Saturday, December 31, 2011


Saj over at Barel Karsan, with a great piece (as usual) on commodities.

Disclosure/Disclaimer: None. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Friday, December 30, 2011

Appalachia, Dairy Farming, and Getting Stuck In Cow Manure.

One of the things that I love about being from the foothills of Appalachia is that I have had the pleasure of knowing and being related to a great deal of interesting people- all of whom possess a host of differing perspectives on things. I can tell you from personal experience: people from Appalachia are different from people in a whole lot of other places in the country. Certainly, while the area does have it's problems (really, is there any place that doesn't?), I still love it, it is home, after all. I find the area to not be maddening- which is generally how I view places such as New York City or even Los Angeles to be.

Coming from a family that farmed a few generations back, there are still family members that remember what it was like to farm, as well as what it was like to not have some of the modern amenities that we take for granted- such as indoor plumbing. Take my great aunt for example, she remembers how her wedding day, she took a bath in a galvanized wash tub... If that isn't enough, the bath water was heated on the stove to provide her with a less frigid experience!

Given that there is a lot of oral history to be told, I have taken to recording it. The following story was told by my great uncle, who has been married to my previously mentioned great aunt for more than 50 years. It dates back to when he was a self described "know-it-all teenager" who more or less ran the family dairy operation. The story revolves around something that I think is really important: trying to realize what you don't know and being willing to listen for ideas, regardless of who they may come from. You never know, you might learn something that will make your life easier! This lesson is something that has served my uncle well in a lot of areas of his life, not just in his various business dealings. After all, if you can get ideas from other people, why try to re-invent the wheel? I took this to heart by more or less copying his real estate rental business, that my brother copied before me.

In this instance, listening to a near illiterate farm hand kept him from getting a tractor continuously stuck in piles of cow manure... a predicament that I would think one would wish to avoid.

Tuesday, December 20, 2011

Unintended Consequences Of The Death Of Kim Jong Il.

While most people are weary of the succession plans that are coming about as part of the death of Korean Leader Kim Jong Il, I am curious as to what will happen to the sales figures of a hilarious movie called Team America...

As a side note, here is an interesting perspective on Kim Jong Il and his lifestyle, told by a former cook. It makes the decadence of all the Wall St. investment bankers look trivial (and, that is saying something!)


Monday, December 19, 2011

Putting The AT&T/T-Mobile Breakup Into Perspective.

All that I have to say about the deal, is that the breakup is going to cost AT&T $4 BILLION dollars... Put another way, that destroys more than the entirety of book value that AT&T was able to produce in the past year.

If you are a shareholder of T, you lost a year of gains in book value. If you look at the earnings of the company, you have lost significantly more than that.

That said, you did get a decent dividend that makes this a bit less painful.

All that for one botched acquisition.

I wonder how long the CEO will last.

Disclosure/Disclaimer: I own no financial instruments in regard to any of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Thursday, December 15, 2011

Looking Backwards At Nevada Gold's Forward Earnings...

I won't lie... On the face of things the financial results for Nevada Gold & Casinos (UWN) over the past quarter look pretty horrendous; especially when looking at the company's recent press release. However, once we take a look at the results a little bit deeper by diving into the 10Q, we quickly see that things are not that bad for the company. Despite being a huge contrarian, I actually believed management when they said on the conference call that they have "... positioned the company for long term success."

I will say that I will try to be brief and a lot of these statements are made as "all things equal statements". I realize that there will be nuances that can come out and change things a bit; this is meant to be kept simple. Every reader needs to think about the things that I say (and, to some extent things that I won't address due to brevity issues) and come to their own conclusion as to what they deem this company to be valued at and generating in terms of cash flow/owner earnings. This is after all, just a blog! :)

Lets first take a look at some the items that hit their income statement in the recent re-positioning of the company that likely don't reflect the future of the company:

First and foremost, the company had previously stated that it was impairing the value of a piece of land that it owns to the tune of $2,273,996 dollars... This is a non-cash expense and won't re-occur to this extent.

In the quarterly filing, they also noted that they lost $154,270 dollars on the extinguishment of their debt. Again, this has been expected, as the company previously announce that it had refinanced the bulk of it's debt load with Wells Fargo and that it had negotiated a new dew date with it's senior lender, this is expense is of no surprised. Given that their due dates are now in the fall of 2014 and the summer of 2015 let's throw these fees out, as they were part of the pre-payment penalty to Fortress (see section 2.7) and don't appear to be part of the newer Wells Fargo loan package. Furthermore, they amortized $33,336 of loan issuance costs due to the more than $800K they spent to get the Well's Fargo loan package. While this will be expensed for a while, it will be a non-cash charge, as the $800K has already been shelled out; don't get me wrong, it's a lot of money but it's a small price to pay for liquidity, breathing room, and better terms.

Next, let's take a look at the Colorado Grande which the company recently announced it was selling (for what I might add, is a VERY attractive multiple). The operation apparently lost $97,924 dollars during the last quarter. As these losses shouldn't be continuing this time next year (as long as the sale goes through) so, let's that part of the loss out as well. There was also a loss on the sale of assets for the amount of $22,340 dollars; again, likely an expense that doesn't reflect the future of UWN. In the sale of the Colorado Grande, the company will be getting approximately $36,000 per quarter (before amortization of the loan) in interest on the $2.4 million dollar note. Net cash inflows will actually be greater though, as the loan does have a decent degree of amortization to it.

