Sunday, December 22, 2013


Not to turn into the doomsdayers at Zero Hedge, but seriously: the next crash is coming... Without a doubt. Here are some screen shots that I took a few minutes ago, which undoubtedly prove it.

Note, this is for the Dow Jones Industrial Average, as of December 20th. It seems that with the market generating just shy of a 30% return in the past year, everyone has forgotten what it is like to lose money. Sure, you would of had some pain by investing at the end of 2008, but since then... WOW!

Compare the most recent period with the 5 year period ending in 2007. The markets peaked out right before crashing... As is the case now, everyone was used to making money... Then a huge crash occurred that made for a great buying opportunity about a year later.

Go back another 4 or so years, to the previous time the market peaked... Again, in the previous 5 years, people just couldn't remember losing money in equities. After all, there was a new normal where companies were valued based on future sales- who gave a damn about current earnings!

Wait a minute... That sounds eeeeeeeerrriiiiilllllllyyyy familiar, doesn't it (TSLA, FB, TWTR, AMZN, etc). Certainly, revenue, margin, and earning expansion have always been theses which have been with us.

Now, check out what the market did in 1987... again, we see that in the previous 5 years, people didn't know how to lose money.

It certainly seems that one could easily come to the conclusion that we are certainly doomed based on these 5 year examples. The expansion has gone on for too long! The world will again collapse!!!

That is, until we get a little bit more in depth; in the next chart, we can see that for the 5 years before 1999, we had a ton of growth in equity prices, with a bull market lasting a full 10 years!

Before that, there was a good bull market that lasted for a significant amount of time before the 1987 crash too...

For long time readers, it should go without saying that this blog has a healthy dose of sarcasm... Once asking why Federal Reserve didn't buy 1/3 of the nation's housing, just to bulldoze it in effort to stimulate growth and even throwing darts at a Wall Street Journal to see what would happen with some random selections versus Facebook's stock (once noting the company's margins, relative to the world's population). That carries to now- these charts illustrate how a taking something that could on some level, seem reasonable- to an illogical extreme (and frankly, doing so in a pretty dumb way) can have some serious points in regard to allocating capital.

For me, the market being at an all time high is only kind of frightening- not alarming, since it is reasonable to think the world will continue to grow wealth- yes, even here in the US. We could very well be in some great economic expansion that the market isn't pricing in yet. Look at the last 2 screenshots for a example of decade long stock market growth (forgetting about tailwinds and conditions for a minute). We are now at a point where people have probably forgotten what it is like to actually lose money on stocks- everyone seems to be long and all about investing in equities. People can also have a short memory. Key to remember here, is that in the past 5 years, it didn't matter if you are a stereotypical growth, momentum, or value investor- it would have been hard to not make money in the past 5 years... And you could have done so by doing some pretty stupid things at the time, which could look incredibly smart- even clairvoyant, now... If repeated under a slightly different situation in the future, could permanently impair capital.

Which brings us to the present day...

Maybe the miracles of monetary policy are going to save us and we can unwind these low interest rates, or, keep them where they are without sparking inflation. Maybe you believe the profit margin arguments, and think that they can stay historically high for a host of reasons. Maybe the 5 and 6 foot tall children in Washington DC are going to finally get along, which will make the country calm enough to buy things again. Maybe the massive de-levering is going to stop, borrowing will pick up again, which along with the low levels of inventories companies are sporting, and the velocity of money will finally reverting to the mean that the Fed wants. Maybe it will happen in a way the Fed doesn't want and inflation blows up, proving that equities have been cheap...

Or maybe none of this will happen and other bad items such as high government debt, Obamacare, and persistent unemployment will send us into a death spiral. There will always be arguments as to what is going to happen, how something will affect something else, and even once said events happened, people will still argue about it. Frankly, I know that I am not smart enough to weigh so many variables and come up with much of a macro view about things. If anything, I like the words of Seth Klarman here: "I think bottom up, but worry top down."

What I do know is this: good deals are getting ever harder to find. A few years ago, it was easy to buy companies where you could be reasonably sure it could liquidate and the initial investment be safe, or at the very least, could bleed cash (practically) forever, as long as they kept the rate of loss to their worst quarter of the last recession... Now, it seems that most investors are looking at companies based on their current/future earnings, with a healthy growth assumption. None of which generally price in a recession of any sort- my gut says that won't end as well as they hope. In recent conversations I have had, people have even proposed getting in bed with some pretty unscrupulous management teams, basically because the stock is the cheapest thing that they can find.

This strikes me as a bit worrisome and something that was very easy to avoid in the near past.

