We made it past Q1 2020. Are you still alive? Times like these remind us that one thing (truly) matters: Staying Alive.
Outsized returns are nice, of course. But what really matters is not losing your money. If you can keep some poker chips with you, you’ll always have a seat at the table. That’s our goal.
We’ve got a ton of news this week in the value space. But before we get to that, check out our latest podcast episodes.
Our Latest Podcast Episodes:
Here’s what we cover this week:
- Michael Burry Got A Twitter
- T. Fitzpatrick’s Latest Podcast
- Opportunities in Japan
- Luckin Goes Bust
- Buffett Sells Airlines
Let’s rock and roll!
April 8, 2020
Small Business Help: If you’re a small business owner, you’re likely suffering from the effects of COVID-19. The US Gov’t has programs, loans and grants for you.
Here’s the link for the Paycheck Protection Program (PPP) loan.
Here’s the link for the Economic Injury Disaster Loan (EIDL) program.
Make sure you check which banks near you are participating in these programs.
Investor Spotlight: Michael Burry Found Twitter
I’m a bit of a Michael Burry fan-boy. He’s my investing idol. I read his old annual letters at least once a quarter. In fact, I’ve molded my own investment strategy / philosophy after the man himself.
And finally … FINALLY the man joined Twitter.
I know. He doesn’t have the official blue check-mark next to his name. But let me have this one. He’s legit until proven guilty in my eyes.
Burry joined Twitter not to talk investments, but COVID-19. He has 53 tweets. Every one of those 53 involve COVID-19. At some point I think that’ll change. But clearly Burry has an agenda. Check out his timeline here.Shouting From The Rooftops
Following Bill Ackman’s footsteps, Burry’s using his platform as “Super-Investor” to spark change and public health idea generation.
I’d prefer idea generation on public equities and special situations than COVID-19 articles. Maybe that’s another good thing once this virus shuts down. Investors will get back to doing what they do best, investing.
That said, I sent a tweet asking Burry to join the Value Hive Podcast. If he joins the show, know that it will be the greatest achievement I’ve accomplished to date.
C.T. Fitzpatrick: Investing During Deep Distress
Fund manager C.T. Fitzpatrick went on the Value Investing with Legends podcast last week. C.T. is the CEO and portfolio manager of Vulcan Value Partners. Vulcan runs five investing strategies. Each of them ranks in the top 1% of their respective peer groups. An impressive feat.
The podcast dives deep into investing during crisis events.
When approaching these times, C.T. says, “It’s important to have the proper time horizon. If your time horizon is 3 months or 6 months, or even 1 year — you should be very worried … But we have a minimum timeline of five years.”
Here’s some other quotes I found impactful:
- “We are big believers in strong balance sheets. Our portfolios look nothing like the market.”
- “Our companies generally have net cash on the balance sheet. These balance sheets then become a tool to come out stronger from this [COVID-19].”
- “It’s not the amount of debt you have, but how is it structured?”
- “We really love volatility.”
- “At the end of December, we had 27 names. Typically we fluctuate between 20 and 40 names.”
Time horizon is everything. Think about it. The next two years will look awful for most companies. The best way to combat these times is through conservative modeling over a five year time horizon.
It reminds me of Michael Mauboussin’s quote (and I’m paraphrasing):
“If you’re worried about COVID-19 effecting your investment, take a five year DCF model and put $0 for the next 1-2 years.”
Doing that reminds investors of how little the present day adds to a company’s long-term value. Remember, over 70% of the value of a company comes after 7-8 years of cash-flows. Think long-term.
Movers & Shakers: Luckin Burns Investors & Buffett Sells Airlines
Luckin Coffee burned investors last week. Third degree burns. Take a look at the charts (NSFW):
That’s a cool 80% drop in a week.
The decline came on the news that LK cooked their books. They over exaggerated their sales figures, and messed around with expenses. Inflating some, deflating others. In short, you can’t trust their financials. Shocking for a Chinese company, I know.
COO of LK, Jian Liu admitted to fabricating over $310M in sales during 2019.
Looks like that Muddy Waters anonymous report was right.
What We Learned From Luckin Coffee
The short answer: nothing. We didn’t learn anything that we haven’t already learned before. We can’t trust many Chinese companies. It’s that simple. Which sucks because the long-term drivers of economic growth are there. The reasons for investing in China are evident.
