Jul 13, 20243 min read

Newsletter - July 13th, 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

Bruce Berkowitz: Fairholme Fund

Old-school value manager. Notes on his insights below:

3:30 Free cash flows

In the final analysis, future free cash flows for shareholders are all that matter in valuing a business (including liquidation proceeds).

We seek a large margin of safety on past free cash flows and liquid assets available for common stockholders - similar to bond analysis - to face the vicissitudes of the future.

6:30/18:00 Bookmaking/Edge

Berkowitz recalls his days making book for his father's betting operation, and observing gambling behavior.

We try to take a bookmaker's approach in investing by purchasing a diversified group of stocks with embedded safety margins. Effectively, this approach exploits the ingrained human tendency to speculate in the stock market, i.e. to give in to fear or greed.

46:00 Real estate investments

Berkowitz talks about his investment in St Joe Co - a Florida-based land development company.

Investing in stocks with material real estate holdings at discounts to fair value, and reasonable cash yields, seems to be a safe and comfortable way to invest.

51:00 Stock thesis

Berkowitz walks through his thesis on Enterprise Products Partners that highlights his thinking process.

Toll booth quality, essentiality of hydrocarbons, large distributable cash flows - an annuity with upside.

8-9% starting free cash flow yields and growing over time with limited downside is all you need to do well financially. (Not very different from the stocks we report on.)

53:45 Kill the business

An investor's objective should be to metaphorically "kill" the business - i.e. consider the risks that will destroy the business.

Usually, high debt loads will do the job but other factors such as product obsolescence may be responsible.

59:15 Highly regulated industries

In highly regulated industries, ownership may be an illusion - even in the US. Berkowitz recalls his lawsuits against Fannie Mae and Freddie Mac, which he lost.

1:05:00/1:09:45 Banks/Sears

Berkowitz walks through his thinking on buying banks after the 2008 financial crisis by focusing on their large pre-provision earnings yields.

And Sears, which had large real estate holdings relative to its market price.

1:12:15 Shareholder orientation

Berkowitz's approach to controlling St Joe is to profit with shareholders, not off them.

When investing in stocks, it's important to remember that you're partnering with managements - and shareholder orientation is essential.

1:15:30 Lumpy returns

Volatile/lumpy returns is a considerable disadvantage for many people seeking to invest in common stocks.

Volatility is an advantage for the intelligent investor (remember the Mr. Market parable by Benjamin Graham) - who seeks to profit from volatility rather than allowing himself to be disturbed by other people's errors of judgment.

It's a blessing in disguise because if investing in stocks worked smoothly all the time, everybody would be doing it and it wouldn't be as profitable.

1:40:00 Few ideas

Just a few ideas are enough for an investment lifetime.

We are quantitatively very selective from among the cheapest 1-2% of stocks in the world by fundamental factors (assets, earnings, etc.). We put in our best and sincere efforts writing our reports - reports that we would want as readers.

Our aggregate results speak for themselves, and we believe these are among the best ideas in the market for small investors. Our expectation is for absolute returns of 15%-18%/year or better (including dividends) over time. As a result, we think our service is a bargain.

We may get even more selective over time - quality over quantity of ideas - as good ideas are rare.

Publishing these ideas on a regular basis works against us and our partners when purchasing small stocks over a period of time (by increasing competition).

It's our loyalty to our existing paying clients that keeps us going. Thank you.

For reports on the best investment values in stocks worldwide:

Join Here

Wish you an excellent week ahead.

Newsletter - July 13th, 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:

Bruce Berkowitz: Fairholme Fund

Old-school value manager. Notes on his insights below:

3:30 Free cash flows

In the final analysis, future free cash flows for shareholders are all that matter in valuing a business (including liquidation proceeds).

We seek a large margin of safety on past free cash flows and liquid assets available for common stockholders - similar to bond analysis - to face the vicissitudes of the future.

6:30/18:00 Bookmaking/Edge

Berkowitz recalls his days making book for his father's betting operation, and observing gambling behavior.

We try to take a bookmaker's approach in investing by purchasing a diversified group of stocks with embedded safety margins. Effectively, this approach exploits the ingrained human tendency to speculate in the stock market, i.e. to give in to fear or greed.

46:00 Real estate investments

Berkowitz talks about his investment in St Joe Co - a Florida-based land development company.

Investing in stocks with material real estate holdings at discounts to fair value, and reasonable cash yields, seems to be a safe and comfortable way to invest.

51:00 Stock thesis

Berkowitz walks through his thesis on Enterprise Products Partners that highlights his thinking process.

Toll booth quality, essentiality of hydrocarbons, large distributable cash flows - an annuity with upside.

8-9% starting free cash flow yields and growing over time with limited downside is all you need to do well financially. (Not very different from the stocks we report on.)

53:45 Kill the business

An investor's objective should be to metaphorically "kill" the business - i.e. consider the risks that will destroy the business.

Usually, high debt loads will do the job but other factors such as product obsolescence may be responsible.

59:15 Highly regulated industries

In highly regulated industries, ownership may be an illusion - even in the US. Berkowitz recalls his lawsuits against Fannie Mae and Freddie Mac, which he lost.

1:05:00/1:09:45 Banks/Sears

Berkowitz walks through his thinking on buying banks after the 2008 financial crisis by focusing on their large pre-provision earnings yields.

And Sears, which had large real estate holdings relative to its market price.

1:12:15 Shareholder orientation

Berkowitz's approach to controlling St Joe is to profit with shareholders, not off them.

When investing in stocks, it's important to remember that you're partnering with managements - and shareholder orientation is essential.

1:15:30 Lumpy returns

Volatile/lumpy returns is a considerable disadvantage for many people seeking to invest in common stocks.

Volatility is an advantage for the intelligent investor (remember the Mr. Market parable by Benjamin Graham) - who seeks to profit from volatility rather than allowing himself to be disturbed by other people's errors of judgment.

It's a blessing in disguise because if investing in stocks worked smoothly all the time, everybody would be doing it and it wouldn't be as profitable.

1:40:00 Few ideas

Just a few ideas are enough for an investment lifetime.

We are quantitatively very selective from among the cheapest 1-2% of stocks in the world by fundamental factors (assets, earnings, etc.). We put in our best and sincere efforts writing our reports - reports that we would want as readers.

Our aggregate results speak for themselves, and we believe these are among the best ideas in the market for small investors. Our expectation is for absolute returns of 15%-18%/year or better (including dividends) over time. As a result, we think our service is a bargain.

We may get even more selective over time - quality over quantity of ideas - as good ideas are rare.

Publishing these ideas on a regular basis works against us and our partners when purchasing small stocks over a period of time (by increasing competition).

It's our loyalty to our existing paying clients that keeps us going. Thank you.

For reports on the best investment values in stocks worldwide:

Wish you an excellent week ahead.

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