Leucadia National In The Shadows Of Berkshire?

 Leucadia National Corp.(LUK) is a publicly traded diversified holding company with investments ranging from telecoms, medical products, real estate, auto finance, investment banking, timber,mining, plastics, gaming entertainment, energy and  even a couple of wineries. Their current track record goes back almost 30 years with their roots being traced back even farther to the mid 1800's. Leucadia which is run by the duo Ian Cumming and Joseph Steinberg does not come up  in the media as much  as  the well known Berkshire Hathaway(BRKA)(BRKB) run by Warren Buffett. However, over the last 30 years these value players have quietly compounded an impressive track record which ranks highly amongst any peer group. Many of their investments are private companies in which they own a significant stake or the whole company. They currently hold positions in 8 publicly traded companies with the largest being the Jefferies Group(JEF).

Currently LUK  trades at $19.50 per share with a book value of $25.00 per share. Their debt/equity ratio is .38, with revenues slightly over 1 billion. Management currently owns 23% of the shares outstanding while large institutions such as, Fairholme(FAIRX), Morgan Stanley(MS) and others own 66%. At the end of September their net worth or stock holders equity came to $5.7 billion dollars. According to their last annual report they had an opportunity to make a large investment in a real estate, farming and ranching business in Argentina which they will give further details at the end of 2008.

Below is Leucadia National's Track Record For The Last 30 Years:

       Book Value    Equity

        Per Share

                                                                     

1978 ($0.04) (a) ($7,657) (a)
1979 0.11  22,945  
1980 0.12  24,917 
1981 0.14  23,997 
1982 0.36  61,178  
1983 0.43 73,498  
1984 0.74  126,097 
1985 0.83  151,033 
1986 1.27  214,587  
1987 1.12  180,408 
1988 1.28  206,912 
1989 1.64  257,735 
1990 1.97  268,567 
1991 2.65 365,495 
1992 3.69  618,161 
1993 5.43  907,856
1994 5.24  881,815 
1995 6.16  1,111,491 
1996 6.17  1,118,107 
1997 9.73  1,863,531 
1998 9.97  1,853,159 
1999 6.59(b) 1,121,988(b) 
2000 7.26 1,204,241 
2001 7.21 1,195,453 
2002 8.58  1,534,525 
2003 10.05  2,134,161 
2004 10.50  2,258,653 
2005 16.95  3,661,914(c)
2006 18.00  3,893,275 
2007 25.03  5,570,492(d)

                         21.7%  compound return on equity

(a) A negative number cannot be compounded; therefore, we have used 1979.

(b) Reflects a reduction resulting from dividend payments in 1999 totaling $811.9 million or $4.53 per share.

(c) Reflects the recognition of $1,135.1 million of the deferred tax asset or $5.26 per share.

(d) Reflects the recognition of $542.7 million of the deferred tax asset or $2.44 per share.

(Dollars in thousands, except per share amounts)

* All information is believed to be reliable but as usual you need to do further research

Investment Dont's

I was flipping through the pages of a book "The Money Masters" I have in my personnel library(books piled in a brown  box, lol). The book was published in 1980 and was written by John Train.

It covers the strategies of 9 great investors Warren Buffett,Paul Cabot, Phil Fisher,Ben Graham,Stanley Kroll,T.Rowe Price,John Templeton,Larry Tisch and Robert Wilson. Perhaps some of you have already read it, if not Amazon(AMZN) sells the second addition printed in 1994. While each chapter is focused on one of these individuals and their investment strategies, I found Chapter 11 unique. This chapter contains techniques that The Money Masters agree don't work.  *Here is a brief passage from the book.

Investment Dont's

1. Avoid Popular Stocks or Glamour Stocks- a glamour stock is a good company overpriced because it's everybody's darling at the time. 

2. Avoid Fad Industries- Fads and Brokers ' stories are variations on popular stocks. The ones you can remember are limited only by how old you are: computer stocks of the 60's, bio tech  of the early 90's , Internet stocks of the late 90's and most recently energy companies.

3. Avoid New Ventures- Venture capital is for the pro's, not passive portfolio investors.  Out of the Microsoft's(MSFT), Dell(DELL), Cisco's(CSCO) and WalMart's(WMT) many of thousands go bust. The ones that make money here are the promoters and upper management.

