Here's the link:
Walter Schloss Interview
Source: Richard Ivey School of Business
Walter Schloss is a legendary value investor. He worked alongside Warren Buffett for Benjamin Graham at Graham & Newman Co. in the 1950s. The man sincerely believes that it is not necessary to do in depth research into a company before making an investment. He has earned an average 16% annual return over his long career. His strategy is extremely simple, as one can tell from this interview. A few ideas keep re-occurring:
1. Buy companies at a substantial discount to book value
2. Little to no debt in the capital structure
3. Management ownership (you can find this information in annual or proxy reports)
Thats about it! (Note how he puts absolutely no emphasis on the earning power of the company!)...Funny how the market works...
SG
Wednesday, February 25, 2009
Monday, February 23, 2009
Vanda Pharmaceuticals Possible Liquidation
Vanda Pharmaceuticals (NASDAQ: VNDA), an early-stage biotech company, has been urged by one of it's largest shareholders (approx. 14%) to liquidate and distribute the proceeds to shareholders.
Vanda Pharmaceuticals recently received notice from the FDA that their schizophrenia drug iloperodone was not approved for production and distribution. This drug has been the company's main focus over the course of the last 8 years. The company has still not earned a dollar of drug sales since its inception. Instead, like most development stage pharmaceutical companies it has been bleeding away shareholders dollars on RND and other expenses. Needless to say, the picture painted is quite bleak. There is no sustainable revenue stream in sight. Because of this, the liquidation request is quite likely to succeed.
The company is currently trading in the market for about $20 M. It has $51 M in cash and marketable securities, and only $4.5 M total liabilities. Therefore, net working capital is $46.5 M. This leaves about a 50% margin of safety under the estimated liquidation value, if an investor were to buy shares today. A forced liquidation will fully realize the value of this cash. Therefore, a position in this company is a WIN-WIN.
The hedge fund (Tang Capital Partners) involved in this liquidation has recently taken part in a similar event in the liquidation of Northstar Neurosciences (NASDAQ: NSTR). That event turned out successfully.
Coat-tailing these type of events can be extraordinarily profitable. An investor should buy shares in VNDA and hold until the result of the shareholder vote on the liquidation is concluded.
FOR MORE INFORMATION:
Communication from Tang Capital Partners to Vanda Pharma:
Shareholder Communication
Vanda Pharm Recent Quarterly Report:
Quarterly Report
UPDATE Feb. 23 2009
The board of Vanda Pharmaceuticals has responded to Tang Capital Partners request to liquidate. The board will fight the proposal and does not believe this type of action is necessary. I still believe that this event will occur, however, because the board in aggregate owns only about 5% of outstanding shares, while Tang Capital owns 14%. Not to mention there are other majority owners who will vote in favour of Tang should a proxy battle be necessary. Therefore, I am currently maintaining my position.
Disclosure: I own shares of VNDA.
SG
Vanda Pharmaceuticals recently received notice from the FDA that their schizophrenia drug iloperodone was not approved for production and distribution. This drug has been the company's main focus over the course of the last 8 years. The company has still not earned a dollar of drug sales since its inception. Instead, like most development stage pharmaceutical companies it has been bleeding away shareholders dollars on RND and other expenses. Needless to say, the picture painted is quite bleak. There is no sustainable revenue stream in sight. Because of this, the liquidation request is quite likely to succeed.
The company is currently trading in the market for about $20 M. It has $51 M in cash and marketable securities, and only $4.5 M total liabilities. Therefore, net working capital is $46.5 M. This leaves about a 50% margin of safety under the estimated liquidation value, if an investor were to buy shares today. A forced liquidation will fully realize the value of this cash. Therefore, a position in this company is a WIN-WIN.
The hedge fund (Tang Capital Partners) involved in this liquidation has recently taken part in a similar event in the liquidation of Northstar Neurosciences (NASDAQ: NSTR). That event turned out successfully.
Coat-tailing these type of events can be extraordinarily profitable. An investor should buy shares in VNDA and hold until the result of the shareholder vote on the liquidation is concluded.
