Interview: Investing With A Margin Of Safety

I was honored when the Editors of Seeking Alpha asked me if I would like to be interviewed for their PRO Weekly Digest. PRO is Seeking Alpha’s research platform for serious investors looking to get better ideas. The interview was far ranging and discussed such topics as: business valuation and the CBV, my investment approach, past mistakes, and a review of old and new stock ideas.

To read the interview at its original source, please click here.

It’s also up on the blog, here.

Below is a copy of the interview:

PRO Weekly Digest: Investing With A Margin Of Safety With Brian Langis


  • Being a Chartered Business Valuator, why having a high IQ is not enough and how to find underfollowed foreign companies are topics discussed, and he makes the bullish case for ECN Capital.

Welcome to the latest issue of the PRO Weekly Digest. Every Saturday for Seeking Alpha PRO subscribers and Sunday for all other Seeking Alpha users, we publish highlights from our PRO coverage as well as feature interviews and other notable goings-on with SA PRO. Comment below or email us at to let us know what you think. Find past editions here.

Feature interview

Brian Langis, a long-time Seeking Alpha contributor, manages a private investment company and is a Chartered Business Valuator (CBV). He employs a contrarian/value strategy with notable calls including Moleskine, NTELOS (NASDAQ:NTLS) and Dollarama (OTC:DLMAF). We emailed with Brian about the extra work (and reward) of international investing, the first place he looks when researching a company and how losing money can be the best education.

Seeking Alpha: Can you discuss your work as a Chartered Business Valuator (CBV), the designation itself and how this expertise applies to your personal investing?

Brian Langis: I was always interested in business and how the world functions. I like history, psychology, economics, science and so on. These interests led me to investing. And in investing, it’s all about figuring out the intrinsic value of an asset and its relation to price. So I had to learn how to value different businesses and assets. I like Warren Buffett’s style of valuation. That’s played into the idea of completing the CBV.

As you mentioned I’m a CBV and a lot of readers are probably unfamiliar with this three letter designation. The CBV designation is the premier credential for professional business valuators in Canada. There’s a national body (the CICBV), a code of ethics and professional standards to follow. It’s been around since the 1970s, when the capital gain tax was introduced in Canada. As a CBV, I have the knowledge to quantify the value of a business or assets. I’m trained to put a value not only on business tangibles, but also the intangibles such as intellectual property and key patents, which is taking more and more space on the balance sheet. With publicly traded equities, it’s much easier to determine the value of a company, but in the private-equity sector it’s more complicated. I worked in the investment business, but most CBVs find themselves working in corporate finance, taxation, valuation for financial reporting, or litigation. Also a CBV is very practical if you are involved in M&A.

Everybody can learn business valuation, but for me having credibility is important. It can take 3-4 years of studying on top of a four-year degree to get it done. The CBV is very specialized and very useful. The CBV is more about learning valuation procedures than finance theory. If you want to get very deep into equity valuation, the CBV is a good designation. If people are interested in completing the CBV, having some background in accounting would definitely make life easier. Some work experience would also help.

In Canada the CBV is well respected. However the CBV lacks recognition outside of Canada. Unlike the CFA, the CBV is not well known outside of Canada. The business valuation practice is fragmented by countries. The U.S., U.K., and Australia each have their own designation, governing body and practice standards vary widely. But there’s currently a process to harmonize and to implement universally accepted standards for the valuation of assets across the world.

SA: To follow up, which valuation methodologies do you find most/least useful or is the usefulness determined by the type of asset you are valuing?

BL: Unfortunately, there’s no “best” method of valuing a business. There’s no secret formula. There’s no one-size-fits-all investment strategy that I can give you. Trying to come up with a satisfactory formula that would identify undervalued shares in the stock market with a reasonable degree of safety and consistency will lead you down a series of blind alleys. Knowing what an asset is worth and what determines that value is more an art than science. It’s not supposed to be easy. If it was easy everybody would be rich doing it, right? I made and lost money buying companies trading at 6x P/E and 25x P/E. It turns out that stocks trading at 6x P/E can go down to 4x P/E. Continue reading “Interview: Investing With A Margin Of Safety”


Berkshire Hathaway 2016 AGM

*Updated April 20th.

