On Stock Splits

I never really understood the arguments for splitting a stock. The pro-split camps will bring up the point that it creates more liquidity for the stock. I’m not sure that’s true. A stock like Netflix (NFLX) trades at lot at $700. It doesn’t need more “liquidity”. There’s plenty of buyers and sellers. One thing that’s true is that you are not creating any value. Unfortunately there are some investor that really think that splitting a stock in ten makes them richer. Netflix went up on the announcement that it was splitting its stock. I really just don’t get it. A stock split is like trading $1 for 4 quarters. What’s exiting about that? Sure, by having a “lower” stock price you might attract more investors, but is that the shareholder base you want? The minute you hit a rough patch they will dump your stock. I don’t see anything attractive about it. Actually I would encourage a reverse stock split. With a higher stock price you could attract a shareholder base that shares your long-term philosophy. I never of heard of anyone day trading Berkshire Hathaway Class A share (BRK-A).

The cartoon below reflects my line of thinking.



Total Recall: My Unbelievably True Life Story

Total RecallAs the title suggest, it doesn’t disappointed. What an incredible life story. I grew up on Arnold’s movies; Predator, Commando, the Terminator, True Lies, Kindergarten Cop, Total Recall, and Twins. They are just as entertaining today as they were back then. I was looking forward to reading his book Total Recall: My Unbelievably True Life Story .

He’s a poster boy for the “American dream”. Arnold wasn’t destined to have success. He really wasn’t. He’s from a poor family living in a “no-one know or care you exist” little town in rural post-WWII Austria. Not exactly the kind of place that comes to mind when looking for the next global icon. The story starts with no money, a sub-par situation, no connections, no higher education, no special privilege or access. All he had were clear goals, a plan, and determination. He believed in himself, worked hard, and surmounted any obstacles in the way. It’s really incredible how he just crushed everything on the way. He became Mr. Universe only 7 times, then became one of the biggest movie star in Hollywood, then he became governor of California, one of the top 10 economy in the world. He also married a Kennedy. And that’s just one life.

Each one of his accomplishment is normally somebody lifetime achievement. What I mean by that is once he became Mr. Universe, that could been a fantastic story on its own. A book could have been written just on that section of his life. But no that’s not enough, why not go to America and become one of Hollywood’s biggest star. I want you to grasp how insane that means. First he didn’t speak English. Even when he does speak English he has this massive German accent. It’s much better now but go back to Hercule in New York and they had to do a voice over. Go ahead and try to find a producer willing to take the risk. Second, he’s super massive. His body wasn’t camera friendly. Third what does he know about acting anyway? So there’s book number two for you. But I guess that’s not enough, let’s run for governor. He runs, wins, and governs for two terms without any prior political experience. There’s book three for you. That could have been three lives, three different stories, each extraordinary on its own.

His book his inspirational, funny, interesting and candid. The book is mostly about Arnold’s background and success but the book also covers his failures. Yep he happens to have flaws too. I don’t think millennials are into Arnold as much as I did, but you don’t need to be a fan to be use him as a source of inspiration. You don’t even have to like his movies and he has his share of flops. The point is that whatever you dream is you have to go for it a mad men. The key is to have a crystal clear goal and a plan.

The goal needs to be measurable and you need to be able to track your progress. And you need to know the ”why”. That’s important. Why are you doing this? The “why” is that thing that light up a flame inside you, it’s your passion and that force that drives you. Find out what is it you want, write that shit down, and go for it.

Enjoy reading,


I Found NTELOS In The Liquidation Bin: A Misplaced Stock With 30%+ Upside

NTELOS Holdings Corp (NTLS) is my latest top idea on Seeking Alpha. It’s outside my traditional investing zone and its not for the faint of heart. NTLS offers a lot of upside but comes with risks and higher volatility. The daily price swings can be large. It has a speculative aspect to it. A lot of things can go right and a lot of things can go wrong. With that out of the way, here is part of the article:


  • NTLS is trading at a 4.5x EV/EBITDA multiple. Current market peers are trading at a 7.8 EV/EBITDA.
  • NTLS’s refocus on the Western market is good for the company. NTLS experienced strong growth in Q1 in its Western markets, its best for net adds since 2007.
  • NTELOS is a potential takeover candidate. An offer could lead to gains upwards of 90%.
  • NTELOS is in the process of completing its 4G/LTE network to be completed in early 2017. It should generate meaningful free cash flow thereafter.
  • Agreement with Sprint extended to 2022. NTELOS will continue to be the exclusive network provider for Sprint services.

