Tim Eriksen

Legg Mason: Earnings Good at First Glance, Ugly After That

I don't agree that it is an obvious short. If you use cash earnings instead of reported earnings, LM is trading around 10 to 11 times earnings.

Peerless Systems Gets Ready to Rumble with Highbury Financial

This should be an interesting story to watch unfold. IMO, both stocks are attractively priced. Peerless has no debt, and ended the April quarter with $2.57 per share in cash/investments. They received additional funds that were held in escrow this quarter. So cash/investments should be around $2.90 per share, yet the stock trades at $2.22. They have been buying back their own shares.

Highbury, an asset manger with around $5 billion of AUM, is also debt free. Has cash of around $1.55 per share, book value is $4.50, and has current annualized cash earnings of 40 to 45 cents per share. At $4.22, it trades at 10 times cash earnings, and just 6 times cash earnings if you adjust for the cash on the books.

Diamond Hill Investment Group: A Wounded Wildebeest?

Diamond Hill manages over $5.5 billion and you pick a tiny $50 million of their AUM (assets under management), in a sector that everyone knows has gotten creamed in the last year, and then based on its performance you draw generalized conclusions about the company as a whole.

Then you brilliantly look at YoY comparisons in EPS and find it falling despite rising AUM. Well if you were smarter you would have also seen how operating income rose YoY and that the lower EPS results were solely due to investment income incurring a loss, which is understandable based on how the market has performed so far this year. It is quite obvious that earnings power is continuing to grow at Diamond Hill.

Then you compare current performance to Buffett's historical performance. So you are using different timeframes in your comparison and in addition most of the time period for Buffett tracks changes in book value not investment performance (meaning it includes operating companies Berkshire owned). If that isn't comparing apples to oranges, I don't know what is.

Keep up the crappy work. I guess it just goes to show that anyone can get their thoughts published on the web these days.

Highbury Financial: A Forgotten Money Manager

Excellent overview of a definitely under-followed company. I own it in both client accounts and the private fund I manage. While I wish there was currently a stronger growth aspect, the ridicously cheap valuation makes the stock very attractive.

The stock is at $2.75 per share, with no debt, and nearly $1 per share in cash, which is growing 10 cents per quarter. So net of cash, it trades at 4 times free cash flow. That is an excellent investment in my opinion.

I don't agree with the author's argument to repurchase the warrants. They are too far out of the money to worry about at this time. I'd rather see them buy back all the stock they can at these levels. It is incredibly accretive. Their business model is so solid (as you noted AUM would have to fall 70% for Highbury to actually lose money) I would be comfortable with using debt to repurchase shares.

Another aspect that I rarely see mentioned is the Contingent Adjustment Payment. See Item 3 in their 10-Q. Basically when they bought Aston their was a price adjustment feature based on annualized revenue for the six months ending November 30, 2008. If annualized revenues were higher than a specific target Highbury would have to make an additional payment. If annualized revenues were below, they would receive a payment (max. $3.8 million).

As of March 31, 2008, Highbury would receive a payment of $1.5 million. My estimation is that as of June 30, it would now be closer to $2 to $2.5 million (20 to 25 cents per share) due to the market falling in Q2. According to the CEO all of this money would be untaxed, and go to Highbury. That essentially gives the owner a short term hedge if the market stays down or falls further.

Pyramid Oil Shares Set to Spike Again?

Of course if you spend just a couple of minutes actually looking at the income statement you would find that PDO had a tax credit in the March quarter. True earnings were closer to 15 cents. Their earnings growth is all due to higher oil prices so it is only sustainable if oil continues to go up.

PDO will beneift in the coming quarters from a natural gas find in Texas, but even with that additional production they will have a hard time hitting 25 cents in quarterly EPS.

Why in the world should PDO make anew run at $30 per share and thus trade at 30 times earnings? It shouldn't.