I will be in Omaha for the 2016 BRK AGM. I will be there from Friday April 29th to Sunday May 1st. I’m planning to leave not to long after the Markel Corp. meeting. If anybody wants to meet up, I will be at some of these events:

Friday, April 29:

  • Noon-3pm: Berkshire Exhibition Hall visiting companies.
  • 3pm: Value Investing Panel at Creighton University
  • 5pm: Yellow BRKers get together
  • Columbia University “From Graham to Buffett & Beyond” dinner????
  • 8pm: Whitney Tilson’s cocktail party

Saturday, April 30:

  • 8am-4pm BRK AGM. I’m watching a 85 and 92 year old take questions for hours.
  • 4pm – YPO has an event with Tom Gayner (Markel), Tom Russo from Gardner Russo & Gardner, and and Tim Vick, author of How to Pick Stocks Like Warren Buffett. Not sure if I will go because I’m not a YPO member.
  • Another event by Whitney Tilson and his friend Chuck Gillman. Whitney won’t be there. It’s a casual get-together immediately following the annual meeting.
  • 5:30pm: I might attend the Nebraska Furniture Mart Cookout. It was a lot of fun last despite the long line to get in. Music, BBQ and Budweisers. BTW  Nebraska Furniture Mart which is the largest furniture shop in the US.
  • There are various investment events Saturday night, not sure where I will end up.

Sunday May 1

  • So far I’m not register for the BRK 5km race. I did it last year. I may or may not go.
  • 10am: Markel Corp. brunch. I really enjoyed it last year. Smaller and more personal than the BRK meeting.

There are various events associated with the BRK AGM, so the schedule is subject to change.

Seth Klarman 1991 Barron’s Interview

Below is a rare 1991 Barron’s interview (pdf) with Seth Klarman from the Baupost Group. He’s also the author of the out of print Margin of Safety, which a copy sells for over $1,000.

Credits to “The Odd Lot” from For some reason the website is no longer available.

Barron’s 1991 interview with Seth Klarman

Clarke Inc. – Canada’s Activist Value Investor

Latest article on Seeking Alpha. Below is a sample since Seeking Alpha has the rights. The article is free for for a month before the paywall us up. Enjoy!


Reposted from Seeking Alpha
By Brian Langis



Clarke Inc. is primarily traded on the Toronto Stock Exchange under the sticker CKI. Last thirty day trade value is approximately $93k per day.

Note: Dollar amounts are in Canadian $ unless mentioned otherwise. USD-CAD 1.3371 Price of 1 USD in CAD as of November 29, 2015.

Part of my writings is to shine the light on companies that deserve more attention. My most successful investments are usually found in places where nobody is looking since this is where you get the best deals. I believe that Clarke Inc. (OTC:CLKFF) is a company that deserves to be on your investment radar. CKI is a company that people will talk about one day after making a huge successful deal and they will wonder why they haven’t heard of it in the past (CKI is too small for analysts and institutional investors).

Clarke Inc. is an investment holding company based out of Halifax, Nova Scotia. Don’t let the Halifax part fool you. After all, isn’t Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) run from Omaha. For the skeptics, CKI has an office in Toronto; it’s where the deals flow in Canada. CKI is company with a ~$155m market cap, trading at ~0.8x book value and provides a 4% dividend yield. Clarke Inc.’s Chairman is George Armoyan, a colorful activist value investor in Canada. CKI describes itself as an activist catalyst investment company with a diversified portfolio of strategic and opportunistic investments. More often, Clarke seeks active involvement in the governance and management of the company which it invests with the goal of improving the underlying company’s performance and maximize the company’s value. For this research, I have not spoken to George Armoyan, but I spoke to Michael Rapps, the CEO.

