Slider: Answers for You...
<<First; I gotta know ? Where you down in Arkansas when "The Man" Lou was there ?>>
Yes. Holtz was still the coach when I was in college. Great motivator, and a classic turnaround guy, which I greatly respect. South Carolina is going to be very tough to beat in the SEC in the next few years. <ugh!>
<<Also, know you've apparantly dipped more than a toe or two into the Oilpatch in the past - lot's of E&P's - correct ?>>
Moi?!? ;^) OK, you might say that. <vbg> In retrospect, I seem to have played this industry as a true contrarian from an employment perspective, entering the industry right out of college in December 1996, and exiting it in September 1997. Great timing in retrospect. Wish I could say luck had nothing to do with it. <g>
<<So my question is; as a ''Work-out'' specialist (from your Web links) you of all people should recognize the benefit of buying assets cheaply at market sentiment bottoms. More important than that obvious elementary concept; - you surely; know and respect - ''real world'' models vs. market sentiment gloom & doom ?>>
Good question. As licensed business brokers in the state of Illinois, we sell lots of companies. Usually, we sell a company when it is too far gone to make a turnaround either feasible or worthwhile. If we can't sell it, then we liquidate it. Each transaction follows a relatively common formula. Companies tend to sell for prices between two extreme goalposts: (1) multiples of earnings &/or cash flow, and (2) "liquidation plus". Healthy companies tend to sell for multiples of earnings or cash flow, and unhealthy companies tend to sell for liquidation values plus some intangible amount dependent upon the overall condition of the residual assets (e.g., customer lists, intellectual property rights, market share and position, etc.).
As turnaround specialists, we also buy distressed companies. I'm currently running a company that we bought in November. As you suggest, we recognize the benefit of buying assets cheaply at market sentiment bottoms.
<<Those who have NEVER experienced a true Bear market, who have never experienced even one complete commodity cycle in their adult lifetime are getting a litttle too ''confident'' here imho...>>
Agreed. We often deal with young workout guys that have never seen a bad loan that wasn't simply flipped and purchased by another player. Due to market demand, they've never had to really work one out themselves. The next recession is going to be a major wake-up call to many of these guys.
<<what separates the winners from the losers, from the observers; is knowing when & where to buy ! How cheap is cheap ?>>
Ah, the classic dilemma. But Slider, how does one know when to call a bottom? <Poke!> <Poke!> Sorry, I just couldn't resist. ;^)
For argument's sake, let's look at some well known examples in the industry. Rainwater looked brilliant after the ENSCO acquisition as late as 1996-97, but he doesn't look so hot today. Tisch looked brilliant in 1996-97 after he turned the Murco fleet acquisition into DO in the trough days of the early 90's, but the stock now languishes. And Hicks, Muse -- one of my all-time favorites <vbg> -- has a bunch of very bright guys that are now millions of dollars poorer after watching their grand investment in OIL drop over 50% in the last year following their implicit "call" of a market bottom at the time of the acquisition. <vbg>
<<I'm not throwing you into that camp; I would draw the conclusion that you are cautiously optomistic perhaps...>>
Actually, I'm still bearish in the short term, but I am expecting a bottom here pretty soon. FWIW, I get my year-end bonus in a few weeks, and given the current level of valuations, I've been trolling the oil service stocks looking for good investment opportunities, but I'm still not ready to buy yet. My portfolio is already overweighted in this sector as is, and I have no wish to pour more good money after "dead" money.
<<I am familiar with work done by Jay Alix & Assoc among others in your industry. Those in this industry seem to be a great source of endorsing a concept that I buy into here; that being that the vast majority make not only ''timing'' mistakes - but, also more often than not - make value assumptions more often - too far to the downside; than too high to the upside in Business/Industry Valuation Models; and miss great opportunites to buy assets in negative sentiment enviroments. >>
Whenever I try to call a bottom, I usually fail. I don't personally trade on technicals; I rely more on fundamentals. The problem right now, IMO, is the fundamentals are still very poor, and until that changes, there will be more short-term trading opportunties than long term price improvements.
<<Right now; those who have ''been here & done this'' are trusting the numbers/models.... Imho; we are in a very comparable scenario to the Citicorp, or S&L crisis-sentiment bottoms of past.>>
<<My question to you:
Isn't it highly possible that history is repeating itself ? Don't more companies miss great buyout opportunities by being too negative, than by being too postive in enviroments like this ?
If we agree to disagree - no problem; but hopefully we have identified the real question here; that being - how cheap is cheap ?>>
IMHO, the most common mistake people are making right now is comparing today's oil price environment to that of the 1980's, thinking that it can't get any worse than it already is. Well, IMO, it can. Undervalued stocks have a tendency to become extremely undervalued, and extremely undervalued stocks have a tendency to become ridiculously undervalued.
Remember, the economic break-even point for worldwide oil production is much, much lower right now than it was back in the 80's. The fundamental supply & demand dynamics have changed because of greater productivity in exploration & development.
Last but not least, I think you are focused a little too much on production rates to the exclusion of all else. IMHO, it's not "the production, stupid", it's "the supply & demand, stupid." Just because production declines, doesn't necessarily mean that inventory stocks will fall. The missing component in the economic equation is demand. Sometimes production falls, and demand falls further, and guess what? Stocks go up! Surprise, surprise!!! <vbg>
My tenure as a Senior Analyst at Murphy Oil taught me to never forget about the underlying fundamentals, and that's what's causing me to remain bearish in the short term. Given the lower B/E point, lagging demand, Iraq's overproduction, and the "cartel dilemma", I honestly believe we could see $6 here in the next few months for at least a short period. So why try to fight the trend and swim upstream?
Hope this helps explain my perspective.
Best of luck to you and the rest of the longs. Hope we all make fortunes in coming months. :)
Razor |
