Newsletter - August 10th, 2024

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

Join Here

---

---

Mohnish Pabrai - YPO India

Some notes from a recent talk below:

23:00 Low earnings multiples

Some of the most successful businessmen and investors restrict themselves to opportunities with very short payback periods for capital invested (<3-4 years). This may be too restrictive for sufficient diversification (and satisfactory returns), but the idea of low earnings multiples is valuable - one we focus on in our reports.

Though payback periods are dismissed in finance textbooks as too crude a measure for sophisticated analysis (as it doesn't account for the overall profitability of investments) - practical investors focus on downside protection inherent in payback analysis (as the upside takes care of itself).

29:15 Great businesses vs. Great investments

A mediocre business can be a great investment at a low enough price - for it then possesses substantial investment value backing the price (in liquid assets, earnings, etc.) to provide a sufficient margin of safety essential for sound investing - precisely what we seek for, and articulate in our reports.

This is a fundamental insight not well understood by the general public - no 'great' business is worth an infinite price.

34:15 Roce vs. Growth

High returns on capital employed are valuable only if they can be generated on future growth opportunities. (However, it's still a valuable measure of business quality, and management fidelity.)

High returns are generally harder to attain as businesses get larger. Lower growth rates may need to be factored into the investor's calculation of value. (Berkshire is a good example - high growth rates in the past fell dramatically as invested sums grew larger.)

39:00 Crazy prices in the stock market

Pabrai talks about acquiring 33% of Raysas in the Turkish stock market at 2% of liquidation value (!). Such insane prices are only available in the auction-driven stock market - especially in smaller blocks of smaller stocks around the world (which is where we focus).

Exploit Mr. Market's mood swings rather than being informed by it.

42:15 Joys of passive investing

Once the investor purchases stocks at bargain prices, no further work is required - management and employees work to generate cash for you.

49:00 Robert Caro

Pabrai recommends Robert Caro's books. Apparently Caro spends ~10 years on each book, and has released five of them. Further, he suggests a documentary on him - 'Turn every page', which may be worth watching.

---

For reports on the best investment values in stocks worldwide:

Join Here

---

Wish you an excellent week ahead.