4. Avoid "Official" Growth Stocks- Stocks that have the growth label on their back and the price tag to go along with it.  For example these stocks might have been the big gainers in the last cycle, but going forward they cannot sustain their growth.

5. Avoid Heavy Bluechips- While we here the term Bluechips alot this is usually a name for a dividend paying company that was once good . Many are in cyclical industries and have eratic earnings. 

6. Avoid Gimmicks- Gimmicky investment "products" with high transaction costs and no intrinsic growth of value, such as derivatives, this is plain a*s gambling. Take my advice go to vegas if you want to gamble, lots of glitz and they give you free drinks.

7. Bonds Don't Preserve Capital- A final bad deal for the investor, usually is bonds, unless they reinvest all the income. Many think that bonds are "conservative" this is highly exaggerated. After tax, bonds generally yield less than inflation. If you use the interest you will probably run through your capital base in 20 years.

8. Forget About Technical Analysis- These are companies or individuals that try to predict which way the stock is heading and when it will get their. Hey they might tell you where the stocks been but they can't tell you where it will be in one week or one year.

I thought this was unique because mostly what we read or here is "this is what you should do" or "this is the way I did it".

Omaha Oracle Taps a Medium on Wall Street(circa1999)

Omaha Oracle Taps a Medium on Wall Street

Thought this was an interesting article taken from the NY TIMES January 31st 1999, almost 10 years ago . Look at where Berkshire was trading at then, $65,000 a share, 2 months later it was trading at $73,000 a share. Whats really interesting is that its book value back then was $37,000 a share, which was close to 2x book value. Today it trades at book value which is $77,500 a share. 

anyones thoughts?

Bill Gates The Value Investor

It looks like Bill Gates  co-founder of Microsoft is also a value player. Gates controls a holding company named Cascade Investments which has been around for 14 years.  Currently Cascade Investments holds a diverse basket of 18 stocks. These businesses range from a railroad to a soft drink bottling company. It certainly looks like Cascade Investments is modeled in some ways like Warren Buffetts Berkshire Hathaway(BRKA,BRKB) excluding the insurance companies. In a recent 13F filing Gates added to his position in Republic Services(RSG) upping his stake to nearly 20% of the company. Republic Services is one of the United States leading waste providers. The largest holding in the portfolio is Canadian National Railway(CNI) which Gates owns about 7% of the common shares. He also upped his stake in Fomento Economico Mexicano,SAB de SV(FMX) which produces, markets, and distributes Coca-Cola trademark beverages as well as SOL Beer. He now holds 5.9% of the common shares of Fomento. His newest holdings which are rather small purchases include AutoNation(AN), Patriot Coal(PCX) and Strategic Hotels &Resorts(BEE).  Interesting to note is that Buffett and Gates own some significant stakes in the rails. It also looks like Gates took a page out of Peter Lynch's One Up On Wall Street and invested in a boring and disgusting business that being Republic Services. Whats next for the King of Software?

Relevent Articles

What Bill Gates Is Holding

Gates Finds Value For His Foundation And His Personal Portfolio

STOCKMANMARC

Stocks fall after jobless claims jump: Financial News - Yahoo! Finance

Stocks fall after jobless claims jump: Financial News - Yahoo! Finance

Sir John Templeton And The Basket Approach?

Many of you value investors out their already know or have heard of John Templeton, but for those of you that have not here is a brief bio: JT grew up with little money  in Winchester Tennessee during the Great Depression. He later founded Templeton Mutual Funds which was later sold/merged with Franklin Funds to create what is now one of the largest Mutual Fund companies there is. However long before this when JT was a young man coming out of the Depression circa 1939, JT called up his stock broker and had the broker buy $100 worth of every single stock that was selling for no more than $1, on both New York & American Stock Exchange.  The broker bought every stock except the ones that were bankrupt, but JT was adamant about buying those as well. You see what I am getting at is that JT was a buyer of stocks during a time when the Whole World was in crisis. He rationalized that stocks in general were so battered  that he did not have to hand pick or study each company but to buy a basket of stocks instead. He new that this so called basket approach would produce some dogs as well as some big winners. It was the latter of course that put him on the wealth track. When stocks as a whole are driven down below their historic averages you don't have to be a professional stock picker to make some above average returns. This was not a get rich quick act, he held these stocks an average of 4 years which gives the bargain stock enough time to be recognized by the market and bid back up to fair value. 

