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Buy The Little Book of Value Investing

I recently finished The Little Book of Value Investing by Christopher Browne. And then today Controlled Greed.com received a Blogad order for the book from its publisher.

Good timing.

If you're new to value investing, buy this book. And if you're still attracted to the concept after reading it, then you'll want to move on to the writings of Benjamin Graham.

But here's one of the great things about Chris Browne's work -- the book is STILL worth your time and money even if you've been practicing the value approach for years.

You'll enjoy reading Browne's copy, for one thing. He writes in a friendly, non-textbook style that I find refreshing. And you'll like the fact that Browne isn't just talking the talk -- he's walked the walked as a member of Tweedy Browne.

You'll also benefit because the author spends a fair amount of time on applying the value approach to global markets. As you've read me say here repeatedly, buying stocks in foreign (non-US) markets isn't as easy as it should be. But it is getting easier over time and investors shouldn't ignore the potential bargains to be found abroad.

Browne even writes about how investors look over each other's portfolios. You can get a headstart in building a list of portfolio candidates this way. I remember that money manager and author John Train called this method "reverse engineering."

Click the Blogad and find out more about this fine book. Then buy it for yourself or someone else. The holidays will be here before you know it, after all.

Festival of Stocks Reminder

This week's Festival of Stocks is being hosted by ValueBlogger.com. Be sure to check it out starting Monday and sample the well-researched, always-interesting posts by a variety of stock market bloggers.

DirecTV Group

Reading DirecTV Group (DTV/NYSE) being mentioned by Blair Levin in his interview in Barron's reminded me of something. Specifically, that often there's not much to say about many the portfolio's holdings -- especially when they gradually rise in price over time.

That's just not the stuff of headlines.

I recommended DirecTV in July 2005 at $15.50. It closed Friday at $21.91 -- a nice gain of more than 41% in 15 months. Most media-related holdings have done well this year.

In the Barron's interview, Levin wondered something posted here previously: speculation that Rupert Murdoch will give his controlling interest in DirecTV to John Malone, in return for Malone giving Murdoch his chunk of News Corp. stock. As you know, I've always liked the Murdoch people running DirecTV because of their proven experience operating satellite companies. But I wouldn't mind John Malone gaining control, because he's a fine operator in his own right.

Levin goes on to say:

Once its ownership is decided, then the question of what the right market structure is for DBS can be decided. Should the DBS companies, DirecTV and EchoStar, try to merge again? Should one or both of the DBS companies be bought out? Should they just remain the way they are? The first two options are the most likely. The DBS companies have a problem because they don't have a broadband pipe and therefore they are missing the data and voice parts of the bundle as well as mobility. They're now competing in a market that is more difficult than the market of two or three years ago. Plus, the telcos are entering video, and competition from them is going to make the satellite companies' lives even more difficult.

Asked what they gain by merging, Levin says:

They get economies of scale that help them in the video business. But more importantly, they get a critical mass of subscribers that enables them to invest in a greenfields broadband build out.

And what are "greenfields"?

In other words, they would build a brand new network. They have apparently been talking with Clearwire, Craig McCaw's wireless broadband company. The DBS companies would put up the money so they could build out the network across the nation faster. Another avenue they are considering is investing with the mobile-satellite-services players to build out a network and offer on top of it a broadband offering and a Voice over IP [Internet protocol] offering. Suddenly they would have something that looks like the cable bundle or Bell bundle. The problem with that is there is significant regulatory risk were the government to turn down the merger. There is significant technology risk that an investment in Clearwire and the satellite services doesn't scale well, the technology doesn't work or it is too slow relative to what cable and the Bells can do. There is financial risk that it costs more to build it out. There is market risk that by the time it is built out all the good customers are taken. If you are Charlie Ergen, the CEO of EchoStar, or John Malone or Murdoch, there is also personal risk, which is: How well do they get along? The history of such mergers and joint ventures between Ergen and others has been the relationships don't last long.

Levin goes on to explain that the odds of a merger between DirecTV and EchoStar are a lot better today than before, though regulatory hurdles remain.

He also seems to think AT&T might buy EchoStar, and that DirecTV may get left out.

We'll just have to see how this all plays out. And you can say that about most anything concerning broadcasting and media-related companies these days.

