Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (8472)	10/2/1999 1:19:00 AM
From: Michael Burry	Respond to of 78592

It is a reasonable bet, imo, that within a few years, stocks selected from these businesses now, bought-and-held, could prove to be profitable investments. Yes. And it will add greatly to one's returns if they all get just 20% cheaper. At the recent rates of decline, the wait may only be a few weeks, or even days. Still say it's safer to wait for some stability. Even the oil sector and the commodities bounced twice off their bottoms. I'm still rich in REITs. Trying to buy more HRP - it crashed on a misperception of its dividend after the split - so much so that they issued a PR saying "hey the news services are quoting our dividend wrong"- then again on the HMO news. This is an office REIT for crying out loud. Good investing, Mike

To: Paul Senior who wrote (8472)	10/2/1999 12:18:00 PM
From: Daniel Chisholm	Read Replies (2) \| Respond to of 78592

Re: death industry, The one thing I'd suggest to anyone considering an investment in this industry is to keep an eye on the debt. Since this is a stable and predictable sort of industry, a sound argument can be made for using a certain amount of debt. But since this industry has recently been through a consolidation phase, it is my contention that many in the industry may have overdone it w.r.t. the acquisition prices paid. To the extent that debt was involved in these acquisitions (and it was!), there exists the very real possibility that as animal passions cool and more sensible values prevail, there may be NOTHING left for common equity. (If the amount of real economic value they acquired with each of their overpaid-for acquisitions was less than the amount of debt used to finance the acquisitions, then in hindsight we can look at each of these overpaid-for acquisitions and say that they were a net minus to shareholder equity!) There may very well be good values to be had in buying up beaten-down common stock, just be aware that you must consider the possibility that some of the equity out there may be worthless in the long run. In spite of the stocks being at their lowest point in several years, do not ignore the fact that if the common is worthless (you must determine if this is true or not), then any price is too much! Alternately, you can look at the bonds that these companies have issued -- you might find that they are cheap enough to offer a value investor an equity-like return, if he has a superior idea of the stability and backing of value that the bonds have. In the very little that I have seen of the junk bond market, the market does in many cases over- and under- react to the good and bad prospects that happen to companies. It seems that there is just as much opportunity to find undervalued junk bonds as there is to find undervalued stocks. (FWIW I shorted Loewen common stock at $C3 and bought Loewen bonds at 50 cents based on what I have written above. My analysis was that the equity was worthless and the bonds were definitely worth 70-75 cents. I've been too lazy to see if similar ideas might work for others in the death industry). What really appealed to me in analyzing Loewen bonds was that it was really the first time I felt like I was in fact doing "real" Graham-type value analysis. The very factors that the hypesters of a few years back were using to hype the common stock during the go-go days of aggressive acquisitions and stock and debt financed rollups (stable steady growth, etc) worked very much in favor of establishing a tangible value and margin of safety for the bonds, once a reasonable price was established. I guess what I am saying here is that in spite of horribly huge overpayments for funeral homes having happened in the very recent past, these homes do in fact have a very real and stable value to them -- if we are now presented with the opportunity of buying these good sound stable businesses AT THE RIGHT PRICE, we can actually make a sensible investment in them. Analyze the business, the balance sheet and the stock market valuation. If you like what you see, be sure to take one last glance at the capital structure before you buy the common stock(!). Just because the company is down and will recover and prosper in the future does not mean that today's shareholders will still be around! - Daniel