The Dhandho Investor Buys Into ZINC!

Back in early November I  wrote a post on Horsehead Holdings Corp.(ZINC) .  Horsehead is  the largest zinc producer in the United States and the leading manufacturer of value-added zinc products including zinc oxide and zinc powder. Zinc has many uses such as a protective coating to various fabricated products, it is found in  tire and rubber products, chemicals, ceramics, plastics, paints, lubricating oils, and pharmaceuticals it is also used in brake linings for automobiles.

      Since my last post on Horsehead, I noticed that Mohnish Pabrai alias The Dhandho Investor has taken a stake in ZINC.  Pabrai has made a name for himself over the last few years returning Warren Buffett SIZE returns. Pabrai by the way is a former IT guy turned money manager. Pabrai usually has 10 to 15 stocks at a time in the portfolio. I thought it was interesting that Pabrai bought into one of the stocks I followed, usually its me following the Gurus. However I'm sure Pabrai saw the same things that I did in this company. First off the company has $80mil in cash which equates to $2.28 a share. They have virtually no debt with a debt-to-equity ratio of "0". Their also trading at nearly 50% book value, which is currently at $7.93 a share. It also looks like 125,000 plus investors over at the Motley Fool have picked up on this one as well.  The company  looks as if its staying ahead of the economic downturn by running a rather tight ship. In December Horsehead  announced that it is taking aggressive steps to reduce operating costs including idling its recycling facilities for the last week of 2008 , reducing its salaried workforce, and revising the construction strategy for its new South Carolina facility. Horsehead expects that these reductions will result in annualized savings of approximately $2 million. A few more points I would like to mention that this is a cyclical stock, and with the current economic conditions it could stay depressed for a while. Also forward looking earnings (2009) are projected at an average loss of 62 cents a share. So while the short term outlook does not look rosy valueinvestors and pabrai himself are looking for the low-risk, high-uncertainty businesses.

  "Low risk and high uncertainty is a wonderful combination. It leads to severely depressed prices for businesses - especially in the pari-mutuel system- based stock market. Dhandho entrepreneurs first focus on minimizing downside risk. Low-risk situations, by definition, have low downsides. The high uncertainty can be dealt with by conservatively handicapping the range of possible outcomes. You end with the classic Dhandho tag line: Heads, I win tails, I don't loose much!"   -Mohnish Pabrai.  

 The 52 week week high was $18.31 and the 52 week low was $2.26, which as I mentioned earlier is the cash it has on hand. Currently ZINC is trading at $4.25 with a NCAV of $4.45.

*Author is neither long nor short.  

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The Graham & Dodders (Forbes)

Your Best Investment For the Future: You

What are the best investments for the coming year, 2009? Are they stocks,bonds and real estate, or are they  commodities such as oil and gold? After all the stock markets have taken a big hit this year down some 35-40%.  Oil has also rolled over  or should I say fallen off a cliff trading down as much as 110 points from its high of 147 a share earlier this year. So there must be plenty of good bargains in all this mess, right? Well sure there are plenty of good bargains out their, but probably the best one that you can make first, is in yourself. That's right yourself. Starting your own business is one of the best investments one can make. Unlike investing in stocks, bonds, real estate and other securities where you are a passive investor you have direct control in your own business. Your the President, the Boss man , the Sole Decision maker. Most of us rather have someone else do the work for us, which is always nice, but this comes with a price. By investing in yourself you are allocating the cost in your business much like a large company makes. So before you go laying out thousands of dollars in anyone of the investments mentioned, think about investing in yourself first.

Year-End Tax Selling???

Will we see year-end tax selling this year? That's a question that will be answered in just under two weeks, as December comes to a close and 2008 is almost history. What is year-end tax selling anyway? Investors holding beaten down or depressed stocks will usually sell them at year end to take the tax loss. This can be a good strategy if the investor has capital gains in other securities or investments. This year the market has been very unkind to  investors. Stocks that are hovering near their lows are usually the ones that are pushed down further during this period. However studies have been shown that stocks trading near their lows in December often outperform the market going into the first several weeks of the new year. Many professional traders often play this tax selling game. The Long term investor only needs to sell  if he finds a better deal elsewhere or if he has profits to match against the losses. 

STOCKMANMARC

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".