Now, look at what they would have earned had these impairments not have been included. The company had a stated loss of $2,120,606, but when you add in just the one time impairments to income and losses from the Colorado Grande (which, the company only addressed one of in the press release and conference call) they would have generated cash of $427,924 dollars! If you use that as your run rate for the company (which, we can do for sometime, as they do have tax assets to offset future earnings) the company would have yearly inflows of $1,711,969 dollars. That, translated loosely as owner earnings gives the company a quite reasonable P/E of just a touch more than 10 (with a market cap barely above $17.3 million). That is a super simple calculation that is based on numbers for a quarter that isn't the best (but certainly, isn't the worst) in Washington. It also took place in a quarter that didn't give the company time to do much with operations at the newly acquired Red Dragon and they had a lower than expected hold percentage for the quarter (per the conference call). Additionally, they yet own AG Trucano. Once those items settle out, the earnings will likely look even better than I just highlighted.

Now, we can look at some other items. For example, the company doesn't need to invest much money in the card rooms it owns to keep them running well (per my interview with Bob Sturges), so, we can likely add back in a good deal of the company's not insignificant depreciation. The amortization expense of intangibles last year alone was well over $1 million dollars. In fact, for 2012, the amortization of intangibles (which consist of non-compete agreements, trade names, and "customer relationships" per page 45 of the 10K) is expected to be nearly $1.15 million! Any money used to service the items are already being expensed on the income statement as advertising (in the case of a trade name) or paying your workers to do their job (having good customer relationships), so, the amortization of intangibles is something that I feel comfortable adding back in to the income statement for owner earnings. There will likely be more depreciation and amortization to come from the acquisition in Deadwood... That all gets you to a Price/Owner Earnings that is has the strong likelihood of being in the single digits.

Presently, if financial results never improve (not just in operating efficiencies, but also in what the company believes to be a temporary low hold percentage), UWN doesn't get any management contracts (such as the development with Rialto), they don't get ELSTs in Washington state, they never acquire again and wait for the amortization to run out, and a host of other reasonably likely events don't come to fruition, the company is still not expensive by any means- in fact, I would argue that it is quite cheap.

If anything positive comes out for the company, I would figure that it would likely be viewed quite favorably, especially since there has been a lot of frustration expressed over the recent sale of stock. My back of the envelope analysis indicates to me that there is a ton of growth for this company that is being given away at present prices... It will certainly be interesting to see how the market reacts to this news. While I would hate to see my present holdings of the company go down in market value, I foam from the mouth in the hopes that the Mr. Market will give me the chance to buy more of the company at $1.00 per share.

In closing, I would like to make a few statements to management of the company. 1) The evening is a great time to have a conference call, please continue to have them after market close. 2) If you can give us a little more time to read (and mainly, digest) the 10Q, that would be awesome. :) 3) Your history of really breaking up the numbers in your financial statements is quite appreciated. Please continue to do so.

Disclosure/Disclaimer: I am long shares of Nevada Gold (UWN). I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Tuesday, December 13, 2011

Syms Is Getting Investigated.

It looks like the managing of Syms is going to be investigated in the process of the BK... Good news!

Plus, it looks like the company may not be liquidated totally, there may be a type of reorganization- can you imagine this thing as a REIT? That might have the potential to do better than a liquidation, especially considering the types of valuations that REITs can occasionally get.

From here:

With this Motion, the Debtors seek appointment of an examiner to undertake a prompt, impartial investigation of any alleged mismanagement and  breaches of fiduciary duty by the Debtors' current and former officers and directors, and others as
the examiner might determine.  Such an investigation will benefit all parties in interest for at
least four reasons.  First, all parties in interest will benefit from an impartial, prompt assessment
by an independent third party of whether there are any valuable officer and director claims that
might be a source of recovery for stakeholders.Second, the Debtors wish to move quickly towards formulation of a plan of reorganization or liquidation.  An impartial, prompt assessment of the viability and value of such claims (if any) will be important for stakeholders in negotiating the terms of a plan....
Finally, appointment of an independent examiner should conserve estate
expenses.  Because the Equity Committee and Esopus have made allegations that the Debtors'
board and management mismanaged the Debtors prior to the petition date, there is no question
that these alleged matters will be investigated.  Each Committee has asserted that it should
conduct any such investigation.  Accordingly, it is a foregone conclusion that estate funds must
be spent on an investigation.

Wow. This should be good stuff.

Disclosure/Disclaimer: I do not own any financial instruments in regard to any of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Monday, December 12, 2011

Smart and Dumb Reactions To Sardar Biglari and Cracker Barrel.

Here, we see a rather idiotic view of Sardar Biglari's attempt to get on the board of Cracker Barrel, and here, we read a smart view as to why he should be on the board...

While I don't own shares of BH or CBRL, both companies have been of great interest to me for sometime. I would certainly be a lot more willing to invest in a company like CBRL if they actually seemed to care about allocating capital well. Which, as Mr. Biglari points out (in a painstakingly obvious manner, mind you: here, here, here, here, and here), they don't seem to.

If I was a shareholder of CBRL, there is no doubt that I would vote to oust a small minority of the CBRL board, which, wouldn't change the overall makeup by much, but, if history tells us anything, will greatly improve the company's intrinsic value, with the stock price likely following suite.

Disclosure/Disclaimer: I do not own any financial instruments in regard to any of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Wednesday, December 7, 2011

Farmer Brothers: The Coffee Stock That Was Left Behind.

When looking at stocks, generally, my favorite ideas revolve around some form af accounting that the market doesn't seem to fully understand. Whether it is people going crazy about debt covenants and capital lease obligations at Steak 'n Shake, or moaning about Sym's never having a distribution of assets to shareholders to notice that their real estate was understated on their books- odd and out of favor companies are my favorite ideas... period.