This is a brief rundown on how Clarke Inc. usually operates. CKI starts accumulating shares of a target company, mostly mid-size companies so far, those with a stock market value of around $50m to $150m. Then when it crosses the 10% threshold that requires CKI to publicly disclose its holding, the company demands seats on the target’s board of directors and input into management. The goal is to gain control and then engineer a turnaround and generate a profit.

A quick look at Clarke Inc.’s investment portfolio is not pretty. It’s not supposed to be. That’s the key to its superior returns. I looked at past Clarke investments and none of it was sexy. Every investment Clarke Inc. made money on in the past didn’t have a sign pointing that’s going to be the next big money maker. It’s still the case today with its current portfolio; it’s not composed of stocks everybody likes to buy. Following the trends that are popular isn’t a formula for success and CKI definitely knows that. If you want a real bargain, you have to look where nobody is looking, where there are problems, and where there’s blood on the street. Most people simply don’t know how to find it and or they simply don’t have the spine to go through with the investment.

Like most stocks, Clarke Inc. took a beating during the recent downturn and now provides an interesting entry point to build a position. CKI was trading at a peak of $12.30 in July to fall where it’s currently trading at now, around $9.90. The slump represents a 20% fall from its peak. The table below is five-year chart of CKI’s stock price. You will notice the stock was mostly flat until late 2013 and had a run-up that more than doubled the share price. There’s a reason for the run-up which is explained below.

(click to enlarge)

Source: Google Finance. CKI 5-Year Chart. CKI is up 136.8% vs. 3.85% for the S&P TSX.

Regarding holding companies, aside Berkshire Hathaway and Power Financial Corp. (OTCPK:POFNF), I don’t own any other investment holding companies even when they trade at a significant discount to book value. I have seen the compelling investment thesis; the sum-of-the-parts are much higher than market value, you get this part of the business for free, it trades for less than cash etc…and despite all the great reasons to own the “cheap” stock, the price barely moves. I find that most holdings companies are asleep and there’s a lack of action to unlock value. There are exceptions and I’m generalizing the sentiment. I have been following many investment holding for years out of curiosity, and most of the time nothing happens, like Power Financial Corp., where the stock price hasn’t gone anywhere in a decade (but at least it distributes a dividend).

Clarke Inc. is a different investment holding. The company is pro-active and cares about its stock price. In the last two years, Clarke has demonstrated that it wants to close the discrepancy between quoted value and intrinsic value, as demonstrated by the run-up in the stock price for that period (see previous chart above). To achieve those superior returns, the team running Clarke have divested the company of some of its private holdings. Turning these assets into cash has helped close the gap between market price and book value. Then the company modestly raised its dividend from $0.06 per share to $0.08, and now $0.10 per share. The current dividend yield of ~4% certainly attracts more investors, such as your income-oriented class. CKI has also been very aggressive at buying back its share, with $40m in repurchase in the first half of 2015 alone. Clarke has fully redeemed its debentures and has eliminated its debt. The company also decided to regularly put out presentations to make the case for investing in its stock. These are some of the different initiatives the company has put together to raise its profile among the investor community. The combination of actions shows that the CKI cares about its stock price.

Here’s Clarke’s mission and business operation:

Clarke is an investment company. Our objective is to maximize shareholder value. While not the perfect metric, we believe that Clarke’s book value per share, together with the dividends paid to shareholders, is an appropriate measure of our success in maximizing shareholder value over time.

We attempt to maximize shareholder value by allocating capital to investments that we believe will generate high returns and reallocating capital over time as needed. In doing this, Clarke’s goal is to identify investments that are either undervalued or are underperforming and may be in need of positive change. These investments may be companies, securities or other assets such as real estate, and they may be public entities or private entities. We do not believe in limiting ourselves to specific types of investments. From time to time, Clarke will invest passively in a security where it believes the security is undervalued and there is no need for change or where it believes the security is undervalued but that the management team in place at the underlying company is doing an appropriate job to reduce the undervaluation.”

