– The Science of Genius: Plenty has been written recently on this nature vs nurture debate about genius. Another new book on this topic.
– Matt Ridley on Trade, Growth, and Rational Optimist: Great conversation with Matt Ridley, author of Rational Optimist, regarding the impact of trade and growth on human development
– Ben Stein’s conversation with Buffett: Buffett’s thoughts on gold, equities, and market condition.
– Lies, Damn Lies, and Medical Science: How medical researchers tend to mislead with their studies.
– Review of Rattnet’s Overhaul: Malcolm Gladwell’s review of Steven Rattner’s Overhaul.
– Todd Combs bulling on Western Union: An analysis of Western Union as an investment opportunity.
One of the top companies on my wish list is a Chinese play.
– Hanfeng Evergreen: Of all the Chinese listed companies, this one is one of my favorite. The company sells slow release fertilizers in China and South Asia. The management team is great, company has a long history, big 4 auditors, good governance. The company is the leader in its industry and has a huge first mover advantage. They have a strong brand name, relationship with government, strong margins, clean balance sheet, strong balance sheet growth, and huge growth potential.
Reading the 10K and letter to shareholders, you get a sense the management has done a fabulous job building a bit moat, its brand name and product quality, and taking the right decisions to position the company for a solid long run.
One of the major problems with slow release fertilizers (SRL) is its costs. SRLs have proven that they are great for corp yield and for the environment, especially water. The biggest concern and reason for slow adoption has been the cost of SRL has been prohibitive. Hanfeng has been a leader in the industry.
I would be a buyer if i could get the shares cheaper, although I doubt that chance will come.
– Controlled Release Fertilizers: Everything you would need to know about this group of products.
Last week the judge put the final stamp on the GGP emergence from chapter 11. GGP is slated for emergence from chapter 11 on November 8th. The new GGP shares start trading on the market on November 2nd. Also, Howard Hughes Corp (love that name) has filed for an application to trade on the NYSE.
Also, GGP seems to have found their new CEO. Sandeep Mathrani from Vornado looks like our guy. For GGP, there are two major events that I’m looking forward to for the rest of this year. The Nov 8th emergence and the 45 days from emergence to raise capital. Once the company emerges from chapter 11, I expected high volume and huge demand for the shares. This should push up the share price. GGP also has 45 days to raise capital so it can cancel the shares offered to BAM/Pershing/Fairholme. Given the demand for GGP shares, the only question is at what price they raise capital.
The wait for the Nov 8th emergence has been worth it. We still have some very interesting 1-2 months ahead of us.
I have stayed away from options for one reason, in investing you can’t time anything. Options have huge upside if the company executes and the market turns out as expected. Although the biggest risk is the timing of these events. You can have a company execute (look at ATPG) but the market ignore the company’s fundamentals in the short-term. In such a case, the options could end up worthless.
The CFW play was an arbitrage based on the company selling itself. Many lessons to be learned from this mistake, the main one is to stick with what you know well and are comfortable with. The CFW play was similar that of options, if the deal didn’t happen then there were huge risks w/ cash flow and potential of bank taking over the company.
A deal could still happen. The company is selling at a huge discount to market value of its assets. Although when you are desperate even the ugliest girls become hard to get (recall TXCO Resources).
For the third quarter, the portfolio was up 14.91%. The S&P 500 index was up 10.72%. For the nine months in 2010, the portfolio has returned a negative 0.64%, while the S&P 500 has returned 2.34%. Although we outperformed the index in the 3rd quarter, I haven’t been satisfied by the year to date performance. There are two main reasons for trailing the index:
– The type of holdings: Our holdings do not correlate with the index on a short-term period. In any give month, quarter, or year, the holdings could substantially under or over-perform the index. You can look at Yukon-Nevada Gold, it doubled in less than 2 months since we bought it. This is a rare case but my holdings can move very quickly. Harvest Natural Resources announced their hiring of Merrill Lynch, to assist the company in finding potential buyers. The shares had languished in the $8-9 range for months. After the announcement the shares now trade in the high $11. We have held HNR for over 2 years, and finally the value in being unlocked. Overall the portfolio is best compared to the S&P 500 index over a long term period, 2+ years
– Big holdings have underperformed: Two of my top 5 holdings have not performed as well as I expected. The companies have performed well in the 2 years that I have held the shares. Although the share prices have not reflected the improvement in operations. I still firmly believe that the current share prices trade a big discount to the true value of the companies. While my patience is tested, the lack of performance from these top holdings will impact the performance of the portfolio when compared to the index.
– Caraco: My biggest holding has not moved in a year. CPD started 2010 at $6/share. Current it trades in the mid-$5. Although in the short term my results will be impacted, I still believe in the long run this company will outperform the S&P500 index.
