Security Analysis « S T A B L E B O Y.

Meadow Valley Corporation (MVCO): Arbitrage Opportunity

In Arbitrage, Security Analysis on December 14, 2008 at 10:06 pm

Meadow Valley’s construction services segment builds bridges, overpasses, channels, roadways and airport runways; the construction materials segment manufactures ready-mix concrete, sand and gravel products. In a 10-Q filed November 14, Meadow Valley comments on the status of its operations:

“As with each quarter this year, the third quarter was significantly buoyed up by the performance of our construction services segment. Entering fiscal 2008 with approximately $172.4 million in backlog provided a good deal of momentum for the construction services segment. Contract backlog as of the end of the third quarter was approximately $145.1 million, 63.4% more than a year ago, and should continue to provide near-term opportunity for solid performance from the construction services segment. The construction services segment is primarily engaged in public infrastructure construction and, so far, the public works sector of the construction industry has been less affected by the turmoil in our nation’s economy. As a result, we have had ample bidding opportunities, but what is apparent from the bidding is that competition is intensifying both in terms of the number of bidders as well as tightening profit margins. Our current bonding limits of approximately $250 million total bonding program and a single project limit of approximately $100 million allow us to bid on larger projects which typically see fewer bidders because of such high bonding requirements. Nonetheless, in today’s competitive environment we see an increased number of bidders on jobs of all sizes.

“The sharp decline of the housing sector has been the primary cause of the recent poor performance of our construction materials segment. Since demand for our product, ready-mix concrete, depends entirely on the amount and location of construction activity and because most of our facilities are located to best serve the residential or residential-related commercial construction projects, we have been dramatically affected by this downturn. A few quarters ago, what seemed to start as a slowdown in housing has now erupted into a full-blown global financial crisis. It appears highly likely that we will experience a much more pronounced and longer downturn than previously believed. Furthermore, commercial construction typically lags residential construction and we have only begun to see the slowdown in commercial construction activity. Accordingly, we have taken specific actions to reduce costs and preserve cash for our construction materials segment. These actions include, but are not limited to: (i) not filling the vacancy created by the promotion of our Vice President to President of RMI upon our President’s retirement, (ii) reducing construction materials segment administrative personnel, (iii) implementing a fuel surcharge, and (iv) reducing operational overtime for the construction materials segment. Subsequent to the third quarter ended September 30, 2008 we also imposed a 5% reduction in pay for all construction materials segment salaried employees. We will continue to analyze our operations for other opportunities to further reduce costs and preserve cash.”

Since service contracts account for the great majority of Meadow Valley’s revenue, the company should maintain a moderate level of earning power through the current recession. Indeed, third quarter performance has been satisfactory even after the exclusion of a particular non-recurring benefit. There are, however, two important risk factors for the construction services segment:

“Because much of the funding of transportation infrastructure comes from local sales and fuel taxes, any event that may impact the overall economy that would decrease consumer spending or diminish fuel consumption would result in lower receipts of tax dollars that, in turn, would diminish the availability of funding for transportation infrastructure.

“As public works constitute the majority of our CSS volume, and governmental entities are the primary source of funding for infrastructure work, it is, therefore, important that public funding be maintained. The national transportation legislation, SAFETEA-LU, was signed by President Bush on August 10, 2005 and should provide relatively stable funding for transportation infrastructure at least until its expiration in the fall of 2009.”

Government construction expenditures should increase under the Obama administration.

In July 2008, Insight Equity proposed to acquire Meadow Valley for $11.25 per share. Given the significant premium to current prices, I believe that stockholder approval is assured. However, Insight Equity now claims Meadow Valley has experienced a material adverse effect, viz., fair market value has declined by more than $6 million. Fair market value is not clearly defined in the merger agreement, but the main issue appears to be poor operating results at Meadow Valley’s Ready-Mix subsidiary. According to management, Ready-Mix has not violated deal covenants.

There are three obvious outcomes to the Meadow Valley situation: first, stockholders can receive $11.25 per share; second, they may receive some reduced price; and third the merger may be terminated. I believe that each outcome is equally probable, and that even a termination will not be too onerous for stockholders. The mathematical expectation is positive.

Vigorish.wordpress.com

In Arbitrage, Benjamin Graham, Security Analysis on November 25, 2008 at 2:20 am

Vigorish.wordpress.com is a private forum detailing arbitrage and hedging opportunities in equities, bonds, derivatives and convertible securities. I am not certain of how to proceed with the blog; however due both to technical matters and my desire to keep opportunities “close to the vest,” I do want to limit the audience to 35 individuals. Candidates will be selected based on the quality of their ideas (submitted to me via email).

Wild Card: Well forget about EMH, would you agree a lot more riskless opportunities exist now than say…back in 2006?
How highly efficient can this market really be right now?

Deep Throat: Riskless is very relative. The tricky part of a market like the one we have is figuring out which deals are fairly priced. Ok, that’s the tricky part of every market. But my point is that you might be more easily become overly excited in a market like this than in a much calmer market, when perhaps people with the tiny amount of capital that we have are more likely to blow their wad on stuff that’s not worth it.

In other words, look at those people on google finance who invested in Freddie and Fannie, thinking it was a riskless opportunities. Obviously, we’re not that dumb… but it’s all relative.

Cogitator: No, [REDACTED]. As I understand the English language, riskless means “without risk.” And the [REDACTED] arbitrage truly is without risk; you short sell 3.3682 shares per [REDACTED], and exercising the [REDACTED] gives you 3.3682 shares back. It’s like selling 10 apples at $1 each and getting those identical apples back for a price of only $0.93. It yielded a riskless 7% return today.

How could an investment in Fannie Mac riskless? Any directional bet is by its terms riskier than an arbitrage. Granted, the Volkswagen/Porsche incident demonstrates the risk of this technique, but that is a peculiar case. If you buy and short sell economically equivalent securities (of the same issuer) at a substantial spread (say, 30% or more), the risks should be nil.

The market is efficient most of the time for virtually all participants. However, Ackman makes a very good point: not everyone has permanent capital (capital not subject to redemption). A great deal of Buffett’s success is due to having steady access to capital at times when the rest of the world does not.

Pershing Square Q3 2008 Investor Letter

In Bill Ackman, Insurance, Security Analysis on November 15, 2008 at 11:44 pm

These are extraordinary times particularly for active participants in the capital markets. While I do not normally choose to write about macro and regulatory events, I thought it would be useful for you to understand how we think about recent events and their impact on our portfolio.