I don’t usually buy into these nice scripted mission statements and you shouldn’t either. It’s a given that every company says their objective is tomaximize shareholder value. However, Clarke Inc.’s actions lead me to believe that it stands by what it wrote. The first part of the statement is generic boilerplate statement. It’s the second part that’s retained my attention. In the second part, the key statement is “allocating capital to investments that we believe will generate high returns and reallocating capital over time as needed.” This statement reminded me right away of the excellent investment book by William Thorndike, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success. The book demonstrates CEOs who created exceptional long-term value because they excelled at capital allocation. For CKI, as an example, excellent capital allocation decision is buying back shares when it’s trading below book value.

At the moment, being an activist investor is the approach du jour on Wall-Street but not in Canada. Activism is more looked down upon in Canada than the US. The approach of ruffling feathers when things go bad is heavily criticized which fuel the negative perception of activist investing. It seems that all activist investors are being lumped together, good and bad. However, I believed there are two kinds of activist investors, the ones with a long-term approach like ValueAct and Nelson Peltz, which have proven to create shareholder value over time and the ones with a short-term approach, which are usually value destructive because they focus on short-term gain at the expense of the long-run performance. George Armoyan and Clarke Inc. were activist investors before it was a cool word. Mr. Armoyan’s track record has proven that he can work positively with the management team, make changes that are beneficial to shareholders, and have a positive impact on rational capital allocation over time. My point is that he’s not another guy getting on the activist bandwagon. Mr. Armoyan is not a trend.

You can copycat Clarke Inc. by investing in the stocks that the company holds. However, you would enter your position at a higher price than Clarke Inc. did because once it obligated to reveal a position, the herd jumps in and the target company’s stock price shoots upward. The better option is ignore the herd and to buy shares of CKI. At a discount, you will have the same exposure than buying the stocks on your own, benefit from an excellent owner-operator, receive a dividend, and benefit from Clarke Inc. buying back its shares. In the last five years, the latter seemed like a good strategy. I am convinced that Clarke’s underlying businesses have value that far exceeds where the public market values them.

About Clarke Inc.

Clarke Inc. was a family business founded in 1921 and its IPO was in 1998. Today’s Clarke Inc. has nothing in common with the original company. Clarke Inc. used to be in the transportation industry and there’s no more link to the original founding family. Clarke Inc. was an underperforming trucking company that George Armoyan took over in 2003 through his private investment vehicle, GeoSam Investments (named after his two kids, George and Sam). He changed management and redirected cash flow through different investments. Clarke Inc. sold its transportation and logistics service to TransForce in 2013. Clarke Inc. used convertible debentures to fund it buying spree and has since redeemed all the convertible debentures. Below is a graph of the brief corporate history since Armoyan got involved.

(click to enlarge)

Clarke Inc. is patient. The company doesn’t mind sitting on cash until it finds the right target. CKI only deploy capital when it has real conviction that it has found a solid idea. When it doesn’t find interesting ideas, it holds cash.

When I spoke to Michael Rapps, he told that Clarke Inc. will not limit itself to any sectors and it will go anywhere opportunities are. Its mandate is to make money. However, Mr. Rapps told me that they have a “no” list. They don’t invest in mining, tech companies, and pharma among other things. They have a penchant for real assets, such as real estate, things that can be monetized and provide downside protection.

The full article is accessible on Seeking Alpha here.

NAPEC Inc: 30%-40% Upside In Potential Turnaround

Repost from Seeking Alpha

By Brian Langis


  • NAPEC is undervalued on many different valuation metrics compared to its peers.
  • NAPEC’s latest changes (board & management + strategic plan) is overshadowed by NAPEC’s lackluster past.
  • The CDPQ recently raise their participation in NPC to become the 2nd largest shareholder. That’s a vote of confidence. The FTQ is the number one shareholder.
  • NPC turned down multiple takeover offers in past as high as $1.95 per share. That was a terrible decision but it tells you the business is worth something.
  • The new CEO is competent and serious about turning the business around. Regaining shareholder confidence is the key.



