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  • Lessons Learned the Hard Way #1

    Beware of companies where insiders/management control greater than 50% of voting stock. Shareholders in this situation are nothing more than minority partners with zero power to influence insiders/management decisions. Unless your interests align exactly with those of insiders/management, you’re likely to get screwed. 

    I learned this lesson the hard way over a decade ago when a microcap company I had invested a considerable amount of money in was "taken under" by the family controlling over 50% of the voting shares.  The "family" made a ridiculous tender offer for the company at a price well below tangible book value, and then of course voted to accept the offer.  As minority shareholders, our only recourse was to take them to court, which we did, and won.  But why get involved in such nonsense in the first place?


    Apr 19 5:36 AM | Link | Comment!
  • A Case for Buying American Railcar Industries (ARII)
    Russell Sage — “Buy your straw hats in winter.”

    I'm sure you've read the dismal near-term forecasts.

    "New freight car outlook: 16,000 in ’10, 21,000 in ’11"

    New railcar orders received during 2009 failed to top 10,000 units.  Things certainly look bleak for the railcar industry right? 

    Not necessarily. For the following reasons.

    The US Transportation Energy book stated the following figures for Freight transportation in 2004:

    Class 1 Railroads - 341 BTU consumed per short ton mile

    Heavy Trucks - 3,357 BTU consumed per short ton mile

    That makes rail 10 times more fuel efficient and I don't anticipate fuel costs going down significantly anytime soon (or ever).

    With that in mind, and given that 39% of the 1,965,830 railcars comprising the North American fleet are more than 25 years old, I believe scrap rates, driven by the pursuit of higher fuel efficiencies, will generate a significant need for new, lighter weight railcars. I also think Ethanol (which isn't going away anytime soon), and the record corn crops produced to meet Ethanol demand, both drive demand favorable to ARII.

    FTR Associates, a consultant to the freight supply industry, said approximately 60,000 units were scrapped in 2009, and likely another 57,000 units this year and 56,000 units in 2011 will be retired.

    Scrap metal prices will likely influence the scrap rate as well.

    Having said all that, ARII may very well go much lower before it goes higher. I've sat in stocks for years waiting for the worm to turn.

    Disclosure: Long

    Tags: ARII, TRN, GBX, PRPX
    Feb 18 8:08 AM | Link | Comment!
  • I always buy & sell too soon...

    I have a knack for recognizing undervalued companies. The problem is they often become even more undervalued after I buy in.

    Conversely, when the rest of the market finally decides to climb on board and bids up the shares, I always sell too early. My fair value targets are always too low and I wind up watching a good portion of the rise from the sidelines.

    I do consistently make money though so I can't complain too vigorously.

    When I'm trying to decide whether or not to buy a company's stock, I like to act as if I'm buying the entire company. My ideal situation is a small company with a sustainable earnings percentage equivalent to or better than the prevailing interest rate paid by government bonds, no long term debt, and underlying tangible assets equal to or greater than my purchase price. What the business does is really not relevant if it meets those 3 criteria. Add earnings growth to the mix and you have a stock ripe for steep appreciation. This combination of qualities offers huge upside potential with almost no downside risk. All you have to do is buy it and wait. Finding these stocks is hard, but waiting patiently for the rest of the market to discover your hidden gem is even harder.

    Disclosure: No Position
    Dec 10 3:52 AM | Link | Comment!
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