CONTROLLED GREED.com

DirecTV Buying Back More Stock

Along with my post yesterday on CBS (CBS/NYSE) announcing a stock buyback, I should have included the news that DirecTV Group (DTV/NYSE) is doing the same.

DirecTV plans on repurchasing up to $1 billion, which would be about 3.6% of outstanding shares based on yesterday's closing price. (The stock fell yesterday, along with almost everything else.) The company's $3 billion buyback announced last year has been completed.

As you know, control of DirecTV is passing from Rupert Murdoch to John Malone. Speculation is that Malone might sell the company to AT&T. I don't know what he has in mind, but I'm confident it will turn out well. This position has been a winner for the portfolio, even though it has been down a bit lately (even before Tuesday's global sell-off).

Nikko Knocking Around

Yesterday I posted that Nikko Cordial (NIKOY/OTC) ADRs had largely recovered from their price drop since the accounting scandal. So, of course, the stock plunged nearly 15% in Japan overnight in reaction to a media report that the company would be delisted from the Tokyo Stock Exchange. The TSE denied the report.

The decision about whether or not to delist Nikko should come in mid-March. So don't be surprised if more of these reports cause price swings in the company's stock.

On a related note, some reporting indicates that a delisting will play a major factor in what Citigroup eventually does. Such as Citigroup boosting its stake if Nikko doesn't get delisted. And trying to buy it outright if it does. Keep in mind, there is all sorts of speculation out there -- not to mention ongoing talks behind the scenes between Nikko, Citigroup and Mizuho Financial.

If you've followed Controlled Greed.com's moves with Nikko Cordial since 2005, you're up nicely overall. I'm not selling my remaining ADRs. My advice for anyone in my position is to hold. But, as always, you have to make up your own mind.

CBS Raises Dividend (Again), Announces Stock Buyback

The Wall Street Journal reports that CBS (CBS/NYSE) announced today it is buying back up to $1.5 billion worth of stock and boosted its dividend for the fourth time since being spun off from Viacom.

The key words in any stock repurchase announcement are "up to" -- but Les Moonves is proving to be a very shareholder-friendly CEO. And I expect him to continue working to deliver returns for those of us owning the stock.

You and I know there are no guarantees. My hunch is that CBS will prove to be a slow, steady gainer for the portfolio. Sort of like Molson Coors.

Nikko Cordial: No Bidding War

I was hoping that a bidding war for Nikko Cordial (NIKOY/OTC) would break out between Citigroup and Mizuho Financial. That looks much less likely today, according to reports such as this one from Bloomberg:

Mizuho Financial Group Inc., Japan's second-largest bank, scrapped a plan to acquire Nikko Cordial Corp. and will instead seek an alliance with rival bidder Citigroup Inc., two company officials said.

Not getting into a bidding competition makes sense -- Citigroup and Mizuho have things to offer each other. But, hey, I own some Nikko and having two outfits competing for my ADRs increases the chances of getting a better price. :-)

Anything could still happen and I just know what I read in the press. My hunch is that Citigroup will probably go the route of boosting its stake in Nikko, as opposed to making a bid for the whole company.

Then again, Nikko's share price has largely recovered. The ADRs aren't in the teens like they were several months ago (when I posted that I sold one-third of the position). But they're mostly back over $10, where they were before the accounting scandal broke. Who knows? Maybe in the end all of this stuff has just been noise.

The type of noise that threatens delisting from a major stock exchange, that leads to executives being fired, sparks talk of takeovers and gives shareholders one heck of a roller coaster ride. But in terms of the ultimate share price, noise nonetheless.

Another Option for Buying Foreign (non-US) Stocks for US-Based Investors

Regular readers know I use Schwab for buying stocks not readily available on US exchanges. These include 3i Group (III/LN), ArmorGroup International (ARG/LN or AMGPF/OTC) and Takefuji Corp. (8564/JP or TAKAF/OTC). Theresa Carey writes in the Electronic Investor column in Barron's that E*Trade has gotten in the game. It launched its Global Trading platform on February 20:

The goal of the new platform is to give U.S.-based customers access to six foreign markets, and give them the opportunity trade in multiple currencies as well. The six markets in the platform's debut are Canada, Hong Kong, the U.K., France, Germany and Japan. Ultimately, E*Trade plans to give customers access to 42 exchanges.

According to Barron's, E*Trade customers have to set up another E*Trade account to access the new platform. Which I don't like. With Schwab, I can buy foreign stocks inside any account -- regular brokerage or IRA or whatever.

But I'm all for more brokers getting into the game and giving retail investors more opportunities to invest globally.

If you're a new reader of this blog, you might want to check out a couple of my previous posts on international investing, How to Buy Stocks Listed on Foreign Exchanges and How to Research Foreign Stocks.

The Price Paid for a Stock is Important

Too often you read or hear people on this stock or that stock. Discussing whether or not investors should own it. And they won't mention price paid. They don't neglect this all the time, but fairly often it seems.

I was reminded of that reading a story in the International Herald Tribune that mentions one of my holdings, 3i Group PLC (III/LN):

Shares in 3i, a British private equity firm, have not done as well. They are up about 50 percent over the same period, but investors seduced into buying at the top of the technology mania are still underwater. The stock trades at a much cheaper 7 times earnings.

That's a fair point. But I wasn't buying 3i -- and neither were value investors like Eagle Capital Partners -- at the height of the tech boom. I bought in 2005. Big difference.

