outcome are alot better.
    Oct 3, 2014. 10:11 AM | 2 Likes Like |Link to Comment
  • Countrywide PLC: 11.5x Trough Earnings With Ample Buyback Capacity; 90-130% Upside [View article]
    Nailed it. 16x free cash is a pretty hefty multiple in a mature industry.
    Jul 24, 2014. 09:45 AM | Likes Like |Link to Comment
  • Education Companies Finally Reflecting What Their Degrees Are Worth [View article]
    BTDSTR, I read your article as well. In an avalanche of bad data, you are essentially focusing on the fact that new student acquisition increased in the university segment for the first time in a long time and pointing to that as the early sign of a turnaround. This may be wishful thinking, but it is a distinct possibility.

    Fact remains they burned $35MM in cash in 1Q.
    Jun 13, 2014. 01:06 PM | 3 Likes Like |Link to Comment
  • Education Companies Finally Reflecting What Their Degrees Are Worth [View article]
    Strong Argument. I often take the same approach of "backing out" the outcome that is predicted by the prevailing price.

    Still, I think a couple of assumptions you've made are a bit aggressive. A 7% discount rate offers very little risk premium for an investment loaded with "a rather large amount of risk". Also, I realize most iBanks and PE firms simply deduct cash for EV calculations but I've always thought net working capital is a more true reflection of the resources "earned back" from a purchase.

    With those 2 adjustments, CECO looks expensive relative to the 1Q performance (hopes for improvement notwithstanding).

    This company has sped off a cliff and is trying to grow wings before it hits the ground. Even without a looming risk of default and a cash hoard, it can't afford too many more quarters of $35MM cash losses.

    Either way, you've got a new follower.
    Jun 13, 2014. 11:15 AM | 2 Likes Like |Link to Comment
  • Misreported Financial Website Stats Present Hidden Opportunity In National Research Corp. B Shares [View article]
    http://seekingalpha.co...

    Sounds familiar .....
    Jun 7, 2014. 07:55 PM | Likes Like |Link to Comment
  • Gannett: Compelling Risk Reward Due To Overblown Regulatory Risk [View article]
    Ok, understood. So they are not a cable provider and don't make fees off of subscription.

    But I think the issue still stands ... if there are less subscribers, there are less eyeballs on the tv screen, less money for advertisements, no?
    Apr 2, 2014. 11:17 AM | Likes Like |Link to Comment
  • Gannett: Compelling Risk Reward Due To Overblown Regulatory Risk [View article]
    Johannes,

    Excellent work. Best opportunity I've seen on SA in months. Given all the work you've done, I was hoping you could enlighten me a bit as to the industry dynamics of independent broadcasting, as I know basically nothing about it.

    Does Gannet broadcast its own content or are its various stations affiliates of the other broadcasters that provide the content?

    How does Gannet's broadcasting segment fair in the face of "cord cutting? My understanding is this effect is yet to really materialize, but their certainly isn't alot of momentum as far as subscriber growth (among the major providers at least).

    If subscriber growth is poor, what is really propelling the "high growth in broadcasting" that you speak of?
    Apr 1, 2014. 12:54 PM | Likes Like |Link to Comment
  • Willi-Food International Should Be Taken Private For A Potential 100% Gain [View article]
    This is a tangled mess no question, which does often lead to opportunities. And generally, you can make money by following the incentives.

    BUT, If Granovsky's intention all along is to simply take the company private, why not tender an offer for the whole company NOW? Why wait for a full takeover until later? If he could buy the whole company at $10 per share now (which may have been accepted by minority shareholders), why start doing share buybacks as the stock appreciates above $10 or offer a 30% premium to some higher future price?

    There could be legitimate reasons for this, but if he is so flush with cash and desperate to reallocate his assets, why wait?

    Perhaps he sees the cash hoard and an opportunity to purchase a controlling stake at a relative discount with the intention of milking the cash in the dubious ways so often employed by other majority holders as you mentioned.
    Mar 26, 2014. 11:41 AM | Likes Like |Link to Comment
  • JGWPT Holdings - A Strong Moat In A Niche Industry With 50%-Plus Upside [View article]
    Yes, I think they could technically raise the discount rate to whatever they want, but at some point will that have an impact on the demand for their services?

    On the surface it would seem that the higher the discount rate, the less people will be willing to part with their settlement.

    But if we could think of these settlement holders as rational actors (and investors), then technically they would be willing to pay a higher discount rate because they could invest the proceeds at a higher market interest rate.