I think that Farmer Brothers meets this description. Oddly, it's one of the few stocks that I can think of where the company is trading at a lower price than it was in March of 2009... in fact it presently trades within 50% of the level it was when the bottom of the market fell out, despite a recent run up in the price! In fact, it seems like this is the only coffee related company that has not reached astronomic levels of valuation in the past few quarters (cough* JVA & GMCR *cough cough). Shadow Stock originally did a post about the company, but, it has been a while, and the site is now down.

Here are some of the reasons why I am happily long FARM.

Coffee Is Addictive: I like that the company peddling the last addictive product that you can ethically and legally sell to teenagers. Furthermore, there aren't really any substitute items for coffee, so, end consumers should be pretty price insensitive. Certainly, these reasons alone are not enough to buy a stock, but that said, I do generally like the industry.

Low Float & A Lot Of Shares Short: Insiders own a ton of the company. According to Yahoo! Finance, ~86% of the company is owned by insiders and mutual funds; while that number is not necessarily important for the sake of people holding on to their stock, the controlling family owns roughly half of outstanding shares, and an employee stock plan has another ~14%... When high insider ownership is combined with some bigger mutual funds such as Franklin Resources, the float is quite low, so, it wouldn't take very much to make there be a huge movement in the stock... This is especially true with a short ratio that is presently above 10 (per Yahoo! Finance). I would argue that may be what has caused a lot of the recent run up in price.

Insiders Are Buying: By my count, since March of this year, well in excess of 35K shares of stock have been bought by insiders. Additionally, the dollar amount of those purchases was just shy of a quarter of a million dollars (net of a single sale); a not insignificant amount when considering the relatively small market cap of the company (under $100 million). This ratio of shares bought gets even more impressive when looking at the float of the company.

Understated Coffee Inventory: Have you ever wanted to do something similar to what Warren Buffet did with cocoa beans in 1954 (go about 3/5 of the way down to read the story)? Well, this is kind of an indirect way of doing so. I say this, because due to LIFO accounting, the recent dramatic increases in coffee prices, and the subsequent reserves that have been created on the company's balance sheet, their coffee bean inventory is dramatically understated. The quarter before last, their LIFO Reserve was an astounding $70 million dollars!

With this inventory, if prices of coffee continue going up, it will make earnings look bad, but, will effectively give the company a tax benefit, as they get the time value of NOT paying taxes on the increase of the value of their inventory. If prices fall, then that will decrease the value of their coffee, but, make their earnings "look" a lot better as they write down the reserve, which would likely sway investor sentiment to the company and give management something to tout. Don't believe me? Check out this explanation of LIFO accounting.

Additionally, if coffee prices would fall, I would imagine that the company would be able to use sticky prices to increase it's profitability...

A Glut Of Owned Real Estate: The company has a lot of real estate... PP&E is on the books for $108.7 million. Looking at tax records, we see that the Los Angeles County Property Assessor values the company's headquarters at just shy of $40 million. While the facility has recently gone through a great deal of improvements, looking at the tax data, the most recent of the improvements (the actual buildings) have been up since 1964... As such is the case, I can't imagine that the old improvements are on the books of the company for very much money (if anything). If that isn't enough, the company owns 45% of it's facilites, which mainly consist of warehouses that I would imagine would be readily salable if the company needed cash or had to liquidate. They range in price from a few hundred thousand a piece, to a few million. I feel quite confident that a lot of their PP&E on the books is justified by real estate, and that if anything, their assets are dramatically understated...

As have seen with Dewey Electronics in the past, old PP&E is a friend of the value investor. Especially if it is real estate that can be sold (well, in that since, not totally like Dewey). Warehouse facilites which are presently storing food product, should retain value pretty well, as they probably will be in decent sellable condition if need be. Farmer Brother's, as well Syms, a lot of the real estate is pretty spread out (even if it is in California), which eliminates some degree of geographic risks. 

A Possible Turn-Around: The company is in the midst of a turnaround effort... Never a bad thing. 

Even If Things Don't Work, I Should Be Safe: While it is certainly way too early for me to declare victory in regard to my previous statement on Syms: "Maybe I'm missing something along the line of earnings and cash burn; even if the company does manage to go insolvent, there there still seems to be little reason to worry." I am willing to make a similar statement with Farmer Brothers. Due to all the real estate on the books and the coffee bean inventory, I feel pretty safe from any near term insolvency issues, which, if the cash burn of the company again accelerates, may become an issue.

Conclusion: So, here, we have a company in an industry that I like, that is trading below a dramatically understated tangible book value, that is also turning around? Wow.

Disclosure/Disclaimer: I am long shares of Farmer Brothers and Syms. I do not own any other shares of the companies mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Monday, December 5, 2011

Snatching Up Pay Phones...

The following is an interesting article on pay phones, which, kind of reminds me of Sitestar's internet business; but certainly not what they have been using their surplus cash flows from they dying internet business to invest in... distressed real estate! 

Thanks to my uncle for telling me about this story, coming from here:


"People tend to forget about pay phones, until their cellphone doesn't get a signal, until there's a natural disaster," Mr. Keane said. "We want to make sure there's a future with pay phones where Americans need them." 
Mr. Keane said PTS hopes to keep most of Verizon's pay phones operating, though it will eliminate some of them, including some of Verizon's most-frequented phones on New York's underground subway platforms, where wireless signals mostly still don't reach. 
The company plans to outfit other phones with touchscreens, credit-card readers or other applications. PTS views the pay phones as valuable real estate for selling temporary Internet access, advertising or for kiosks designed to market services to travelers. 
Airports, truck stops, train stations and lower-income neighborhoods remain relative strongholds for pay phones. "Basically anywhere you can ring up an average of about 100 calls per month, you can be profitable," said Willard Nichols, president of the pay-phone trade group. Verizon estimates it takes 150 monthly uses for a phone to turn a profit.