I am not encouraging everyone to suddenly run out and by a basket of beaten down stocks, but merely making a point that when they  are trading at very low valuations that this signals a buying opportunity or very good look.

The Great Investors whom Templeton was one of  are usually buying when you are selling.....

STOCKMANMARC

Sears Holdings, ESL Investments & Mr. Eddie Lampert

This is a follow up on my previous article on Sears Holdings (see my post "Sears Not Just Your Average Retailer!?$$$"http://stockmanmarc.blogspot.com/2008/10/sears-not-just-your-average-retailer.html) which I covered just a few weeks ago. The stock has gone down another 20% since then which is probably in anticipation of earnings that are due out on Dec. 2nd, 2008. However the intrinsic value of the company still looks to be around $81.00 per share and this does not include the Craftsman, Kennmore, or DieHard brands which most Americans are familiar with. Due understand that the estimates in value are rough estimates but conservative ones at that. Since I last posted on Sears, they have since reinstated the layaway plan which use to be quite popular many years ago. It was always very popular around the holidays. For those of you not familiar with the layaway plan, you simply put down a small down payment and the retailer holds that item until the product is payed for.

Many people are strictly looking at this company as a pure retailer, and saying that they don't have a chance against WalMart(WMT) and Target(TGT). However Sears sits on a vast amount of real estate that could be sold off or converted into a different type of store, the possibilities are many. Plus they have cash on hand to redeploy or buy back shares that have been beaten down which further increases shareholder value. Furthermore their debt/equity ratio currently is .38 which is much lower than the competition. Also remember that Eddie Lampert is not only chairman of a retail giant but a chairman of ESL Investments who has a 20+ year track record.

This is an interesting stock and situation, which I will try to follow up on at a later date.

Please remember this is not a recommendation but a business to keep an eye on and do further research.

the Dhandho Investor: Mohnish Pabrai

For those of you that are not familiar with Mohnish Pabrai, he is a devout disciple on the teachings by Warren Buffett and Ben Graham. Mohnish runs a fund identical to Warren Buffett's original Buffett Partnership which was the predecessor of Berkshire Hathaway(BRKA,BRKB). Pabrai wrote a book about a year ago titled the Dhandho Investor. The word Dhandho which is pronounced dhun-doe is a Gujarati(a state in India) word. Dhan comes from the Sanskrit root word Dhana meaning wealth. Dhan-dho, literally translated, means "endeavors to create wealth".

Pabrai is a focus investor usually holding about 12-18 stocks in his portfolio. Pabrai likes to put no more than about 10% in each stock. Currently Pabrai holds about 16 stocks in his portfolio with about 320 million under management. Fairfax Financial(FFH), Harvest Natural(HNR), and Sears Holdings(SHLD) represent his 3 top holdings. The current 13F filings show that Pabrai increased his holdings by 52% in Wellcare(WCG) while selling most of his position in Jackson Hewitt(JTX).
For those of you that have not read the Dhandho Investor, you should, it is simple to understand and makes a lot of sense.

A Cash Rich Insurer: Odyssey Re

Odyssey Re (ORH) is a leading reinsurance underwriter that provides property and casualty insurance as well as specialty insurance. Odysseys biggest shareholder is Fairfax Financial which I talked about in a previous post. Fairfax holds 66% of the outstanding common shares. Currently ORH has a market cap of 2.5 billion and its revenues are 3.2 billion. Total cash on hand is 2.5 billion, which means it only trades for 1 x cash. Very little debt with a debt/equity ratio of .18. ORH sports a 27% REO(return on equity). They pay a small dividend which yields .70% which was recently raised. With so much in cash and backing from Fairfax, Odyssey looks to be in a strong position to weather out the current financial crisis.



Author does not hold any position.

KISS?