Furthermore, there this bull market, combined with the ever increasing access to and acceptance of the internet, more writers have become widely read, more fund managers reputations made (or broken), and even bloggers have earned jobs as analysts or money managers in a way that no one would of ever thought. This is an interesting time to live in. A lot of people are probably lucky (including me) because of the tailwinds that they have had behind them. It will be interesting to see how people do once the markets start to turn- because eventually, the DOW will have more than a few down days! That should separate the men from the boys so to speak, especially as a lot of the value investors that are active on the interwebs are long only. Keep in mind that due to the internet, victories are a lot more visible, and, we are at a point where they have been more visible, with a huge bull market- basically, a feedback loop of egos (both for investors and their investors), based on a ton of independent variables that could literally not have happened in conjunction at any other point in history.

The lessons of Bill Miller shouldn't be forgotten- star of the investment community to a pariah. Pariah to talented manager again- this could happen to everyone out there, only you wouldn't need billions. A bear market could be more humbling than investing in a fraud!

When everyone out there feels smart for investing, one should probably feel the dumbest. Literally, I have practically been hitting my head against the wall, trying to find new investments that I feel truly comfortable with. As such, I am doing my best to control my emotions and sit on more cash like investments than ever before- be it the recent Chromcraft Revington buyout by Sport Haley, Ethanex, and even a pawn shop chain that was recently bought out and is in the start of an orderly liquidation- there are a few others too. There are potentially few insurance companies that aren't reporting that are pretty interesting as well, but that is a totally different story, for a different post. Rental housing can be good too, so long as you get a good deal- which I think I have been able to do in a few instances recently. However, be warned that the hedge fund types paying in excess of 115 months rent for rentals- before fix up costs?!- are likely not going to do well in the long term. Additionally, the securitization of rental payments is probably as bad of an idea as a mortgage backed security... especially when it is done by people who have probably never swung a hammer. Even publicly traded net-net looking REITs such as Trade Street Residential seem to be overpaying for their properties- the newness of them, alone should be scarry, which is something that was talked about in my beat up Jason Zweig edition of The Intelligent Investor. Certainly, they could do well, but there is a great deal of risk in them. Alas though, this is again the subject of another post...

Regardless, it is key to remember that deals are almost always out there if you look hard enough, turn a lot of rocks over, and inevitably, go down a bunch of dead ends. In the midst of a raging bull market, deals may not be in the form that you think. Let us all be more diligent than ever. After all it's about time that we really earned the money we make.

That, and probably re-read everything Ben Graham ever wrote. Notice the overall downward trend in Benjamin Graham related searches on Google Trends over the course of the bull market? Me too... That might be a touch telling as to where we are at in the grand scheme of things.

Happy hunting.

Disclosure/Disclaimer:  I own and represent whatever is left of the Chromcraft Revington shares that I purchased a little bit ago. I also own and represent share of Ethanex, Premier Exhibitions, that pawn shop I mentioned, and a small insurance company that has not reported to the SEC in over half a decade. Other than that I have nothing in or against any other security mentioned. I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplating anything that I say, do, write, or even think about.

Thursday, October 31, 2013

A Board Seat At Sitestar...

As many of you know, I have been investing/invested in Sitestar (SYTE) for a while now. After a while, I filed a 13D and was recently added as a director of the company (here is the 8K and my Form 3). As you can imagine, this development limits the amount that I am able talk about the investment. As such, I presently don't have any plans to post on Ragnar about it for the duration of my service (emphasis on the serve part, as there are no board fees, stock options, or anything of that nature).

I am excited about the experience and getting to work with both Frank and Dan- both incredibly nice and shrewd people. It is the hope, that in this process, we will hear from shareholders and non-shareholders a like. Feel free to contact Sitestar at investorrelations(AT) or me- jeff(AT) for Sitestar related matters or ragnarisapirate(AT) for all others.

You can get an idea for some of the progress the company is making (with credit going to Frank on that) on the rental properties (here) and the houses for sale (here). Hopefully, good things will be coming.


Disclosure/Disclaimer:  I own and represent shares of Sitestar (SYTE) and am also a director of the company. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplating anything that I say, do, write, or even think about.

Thursday, October 24, 2013

Prizes, Blind Valuation, and Some Bank Stories.

My first blind valuation post yielded some pretty good responses, and yielded a small amount of discussion in the comment section.

First the light hearted part of the post, then on to some more serious thoughts.

To the right is part of the prize pack that I sent out a while back... An un-opened Teenage Mutant Ninja Turtle (soccer kickin' nonetheless!), Marathon Oil 10-K, and Maker's Mark gift box (#KentuckyPride), Dronex stickers, and some labeling tape. An assortment of some overall great items. ;)

I sent the above prize pack to Henry, who's comment can be read here.

