Rare Henry Singleton 1982 Businessweek Article

Here’s the 1982 article Businessweek did. Singleton rarely did interviews. This was a fairly negative article. Most articles on Singleton and Teledyne are positives and are worth studying. This one is different. It looks at some of the problems Teledyne had. Anyway if you want to learn more about Teledyne from a different view, this is your article.

Henry Singleton of Teledyne – A Strategy Hooked To Cash Is Faltering (pdf)

Oil: Help!

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Crude Oil Prices – 70 Year Historical Chart

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Best Buy’s Successful Turnaround Lessons

Below is a preview of my latest article on Seeking Alpha. It’s short but good. Best Buy was considered dinosaur in 2012 and they managed to turnaround the business. How did they do it? They are now thriving.

I’m not a shareholder but I’m interested in the story.

*Note from the author: This is my first published article since 2016. I’ve received numerous great comments in the past, and some of my followers have asked where my next article was. Writing is a hobby for me. Here’s my breakdown on Best Buy’s turnaround.

For the full article click here.


Repost from Seeking Alpha
By Brian Langis

Every day it seems that I’m reading about a brick-and-mortar business heading for the slaughterhouse. If you have been out of the loop, here are some sample headlines just from the LA Times:

Source: LA Times

Despite what seems to be the retail apocalypse of the brick-and-mortar store, a success story has gone unnoticed and deserves more attention. You probably noticed that your local Best Buy (BBY) is actually not dead and is doing just fine. Best Buy, once a struggling business, managed to successfully turn around its business. The Best Buy turnaround story should be a case study. In it are plenty of lessons for the businesses looking to fight off the online juggernauts. This led me to further study how Best Buy managed to avoid the pitfalls that ailed many other brick-and-mortar retail chains.

A few years ago Best Buy was going down the tube like many of its peers (e.g. Circuit City, Radio Shack). Best Buy was a victim of “showrooming”; Consumers would show up in stores to check out the product to end up purchasing it online at a better price. As a result, sales and profits slumped, and Amazon would just take more market share. In this 2012 article from the LA Times, the author claimed he got a better deal for a fridge at Sears. When you are losing sales to Sears, you are in trouble. Below is the Best Buy five year chart:

Best Buy is up 4x since late 2012, far outpacing the broader market.

Back in 2012 Best Buy was trading at around $11 with a quarterly dividend of $0.17 per share. It’s now trading upward of $56 with a quarterly dividend of $0.34 per share. So how did Best Buy manageto quadruple its stock price, double its dividends in five years when many people (including me) thought this company was going straight for the cemetery, another victim of Amazon.com and other online sellers?

What are some the lessons?

For the full article click here.

Creativity Consultant

Creativity Consultant

Teledyne and Dr. Henry Singleton, Case Study in Capital Allocation

“[Warren Buffett] considers that Henry Singleton of Teledyne has the best operating and capital deployment record in American business.” – John Train’s The Money Masters

Below is a massive case study of Dr. Henry Singleton and Teledyne. The document states it was edited by John Chew from CSInvesting.org, a great blog to follow. All the credits goes to him. Not a lot of people have heard of Henry Singleton, a person that Buffets consider the best one the greatest capitalists and capital allocators of all-time. An investor who put money into Teledyne stock in 1966 achieved an annual return of 17.9 percent over 25 years, or a 53x return on invested capital vs. 6.7x for the S&P 500, 9.0x for GE and 7.1x for other comparable conglomerates. Here’s the document:

PDF: Dr.-Singleton-and-Teledyne-A-Study-of-an-Excellent-Capital-Allocator

To find out more about Dr. Henry Singleton, I did post this article last year: Henry Singleton Forbes 1979 Article

Dr. Singleton was also featured in The Outsiders by William N. Thorndike, among 7 other great investors. It’s one of the best investment book I’ve read and if you haven’t it should be on the top of the list.

Tesla and GM

Interesting comments from Greenlight’s David Einhorn. This is taken from the Q2 2017 letter:

Greenlight GM Tesla 1

Greenlight GM Tesla 2

Einhorn also add this to add about GM:

Greenlight GM

I’m posting this because I agree with Einhorn’s view. I have nothing against Tesla or Elon Musk. Like I said in the past, the world needs more Elon Musk. And I would like to buy a Tesla one day. The issue with Tesla is its valuation. It’s absolutely out of whack with any fundamentals. But this is Elon Musk’s gift: the ability to sell. When you think of GM or Ford, you think old dinosaur boring gas guzzling cars. When you think Tesla you think: technology, AI, self-driving, electricity, revolutionized concept, the future…etc.