We are currently witnessing the greatest deleveraging event in history. What began as a credit bubble bursting has now spread to the equity markets as banks, investment banks, hedge funds, structured products, mutual funds, pension funds, endowments and other leveraged and unleveraged market participants have been forced to liquidate assets by their counterparties, leverage providers, redeeming clients, and as a result of downgrades, other debts or other commitments that need to be funded.

These actions have led to forced and indiscriminate selling in security markets around the world, which in turn has caused other investors to panic or simply to sell, to get out of the way of other forced sellers.

As a fund which is generally substantially more long than short, we have also suffered large mark-to-market declines in our long investments. Year to date, however, our performance has substantially exceeded that of the broader equity markets, which at this writing have seen a more than 34% decline. Our outperformance is largely due to large gains on our investments in Longs Drugs and Wachovia Corporation as well as profits on our credit default swap and other short exposures. Our market losses have been further mitigated because we operate unleveraged and have substantial cash balances. Currently, we have cash and near-cash (Longs Drugs and Wachovia/Wells Fargo long/short) equal to approximately 39% of our capital.

When, you might ask, will the selling end? While I don’t proclaim to be a market prognosticator, I will make a few observations. Unlike the deleveraging that takes place when banks and other financial institutions sell assets to meet regulatory requirements, which is typically a longer term process, the forced deleveraging that is now taking place in the equity markets is being implemented largely by the prime brokerage firms and margin account managers at broker dealers around the world. Prime brokers are not known to be laggardly in their approach to liquidating an account that no longer meets margin requirements. This is likely to be even more true in the current environment. As such, it may be reasonable to conclude that the forced liquidation that is now taking place may not be a prolonged process.

Target Corporation (TGT): Deep Value Case Study

In Bill Ackman, Security Analysis on October 31, 2008 at 12:37 am

Deep Throat: I don’t really like Target, which Derek said to look into. Retail’s gonna be hit the hardest during the recession, and I don’t know that Target enjoys the same economic or brand advantages Walmart has.

Cogitator: The problem with your reasoning is that (1) recessionary effects may already be accounted for in the stock price and (2) Walmart has no smart activist investor to push the price toward intrinsic value. I have explained the first point many times. A company is worth the sum of its cash flows from now until the end of the world discounted to the present—thus value neither declines in a recession nor increases in a boom. The public’s constant exposure to the news (with all of its poor reasoning) assures that they will never understand this simple principle. [REDACTED], your employment with [REDACTED] may put you in an even worse position.

Target was recently selling below its real estate value, let alone its earning power. It is essentially in the same situation as Sears Holdings, except that the earning power is more predictable.

Ultimately the problem with your comments is that they are all qualitative. It is surprising to hear this from someone with a quantitative bent. You can take it as an axiom that the most salient thoughts (as most qualitative thoughts are) tend to be factored into the stock price.

http://www.valueinvestingcongress.com/landing/p09/pershing/target.php

Relative Value Arbitrage: An Academic Paper

In Arbitrage, Security Analysis, Seth Klarman on October 2, 2008 at 1:26 pm

The relative value arbitrage technique detailed in this paper has yielded 11% per annum. It requires no capital, since the cost of one security is offset by proceeds from short selling a related security. I believe it to be a sound technique, so long as the public does not act on it en masse. In fact the expected return of relative value arbitrage increases as its popularity diminishes.

“Many investors make the mistake of thinking about returns to asset classes as if they were permanent. Returns are not inherent to an asset class; they result from fundamentals of the underlying businesses and the price paid by investors for the related securities. Capital flowing into an asset class can, reflexively, impair the ability of those investing in that asset class to continue to generate the anticipated, historically attractive returns.”
-Seth Klarman
Security Analysis Sixth Edition

Highlights From Security Analysis Sixth Edition: Seth Klarman & David Abrams

In Arbitrage, Benjamin Graham, Carl Icahn, Ivan Boesky, Net Current Asset Value, Security Analysis, Seth Klarman, Warren Buffett on September 18, 2008 at 10:19 pm

The sixth edition of Security Analysis is a strange amalgamation of Graham’s original work (styled in British English) and new commentary from prominent value-oriented investors (in American English). I find it impossible to read fluidly. Nonetheless the contributors make a strong independent showing, especially Seth Klarman and his protégé, David Abrams. They argue—as I have done in numerous essays—that market inefficiencies are smaller in magnitude and frequency than before.

I am especially pleased that both men acknowledge the hedging opportunities present in derivative securities. This has become my favorite area of study and action—and one that appears unlikely to be outmoded soon. (Elsewhere, I have found much of the “value investing” philosophy to be comparatively inadequate.)

Lehman Brothers Preferred (LEH-PG): Deep Value Opportunity

In Security Analysis on September 12, 2008 at 3:06 pm

U P D A T E

It was confessedly speculative to infer that Lehman Brothers would be purchased simply because Bear Stearns had been. Preferred shareholders will likely become general creditors of the company. This demonstrates both the reflexivity of markets and the weaknesses of the valuation approach. (Incidentally, George Soros owns 10 million shares of LEH.)

T H E S I S

Lehman Brothers preferred shares are likely to trade at around par value of $25 if the company is purchased. (Bear Stearns preferred shares doubled after the announcement of its ignominious $2 acquisition.) The comparatively low coupon of the “G” issue corresponds with a low price and high appreciation potential.

This opportunity is possible at least in part to the treatment of Fannie Mae/Freddie Mac preferred shareholders who were wiped out last week; investors are generally afraid to own preferred shares of financial companies. At the time, Fannie’s assets exceeded shareholders’ equity by a multiple of 100. When Bear Stearns was acquired in March, its leverage ratio was about 40. Lehman’s balance sheet is far less leveraged than either of these companies, and it can continually borrow from the Federal Reserve by using mortgage securities as collateral. Moreover the value of Neuberger Berman is two times greater than the market value of the common equity, leaving some margin of safety for the preferred stockholders.

The “Missing” Berkshire Hathaway Letters (1969-1976)

In Arbitrage, Benjamin Graham, Berkshire Hathaway, Buffett Partnership, Charlie Munger, Net Current Asset Value, Security Analysis, Victor Niederhoffer, Warren Buffett on August 25, 2008 at 5:33 pm

There is a conspicuous gap between the last Buffett Partnership letter, written in 1969, and the first Berkshire Hathaway letter posted on the company’s website, written in 1978. Recently I discovered several of the “missing” documents.