First and foremost, the financials were picked up in the lobby of my main bank, which was going to lend my uncle and I the money to buy and fix up a condemned apartment complex (the deal fell through). I'd be willing to guess that someone at the bank is reading this, and if so, please understand- any criticism of your industry in this post isn't directed at you- it is merely observational of the industry as a whole- I think you guys are great! :) Heck, for some of the other bankers that are out there reading this (@schornack and others) you all are cool too. Now that I think about it, a lot of my observation is actually not of bankers, but the regulators that essentially controlling what you are able to do.

Anyway, what struck me as insightful of Henry's comment, was that he was the sole person who pointed out why a person would want to be lent money from a healthy bank (which is something that I hinted at in the post). I have personally witnessed people get squeezed on loan terms, covenants, and interest rates by banks who were in financial distress, and have myself even been squeezed on interest rates and terms by a bank in the bluegrass that was under a lot of pressure from the FDIC... In my case, my business was the healthiest that it had ever been up to that point- the bank (well, I suppose their regulators) didn't seem to like that the subject property was vacant at the time of a refinance, that I had a lot of tenants on month to month leases (besides the fact that the tenants had been in the houses for long after their original year lease ran out), and that I had been dumping money into my houses. I had always thought that a bank would like that, as their collateral was better- I mean, isn't that part of why Sear's has had an odd relationship with it's customers and lenders? That it just uses it's real estate to suck cash out of?

Anyway, getting back to the point- a lot of those items stuff made my income levels look artificially low, and in turn, suppressed various ratios that the bank was needing to show that they had a healthy loan portfolio. All this, despite that I could have paid off the loan off by selling some stocks and was also waiting for the right tenants to put in the house- who, when they eventually came along a few weeks later, stayed in the house for nearly 5 years- until one of them unfortunately passed away (he was a really good husband, father, and decent guy)...

Nate at Oddball Stocks has talked of looking at an investment in a business as if you were their lender, a concept which I have always thought of as being really smart. I would add that it is noteworthy to also take a look at the actual lenders to businesses that you would be willing to invest in, or that you borrow money from. There are tons of examples. One of the more interesting ones is that of Syms essentially being forced to liquidate, because their lenders (Bank of America) were in the process of raising capital through the calling of loans. In the case of BAC, it could have played into a warrant thesis as it was part of their rush to raise capital to get on solid financial footing, which would ultimately make the warrants really valuable.

Champion Industries was not only taken over by their lender, but was also forced to sell off their most valuable asset (and the only one that seemed to cash flow) because they were not meeting various financial covenants. Granted, Champion was in a bad spot, but then again, their lender has not been in the best of shape in the recent past either.

Wells Fargo squeezed Infosonics in 2010, despite the company's horde of cash. To me, this shows that if you are investing in a net net, there should generally be some sort of viable business, or at the very minimum, a way to ensure that there are no random variables. That said, I have invested in some pretty atrocious net nets (Express Jets before the buyout, anyone?). There are a ton of examples that we can bring up in both the net net and lender mentions. Conversely, it is always interesting to look at companies that have no debt, but stubbornly keep paying fees to keep lines of credit open in the event that they are needed. For some interesting reading on those matters, go back and look through the annual reports for Envirostar and International Baler (I wrote on EVI and IBAL)

The bottom line here, is that lenders, like leverage can be a double edged sword. When they work... MAN! You and the bank can make a ton of money- but is something goes awry- it can also be bad for everyone! Sometimes this works out quite well- in the instance of Syms, the business model was totally broken and the real estate needed to be sold off or redeveloped. It was a win win for everyone, except the Syms family, whose stock was sold on the cheap in the bankruptcy. In others, a lot of people get burned- look at my previous examples.

There is an old country saying that my great uncle told me my great grandfather would say: "Bankers will always hand you an umbrella when the sun is shining and then turn around and jerk it away the second they see a cloud." Certainly- some harsh words, but the guy did live through the depression and just about lost everything in it.

I think that I will sum up a lot of this post with another country saying: "It's all about whose ox is getting gored."

To any bankers (or others) reading this, I would love to hear your thoughts on these matters- feel free to drop me an email, call, or leave a comment.

Disclosure/Disclaimer:  I own and represent shares of Trinity Place Holdings (formerly Syms) and a single share of International Baler (IBAL). I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplating anything that I say, do, write, or even think about.