Overall I believe the current holdings are exceptionally well positioned to out perform the market in the short-term and long-term. On the short-term basis holdings like General Growth Properties, Yukon-Nevada Gold, ATP Oil and Gas, and Harvest Natural Resources should have a big impact on the portfolio’s returns. On the long-run, companies like Caraco Pharma, Ternium, WellCare, and Heckmann should have a big impact.
Yukon-Nevada Gold: This is a classic example of companies I like to invest in. Companies that have been through an accident (compliance issue), strong management (Sprott, new CEO), and strong balance sheet (large resources, solid cash flow based on historical production). I purchased the shares at an average price of $.30. At the end of Q3, shares were trading around $.67, a gain of 123% in just over 2 months.
Caraco Pharma: I bought some more shares of CPD after the news about the company re-hiring 50-100 employees and the strong Q1 results. The risk related to this company keeps decreasing with each passing month, although the shares at times doesn’t reflect the lowered risk. Although the short-term revenue and cash flow might not be strong, I believe in 2 years this company could be a huge cash creator.
Caraco Pharma: The company keeps marching closer to FDA compliance. The company has been rehiring employees. It is a waiting game now. I will be looking to increase holding if the prices stay depressed.
General Growth Properties: GGP is on track to come out to bankruptcy on Nov 8th. The company has lined up banks to help raise capital by selling equity after the company emerges from Chp 11. This means GGP will sell equity at much higher prices than what was offered to Pershing/BAM/Fairholme. This means more cash or less dilution for shareholders. Also, the Spinco story is very interesting. Any big sell-off in Spinco after Chp 11 will make it a very interesting buy opportunity.
Yukon-Nevada Gold: I have already discussed this above. I expect 2011 to be a very interesting year for YNG. The shares have already doubled since my initial purchase. I think there is still much more upside to come.
Ternium: The biggest news was TX looks like it is in process to build a plant in Brazil w/ a production capacity of 5.6M tonnes. The company is a huge cash generator. I believe TX is the second or third best steel producer in the world. They are positioned in one of the emerging areas of the world and they will benefit from the growth in Latin America for years to come.
Harvest Natural Resources: The company reported it is looking to sell assets or the entire company. They have hired Merrill Lynch to help the company find acquirers. The company received interests from third parties to acquire assets or the entire company. I think any transaction will happen quickly. I have held the shares for over 2 years, the patience is finally paying off.
Heckmann Corp: The company’s shares dropped double-digits in the quarter. I still can’t find any reason for the drop. The company’s future is exceptionally good. The biggest risks that I see are management poorly allocating the cash and execution risk. The management investing cash in the water pipeline business is a good sign. As for execution risks, I think you have some of the best managers in the water business running Heckmann. At current prices, I like this company quite a bit.
WellCare: The company has finally put behind the legal issues related to the fraud. Management can now focus on the operations. The company is also a very appealing acquisition opportunity with the legal cases behind it. I have held these shares for almost 2 years. It is frustrating to see the company work through the legal mess but still no reward from Mr. Market.
KVH Industries: The company announced its biggest contract right before quarter end. The most important part about this contract is the margins on new business. I believe that for new internet service revenues, 60-70% of it will hit bottom line. The company is well positioned to start building cash in 2011. Once the market sees the type of cash this company produces, I don’t think the shares still in the $15 range for too long.
ATP Oil & Gas: The company announced that it has started producing from the MC 941 #3 well. The company is expecting to hit 30-40K MBOE/day of production at the of 2010 and 45-55K MBoe/day at end of 2011. The biggest risk with the MC 941 #3 well is behind us and the liquidity issue has been taken care off. Now the company needs to show the cash flow and the shares could respond accordingly.
Cano Petroleum: This investment hasn’t worked out as planned. The company still has until late October to find a buyer. Although I have been losing faith in the management of the company. At current prices, the company is selling at a huge discount to asset prices.
Palladon Ventures: The company announced that the first shipment of 5K tons of ore has reached the Richmond terminal and was in the process to be loaded on the ships. The company has started shipment of another 5k tons. I think the company will now look to raise capital for major CapEx or sell the company.
– VIC presentations: Some of the presentations from the recent VIC conference.
– Eric Sprott’s most recent interview: Latest interview w/ the fund manager extraordinaire, discussing the QE2 and impact on gold.
– Dilip Sanghvi – The Contrarian: A good article on why I see this guy as one the best managers in the pharma industry.
– Graham and Doddsville Fall 2010 Newsletter: Always a great read
– A sick CEO’s full disclosure: In the current corporate environment where CEOs tend to not disclosure material events, it is good to see a CEO who takes the right path to shareholder disclosure.
– Henry Singleton – Master of Capital Allocation: Singleton, co-founded Teledyne, is considered on of the masters at capital allocation. A great article on his principles and how we can apply it to our investment decisions.
– Michael Burry’s letters to investors: Michael Burry has made some of his early letters available to the public.
– Ackman’s charitable work: Ackman’s activist investment style has been covered by the media, but the work he does for charities and his donating his wealth has not be that well covered.