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

To: James Clarke who wrote (6086)	2/22/1999 5:22:00 PM
From: cfimx	Respond to of 78513

There's a technique that attempts to get at the answer of what the assets are worth from the opposite end. First see what this company is really earning on its assets, if anything or could earn. If it isn't earning 12% to 13% on capital (ignore goodwill,) a historical roe for American business, then you need to "mentally" write down the tangible assets to a level where it could, even if the company hasn't got around to it yet. Kind of like taking a premptive restructuring charge, which the company will eventually get around to doing, just to get the returns to a "normalized" level.

To: James Clarke who wrote (6086)	2/22/1999 6:08:00 PM
From: Daniel Chisholm	Respond to of 78513

Re: LWN, I'm not suggesting that one consider it under a "panic liquidation" scenario, rather, a fair "going-concern" value for the assets they have. I think that twister's idea of writing the book value of their capital assets down to that which would produce 12% ROE would be a fair way of deciding just how much to whack off. I'm not doctrinaire about not attributing any value to the goodwill on their balance sheet, or for that manner any other asset. If it earns its keep, I say keep it there. At this point I have to discover what the earning ability (or free cash generating ability, etc) of funeral home and cemetery assets are. I was thinking about perusing Loewen's and Stewart's past 10-Ks to see if I could estimate any of this. Though this seems to be a bit too self-referential, eh? The other trick I have up my sleeve is to talk to a funeral home operator. The only thing is, I have to find one who is willing to confide, and either understands or can be taught to understand what it is I'm looking for (owner earnings, free cash flow, true earnings, call it what you will). Frankly I was surprised when I saw that the $175M price tag on the whole enterprise does not necessarily leave a "jump in and buy without further investigation" sort of margin of safety. I wish they had done more of their overpaying with stock..... ;-) Hmmmm, maybe there's another angle to approach this - their bonds (or preferred). If I can convince myself that the business is basically sound, and will make some money (though not necessarily enough to pay for the original cost), perhaps one should look at buying some of the $2066M of their debt? Even if the equity gets wiped out entirely, the bonds may be available at a distressed-enough price that they may in fact be a good investment. I've never done any bond stuff though, I've always counted on the senior nature of bonds' claims to add value to my short positions. Buying something is so weird, it feels, well, backwards to this shorter ;-) - Daniel