A consistent theme in Buffett’s early management of Berkshire is that capital from the textile operation was best redeployed in either marketable securities or business acquisitions. From 1969 to 1977 the textile operation averaged a return on capital of less than 3%, while the insurance and banking subsidiaries averaged well above 10%. Buffett’s refusal to shut down the Berkshire mills resulted in an immense opportunity cost compounded over nearly 20 years.

The moral seems to be that basing investment solely upon asset value (quite significant in Berkshire’s case) is not intelligent. This was a rewarding activity when security analysis was in its infancy, but a great deal has changed since then. One of the best criticisms of the “Graham approach”—which involves net working capital bargains, classic arbitrage, etc.—can be found in Victor Niederhoffer’s The Education of a Speculator:

“On the rare occasion when a true guru shares secrets of a recurring, well-defined systematic nature, the cycles are about to change. Better to go against. What looks good today is encapsulated in the market tomorrow and will change the expected profits, the probabilities, and the paths of least resistance in subsequent periods. A good bet is that all systems will stop working when you use them.”

This criticism extends to merger arbitrage, convertible arbitrage and liquidations, as well as to other approaches that are less systematic. Recent experience suggests that even value-oriented investors are unsafe.

Relative Value Strategies & Market Efficiency

In Arbitrage, Benjamin Graham, Buffett Partnership, Long-Term Capital Management, Security Analysis, Seth Klarman, Warren Buffett on August 18, 2008 at 6:46 pm

Recently I studied the prospectus for Royal Dutch’s 2005 exchange offer. On page 47 it reads:

“The historical trading relationship between Royal Dutch ordinary shares (RDA) and Shell Transport ordinary shares (SHEL) has broadly matched the 60/40 interests set forth in 1907. When this relationship has deviated from parity, it appears to have done so for reasons external to the Royal Dutch/Shell Group, such as index inclusion, relative index performance and taxation changes.”

From 1986 to 2005, the market capitalization of RDA as a percentage of the Royal Dutch/Shell Group averaged 61.72.

This mispricing per se does not prove that security prices are inefficient. The short sale of RDA and simultaneous purchase of SHEL had been consistently profitable, with one exception: in 1998 it cost Long-Term Capital Management several hundred million dollars. In the case of closed-end fund arbitrage, which involves the purchase of fund shares below NAV and the short sale of underlying portfolio securities, the magnitude of mispricing is correlated with the difficulty of finding shares to short sell. These two cases vindicate efficient market hypothesis as I understand it. While mispricings exist, they are either too risky, too costly or too difficult to exploit.

Relative value strategies, however, do not need to be narrowly defined as the type practiced by LTCM, West End Capital (a Buffett investee) or Salomon Brothers. Early this year I effected a relative value hedge by purchasing $3,000 worth of Genesco and $3,000 worth of Finish Line. My initial success has given me a strong interest in specialized operations of this kind—among other things, I have concluded that money can be made both conservatively and plentifully by buying two common stocks which analysis shows to be inconsistently discounting the chance of one major event. This is an unpopular strategy but one that seems to be entirely logical. In the mid-1960s, Warren Buffett practiced a more common variant:

“‘Generals – Relatively Undervalued’ – this category consists of securities selling at prices relatively cheap compared to securities of the same general quality. We demand substantial discrepancies from current valuation standards, but (usually because of large size) do not feel value to a private owner to be a meaningful concept. It is important in this category, of course, that apples be compared to apples – and not to oranges, and we work hard at achieving that end. In the great majority of cases we simply do not know enough about the industry or company to come to sensible judgments – in that situation we pass.

“As mentioned earlier, this new category has been growing and has produced very satisfactory results. We have recently begun to implement a technique which gives promise of very substantially reducing the risk from an overall change in valuation standards; e.g., we buy something at 12 times earnings when comparable or poorer quality companies sell at 20 times earnings, but then a major revaluation takes place so the latter only sell at 10 times. This risk has always bothered us enormously because of the helpless position in which we could be left compared to the “Generals – Private Owner” or “Workouts” types. With this risk diminished, we think this category has a promising future.”

This technique was well suited to the “Nifty Fifty” era, when for instance GM sold at a large premium to Ford, despite nearly identical operating metrics. A great deal has changed since then. First, it is almost impossible to find two corporations similar enough in their operations to be comparable (even Coca-Cola and Pepsi are quite different); and second, the speculative component that caused divergent valuations in the 1960s is no longer present.

Nonetheless I believe that low-risk relative value opportunities will arise from time to time—perhaps once a year.

Deficiencies of the Valuation Approach: IndyMac Bank Failure

In George Soros, Security Analysis on July 11, 2008 at 6:30 pm

The basing of investment upon valuation will often lead to absurdities. Not only are some companies unsuited for appraisal due to the risk of technological disruption, inconsistent earnings, etc., they may also be subject to reflexivity. (Readers may be more familiar with such terms as “self-fulfilling prophecy” or “Barnesian performativity,” but I prefer the term used by George Soros.)

On July 11, 2008 the OTS took control of IndyMac Bancorp, marking the third largest bank failure in U.S. history. Depositors had withdrawn money at accelerated levels throughout the week after Senator Chuck Schumer warned that it might become insolvent. Fears of insolvency quickly led to insolvency.

There have been numerous cases of reflexivity during the past year: Bear Stearns’ takeunder, the mortgage and student loan securitization “freeze” and the financial strength rating downgrades of various monoline guarantors. The moral seems to be that valuation is not an adequate measure of investment attractiveness. Rather it is only one component of mathematical expectation, which I have consistently advocated as the superior model. This led me to the arbitrage of IMB and IMB LEAPS (detailed below) instead of a straight common stock investment.

United Rentals (URI): Arbitrage Opportunity

In Arbitrage, Security Analysis on July 8, 2008 at 9:38 am

U P D A T E

URI should cash out odd-lot holders by the end of July—resulting in a 160%+ annualized profit for arbitrageurs.

Benjamin Graham: Method of Operation

In Arbitrage, Benjamin Graham, Net Current Asset Value, Security Analysis, Warren Buffett on July 7, 2008 at 2:13 am

Judging by the track records of analysts, money managers, OPMIs, bloggers, etc., the endeavor to select issues with above average expectancy is not on the whole a satisfactory activity. It is successful at times and it is unsuccessful at other times, but on balance it does not pay. The work of many intelligent minds engaged in this field becomes self-neutralizing and self-defeating given equal access to information.