Jim Gant on David Winters

You probably saw my post a week or so ago linking to an article on David Winters. If you liked that, you'll like this even more -- Jim Grant devotes his latest Forbes column to Winters:

The award for the most perplexing career move of 2005 goes to David J. Winters, formerly chief executive officer and chief investment officer of Franklin Mutual Advisers. Winters resigned from that $35 billion fund behemoth in order to found his own mutual fund. Repeat: mutual fund, not hedge fund. He calls his creation Wintergreen.

By its charter, Wintergreen could almost be a hedge fund. It can invest anywhere, in anything. It can buy stocks or sell them short. It can invest in bankruptcies, liquidations and distressed securities. It can do business at home or abroad. But Winters doesn't get 20% of the profits, as hedge fund operators do. The investors, of whom I happen to be one, keep all of the upside, net of fees and expenses, which happen to come to a stiff 1.95% of assets yearly. It's worth it.

This jumps out:

Ask him the question most often put to hedge fund jockeys by jumpy institutional investors: "What's your edge?" And he replies, "We're long-term investors."

And this:

A member of the value investment tribe, he means that good things happen to cheap stocks over the sweep of years. Five years is Winters' idea of a decent holding period.

Yet another fine piece by Grant, long the finest writer of words in financial journalism. The fact that Grant, as he reports in this piece, has money invested in Winters' fund is especially noteworthy.

Buffett Biographer Interview

This weekend, Financial Sense Online has an audio interview with Andy Kilpatrick, author of the newly-revised Of Permanent Value.

Here's Amazon's description of the book:

The theme of this fully revised biography about Warren Buffett is books, books, books. Many works directly related to Buffett or Berkshire Hathaway, as well as many indirectly related, are the focus. For example, a chapter about Procter & Gamble includes photos and information about books written about P&G. A good number of the more than 1,100 photos in the book relate to books to help move the story, indeed the odyssey, along. The muse for this odyssey is James Joyce's Ulysses. The cover is blue because the original cover of Joyce's masterpiece was blue. The back cover of the book sports a superb photo of Buffett and Bill Gates standing together at a golf outing.

Comcast Kicks Butt

It's easy to fall into the trap of concentrating on the weaker holdings in the portfolio. Which right now would be Media General (MEG/NYSE) and Takefuji Corp. (8564/JP or TAKAF/OTC).

Perhaps it's just the human tendency to focus on the bad. Or maybe it's that more news reports come across my desk concerning these companies.

You know, if it bleeds it leads. Or no news is good news.

With all that said, let's give a tip of the hat to Comcast (CMCSK/NASDAQ) CEO Brian Roberts and his team. The company just released excellent third-quarter results. It's amazing this outfit was being ignored by Wall Street a year ago -- the conventional wisdom being that Comcast was a boring old cable company. Good grief.

From the linked Bloomberg report:

Comcast Corp., the world's largest cable-television provider, said third-quarter profit soared fivefold on the purchase of Adelphia Communications Corp. and record sales of telephone and digital-television services.

The shares rose as much as 4.5 percent after net income jumped to $1.22 billion, or 58 cents a share. Sales rose 22 percent to $6.43 billion, Philadelphia-based Comcast said today. Excluding gains related to Adelphia, profit was 26 cents a share, beating the 19-cent average analyst estimate.

Comcast added more new phone, digital-TV and high-speed Internet customers than analysts predicted. The company's offer of all three services for $99 a month fueled the growth, Chief Executive Brian Roberts said. This quarter will be "as good or better'' Roberts told analysts today on a conference call.

You can read my original rationale for buying Comcast in November 2005 here. I own the Class A Special stock (symbol CMCSK).

Takefuji Issues Threat to Thwart Takeover Attempts

Yesterday, Takefuji Corp. (8564/JP or TAKAF/OTC) said it will take action to fend off takeover bids. Bloomberg reports (scroll down the linked article):

Japan's second-largest consumer finance company by market value said it will double its number of shares outstanding should a hostile bidder acquire at least 20 percent of its stock, diluting the holdings of current shareholders.

As you know, takeover speculation regarding Takefuji picked up when news broke that Peter Cundill boosted his holdings and now owns more than 8% of the company. This in addition to Takefuji already having substantial foreign ownership -- not to mention that Japanese investors are slowly becoming more activist.