Interesting stuff...

Disclosure/Disclaimer: I am long shares of Sitestar. I reserve the right to change any of my positions at any time. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Saturday, December 3, 2011

Kids Birthdays & Saving For College.

Today, one of my oldest friends' (we go back to Sunday School at the rough age of 5) daughter celebrated her first birthday. As such is the case, I elected to give her a different type of gift which is actually quite similar to what my grandparents did for me; I am trying to get her on the track of investing. Whether or not she chooses to go about it in the way that I have, I don't care. But I know this: at some point, she at least needs to think about saving for college and retirement.

The way I figure it, rather than give a gift that will be thrown away or outgrown, I should give something that will grow with and stick with the child... It isn't like she doesn't already have a ton of toys and awesome clothes anyway. Do you really remember any of the toys that you got when you were a young child? I only remember a hand full of my favorites. Around my first birthday, I am told I was a really big fan of carrying around anything with an interesting texture (and for some reason, candles) but, have no recollection of it. The way I figure it, gifts really don't matter to a one year old and at that point, are much more about the parents and grandparents taking some nice pictures and making some good memories than anything else...

Later on in my childhood, I remember hating getting say, $50 to $200 dollar or so denominations of stock from my grandparents (a respectable, but not huge amount of money). It I didn't get T-Bills, it would be stocks such as Borg Warner, PPG, Pepsi, and Tricon- which was spun off of PEP and is now known as YUM!. However, due to the growth in the price of the shares, when it came time to buy a house, I had the down payment to buy a duplex and thus, start a business with. At that point, I realized just what I had been given. I saw the effects of compounding interest, dividends, and growth in the value of companies first hand. I also saw the various attitudes that came about from simply when a person was born...

Mom's mother, when opting to give me financial instruments as gifts, would give me government bonds or FDIC insured CDs, as she could remember the Great Crash of 1929 and losing their house during the Great Depression. From what I could gather, she thought that the stock market was some type of casino fraught with speculation, lies, skullduggery, and dash of pure evil. Dad's parents however, were born in the mid to late 20's. While they were greatly effected by the Depression, were small business owners and were not nearly as gun shy in regard to investing in the markets. Great life lessons were to be learned from both types of gifts. For these and many other reasons, I was lucky beyond belief.

I encourage all of my readers to think about this sort of thing and consider it when giving gifts to the young ones that they know. But enough rambling. Here is the letter that I wrote to my friends' daughter. Hopefully, she will read it when she is 10 or so and it will get her thinking:




Rather than get you a toy that will eventually be thrown to the wayside (much like Woody or Buzz in the “Toy Story” movies) or clothing that will be outgrown. I have somewhat selfishly elected to make an investment in your future, which is evident as being quite bright.

With the cost of education constantly on the rise, I hope that a meager gift of $20 dollars will be able to grow to offset a small part of your college expenses (if allocated properly, in a few decades, it might be able to buy you a semester’s worth of school supplies). While I have no idea what type of plan your parents will set up for you, I would imagine that it will be a plan along the line of a 529, but, there are many other ways to invest. I trust that they will go about choosing one that will greatly benefit your future. A calculator that I found online at estimates that your college expenses for 4 years of schooling will be approximately $200,000 dollars! Best to get a head start on this!

It is also my hope that this will get you thinking about saving and investment at a younger age than most. Here is part of an article that examines how much money you will have under different scenarios, by saving at various points in your life:

Consider this: Amy, a 22-year-old college graduate, saves $300 per month into an account earning 10% per year for six years. (That's the average annual return of the stock market over time.) Then at age 28, she starts a family and decides to stay home with the children full time. By then, Amy had kicked in $21,600 of her own money. But even if she doesn't contribute another cent ever, her money would grow to a million bucks by the time she turned 65. Compare that to Jason, who put off saving until he was 31. He's still young enough that becoming a millionaire is within reach, but it will be tougher. Jason would have to contribute the same $300 a month for the next 34 years to earn $1 million by age 65. Although Amy invested less money out-of-pocket -- $21,600 over six years vs. Jason's $126,000 over 34 years -- her money had more time to grow, or compound.

While this example is applied to people that are roughly my and your parents age, I hope that the example serves you well at whatever point in your life that you read this letter. You are privileged to be have essentially “won” the genetic lottery: the odds of you being born in America were less than 1 in 30. The fact that you were born to loving and quite capable parents are even less. You have the whole world available to you and starting to save for college will help you in your journey, no matter what path you chose to go on.

Again, happy birthday. I wish you many more.


P.S. Here are some websites that might be of uses for your parents (but, are certainly not the only ones out there with decent information):

Disclosure/Disclaimer: None. I have no position in any of the securities mentioned, though, that could change at any point. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Friday, December 2, 2011

Why I Am Staying (or rather, stayed) Away From RIMM.

Below is a post that I originally wrote about Research In Motion on 6/21/2011. At the time, it seemed as if it was a favorite contrarian stock, but, for whatever reason, I never published the piece. As it has turned out, I am fortunate to have stayed away from the Canadian cell phone maker. The reasons for my publishing it now? Well, I was going through a bunch of what I thought were 1/2 written posts and found that it wasn't really 1/2 written- I probably had more that I was going to add, but never got around to it.

Still, time will tell how the stock preforms, but again, I wouldn't want to be an owner of the company, especially since it seems that they are more or less conceding that their phones don'e have a future and that they need to gat in the app business. I stick by most everything I said in the old post. Not that I am declaring victory here, I am not... Frankly, I don't wish for the company to dwindle away and eventually be sold (a la' PALM), but, that certainly seems to be the direction it is heading.