Ben Graham’s superior performance is due at bottom to his preference for obscure situations and techniques. I have excerpted relevant sections of his memoir:

IndyMac Bancorp (IMB) & IndyMac Bancorp LEAPS (KIJAZ.X): Arbitrage Opportunity

In Arbitrage, Security Analysis on July 5, 2008 at 8:07 pm

The buyer of one KIJAZ.X contract is paying $200 for the right to buy 100 shares of IMB at $2.50. Since it costs only $67 for 100 shares, the option buyer is effectively giving $133 to charity. We can infer that he is either (1) unintelligent or (2) acting surreptitiously on inside information.

Whatever the cause for this discrepancy, it would be intelligent to purchase shares of IMB and to write a corresponding number of call option contracts against them—thereby ensuring a riskless 200%+ arbitrage profit.

PT Indosat Tbk (IIT): Arbitrage Opportunity

In Arbitrage, Security Analysis on July 3, 2008 at 9:19 am

U P D A T E

Under newly revised Indonesian law, a company must purchase all outstanding shares of another company once its ownership exceeds 50%. It is unclear whether this threshold will apply to Qatar Telecom’s offer, since the law was revised during tender offer considerations.

Security Analysis: Sixth Edition Coming in September

In Benjamin Graham, Charlie Munger, Joel Greenblatt, Martin Whitman, Net Current Asset Value, Security Analysis, Seth Klarman, Warren Buffett on June 30, 2008 at 12:11 pm

Sound investment policy will by its terms yield satisfactory performance over many years and through various market conditions. One of the first books to outline such a policy was Graham & Dodd’s Security Analysis. Some of its key points: (1) fixed income obligations must be viewed “from the standpoint of calamity,” i.e. normalized EBIT should cover interest payments by at least seven times; (2) preferred shares lack both the safety of bonds and the appreciation potential of common shares and should thus be purchased only at large discounts from par, when they are “friendless;” (3) net working capital approximates the minimum liquidating value of a business; thus common stocks selling below net working capital and showing a satisfactory record of earnings are likely to be attractive bargain purchases; (4) common stocks should be valued from the standpoint of a private owner, since companies selling below this value are likely to be purchased by a private owner; (5) hedging and arbitrage commitments fall within the scope of intelligent investment; and (6) the investor should allocate less of his portfolio to common stocks when the market is high, based on various technical standards. These rules have withstood major financial developments over nearly 75 years—due at bottom to Graham’s emphasis on quantity, measurement and utility.

Mathematical Expectation of Securities

In Arbitrage, Benjamin Graham, Bill Ackman, Charlie Munger, Joel Greenblatt, Martin Whitman, Net Current Asset Value, Security Analysis, Seth Klarman, Warren Buffett on June 22, 2008 at 3:44 am

My observation has been that analysts, money managers, OPMIs, bloggers, etc., cannot consistently select issues with above-market returns. I believe this is due to a feature inherent to all parimutuel systems, viz., calculations of expectancy should vary only slightly from one person to another—with any major difference resulting from some unknowable factor. The selection of securities is often akin to a shell game.

We should not conclude from this that securities markets are strong-form efficient. On the contrary, investors with access to material non-public information have earned high returns without bearing commensurately high risk. In 1925 Ben Graham learned that Northern Pipeline—selling at only $65 per share—had “$95 in cash assets for each share, nearly all of which it could distribute to stockholders without the slightest inconvenience to its operations.” Major brokerage firms were never aware of this information; Graham found it at the Interstate Commerce Commission in Washington, D.C. A more recent example is Bill Ackman’s MBIA short position, which is predicated on special knowledge of reserve adequacy, unusual insurance transactions, etc. (Ackman supposedly went through 140,000 pages of internal documents.)

Allied to the foregoing are situations involving neglect of public information. This has been especially persistent in the field of distressed debt, where vulture investors profit from claimholders unwilling to interpret bankruptcy documents. (Seth Klarman, Michael Price and Marty Whitman owe a great portion of their returns to this activity—and not to common stock investments exclusively.) Many of the opportunities mentioned on stableboyselections.com tend to be neglected because they fall outside the scope of traditional equity investment.

I do not believe that passive “value investors” as a class will yield above-average returns by focusing on large U.S.-based companies. The investment community has wised up to the extent that apparent bargains now involve greater risk. This is a natural consequence of the increasing popularity of “value investing,” which seems to have reached an historical peak over the past few years. (Most worrisome is the crowding in such stocks as USG, SHLD, FMD and Mortgage Originator X, Y, Z.) You can take it as an axiom that strategies become less effective as they become more popular.

The really spectacular returns will come from investors who discover unpublicized or underpublicized inefficiencies. At present, auction-rate securities, distressed debt, arbitrage and certain Chinese stocks seem to offer the most favorable mathematical expectation.

“If the reader interjects that there must surely be large profits to be gained from the other players in the long run by a skilled individual who, unperturbed by the prevailing pastime, continues to purchase investments on the best genuine long-term expectations he can frame, he must be answered that there are, indeed, such serious-minded individuals. But we must also add that… investment based on genuine long-term expectation is so difficult today as to be scarcely practicable. He who attempts it must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave; and, given equal intelligence, he may make more disastrous mistakes.”
- J. M. Keynes

Sunstone Hotel Investors (SHO): Arbitrage Opportunity

In Arbitrage, Security Analysis on June 10, 2008 at 1:05 pm

U P D A T E

Two weeks prior to the tender offer expiration date, Sunstone Hotel Investors lowered its offer price range. Arbitrageurs should withdraw from the tender and sell at a slight loss. While not as lopsided as the FBSI bet, SHO was attractive ex-ante because of zero downside risk and quick turnaround. It is highly unusual for a company to change price ranges of a tender offer so close to expiration; this causes inconvenience for shareholders who have already tendered.

