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

To: Paul Senior who wrote (14378)	4/28/2002 2:17:31 AM
From: Paul Senior	Read Replies (5) \| Respond to of 78594

OT, Saturday night story: SEC Enforcement comes after little me! (long) Got an interesting call from the SEC a while ago. Couple of people on a speaker phone introduce themselves and say they’d like to ask me a few questions about an investigation they’re making. Truthful answers are important, they say, and rather than sending a guy out to my house, they'd like to talk to me on the phone for a couple of minutes about a stock I bought. I say sure. They tell me the name of the company. I can't remember owning it I say. (Well thread readers, I AM one for lots of diversification, and my memory is slipping a bit too. Plus it was not a well-known company.) What's the symbol I ask as I turn to my computer to look it up. (It was a very dink company.) They say it doesn't trade anymore. That stops me with my hands on the keyboard, and I pause a bit. I ask them when I bought it. They say in such-and-such month last year. No help. I still can’t remember it. I blurt out, in what account? They tell me. (I hide my astonishment that they’re really prepared and would have this information.) I say okay, I've just wrapped up my tax files for last year, and my stock trades are right here. I pull them out, find the account and month, and sure enough there are xxx shares. I tell them I see the xxx shares I bought. They say there's another buy too. I look down the broker's statement, and sure enough there's the next order fill. Then it hits me. It was a stock I bought, and it seems like within two days (my memory might be wrong here too) there was a cash takeover offer for double and more over my buy price. Ah ha, now I remember the story well, I say. I spotted some very unusual insider trading in a media report, and I checked out the fundamentals of the stock which seemed okay, and most likely I bought the next trading day, I tell them. And Very Luckily for me, I can now remember and cite the day and source of the nationally published article that listed the specific insiders’ buy which led me to make my buy. (I am feeling good that I can show my purchase is based on public information.) I tell them I can't remember if I held the stock for the acquirer's cash or sold the stock before the deal closed though. They say I sold. Oh yeah, that seems about right, I remember it now all right, I add. Was so unusual. I usually post my trades on the internet I say--- and one of the SEC people somewhat excitedly (?) interrupts to ask - did you? I say no I didn't. Happened so fast. What's the point? It would just be after the buyout offer and sound like bragging and irritate everybody. In the chit chat, they ask me where I'm from, or I volunteer it. They ask me if I'm in the company's geographical area (luckily no). (These New Yorkers are not too familiar with West Coasters –g-.) Then they ask me if it's okay if they ask me if I know any of the names they have on a list, reminding me again in so many words, that truthfulness counts. I say ask, and I reply to each name, that I never heard of the person (which is true). And they ask me if I ever worked for the acquiring company or the acquired company or for a couple of other companies they mention that might have been in the same business. No to all that also. Couple of closing comments and they were gone. Made my day! Still, it was strange too. I really had just a very small starter position in the company. But in retrospect, if it was significant that I could remember exactly why the stock was so appealing to me (even as I couldn’t remember the company or my purchases or sales), maybe I goofed and should have bought more initially. OTOH, for me, a small starter position is all that I might reasonably do – trying to be diversified and having knowledge that many things can go wrong when one makes a buy of a dinky microcap as a result of a small blurb in one newspaper article.) Nice to see that the SEC seems to be thorough though in its investigations when it undertakes them. Paul Senior, who posits: Keeping good records is important, and if your purchases are somehow linked to an SEC investigation (even for very small amounts of money), the feds just might send a person to see you. –g-

To: Paul Senior who wrote (14378)	5/1/2002 12:08:34 PM
From: - with a K	Read Replies (2) \| Respond to of 78594

I took a small position in Tyco this morning. Here's a snip from my notes: Company: TYC Date: 4/30/02 2003's expected earnings: $2.89 (down from $3.85) Estimated 7-10 EPS growth rate: 9 (vs. consensus of 15%) P/E maximum if not 8.5: 8.5 Graham Fair Value: $52.57 Current Price: $18.50 $ difference: $34.07 Percent Growth to Fair Value: 184.16% TPE: 6.3! FPE: 5.3! PEG: .30! NPM: 14.2%! ROE: 14.6% (erractic) Short interest: 3.2 (was 1.7) 12 analysts; 7 have "strong buy" (down from 9) Consensus: 15% growth (down from 19%) S&P FV: $42 Ave Risk "Hold" Outlook "5" (Highest!) Quicken at 10% EPS growth(vs. consensus 15%) estimates: Intrinsic Value/Shr: 27.95 Current Price: 18.45 By this calculation, TYC appears undervalued. News: Dow Jones 4/30: "One thing (Tyco) cleared up was the debt" issue, said money manager Darcy MacLaren of Safeco Asset Management, a Tyco shareholder. Tyco explained that it would use the proceeds from the CIT initial public offering to pay down debt and, only when the liquidity issue is resolved, would management consider buying back shares. "That should be a positive for the debt market," the money manager said. "Clearly," the money manager added, "they are working on multiple scenarious for how to handle debt repayment." Tyco has indicated that it would slow the pace of acquisitions and concentrate on improving return on capital. Toward that end, the money manager noted that management said on Tuesday's call that it could sell some businesses that, though profitable, might not fit into the ROC model for the company. Such sales might dilute earnings in the near term but eventually would be additive to ROC, the money manager said. Tyco Chief Financial Officer Mark Swartz said buying back shares isn't even being discussed. "It's not prudent and not being considered, he said. Moringstar 4/30: When superstar managers like Legg Mason's Bill Miller or the folks from Clipper Fund talk about what they've been up to, we take notice. But we're especially intrigued when they're making a lot of the same moves at the same time. That's exactly what has happened with Tyco. Miller and the Clipper managers both report picking up shares of the beleaguered conglomerate. "Our contrary belief is that Tyco’s problems, while real, are far more modest and manageable than the stock market currently suggests," the Clipper managers said in a recent letter to shareholders. Bill Miller hasn't commented on his funds' Tyco holdings. James Stewart 4/30: Tyco's situation is far more painful to me, since I have both recommended it and bought the stock. This is not a fashionable view, but I believe Chief Executive Dennis Kozlowski has been forthright with investors and that Tyco has survived intense press scrutiny, not to mention a prior Securities and Exchange Commission investigation, with only minor issues having been raised. But public perception has been terrible, which spilled over into the markets, dragging down its stock and its debt ratings. These are real problems, and they have lowered earnings projections and expectations. I think Tyco is right to reverse its breakup plan rather than sell into a hostile market at fire-sale prices. It's too bad, in fact, that the debt markets are forcing it to spin off CIT Financial. That may prove to be a very attractive public offering for investors, if not for Tyco. I'm holding my Tyco positions for now. For highly risk-tolerant investors — more risk-tolerant than I am — I'd be a buyer.