Tuesday, May 28, 2013

Updated Property Info For Calloway's Nursery (CLWY)

As an investor, blogger, and hell- as a human, I am faced with my own flaws. This post is in fact one of those posts where I get the privilidge to say "I was wrong on my Calloway's post..."

When emailing with John over at Portfolio 14 (I put in links to his Twitter and blog for good reason, you should check him out!), he noted to me that I may have missed one of the properties that the company owns- certainly, we are fortunate enough to live in an age where we have the ability to instantaneously carry on a conversation between 2 people who are far away- in this case, a couple of nerdy investors in Kentucky and Australia, in regard to a company company that sells plants out of its glut of real estate in Texas. Kind of an overall odd situation.

Anyway, the subject property is located in Lewisville, Texas. As it turns out, the company not only owns property there with a taxable assessment of over $100K, which I did get right, but I missed the fact that they own the property with a significant land and improvement value... Here is a screen shot- I confirmed with the company that they do in fact own the property, despite the odd name at the tax office.

So, the taxable value of the company's real estate goes up by ~$2mm dollars to come in a hair shy of $26 million dollars. Here is the updated spreadsheet:

So there you have it. I was wrong, which goes to show why I always include a disclaimer! Another big thanks go out to John at Portfolio 14, who if not for, my estimation of intrinsic value for Calloway's would be a bit less than it is now! Also, this goes to show that emailing with people can really help spread knowledge on things like this- if you have yet to, feel free to drop me a line- I'd love to chat!

Disclosure/Disclaimer:  I own and represent shares of Calloways. I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplating anything that I say, do, write, or even think about.

Monday, May 20, 2013

Walking Away From A Few Million Dollars Part 5: Ding Dong, The Deal Is Dead...

If you are a newerish reader of Ragnar, this is the 5th installment of my experience almost buying a 120+ unit apartment complex... If you have yet to, I suggest you read parts 1, 2, 3, and 4 so that this will make more sense.... I’ll be making one more post on the deal, where I talk about the lessons that I learned and give some aftermath as well.


It was a Sunday in the spring- roughly a 1/2 decade ago. One of my uncle's friends, who was a moderately sized contractor in central Kentucky, was on a job site near the center of Frankfort- the Commonwealth's state capitol. He had 3 workers on the job site using a jackhammer. While working, the crew noticed and found it odd that there was a white car with 2 gentlemen inside, watching them work. Despite the oddity, they paid little mind to it, as the car would be there sporadically at best.

A few days later, one of the men emerged, identified himself as being from OSHA, and asked to see the hearing tests that had been performed on the workers. The contractor had never heard of such a requirement, but despite that, routinely provided hearing protection for his workers- having met him, he seems to be a pretty genuine and caring guy- definitely not the type that would hurt his employees. The employees were shocked as well. Regardless, he was honest with the OSHA representative and simply said something to the effect of "I don't know what you are talking about... hearing tests?"

The contractor walked away from the job site with a stop work order and a hefty fine.


As previously noted, my Uncle Bill and I had done a pretty good job of crossing our "t"s and dotting our "i"s in regard to what needed to be done to make the 120+ unit aparment compex economically viable. He had managed to track down nearly everyone who had ever worked on the complex- from maintenance men (who, couldn't really spell that well) to electricians who had done bids on the electrical work (over 3 decades of being a landlord has its advantages). Our plan to turn the complex into elderly housing was nearing reality, as the closing day was in the next week. By now, I had started talking to my friends about what was going on, since I had more or less dropped off the face of the earth for the better part of a month- a rarity for me. Despite that, I was eager to get going! After all, with an army of contractors ready to tackle this thing, what could go wrong?

Previously, I had scheduled what I was referring to as a "final meeting" with the building inspector who we would be working with and his boss... I had no idea how true of a description "final meeting" would  be. After meeting with Bill at the complex, we drove to the department that would oversee our project.

I could talk about the buildup of nerves and emotion to generate some suspense, but I will spare you with this bluntness... from the moment we arrived, things went downhill- they went down quickly. Like lemmings off a cliff.

The meeting started with the 4 of us sitting down in a conference room, with our inspector's boss plopping down a newer codebook that looked to be 6 inches thick... of current codes for us to abide by. Which don't get me wrong, isn't bad in and of itself... however, when you are dealing with a building this old, there is no way to economically bring it up to all points of new code. This doesn't mean that the building would have been unsafe, But mainly that it would have been a better investment to tear it down and start over (which, I actually priced doing- the numbers didn't still didn't work)... However, as unelected officials, the inspectors didn't have to worry about making a decision in a way that was practically popular or not. The logic for the new codes was that the building had been condemned and wasn't grandfathered in for the older codes. However, there was never any evidence I could find of any official governmental condemnation in the first place. I am not saying that it didn't exist, but the only think that I could find about it was a letter where the complex had a condemnation order lifted- and I talked to a lot of people about it... some of you may recall that I have filed Freedom Of Information Act requests to get information- so, it isn't as if I skimped on my efforts.