Track Record Since Inception

In Arbitrage, Milton Friedman, Security Analysis on May 21, 2008 at 1:17 pm

The results of many years of decision-making in securities will demonstrate how well an investor can calculate mathematical expectation (probability of loss multiplied by size of loss plus probability of gain multiplied by size of gain). Anyone who does not buy an index fund believes, in effect, that he can select individual issues with higher expectancy than the general market. This is impossible for investors as a whole, for it would mean the average investor could beat himself—a logical contradiction. However, I believe that a small number of people can find opportunities with high expectancy, as my track record suggests:

*Listed in order of mention
*Annualized returns approximated

FBEI (Arbitrage)
+13%
Annualized
+80%

SCRJY (Arbitrage & Hedge)
+12%
Annualized
+50%

SCRJY (Unhedged)
+31%
Annualized
+120%

CPTH (Arbitrage)
+21%
Annualized
+210%

CKXE (Arbitrage)
+3%
Annualized
+10%

GCO & FINL (Relative Value Arbitrage)
+205%
Annualized
+820%

ALGI (Generally Undervalued)
-6%
Annualized
-11%

MGST (Arbitrage)
+24%
Annualized
+100%

PSBG (Generally Undervalued)
-35%
Annualized
-80%

CRMH (Generally Undervalued)
-47%
Annualized
-85%

When I wrote about PSBG and CRMH, I knew about their respective operating problems, viz., increasing loan losses and under-reserved self insured groups. I thought that a low price relative to book value and earnings would compensate for these risks. This is ass-backward reasoning; it is wiser to determine the value of a business before looking at the price (which always carries some degree of influence). Since stock prices are very efficient, statistical “bargains” usually have poor underlying businesses. I now believe that low-risk, high return opportunities in generally undervalued securities may come less often than once a year.

My track record for arbitrages and hedges is far better. All selections have been profitable, with annualized returns averaging more than 200% and with disproportionately low risk incurred. I will not change my approach until the stigma against arbitrage fades. Of course this is a very small sample, so large deviations from average might indicate luck rather than skill. To find out for sure, I will increase the sample size over the next few years.

Milton Friedman, a hero of mine, once said something about government efficiency that applies to many other areas—including the investment process. It is good advice to live by:

“One of the great mistakes is to judge policies and programs by their intentions rather than [by] their results. We all know a famous road that is paved with good intentions.”

Integrity & Investment Performance

In Arbitrage, Benjamin Graham, Berkshire Hathaway, Charlie Munger, Security Analysis, Seth Klarman, Warren Buffett on May 11, 2008 at 11:13 pm

“Index funds are imperfect, but they provide the best outcome for most know-nothings, in order to avoid being misled by fools and liars.”

Charlie Munger

Investing is the process of putting money away now to be sure of getting more money back in the future. A good definition of success is the ability to earn a higher rate on one’s principal than commonly available. Ideally this would be achieved over at least a 10-year period, where the terminal level of the S&P 500 is the same as the starting point. An examination of investors’ track records shows that success, as so defined, is scarcely practicable; more than 90% of portfolio managers fail to earn excess returns consistently.

Wide Ranging Expected Value, A Binary: LEAPS vs. Common Stock

In Benjamin Graham, Joel Greenblatt, Security Analysis on April 14, 2008 at 1:30 pm

Loan originators are either worth (a) nothing; if banks continue to refuse financing loans, alternative methods of lending are not used, etc. or (b) far more than current market capitalizations; if conditions reverse. If the probability of each scenario is 50%, originators have positive expected value. And under these assumptions, LEAPS are more attractive than common stock. Take the following as an illustration:

First Marblehead is currently selling at $360 million, or $3.60 per share. If banks regain the willingness to finance student loans, a conservative valuation for FMD might be $2 billion, or $20 per share. (The company earned $159 million in 2005, and conditions in 2009 might resemble those in 2005.) A person who buys 100 shares at $3.60 stands to lose $360 or to gain about 4.5 times this amount.

Discounted Cash Flow Method Defective

In Benjamin Graham, Charlie Munger, Security Analysis, Warren Buffett on April 11, 2008 at 3:14 pm

“Warren talks about these DCF models. I’ve never seen him do one.”
-Charlie Munger

One major defect of discounted cash flow models is that they draw attention away from the enterprise as a whole—involving certain magnitudes of sales, profits and invested capital. My observation has been that the basing of investment upon DCF valuations will on average not yield satisfactory results, when you take a census of operations over many years and including many companies. (One criticism that I have to offer of the Wall Street approach—which applies to security analysts, investment companies and everybody else—is that so little effort is made to keep track of what has happened in the large number of analyses that have been made year after year—how they actually worked out.)

The Education Resource Institute (TERI) in Chapter 11: First Marblehead (FMD) Expected Value

In Insurance, Security Analysis on April 7, 2008 at 9:08 pm

TERI is to student loan bonds as MBIA is to municipal bonds. By insuring payment to holders of such securities, guarantors make it cheaper for students and municipalities to borrow money. (If a third party promises to pay you in the event of borrower default, you feel more comfortable lending money; this translates into a lower required interest rate.) For a while, financial institutions have been unwilling to buy student loan bonds, and TERI’s bankruptcy will worsen this situation.

I have avoided loan originators in the current securitization “freeze.” While these businesses have demonstrated value far in excess of current market capitalizations, they will have lower revenue (and eventually no worth) if financial institutions refuse to buy securitized loans. Tom Brown and Mohnish Pabrai were rational in purchasing Accredited Home Lenders and Delta Financial, respectively (link to previous post). But the irrationality of financiers severely impaired these companies. A good investor familiar with loan originators’ business models should have anticipated this risk.

While FMD has positive expected value, there is a chance of substantial underperformance. It is not an attractive bet.

Corporate Earning Power and Market Valuation

In Benjamin Graham, Berkshire Hathaway, Buffett Partnership, Security Analysis, Warren Buffett on April 5, 2008 at 2:31 pm

I do not believe that anticipating stock market fluctuations is on the whole a satisfactory activity. The work of many intelligent minds constantly engaged in this field tends to be self-neutralizing and self-defeating over the years. (For example, Jim Cramer and Abby Joseph Cohen have been less reliable than the tossing of a coin.)

It is possible to know when stocks as a group are too high or too low. This can help investors determine what percentage of capital to deploy in arbitrage operations, which are insulated from market fluctuations, as opposed to generally undervalued securities.

Charlie Munger: Turning $2 Million Into $2 Trillion

In Berkshire Hathaway, Charlie Munger, Security Analysis, Warren Buffett on March 25, 2008 at 12:20 am

During the past two weeks I have “reverse engineered” some of Warren Buffett’s investments (Coca-Cola 1988, GEICO 1976, Washington Post 1973, Disney 1965). In each case, the qualitative factors were so compelling that quantitative analysis was comparatively unimportant. The following speech reveals how Charlie Munger gauges business quality (his inversion technique is helpful).

It is 1884 in Atlanta. You are brought, along with twenty others like you, before a rich and eccentric Atlanta citizen named Glotz. Both you and Glotz share two characteristics: first, you routinely use in problem solving the five helpful notions, and, second, you know all the elementary ideas in all the basic college courses, as taught in 1996. However, all discoverers and all examples demonstrating these elementary ideas come from dates transposed back before 1884. Neither you nor Glotz knows anything about anything that has happened after 1884.

