A list of useful links to reading material that I’ve come across in the last few weeks. Some good weekend reading included.
It has been another week of no luck finding a suitable investment, but I’ve also been quite busy this week. I’ve been reflecting a bit on just how much time and effort investing takes and whether you are getting good value for the effort put in.
Danieli is trading below its net cash position and on a forward P/E ratio of only 7.9. The management is honest and competent and the company has been profitable for over 10 years. So why don’t I think this is a good investment?
A couple of years ago I read up on Halfords business and was on the fence about whether to invest. I decided to pass in the end and a recent news release has made me reflect on the thoughts I had at the time. Many of those are still relevant to Halfords today.
It's been a long time since I've read about a stock that's got me excited, but a good hedge fund selling at a discount to book value has done the trick. But all is not as great as at first glance.
There was once a time when a moat was one of the best defenses of a castle. It slowed down attacking troops or bottle-necked them into a narrow route of attack. However times change, and nowadays with the advent of both artillery and aircraft a moat has little use. Such is the way with competitive “moats” in business; what was once insurmountable suddenly becomes insignificant. I was reminded at the weekend of one of my favorite shops growing up – Argos ($HOME.L), a UK catalogue retailer, and began thinking about its once great moat. Unlike most catalogue retailers, Argos had physical stores where you would buy their products, rather than ordering over the phone. You would also pick up a catalogue to take home and browse through at your leisure when looking for gift ideas or something you needed. Most houses contained an Argos catalogue and back in the day, if you suddenly realized you needed something, whether it was while cooking, seeing an advert on TV etc, you would usually go first to the catalogue and check out how much it was. But that moat didn’t last forever and here are two big things in the future that I think will destroy lots of company moats in a similar way.
A student once asked Warren Buffett how best to prepare for an investing career. Buffett thought for a few seconds and then reached for the stack of papers he had brought with him.
“Read 500 pages like this every day,” said Buffett. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
So here are some of my picks from my reading over the last couple of weeks for you to browse this weekend and make up some of your daily 500 pages.
The Alternative Investment Market (AIM) of the London Stock Exchange (LSE) is a great place for investors to find bargains and mispriced securities. A lot of the companies have market caps too small for brokers or institutions to care about, which means small investors like us are left to competed with only each other. But it doesn’t come without its risks: stocks are illiquid with large bid/ask spreads, regulation is more relaxed than the main market and the stock prices are very volatile.
For those that aren’t aware, Craven House Capital is far and away my largest holding, and sat at 22% of my portfolio yesterday. I have no other holdings above 10% which should give you an idea of how much I like this stock.
In my previous post I spoke of how management issuing new shares at 1.25p (a premium to today’s share price) was beneficial for existing shareholders and that I expected management to drastically increase the size of the balance sheet. Well today has confirmed that assumption was correct, as they have just announced a new deal which I calculate has increased my adjusted book value from £2.6m to £3.8m, a 45% increase.
Markel Corporation is an insurance company, and a well run one at that. I have talk about insurance previously in my Amlin article so this article just goes straight into the facts. Markel has increased book value by a compounded 11.6% annually for the last 10 years, and sells at a price to book ratio of just 1.2