Newsletter - September 30th, 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:

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Wilbur Ross - Distressed Debt Investor

Wilbur Ross is a specialist in distressed debt opportunities (and one of our favorites). He was on a recent tour to promote his book: 'Risks and Returns: Creating Success in Business and Life'. Notes from two of his recent interviews are below:

23:00 American bankruptcy law vs. Rest of world

Ross makes an interesting point that American bankruptcy laws are well written to convert defaulted debt to equity but you can't get rid of management. Laws in the rest of the world are mostly focused on liquidation.

25:00 Credit bidding

Ross talks about how he outbid Buffett on Burlington Mills by offering their bonds at par as currency for the company (presumably bought at a significant discount). This is known as 'credit bidding'.

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2:00 Causes of distress

Overexpansion and/or Undercapitalization are the chief causes of debt distress. These are more applicable to old economy companies with heavy balance sheets (predominance of tangible assets). [Also beware under-performing managers who blame external forces rather than what they can fix.]

Distress is a regular feature of the capitalist system with strong demand attracting strong supply (financed by debt), which is eventually overdone. Distressed investors get involved during the retreat, restructuring, and normalization process.

In our world of distressed equities, we avoid excessive debt ahead of the common stock - to weather forthcoming downturns. In effect, we prefer our common stocks to be the senior securities in the capital structure.

28:00 The tipster's trick

Tipsters can divide their audience into groups, and recommend each horse to a group in a race - then raise the price on the winning group in every subsequent round to make guaranteed profits.

Pump-and-dump schemes in stocks operate in a similar manner. Beware.

31:45 Can't delegate responsibility

"You can delegate authority but you can't delegate responsibility."

While we are advocates for extreme delegation to specialists, you can't delegate responsibility on important matters, and need to closely monitor and supervise if required.

In stock investing, it may be the buying, allocation, and re-balancing decisions - based on our analysis reports.

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For reports on the best investment values in stocks worldwide:

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Wish you an excellent week ahead.