I am not talking about the kiss you got from your spouse/girlfriend/boyfriend last night. Nope, I'm not talking about the rock band named KISS either. I'm talking about the acronym KISS(Keep It Simple Stupid). But for most of us we can't. We want to make investing difficult. At least this is what most of us as humans do. We think there is some secret formula to investing. Maybe if we stare at enough charts or pay our brokers enough we will find the next super stock like Dell Computer(DELL) , Apple Computer(AAPL) or Walmart(WMT). The bold truth, is that their is no secret! If their was a secret it would be "buy low and sell high", now isn't that simple. Investing is all about keeping it simple. Most all of us, have the knowledge already. All you really need is a little common sense and some patience. I'm not saying everyone can be the next Warren Buffet, however one can expect to make a return as good or a little bit better than the averages. Most investors get into trouble over analysing the market, and then there are others who simply get frightened out of the market. So the next time you ponder on what stock or mutual fund to buy, think of KISS and I'm sure with some patience and some common sense you can pave the way to a brighter financial future.

Has Your IRA Turned Into A IRL?

Has your IRA(individual retirement account) turned into a IRL(individual retirement loss). Well you are not alone. Just about everyone that owns a stock or mutual fund is suffering. With markets getting taken down to new lows day by day whats a investor to do. First take a deep breath, don't panic it's not the end of the world.However many people would like you to think it is. Even if it was you would not need the money where your going, unless the MASTER CREATOR takes worthless stock certificates. Remember folks an IRA is for your retirement and it is a long term commitment, although many people do not practice this. They trade in and out of the markets. When things are going good and the market is sailing on high water everyone is in a good mood. People are in a buying mood, chasing the high prices or high valuations but when the markets go down during low tide everyone is jumping ship and throwing their securities overboard. This is the time to accumulate for the long term, because when good times roll around and they will your ship will be sailing in some mighty rich waters.

Jobless rate bolts to 14-year high of 6.5 percent - Yahoo! News

What Happend To All Those Growth Stocks? Their Now Value Stocks!

Hey do you remember 1999-2000 the peak of the Internet bubble? Chances are if you were in the market you owned tech stocks. Anything related to Internet/net working was going through the roof. These stocks were going to make us all millionaires, ha ha ha. Ten years later and we are scratching our heads, and asking what the heck happened. Many of those higher flyer's went bust, I'm talking about the ones with no earnings and market caps the size of General Electric. These stocks were all fluff(a lot of hype) and no stuff(assets & earnings). You may ask what about the growth companies over the last 10 years, what happened to them. Several of these companies have gone from being labeled growth stocks to value. You see folks they really are synonymous with each other, that is value= growth. Price is what you pay and value is what you get. In other words many of these growth stocks are value stocks. Does that mean they have stopped growing, hardly so. This just means these stocks are a much better deal than 6 mos, 12mos, or even 5 years ago. Here are four stocks that are still growth stories that trade at very reasonable values. All four stocks have P/E's less than 15, PEG ratio's under 1, almost no debt, cash in the bank, and all have ROE ratio's above 26%. Furthermore all four have a large amount of insider ownership which means management is on board with the share holders. To boot three out of the four pay a dividend.

Buckle(BKE) priced at $24.89 per share is a retailer of casual apparel for young men and women.

Factset Research Systems(FDS) priced at $36.15 per share provides financial information and data to the investment community worldwide.

Garmin(GRMN) priced at $20.24 per share designs, and manufactures global positioning systems.

Hansen Natural(HANS) priced at $23.01 per share develops and sales sodas, fruit juices energy sport drinks and smoothies offering brands, such as Monster Energy, Lost Energy, and Blue Sky.


* These are not recommendations but ideas to further pursue.
* Author is long HANS.

STOCKMANMARC

Where Do I Put My Money???

With the stock market going lower and lower every day and foreclosure rates on the rise what are we suppose to do? Everyone is worried, the poor, the middle class and even the rich, Oh Ya I said the rich. You see the Baby boom generation and their children have simply not experienced the situation that we are in. Everyone says its different this time. Yes their right it is different. That is different in our lifetimes, but not if you look back in history. This is like a 100 year flood and the last one that occurred was in the 1930's. Is it that bad? Yes. Will it get worse? That's any ones guess. On a brighter note some of the biggest opportunities have come during recessed or depressed times. For example, Hewlett Packard(HPQ) one the largest computer and technology companies was started during the Great Depression as well as Walt Disney(DIS) and Steak'n Shake(sns). Lets also look at how cheap rates are now. The 10 year treasury yielding roughly 3.5%, Money Markets and CD's paying 3-4.5%. Inflation and taxes are going to eat into these low returns. Where then do you put your money? You guessed it Stocks, Real Estate, or starting your own business. Even Warren Buffet said he is a buyer of stocks right now. Why invest in the government, which is what you are doing when you buy treasury's. Put it in to free enterprise, which is common stocks (companies), land and ones own business.