A quick glance at NTELOS Holding Corp. (NASDAQ:NTLS) looks messy and unappealing. NTELOS is a pure-play regional wireless carrier providing coverage to customers predominantly in West Virginia and western Virginia that has seen its stock price go straight to hell.

(click to enlarge)

Source: Google Finance. NTLS vs. S&P 500. February 17, 2006 to July 7, 2015.

Investing in NTLS since inception would have been a disaster for investors. Since February 17, 2006, 80% of NTLS’s stock price melted away. You would have been better off investing in the S&P 500 with a ~63.75% return for the same period of time. Actually, a real return adjustment calculation is required because in late October 2011, NTLS split off Lumos Network (NASDAQ:LMOS) and you also need to account for the generous dividends NTLS distributed for a while. As of July 10, 2015, NTLS traded at $4.75, 30% above the 52-week low of 3.85 set on Jan 15, 2015, but it’s still down 60% over one year. NTLS has also underperformed its relative index up to December 31, 2014, and the price hasn’t changed much since:

(click to enlarge)

Source: NTELOS 2015 10-K

Among the factors behind NTELOS’s decline is the exit from the Eastern Markets, which represents about ~40% of its customers to focus on its Western Markets, which is more profitable. On top of that, add a high-debt load, intense competition, a CEO resigning, and the elimination of its dividend. Plus NTELOS was dropped from the S&P Small Cap 600 index, piling on the selling pressure.

The rapid adoption of smartphones, coupled with the prevailing unlimited data plans led to a massive growth in wireless data consumption, which subsequently caused high network congestion. Since then, carriers have made massive investments on their networks to optimize them for high data capacity. This was carried out through various measures such as acquiring more spectrum, increasing the number of cell towers, and upgrading of backhaul. It’s harder and harder to be a regional wireless operator. All this stuff is very expensive and the business is very much commoditized where it is difficult to differentiate yourself from your competitor (same phone, similar plans, comparable cost etc…).

You need a lot of financial muscle to roll out a project as capital intensive as the 4G/LTE network. Scale is essential in telecommunication. The large telecoms can take advantage of their superior scale and balance sheets to lay the groundwork for future growth. The smaller carriers are having a difficult time competing. Smaller regional players such as Cincinnati Bell (NYSE:CBB), Revol Wireless, Alltel, Clearwire, Centennial Wireless, Cox Communications, Dobson Communications, Golden State Cellular, MobiPCS have exited the industry. The industry is in consolidation. Softbank (OTCPK:SFTBY) acquired Sprint (NYSE:S), T-Mobile (NYSE:TMUS) bought MetroPCS, and AT&T (NYSE:T) purchased Leap Wireless (Cricket Communications).

So with such a rocky introduction you probably wonder where am I going with this?

The depressed value of NTELOS is hard to ignore, even with its high debt level it’s not all gloom and doom. The market’s perception is that NTELOS is a black hole and as a result the share price has sunk to a demoralized level. That’s the market for you and it works both ways. When it’s sunny everybody rushes to buy the stock and pumps up the stock price to an irrational level. And when it’s raining nobody wants to touch it. It’s has been raining for a while at NTELOS but there’s some nice weather forecast ahead.

The future of the business, the Western Markets, is both growing in revenues and subscribers. Just in Q1-2015 alone, subscriber base, now at 290,100, grew 5% over prior year benefiting from strong gross adds and a 30 bps reduction in churn. It’s on track to generate positive EBITDA in FY2015. One of the biggest headaches, the total debt of $524.2m, is under control. The debt matures in November 2019, and NTELOS only has to make quarterly payments of $1.4 million until then, where it will probably be re-financed again. The debt is under control with NTELOS’s net debt leverage of 3.6x if using estimated 2015 EBITDA and needs to stay below 4.5x.

The company has extended an agreement with Sprint to be the exclusive wholesale network provider through December 2012, which should bring about $140m to $144m in revenues in 2015. NTELOS is monetizing non-core and underutilized assets such as tower sales and spectrum sale in the Eastern Markets. It’s working on becoming more efficient through reducing cost and corporate restructuring. NTELOS is continuing to roll out the 4G/LTE network with 44% of the POPs covered. The company plans to increase that to 65 percent of POPs covered with LTE by year-end, and expects to complete its LTE network by late 2016 or early 2017. It’s notable that NTELOS doesn’t have a declining legacy business of wirelines.