    Or more realistically, they will be willing to pay a higher discount rate because the interest rate on their personal debt is also higher.
    Jan 28, 2014. 03:01 PM | Likes Like |Link to Comment
  • JGWPT Holdings - A Strong Moat In A Niche Industry With 50%-Plus Upside [View article]
    Thanks for providing further details. This has been a popular one of late.

    I wonder about the impact of rising interest rates on the profitability of new business. Is their any ability to charge clients more than the 11% discount rate in order to maintain its spread if funding costs increase?
    Jan 28, 2014. 12:01 PM | Likes Like |Link to Comment
  • Why Leverage Is Pointless [View article]
    My disagreement with this article is the defintion of risk that is used. Risk is essentially being equated to volatility here. Volatility, in my mind, does not equal risk. Volatility refers to the deviation of a stock's price movement around its mean in EITHER direction (up or down). Real risk, at least the risk I am trying to avoid, is the potential for the investment to move from the upper left to the lower right over time.

    And this article appears to argue that you should increase your exposure to your less volatile positions, even if you are leveraged, using historical volatility as an indication of risk. Well, if you have very large positions on historically low volatility investments, and something changes and those investments become high volatility (which they can ... see LTCM), now you're broke.
    Jan 24, 2014. 10:23 AM | 2 Likes Like |Link to Comment
  • Why Leverage Is Pointless [View article]
    No question that leverage is a powerful tool, but it can also be a tool for devestation ... and diversification is not necessarily the answer to protecting yourself. While you seem to discount the possibility of all your positions moving against you (and I agree, at any point in time, it is a fairly low probability event), as you say, there is absolutely the potential for you to be entirely "wiped out" ... ZERO ... and it is mathematically impossible for you to EVER recover.

    And, while there is magnified gains on smaller movements to the upside, there are magnified losses as well. Using you're examplle, all your positions would have to lose only 10% for you to be "wiped out" ... and even if you gain on some positions, the loss on your other positions could be substantially greater than 10% and you could still be "wiped out".

    and if you diversify in low risk investments, your return on those investments likely won't be enough to cover the cost of borrowing.

    the only true ways to use leverage safely and successfully are to 1) lever up at the exact market bottom 2) take out an interest free loan with no terms of repayment (kinda of like an insurance company)
    Jan 24, 2014. 10:17 AM | 2 Likes Like |Link to Comment
  • AMC Networks: Is This Really As Good As It Gets? [View article]
    I will have to play devil's advocate here by pointing out that, to me at least, it seems the core of your argument is faulty. You say that technology as proliferated cheap access to an essentially unending amount of content and that "strong overall competition for programming should support overall demand for popular content" ... and that this "dynamic should benefit content providers".

    I would suggest that the opposite is in fact true. More competition (from the largest studios to anyone with a $30 webcam and an internet connection), able to provide more content to viewers cheaper, should make it harder for content providers to capture additional profits.

    And I don't believe the availability of content impacts the demand for content. People only have so many hours in the day to watch videos, so the pie is relatively fixed ... and the pie is being sliced up between more and more competitors charging less and less for their service.

    These don't strike me as favorable industry dynamics.

    AMC has certainly been on a major run the last few years and they should be commended for it, but I think history has often shown that it is very difficult to continuously crank out the most popular content. NBC is a perfect example. They ruled the 90s. Now they are an also-ran.

    With that sort of potential downside, stock seems pricey to me.
    Jan 21, 2014. 10:05 AM | Likes Like |Link to Comment
  • Canadian Imperial: The Best Of The Big Banks [View article]
    I also question the statement that Canada "has a more stable operating environment." This may be true from a historical perspective, however, the go forward is a very different picture. Present household debt levels in Canada are WELL above those in the US in 2007/2008, energy prices appear to have stabilized at prices not conducive to outsized growth in the oil segment, other resource plays are depressed, and the country's once strong manufacturing base has been decimated by a high USD/CAD (though this trend is reversing). I think Canada's best years are behind it.
    Jan 17, 2014. 02:06 PM | Likes Like |Link to Comment
  • Cherry Hill Mortgage Investment Corp.: A Favorable Bet On Rising Interest Rates [View article]
    Instead of simply using comparables, if we were to model the cash flows of the MSRs, we would need some predictive model for prepayments as they relate to interest rates and also default rates as they relate to both credit quality and ALSO interest rates. All else equal, at some point, higher rates should lead to greater defaults.

    Is any of this kind of information readily available, either through CHMI or some other source?
    Jan 6, 2014. 09:34 AM | Likes Like |Link to Comment
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