From where I sit, I just can't wrap my head around paying almost $9 BILLION for a company that has a dying hardware business and is attempting to enter the app business.Hell, it seems far fetched that a business that is actually good at making apps would be considered a value at $9 billion. You wouldn't have to pay that much more, and you could buy something like Adobe, which makes a product that everybody needs, rather, than needs to be sold on; as RIMM will have the upward battle of doing.


Yes, Research In Motion is trading at what appears to be cheap 4.whatever times earnings... Yes, they are potentially in play for a take over at a 50% premium to where shares are trading... Yes, they have a FCF yield of ~36%...

And here I am, taking a pass at them; despite their numbers looking great. Basically, I am spooked by a past investment debacle.

This debacle that I mention goes back to a failed investment in Motorola that I made when Carl Icahn was attempting to overthrow management... Similarly, we were dealing with a company that was reliant on an outdated product; compare the Razr and the Blackberry.

I am sure that people will think I am crazy, but, I am staying out of this one... I am not saying that the stock won't do well- in fact, I think it probably will. I just wouldn't be able to sleep very well at night if I was an owner of the company.

Whenever revenue degrades in such a way that it looks like RIMM's might in the near future, I have no way of being able to figure out how much they are going to earn in the coming years... It is simply out of my circle of competence. I'm sorry, but, selling cell phones that no one wants (or rather, are a few apps away from being destroyed) is a lot harder for me to wrap my head around than something tangible...

As a side/ending note, the MOT annual meeting where Carl Icahn tried to get a few board sears was the first that I ever went to. It set an unfortunately high precedent for absurdity that the love child of the Gilbert Brothers and Evelyn Davis couldn't spawn... Don't worry, I will eventually get around to writing a summary of the meeting.

Disclosure/Disclaimer: I have no position of any sort (long, short, option, or otherwise) of the securities mentioned, but that could change at any point. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.

Tuesday, November 29, 2011

Syms Equity Committee Expanded.

In what I regard to be good news coming from the US Trustee's Office, the Equity Committee in the Syms bankruptcy case has been expanded to 5 members. It now includes a representative from the Kahn Brothers, who have been long term shareholders of the Syms.

Smart move, especially when compared to this one.

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Syms To Auction Off "The Running Of The Brides"

When a retailer like Syms goes bankrupt, it is beyond most value investors (especially when followers Ben Graham) to put much value on intellectual property. However, this may be one of the more interesting cases. Syms is auctioning off it's intellectual property, which includes the famous "Running Of The Brides".

I have no idea what the property is worth. In fact, I haven't the slightest clue. But, I do know one thing, watching what will unfold will be educational from an investment perspective.

Here is a video to give you an idea about "The Running":

It's almost as crazy as people letting their animal spirits run free over $2 dollar waffle makers...

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Monday, November 28, 2011

The Black Swan That Is Cupcakes Meeting Groupon.

As I am apparently a fan of articles on cupcakes, here is one on the downside of some small businesses using Groupon. I truly feel sorry for this lady.

From here:


A bakery owner was forced to make 102,000 cupcakes after being swamped by customers taking up her cut-price Groupon offer, according to reports Tuesday.

Rachel Brown offered a 75 percent discount on 12 cupcakes, which normally cost $40 (£26), the BBC reported.

However, Brown under-estimated the popularity of the deal and was unable to cope when 8,500 people signed up for the $10 (£6.50) bargain.

Video: Who gets the real deal with Groupon?

Brown's Need a Cake bakery, which employs eight staff in Reading, U.K., had to bring in temporary workers through an employment agency to fulfil the orders, at a cost of $19,500 (£12,500) — wiping out her profits for the year.

She also lost between $2.90 (£2.50) and $4.70 (£3) on each batch she sold, the BBC reported.

"Without doubt, it was my worst ever business decision," she told the BBC. "We had thousands of orders pouring in that really we hadn't expected to have. A much larger company would have difficulty coping."

Disclosure/Disclaimer: No position in any securities mentions, though, I do like cupcakes.

Syms: Creditors Seek To Disband Equity Committee.

Basically, the Committee of Creditors in the Syms bankruptcy case are petitioning the court to disband the Equity Committee of Shareholders.

This petition is absurd in my mind. While the shareholder's committee will rack up various fees and such that will go against any pay out that I, as a shareholder will get, let's look at the facts:

1) The Committee of Creditors make the claim that shareholders are already represented by management in this case, due to Marcy Syms' control of more than 1/2 the company, along with the fact that she has a fiduciary duty to shareholders.

While it is true that management does control a lot of the company and should defend shareholder interests, I don't exactly have the most faith management to do a great job on my behalf... After all, they did manage to make not one, but 2 time tested retailers end up in bankruptcy (despite owning a huge amount of their buildings and operating in them rent free). Furthermore, it is noted that Syms' management had elisted the help of various firms when exploring strategic alternatives. I have no reason to think that they will defend my interests from any odd dealings where Syms management has had previous discussions with them.

Furthermore, when there is more or less an ongoing case to determine if there was any wrong doing on the part of management, it seems that the honoring of management's fiduciary duties is in question.

2) The Committee of Creditors claim that a lot of what the Equity Committee would do would simply be duplicating what is already being done in the court.

The Equity Committee members have likely already paid for themselves and can continue to do good things for all involved in the case. In the linked story, creditors and shareholders objected to a part of the liquidation and negotiated better terms- it stands to be a reasonable assumption that the members of the committee were involved in this negotiation.