Economic Goodwill vs. Accounting Goodwill: “Good” Businesses vs. Mediocre Businesses

In Benjamin Graham, Berkshire Hathaway, Security Analysis, Warren Buffett on March 8, 2008 at 3:06 am

Apparently, readers of the latest Berkshire letter have paid particular attention to a section titled “Businesses - The Great, the Good and the Gruesome.” I believe this enthusiasm is unwarranted, as Buffett essentially rehashes his thoughts on ideal business characteristics. “Goodwill and its Amortization,” from the 1983 letter, is more insightful (note that goodwill is no longer amortized):

First Bancorp of Indiana (FBEI): Arbitrage Opportunity

In Arbitrage, Security Analysis on March 4, 2008 at 9:42 pm

First Bancorp of Indiana will soon conduct a going private transaction. Buying 299 or fewer shares at the current quote will yield a 13%+ return (around 50% annualized, depending on the expediency of management, transfer agents, et cetera). Risk of deal failure is nil because the transaction is not subject to shareholder approval. You must request stock certificates from your broker in order to be cashed out, as only shareholders of record can partake.

Clarkston Financial (CKSB): Arbitrage Opportunity???

In Arbitrage, Security Analysis on February 21, 2008 at 2:51 pm

Clarkston Financial Corporation plans to pay $10 for each share owned by holders of fewer than 111 shares. There is a 25% arbitrage spread at the current quote.

Probability of deal failure seems moderate. 22.8% of the shares are certain to be voted in favor of the transaction and a 10% owner plans to abstain. Thus at least 40% of the remaining shares must be voted affirmatively.

Net Working Capital Strategy: Historical Perspective

In Benjamin Graham, Net Current Asset Value, Security Analysis on February 17, 2008 at 4:29 am

It is a mere statistical chore to find stocks selling below net working capital, defined as current assets minus total liabilities. While approximately 10% of U.S.-listed stocks met this criteria in 1976, fewer than 1% do so today. I believe that the sharp reduction has two main causes: first, corporate earnings as a percentage of invested capital have improved since 1976; and second, there has been increased enthusiasm toward common stocks and a consequent increase in scrutiny.

At present, virtually all of the companies underlying sub-net working capital issues are unprofitable, and many are practically insolvent after the omission of inventory values. A composite of such issues has not yielded satisfactory results in recent years and is unlikely to do so going forward. Yet many Graham-Dodd fundamentalists persist. I believe this foolishness is due to (1) lack of self-criticism and a resultant neglect to examine one’s track record and (2) lack of historical perspective. The following excerpts from Security Analysis Third Edition should help with the second problem.

Statistical Bargains: Historical Perspective

In Arbitrage, Benjamin Graham, Buffett Partnership, Charlie Munger, Net Current Asset Value, Security Analysis, Warren Buffett on February 12, 2008 at 3:54 am

In 1952, Warren Buffett made a concentrated bet on Western Insurance Securities. At two times earnings and half of book value, the stock had tremendous upside and no downside. An enterprising investor could easily find opportunities with similar mathematical expectation ((probability of loss x size of loss) + (probability of gain x size of gain)).

By 1967 Buffett realized that the situation had changed:

“Statistical bargains have tended to disappear over the years. This may be due to the constant combing and re-combing of investments that has occurred during the past twenty years, without an economic convulsion such as that of the ’30s to create a negative bias toward equities and spawn hundreds of new bargain securities. It may be due to the new growing social acceptance and usage of takeover bids which have a natural tendency to focus on bargain issues. It may be due to the exploding ranks of security analysts bringing forth an intensified scrutiny of issues far beyond what existed some years ago. Whatever the cause, the result has been the virtual disappearance of the bargain issue as determined quantitatively - and thereby of our bread and butter.”

SCOR Holdings Switzerland ADS (SCRJY): Arbitrage Opportunity

In Arbitrage, Insurance, Security Analysis on February 9, 2008 at 5:35 pm

On January 7, 2008 SCOR delisted its American depository shares from the NYSE. Shareholders will receive a cash payment equal to 2.75 Swiss Francs, 0.20 Euros and 25% a SCOR SE share. At current exchange rates, the workout value is $7.87, or 12.4% above SCRJY’s last trade price. In order to achieve this return risk-free, investors should establish currency hedges and a SCOR SE short position.

Nuclear Solutions (NSOL): Arbitrage Opportunity???

In Arbitrage, Security Analysis on February 9, 2008 at 4:44 pm

Last December, Inter-Americas offered to purchase each of Nuclear Solutions’ outstanding shares for $1.50. At the current quote, there is a 200%+ arbitrage spread.

Inter-Americas allegedly employs well-regarded scientists and holds equity interests in several high-technology businesses. Yet I can’t find information on the company outside of its . This “deal” appears to be a poorly conducted boiler room operation.

Critical Path (CPTH): Arbitrage Opportunity

In Arbitrage, Security Analysis on February 7, 2008 at 7:33 pm

Critical Path plans to conduct a going private transaction early this year. At the current quote there is a 20%+ arbitrage opportunity (around 80% annualized, depending on the expediency of management, transfer agents, et cetera). Risk of deal failure is nil because majority shareholders have already signed voting agreements.

Expected Value Among Bond Insurance Co. Investors Not Equal

In Insurance, Martin Whitman, Security Analysis on January 31, 2008 at 7:50 am

Sometimes the mathematical expectation of a stock varies for different purchasers. In the case of MBIA, an individual investor can lose much more than a portfolio manager ready to backstop a rights offering. (The former cannot lower his cost basis as much as the latter.) It is therefore manifestly stupid to purchase MBIA just because Martin Whitman has.

CKX (CKXE): Arbitrage Opportunity

In Arbitrage, Security Analysis on January 30, 2008 at 8:36 pm

U P D A T E

CKX’s intrinsic value seems to be far lower than its current market capitalization of $926 million. The company earned only $20 million and $10 million (after-tax; before extraordinary items) in the past two years, with deficits in all years prior to 2006. Earnings will have to improve substantially to justify the current price. Furthermore, CKX lost a large part of its asset value after spinning off FX Real Estate. If the management buyout does not take place, CKX shares could fall considerably—they are not cheap.