Wisdom Tree Puts Forth New ETF Shoots, But Shows Some Earnings Blight

I came to essentially the same conclusion on burn rate.

Asif your chart makes it look like growth has just slowed. By having nearly a year long gap it misses that AUM peaked last fall and then fell for a while while the markets tumbled. The volatility of growth makes it hard to estimate what future rate of AUM growth to use in a model. I still don't see cash break even until about $11 billion and profitability until about $15 billion.

Why Investment Banks Should Not Buy Hedge Funds

While I don't know what current lease rates would be for office space throughout the world, I doubt that operating expenses (non-compensation) would be as high as this example. Would they really ramp up at the same rate as AUM? I doubt it.

Don't get me wrong, I agree with the overall argument that the purchase was extremely stupid.

Phillip Morris: Smoke 'Em If You Own 'Em

andrew - PM is Philip Morris International. You thoughts might reflect better on Altria, the US stub. PM looks attractive long term. A Buffett type stock.

Clinton and Obama: Hedge Fund Killers

I'll believe the Democrats will eliminate carried interest when I see it. Schumer is out there raising millions from hedge fund managers. I don't think they are giving it just to be taxed higher. My bet is that it is a popular issue that the Democrats won't follow through on. They are just pandering for votes.

No End in Sight to Banking Crisis

The only thing more illogical than the writing of the author is the fool who posted as credit-card cap.com. A quick glance of the site shows a person completely ignorant of finance. For example he says to look at your credit card statement if you carry a balance. If the amount of interest you pay exceeds the amount of principal then, he says, you are paying more than 100% interest. What??? Try looking at your mortgage statement, by his logic a new homebuyer is paying nearly 1,000% interest. Grab a clue about basic math, please.

Why Isn't the Government Capping Credit Card Interest Rates?

To be more specific on why your post is so off base. You wrote, "As each house is foreclosed, the banks themselves are put in a more perilous financial condition, since they ordinarily leverage each loan at a ratio of 20:1 for deposits held." Please name which banks have a 20:1 leverage on deposits. You would be in the ballpark if you said equity, but deposits, give me a break. Only a few banks have more loans than deposits, and they would have borrowed through fed funds which are not much different than CDs.

You do realize that if you capped interest rates on credit cards that finance companies would earn less money yet see little decrease in write offs and they would likely quit issuing credit to higher risk borrowers.

Why Isn't the Government Capping Credit Card Interest Rates?

Your analysis is stunningly off base. Little of what you say is accurate, and your suggestions would do little to help.

Farmers & Merchant Bank: A Solid Investment in Family Tradition

I'd recommend that you look into why Marcus Walker felt it necessary to sue the Board and run two rival directors. Some of the 4 fold increase in recent years was due to a depressed share price cause by mismanagement by the board, which only changed due to outside pressure.
In addition your quick comparison to BBNV is probably not a good one. Book value is only one factor to consider in valuation. I wouldn't use the same book value multiple unless both banks had similar ROE and growth rates, whih they do not. ROA or earnings are probably more important. Off the top of my head, Burke & Herbert might be a better comparison.

Berkshire Hathaway's Valuation: Credit Suisse or Common Sense?

Are you certain that there is a LT cap gains rate of 15% that is applicable to corporations? It is my understanding that capital gains are generally taxed as ordinary income for corporations.

WisdomTree: Riding the ETF Wave

In the Sep qtr, revenue was $0.5 million and quarterly expenses were $5.9 million for Wisdom Tree. The big question to me is how much of expenses is one-time, fixed and variable. The $5.9 million in costs was for the Sep quarter in which they ended with about 0.5 billion in ETF assets. We know that there has to be some variable costs. If I assume no start up costs and no varialbe costs (obviously quite optimistic) then it would still require $4 to $5 billion in assets to breakeven, and $15 to $20 billion to report an after tax EPS of 10 cents. So, it looks to me that a lot of growth is priced into the stock.

If anyone has any insights I would appreciate hearing them.