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September 03, 2019


This Day in History —
On this day in 1789, the United States Congress established the US Treasury Department. Bonus points if you can guess who was the first to lead the department (answer at the end).


Investor Spotlight— Michael Burry Goes Activist

The man who sent The Short Heard ‘Round The World is at it again, this time with his keyboard. Dr. Michael Burry, manager of Scion Asset Management, penned two activist letters last week. The recipients of such an honor? Gamestop (GME) and Tailored Brands (TLRD).

Burry has reason to publicize his frustrations with each business. GME and TLRD share similar characteristics in that:

  • Both companies are bouncing around all-time lows.
  • Both companies have high cash balances.
  • Many investors consider both companies a value trap.

So what exactly is Burry demanding of management?

Burry’s Beef with TLRD

The famous hedge fund manager isn’t thrilled with TLRD’s capital allocation decisions, and believes capital should be spent buying back stock. TLRD’s retired over $400M in debt with cash from operations, which Burry applauds, but doesn’t think its enough.

Burry wants management to institute a $50M buyback while continuing to pay down debt.

He also wants the company to stop their dividend — a commitment that’s cost the company nearly $36M per year.

If It Looks Like a Duck …

Burry seeks a more aggressive buyback from GME’s management team — to the tune of $238M. If Burry gets his way, management would retire close to 80% of GME’s outstanding stock. Management’s already said they’d purchase stock up to $6/share, so current prices of $4 still appear cheap.

Yet, even if Burry fails to get his way, GME’s released a hip new website! This will surely increased shareholder value, right?


Movers and Shakers — EEI Shareholders Get Paid & Hedgies Pile Into NTDOY

Shareholders of Ecology & Environmental, Inc. (EEI) ended Wednesday with a nice little gift: a buyout agreement.

The company reached an agreement with Candian-based WSP Global, Inc., a private engineering firm. The deal still needs approval from EEI shareholders, but we think they’ll like the price.

If the deal goes through, WSP will acquire all outstanding shares of EEI for $15 a piece — a nice 50% premium from Tuesday’s close.

Hats off to Peter Rabover of Artko Capital LP for winning big on his long thesis.

For a rear-view look into EEI, check out Adam Wilk’s thesis on the company (self-claimed cloner of Rabover on this idea). While you’re at it, give him a follow on Twitter. He posts great content.

Value Investing’s Newest Hotel

Similar in hype to the Madden cover athlete reveal, 2019’s Value Investing Hedge Fund Hotel goes to … wait for it … Nintendo (NTDOY)!

Since we live in the small, Harry Potter-style room that is value investing, it only takes a handful of funds to invest in the same stock to catch my eye. Remember when I said Adam Wilk sends money tweets? I didn’t lie:

One such Fund that’s long NTDOY is Scott Miller’s Greenhaven Road Capital. You can check out his thesis at the end of his latest quarterly letter.

What’s The Big Deal?

NTDOY is generating a lot of interest from value investors because, well, it’s a great business at a cheap price. The company sports industry-leading IP, zero debt on the balance sheet and management effectively allocating capital.

Along with the above features, NTDOY aims at capturing the smartphone market, a move that (if successful) will greatly increase the TAM to sell games, IP. etc.

If you want to do deeper work on Mario and friends, we recommend starting with @HardcoreValue’s slide deck.


Idea Backlog — A Two-Fer with Chris Mayer

I’m a simple man. Whenever I see a new blog post from Chris Mayer, I read it. In his latest post, Mayer offers two of his latest ideas: InterActive Brokers (IBKR) and Fairfax India (FIH-U:TSX).


What Mayer Sees in Fairfax

FIH-U is a holding company of a hodge-podge of businesses — some private, some public. According to Mayer, the “crown jewels” in FIH-U’s bag are:

  1. Airport in Bangalore
  2. IIFL, a financial company that’s had triplets.

Mayer concludes that since only one of the three pieces of IIFL trade on public markets, its difficult to get a sense of what the underlying value is of the whole. He also likes the management team and is a proponent of exposure to Indian equities.


Understanding Broker-Cash = Understanding IBKR

It’s been a rough go of late for IBKR. But hey, misery loves company, right? Mayer suggests lower interest rates have something to do with the decline in nearly all brokers (Schwab, TD, E*Trade, etc.). In fact, Mayer notes that all major broker stocks hit 52-week lows in August.

To get a closer glimpse into broker-cash and its relation with net-interest margin, Mayer turned to IBKR’s IR team. Here’s their breakdown from the last earnings call (from Mayer’s post):

Mayer believes IBKR has levers to pull to counteract various interest rate environments — and for that, he’s not selling:


Video of the Week — It’s Luxury, My Boy!

We don’t consider ourselves “high fashion” here at The Value Hive, but this week’s video is all about luxury. Bernard Arnault, CEO of luxury goods conglomerate LVMD, sat down for a Q&A to discuss all things luxury.

Some high level talking points:

  • How and why Arnault entered luxury goods business
  • How Arnault defines the word, luxury
  • How Arnault enters new markets
  • Why Arnault got into the luxury goods business

The interview just shy of an hour long. Don’t be a millenial, watch the whole damn thing. Also, subscribe to Investor’s Archive’s YouTube channel. This isn’t a sponsorship — they just release fantastic content.


Who Won Twitter? — TA Predicts Hurricane Patterns

For all the Floridians reading, stay safe!


Bonus Round

If you answered “Alexander Hamilton” to the This Day In History question, you are correct!

That’s all I got for this week’s Value Hive.


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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.