Seeing the new code book made us we both realized that we were not going to come out of the room
hearing much of what that we needed to resurrect the building. It wasn't a matter of reason when coming to save the building at this point- it seemed more about making the thing as close to new construction as possible. When asking a question about virtually anything, the inspector appeared taken back in a "how can you question me in from of my superior" sort of way. At some points, he visibly appeared to be under stress- which kind of threw me for a loop, as I am generally a pretty laid back person. Whenever Bill or I talked about provisions for the building, the supervisor would sit back, head titled and propped up by his fist- mentally deliberating about the items and say "well, this concerns me... this doesn't... here is how I rule on this" after he might have flipped through his code book. Don't get me wrong, I appreciated the attempt at working with us, however, in many instances, a lot of the problem I had with the whole thing was that he had never stepped foot in the building. The actual inspector in the field spent less than 15 minutes in it. Even something as simple as a discussion would have been great- for something of this magnitude, which would have represented a healthy percent of the rental units in the city, I think that would have been an appropriate step- especially when considering the gravity that each decision could potentially have for the people that would have lived in the building.

Knowing what I knew about the building, I knew there were a lot of items that needed to be addressed. As such, it was a neccessity for me to take notes, just as I do at virtually every meeting of this nature always getting the persons permission.

However, when I started getting the opinions of the inspector and writing them down, he became very uneasy.

In my notes were items such as adding a fire door and wall to the laundry areas, where as before, the space simply had a large opening... We needed to make sure that the temperature in every single room was within 3 degrees of each other. Locks on all entrance doors couldn't be double chambered (something that I thought to be obvious and not needing discussion). Other items pertained to things such as patching the fire walls. On certain items, such as drywall extensions above the drop ceiling, they weren't concerned about us adding drywall, but were very concerned about other items that seemed to be less dangerous. I remember feeling as if I lived in a Kafka novel...

One of the main components was that we were to install multiple smoke alerts and to hook the sprinkler system to a security system. We had originally planned on putting a single smoke detector in each unit and not wiring them into the security system- reasoning that when people's bacon would inevitably burn, it would be a bad thing whole building to be evacuated. We worried that people would eventually stop paying attention to the alarms, which in the event of a real fire, could cost them their lives. We liked the idea of having main alarms set up in the hallways so that if a unit was in trouble, then everyone would know. Despite this, our plans were not allowed and we were told to add in audio and visual alarms in every unit, tying them all together into a single alarm... While some of the items seemed patently absurd (such as adding some extensions on hand rails) most everything else being suggested seemed reasonable and for that matter, were items that we were going to take care of any way... security and alarm systems aside, we were going to end up spending ~$25K that we had not planned on...

At the end of the meeting, we were instructed to stroll down the hall to meet with the planners to work on the process of getting approval for our plans. Being told that giving my notes to the planners and that we could discuss the items in greater depth as we went along was totally surreal and didn't calm me in the least.

Bill and I walked out of the meeting having feelings that were bi-polar opposite in the truest sense of the odd phrase... we were both felling pretty bad about it, but internally realized that we were probably in the process of getting screwed and needed to run away... and quickly at that! However, I was hoping for some sort of miracle with the new bids I was needing to get. After all, as our friend had said earlier, "there has to be a way to do this... there are just too many of those old buildings around for them to make you start over." Despite this, we both felt that there was no firm commitment on the extent of items that were and were not going to be enforced. We knew that a lot of this was subject to change if we didn't dance to the tune that we were told to.


When in the process of analyzing if we would be able to meet the building inspectors needs, we had a few other items to firm up as well- the sprinkler and elevator systems. When digging a little bit deeper into the matters, we discovered the companies which had previously serviced them didn't have a correct memory of what needed to be done to get the systems up and operational. After placing numerous calls, I would meet with several of the appropriate contractors in a few days. But for now, I was on security detail.