I don’t expect significant free cash flow for 2015 and 2016 since the capex associated with the 4G network is eating most of the cash flow. It’s in 2017 and the following years that it will get interesting. NTELOS said that about 15% of the capex is maintenance. With $100m in expected capex in 2015, that would mean $15M is maintenance spending. Let’s assume a conservative scenario that in 2018 operating cash flow is ~$100m and capex is $40m, double maintenance rate and more. After debt payment and other expenses, let’s assume there’s $40m left in free cash flow, well that’s almost 40% of today’s market cap. Even with lower operating cash and slightly higher capex, NTLS will be able to grow their equity. I estimate that most of that cash would go to deleverage the company but capital allocation decisions are left to Quadrangle Capital Partners (QCP), the largest shareholder with almost 20% of NTLS. Simple debt reduction could increase shareholder value.

With a market capitalization of ~$105 million, the market doesn’t attribute any value to the restructuring and refocusing effort. NTELOS is making progress towards a leaner more results oriented focused company (instead of fighting the giants for market share in the Eastern Markets). The market also doesn’t attribute any value to a potential takeover offer, which NTLS is occasionally subject to since the industry is consolidating. You eat others or you get eaten. Well NTELOS can’t eat others and it looks good on the buffet table.

The current stock price offers a nice opportunity to get with limited downside. NTELOS is worth something and it’s not the garbage bin price it’s trading at now. I am not pitching the idea that NTELOS will bounce back to the glory days of when it was trading at $35 a share. My analysis is based on an adjustment in the market multiple applied to NTELOS and on what a company would pay for the whole business. We had some indication of value with the rumor that Shenandoah Telecommunications (NASDAQ:SHEN) put together a $200m offer for NTLS at $9.25 per share. This gives you a good idea of what a company would be willing to pay for NTELOS.

At today’s price, this would represent a 94.7% gain compared to the current share price of $4.75. NTELOS is currently trading at about 4.5x (midpoint) projected adjusted 2015 EBITDA of $100 million. Its peers are trading at 7.8x EV/EBITDA. I don’t think NTELOS deserves the same market multiple because 1) it’s smaller and 2) its high leverage restricts operational flexibility. A simple adjustment in multiple to 5x EBITDA would lead to a 30% gain. There are more details on my valuation below.

I expect the results for the next couple of quarters to be messy and not representative as they are winding down their operations in the Eastern Market and refocusing the company. There are costs attached to that (~$50m) and a lot of one-time expenses. However, NTELOS does report the Western Market results separately so you can have a clearer picture of what the company will look like. I expect results in FY2016 to normalize since FY2015 is a transition year with a lot of kitchen sink quarters.

Brief Description of NTELOS Holdings

Feel free to check out the rest of the article here.

A Little Greek Crisis Humour


Bill Day  Copyright 2015 Cagle Cartoons

Tom Toles Editorial Cartoon
Tom Toles Editorial Cartoon

Tom Toles  Universal Press Services

Greece 3
Walt Handelsman Copyright 2015 Tribune Content Agency

Steve Sack Copyright 2015 Cagle Cartoons

Damn Right! Behind the Scenes With Berkshire Hathaway Billionaire Charlie Munger


“Teaching people formulas that don’t really work in real life is a disaster for the world.”

“Why shouldn’t we do more of what works well for us and what’s less complicated?”

“There are huge advantages for an individual to get into a position where you make a few great investments and just sit back, you’re paying less to brokers, you’re listening to less nonsense.” – All three quotes by Charlie Munger

Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger is an excellent biography by Janet Lowe. As the title of the book state, the book is obviously about Charlie Munger and there’s also a lot on Warren Buffett since it’s hard to separate the two. Even though Charlie Munger is associated with investing, this book is not a how-to investing guide.  This is a book on Munger’s life, background, up-bringing, his misfortunes, his failures and success, his philosophy and specific episodes in his life. When we think of Munger we see success and money but there’s some pretty dark moment in his life (death of his son, lost of an eye, divorce etc…) Known for his investing success, Charlie is actually many other things. He’s a businessman, lawyer, architect, and developer among many things.

There’s no need to introduce Charlie Munger, the 92 year old Vice-Chairman of Berkshire Hathaway (BRK). When you think of Berkshire Hathaway, the first thing that comes to mind is Warren Buffett. Charlie is generally portrayed as the guy who “fine tuned” Warren Buffett’s investing strategy from cigar butt investing (deep value) to buying high-quality businesses even if they were more expensive. The early version of Buffett the investors would try to find undervalued beat-up companies that had one more puff out of them. His approach was heavily model on Ben Graham‘s value investing approach, the father of modern security analysis. After a while, especially after Warren Buffett’s portfolio grew in size, it became harder to exploit this cigar butt strategy (e.g. tripling your money on a $100 milion market cap company won’t really affect your returns if you manage $100 billion). So Charlie was one of few individuals that had an influence on Warren and made him a better investor. Without taking anything away from Buffett, I don’t think BRK would have been this investment machine it is today without Charlie. I doubt the purchase of companies like GEICO, American Express or Coca-Cola would have happened without Munger’s influence. (However Ben Graham did own GEICO and made more with it that all his other trade combined, some a even suggesting that Graham was starting to change towards the end of his career, that’s ok to pay a premium for a high-quality earning stream, but don’t quote me on it).

