Tuesday, June 28, 2011

How To Become A Billionaire.

From here:

STEP 1: Form a bank.

STEP 2: Round up a bunch of unemployed friends to be "bankers."

STEP 3: Raise $1 billion of equity. (This is the only tricky step. And it's not that tricky. See below.*)

STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%.

STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%

STEP 6: Sit back and watch the cash flow in.

At this spread, you should be earning at least 4% per year on your $10 billion of capital, or $400 million. Sure, there's some risk that the Fed will grow a backbone and raise short rates, but there's not much risk. (They have an economy to fix and banks to secretly recapitalize). And in any event, if the Fed raises short rates, making your $1 billion will just take a bit longer. (And if they REALLY raise rates, causing you to actually lose money, it will be someone else's problem.)

You'll have made $400 million in a single year! So pay yourself a fat salary for all your hard work. And pay your "bankers" fat salaries for all their hard work (But don't worry--your bankers won't actually have to do anything. You'll just need one of them to borrow the money from the Fed and buy the Treasuries, which he will be able to do part-time.) At the end of the year, celebrate. It's bonus time!

Don't be greedy. Pay yourself and your bankers the industry-standard compensation ratio of 50% of revenue. Your revenue was $400 million, so that creates a $200 million bonus pool. Pay each of your unemployed friends bankers, say, $1 million. And give yourself the rest for being such a smart entrepreneur and creating all the jobs and value.

Now, you've already made at least $150 million, so it doesn't really matter what happens next. But you're in this for the world's easiest $1 billion, right?

So proceed to Step 7.

STEP 7: Go public. After bonuses, your bank will be earning about $200 million a year, your capital ratio will be super-strong (10% equity-to-debt!), and your balance sheet will be clean as a whistle (all risk-free Treasuries!). So you ought to be able to persuade investors to pay you at least 20-times earnings, or a valuation of $4 billion. Sell 25% of the company for $1 billion.

STEP 8: Use your $1 billion of new equity to borrow another $9 billion at 0.25% from the Fed. Buy another $9 billion of Treasuries. Collect another $400 million a year. Pay yourself and your team bonuses that are twice as large as last year's. You deserve it! And you're now about $500 million to the good.

STEP 9: Wait for your stock to double or triple, which won't take long given your amazing growth trajectory and clean balance sheet. When your market cap hits $10 billion, sell another 10% of the company for $1 billion. Now you're really ready to grow.

STEP 10: If you want to get fancy and get nice profiles written about you in business magazines, start buying branch networks from defunct banks (the FDIC will pay you to take them) and start making actual loans. Also, start hiring trading desks to gamble on things more exotic than Treasuries. Yes, all this sounds risky, but just remember--the risk isn't yours, and you're already $500 million to the good.

STEP 11: Sell $500 million of your stock to a "strategic investor" and let the rest ride. Don't worry, if your traders and loan officers turn out to be idiots or the Fed suddenly raises rates, the taxpayers will handle it. And you've already made your $1 billion.

So, congratulations, you're now a billionaire! Now all there is left to do is celebrate!

Friday, June 24, 2011

Budget Cuts, Tax Hikes, And The Sale Of State Assets: Coming to a government near you!

The problems in Greece and not limited to any one locality... Most every government is in a hard spot due to the public's loot each other mentality.

The measures are to be voted on in parliament next week in two bills that must pass if Greece is to receive a critical installment of its international bailout loans next month, in time to prevent a potentially disastrous default that could drag down European banks and affect other financially troubled European countries.

"Yesterday was a very unpleasant day for me, because I had to tell bitter truths, and we had to agree on very tough measures, measures which also include the element of injustice and the element of overtaxation," Finance Minister Evangelos Venizelos told the financial affairs committee.

He said he could not rule out having to impose even more measures during his tenure as finance minister, although he and his deputies would try to ensure that would not be necessary.

"We can't keep coming back every so often and ask for corrective measures, but I won't state that I will never introduce more measures while I am finance minister and am handling a crisis," he said. "We ... will make every humanly possible effort to execute the budget and the midterm program without new measures. But the result depends on the state as a whole, the public administration, the whole market, the tax compliance of all citizens."

They'll be back for more... They always are. Look for this in the coming years in a capital near you, whether it's your city, state, or federal government, it's coming.

Thursday, June 23, 2011

Undiscovered People.

Apparently, there are tribes of people that have not had contact with civilization... and it comes just when you think you know all about the world.

The Brazilian government says that it has spotted a previously unknown indigenous tribe in the western Amazon that does not appear to have ever had contact with modern civilization.

