This web-site came to my attention recently.
A successful long-term deep value investor in resources discusses his approach
http://services.choruscall.ca/links/novagold20170505.html Focus on Thomas Kaplan’s presentation at Novagold’s Annual Meeting–his view of history and how he analyzes a market–beginning at minute 17:20 or 4th slide)
Rags make paper,
Paper makes money,
Money makes banks,
Banks make loans,
Loans make poverty,
Poverty makes rags.
Interview at Special Situations Hedge Fund
You have been working so hard to have an interview with Buffo and Greensplat Special Situations Hedge Fund and now you are in their offices. The interviewer sits down and then asks, “Can you please tell me what you think was the greatest special situations trade/investment of the past thirty years and what was the catalyst for the trade?” Hint: This made huge multiples on the original capital. Few recognized the opportunity until too late.
If you go to work tomorrow wearing a green shirt and say, “I’m going to win a million dollars today because everyone knows when you wear a green shirt on Tuesdays, you win a million dollars,” your colleagues will grab a giant butterfly net. You’re predicting an outcome that 1.) has no historical precedent and 2.) lacks any rooting in reality. You see that clearly.
Yet every time I (Ken Fisher) talk about history’s role as a powerful tool in capital markets forecasting, inevitably some say, “Past performance is no indication of the future!” Well, that is not why you should look at history. Use history as a laboratory–to understand the range of reasonable expectations. For example, when event X happens, the outcomes are usually B,C or D, but can be anywhere from A to F. So I know that anything could happen, but odds are greater something like A through F happens, with odds still higher on B, C, and D. And the odds of something outside that range happening is very, very low, so it would take exceptional extra knowledge to bet on something like that happening. (Source Markets Never Forget, But People Do, Fisher)
Case Study in Valuing a Stub–Loews, Corp (L)
These opportunities can offer (mostly) non correlated returns to the general market. Calculating the price of a stub is relatively straight-forward with publicly traded subsidiaries. These are typically non-franchise companies. Our goal in this case is to find the value of the stub (residual value) versus the market price of the conglomerate and its various subsidiaries. Is there opportunity here? What else would you need to consider? In a day or two I will post the analysis. To help you, I have posted several readings below this case.
Link to Loews Annual Report and 10-K (2011): http://ir.loews.com/phoenix.zhtml?c=102789&p=irol-index
Readings on Sum of the Parts Analysis and Stub Stocks
Sum of the Parts Conglomerates
Pratte on Liquidation and Creation of Stub Stocks
Stubs Maurece Schiller 1966 Prof. Greenblatt referenced and suggested this book as an example of how long special situation opportunities have existed. Interesting historical examples. Chapter on Stubs.
Leveraged Recaps and Exchange Offers_NYU