Genesco (GCO) & Finish Line (FINL): Relative Value Arbitrage Opportunity

In Arbitrage, Net Current Asset Value, Security Analysis on January 28, 2008 at 6:56 am

My reasoning for this position starts at Cogitator (2:34:52 AM).
A quick summary:

	GCO	FINL
Deal completed	+80%	-50%
Deal terminated	-30%	+60%
Deal price reduced	+0%	+0%

American Locker Group (ALGI): Deep Value Opportunity

In Net Current Asset Value, Security Analysis on January 20, 2008 at 11:32 pm

American Locker Group is a manufacturer of coin- and key-controlled lockers. In early 2005 the company lost a mailbox supply contract with the US Postal Service, which amounted to half of its 2004 revenue. Shares fell 66% as management delayed SEC filings and recorded a substantial goodwill impairment charge.

ALGI spent the rest of 2005 closing unnecessary facilities, relocating corporate headquarters and halting new pension benefits. This reduction in SG&A expenses successfully tempered the loss of revenue. In 2006, a year with virtually no USPS sales, ALGI earned $640,000 after tax. (True profitability is actually greater since depreciation was $400,000 versus $100,000 in capital expenditures.)

Surety Capital: Bankruptcy/Deep Value Case Study

In Net Current Asset Value, Security Analysis on January 17, 2008 at 2:25 pm

U P D A T E

According to its Plan of Reorganization, Surety Capital expects to pay a liquidation dividend of 12 cents per common share. This appears to be an optimistic projection given that indenture trustee fees and Dick Abrams’ litigation compensation are being disputed.

My writeup is intended only to demonstrate the research involved with liquidations, hence the label of “case study,” as opposed to the usual “opportunity.”

Zunicom (ZNCM): Relative Value Arbitrage Opportunity???

In Arbitrage, Benjamin Graham, Net Current Asset Value, Security Analysis on January 15, 2008 at 9:55 pm

Zunicom conducts all of its operations through AlphaNet Hospitality Systems, a provider of computer access to hotel guests. This business is in serious decline as contracts expire and marketing efforts cease. According to Zunicom’s most recent 10-Q, AlphaNet lost nearly $600,000 in the first nine months of 2007.

Buffett Partnership Letters: Lessons for Professional Investors

In Arbitrage, Benjamin Graham, Buffett Partnership, Security Analysis, Warren Buffett on January 15, 2008 at 3:09 am

À la Lawrence Cunningham, I have rearranged the Buffett Partnership letters by topic. Pay particular attention to the final section—The Dearth of Bargains.

Relative Value Arbitrage

In Arbitrage, Long-Term Capital Management, Security Analysis on January 14, 2008 at 2:37 am

In 1907 Royal Dutch Petroleum and Shell Transport agreed to merge their interests while remaining distinct entities. 60% of the cash flows of the combined enterprise were attributable to Royal Dutch shareholders in the Netherlands; the remaining 40% were attributable to Shell shareholders in Britain. Because of this fixed arrangement, one would expect the market cap of Royal Dutch to be precisely 1.5 times greater than Shell’s.

Long-Term Capital Management discovered that this price relationship did not usually hold. If it went up to 1.53 times, LTCM would short Royal Dutch and buy Shell. This resulted in a profit once prices returned to parity.

According to Donald MacKenzie, author of An Engine, Not a Camera, several arbitrageurs had mimicked LTCM’s portfolio of relative value trades as well as convergence trades (for instance, buying “off-the-run” Treasuries and shorting “on-the-run” Treasuries). When Russia defaulted on its bonds, panicked investors bought large amounts of on-the-run Treasuries, thereby creating large losses on convergence trades. LTCM copycats liquidated portfolio assets to reduce risk exposure; they even sold out of relative value arbitrages that were unaffected by the recent “flight to quality.” Selling Shell and covering Royal Dutch short positions drove prices further away from parity (Scruggs 34).

If MacKenzie is right, relative value arbitrage is profitable except under very unlikely contingencies. I have identified one current opportunity; however, it is not suitable for passive minority investors.

MagStar Technologies (MGST): Arbitrage Opportunity

In Arbitrage, Security Analysis on January 8, 2008 at 11:02 pm

MagStar Technologies will conduct a going private transaction on February 5. Buying 1,999 or fewer shares at the current quote will yield a 20%+ return (around 80% annualized, depending on the expediency of management, transfer agents, et cetera). Risk of deal failure is nil because the transaction is not subject to shareholder approval. Furthermore, beneficial owners can partake.

The Chartered Financial Analyst (CFA) Designation & Market Efficiency

In Benjamin Graham, Security Analysis on January 5, 2008 at 3:58 am

“The New York Society is now taking the first positive steps to establish a quasiprofessional rating or title for security analysts who meet specified requirements. It is virtually certain that this movement will develop ultimately in full-fledged professional status for our calling.”
-Cogitator
1952

In 1963 the Institute of Chartered Financial Analysts administered its first certification exam, and today there are over 83,000 charterholders. CFA is to finance as M.D. is to medicine; it is the ultimate professional designation.

Magic Formula Investing Is Unsound (Though It May Have Been Sound Before It Was Discovered)

In Benjamin Graham, Joel Greenblatt, Security Analysis on December 24, 2007 at 1:05 pm

In 1996, an obscure money manager named James O’Shaughnessy published What Works on Wall Street. He claimed that from 1954 to 1994 an investor could have turned $10,000 into $8 million—beating the S&P 500’s return ten times over—by purchasing stocks with (1) the highest one-year returns, (2) five straight years of rising earnings and (3) share prices less than 1.5 times their corporate revenues. O’Shaughnessy obtained a patent for his automated strategy and launched four mutual funds. By early 2000, all of them had underperformed the S&P 500 and O’Shaughnessy retired. Even Ben Graham—one of the greatest investors in history—achieved poor returns when he used mechanical methods of stock selection in lieu of security analysis.

I believe that the change in “Magic Formula Investing” results is not accidental. It demonstrates an inherent characteristic of trading formulas in the fields of business and finance. Those formulas that gain followers do so because they have been adapted to the statistical record of the past. But as their acceptance increases, their reliability tends to diminish. The moral seems to be that any approach to moneymaking in the stock market which can be easily described and followed by a lot of people is too simple to last.

PSB Group (PSBG): Deep Value/Arbitrage Opportunity

In Arbitrage, Security Analysis on December 18, 2007 at 9:19 pm

U P D A T E

I found this article in Crain’s Detroit Business. It supports my argument that PSBG is sufficiently capitalized and that management will again try to go private.