Satellite pictures taken earlier this year first alerted the government’s national Indian foundation, known as FUNAI, to the possible existence of the tribe, National Geographicreports. Researchers then conducted a series of flyovers in the spring to confirm the tribe’s existence.


Two years ago, veteran FUNAI researcher Jose Carlos Meirelles discovered a similarly uncontacted tribe. His photographs of painted men firing arrows at the airplane made their way around the world.

“When the Indians hear the airplane above, they usually run into the forest. That is why it’s so hard to photograph them,” Meirelles said in an interview.

Tuesday, June 21, 2011

From Fake Money...

Brazil has come a long way from the fake money days, to now... They are holding up the Florida condo market!


Surging real estate prices in Brazil and the currency’s 45 percent gain against the U.S. dollar since 2008 are sending Brazilians to South Florida in search of bargain vacation homes and property investments. That’s helping bolster Miami’s condo market, with total sales increasing 79 percent in the first five months of 2011 from a year earlier, according to data from the Florida Association of Realtors released today.

(h/t to BargainValueHunter)

SuperValu, Debt, and Expansion.

I had previously written up why I purchased LEAPS of SuperValu. Now, I will examine why I am not overly concerned about the strike or their debt load, which, if not for the company's great return on assets, could potentially be company killing.

1) The company is still expanding, indicating that it isn't concerned about it's debt:
SUPERVALU is focused on long-term retail growth through targeted store remodels and new store development in the hard-discount format. During fiscal 2011, the Company added 132 new stores through new store development and closed or sold 87 stores, including planned disposals. The Company leverages its distribution operations by providing wholesale distribution and logistics and service solutions to its independent retail customers through its Supply chain services segment.
Additionally, they recently purchased stores (here and here) at what should prove to be favorable prices. One of the more recent stores coming under the SVU umbrella was actually in my hometown, where they have a great location that they took over from a local grocer who just couldn't hack it anymore.

While the company that took it over was a franchisee of SVU, this shows one of the reasons that I love the company so much... In restaurants, franchised locations are a great way to grow and make a ton of money (just look at Applebee's and McDonalds)... SVU is in an area that allows them to grow, without actually growing in a way that may or may not make sense. I do think for a company that is this size, it is a competitive advantage that the likes of Kroger, doesn't have.

2) CEO Pay is down... big time. He has every incentive in the world to right this ship (which, seems to be getting there, even without him). With the experience that he has, I am betting that he will do quite well. While I don't like how employees will be compensated based on stock price, this is a good thing for the near term. Especially for the options that I bought. Just because it is ultimately not the best thing for the business, doesn't mean that it isn't a great incentive agreement that should help out my options.

3) Everyone seems to be freaking out about the pending strike in California... Frankly, if you look at the numbers, it won't be company killing. It is no ones interest to have a long strike. The union members need jobs; not a hair more in benefits. The company is not in what I think is a terrible position at the moment. Especially from this strike.

Just take a look at the numbers. If the total amount of revenue lost (~$2 billion) for the whole industry from the last strike hits SVU (which it won't as they don't make up nearly all of the stores), you will see their company wide revenue sink to a *paltry* $35.5 billion... Hardly company killing.

4) A sale of certain assets would give the company a glut of cash... which, would be a huge catalyst for the stock price. It would even allow for the the company to pay less in interest; which would be interesting to see if it would offset the lost earnings at the sold stores.

5) Lastly, for those of you that want a nice graph or something like that: go here.

Here, we see that the company's bonds are yielding less than their coupon. Never a bad sign. Plus, they are yielding in the same range as companies like Ford, AT&T Broadband, Leucadia, Chesapeake Energy, Motorola Solutions, and a host of companies that while not necessarily healthy, are likely not going to default anytime soon... I would imagine if the company really needed to, they could do some sort of debt offering and be fine.

As a side note, looking at a 10K from a few years ago, it seems like the company more than delivers on it's promises of staying a float and reducing debt...

As with many of the things I invest in, I certainly realize that over reliance on any one item in my thesis is a bad idea. As a whole, though, it seems likely that the company is significantly undervalued.

Disclosure: I own SVU LEAPS. 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.

Monday, June 20, 2011

Seahawk in Bankruptcy.

This is the most interesting write ups that I have read in regard to a bankrupt company... I almost went long Seahawk, but, didn't as I was (fortunately and luckily) tied up in other stocks that I understood better.

In retrospect, this company turned out to be one of the most devastating value traps that I can think of. The management seemed to be shareholder friendly, it had the attention of many value investors, it was the victim of distressed selling, a bear market, a sector killing oil spill, AND it was selling below liquidation value... yet, it still went bust in a way that screwed a lot of really smart shareholders after everything of value was sold off to a competitor.