CVTech Group officially became NAPEC Inc. in September 2014. Throughout the article, NAPEC Inc. can also be referred to as NPC, CVTech Group, or the Corporation and its subsidiaries.

NAPEC Inc. is primarily traded on the Toronto Stock Exchange under the sticker NPC.

Note: Dollar amounts are in Canadian $ unless mentioned otherwise. USD-CAD 1.2617 Price of 1 USD in CAD as of March 10, 2015.

Investment Thesis

The following opportunity is a beaten-down stock that has been disappointing shareholders for many years. NAPEC Inc. (NPC, CVTPF) is a company with a market cap of ~$76 million that operates in energy sector. NPC provides maintenance and construction services for electricity transmission and distribution networks in Quebec, Ontario and the eastern U.S. Below is a chart of the stock performance of NAPEC Inc. since inception. This valuation research article explains why NAPEC trades at a significant discount to its intrinsic value because its past failures are overshadowing the current changes and progress. NPC prospects will be worthy once short-term problems disappear.

                                   NAPEC Inc. +6.19% since inception vs S&P TSX +62.79%. Apr 29, 2005 – March 5, 2015

That’s certainly not an impressive chart so why is NPC’s stock performance so depressing and why is this an opportunity?

First how did we get here? NPC’s stock performance has been a wreck because of two nasty proxy wars, two failed acquisitions within 6-months, mismanagement of the company as a whole, the mismanagement of multiple takeover offers, the lack of transparency, overhead overspending, the resignation of the Chairman and the CEO, and negative publicity. As a result of this mess NPC ended in a bad light with the financial community and shareholder confidence in the company has plummeted with its share price.

Why is this an opportunity?

Since the ship was sinking for a while, major changes were required. A new competent CEO, Pierre Gauthier, took the wheel in August 2014. Mr. Gauthier has recently presented its 2015-2017 strategic plans which calls for sales to double to $600 million and to restore EBITDA margins to its historical level of 7-8%. Basically Mr. Gauthier is doing the work that was supposed to be done five years ago. On the cost side, overhead cost has ballooned under the previous CEO and he’s cutting unnecessary spending. He’s also focused on developing synergies between operating units which are highlighted in the strategic plan. On the revenue side, LTM revenues are at an all-time high and NAPEC just recently awarded some of its biggest contracts in its history. Those massive contracts are not on the current financial statements and Q4-2014 results are expected on March 26, 2015. There also have been some management and board changes. In the last year there’s been new key personal running the operating units since there’s been a new chairman as of January 28, 2015. The new board and CEO is committed to fiscal discipline necessary to right-size NAPEC and put the company in a position to grow.

On the macro side, North American transmission and distribution infrastructure has been under-invested and is aging. In the U.S. alone there’s ~$20 billion spent on both the distribution and the transmission electricity grid each year. Quebec and Ontario are also growing their investment in the distribution and transmission lines. Even though NAPEC is only located in the North-East, it’s due to benefit from the large electricity infrastructure investment.

Regarding valuation, on an EV/EBITDA, price to book, and price to sales basis NAPEC trades at a significant discount compared to its peers. One can argue that it’s warranted considering its lack of results in the past. But the market has overreacted and is too pessimistic. For example, NPC trades 0.92x book value vs your 1.81x book value for your comparable and the Corporation has modestly increased its book value over the years. I’m not suggesting NPC should trade at the same valuation than its peers but it doesn’t deserve to be in the garbage bin either. I believe the market’s reaction is a little too extreme.

According to my valuation which you will find in greater detail below, I believe the valuation range of the price per share of NAPEC is between $1.40 and $1.50 a share, this implies an upside of 32% to a 41.5% on the $1.05 closing price of March 3rd, 2015. In the short-term I believe those numbers are reasonable. In the long-run, if NAPEC actually improves and achieves half its goal (450m in revenues), the upside is even higher.