FOR MORE INFORMATION:
Communication from Tang Capital Partners to Vanda Pharma:
Shareholder Communication
Vanda Pharm Recent Quarterly Report:
Quarterly Report
UPDATE Feb. 23 2009
The board of Vanda Pharmaceuticals has responded to Tang Capital Partners request to liquidate. The board will fight the proposal and does not believe this type of action is necessary. I still believe that this event will occur, however, because the board in aggregate owns only about 5% of outstanding shares, while Tang Capital owns 14%. Not to mention there are other majority owners who will vote in favour of Tang should a proxy battle be necessary. Therefore, I am currently maintaining my position.
Disclosure: I own shares of VNDA.
SG
Tuesday, February 17, 2009
KATY Industries ARBITRAGE OPPORTUNITY
Katy Industries (OTC:KATY), maker of cleaning products, filed a definitive proxy today proposing a vote of shareholders. The intent will be in effecting a reverse stock split in order to take the company private. All shareholders holding under 500 shares will be cashed out at $2.00 per share at the closure of the transaction. The equity is currently trading at $1.15 in the marketplace.
In order for the reverse split to go through it must be approved by the shareholders. The board of directors owns approximately 40% of the company and they will vote all their shares in favor of the transaction. Therefore, it can be hypothesized that approval is quite likely.
A purchase of the shares right now, if the transaction is completed will result in a 76% return over 1 month. This is equivalent to 766% annualized return. Since the mathematical probability of the transaction completing is so high, this is virtually a riskless proposition.
The goal here for the company is to reduce filing expenses associated with a public company, especially the Sarbanes-Oxley related auditing costs.
Read more about the transaction in their definitive proxy: Definitive Proxy Solicitation Materials - Going Private Transaction
The vote date is set at March 19th, 2009.
Disclosure: I own shares of NTEC.
SG
In order for the reverse split to go through it must be approved by the shareholders. The board of directors owns approximately 40% of the company and they will vote all their shares in favor of the transaction. Therefore, it can be hypothesized that approval is quite likely.
A purchase of the shares right now, if the transaction is completed will result in a 76% return over 1 month. This is equivalent to 766% annualized return. Since the mathematical probability of the transaction completing is so high, this is virtually a riskless proposition.
The goal here for the company is to reduce filing expenses associated with a public company, especially the Sarbanes-Oxley related auditing costs.
Read more about the transaction in their definitive proxy: Definitive Proxy Solicitation Materials - Going Private Transaction
The vote date is set at March 19th, 2009.
Disclosure: I own shares of NTEC.
SG
Thursday, February 12, 2009
Study on the merits of value investing
Here is a great research study on the merits of value investing. We've all heard that it outperforms in the long run, and there are numerous arguments that try to contradict this thesis. This study proves that value investing is a strategy that can be used to earn excess returns.
The study also shows that small caps outperform the others, which is a great area for individual investors as many large institutions are unable, due to regulations or asset size, to invest in them.
Tweedy, Browne Study
SG
The study also shows that small caps outperform the others, which is a great area for individual investors as many large institutions are unable, due to regulations or asset size, to invest in them.
Tweedy, Browne Study
SG
Saturday, February 7, 2009
Buying the Economy Cheap
Seems like right now the stock market is selling at firesale prices. But is it really? Buffett thinks so. Read this article on GNP vs Market Cap from FORTUNE:
"Buffett's buy signal"
The article supports the argument that market valuations are approaching historical lows, while still trading above the historical average valuation. However, the article fails to take into account the fact that interest rates are at historical lows, which theoretically should boost valuations. Therefore, it is definitely possible to make the argument that the market is selling LOWER then the historical average, when adjusted for interest rates.
SG
"Buffett's buy signal"
The article supports the argument that market valuations are approaching historical lows, while still trading above the historical average valuation. However, the article fails to take into account the fact that interest rates are at historical lows, which theoretically should boost valuations. Therefore, it is definitely possible to make the argument that the market is selling LOWER then the historical average, when adjusted for interest rates.
SG
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