It's a very unfortunate situation, and one that makes you remember the importance of slightly diversifying your portfolio...

Disclosure: None. 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.

How Julian Assange Is Treated.

Here is a video...

He may be a guy who has an agenda that is against the government of the US, but, he is also a person who we should appreciate for reasons surrounding free speech.

Why Intelligent People Fail.


Certainly, we have all been victims of at least one of these items... I know that I have fallen prey to more than a few, at various times.

Sunday, June 19, 2011

Pawning Goods Online.

Having previously worked in the pawn-loan industry for the vast majority of my "working for other people" years, this is one of the most interesting things that I have read in a while.


To use the service, people fill out an online application form on Pawngo.com for items they want to pawn and Pawngo will reply within an hour with a quote for how much it will loan the person for the item.

If they agree, they print out a Fedex label, take the item to Fedex and ship it overnight–it’s insured by Lloyd’s of London–to Pawngo’s facility in Colorado. Once Pawngo evaluates and authenticates the item, Pawngo emails an offer for how much it’ll offer for the pawn. People can accept the offer and the money will be transferred to their bank accounts. Or they can decline and Pawngo will Fedex the item back for free.

The average loan period is three and a half months at annualized rates from 36% to 72% That’s much lower than brick and mortar pawn shops, which charge 180% a year on average, says Todd Hills, co-founder and CEO of Pawngo. The typical loan is for $2,000, which means that people would pay $360 in interest on a $2,000 loan for 90 days.

The brilliant part of this, is that the company is able to employ very few people, who are essentially able to do work all around the country! Furthermore, they can set up in a cheap warehouse, rather than actually needing to have a storefront. It saves on all sorts of costs; insurance, utilities, cap-ex, and a host of others.

It's brilliant. Absolutely brilliant. I wish that I would have come up with the idea. I look for the publicly traded pawn shops to make some sort of move in this direction in the coming years.

As a side note, studies like this one from the Federal Reserve, are simply an expensive (well, really not that expensive when you just print money) way of stating the obvious.... Pawn shops and other userous institutions locate where there is a demand for their service. Even though the Fed has historically done a shitty job of analyzing things, in this study, they actually do a pretty good job, as they realize that pawn shops make the lives of their clients much better.

Disclosure: None. This is not investment advice of any kind. Always do a ton of your own research before doing anything that I write, talk, do, or so much as even think about.

Friday, June 17, 2011

Sloppy Reporting on Biglari Holdings.

From the Inelegant Investor:

In regards to Market Watch attributing the rise in the price of BH stock:

It attributes the stock’s rise to Mr. Biglari’s purchase of shares without noting that Mr. Biglari is required to use a significant percentage of his bonus compensation to purchase company shares on the open market. It further quotes an analyst erroneously claiming that Mr. Biglari had not purchased since the stock was at $300, when a simple perusal of SEC filings shows that his last purchase was 639 shares on 3/14 for $403.66.

Granted, I and the Inelegant Investor have followed BH for a while; so, we know a lot of the issues surrounding the company... however, I would have expected more out of the people at Market Watch, or, even the people that are buying because of Sardar Biglari's purchases.

Disclosure: None. This is not advice of any kind. Always do a ton of your own research on anything that I say, write, do, or so much as even think about.

Thursday, June 16, 2011


Well, it seems that the market's greatest fear, which has been going on for over a year, is that of Greece defaulting on it's debt.

I find it somewhat unfortunate that the people that originated a ton of the good ideas that Rome stole; came up with one of my favorite handheld eats; and birthed the likes of Plato, Socrates, and Aristotle, can never seem to reconcile currency and budget issues.

Disclosure: None. This is not investment advice. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.

Monday, June 13, 2011

Johnny Cash, The Republican Debate & A Pizza Loving Muslim Hater.

Here is my quick analysis of each of the Republicans in tonight's debate:

Ron Paul: "Hey, I wanted to leave you alone before it was cool... You people on this stage aspire to be as awesome as me."

Michele Bachman: "I am mother to a bunch of kids, an attention monger, and am ready to split the Republian Party in 2 by how much I name drop the TEA Party!!!" As a side note, how in the Hell can a person say the like Elvis and Johnny Cash equally!?!? Johnny Cash was so much more awesome.

Mitt Romney: "Listen, I am only for the government expanding it's power if it is done on the state level. By the way, if you couldn't tell, I talk good."

Herman Cain: "You mistakenly quoted me as saying "I hate Muslims", when I actually implied that I would would just ask them different questions than Christians when they interview for a job... Oh yeah. I like deep dish pizza."