There’s more to Charlie Munger than a guy that tweaked Buffett’s investment approach. I think the media and the investment community in general is under-covering him. He’s the 2nd half of BRK but he gets a fraction of the attention Buffett gets. I think that’s the way he wants it. Buffett is the showman, the entertainer, the teacher and it’s my belief that Munger is perfectly fine with that. Munger isn’t the showman Buffett is, though he can be enormously entertaining. For what many considers the “brain” behind Buffett, I would study Munger just as much as Buffett if you want to become a better investor.

When I think of Charlie Munger, the following words comes to mind: genius, rational thinker, logic, no-nonsense, mental models, multi-disciplinary, life lessons, philosophy, funny, avid reader, brilliant thinker, ethics, morals, discipline, and patience.

On investing, Charlie doesn’t rely on gut feel; he uses a range of what he calls mental models to help assess the risks and opportunities. He knows a lot about a lot. When it comes making a great investment, there’s more than just having great numbers or a robust financial model, you also need to look at the proposition from many angles.

“When I urge a multidisciplinary approach- that you’ve got to have the main models from from a broad array of disciplines and you’ve got to use them all – I’m really asking you to ignore jurisdictional boundaries. If you want to be a good thinker, you must develop a mind that can jump these boundaries.

You don’t have to know it all. Just take in the best big ideas from all these disciplines. And it’s not that hard to do.”  

The book was published in 2003 and Janet Lowe approached him in 1997. I estimate that Munger was in mid to late 70s when it was written. Since a lot of time has passed since the content of the book was written, don’t let that steer you away. This book is well-researched and rich in content. It’s one those books that you highlight all over the place and that you go back to once in a while. Munger also contributed directly. He didn’t want to get involved at first and he didn’t think it would sell many copies.  The Munger family didn’t a biography of him and they didn’t want their privacy slipping away. Janet told Charlie that the book was going to happen with or without his cooperation because she had a contract to deliver the book, so he decided to contributes since the book would have been much better.


Valener: A Fatter And Low-Risk 6.4% Dividend

This is my update on Valener. This is a preview of the article. You can read the full piece on Seeking Alpha.


  • Valener distributes a predictable, reliable, growing dividend. The dividend yield is currently at 6.2%.
  • Valener/Gaz Métro owns a portfolio high quality, diversified, long-life assets.
  • Valener has committed to grow the dividend by 4% for the next three fiscal years.
  • Valener/Gaz Métro is actively involved in the development and operation of innovative, promising energy projects projects such as the production of wind power and natural gas for transportation.



Valener Inc. is primarily traded on the Toronto Stock Exchange under the sticker VNR.to. I will be referring to the Canadian symbol for the article.

Note: Dollar amounts are in Canadian $ unless mentioned otherwise.USD-CAD 1.2406.Price of 1 USD in CAD as of June 29, 2015.

March 2014, I wrote my first article on Valener (VNRCF, VNR), Valener: A Fat And Low-Risk 6.4% Dividend. Surprisingly it became my most popular article ever. The success was unexpected since Valener is not a common name like Apple or Twitter and VNR is anything but not a sexy hip company. I wasn’t pitching to double your money either (FYI: VNR didn’t end up doubling either, unfortunately). So what do I attribute the popularity of the article to? The investors’ desire for income in this ultra-low yield world. What’s there to like about Valener is that it pays a nice generous stable predictable dividend backed by a portfolio of high-quality assets. As the title of my first article states, the dividend is fat and low risk and Valener announced an increase for this year and the next three fiscal years. My objective with this update is to review the company, the latest developments, its dividends, and valuation. Since this is an update I didn’t want to rehash everything. I suggest you read the original piece to have a better understanding of Valener.

Valener is the investment vehicle for an indirect stake in Gaz Metro L.P. because you can’t invest directly in the latter. Valener owns 29% of Gaz Metro and 24.5% in the Seigneurie de Beaupré wind power project. The rest of Gaz Metro L.P is owned by Gaz Metro Inc (GMI), a consortium of institutional investors like pension funds. GMI mainly holds an economic interest of approximately 71% in Gaz Métro, for which it acts as the General Partner and a financing vehicle.

