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

To: Madharry who wrote (13749)	1/23/2002 1:13:45 PM
From: Paul Senior	Read Replies (2) \| Respond to of 78481

KM lessons. Many. Although the lessons perhaps are not so general as to apply to all value investors in all situations. More like the KM situation confirms each person's own beliefs as to it having been a good opportunity or a bad opportunity wisely passed over. For me, reviewing reasons for buying and holding KM, I keep contemplating this quote (author unknown), "Most people who think they are investing are speculating. And most people who think they are speculating are gambling." I need to make sure I better understand which camp I'm in, in each situation. Since I maintain a large number of diversified but downtrodden stocks, I seem to get a few every year that go BK. Painful experiences certainly, but not utterly disastrous to the portfolio. The worst part for me is my diminished morale and confidence, and the shame factor: "What? You were idiot enough to buy and hold on to KM?? Obviously, Senior, any further investing ideas you might have, have got to be discounted given that stock selection!" Perhaps for each of us there's an inflection point where we realize, if we're alert, that the stock might not be for us. That might be in visiting the company or its stores, reading the financials, calculating the projected cash flows, seeing the first analyst sell rating, seeing the stock drop to new lows or seeing a breakdown in a chart pattern. I've had stocks recover from all that though, so I don't see one or more of these factors as a sufficient condition for avoiding or selling the stock. What I want to be more alert to - based on Enron and KM - is the breakdown in communications from top management. An Enron 'signal' may have occurred when the media reported an analyst was cursed at by the CFO (?) during a conference call (for asking for an updated balance sheet). Reminds me of Al Dunlop's behavior before Sunbeam collapsed. For KM, an important 'signal' I might have given more weight to was management's total silence after one analyst's suggesting KM might go bankrupt - and mangement's STILL maintaining their silence even after the media mentioned their curious failure to issue any announcements/clarifications/updates/etc.

To: Madharry who wrote (13749)	1/24/2002 7:26:30 AM
From: blankmind	Respond to of 78481

- Boeing (BA) & AOL are 2 companies w/ such tremendous earnings; barriers to competition; & reasonable valuations; BA @ $40; AOL @ $29; that you can sleep well at night owning them - problem w/ Enron was that it was unhedged - like a farmer borrowing to plant a crop - if the price is depressed at harvesting time, the farmer can hit up the taxpayer, but Enron goes under - by the way - i read exposure & liability all over enron's financials, i doubt anything criminal was done - problem w/ K-mart is that they're a commodity; & others could do the identical service for less - it's that simple

To: Madharry who wrote (13749)	1/24/2002 3:27:40 PM
From: Bob Rudd	Read Replies (1) \| Respond to of 78481

<<lessons to be learned from the kmart bankruptcy? seems like enron to have snowballed very quickly from a bad quarter to bankruptcy.>>Look for ratings triggers &/or a debt or operating structure that is highly exposed or vulnerable to a minor change in conditions. Kmart had exposure to surety bond market and supplier confidence. This article discusses these risks: standardandpoors.com Look for all ratings agencies to focus more attention on ratings triggers hidden in credit terms so they don't face criticism from having gone from investment grade to near default in the blink of an eye. BTW: Bankruptcy will help Kmart buy time but I'd rate it's ultimate survival doubtful. Basically bankrupty works best when a sound business model is encumbered with too much debt. With Kmart, the problem IS the business model. Squeezed between low cost producer Walmart and more upscale Target & Kohls...they haven't nailed a defensible niche. The guy running the show now may shepherd them thru BK, but don't look for him to reinvent the business model.