Tim Pawlenty: "You know, I agree with Ron Paul on a lot of things... except the things I don't."

Newt Gingrich: "Hey guys, my positions are so nuanced that I lack a spine and will compromise with whomever you want! I am relevant, damn it!"

Rich Santorum: "dum... dumm. dummm."

BTW... Here is a poll where all the Ron Paul crazies (including myself) voted and said he won the debate.

Biglari Holdings Takes A Crack At Cracker Barrel.

Here is the 13D that Biglari Holdings just filed on Cracker Barrel.

My first observation, is that BH actually sold shares of CBRL around $53/share, netting a nice, quick profit. This is one of the reasons why I am presently not long BH; it is really hard to project what they will earn (and when they will earn it), as earning are increasingly coming from investments, rather than operations of Steak 'n Shake- markets can turn, and keep this sort of gain from happening like clockwork.

When combining this sort of trading with his actions at Fremont and others, it seems that Biglari may actually be making investments to spice up earnings in the short term... With that said, in a truly unique manner, he seems to only be doing so in a manner that is in line with a long term value mentality; just because he has traded in and out of stocks like Red Robin, Advanced Auto Parts, and Sonic, it doesn't mean that he isn't willing to hold on to them for the long if necessary. The guy seems to be building an empire, and I am sure is able to bring about a ton of efficiencies in a business, almost irrespective of the industry.

So far, Biglari has a knack for value... It is obvious that CBRL is a cash flow machine. In 2008, they opened 17 new stores, in 2009, they opened 11, in 2010, they opened 6 new stores... this, after returning over $343 million (net) to shareholders and lenders, in the form of share repurchases, dividends, cash flow, and debt repayments- on a present market cap of $1 billion... pretty damned impressive, considering what the company spends on cap-ex and the fact that is has stores that actually look nice!

Speaking of dividends, the present 2% dividend yield of the CBRL investment alone, will increase the pre-tax income of BH by almost $2 million (compare that to earnings of ~$32 million).

Most interesting, is that as of the last quarterly filing for BH, investments, cash, and investments held by consolidated partnerships totaled just over $108 million... Something to remember here, is that BH filed a 13G when they sold their position in Red Robin and Sonic.

SOOO... Based on the most recent filings for each of the major investments that BH has made 13D filings on, here are the approximate present values of their investments as of the date of their last 10Q (which reported cash levels on April 13th):

Fremont: ~$4.7 million
CCA: ~$4.6 million
Penn Millers Holding Company: ~$3.02 million (per filing)
Cracker Barrel: ~$95.16 million (per filing)

Given that with Biglari Holdings, according to their most recent 10Q, " investments are carried at fair value with any unrealized gains/losses included as a component of Accumulated other comprehensive income in Shareholders’ equity..." the present value of the investment of Fremont, Penn, and CCA at the most recent 10Q plus the total purchase price of Cracker Barrel was ~$107.48 million... which is about $.6 million dollars less than all the cash, investments, and investments held by partnerships that BH held just a few months ago (I recognize that I am leaving out the trading profits from CBRL).

What does this tell us about the situation at hand? Well, provided that BH didn't close out their position in Freemont or Penn Millers (unlikely, given the lack of volume in FMMH) or CCA (again, unlikely, since Sardar and Phil are now going to be on the board) that went unreported through some sort of lag in the filing dates, it lets us know that BH either doesn't have many other significantly sized investments, they just came into a nice bit of cash, or, a combination of the 2. As of the 10Q, the company had 205,743 shares of BH stock, recorded as treasury stock, despite being owned by the consolidated partnerships... the market value of which was over $82 million on that day. It is possible that the Lion Fund sold some of these shares to buy a stake in CBRL... however, without a filing being made, and Biglari's need for control of the company, it is doubtful. I will admit that this sort of accounting is one thing that makes me uncomfortable with the company as it is a bit hard to understand. I can't guarantee that I am totally right in regards to anything regarding the Lion Fund's ownership of BH.

Biglari has previously stated that they are raising capital to manage. The operations of Steak 'n Shake seem to be going well, and the company does have assets for sale. Regardless of which contributed to cash on hand, it does say something about Sardar Biglari's view of the business at both BH and Cracker Barrel. It has been obvious for a long time that operations have been turned around and this investment should just solidify that fact. If you are a shareholder of BH, you are probably sleeping a lot better at the news of this recent allocation of capital.

