In this fund video interview with TheStreet.com I talk about why I don’t think Apple (AAPL) is a buy, why I love Jackson Hewitt (JTX) and my book Active Value Investing.
1 comment October 29th, 2007
I like Alan Greenspan, despite writing a critical article about him. It is hard not to admire the guy. He has this avuncular quality about him, he is kind of like your uncle who is super smart, kind and buys you a bicycle on Hanukkah. I’ve been reading his book and I can safely say it is one of the best books on economics I’ve read since Basic Economics by Thomas Sowell.
In the efforts to promote his book, avuncular Al is everywhere. I’ve been told (I don’t have a TV at home) that it is hard to turn on a TV and not see his friendly face at least couple times a day. What has really surprised me is how quickly he learned to speak plain and understandable English. This time around he did not hide behind suprevilosly exorbulant (Ok, I made those two words up) vocabulary. I’ve seen him on CNBC (I have a TV at work) and for the first time in years I did not have to reach out for a dictionary. Also, suddenly he is bearish on the US housing market. The one that (if I understood him right) before was a non issue. In fact now he sounds like a voice of reason. Yes, we got problems!
The lesson here - it is almost pointless listening to a Fed chair while he is on the job because he cannot say what he really thinks as the consequences of that are too high.
3 comments October 17th, 2007
If we learned anything over the last couple of months it is that we don’t know the second and third derivative of how badly things will play out.
We knew that the housing market was in the bubble, what we did not know was how its deflation will play out, i.e. commercial market freeze. We did not know that that it would resonate in Germany or that it would cause a run on the bank in England. We did not know that Russia, a country that is supposed to be swimming in cash from oil revenues, will be tinkering with financial crisis again (at least we did not expect it to happen when oil prices at $80).
What we know now is that our economies are a lot more interconnected than we ever imagined and also that the consequences of use of leverage will be found in places we never expect them to be found.
Add comment October 11th, 2007
Soon after we purchased Jackson Hewitt (JTX), offices of one of their franchisees was raided by the U.S. Justice Department; the franchisee was accused of falsifying tax returns for thousands of taxpayers. JTX stock collapsed on that news. The risk was that it was a widespread practice and JTX management was complicit with the franchisee and that the brand may have been damaged and lawsuits would follow.We thought otherwise: The management had no incentives to resort to outright spend-time-in-jail type of fraud, they had a great business on their hands; it made no sense for them to do something that stupid.
Though that incident made headlines in the localities where it took place, national media was preoccupied with more important developments at the time (i.e. Paris Hilton going to jail) and thus the JTX’s brand was unscathed. We liked JTX’s management when we purchased the stock, but we were even more impressed with their response to this incident: they hired an ex-IRS commissioner to head an independent internal investigation and clearly communicated to investors about the investigation.
As we expected the IRS did not find anything, management settled the issue with them (basically paying the IRS $1.5 million to go away). Here is an opportunity. The “bad news” (which now was not really bad) drove the stock down to about 12-13 times earnings, but JTX has a handful of growth drivers that should bring earnings growth in mid to high teens for years to come as it only has a 4% market share of a very fragmented market. Management spends every penny of free cash flow to return to shareholders (our kind of management) through a 2.6% dividend yield and stock buyback.
1 comment October 11th, 2007
When I bought Wal-Mart (WMT) a bit more than a year ago, I wrote an article for Financial Times where I laid out my theses:
I was wrong! Wal-Mart failed to improve its stores and merchandising to attract a more affluent shopper (the sub-par same store sales are a testament to that). Thus future fundamental return (earnings growth and dividends) will likely be in the high single digits, below original estimates, making the stock fairly valued (at best) at today’s valuation. My (accounting) loss on the purchase was miniscule – because I did not overpay for the stock; however, I experienced an opportunity cost loss as the market has appreciated since.
1 comment October 11th, 2007
After a year and half, 2,000 hours of staring at my laptop, and much receded hairline, my book Active Value Investing (AVI): Making Money in Range-Bound Markets is done! Last year and a half is a blur; it feels like I came out of a prolonged coma – family celebrations, kids growing up are just vague recollections. Like a third child (I have two ‘real’ adorable kids) I nourished the book, carefully choosing every word that went into it, and there were 75,000 of those. And akin sending your child to the real world, I have a sense of pride, and at the same time I am nervous as I want the rest of the world to like it and more importantly to benefit from it.
Let me attempt briefly tell you about the AVI, for in depth take on the book, here is a link to book’s preface. AVI has two parts: in part one, I make the argument that there is a very high probability, that over next dozen years or so the U.S. stock market will be dancing a similar foxtrot that it danced since 2000: it will take investors on a wild roller coaster ride (it will go up, down, and sideways), but at the end of this exciting journey it will not be far from where it is today. The market will be range-bound.
Continue Reading 3 comments October 6th, 2007
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