C-Bass & Fieldstone Investment: A Rational (Though Ill-Fated) Acquisition

In Security Analysis on December 12, 2007 at 12:10 pm

Recently I wrote this paper for my mergers and acquisitions course. It addresses the current situation of loan originators and servicers—two entities that, relative to the big banks, have been getting little press. Readers may find it helpful to read loan originators’ 10-Ks as a supplement. (Delta Financial’s 10-K is particularly insightful and clearly written.)

Loss Reserves, Caprice & Insurance Company Valuation

In Insurance, Security Analysis on September 6, 2007 at 7:14 pm

Management can manipulate underwriting earnings by keeping loss reserves low. Earnings in the industry are calculated as earned premiums minus claims and claim expenses incurred as well as adjustments to prior years’ claims and claim expenses. So 2007 earnings can look excellent if management assumes lower losses for policies issued that year. If they are wrong, however, loss reserves will have to increase in 2008 or thereafter, and increases will be subtracted from earnings. This liability add-on is analogous to an asset writeoff in non-insurance companies.

The Cost of Insurance Float

In Berkshire Hathaway, Insurance, Security Analysis, Warren Buffett on September 3, 2007 at 5:33 am

Combined ratios are the standard gauge of performance in the insurance industry. Yet the combined ratio relates only to underwriting profit and neglects income generated from the investment of premiums. Obviously short-tail insurers tend to have the most desirable combined ratios. If they don’t hold premiums long enough to make adequate investment income, they had better make an underwriting profit. It’s also obvious that a long-tail insurer, by having plenty of time to invest premiums, can compensate for mediocre underwriting with superior investment returns. In his 1996 annual letter, Warren Buffett cogitates over this point and proposes a useful gauge of performance:

Vacation in Asia: A Search for Value (Part II)

In Benjamin Graham, Security Analysis, Warren Buffett on August 27, 2007 at 10:48 am

When I requested annual reports from HSBC and Charles Schwab, the employees took awhile to understand what I was asking. Evidently brokerage clients in Hong Kong do not read financial statements. One man even admitted that “Chinese people don’t look at the price paid; they buy whatever has been going up.” The investment environment is analogous to that of America in 1929. (Incidentally the margin requirement is also 10%.)

Industrias Bachoco (IBA): Deep Value Opportunity???

In Security Analysis on August 13, 2007 at 5:28 am

U P D A T E

Here is an article I found regarding chicken consumption in Mexico. It may help the investor to estimate IBA’s intrinsic value more accurately.

O R I G I N A L

Industrias Bachoco is a Mexican-based vertically-integrated poultry company. According to Yahoo!’s single-year IBA is superior to its American competitors as measured by gross margins and operating margins. I took the 5-year average of these metrics, which confirmed a superiority of about three times Pilgrim’s Pride and four times Tyson. The company appears to be the lowest-cost producer of poultry, an achievement attributable to its vertical integration.

Vacation in Asia: A Search for Value

In Security Analysis on August 11, 2007 at 12:35 am

From August 14-25 I will be in Japan and Hong Kong. While I don’t plan to deploy capital in either of these places (valuations are high), I do want to learn more about important factors regarding investments in Asia, viz., regulations, access to brokers, the relationship between accountants and businesses and how investors gather information.

Regular readers (I may be flattering myself) probably want to hear about South Korean stocks because valuations are low and because government policy is favorable. I will try to get as much information as possible on specific opportunities in that country. Anything interesting will be posted here.

Unearned Premium Reserve & Associated Valuation Errors

In Benjamin Graham, Insurance, Security Analysis, Warren Buffett on August 6, 2007 at 6:49 am

Let’s say my annual car insurance premium with AIG is $2,000. On January 1, my entire payment goes on AIG’s balance sheet as an unearned premium liability, since coverage has not yet applied. (This is analogous to unearned revenue in non-insurance companies.) By July 1 this amount is reduced to $1,000, and by December 31 it is reduced to zero. Unearned premium thus becomes earned premium in a prorated fashion.

Western Insurance Securities: Young Warren Buffett

In Insurance, Security Analysis, Warren Buffett on August 1, 2007 at 8:17 pm

In 2005, a group of students from the University of Kansas met with Warren Buffett. Their first question was whether he would still be able to earn investment returns of 50% annually. Buffett responded:

“Yes, I would still say the same thing today. In fact, we are still earning those types of returns on some of our smaller investments. The best decade was the 1950s; I was earning 50% plus returns with small amounts of capital. I could do the same thing today with smaller amounts. It would perhaps even be easier to make that much money in today’s environment because information is easier to access.

“You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. A company that I found, Western Insurance Securities, was trading for $3/share when it was earning $20/share! I tried to buy up as much of it as possible. No one will tell you about these businesses. You have to find them.”

Recently I was lucky enough to find an old article Buffett wrote about Western:

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Archive for the ‘Security Analysis’ Category

Relative Value Arbitrage: An Academic Paper

Lehman Brothers Preferred (LEH-PG): Deep Value Opportunity

United Rentals (URI): Arbitrage Opportunity

IndyMac Bancorp (IMB) & IndyMac Bancorp LEAPS (KIJAZ.X): Arbitrage Opportunity

PT Indosat Tbk (IIT): Arbitrage Opportunity

Sunstone Hotel Investors (SHO): Arbitrage Opportunity

Track Record Since Inception

Wide Ranging Expected Value, A Binary: LEAPS vs. Common Stock

The Education Resource Institute (TERI) in Chapter 11: First Marblehead (FMD) Expected Value

Clarkston Financial (CKSB): Arbitrage Opportunity???

Net Working Capital Strategy: Historical Perspective

SCOR Holdings Switzerland ADS (SCRJY): Arbitrage Opportunity

Nuclear Solutions (NSOL): Arbitrage Opportunity???

Critical Path (CPTH): Arbitrage Opportunity

Expected Value Among Bond Insurance Co. Investors Not Equal

CKX (CKXE): Arbitrage Opportunity

American Locker Group (ALGI): Deep Value Opportunity

Surety Capital: Bankruptcy/Deep Value Case Study

Zunicom (ZNCM): Relative Value Arbitrage Opportunity???

MagStar Technologies (MGST): Arbitrage Opportunity

The Chartered Financial Analyst (CFA) Designation & Market Efficiency

Magic Formula Investing Is Unsound (Though It May Have Been Sound Before It Was Discovered)

PSB Group (PSBG): Deep Value/Arbitrage Opportunity

C-Bass & Fieldstone Investment: A Rational (Though Ill-Fated) Acquisition

Loss Reserves, Caprice & Insurance Company Valuation

Industrias Bachoco (IBA): Deep Value Opportunity???

Vacation in Asia: A Search for Value

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