As is always the case with Sardar and company, this will be a very interesting case to watch. This is a huge investment for him to make. I can't imagine that he would try to buy the company, as that would require a huge issuance of shares, which would dilute his control of BH (unless he tried to issue class b type shares), or, would require a ton of debt, which doesn't seem to go along with his historically portrayed/espoused investment philosophy. For the time being, it seems that this is just a huge, super consolidated investment. Again, Sardar Biglari doesn't seem to know how to do anything in a conventional manner, so, I am sure that the story is far from over.

Consider this, though. If CBRL goes to 15x earnings in the next year, BH can liquidate it's holdings, it will well more than double the company's earnings for the year.

Disclosure: I have no position in any of the securities mentioned. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, write, do, or so much as talk about.

The War Of Words Continues At Syms.

I finally received a response to my letter to Marcy Syms about the company exploring strategic alternatives. The email was an identical copy to the ones that other shareholders have received...

In other news, here is the most recent round between the activists and Syms:

Certainly, while response from Syms' legal council is vague, it seems to me that the process of exploring strategic alternatives is well underway. Additionally, while the company has given all shareholders a cold shoulder in regards to responding to letters with good suggestions, it seems like there is little case against many of the suggestions that have been espoused to management.

The beauty of this situation, it seems that the company is between a rock and a hard place, if they can't fix their mounting losses, they can't meet their obligations forever, and need to do something extreme before too long. This, in and of itself seems to be a great catalyst for change, which, from where I sit, is not presently baked into the price of the stock; the company needs to be turned around or sold off in parts. Marcy Syms is a millionare because of this company, and from that alone, she has no reason to see it destroyed by slowly it bleeding to death. While a total sale of the company may not happen, something needs to, and, likely will.

As I have said before, if you are reading this and long SYMS, do yourself a favor and send both the board and Marcy Syms and email or letter, voicing your opinion that something needs to be done to right the ship.

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

Bailing Money At International Baler.

WOW! What a quarter International Baler had! To long time readers of Ragnar Is A Pirate , IBAL is no stranger (read here, here, and here). If you follow other blogs that like little companies, then you may have read these 2 write ups as well (here and here). It has long been one of my favorite stocks- so much so, that I actually felt the need to actually go and tour the facility. Finally, it is above a dollar a share, and on a ton of shares trading hands... over 39,000 when it normally has a daily volume around 2,000! For the first time in memory, the bid is above a dollar, and the ask is a whopping $1.25, and it is trading above book value.

Highlights from their most recent quarterly filing:
*A backlog of a whopping $4.055 million, which is up from $3.295 million last quarter, and 1.545 million last year. !HINT HINT! This should be really good for next quarter's earnings, as it doesn't take the company a ton of time to make and ship balers.
*Sales were up over 28% YOY.
*The deferred tax assets are now at ~$425K... It looks like they will be used up very soon.

For the last 4 quarters, this company, which, after a big run up in price today now has a market cap just north of $5 million dollars, generated ~$454K in earnings. Which, ain't bad considering that over 1/2 that amount came from the last 3 months of operation... With the company's backlog improving, things are shaping up quite nicely, especially when you consider that the company is trading just above book value, and at ~11.5x earnings. I look for year over year earnings to continue to improve next quarter, and so long as the economy doesn't derail again, the trend to continue.

Speaking of a glut of cash on hand and no debt, I won't be shocked if the company is either taken over by the Borens, a dividend is declared, or if the facility is improved. In the event that the company is taken private, it should only occur after the NOLs are used up (at this rate, less than a year). Furthermore, I would also think that it would be at a significantly higher price than we are currently trading at. In the event of the facility being improved, it would make the company a lot more profitable and more efficient (again, having been to the facility, I think that this would be a decent use of cash). If a dividend were declared, I wouldn't be upset either, as it would be a good signal to the investment community that operations are going well.

All in all, I am happy being invested in this great little company. :)

Disclosure: I am long IBAL. 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.

Sunday, June 12, 2011

Iraq and Reparations.

Does this remind anybody else of what the Allies did to the Germans after World War 1, which, eventually helped Hitler come to power and caused WW2? Interestingly, the Germans recently paid off the debt.

Given that it is now (and has been) painfully obvious that we were wrong to invade Iraq, I can't imagine that it would be moral in any way for us to take anymore from the country than we already have...


The suggestion by a U.S. congressman that Iraq repay the United States for the money it has spent in the country has stirred anger, with an Iraqi lawmaker ridiculing the idea as "stupid" and others saying Iraqis should be compensated for the hardships they've endured.

Rep. Dana Rohrabacher, a Republican from California, suggested during a trip to Baghdad with fellow lawmakers Friday that once Iraq becomes a rich and prosperous country, it could repay the U.S.

ITEX's Intrinsic Value.