3) The Committee of Creditors ultimately don't give a damn about shareholders: once they get paid their claims (which will be quite easy to do, especially since in court, it has been said that Syms shareholders are likely "in the money"), they have absolutely no economic interest in getting shareholders everything that is possible. As such is the case, they may be less inclined to fight tooth and nail for better terms in the ongoing liquidation. The shareholder committee however, will do this as they represent everybody that sits outside of Syms and the people that they have dealt with on a nearly daily basis (being their creditors, landlords, and advisors).
Disband Equity Committee

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Saturday, November 26, 2011

The Future Of Education.

I am thoroughly convinced that things such as "The Floating University" should replace many of the concrete buildings that we use for our institutions of learning. From my own personal experience, I was held back due to lack of internet use- mainly, because it wasn't as extensive as it is today, and, even when it was, "teachers" were lambasting it as a way to learn. Additionally, a poor educational system in my state and not being able to learn what I wanted to didn't help out... A Floating University form of education would have been wonderful for people like me.

For example, I never got a degree in business, because of the ridiculous assumption that you need to take calculus or take 2 years worth of a foreign language (even if it is a dead one, such as ) to do well in the business world.

I needn't digress though, here is the video:

If you look around the site, there are snippets from the other courses. From what I read, these courses teach people how to think and learn on their own. Which is something that I my mind, Americans generally lack the ability to do, despite how easy it is to use Google search to figure things out...

Tuesday, November 22, 2011

Billionaires Make For Interesting Stories.

Here is an article about one of the more interesting billionaires out there... Nicolas Berggruen.


“I understand the human instinct to want to create a nest and possess things, to show them off,” he says. “But for me personally, it became less and less interesting.”

So in 2000, Berggruen sold his houses, put his art collection in storage and gave away or sold most of his possessions, including his car. He says his decision to live a rootless existence wasn’t a means of dodging taxes; he says he pays them in the U.S.

The investor, who signed a pledge promoted by fellow billionaires Warren Buffett and Bill Gatesto donate at least half of their wealth, says he’ll give away all of it eventually.

“Everything I do now is about growing the pot to have more to give away,” he says.

Anybody who says something like that, immediately gets some of my respect. Plus, he goes on to talk about how he plans to take his genes out of the gene pool. Interesting guy.

Piss Poor Capital Allocation At Netflix.

Netflix has had a heck of a ride the past few years. Here is a link to Whitney Tilson talking about management's move to issue stock.


“When you’re betting on a medium- to long-term turnaround, you first have to make sure that the company doesn’t hit a cash shortfall in the short term. …[T]his capital raise is a good insurance policy.

That said, it is irritating to see a company we own issuing stock at 1/3 the price at which it was buying it only months ago – yet another example of the capital misallocation decisions that are all too common in Corporate America….Netflix should have done a big secondary and issued a lot of stock in the $200-$300 range.”

As we have seen in other areas, price, value, and the potential for returns generated elsewhere are about the only things that should matter when a company issues or buys back stock. When a company makes a boneheaded move, it destroys shareholder wealth. But, as Tilson points out, it will keep the company solvent. Though, Netflix does already have a nice bit of cash on the balance sheet; they must be getting ready to spend a ton on their expansion, or things may be getting REALLY bad for them operationally. Regardless, it's a shame for the company's shareholders that the management of Netflix doesn't appear to have seen how the situation was going to play out, as this dilution has effectively canceled out many quarters, even years worth of share repurchases... Keep in mind, that these previous share repurchases were all done pretty aggressively AND at a significantly higher prices. Granted, if they can re-allocate the raised funds in a manner that is better than the company would do without, it could be accretive to the company, but, still... they were repurchasing shares as recently as LAST QUARTER!

Now, contrast this with a company like Nevada Gold, which, when it issues or buys back stock, does so in a sensible manner: buying low, and selling on terms that make a fair to great amount of sense for the company. Whether it's the acquisition of the Red Dragon card room or AG Trucano, Sturges and Kohn (unlike Reed Hastings) have a history of good capital allocation, and have yet to become the subject of some pretty good satire.

When looking at the capital allocation of various corporations, what kind of company do you want to invest in?

EDIT: Adam, at The Investments Blog, does a good write up on the situation at Netflix as well. He even went to the trouble of adding in a nice chart that shows you where the previous buybacks were made.

Disclosure/Disclaimer: I have no position in Netflix, but do own shares of UWN. My positions can change at any time, for any reason. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Wednesday, November 9, 2011

AG Trucano & Dilution At UWN.

I have received a several comments (both here on Ragnar and on Seeking Alpha) and a lot of emails asking for my thoughts on the AG Trucano deal. Generally, readers are asking how I view the dilution, right after they talk about how much they dislike the deal...

While I generally dislike dilution and am somewhat surprised that the company couldn't have negotiated better terms, we do need to be level headed and view this from a practical standpoint...

First and foremost, we can't forget that Nevada Gold is a super small company. It isn't on the investment radar of most. Additionally, big investors that have more money that God to allocate (and to some extent, end up making the markets pretty efficient) are not able to invest $4-$5 million in this company and have it move the needle on their results. This vacuum of funds makes it hard for Nevada Gold to grow... Given that the company has used a lot of sellers paper and other means of creative finance, this shouldn't have come as much of a surprise to anybody. On this note, if I had $5+ million bucks to throw the way of Nevada Gold in this deal, I would have been willing to pay $2 bucks a share for the stock and warrants... but alas, I don't.

