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

To: Seeker of Truth who wrote (15320)	8/25/2002 5:28:23 PM
From: Brinks	Respond to of 79045

Benjamin Graham never would have invested in a single one of his "Net Net" companies following your rationale. They were a very strange lot of companies. I suppose that is why he was so successful.

To: Seeker of Truth who wrote (15320)	8/25/2002 6:19:42 PM
From: 249443	Read Replies (2) \| Respond to of 79045

Dixon & Dr. Benjamin Graham: I am not aware of any company which 1) had audited financial statements indicating that the auditors have doubt as to the company continuing as a going concern (which is stated in DXT's financial statements) and 2) Dr. Graham bought the common stock of such a firm. Dixon is clearly not a net-net stock, a margin of safety stock, or a common stock holding worth the price of admission. Dixon has a high debt level and loan covenants which will -- in time imo -- turn ownership over to bond holders. Debt being refinanced at a 12% level -- as with DXT -- is not a favorable sign. The margin of safety principle would encourage an investor to avoid DXT like the black plague.

To: Seeker of Truth who wrote (15320)	8/26/2002 6:44:49 PM
From: David	Read Replies (1) \| Respond to of 79045

Malcolm: Thanks for your interesting comments. DXT is a mystery trying to quantify downside risk. The inventory is troubling, but not so much the receivables, and there isn't much cash. Might be difficult finding a margin of safety from these current assets as espoused by Graham. Pencils have been around for many years and I expect will continue being around for many more years to come, at least over the horizon of the next ten years. Its a business, not a great business, a competitive business. Not sure the industry is in the dire straights of the buggy whip business. At last count, DXT sells $90 million worth of pencils per year - albeit on recently declining sales. Seems there might be continued need for pencils but also on a declining basis. I remember similar thoughts when I purchased General Cigar Holdings (very little cash;lots of tobacco inventory, tobacco lawsuits hitting hard at the time) and FIT (lots of textile inventory and I believe sizably more cash) and a few other net nets brought up on the board here (Blair, EBSC, SCNY (lots of sneaker inventory, little cash), SPOR (lots of cash); GTSI, BAMM, FRD, ISTN, MAXS. Holding true to Graham theory, a diversified mix of these worked out pretty well. My feeling is, and what I gather from reading Graham, safety is found in the assets. On that basis there might not be much safety here. However, adding to a diversified portfolio of companies trading 2/3s below cash assets might make the risk tolerable, although if you can't quantify downside risk why bother or rather don't bother. Discounting the inventory by half and the receivables by 1/3 leaves insufficient debt coverage. However, maybe I am discounting those assets too much. However, perhaps the liquidity crisis precipitated an unusual opportunity -- purchasing net current assets at below 2/3s their value. In the past the company exhibited fairly strong cash flows. I believe they are on target generating approximately $3 million free cash flow this year and did about the same in 2001 and the debt/equity ratio has also been on the decline. Still on the fence with this one.