Valener is an opportunity for the conservative income oriented investor with a very long-term horizon. The guy that doesn’t want to leave his money at 0.40% in the bank account, needs income, and doesn’t want to start juggling with more risky investments. Below is a chart of VNR since my publication on March 10, 2014.

Source:Google Finance.VNR vs S&P TSX vs S&P 500

VNR performed relatively well compared to the indexes. VNR outperformed the S&P TSX, the index it’s listed on. You would have done better if you have simply invested in the S&P500 but if you add the 6%+ dividend, the returns are similar assuming you held the stock in a tax shelter account. However VNR underperformed both indexes over the last five years but you still made money with the dividend. I’m not sure if comparing VNR to the major equity indexes is the right way to measure its performance since it’s really an income oriented stock.

When I wrote my first article on VNR some of the concerns at the time regarding the wind projects were 1) Will they be completed on schedule and on budget? 2) Will it replace the gap in cash flow required to maintain the dividend? Without rehashing the whole story and to spare you from the nity gritty details, at the time when VNR converted from an income trust to a corporation, VNR and Gaz Metro had a three year agreement where Gaz Metro would provide an amount to sustain the distribution at their current level. The point was that the Valener/Gaz Métro shareholders, a base that invested for the income, shouldn’t be penalized for a change in the law. So during that three year period Valener had to come up with a plan to generate enough cash to fill the gap and sustain its dividend. That plan was the wind farm projects at the Seigneurie de Beaupré. Today we have the answers to both questions. The last wind project was successfully completed in December 2014 and the outcome was better than expected. Combined with greater earnings at Gaz Metro and Central Vermont Public Service, VNR announced a 4% dividend increase for FY2015 and a 4% dividend growth target for the next three fiscal years.

Basically by investing in Valener, you are investing in a diversified and largely regulated energy portfolio in Quebec and Vermont. As a strategic partner, Valener, on one hand, contributes to Gaz Métro’s growth, and on the other hand invests in wind power production in Quebec together with Gaz Métro. VNR/Gaz Métro is a portfolio of high-quality, low-risk, regulated, long-life assets that will produce stable operating cash flows.

“How can a society that exists on instant mashed potatoes, packaged cake mixes, frozen dinners, and instant cameras teach patience to its young? ” – Paul Sweeney

People and investors are not patient and they are less and less as time goes by. We are in a society that seeks immediate gratification. We want it done now. We want action and we want our investments to make Jim Cramer scream buy buy buy. Investors want to hear companies say they will deliver the moon. It doesn’t matter if sexy company X doesn’t deliver on those sky-high promises because investors already moved on to the next saveur du jour.

Valener is a different kind of company. Valener is a company that’s very patient and that doesn’t fit in today’s society. VNR is a company that you buy and forget for many years. Meanwhile you get four cheques a year that increase annually. Valener is a turtle, a company that develops slowly but well over time, either organically or through acquisitions. Valener is a company that gets better with time.

About Valener and Gaz Métro L.P.

Source: Valener

On the surface, Valener looks like a simple company with a 29% holding in Gaz Métro and a few wind farms. In fact when you take a deeper look at Gaz Métro L.P., which is mostly known for their natural gas distribution, it unveils a web of holdings that sprawls in many different companies and regions. It owns companies that most people are not aware of such as Vermont Gas Systems (VGS) and Green Mountain Power (GMP) among others. It has interests in pipelines, energy storage, LNG plant and more. Gaz Métro reports its business in four mains segments:

Source: VNR/Gaz Métro 2014 AIF

Source: BMO Capital Markets – 12th Annual Infrastructure & Utilities Conference

This is a preview of the article. You can read the full piece on Seeking Alpha.

Another Economic Indicator – The Empty Wallet


Economic Indicators - I'll tell you another economic indicator - my wallet is empty.
Economic Indicators – I’ll tell you another economic indicator – my wallet is empty.

Source: Jantoo.com

The Joy of Picking a “Good” Mutual Fund

I’m reminded of a gentleman who discovers a genie in a bottle. Granted one wish only – apparently even genies have pricing power – the man asks for peace in the Middle East. The genie backs away and says, “That’s way too difficult. Give me something easier.” The man ponders his options and asks the genie instead, to help him pick a good mutual fund. The genie quickly responds, “Let me get to work on the Middle East.” – Steven Romick’s Speech To CFA Society Of Chicago

This was part of Steven Romick‘s Speech to the CFA Society of Chicago. I don’t know if the original story is from him but he used it, so I’m crediting him with it. Steven is a managing partner at FPA Funds, which has manage about $33 billion in AUM.