The catalysts that will fuel the stock higher are a combination of; higher sales, higher EBITDA margins, a takeover offer, acquisitions, take private offer, the lower Canadian dollar, growing investments in the electricity distribution and transmission grid. A little under the radar news is the Caisse de Dépôt et Placement du Québec (CDPQ) has recently increased their position in NAPEC to become the 2nd largest shareholder after the Fonds de solidarité FTQ. A CDPQ investment in an unloved company is definitely a vote of confidence. This means they did their due diligence and the CDPQ is an excellent long-term investor to have.

NPC presents an interesting investing opportunity with minimal downside. Everything negative about the NPC is all-ready baked in the stock price, so any positive surprise will be greatly welcomed by the market and might just be enough to shift the momentum.

Here are some basic stats on NAPEC Inc.:

Background on NAPEC Inc.

For the full article, click here.


On Market Opinions

This is a segment from the latest Baupost Group Q4 letter:

“…Calling us a hedge fund won’t make us act like one. We won’t usually develop opinions on the most widely owned or shorted equities; such stocks aren’t likely to be a source of opportunity for Baupost. We won’t serve up an opinion du jour on everything under the sun. Our success has never emanated from frenetic trading of macro bets, quarterly earnings forecasts, or momentum strategies. We can’t afford such distraction. The effort required to develop and maintain necessarily imperfect views on every currency, economy, sovereign, commodity, and market would distract us beyond ruin. So forgive us for not having much of a perspective on things where our view is unlikely to add value; we simply can’t afford to spend the time.”

We won’t serve up an opinion du jour on everything under the sun. I love that part, well because I can relate to it. People often ask me “Brian what do you think about the market?” or while I was on vacation a guy I had a beer with asked me “Brian, with what’s happening in Ukraine what should I do with my investments?” Of course I have an informed educated opinion about the “market” and it’s probably worth as much as the next one you will hear. But let me ask you this: How is my opinion going to affect your next investment decision?

In the investment business people seem obsess with big speculative opinion. I get it. It sounds smart and it responds to our intellectual affinity. It’s way more interesting talking about the “market” and the latest hot stock than the book value of a boring insurance company. My suggestion is develop your own opinion. Instead of spending your time on guessing where the interest rate will go next quarter (and let’s say you knew how would that affect your next investment decision????) spend your time doing business valuation. Develop an opinion of the intrinsic value of a company, apply a margin of safety, and what’s the value in comparison to its current price. If it’s below, than you might have a bargain. You will have way more success under that method. Way more. In the investment business, hard work, boring, and patience beats hot and sexy. There’s other places for hot and sexy.

For more on the Baupost Group letter which I highly suggest you read, here’s the link: Via ValueWalk

Walter Schloss Value Investing Principles

I found this awesome nugget of rich investment advice written by Walter Schloss (1916-2012). Walter Schloss was one of the greatest investor and is a pure product of the Benjamin Graham School of value investing. The file below resumes in point form his approach to investing. It’s simple, clean, and straight forward. Follow these rules and your returns should be fine. Or at least you will minimize the chance of losing money since its focus on already highly depressed stocks.

Warren Buffett, friend of Mr. Schloss, had this to say about him:

He knows how to identify securities that sell at considerably less than their value to a private owner: And that’s all he does… He owns many more stocks than I do and is far less interested in the underlying nature of the business; I don’t seem to have very much influence on Walter. That is one of his strengths; no one has much influence on him. Source: The Superinvestors of Graham-and-Doddsville.

Buffett also said this in Adam Smith’s book Supermoney:

“He has no connections or access to useful information. Practically no one in Wall Street knows him and he is not fed any ideas. He looks up the numbers in the manuals and sends for the annual reports, and that’s about it.In introducing me to (Schloss) Warren had also, to my mind, described himself. ‘He never forgets that he is handling other people’s money, and this reinforces his normal strong aversion to loss.’ He has total integrity and a realistic picture of himself. Money is real to him and stocks are real – and from this flows an attraction to the ‘margin of safety’ principle.”

Again, it’s one of these things that are simple and easy to understand but extremely hard to do because of psychology and emotions. Walter bought some of the most hated and ugliest companies. You need some solid guts to make these decisions. If it was this easy, everybody would be making money. I will eventually have to write and expand on that one day.