John over at Shadow Stock just did an excellent write up on the intrinsic value of ITEX. I really like his discussion of depreciation and cap-ex- his thoughts are quite similar to my own.

While I once upon a time owned shares of ITEX, I don't as of right now. To be honest, a lot of the reason is why is that I really hate what management does in regards to dealing with people that want to improve the company. Presently, there is an unnecessary amount of cash on the balance sheet, and a CEO that seems intent on staying there forever, while diluting out other shareholders.

While there have been a lot of shares repurchased, it may well have been done to further solidify management's control of the company... In fact, according the most recent 10Q, employees of the company have been granted shares of stock, which, by a dollar amount, more than offset the whole of the repurchase program! Keep in mind that the numbers are in 1,000s.

In March 2011, the Company issued 197 restricted shares to 13 of the Company’s employees, valued at the grant date stock price of $4.25 per share, with a vesting period of 5 years from the date of grant. The fair value of these shares as of the grant date was $837. The grant is to be amortized to compensation expense over the respective requisite service period of 5 years.
In March 2011, the Company issued 190 restricted shares to the Company’s CEO, valued at the grant date stock price of $4.25 per share, with a vesting period of 11.5 years from the date of grant. The fair value of these shares as of the grant date was $808. The grant first vests 19 shares in October 2013 and then another 19 shares vest annually in October of each subsequent year. The grant is to be amortized to compensation expense over the respective requisite service period of 11.5 years.

In March 2011, the Company issued 5 restricted shares to a consultant who is also a Board of Director, valued at the grant date stock price of $4.25 per share, with a vesting period of one year from the date of grant. The fair value of these shares as of the grant date was $21. The grant is to be amortized to compensation expense over the respective requisite service period of 1 year.
Here is another part of the quarterly that further puts the matter into perspective.

To me, Itex is a company that is cheap, but pretty hairy. I openly wonder if those that voted with management in the last proxy battle are happy with their decision regards to this cash flow machine of a company? Additionally, I am curious if Sardar Biglari has had any contact with ITEX, despite that this is a pretty small holding of BH. Regardless, despite not being long the stock, I will continue to watch the situation as it unfolds with great interest... As one of my friends recently pointed out to me, I had followed SYMS for well over 2 years before pulling the trigger on it. Maybe under the right circumstances, I will once again be an owner of ITEX; I kind of hope I do... after all, I have only been following it for ~3.5 years! ;)

Disclosure: Since I mentioned SYMS in passing, I will say that I am long SYMS. I have no position in ITEX or Biglari Holdings. 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.

Saturday, June 11, 2011

The 10 Commandments Of Insurance Investing.

From a fellow by the name of Harry Long:

I. Thou shalt protect thy ass, capital being an extension of it. Keep this above all other Commandments.

II. Thou shalt not sacrifice Quality for Price.

III. Thou shalt Live by the Dice and Die by the Dice. Make sure thy Dice be Loadeth in thy favor if thou wish for thy days to be long with capital on this Earth.

IV. Thou shalt not believe in the craven image that paying a discount to book value will save thou from loss of capital.

V. Thou shalt pay special attention to the combined ratio during a period of weak pricing in the industry. Such periods reveal the True Character of the Underwriters and in the strength of the Loadeth Dice.

VI. Thou shalt respect thy Reserving Tables.

VII. Thou shalt buy the insurer for its underwriting prowess if thou art an investor. If thou taketh the insurer over, firing its incompetent portfolio managers is but a small feat, but bad underwriting may take a decade to dig thy self out of if the tail of the insurance be long.

VIII. Thou shalt pay special attention to the Premium to Surplus ratio. If it be high, and the underwriting be solid, thou art probably safe, but if it be high and the combined ratio be over 100, Woe unto you! Short are thy days with thy capital on this Earth!

IX. Thou shalt attempt to find insurers which can underwrite with a combined ratio below 90. Such a situation is Heaven on Earth for they who live by Loading the Dice.

X. Thou shalt not believe the foolish soothsayers who say that it is impossible to find a fine underwriter that is selling cheaply. Have faith in thy research and the eternal patience to keep honor with the nobility and sanctity of thy quest.

Friday, June 10, 2011

Gut Bacteria

From here:

And weirder still, food, diet, culture don't seem to matter. Nor do age, gender or nationality. So if we look at a bunch of Alaskans and a bunch of Indians, it now seems their gut bacteria will not look that different. What's more, all three "gut types" will show up in both groups. As blogger Ed Yong puts it, "In gut bacteria, we are united."

Response To An Email To SYMS.

