Extreme Value pick IMS Health rose nearly 22% yesterday, as word that the company's in buyout talks circulated in the press. Reports said IMS was talking to private-equity firms about taking the company private. I recommended the stock in August because it's a great, best-in-class business that I thought had gotten insanely cheap based on overblown fears about future legal issues which might not even materialize.
IMS Health was up 38% as of yesterday's close. I think the stock is worth at least $20 a share. It's around $17 and change now. To get my best current ideas in Extreme Value, click here.
The big move yesterday put IMS Health on our daily list of new S&A highs, which is now 20 names long. The downside of so many new highs and big up moves, like IMS Health saw yesterday, is that there's hardly anything to buy anymore...
Sean Goldsmith, David Eifrig, George Huang, and I are attending the Value Investing Congress (VIC) in New York. It started yesterday and concludes today. Mostly, what we're hearing and seeing is there's not much value in stocks right now.
Every other year I've been to this conference, the speakers – among the best investors in the world – talk up their books to an audience hungry for stock picks, who in turn place immediate orders on their BlackBerry or e-mail a quick note back to the office. In the halls during the breaks, attendees discuss the recent picks and add what little they can to the investment thesis in an attempt to impress their fellow conference-goers.
This year, the presenters are telling the audience how important macro factors are when forming investment theses – as close to sacrilege as you can get in most deep value investing circles. A lot of these professional investors saw their portfolios of carefully selected value stocks fall by 50% or 60% during the crisis, and they realized no matter how undervalued a stock may be, fighting a dominant macro trend (like the subprime, consumer credit, and real estate crises) is futile.
One presenter, David Nierenberg, said he was happy to still be around today, a commentary on the many funds that disappeared last year and those which have yet to disappear. At the Grant's conference several weeks ago, Howard Marks said you have to be able to survive your worst year (like 2008 was for so many), or you'll wind up like the six-foot man who drowned crossing the stream with an average depth of five feet.
This morning at the VIC, Alexander Roepers of Atlantic Investment Management said if you're going to run a concentrated portfolio (he owns just five to six stocks at any one time), don't ever use leverage. Leverage, indeed, is what caused many funds, banks, mortgage REITs, and other financial operations to blow up the last couple years. I agree wholeheartedly. Use leverage sparingly, if at all.
The most entertaining sight at this year's New York VIC was a poorly dressed Asian man (shirt untucked beneath his suit, tie tied above the belly button, disheveled hair, and crooked glasses) stalking all members of the media in attendance... Most mainstream news sources have reporters on hand, and they all wear a green badge to set them apart. He would wait until the media employee was in the corner – awkwardly hovering in the vicinity until they were alone – then pull out his book...
"I called the 2008 crash, would you like to see my book?"
"No."
I'm sure he'll be back on the warpath today.
David Einhorn – who unveiled his now famous Lehman Brothers short thesis at a past VIC – yesterday delivered what many felt was the best presentation so far. Einhorn has an uncanny ability to simplify his investment theses to a few easy-to-understand points. With Lehman, he noted the bank was hugely levered – in the neighborhood of 40 to 1 – and the company paid half of its gross revenue out as compensation. With Moody's and the other ratings agencies, he noted the ratings they provide are worthless (which was proven completely true by the mortgage mess) and a company selling a worthless product tends to fail in the long run.
Yesterday, Einhorn presented the bull case on gold. If I didn't know better, I'd say he's been reading The Digest. Essentially, Einhorn said:
Gold is not a bet on inflation or deflation. Gold does well when monetary fiscal policies are poor, and it does poorly when they are strong. And right now, picking currencies is like picking my favorite dental procedure. I would rather hold gold than cash today – especially considering both have zero yield. Also, gold is a monetary asset, unique because it has no liability attached to it. And it's not subject to leverage and therefore, it's the highest-quality monetary asset.
When someone in the government says something honest, it stands in bold relief from the prepared sound bites and lies with which we're barraged daily. Last Sunday, on CNN's State of the Union program, New Hampshire Republican Sen. Judd Gregg gave the following remarkable answer when asked about the federal government's projected $1.42 trillion operating deficit for the 2009 fiscal year:
You talk about systemic risk. The systemic risk today is the Congress of the United States... that we're creating these massive debts which we're passing on to our children. We're going to undermine fundamentally the quality of life for our children by doing this.
It's a dire circumstance and one that requires immediate attention and a massive fix, but it's heartening to hear a credible opinion emerge through the din of politics as usual and media spin. As long as that can happen, there's hope for this fading republic after all.
A ton of new highs today: Vanguard Inflation Protected Securities (VIPSX), iShares S&P Index ETF (IVV), iShares Hong Kong ETF (EWH), Morgan Stanley Emerging Markets (EDD), Amerigas Partners (APU), Kinder Morgan Energy Partners (KMP), Longleaf Partner (LLPFX), Korea Electric Power (KEP), Enterprise Partners (EPD), POSCO (PKX), Philip Morris (PM), Sequoia Fund (SEQUX), IMS Health (RX), WD-40 (WDFC), 3SBio (SSRX), Silvercorp Metals (SVM), MAG Silver (MVG), Jinshan (JIN.TO ), Encore Acquisition (EAC), Int'l Tower Hill Mines (THM), Nevsun Resources (NSU).
A bourgeois mailbag today... Nothing but wine vacations and literature. Send your musings to: feedback@stansberryresearch.com.
"Fellas, I have to hand it to you all, you do an amazing job. I wish I had the fortitude and where-with-all to follow all of your ideas and suggestions. Keep up the good work, I hoped I haven't entirely missed the investing boat. But one thing you have mentioned in the past was the book Atlas Shrugged. I find that it is so fitting of the position our country is in at this time. It is difficult to believe it was written over 50 years ago. I am only part way through the book, but see that is almost perfectly mirrors what is happening now. Again, keep up the good work and let's pray that our comrades in DC will turn the page and see that there is a better way. It won't happen, but we can always hope and pray." – Paid-up subscriber Richard
"Two years ago, my wife and I rented a 4,000 sq' luxury home in a walled in estate near the Mendoza [Argentina] wine region. It had personal staff quarters on premises and a gardener working the beautiful grounds everyday. we paid $900 for the week. Once situated we walked into the quaint little town to pick up some provisions. I bought a half dozen eggs, a large block of Gorgonzola cheese, fresh bread, 4 beers and bottled water and walked up to the cashier. She rand it all up and told me how much it was... less than 2 pesos. or about 66 cents." – Paid-up subscriber John
Regards,
Dan Ferris
New York, NY
October 20, 2009