Gonna be a pass, so that position is over. Annoying, similar to the IBA play - nice profit and beat the market, but the merger screwed the shareholders much like the private takeover ov IBA screwed us.
Both were possibilities I saw when entering the positions, though, and both still beat the market nicely, so it’s all in the game, I suppose.
Since I’ve started the value investing (2/4/22), my value picks are up somewhere in the 50% to 55% range (I’ve made contributions to the accounts since then so I am ballparking it instead of doing the math). The S&P is up about 2% including dividends since then. I’m still not 100% stocks in those retirement accounts, and of course it’s a small sample, but given those returns I probably should be.
I get the temptation to just take 5.05%, but that’s another form of trying to time the market. Over the long run you’re going to do better investing it, but of course if the time frame of when you expect to spend the money is shorter, different story.
Moved ~all the dry powder in my IRAs into X between $31 and $32 today. I already had a position, and had valued it conservatively at $37 to $39 a share and planned to exit there. It came out that Cleveland Cliffs made public an offer to acquire them for about $34 a share approx half cash and half shares, then Esmark offered $35 for all public and outstanding shares in all cash. Both are competitors and know the industry and business well, and the leader of the Esmark offer is a former US Steel exec. So I think the offers are extremely unlikely to fall through, and now there’s the potential for a bidding war. Plus the name is now trending on Wall Street Bets so there’s the potential for them to do something stupid. They think Elon is going to get involved for the X ticker lol… I highly doubt that but he is obviously capable of doing stupid shit.
If it fell through it would likely drop to about $24 a share, so there’s a pretty reasonable margin of safety here. If it were just a single bid, I wouldn’t take this much risk for a 9-12% upside. But with the chance of a bidding war, and WSB getting involved, I think there is a small but not insignificant chance something crazy happens or the sale price ends up being like $40-50 a share. I think that’s more likely than it falling to $24 so I think this is great opportunity.
Definitely a bit uncomfortable with the size of the position relative to my portfolio and may throw a steel price hedge on tomorrow, especially since my PKX position is but I think this is the type of opportunity that’s worth piling into and taking some risk on.
Also after hours US Steel announced that these are not the only two offers.
ArcelorMittal has emerged as a third potential buyer, with CNBC reporting that they may have been the first to approach US Steel, and also that they’ve hired BOA to advise them on the potential bid. Some third party site that I don’t know much about, so grain of salt I guess, reports that the rumor is they’re weighing a $38 to $39 per share offer.
That’d be a pretty sweet return for the “all-in” move I made in the 24-26% range.
Esmark pulled out of the bid because the union is in the tank for Cleveland Cliffs, which makes them the only official offer on the table, so I bailed on the new X position. I’m down to my original allocation.
Made 1.35% on the trade vs -1.08% for the S&P.
Yeah I remember when I was posting about picking stocks with a value investing strategy starting in February 2022. One of the big reasons was that I expected the stock market to either crash and then take several years to recover or trade sideways for several years and lose to inflation. So I didn’t want to be invested in the broad markets.
I was chided for that, but since then the S&P is up 0.02% (2.20% if you include dividends). Inflation since then has been running higher than that, obviously. I’m up ~50% since then, and that’s while being way less than 100% in stocks and not even getting interest on the dry powder I’ve been sitting on (but am finally working in).
High yield savings accounts and a variety of bonds all would have beaten an S&P investor over that time frame. The same could easily be true over the next couple years as well, and the liquidity allows one to pounce on good opportunities.
Basically millennials adult financial lives have been a series of black swans and unprecedented situations, and the current one we’re going through is a very weird tug of war between high/rising interest rates and a tight labor market that’s making things play out a lot differently than usual.
I’m not exactly timing the market, I’ve been 50% to 70% in equities over that time, largely based on the combination of what’s available to invest in that I think is profitable and how much time I have to run numbers and do research.
I’m basically saying I can beat the current market by picking stocks. It’s certainly not without risk, but I’m pretty confident I’m going to end up being able to beat the market over the long run. I think I’ve picked ~25 stocks and a maximum of three have failed to beat the S&P over the time I’ve held them.
I don’t have a big enough sample size yet to say I’m beating the market, but I’m on my way.
I’ve been documenting the vast majority of them on here and previously on UP, but if you think a separate thread is better, maybe I should do it. Can’t hurt, I guess. Can go back and show all the moves I’ve made in one place.
Bought FSI this morning at $2.62, will provide more details later.
Added RGP yesterday at $15.54. Looking at a couple others today.
They’re not all created equal. The IBA one was a mortal fucking lock, I considered using the maximum leverage I had available to me (and probably should have done it). It was literally a bet against a natural disaster/act of God. In hindsight, bird flu ripping through their farms was for sure the vast majority of the risk there. Wish I’d bet more on that one.
ATVI was the riskiest, but I also feel like I ran pretty bad on that one and am still likely to prevail in the end. X was a good example of like a really good spot to get myself into, things falling apart on it, and still managing to get out without taking an L. And the downside risk there was pretty capped (20-25% drop).