Your Thoughts?

STOCKMANMARC

Stock Analysis on a small cap: Horsehead Holdings Corp.(ZINC)

Horsehead Holding Corp. (ZINC) is the largest zinc producer in the United States and the leading manufacturer of value-added zinc products including zinc oxide and zinc powder. They have been a technological leader and innovator in the zinc industry for more than a 150 years. They are also the world's largest recyclers of zinc-bearing materials. Zinc is used in brake linings for auto's, batteries, the white pigment in paints, the rubber industry, and as an opaque sunscreen.

Horsehead(ZINC) is currently trading at $3.00 per share with a NCAV(net current asset value) of $4.35 per share. The property and equipment is valued at $3.15 per share. ZINC has almost nil in long term debt plus $2.00 in cash per share, with a book value of $7.65 per share. The trailing 12 month REO(return on equity) is 33%. The stock is trading lower simply on the slowing economy, like everything else. Earnings for the trailing twelve months were 1.88 per share and they are expected to be flat next year. The stock traded as high as $23.51 within the last year. This is a cyclical company and it is trading at 69% of its NCAV. At current prices this looks cheap!

Further research is recommended.
Author does not currently hold any position.

U.S. layoffs reach five-year high - UPI.com

In layoff announcements, the financial sector topped the list...

Buffett Likes Those Quarterly Cash Payments

The Oracle of Omaha Warren Buffet has probably been in the news more in the last couple years than his first 50 years of his business career. One reason is that he is one of the richest people in the world second he has made his fortune strictly off of investing and third he is at the twilight of his career. But the reason for this article was to touch upon his investing style, and what he looks for in order for him to invest or buy the complete company. I will not get into the details with this post, but I do want to bring up a point, which is Warren Buffett- The Ultimate Dividend Investor(see dividendgrowthinvestor.com, a good article) has transformed as an investor over his long career. Yes Warren Buffett still very much adheres to the rules that Ben Graham wrote nearly 75 years ago which were Margin of Safety and Mr. Market. I do believe he is the ultimate dividend investor. Many of his public companies are dividend paying ones, plus the companies that are wholly owned subsidiaries send profits back Berkshire Hathaways(BRKA, BRKB) bottom line, much like the float of his insurance companies do. Buffets Berkshire(BRKA, BRKB) has been forced to change just out of its shear size. However I do believe in his personnel portfolio he still looks for 50 cent $1 bills. This is just my personnel observance while reading many books and articles that have been written on him.





This article intends to point out that he has gravitated to investing in large, cash paying companies rather than his early years which were Ben Grahams, cigar butt style of investing.

Buffett...Berkowitz...Lampert...Pabrai... And Focus Investing

What is Focus Investing? Does it mean staring at your stocks so long that you become cross eyed. No! Focus Investing is a style that has been around for many many years but it is not talked about much in the mainstream, only in value circles do you hear it mentioned. Its concentrating your bets, putting a large amount of your investment dollars or portfolio into your best ideas. Investors Mohnish Pabrai, Bruce Berkowitz, Eddie Lampert, and Warren Buffett have practiced this style, along with many other notable investors. The first three mentioned, Pabrai, Berkowitz, and Lampert practice this method very much today. For example, Eddie Lampert has 50% of his ESL Investments in Sears Holdings(SHLD) and another 20% in Autozone(AZO). Buffet however over the years has become more diversified owning roughly 90 public and private companies, not necessarily by choice but by the growth and success he's had. Both Pabrai (The Dhando Investor) and Joel Greenblatt (You Can Be A Stock Market Genius) mention focus investing in their books. Focus Investing also has to do with position sizing and what percentage you should allocate to each security, 5% 15% 25% or greater. This all depends on ones risk tolerance, and your expectations for upside(downside) potential. Pabrai has stated that ideally he favors putting no more than 10% of his total holdings in one individual security and only buying about 10-15 stocks. Here again this has to do with ones own personal risk level.
If you study many of the master stock pickers over the last 60 years you will see that they have used or use Focus Investing out performing the indexes.

Your comments or thoughts...