At the announcement of the deal, AG Trucano was trading at a lower EBITDA multiple than UWN. Thus, while UWN stock is by no means expensive (and, I back this up implicitly as Nevada Gold is by far the largest allocation in my stock portfolio), the company seems to have given stock to a group of investors, so that they can continue to keep a generous amount of cash on their balance sheet to have at their disposal for a couple of things:

*Keeps well over $6 million in dry powder for bargaining in acquisitions...
*Makes funds via the S-3 available sooner, rather than later (a time value of money thing).
*Raised some cash to keep in AG Trucano, which, I assume will go to improving operations.
*Gives the potential for even greater leverage to be available for a future mega acquisition (relative to the company's present size)
*Will likely improve earnings on both an absolute basis (good for bankers who they will be needing to lend them money) and on a per share basis (good for me and my fellow owners of the company).
*Leaves a lot of money to lobby the legislature in Washington State... Which, due to the potential for UWN, is likely the most important thing that the company can be allocating limited amounts of capital towards.

I view this transaction as a whole, being one where while my cut of the pie that makes up UWN goes down on a percentage basis, the whole of the pie gets bigger. This in turn, gives me a more full dessert plate. along these lines, I feel richer today than I did a few weeks ago, despite that my holdings have taken a significant hit. If I thought that the shares were cheap at $2/share, I don't see why I should think any different now.

Sure, the price of the shares that were issued was significantly below what the company was trading at, but again, I think that it is a win for the company in the long run. It gets people talking about what the casino operator is doing; never a bad thing for a growing company that likes to do deals. The interest and subsequent investment in UWN also shows that the company is beginning to garner attention in the investment community- the warrants that were attached to the deal were a nice way to juice the deal up for the new investors. I think that they will make a lot of money in the next 5 years. In the event that ELSTs in Washington are allowed in card rooms, this will likely occur in the next year and the transaction will look stupid to have done in retrospect, but the company can't make allocation decisions based on the whims of a legislature that is in a far off state. After all, that would be crazy to do.

I don't like that the warrants probably won't be traded, but, that is sheerly from a selfish standpoint, as if I could get them at the right price, I would be willing to buy a whole lot of them.

I have been surprised that the price of UWN has fallen below what the shares were issued at... It seems rather a sensical to me that people were willing to invest a consequential amount of money in the company and that the market is all of a sudden unwilling to pay that price for a company that seems to be in much better shape than it was. Again, the new investors got what appears to be a sweet deal and I am surprised that UWN couldn't have negotiated something better. However, for the reasons that I have outlined, the terms of the deal seem to be such that present dissenters may be squawking over pennies, and as a result, may end up missing the forest for the trees.

Overall, the more that I think about this deal, the more that I think that it signals that the company is getting close to doing something big... Only time will tell.

Disclosure: Long UWN. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about. I may buy or sell shares of this security at any time.

Thursday, November 3, 2011

Occupy Oakland Turns On The Working People...

Here we read of Occupy Oakland and how they effectively shut down the port of the city.

Now, Check out this picture:

Notice a problem with the sign on the right? Well, it seems to me that the protestors trying to shut down a port and vandalizing various businesses, is them waging war on working people... No?

C'mon people... I really want to support you, I really do. But, I just can't get behind keeping people from working and being productive.

Wednesday, November 2, 2011

Syms Is Bankrupt.

Today, we learn that Syms is going bankrupt. I view this as a mixed bag of news, bordering on the line of great news, for the following reason:

"The filings today are the result of a process that has been taking place for several months. Our board has conducted a rigorous assessment of all the strategic options and alternatives available and after careful consideration has come to the conclusion that a bankruptcy filing and liquidation is the best way of maximizing value for all stakeholders," -Marcy Syms

From what I gather from this quote, it means that a liquidation valuation is in order. Going on the article that I wrote earlier, it seems that there could be room left for appreciation in the stock price, provided that this is an orderly bankruptcy. Often times, clothing in liquidation sales doesn't go for what said clothing is on the books for... At least they are going to be liquidating in the most favorable time of year to do so: the Christmas shopping season, where people are generally pretty price insensitive, meaning that they may recover more than they would have, in say, July.

Somewhat ironically, what was Syms' greatest operational weakness, may turn out to be one of their greatest assets in bankruptcy: constantly declining same store sales. Landlords may be happy to for Syms to leave their buildings due to how terribly the operations were going for Syms. After all, a landlord wants good tenants that draw people to their properties (which is especially true in strip malls). They generally loathe struggling retailers that almost constantly have double digit decreases in same store sales. Here is some info on leases in bankruptcy... Again, a net gain for Syms, I would argue. Plus, we have the advantage of them already getting out of several leases before this filing.

All this said, at least we in the US have access to (arguably) the best bankruptcy system in the world; it is quick, generally fair, and efficient. Here is my favorite book about the process (with some case studies, that really do shed some light on what may happen with Syms).

There is also the issue of how much each location will bring in whatever manner they are sold off in; allowing time for properties to be listed versus auctioning them can yield very different results. Some of the stores that are owned, are already leased out to third parties (like Bed Bath and Beyond), which, should provide the company with cash flow to operate in corporate. I would imagine that these would be able to be sold off at a favorable cap rate for Syms, as Bed Bath and Beyond is a much stronger company that Syms ever was.

Here are the articles (1 & 2) where I outlined the tax record values for every piece of real estate that the company owns... And that doesn't value the Trinity Store in Manhattan at much of what it is likely worth. Obviously, the company has the potential of distributing more to shareholders than their precent book value.

In light of these facts, if the company only gets out of it's real estate the value that is on it's books in PP&E, and sells it's inventory for 2/3 of it's book value, then, you only go on the remaining tangible book value, shareholders are at a break even point as far as the present value of their shares go. There are obviously a ton of different variables to look at here (some of which were outlined above). But, it might be a good starting point for you to draw your own conclusions.

I fully expect more lawsuits, especially since the company failed so miserably and has mad so many shareholders mad, that I can only expect them to be chomping at the bit for a bit of revenge. This is especially true if the recovery is less than book value. The company may be trying to cover it's back here, as if the issue comes up in court, they can say something to the effect of "You sued us in the past since we weren't good operators. Now that we are liquidating so that we can not be retailers, you are suing us again... You are like ambulance chasers just digging around for cash!"

