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Newsletter - November 18th, 2023

Dear Reader,

Attached is our latest list of stocks passing value screens (low EV/ebit, high returns on invested capital, etc.), which 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:



Bruce Berkowitz

Bruce Berkowitz wrote the introduction to the section on dividends in the 6th edition of Security Analysis titled 'Go with the flow' - emphasizing cash flows.

He virtually disappeared from the public eye over the last decade. His fund experienced large redemptions due to the volatile performance of his concentrated bets. Nevertheless, he has valuable lessons for investors.

Notes on a recent Wealthtrack interview below:

3:15 Count the cash

Keep it simple: Count the cash for shareholders. Look for cash generators and liquid asset values.

This is the core of our stock selection process.

5:00 Government controlled entities

Berkowitz recounts his disastrous investments in Fannie Mae and Freddie Mac preferred stock even though earnings worked out as expected - and cautions investors in highly regulated businesses where civil servants are in control. In this case, court awards were a fraction of preferred stock that was taken.

14:30 Cash as financial valium

Cash can be a valuable buffer in downturns though it can be a drag on long-term performance. In any case, it's best not to borrow to invest in stocks - you don't want to be taken out of the game.

15:45 Crude oil necessity

Crude oil derivatives and petrochemicals are baked into most products in modern life and it'll be difficult to suppress demand in the transition to net zero carbon emissions.

16:30 It's not free or it's not lunch

When a stock looks too good to be true, it likely is. It's important to study the structure of the entity (master limited partnerships in this case) and the tax implications for investors.

We aim to minimize such risks for you with careful study.

18:45 Real estate concentration

Berkowitz has concentrated heavily in real estate stocks over the years. In the case of St Joe (23:15), Berkowitz bought in at substantial discounts to comparable transaction values.

It's psychologically easier to invest when you buy at discounts to asset values. You have downside protection and a source of value independent of the stock market - the balance sheet.

For these reasons, we try to hew close to tangible asset values in our stock selection. For access to our reports:


Wish you an excellent week ahead.


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