Still hoping to salvage the deal with a little more headache, we decided to meet with a few security companies to get prices on the items that would be needed. After research, we decided that Sonitrol was about the only company capable of doing what we needed. When the sales rep came out, we explained what we needed, gave him the grand tour of the complex, and asked for a bid in the next few days.
A few days later, I talked to the Sonitrol salesman on the phone to try to firm the items up. He knew that this was going to be a real high hurdle for the project, but didn’t seem to want to say much more than that. After a few minutes of prodding, I got him to finally give a cost for the parts, just to network the sprinkler system to the security system and have alarms in every room of the complex: $75K. A number that didn't include panels, wire, labor, and a lot of drywall work. Due to the layout and structure of the buildings, these runs would prove to be very difficult to navigate so as to network the items how they needed to be and connect them in a simple but effective manner. 

When investigating the sprinkler system a bit closer, we also saw that we were going to need to look at host of sprinkler system repair as it appeared to have been installed incorrectly- in such a way that was near impossible for water to drain out of... a BIG problem. Notice the slant of the pipe above (the panorama exaggerates it a touch, but it was significant).

Originally, the dry system was constructed of black pipe. This is a metal pipe that is generally used for gas lines and if the slightest bit of water gets on/in it, then it will rust up pretty quickly. Not exactly the sort of thing that you want to have in a system that has a lot of pressure on it. As the system had water sit in it from previous use (and improper installation), rust quickly developed. When under the constant pressure that a dry system is subject to, the combination caused the picture you see to the right... A long layer of rust and weakened pipe. This was the case for most of the complex, as we found lots of bad areas from where the system had been patched on numerous occasions.

For safety's sake, the Commonwealth heavily regulates various systems, which I actually think is probably a good thing (much to the chagrin of some of my readers)- people don't want things like a sprinkler system to work incorrectly. They trust the government to inspect these anti fire measures, so there is a piece of mind factor involved. Anyway, when testing a system, air is run through the system with a burlap sack at the end of it, which catches anything that is in they system as it blows out. Whenever a chip of rust comes out of any significant size, you need to figure out where the rust came from and replace that part of the system... Then, the inspectors go back and start the test over. As you can imagine, this can get very costly, time consuming, and be a pretty difficult system to troubleshoot.

To further complicate matters, in Kentucky, if a sprinkler head is more than 50 years old, it needs to be replaced, regardless of functionality. This particular system was right at its golden anniversary. Additionally, every few years, you need to send off a sample of your heads for testing to verify hat they will work as intended. If ANY of the samples fail, then all need to be replaced. After counting the various types of heads (and me going through the super hot attic space around the firewalls) we realized that there were well over 1,000... at a minimum cost of $27.50 per head, PLUS installation. We were looking at over $35 grand... roughly the cost of my entire college education. In our back and forth, Bill and I decided that due to the age and wear in the system (see the previous picture), it would be a better idea to simply replace the whole system, which in addition to a lot of tedious plumbing work, would have added a lot of drywall work and time as well. 

If replaced, at least we would have a non-corrosive system that would be easy to maintain in the near term. However, the material that is used in this application is a type of CPVC- a material similar to PVC, which I absolutely love to use for passive drain lines (as an example, I replaced some cracked cast iron with PVC just last week). However, I don't trust it to put under pressure for long periods of time (as in many decades)- after all, if there is constant pressure on anything for a long enough, coupled with various other factors, the pipe will eventually fail. Plus, with the ceilings being relatively low and lots of the sprinkler system remaining exposed, I had a great fear of tenants hanging things on the piping which would inevitably cause major problems such as a mini flood...

After a morning meeting with the spinkler company with the best reputation for service and cost, we learned that we were going to be out an amount approaching $300- $400K and would end up waiting around month while the install would be preformed. God only knows how much a different material would of been.

We also decided that a major refurbishment of the elevator would be necessary, as a lot of the issues that I described for the sprinkler system, rhymed with the ones we were dealing with in the elevator as well (it had the old relay style system- kind of like a much more complicated Bally pinball machine from way back in the day)... After talking with one of the sharpest tradesman that I have met, we were emailed with the news that elevator system was going to set us back another $75K.

If you are keeping track, over the course of a few days we were hit with well over 1/2 a million dollars worth of items- with little chance of getting around from a legal perspective and absolutely no way skimp on from an ethical one. We would have been OK with the new sprinkler system, but the alarms that were necessary to go with it would have likely been close to another 1/2 million dollars once all the items were taken into account for installation (drywall, paint, routing of joists, wire, boxes, time, lost cash flows, etc) and delayed the project by months that we didn't have.

Oh yeah... near the last day on the site we also noticed that in the extensive copper vandalism to the building, even the refridgerators hadn't been spared... literally, there had been less than 50 cents worth of copper (less than a foot in length- see the right side of the right picture, compared to what it is supposed to look like in the other) cut out from around the compressor units in the appliances. This was done to a huge number of the fridges, just as had been done with the old air conditioners. None of the more than 50 people who had been in the building, which included our appliance guys, noticed this huge problem until Bill saw it near the last day... a need for 50 cents ruined appliances that were worth around $300 dollars when being sold as used on Craigslist!