We haven't seen the last of this story.

Larry Sarbit

I'm not familiar with Winnipeg-based Larry Sarbit, but find this profile of him in the Globe and Mail interesting. Here's some of the article written by Andrew Allentuck:

By reputation, he is famous -- or infamous -- for holding substantial amounts of cash until the right opportunities come along, steadfast to the principles of value investing invented by Ben Graham and echoed by Warren Buffett, the Oracle of Omaha. "There are times you can only get a T-bill return," Mr. Sarbit says. Currently, his lead fund, the Sarbit U.S. Equity Trust, holds 40 per cent of total assets in cash.

Mr. Sarbit does not have Mr. Buffett's international stature, nor, with $67-million in his U.S. stock fund, the grand man's billions. But Mr. Sarbit does have a reputation for sticking to his principles of deep value investing. At Investors Group, his first gig as a portfolio manager, he racked up an average annual compound return of 18.6 per cent in the decade following the market crash of Oct. 19, 1987.

This further down:

The current investments in the U.S. Equity Trust are vintage Sarbit. Most are priced below book value and far below the average of other U.S. equity funds. The price-to-earnings ratio of the portfolio is about 75 per cent of its peers, the average market capitalization 10 per cent of its peers, the dividend yield significantly higher and the number of holdings -- about a dozen -- a small fraction of the 162 companies held on average by U.S. equity funds, according to Morningstar research.

Keep in mind Sarbit currently holding a dozen stocks is in the context of him also holding 40% cash.

His top five positions as of September 30:

Foot Locker 8.68%

Clear Channel Communications 7.76%

SM&A 7.12%

Regis Corp. 5.58%

International Speedway 4.71%

Just Hangin' Out

Well, here I sit at the keyboard with nothing specific to write about. I haven't come across any interesting news stories that report on any portfolio holdings. Or any other stories catching my eye.

I've also been swamped with non-blogging duties and projects this week. So I haven't had time to write anything much at all.

My plan is to be writing more pieces like How to Research Foreign Stocks and How to Buy Stocks Listed on Foreign Exchanges. Not all about international investing, of course, but more original pieces. I get a lot of positive feedback from readers when I produce that type of content. And I think it gives Controlled Greed.com its own place in the sun.

That said, this blog is about my stock picks.

And its worth rests on the overall long-term performance of the stock picks made here.

Speaking of which, I did glance at my brokerage account this afternoon after the market closed. Everything seems to be doing well -- except Takefuji and Media General, of course -- but I imagine most portfolios have done fine lately.

And, I remain cautiously optimistic that Takefuji and Media General will prove to be profitable investments. But they will take some time to work out.

Look for me to add one or two more new positions to the portfolio in the coming weeks. I want to get the portfolio up to 25 holdings, and I'm not there yet. I've got three candidates that I'm checking out. Two based in the US and one foreign.

Let's what, if anything, happens.

Finding Value

Warren Buffett said it and it's true. Different people can apply the value approach and apply it correctly --  and have completely different investments.

You've read me say more than once that I enjoy Clyde Milton's Cheap Stocks blog. I really like Clyde's theme of buying bargain stocks with undervalued real estate holdings.

And in his latest Financial Times column, James Altucher finds an area with few investors: closed-end funds:

Closed-end funds are publicly traded mutual funds that trade on the major exchanges, usually the NYSE or the Amex. Because they are publicly traded, the price of a closed-end fund is set by the market. Even if a CEF has $100 a share in assets, the price might be only $95 or $90 or even $105 depending on the public’s attitude towards the sector the CEF is in, the management running the CEF and a variety of other factors. Often, because CEFs are not as sexy as owning Google or even as sexy as owning Alcoa, the discount to net asset value that a CEF usually trades at can be explained by nothing more than ennui.

He goes on to explain more about closed-end funds and then ends with this:

We are going through a cataclysmic change now in asset allocation as funds of funds, mutual funds, hedge funds and money management firms are all trying to converge on the same business model with little hope of convincing their customers they have an edge. In an environment like this, sometimes the best approach is to lay low and pick up the scraps of healthy food that the drunken partygoers have thrown into the garbage.