Now, before anyone thinks I'm patting myself on the back, let me point out that I suffer one of the main symptoms of value investing: buying too early. Allow me the assumption (delusion?) that Takefuji Corp. (8564/JP or TAKAF/OTC) works out. The fact is I established my position in that stocks at a significantly higher price. Ditto Media General (MEG/NYSE), though that company has made a nice comeback lately.

Yes, the company is important. But so is the price you pay for it. Very few of the stocks listed in the "Current Holdings" menu would be purchased today by me. Most have risen in price, and several have seen me take partial profits.

Stay patient and wait for your pitch. Tim McElvaine, when he worked for Peter Cundill, once put it this way: "Buy on the assets and sell on the earnings."

Report: Citi Boosting Nikko Stake by 33%

Unnamed sources in Japan are saying that Citigroup is planning to boost its stake in Nikko Cordial (NIKOY/OTC) and possibly take over the company. This is all speculation for now. And I would welcome having my ADRs purchased -- but at what price?

Investing in Forestry, Pulp, Timber

Reading VInvesting, I see this Globe and Mail piece on veteran money managers buying forestry stocks. The sector is battered. And that's why you'll see that many of the "usual suspects" of value investing are mentioned in the article, among them Cundill and Third Avenue.

Regular readers of Controlled Greed.com know that I don't own any of these stocks directly -- and I might be making a mistake in not doing so. I do have indirect (and I'd imagine tiny) exposure through owning Fairfax Financial (FFH/NYSE):

The value hounds are also sniffing at pulp. Fairfax Financial, the insurance con­glomerate headed by deep-value buyer Prem Watsa, owns about 20% of SFK Pulp Fund, including convertible debentures. Since hitting bottom at $3.60 in November, SFK's unit price has climbed to more than $4.50, and the income trust has resumed paying monthly distributions.

You can get a British perspective on this sector in the latest Spectator. Where the Globe and Mail article focuses on the sector being beaten up and in need of consolidation, The Spectator's article talks up the notion of China and India fueling future demand for timber products.

That may well prove true. But my experience has been that investing in sound companies in unpopular industries with a long-term view is the way to go. At least for me. So, if I buy any of these stocks, it won't be because of projected Asian growth.

Some examples of this for me include Imagistics International, a reseller of fax machines. Click on its name in the "Closed Positions" menu at the right for the story with that one. The company had a bum future -- fax machines being most of its business -- but got taken over for a nice profit. We've also had a good run in old media companies that were ignored a year or more ago. Think Comcast, CBS, Liberty Media's tracking stocks.

Buy unloved companies, with good finances, and wait. It might take several years for the masses to come to them, but you'll profit from your patience. Of course, some would argue that General Motors (GM/NYSE) and Fairfax don't have good finances. We'll see.

If you enjoy Controlled Greed.com and the unloved stocks reported on here, will you do me a favor and recommend this blog to three friends or colleagues today? I'd greatly appreciate it. And anyone can subscribe to the RSS feed here.

Why Developing Countries Aren't Rich

I've come across an interview Templeton's Mark Mobius gave PBS in 2001. He was asked "why aren't developing countries rich?" He answered:

I've come to the conclusion it's about corruption, really, at the end of the day. What I mean by that is of course there's different degrees of corruption. Every country has some corruption, but in the emerging markets the corruption goes all the way to the top, so therefore the population does not have faith in government structures, in law and order, because if you have corruption, in essence you don't have the rule of law; you have the rule of people. And that's really what separates a poor from a rich country, because there's no shortage of money.

There's absolutely no shortage of money in this world, plenty of money. The problem is is where that money is willing to go, and as we've learned from the debt crisis now -- we were just talking just recently to people about Malaysia, Indonesia, [Thailand], the crisis and everything -- if you really dig down deep enough, the problem is law and order. If someone lends money to a company or to a country and does not get paid back, they're not going to come again, or at least they're not going to come in a long while, and that's one of the reasons why I'm strongly against debt forgiveness for the poor nations of the world, because that's the worst thing you can do to a nation is allow them to get away from their debts and obligations.

It's a very bad lesson, because it means that for the future they will try and do that again, and eventually they'll have no credibility again, and no capital will go to that country.

You'll find much more if you go to the linked piece. And, sadly, Mobius' thoughts about corruption and debt forgiveness still rings true six years later.

Remember, when money managers invest money in a country they're putting their clients' (and hopefully their own) cash to work. When Do Gooders and World Savers demand your government "invest" money or "forgive" debt, it's your money at stake -- not theirs.

ArmorGroup in the FT

Jonathan Guthrie writes about ArmorGroup International (ARG/LN or AMGPF/OTC) in the Financial Times:

Armed ex-servicemen deserved their pariah image in the days when they sold firepower to coup plotters and dictators in the developing world. But their involvement in Iraq has placed them in danger of becoming respectable. They have had a good war, 600 fatalities notwithstanding. Up to 20,000 private security men have operated in Iraq at any one time, primarily for the US and UK government and their civilian contractors. The worst furore was triggered in the US when an Iraqi mob lynched American security guards, rather than by old-school mercenaries slaughtering locals.

I find this bit at the end of his piece compelling:

Risk is fluid these days, seeping easily through porous borders. The last ArmorGroup customer who used his defensive driver training for real was attacked in Houston, not Bogotá. And my English suburb? It’s a stone’s throw from neighbourhoods where seven Muslim men were arrested recently on suspicion of plotting kidnapping and murder. Reassured? Me neither.

New reader of Controlled Greed.com? You can read my original rationale for buying ArmorGroup stock last September by clicking on the company's name in the "Current Holdings" menu at the right. The stock is up more than 40% since then.