If I thought that management was good enough to operate a REIT, I would suggest that, but, then again, maybe not.

Personally, my disappointment exists on two levels. First and foremost, I feel for the employees that are losing their jobs solely due to management's incompetence and no fault of their own. Secondly (more tongue in cheek, and not nearly of the same gravity of people losing their livelihood in a time of high unemployment), I am upset that I will likely never get back the book that I left at HQ for Ms, Syms to sign and mail back to me to have as a souvenir of sorts from the research and trip to the annual meeting that I made (where they confiscated my cell phone)... By the way Ms. Syms, since I am betting that you are reading this, I would still appreciate getting it back.

The real fun here, is that we will see how accurate I was when I said that the company was worth more dead than alive.

The bottom line is this, shareholders should receive something.

Oh yeah, almost forgot, here is the filing for your reading pleasure:

syms bankruptcy

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about. I may buy or sell shares of this security at any time.

Friday, October 28, 2011

Occupy Wall Street & Some Police Brutality.

From here:

While I have not talked much about Occupy Wall Street on here, regardless of your views on the movement, this kind of behavior by the police is completely unacceptable. Apparently, the Department of Justice isn't going to investigate...

I am not going to say that all police officers are bad, or even that they are all good. What I will say, is that the officer(s) that are responsible for this incident should be fired, barred from every form of governmental law enforcement, and held criminally responsible if any laws were broken.

Tuesday, October 25, 2011

Pearls Of Wisdom From YouTube Commenters...

Here, we see a speech that Charlie Munger gave to USC Law students.

As usual, the wit and wisdom of Charlie Munger was great. However, something unusual bot surprised and stuck out to me. By chance, I happened to see a comment that was left about a year ago... It puts something that I said a while back in a different perspective (hint: my observation on page views holds true for this series!). Anyway, I liked the comment enough that I thought I would share it with you:

"It's quite amazing to think lady gaga has 150 million views and one that has profound life changing ideas and thoughts only has 6 thousand. Those that find the acquistion of wisdom as entertaining are at an enourmous advantage when it comes to success and achievment."


AG Trucano

Nevada Gold recently announced that it had come to an agreement to buy all of the outstanding shares of AG Trucano. Trucano is, by far, the largest operator of slot machines in Deadwood, SD. While most of the specifics of the deal have yet to be disclosed, I am presently optimistic...

I believe that the company has made an acquisition that is going to immediately generate a tremendous amount of revenue. When looking at the stats in this presentation that the company gave, the operator makes up approximately 24% of the slot machines in Deadwood…

Looking at the most recent annual report for gaming operation in South Dakota, we see that there was approximately $95.5 million in revenue generated by slot machines... If 24% of this went to AG Trucano (which, may not hold true due to revenue distribution) and there are no major changes in the South Dakota Gaming market, we can expect for Nevada Gold's revenues to go up by just a hair under $23 million... This is pretty significant for a company that has generated around $55 million dollars in revenue in the trailing 12 months.

Considering that the company paid ~4x trailing EBITDA, or $5.2 million (per the presentation that I saw at the annual meeting), that implies additional EBITDA of $1.05 million. If they get up to just 15% EBIDTA margins on, say, ~$25 million in revenue, that would imply additional EBIDTA of just under $4 million at some point in the future… Even if revenues for Trucano fall to $20 million, they will still be flying.

Another thing that I like about the acquisition is that the previous CEO remains with the company. I would imagine that to keep the purchase price down, that is part of why the company issued $100K in restricted stock, which may have some juicy conversion rights,will not only incentivize CEO to stay with the company, but, to also make it run well; he now effectively gets some of the upside of operations, plus whatever multiple the market assigns to it, which is something he didn't have nearly as much of as a private company! The debt structuring is also something that I really like. UWN used of a fair amount of cash in the purchase price, which indicates (to me) that management is sure of it's present operations and Nevada Gold's ability to grow using debt via Wells Fargo, seller's paper, stock, debt instruments via the recently filed S-3, etc...

Check this out to look at some of the legislation in effect in South Dakota for gaming. It seems that there are protections in place to shelter present operators from competitors coming in. Furthermore, if you look at the demographics of the area, there are a lot of older people there, who are typically the types of people playing slot machines. It is nice to know that generally, they have pretty steady incomes (pensions, Social Security checks, and the like), and, are living longer lives... As a result of this, I am hoping that this will keep revenues in the area relatively steady. Additionally, when looking at the demographics, while the population of Deadwood has been declining, the population of the county is more than making up for the decline. Furthermore, the populations of South Dakota and Wyoming (which is really close to Deadwood) have been growing. Again, not bad trends to see.

With all of this, is there any bad? While a smoking ban seemed to hurt revenues, it will ultimately keep the populous alive for a longer period of time, which, is never a bad thing (especially when it's one of the few places they can go to gamble). If we have learned anything from the company's filings, smoking bans don't kill operations in the long run; take a look at EBIDTA margins at the property in Cripple Creek.

As we have seen in the past, Nevada Gold generally does a great job of improving operations; just look at what they have managed to do with everything they have bought. I have no reason to believe that this acquisition will be any different. When a place is presently generating EBITDA margins of <5%, on a product offering that is generally pretty high margin, I am hopeful for there to be significant upside in operations...

All this said, the devil could lie in the details, which the company says it will disclose with their next 10Q. I anxiously await to read the filing. It will be the first one where we see operations for a full quarter of the Red Dragon.

Disclosure: I am long UWN. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.