ATVI was an exception, that was pure merger arb, but the other merger arb spots I’ve ended up in were because I bought the company as a value investment, understood the company reasonably well, and then when the merger happened I knew what a steal the buyers were getting.
Well the first thing is, I don’t have the right connections.
If I did, the hundred million dollar question would be how big could the AUM get before the strategy stopped working? One of the investments I posted this week has a $34M market cap. If I didn’t set a limit order, I would have moved the price of the stock putting a few thousand dollars into it. On the other hand, if I was running several hundred million in the right structure, I could have tried to buy the whole company or a big chunk of it and instead of waiting on someone else to do the things the business needs to do to unlock the value, I could have made them happen. Of course, buying 51% or 100% of a company isn’t as simple as setting a limit order and clicking buy.
The other thing is, running other people’s money, you really don’t get the benefit of the doubt for very long. Have one unlucky year to start and it’s probably a wrap. I think my strategy will beat the market over a big sample size. But over any 2-3 year stretch there’s going to be significant luck involved.
My strategy is laughably simple to get the list of possible investments down to 5 to 20 stocks each quarter. But then there’s a healthy dose of having a good bullshit detector and recognizing growth catalysts and opportunities, or recognizing spots where the market has priced in an event as a ~certainty when it’s just a probability.
A lot of it is also just tedious work that people don’t like to do. I mean, I always think of the scene in Big Short where the guy is like how do you know this and Burry is like, “I read them,” and the guy is like, “Nobody reads them!”
I read them.
Sold HVT $31.55. Bought WSM $142.60. Bought WIRE $165.20.
HVT returned nicely for me, WSM is a better business at a similar discount. Sector could get beaten down here and I’ll gladly buy more WSM and could easily see myself holding it for a decade or more.
WIRE is a copper wire manufacturer trading at ~1.5 tan book. Benefitted a ton from inflation and so the market is pricing their earnings cratering. I think they come down somewhat, but long-term I love this business too. Benefits a ton from a shift to EVs and renewables, and there is a projected copper supply shortfall as demand skyrockets over the next 10 years or so. Similar to WSM this could get rocky short term, but it’s another business I’ll gladly buy more of in that case and hold onto for a while.
+22.66% 9/1/22 to 9/5/23
S&P did 14.68% plus whatever the dividend yield was, ~1.5%. So 16.18% or something like that.
Demand goes up, supply can’t pace, the gap means higher sale prices. They’re better than their competitors at vertical integration and sourcing (including specifically recycling copper), run a more efficient operation, and thus are less impacted by rising input costs. So a gap in supply/demand should increase their spreads.
Plus, even if their spreads stay the same and they can’t grow their profit margin, it’s coming from a bigger topline number in that scenario.
Order just filled on BSET at $15.22. Mediocre furniture business at a price to cheap to pass on. Wouldn’t be surprised at all if they’re a takeover target again in the future. They passed on a $21 offer last year. Solid dividend yield while waiting for a catalyst to come.
So basically took a position in a good but not great furniture business in HVT, which was no longer quite as good on the value screens, and turned it into a mediocre but cheap furniture business with a better margin of safety, and a growth business that’s a mix of furniture/furnishings in WSM that has more upside.
Yeah I mean I think there are some big inefficiencies in the market, in particular on micro caps and in particular on microcaps that are boring to think about. The stock in question is a $134M market cap furniture company. I don’t think large funds are looking at them very hard.
I also think the entire sector is beaten down, and rightfully so, but one pattern I have seen in the last 18 months (and that’s a small sample so we’ll see if it holds) is that in a lot of cases sectors get beaten down too evenly. So what happens is the companies with really strong tangible book value get beaten down just as much as the ones who are highly levered with weak balance sheets or ones with reasonable balance sheets and better growth or more resiliency in a recession.
The same concept applies to people buying and selling ETFs for sectors, which forces the ETF to buy/sell everything in the sector indiscriminately.
The overall bet against the sector can be good, but it can also create opportunities in small and micro caps.
Whether these theories hold over 3, 5, 10 years, we’ll see. But so far, it’s working out quite nicely.
I dunno, was META really worth $378 a share in Sept 2021, $187 a share in March of 2022, $91 a share in November of 2022, and $300 a share now? Did the fundamental value of the business actually change that wildly in two years?
META certainly doesn’t lack collective eyeballs, but those swings indicate to me that there was a market for finding them undervalued.
Large companies are probably never going to be my bread and butter, let me be clear. But if the market can miss that badly on META, it sure as hell can miss that badly on 10-20 small and micro caps out of the thousands of companies that are publicly traded.
(Hopefully none of that came off as rude or combative, I enjoy your posts and I enjoy debating this stuff.)
I’d just add that a lot of people running a lot of money on Wall Street have really perverse personal financial incentives relative to their fiduciary responsibilities and… yeah, personal incentives rule the day.
Bought MBUU this morning at $48.39, again may be a rough six months but love it moving forward long term. Really well run business with a solid balance sheet and a tremendous track record of earnings growth and return on capital.