Anyway Tesla sells dreams:

Tesla dremas

Disclosure: Long GM. Don’t have any positions in Tesla.

How the Market Perceives Conor McGregor vs Floyd Mayweather

Conor “The Notorious” McGregor did it. He succeeded at selling the idea that he has a chance to beat Floyd “Money” Mayweather. I looked at the odds this morning and Floyd pays 1.15x and Conor 5x your money. Basically a $100 bet on Floyd will give $115 (15% gain) and the same bet on Conor will pay you $500 (500% gain). Yes obviously McGregor is a massive underdog. But the odds give McGregor a better chance of beating Mayweather than ranked professional boxers. In Mayweather’s past fights, a bet on him yielded less than 5% (-1.05x your money). The opposite fighter usually paid at least 8x your money. This would imply that Conor should pay upward of 8 times your money. But the market is inefficient. Mood, perception and the buzz surrounding Conor seems to be moving the line here. Basically McGregor managed to convince the public that he has a chance. Even after he was knocked out by his sparring partner. And that plays directly in the hands of Mayweather and the promoters. The promoters needed to desperately sell the idea that Conor has a chance to win so they can sells millions of PPVs. Everybody is in on it, even Conor, except of course the viewers that will be forking the money to watch this circus. A circus. That’s what it is. This will not be a real fight. It’s absolute circus.

Verdict:

Well I believe the press conferences offered more in terms on entertainment than the fight will. If this is a real classic boxing match, Floyd wins. If this turns into some crazy show, anything can happen. Imagine if Conor starts the fight in a karate stance? Will that mess will Floyd’s head? If Conor is in deep trouble, will he use his kicks or take him down or something. Imagine if McGregor kicks him in the head and knocks him out cold. Or takes him down hard. Does a fighter get his payday if he’s disqualified? Maybe the fight will be fixed and you will a second fight to suck more money out of fans. Verdict: I highly doubt you will get your money’s worth. It will not live to the hype. Winners: Floyd, Conor even if he loses, the promoters. Losers: People forking $100.

Maybe it will look like this:

Odds on Bet365 on Monday July 17, 2017.

Floyd Mayweather vs Conor McGreggor

Charlie Munger’s “The Psychology of Human Misjudgement” – Animated Version

Thanks to Hurricane Capital for the find.

 

Full speech: The Psychology of Human Misjudgement (pdf)

Book to read with more speeches and wisdom: Poor Charlie’s Almanack

Good Blockchain Primer

Barron’s featured story this week is Beyond Bitcoin: How Blockchain Is Changing Banking. It can be a little complicated but you don’t need to be a tech nerd to get it. The article does a good job explaining how the whole thing works to the average Joe. By now most of us have heard about the Bitcoin mania but have a little understanding on how the whole thing works. Blockchain, the technology behind Bitcoins, is not a fad. It’s the real deal and many industries outside finance, such as medical and insurance are testing.

To simply put it, a blockchain is a digital ledger that is kept and validated simultaneously by a network of computers. Think of a shared Excel document that no one person can change without the agreement of the others. Importantly, it allows deals to be made without the blessing of a “trusted intermediary,” such as a clearinghouse. It has many advantages.

Blockchain will gain wider acceptance soon. Why? Well lots of money can be save. But also it has been proven to be secure, reliable, and operates at a lower cost than traditional mechanism. Why is it more secure? True record is kept by all participants and doesn’t depend on one person but by all participants. There’s not a single point of failure. For example, your notary can make a mistake that wouldn’t normally happen.  Executives know they need to understand blockchain, but not everyone is clear yet on how exactly it will help their business. I’m in the same boat. I don’t want to buy or invest in bitcoins, but I understand that blockchain is the way forward.

Here’s a copy of the article:


Beyond Bitcoin: How Blockchain Is Changing Banking
by By Avi Salzman from Barron’s

The hottest investment of the first half of the year wasn’t Amazon.com, Netflix, or even Tesla. In fact, your broker probably isn’t pitching it, and it is barely even recognized by the Securities and Exchange Commission. Yet cryptocurrencies—the most famous of which is Bitcoin—are shooting out the lights.