Here is a response to an email from a shareholder of SYMS (I still have yet to hear back on mine). This does show that these types of correspondence do get read. I suppose that this means they are possibly entertaining bids for parts of the company now?

If you are a shareholder, send an email to the company!

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

Tuesday, June 7, 2011

Super Valu LEAPS... Leverage upon Leverage.

While I wish that I could say something insightful about the situation at Super Valu, I can't. Frankly Speaking, Barel Karsan, and others have already done a stupendous job espousing the thesis in regards to operations and the undervaluation for the common stock.

I will say that when a company is trading for 3-4x the average yearly improvement in tangible book value (and, in a time period that includes the Great Recession) it should spark your interest. They are paying down debt like crazy, have someone who appears to be a great executive at the helm, and while they may not be the best operator- they are improving and expanding.

Furthermore, the thing that I really like about this situation, is that they are used a ton of debt to generate their returns. Yes, leverage when poorly used can destroy companies, people, and as we have recently seen, entire economies. However, in the case of Super Valu, the company trades at such a low multiple of it's cash generation that it should have no trouble rolling over it's debt, if it can't make full payments in the near term. When a doomsday debt scenario is baked into a stock price, it can often greatly magnify returns when the perceived problem is "worked out" (anybody remember the absurdity of worrying over Steak 'n Shake defaulting on it's debt?).

In the light of this, I thought it to be appropriate to buy some SVU LEAPS. The real beauty here, is that I am getting to use the implied leverage of the call options, benefit from the leverage the business uses, have limited downside, and get (in my mind) a pretty good chance for huge returns. Certainly, while there is the potential for a total loss of capital; but when representing a small amount of my portfolio, I am more than happy to take that chance.

Disclosure: I own LEAPS of SVU. This is not investment advice. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.

Monday, June 6, 2011

Why Bin Laden Lost

From here:

Was bin Laden a religious figure to these men watching videos in the apartment they shared near the harbor? Or was he a rock star, in an idiom they could accept? The young want fame, glory, and meaning, and few professions offer these in greater abundance than rock god or terrorist. In October 2001 a folk myth flourished in New York that suicide bombers had planned attacks in malls around the city. What we didn't understand then is that a mall strike isn't worth dying for. Ultimately, terrorists aren't into tactics, or politics, or the poor and oppressed. They're into glory. And for those watching on TV, the single-minded pursuit of glory can grow tedious.

My email to Marcy Syms

I just emailed the following to Marcy Syms. It is my hope that all shareholders email her and write letters to the board (in a respectful manner), encouraging them to explore all strategic alternatives for the company, rather than just taking bids for the company as a whole as was suggested in this NY Post article. It only takes a few minutes to do and can make all of the difference in the world.

Marcy Syms' email is marcysyms@syms.com

Ms. Syms,

As a shareholder of the company, I feel that it is important for me to express my opinion on the happenings of the company that we are both owners of. While I was thrilled that the company had retained Rothschild to explore strategic alternatives for the company, I was disappointed to read in the NY Post that bids for the sale of the company were only being taken from parties that were interested in buying the whole company. While I am not questioning your intentions and am sure that the company and board are acting in good faith, it could appear to others that this is not the case.

Through my own research of property tax valuations (published a few months ago on my blog; here and here), it is obvious that a great deal of the worth of the company is in the form of real estate and not from the retail operations which perpetually lose money. Furthermore, when only taking bids for the whole company, it destroys value for shareholders, since many parties would be interested in paying top dollar of select pieces of the company's real estate... This is especially true for the Trinity Place property- it will never serve it's highest and best use as a retail store; there is no doubt that it should be sold off to a developer, demolished, and replaced with nice apartments.

As so much of the value of the company consists of real estate (the tax assessment values for the owned stores FAR exceed all of the property, plant, and equipment on the balance sheet), I believe that at minimum, the board should add a member which has significant real estate experience; how can the board make an informed decision as to what alternatives to pursue, if they don't have real estate experience? Additionally, it is important that the company takes bids from interested parties in a way in which will maximize the value for shareholders; if this means that companies such as Men's Wearhouse, TJ Maxx, or Burlington Coat Factory are interested in the purchase of even a single store, then such an option should be considered.

For the good of all shareholders, please consider all strategic alternatives for the company.

-Jeff Moore
Disclosure: I am long SYMS. 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.

Pizza Inn, New Concepts, and Press Releases.

Often times, investors will simply take a press release or company filing at face value, without investigating any further. Many times, this can work out, however, sometimes a quick phone call can have a huge effect on an investment decision.