Walter Schloss Investing Principles

ValueX Berkshires 2014 Presentation

Valuex berkhisre
This is my ValueX Berkshire 2014 presentation. If time allows me, I intend on writing a full review of the conference in a later post. It was the first time I attended a ValueX conference and I wasn’t disappointed. Value investing can be very lonely at times, so it was great to exchange with other like minded people. It doesn’t hurt to be surrounded by people smarter than you.

My presentation wasn’t a particular stock pitch idea, but pieces of advice on how to navigate frontier markets. It’s pretty long, so I included the powerpoint deck without the narration and the full presentation on youtube.

Powerpoint Presentation – Valuex Frontier Markets Presentation by Brian Langis
Youtube (narration included)

Dear Oprah: Forget The Clippers, Buy The Knicks

This is my latest research article. The sale of the Clippers is taking all the attention. MSG is the company the buy and has been overlooked. Below is an extract of my research. Click on the Seeking Alpha link for the full research and this one is a free article.


Reposted from Seeking Alpha
By Brian Langis

Dear Mrs. Winfrey,

I’m disappointed that you couldn’t buy the LA Clippers. I am sure you would have made a great owner and you would have been the perfect response to the Donald Sterling debacle. However, I am delighted to inform you that I have found a better opportunity for your billions.

First, let’s start with a refresher. How did the Clippers get away? It’s probably mentally destabilizing knowing you couldn’t buy something. The press coverage of the LA Clippers has focused on its gargantuan sale price and its highly publicized list of celebrities, billionaires, and crowdfunding projects that have expressed interest in buying the LA Clippers. In the end, it was your pal on the Bloomberg Billionaire list, Steve Ballmer, the 39st richest man in the world, who bought the team with his $2 billion bid. This represents 10% of Mr. Ballmer’s net worth and turns out to be an expensive asset diversification strategy. Unfortunately, Mrs. Winfrey, there was a good chance you were going to overpay when Frankie Muniz (Malcolm in the Middle) announced he wanted to buy LA’s B-Team. The circus might be explained in part by the $2 billion sale price. That price is very mesmerizing since the Clippers spent the last three decades rotting in the shadow of the glamorous Lakers until recently thanks to Chris Paul and Blake Griffin. Also, for $2 billion, the Staples Center is not included since it’s owned by AEG (don’t worry Mr. Ballmer, Sterling negotiated a good cheap lease).

Forget the Clippers, a better place for your savings is to look at the Madison Square Garden Company (MSG), which owns the New York Knicks and has a stronger underlying business. MSG is more than just “The World’s Most Famous Arena”, it’s an entertainment juggernaut that contains a diverse collection of trophy assets and iconic brands such as Knicks, The New York Rangers, the Rockettes, the Radio City Christmas Spectacular and a variety of other entertainment assets. The best part is that the sports teams are not even the most valuable part of the business. There’s also a very lucrative media division that’s throwing off of lot of cash. Buying a fractional interest of the MSG Company is a much better investment than throwing your hard earned billions at the Clippers.

(Side note to Oprah: The NYR are battling for Lord Stanley’s Cup. Please note that I’m not jumping on any bandwagon and this is not a cheerleading article. I’m not a Knicks or a Rangers fan, I’m a Habs fan).

Investment Thesis
While the sale of the Clippers is making headlines, the MSG Company is under the radar. The purpose of this research is to demonstrate that MSG is currently undervalued. A sum-of-the-parts approach suggests that MSG is worth much more than the current market price. I believe the market understates MSG’s cash flow potential and its collection of trophy assets.

Based on my valuation, the implied intrinsic value of the Madison Square Garden Company is in the range of $6.4 and $7.5 billion, or $84 to $97 per share, this implies a potential upside of 50% to 74% from the current price of ~$56.