There is an old saying from where I come from that is to the effect of "When you wrestle with a pig, you always end up rolling around in the mud and getting filthy. At the end of the fight, even if you win, you really don't because the hog probably enjoyed the whole thing." Roughly 25 days after first stepping foot into the complex, we realized that we were dealing with people that we could not fight with and come out clean, so to speak. The list ranged from cracked out drug addicts to potentially over zealous regulators. If the project was going to work, we were going to either spend more money than was worth our while OR we were going to need an army of professional engineers, security, and contractors on our side- an option that also required more money and frustration than it was probably worth. Both instances would take up a ton of time and with the latter scenario, we certainly wouldn't be making any friends- which are always needed when doing business in the Capitol of the Commonwealth. It's a place, where if you make enemies, you pay for it regardless of if you are in the right or not. All this, for what now likely wouldn't generate the return we needed it to for it to be a worthwhile investment which also possessed some semblance of a margin of safety.

While reluctantly waiting for the deal to die, I was eating lunch with my mom when I got a call from Bill. In that conversation, one that I remember all to vividly, we decided kill the deal. A few hours later, I called my realtor, informed her that we were evoking the clause in our contract that stated allowed us out if we could no longer "use the property for our intended purpose" and walked away from a few million dollars with a full refund of our earnest money. While the logic being used to walk away was solid, I was dreading telling my banker of the change in plans- for a smaller community bank, you don't like to pull out what would easily end up being a $1.5 million dollar loan which was going to make everyone involved a good deal of money.

But it had to be done.

Monday, May 13, 2013

Calloway's Nursery & Activism

This post will be short and sweet.

A lot of times as a value investor, I come across and invest in companies that either have activists, or are in a situation that gets activists involved. This is probably virtue of the fact that a lot of times when a stock becomes a value stock, there are issues with the company that need to be addressed.

Calloway's is no exception. Having been written up by OTC Adventures, the company is no secret to the value investing community. When reading this, one of my friends, (good investor and guest poster here at Ragnar) DTEJD1997, alerted me to the fact that some of the real estate the company owns is quite desirable. This immediately piqued my interest and I started researching it- coming up with the following spreadsheet.

As you can see, the tax assessor believes that the company owns some dandy parcels of real estate. Further analysis makes me really like the properties as well. If sold, it would seem that these properties are some of the most re-developable land in existence. They already have zoning in their favor and it isn't as if most nursery locations have a lot of stuff to demo and haul away to redevelop. After all, these locations are little more than a poured slab and some tents, water hoses, and lawn timbers (with a few exceptions). In most cases, it seems that the real estate is on the books for far less than it is actually worth. Throw that in with the company being located in Texas with great economic, real estate, and demographics plays, and you have a company that I own some common stock of.

One of the most interesting items here, is the location at Voss Road... Google Map it and you can see in the most simplistic way, that it is a fantastic location and is likely worth the entire market cap of the company... that sort of situation doesn't happen all that often.

View Larger Map

The only item I don't really like was with regard to the dilution to the common stock, taking places at very unfavorable prices for everyone that wasn't receiving the newly issued stock. Now, activists are looking to replace the board over it, by calling a meeting of shareholders. This investment reminds me of a touch of Syms, but where the underlying business is profitable, and as a whole, not a terrible. You are also getting a lot of assets which are trading well below their likely understated book value. I have liked this company since I first read about it and have been buying shares over the past few months.

I am sure that there will be more to come out of this interesting situation...

Disclosure/Disclaimer:  I own and represent shares of Calloways. I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplating anything that I say, do, write, or even think about.

Saturday, March 9, 2013

Ethanex Has A Proposed Settlement With McGuire Woods.

Ethanex is now petitioning the Bankruptcy Court in Kansas to approve the proposed settlement of $6.7 million dollars in regard to the McGuire Woods case. This, just after hiring a firm to help determine the shareholders of the company. The original investment thesis can be read here. Keep in mind that there may be additional monies coming into the Ethanex estate from the liquidation of the Zehil Estate.

While I am a touch disappointed with the settlement amount, I am certainly not complaining.

For your reading pleasure:

Disclosure/Disclaimer:  I own and represent shares of Ethanex. I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplating anything that I say, do, write, or even think about.

Thursday, March 7, 2013

Law Firm To Determine Ethanex Shareholders.