Will this be the final straw for US investors? I doubt it. It’ll sting for a while, but investors will be back to the Mainland. Hungry for capital gains.
One thing we can take from LK: When someone releases an 89-page short-report on a company, take it seriously. Even if it turns out wrong, there’s a reason someone spent 89 pages on this company’s short prospects.
Buffett Sells Airlines Before “Forever” Holding Period Ends
Warren Buffett sold a s**t ton of airline stock last week. Here’s the numbers:
- 13M shares of Delta Airlines (DAL) for $314M
- 3M shares of Southwest Airlines (LUV) for $74M
I’m not sure what’s better, Buffett selling airlines a month after he said he wouldn’t, or FinTwit’s reaction to Buffett selling.
Here’s some of my favorite tweets on Buffett selling airlines:
Buffett last month: “I won’t be selling airline stocks.”
Buffett this month: pic.twitter.com/zEmXfnZeMn
— Hipster (@Hipster_Trader) April 3, 2020
Apparently Warren does use stop losses…
— The Chartist (@thechartist) April 4, 2020
Even Warren Buffett screws up sometimes pic.twitter.com/Ywvmt2tLR0
— Not Sure If Bull Market or Wayang Kulit 😳 (@pelhambluefund) April 4, 2020
Once again, remember that above all else, Warren Buffett looks out for Warren Buffett. pic.twitter.com/hpaLOLqnCT
— Nelson! (@thenelsonsmith) April 6, 2020
That’s why I love Buffett. He’s never shy to change his mind when circumstances and probabilities change. He doesn’t restrict himself to anchoring bias. The man went on CNBC and said he wouldn’t sell airline stocks.
Imagine the chutzpah on Buffett to then sell airlines.
But it brings me to a larger point: Do your own work and hold your own convictions.
“Because Buffett invests in it” isn’t a good enough bull case.
Here’s how DAL and LUV’s charts look today:
Ideas of The Week: Japanese Stocks Below NCAV
They specialize in Japanese net-nets and NCAV plays. Every week I scan their timeline to see if they’ve released any new names. This week was a feast.
Here’s their latest ideas with descriptions (from their tweet):
- NKK Switches Co (6943)
NKK Switches Co Ltd (JP:6943) manufactures industrial switches.
Stock is down over 30% YTD.
Trades ~40% NCAV, under 25% tangible book and has a negative EV.
Pays some div.
— janeo (@janeo1934) April 6, 2020
- Fukuvi Chemical (7871)
Fukuvi Chemical (JP:7871) is a plastic extrusion manufacturer of construction and industrial products in Japan.
Dropped a third of its mcap recently.
A net-net trading under 30% book, single digit PE and pays a decent div.
— janeo (@janeo1934) April 6, 2020
- IChiken Company (1847)
#1847JT ichicken, trades well below NCAV, cash rich, less than 3x PE, steady FCF and high (and sustainable)divi yield
— DeepValueJapan (@japan_value) April 6, 2020
- Fujii Sangyo (9906)
#9906JT Fujii Sangyo again trading at attractive levels around NCAV and 7x earnings. Solid positive FCF and 3.3% div yield.
— DeepValueJapan (@japan_value) March 10, 2020
Do yourself a favor and follow these two accounts. You’ll get great, deep value investing ideas on your timeline.
Shipping Chart Update: Base Building Development
Shipping stocks are all the rage within the value community. I received a lot of comments on Kuppy’s interview with Real Vision. Every day the trade looks better. The discount widens and the potential profits grow.
I’m tracking a basket of shipping stocks for potential short-term trades (read: shipping stocks are not long-term investments). Given the popularity of the theme, I’m going to track these charts each week as they develop. If you find this useful, let me know in an email.
Here’s my list (I am not long any of these names as of writing):
- Scorpio Tankers (STNG)
- Diamond S Shipping (DSSI)
- Dorian LPG Limited (LPG)
- Teekay Tankers (TNK)
- Euronav (EURN)
No chart pattern developing
- Overseas Shipholding Group (OSG)
Also, here’s an interesting article on the oil trade from Bloomberg.
That’s all I got for this week. Shoot me an email if you come across something interesting this week at email@example.com.
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