Good News for Investors...

This (WSJ: Decline of PE Ratio) is a pretty fluffy article...

However, the key implication is that more and more investors may be turning away from valuation in an effort to predict the macro-environment.  This is encouraging news for bargain-hunters like myself.

I worry considerably about the macro-environment.  However, as one investor once said, 'philosophize macro; invest micro'... as more investors worry about the macro-environment, I firmly believe that stocks will become cheaper and cheaper.  Once PE reaches 6x (1949) or 7x (1974), then it will be time to buy again... and buy alot!  Whether deflation or inflation, once valuations reach that levels I believe we should buy the best companies America has to offer (ie Coke, Proctor Gamble, Johnson & Johnson, Intel, etc.), as it's difficult to imagine a world without their products... and if such a world existed, I'm not sure I would want to be around to see it!

Currently at 12x-14x PE, I would want to see stocks fall by at least 50% before I'm ready to confidently say its time to buy.  In fact, considering that earnings will likely decline (considerably) in some future scenarios, we may well see a decline of greater than 50% before prices become truly attractive.  Buckle up!

Dying of Money - Complete Notes

I've found it too tedious to post individual notes separately.  I would have liked to embed the google doc into this blog, but Google engineers apparently still have some things to figure out (are u listening?)  Therefore, the complete notes can be found in the link below...

Dying of Money - Complete Notes

GLOI = Disaster!

Well, not 24 hrs after my estimate of $3.00-$4.00 in potential value at GLOI, (mis)management comes out on their conference call to spit in my face...

We are currently estimating that this distribution could be between the range of $23 million to $25 million with later distributions in late 2011 or early 2012 after the various earn outs are received and the last escrow payment is collected.  We would expect that any later distributions would be an aggregate amount between $0 and $23.9 million based on achievement of earn outs and releases from escrow.

Based upon these figures, I would probably anticipate somewhere around $2.50-$3.00 in future distributions.  Apparently I was not the only one who was taken a bit back by the discrepancy between some simple arithmetic, and management's more advanced financial accounting...

Eric Weinstein of Chancellor Capital spent quite a bit of time on the CC questioning the various numbers.  In my opinion, management did not seem too concerned about shareholder wealth (the warning signs were there earlier, I did not accurately discount this).

GlobalOptions Group (GLOI)

GLOI provides risk management services to the government, and operates through a variety of subsidiaries.  Recently, GLOI has sold off a number of their subsidiaries (mostly to management-related entities... hmmm).  In either case, the table shows the pro forma balance sheet after the sale of three of their four primary businesses...

In effect, the company is now in possession of roughly $21M in cash and notes receivable (plus some potential earnouts based upon contract renewal negotiations anticipated to take place in Aug-2010)... proceeds from the asset sales.  In addition, their remaining business is Bode, an industry leader in DNA forensics.  This business was purchased for $12M several years ago, and has been growing at a very rapid rate.

On August 13th, the company announced the sale of Bode (again to management related entities).  The sale price was approximately $24.5M cash (there is also potentially $5M in earnouts which I believe have very little value based upon historical Bode revenue levels).  The company no longer has any significant operations, and has announced intent to return proceeds of the sale back to shareholders.  Below, I provide my estimate of the approximate value of the current GLOI entity...

I anticipate roughly $3.17 to $4.00 in potential value in GLOI stock.  I am assuming that the assets/liabilities of GLOI still remaining at the time of the Bode sale will be transfered to the new company.  In addition, this does not take into account any potential transaction costs & tax liabilities that may arise.

The company anticipates the sale to close by Q4-2010, so I believe that we may anticipate a sizable dividend sometime in Q1 or Q2 of 2011.

Buffett Giving Pledge - Capitalism & Distorted Results

Continuing from Speech by Warren Buffett on Charity...

My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I've worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate's distribution of long straws is wildly capricious.

The ultimate lucky winners of our current system are capital allocators.  Those who can efficiently make decisions may be rewarded with vast riches.  Unfortunately, doing what is efficient is not always doing what best serves our neighbor.  After all, saving the lives of others and teaching future generations must certainly be at least as beneficial to society as being able to pick stocks... (if you doubt this, imagine a society without heroes/teachers and then another society without stockpickers... which would you rather live in?)

Buffett Giving Pledge - Biological Time

Speech by Warren Buffett on Charity...

...More than 99% of my wealth will go to philanthropy during my lifetime or at death. Measured by dollars, this commitment is large. In a comparative sense, though, many individuals give more to others every day... this pledge does not leave me contributing the most precious asset, which is time. Many people, including -- I'm proud to say -- my three children, give extensively of their own time and talents to help others. Gifts of this kind often prove far more valuable than money. A struggling child, befriended and nurtured by a caring mentor, receives a gift whose value far exceeds what can be bestowed by a check...

This passage touches on the subject of biological time.  As any old/dying man can attest, what they most wish for was more time to spend with friends and loved ones (alternatively, the most common regret is likely not spending enough time with friends & family).  Biological time is the most special/precious of commodities we have - it comes only from God.  Unlike most other assets, biological time, once lost/sold, can never be repurchased (despite Juan Ponce de Leon's most ardent attempts).

However, like other commodities, time can sold/exchanged, much to our detriment.  In fact, many who are 'successful' in this world, often have made just such an exchange.  In lieu of spending time with/for others, they have devoted themselves to their crafts... whether that be sports, politics, business, religion, etc (time is the universally accepted currency).

Even those of us who are not at the 'top of the ladder', we have often made bad trades with our time... minutes spent reading pointless articles/tabloids/boxscores (or writing blogs), hours spent playing video games & watching tv, days spent in mindless cubicles with no sense of fulfillment, years spent not loving the people right next to us...


I am not trying to say that all success is bought at the price of time with family, nor that we are all mini-fiends forever scheming of ways to assassinate time (though I imply both).

However, that time (even in the non-physics-Einstein-relativity-light sense) is one of the most important tools/gifts at our disposal is something I believe wholeheartedly.  To those who give their time in the service of neighbors, I salute you!

Usury is the derivation of profit from biological time, which is linked to life, considered sacred, God-given and divine, leading to excessive worrying about money instead of God, thus subjugating a God-given sanctity of life to man-made artificial notions of material wealth