Since I have been a long time follower of Pizza Inn, I found this press release to be quite interesting. In it, we learn that they are testing out a new concept store, which, from what I can tell, is basically going to be the Subway of the Pizza World (or, kind of like a Pizza Hut Express)... quick, custom, personal size pizzas in 5 minutes. A pretty neat concept, which seems like it could work very well. In the press release, there is mention of the company franchising up to 100 units a year. Which sounds REALLY good; especially when you take into consideration that there are presently less than 300 Pizza Inn locations- their franchise base would vastly grow, which, would likely explode the profitability of the firm.

I called the contact person on the press release, here is the rough layout of a conversation I had today (not verbatim, but pretty close)...

Monica Feid: "This is Monica."

Me: "Hi, this is Jeff Moore and I am a potential investor in Pizza Inn. I have a question for you regarding the press release of the new pizza concept store."

Feid: "Yes, Pie Five."

Me: "Yes, I was curious as to the number in the press release, the company expects to franchise 100 per year? How did they come up with this number, are there already franchisees interested in it?"

Feid: "Well, it isn't a franchisable concept yet, there is no FDD for it. There is one store that they are testing at the corporate level."

Me: "Then why make mention of the 100 franchised locations a year?"

Feid: "They are testing it at the corporate level first."

Me: "But where did they get that 100 number from?

Feid: "That was the number that Charlie said."

Me: "Right, but, I am just trying to get a feel for where that number came from? Why 100 a year? Why would they say that if it is untested?"

Feid: (Chuckling) "Well, that is what they said in the press release."

Me: "Ok. Whatever. Thanks for your time."


Now, I am sure that the company probably does have plans to franchise up to 100 of these restaurants a year. But, I do question when a company says such good things about a concept that is completely untested. I also question that, in light of the fact that the company has been in business since 1958 and according to their last quarterly filing, there were 293 franchised locations... In the same filing last year, there were 308... Not the most stellar thing for results. While trends are often times meaningless, the closure of franchised restaurants may indicate problems with the company.

I do find it bothersome that they would want to talk up the concept, especially when there is the potential for there to be significant fees coming in from the new franchisees (which could make investors become bullish and pay more for the company). Additionally, even if the company only got a fraction of the revenue from the new concept that they do with their present operations, with even 50 new locations a year, that could mean huge returns for shareholders... But, is it wise for people considering going long, to bank on the concept doing well?

I guess what I am getting at, is that if any company would ever say that they could increase their franchise base by as much as 30%+ a year on a new concept, they would probably be met with a slew of skepticism. Are we really to believe that this pizza chain can grow restaurant count in a way that is numerically about even to the likes of an operation that is of the caliber of Chipotle, but, in relative percentage terms puts them to shame? Granted, Chipotle operates their stores and Pizza Inn plans to franchise them; however, the economics of CMG are stupendous, and I have trouble imagining a franchisee of PZZI having less trouble opening up shop than CMG. A Chipotle is cheap to open up and cash flows like crazy.

Here are the store numbers for CMG:

Sorry, but, I don't buy the story in the Pizza Inn press release... With that said, the company seems to be well run in many other regards; in fact, I have historically really liked the company and have often been on the verge of buying their stock numerous times. After having one of the more interesting board room spats in recent memory, the company is actually making money now and seems poised for growth. It is unfortunate that often times, companies over promise on new concepts that are untested. In the spirit of fairness, since I talked to the contact person on the press release and not the CEO who made the comment, I will be more than happy publish any response from PZZI.

To sum up with some good puns, I think that the promise of the new concept is a bit over baked, and frankly, that makes me lose a bit taste for the company.

Disclosure: None. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, talk, write, or so much as even think about.

Friday, June 3, 2011


How interesting.

From here:

As befitting a virtual currency, no one is quite sure who created the Bitcoin. A white paper and software turned up three years ago listing Satoshi Nakamoto as the author. That's presumed to be a pseudonym. All that's known about Nakamoto, based on his paper and message board comments, is that he's fluent in English and has a deep understanding of Internet security.

Thursday, June 2, 2011

Letters From Esopus Creek and Kahn Brothers to Syms.

The following are recent letters that were sent from the Kahn Brothers and Esopus Creek to Syms management. Good reads. As I have said multiple times (here and here) these guys act as a gatekeeper that keeps the company from doing anything too crazy- such as only taking bids for the company as a whole... It seems that this communication will only do good for the process of getting the company to full value and realize it's potential, as the facts are so overwhelmingly in favor of what they argue for.

In the first, the Kahn Brothers suggest looking at the possibility of a tax free spin-off of the real estate assets of the company. In the second, Esopus Creek suggests that only taking bids for the company as a whole would be a blunder.

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