Ethanex's trustee has hired a law firm to find out the owners of Ethanex common stock... Seems to be a good sign.

Disclosure/Disclaimer:  I own and represent shares of Ethanex. I reserve the right to change the positions at any time. This post is my nothing more than my thoughts/opinion. Always do a ton of your own research before so much as contemplating anything that I say, do, write, or even think about.

Monday, March 4, 2013

A New Way To Follow Ragnar...

In case you didn't see it, I recently added an email update option to the right hand side of the page... This takes the way of efficiently following Ragnar up by 50%! Previously, there was just RSS and Twitter (which the efficiency of for following this blog is debatable). As much as I appreciate a steady stream of traffic, any of these methods is better than randomly "checking in" as it will save you a lot of time that can be used for more productive endeavors.

As a side note, if you don't use a "Reader" application of some nature, you should consider looking into the option. You can do a lot of really cool things with them such as not have to constantly check in to your favorite sites to see if they have been updated, manage/organize subscriptions in a way that is similar to email, and even have Google Alerts come directly to your reader! It's kind of like a customizable version of Bloomberg... but free!

And since this is not the typical type of post that I do, here is some cool music straight from "The Bluegrass State" to you...

Come back by soon, I like to think that I am working on some interesting stuff- let me know! :)

Friday, February 22, 2013

Exhibits To Furlong v. Solitron

To anyone who had questions as to the intent of Furlong in regards to Solitron, I just got some more information that may shed some light on the matter. There are a lot of interesting items in the following exhibits, such as how it appears that Furlong is seeking to replace both non-management board members of Solitron, leaving a newly expanded board to include present insider of Solitron Shevach Saraf (CEO, CFO, Chairman, etc) and outsiders Daniel Rudewicz, Ryan Morris (the 28 year old activist), Steven Kiel of Arquitos Capital and two other nominees.

As I eluded to yesterday: judgement should be withheld until more information is available.

Here are the exhibits:

Disclosure/Disclaimer: I and accounts that I manage are long shares of SODI. I reserve the right to change my/our position(s) at any time. This is nothing more than my opinion. You should always do a ton of your own research before even contemplating anything that I say, do, write, or so much as think about.

Thursday, February 21, 2013

The Furlong Fund Takes Action Against Solitron.

As the title suggests, Daniel Rudewicz's Furlong Fund has taken legal action to compel Solitron Devices to hold an annual meeting. As has been pointed out on this and other blogs, Solitron had previously said that they would schedule the date at a later time. According to the Pre-Trial Brief, the company finds itself between a "rock and a hard place" due to the auditing of it's financial statements... Even more interesting, though, is that Furlong is seeking some pretty serious changes in regard to the company's poison pill, board, and some other items.

While I don't know much about the altering of the board and such (but am not too keen on upping expenses in the board room), I do think that the shareholder rights plan presently in place is the wrong kind, as it does not correctly protect the company's valuable net operating losses. It is always my hope that shareholders can share ideas with management to have a company that oversees shareholders resources and governance in the most efficient way possible. Previously, I (and others) warned the company that something like this could happen if not addressed (as the company has not had an annual meeting in at least 16 years)- much similarly to how I alerted the company of the bad wording in regard to their backlog in the last 10Q, which resulted in a restatement a few days later. It's not to make a headache for anyone, but to spare the company from embarrassing items that could come or are coming about.

In that same vein, yesterday, I sent an email to Shevach Saraf urging the company to schedule the annual meeting via the release of an 8K, as every second that legal fees mount, it wastes money and resources. While management of the company may not like the idea of expanding the board or altering items about the poison pill through a proxy, that is for all shareholders to decide in their own right, as is called for in the laws regulating legal entities... It is possible that the company would have scheduled the meeting so as to limit the ability for dissent shareholders (such as Rudewicz to make proxy proposals or even run an alternate slate of directors. Fighting the scheduling of the meeting seems petty at best.  The management of Solitron needs to spend it's time running the business, looking to buy back stock, and make an acquisition to make better use of it's NOLs!

Interestingly, in the cases cited by Rudewicz, is a party that readers of Ragnar should be familiar with: Esopus Creek. There is also a mention of another interesting firm called the Newcastle Partners.

At any rate, here is the legal stuff for you to read for yourself... A reader alerted me to it, so a big thanks goes out to them! It will be interesting to see where the various items go and to watch this unfold.

Disclosure/Disclaimer: I and accounts that I manage are long shares of SODI. I reserve the right to change my/our position(s) at any time. This is nothing more than my opinion. You should always do a ton of your own research before even contemplating anything that I say, do, write, or so much as think about.