Investors who bought Bitcoin for $5 or less just five years ago are millionaires today, as its price has soared above $2,500. Unlucky ones have lost small fortunes simply by misplacing a password, much like leaving a suitcase full of cash at the train station. Bitcoin, which has nearly tripled in price this year alone, is blamed for fueling drug sales and for helping hackers wreak havoc on businesses and governments. On some days, its price swings 20% up or down, often on a whim or a rumor. (See related story: “How to Invest in Bitcoin.”
Continue reading “Good Blockchain Primer”

Home Capital Group

The Home Capital Group (HCG) story is quite a roller-coaster story. The Berkshire (BRK) Buffett deal raises at least as many questions as it answers. Before I get into this, I want to state that I don’t have a position in HCG. HCG is a subprime lender and I have no interest in that business. I never bought HCG or short it. A lot of the comments surrounding HCG are either by people 1) who are losing a lot of money 2) short-sellers trying to make the stock crash. I don’t have a horse in this race but I’m following the developments.

Let’s back up a little bit. This is from the Ontario Commission (OSC):

  • On July 10, 2015, HCG announced that an ongoing review of its business partners had led it to terminate certain brokers, causing an immediate drop in Originations. The next trading day, HCG’s stock price fell 18.9%, resulting in an approximate $600 million loss in market capitalization and significant investor harm.
  • Prior to this announcement, from February 2015 until July 2015, HCG misled its shareholders as to the immediate and on-going causes of the decline in Originations. Internally, HCG knew it had terminated certain brokers because it had discovered fraud in HCG’s broker channels.
  • …HCG was receiving fraudulent employment income documentation through its broker channels which had not been detected by HCG’s underwriting controls.
  • Specifically, when asked about the decline in Originations for Q1 2015, Soloway attributed the continuing decline in originations to a range of factors including cold weather, macroeconomic conditions and a cautious approach to lending. Given the information known to Soloway, including as contained in the May 4 Memo and the President’s Report, his statements were materially misleading and untrue.

Back in April 2017 HCG was formerly accused of “materially misleading statements” to its shareholders, blaming the decline in its mortgage business to “external vagaries, such as seasonality and competitive markets.” In fact, it was internal fraud that was depleting Home Capital’s bottom line. All these troubles originated in 2014 and early 2015 when the lender’s brokers provided “fraudulent employment income documentation” on some of the home buyers.

The accusations by the OSC led to a crisis of confidence. There are repercussions to what happened. Several news reports have tried to create a U.S.-style sub-prime mortgage crisis by playing up recent problems experienced by HCG. The accusations combined with the media freaking out led to a run on HCG. What’s a bank run? When you deposit money in a bank, the bank loans it out. So it’s not there for you to access. They keep a small portion on reserve that they can give out in case people want to withdraw money, but if there’s ever a situation where a sufficient number of people lose confidence in the bank and try to get their money out at the same time, the money’s not going to be there. You’re going to be screwed. Depositors freaked out and started pulling their money out of HCG. The deposits are HCG’s cheap funding. Now the cheap funding is gone and had to get a $2 billion very expensive emergency loan.

Let’s be clear. From what we know so far, Home Capital has a governance problem, not an accounting one (yet). There are a lot of questions. If HCG’s management is so confident in their $25 book value, why would they sell shares to Buffett for $10? This confirms what everybody is saying about your company: “Your numbers are fake”. Why are they having a hard time selling their loans? Why would they accept such crazy terms on their bailout loan? If the loans are as good as they state they are, why give $2 of collateral for every dollar of loan?

And what about Buffett? His investment in HCG was a blow to short sellers and left people in a bit of a daze. Buffett famously said to sell when others are greedy and to buy when people are fearful. HCG fits the bill. But he also said to do business with people with integrity and high ethical standards. HCG fails that test miserably after its many ethical lapses. The Buffett deal parallels those made with Goldman Sachs and Bank of America in the wake of the financial crisis

Anyone claiming that Berkshire investing in Home Capital somehow discredits short-seller Marc Cohodes fails to see the genius of both investors. Buffett structured a deal where he can’t lose. And it is still possible that HCG is a zero.

I looked at the HCG when it was around $6 in back in April after it crashed. And when I say I looked at it, I didn’t know if I should short it or go long. But I came to my senses. Does anybody have a clear picture of the state of Home Capital’s finances? It’s way too messy and too speculative. Now the stock is trading at $16 but I don’t regret by decision. It’s the process that matters. With HCG trading at $16, it doesn’t confirm anything. I will stay on the side lines. This story is not over.