There are many catalysts that could unlock the value. A combination of increasing free cash flow generation, a “new” renovated Garden, issuing a regular dividend, announcement of share buybacks, a championship run, a new superstar, higher sports media right fees, extended labor peace, a growing international business, a buyout offer, a spin off of the real-estates or different segments, or a take private transaction could fuel the MSG Company upward. Also, the sale of the Clippers should be beneficial on the valuation of all the NBA teams, especially an iconic team like the Knicks. It’s in the best interest of the NBA and its owners to have immense sale prices. That helps drive up the sale of the next team.

Oprah, with MSG trading at approximately $56 a share, it’s a nice entry point to stash your billions. Today, you can buy a fractional interest of MSG via Class A shares on the open market without having Justin Bieber in the way. However, there are other people in the way. In case you decided to buy the entire company, you might have to wrestle for power from the Dolan family since they still control MSG via super-voting shares (they own all the Class B shares). I saw your show and what you are capable of doing. If you can work with Lance Armstrong, I’m sure you can also stage a sit-down interview to loosen him up (James Dolan) to the possibility.

Business Description
MSG Summary








In its annual report, the Madison Square Garden Company is described as a fully-integrated sports, media and entertainment business. The company is comprised of three business segments: MSG Sports, MSG Media and MSG Entertainment. The divisions are strategically aligned to work together to drive the MSG’ overall business which is to create, produce, and present content and distribute it through its programming networks and other media assets.

Source: MSG 2013 10-K, Page 4

  • The MSG Sports segment owns and operates the New York Knicks, the New York Rangers, the New-York Liberty, and the Hartford Wolf Pack. MSG Sports also presents other live sporting events.
  • MSG Media includes MSG, and MSG+, MSG HD, MSG HD+. Fuse was recently sold to SiTV/NunoTV (backed by Jennifer Lopez) for $226 million in cash and 15% equity.
  • MSG Entertainment has a live entertainment portfolio, such as concerts and special events. The segment also operates leading venues such as the Madison Square Garden, the Radio City Music Hall, the Beacon Theatre in Manhattan, the Wang Theatre in Boston, the Chicago Theatre and the Forum in Inglewood, Calif.

This is the introduction. The rest of the research is on Seeking Alpha, here.

This Investor Seeks To Buy A Dollar For Fifty Cents

Reposted from The Globe and Mail
By Larry Macdonald

Brian Langis, 29


Investment manager and consultant

The portfolio

Positions in American International Group Inc., Bank of America Corp., Citigroup Inc., SNC-Lavalin Group Inc. and other companies.

The investor

Brian Langis manages a private investment company and serves as a consultant for a frontier (or “pre-emerging”) market fund. He is a candidate for the Chartered Business Valuators membership exam in 2014.

How he invests

Mr. Langis uses his business valuation skills to estimate how much a company is worth. If the amount is greater than the company’s stock-market capitalization, Mr. Langis may be interested in buying its shares (after factoring in a margin of safety).

“The one particular metric I really put emphasis on is free cash-flow generation,” he adds. “With excess cash, they can pay me a dividend, reinvest in the company, pay some debt, or acquire a company. In general, if a company can increase their excess cash capabilities, that can translate into higher stock prices.”

At the moment, his portfolio is mostly concentrated in U.S. financial stocks – one of the “few sectors that remains undervalued.” As for SNC-Lavalin, the “ethics scandal is keeping the company down, but underneath there’s a going-concern company with great assets.”

“As you can see, I have a penchant for companies that make it on the most-hated list,” sums up Mr. Langis. “To find value, you sometimes have to look where others are not, and usually you end up in undesired places.”

Best move

Mr. Langis recently “hit a home-run” with World Wrestling Entertainment Inc., registering a 100-per-cent return over a seven-month holding period. He had read the company’s filings and “knew that if somebody wanted to buy the company” they would have to pay a lot more than the market capitalization. Also, there was no debt, and a stable 5-per-cent dividend yield.

Worst move

“With the bull market over the last couple years… [it was] not pulling the trigger at certain opportunities that I found undervalued.”


“Focus on the value of a company and its relation to share price.”