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Newsletter - March 25th, 2023

Dear Reader,

Attached is our latest list of stocks generated from basic value screens (low p/e, ev/ebitda, debt/equity, etc.), which don’t meet our investment criteria - and our reasoning.

This may help you avoid a few ‘value traps’ or stocks that aren’t sufficiently attractive compared to the opportunities available today.

For reports of stock ideas that pass our quantitative and qualitative standards, join at the link below:


Notes from Greenblatt's IC interview, Terry Smith on bank shares, and more:


2014 Berkshire AGM

Notes at timestamps below:

12:30 Calculating Dilution

Warren's step-by-step calculation of KO's dilution with options - useful for application to similar cases:

Options for 500mn shares in 4 years with market price and strike at $40/share

If stock price when exercised is $60, there's a $10bn transfer of value: 500mn shares x ($60 - $40)

Tax deduction (savings) of $3.5bn: $10bn x 35% (tax rate then)

Company receives cash proceeds of $20bn: 500mn shares x $40 strike

Total proceeds of $23.5bn used to repurchase stock

At $60 market price, repurchases 391.67mn shares

Therefore net dilution is 108.33nm (500mn minus 391.67mn) shares on 4.4bn shares, which is 2.4% dilution (still bad) not 500mn shares on 4.4bn shares or 11.4% dilution.

42:45 Cost of Capital

Cost of capital is the return that can be generated by your second best idea.

46:30 NFM Pricing

Investment arithmetic when Buffett purchased Nebraska Furniture Mart:

Paid $60mn (100% basis) for earnings of ~$7mn pre-tax and ~$4.5mn after-tax i.e. 13.3x after-tax earnings and 8.6x pre-tax earnings and slightly above book value.

Not a "bargain" as Warren says, but a good purchase.

1:47:15 Borrowings

Interesting how Buffett controls himself from taking even modest borrowings ($30-40bn then) though he would've loved to - for the sake of unimpeachable safety.

2:06:15 Mellon Brothers

Munger throws in a reference to the Mellon brothers as good examples of business acquirers - on the reading list:

Andrew Mellon makes an appearance in HBO's Boardwalk empire with a few memorable scenes.

2:51:45 Silver Bullet

Key questions to ask operators in an industry: Which competitor's stock would they buy with all their money if they had to go away for 10 years? And which would they short?


Gold Mafia

Interesting and somewhat-trippy look inside the "gold mafia" scene in Africa and Dubai. Schemes to obtain valuable US$ for sanctioned Zimbabwe via gold trading in Dubai. Colorful middlemen.


Joel Greenblatt IC Interview

7:30 94th Percentile Cheap

Interesting observation that the S&P 500 is at the 94th percentile of cheapness in the last 30 years on his valuation ratios, and expectation of good forward results.


Terry Smith on Bank Shares

The leverage can kill bank equity when confidence wanes; no bank is immune. Amusing illustration of a bank run in Hong Kong resulting from a bus parked inadvertently in front of a bank.

Why I will never invest in bank shares
Download PDF • 57KB


Until next time, Cheers!


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