My strategy is to try to buy shares of significantly distressed companies, and sell them when they’ve been looking better somewhat.
“The secret to success (happiness) is to find something you love to do so much, you can’t wait for the sun to rise to do it all over again.” – Chris Garner. From movie “The pursuit of happiness”
- My ways of screening (in the order of following) and study – think for myself instead of too rely on valueplays
- valueplays
- “ick” investment screening – deep value stocks
- My moment of American Express and GGP,
- using gurufocus to look for 52 weeks low, find investable scandal comapnies, Barrons’, wsj news scandal headline, cnbc news headline
- use valueline screening to get the deepvalue stocks
- use gurufocus and valueline to read the details about the companies
- look for spin off, special condition stocks – gurufocus and special condition websites, brief company information from valueline
- read through valueline companies (50 companies per week)
- gurufocus screening, fintel.io screening
- company websites, management
- gurufocus, valueline and seeking alpha research
- SEC documents and earnings presentation
2. Michael Burry’s investment strategies (MB_investment_strategies and Michael-Burry-Case-Studies, Learning from Michael Burry, 74831871-Burry-Writeups):
- Firstly, Burry looked for value by focusing on free cash flow and enterprise value. To find prospective investments, Michael Burry would screen the market looking specifically at the enterprise value/EBITDA ratio. EV = market cap + debt + preferred equity (if pref stock has a mandatory redemption) + minority interest – cash; EV tells us what the company should be worth to a buyer. EBITDA = Earnings before interest, taxes, depre & amort = sales – COGS – SG&A Expense – R&D Expense; EBITDA is a measure of profit before interest payment. The EV/EBITDA is essentially a measure of the value of the company divided by what the company earned, or can earn, in cash for all its security holders (stock and bond holders). In comparison, P/E is what a company is worth divided by what it earned, or can earn, for only its owners (stockholders). One reason some investors prefer the EV/EBITDA to P/E is because the former can put companies on a more comparable basis.
- Minimal debt, a low P/B ratio (adjusted to reflect realistic asset values), strong free cash flow and low EV/EBITDA ratio were the four traits Michael Burry looked for in an investment.
- Secondly, Michael Burry looked for what he called ‘rare birds’, or asset plays in other words and to a lesser extent, arbitrage opportunities and companies selling
at less than two-‐thirds of net value (net working capital less liabilities). - Thirdly, Burry looked for value in the type of company favored by Buffett. (Those with a sustainable competitive advantage as demonstrated by longstanding and stable high returns on invested capital, although only at a reasonable price.)
- Lastly, Michael Burry liked to buy what he called “ick” investments. One such example is given Michael Lewis’ book: The Big Short:
“He went looking for court rulings, deal completions, or government regulatory changes — anything that might change the value of the company…The alarmingly named Avant! Corporation was a good example. He found it searching for the word ‘accepted’ in news stories…’I was looking to get in front of something. I was looking for something happening in the courts that might lead to an investment thesis. An argument being accepted, a plea being accepted, a settlement being accepted by the court.’
3. Jamie Mai and Charlie Ledley’s investment strategies – use leverage (LEAPs) in asymmetry positions
- would not merely search for market inefficiency but search for it globally, in every market: stocks, bonds, currencies, commodities.
- Their 1st big opportunity, a credit card company called Capital One Financial, they studied the business, reports, news of scandal (still the company has consistent impressive cash flow), interview all sorts of people including company VP, then bought two year LEAPS at $40 with $3 (stock price was $30 by that time), they invested $26,000 (about 23.6% of their total portfolio) in the LEAPS, and soon, Capital One is vindicated by the regulators, their investment of $26,000 became $526,000.
- 2nd opportunity: distressed United Pan-European Cable, they bought $500,000 LEAPS, struck at a price far from the market, when UPC rallied, their investment of $500,000 became $5,500,000.
- 3rd opportunity: bet on a company that delivered oxygen tanks directly to sick people in their homes. their investment of $20,000 became $3,000,000
- 4th opportunity: Event-driven investing – ethanol futures
- Cornwall seeks highly asymmetric investments, in which the upside potential significantly exceeds the downside risk, across a broad spectrum of strategies ranging from trades that seek to benefit from market inefficiencies to thematic fundamental trades. The firm has produced an average annual compounded net return of 40 percent (52 percent gross).
Research:
To pick a stock, I need extensive research. It is critical for me to understand a company’s value before I invest a penny. Graham’s “margin of safety” is the key for my stock picking. Conservative investigation of the risk of downside of the stock helps me protect my permanent loss of capital. Foreseen catalysts are plus, but outrageous price (vs value) is sufficient.
I do care about the level of general marker and always be aware the true value of market. I always conduct top and bottom analysis and understand the trend of economics and industries. However, there is no restrictions on potential investments. They can be micro to large-caps, tech or non-tech, VIX, Options. Whenever there is outrageous bargains, it becomes a candidate for my portfolio.
I have found, however, that in general the market delights in throwing babies out with the bathwater. So I find out of favor industries a particularly fertile ground for best-of-breed shares at steep discounts.
To Determine the discount:
I usually focus on free cash flow and enterprise value (market capitalization less cash plus
debt). I will screen through large numbers of companies by looking at the enterprise value/EBITDA ratio, though the ratio I am willing to accept tends to vary with the industry
and its position in the economic cycle. If a stock passes this loose screen, I’ll then look harder to determine a more specific price and value for the company. When I do this I take into account off-‐balance sheet items and true free cash flow. I tend to ignore price-earnings ratios. Return on equity is deceptive and dangerous. I prefer minimal debt, and am careful to adjust book value to a realistic number.
I also invest in rare birds — asset plays and, to a lesser extent, arbitrage opportunities and companies selling at less than two-thirds of net value (net working capital less liabilities). I’ll happily mix in the types of companies favored by Warren Buffett — those with a sustainable competitive advantage, as demonstrated by longstanding and stable high returns on invested capital — if they become available at good prices. I also like to use 2+yrs LEAPS to invest if it is available.
I prefer to buy within 10% to 15% of a 52-week low that has shown itself to offer some price support. That’s the contrarian part of me. And if a stock — other than the rare birds discussed above — breaks to a new low, in most cases I cut the loss.
4. There are 5 character traits of an intelligent investor:
- patience
- self-disciplined
- eager to learn
- harness emotions
- thinks independently
Pain + Reflection = Progress
“Watch the Tape”
The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. – Warrant Buffett
We not only need to understand the individual business fundamentals, but also need to execute sound trading strategies and fully understand the possible consequences of macro-economy and geo-politics on the business cycles and market. – Howard and Klarman
Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well. —Warren Buffett
