ALJ Regional Holdings, Inc (NASDAQ: ALJJ) is a private-equity-style holding company, with a solid history of operations, that currently trades at a 15% free cash flow yield. The stock has suffered a 50% drawdown over the past year, mainly due to a stream of bad news, including ugly quarterly results, fears of a debt covenant breach, NOL’s taking a hit from the tax bill, and a sexual harassment lawsuit filed against the firm’s CEO and key capital allocator, Jess Ravich (in his role at TCW). The main question is does this negative sentiment match reality?
This document contains an independent analysis of the company. Information on my investment philosophy can be found here. On a side note, I haven’t written much lately as I’ve been busy studying for the CFA Level III exam and interviewing for jobs.
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Global economic expansion, falling unemployment levels, low interest rates, and low volatility have coalesced, creating a Goldilocks environment for asset valuations. This party continued throughout the fourth quarter and perhaps it will continue far into the future, as markets appear to be betting on; trees will grow to the sky, and everyone will get rich. But perhaps not.
As always, I have no idea what the near-term future will bring, which naturally leads me towards skepticism whenever expectations are at or near extremes (things are rarely as bad as they seem, and things are rarely as good as they seem). In the face of uncertainty, the best thing we can do is study up on economic history, trying to get a better sense of how today’s world fits in a larger picture. There isn’t much money to be made in trying to time the market, but there is plenty of money to be made in understanding the world a little better than the crowd.
Continue reading “Analysis: Q4-2017 Macro Update”
Pendrell Corporation (OTCMKTS: PCOA) is an illiquid, closely held microcap which is currently trading below its net cash position. This document contains an independent analysis of the company. Information on my investment philosophy can be found here.
Disclaimer: The author is currently long PCOA. All of the views expressed in this document are solely those of the author and do not reflect the view of any other person or company. I am not receiving compensation for it. I have no business relationship with the company whose stock is mentioned in this document. All investments involve the risk of permanent capital loss. I encourage everyone to do their own due diligence and to reach their own conclusions. Under no circumstances should this document be considered an offer to buy or sell any securities mentioned within.
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As each year ends, I try to pause and reflect on some of the year’s themes and how poorly I predicted them. The goal of this exercise is to relearn some of the lessons we relearn every year: Mainly that nobody, including myself, has any idea how macroeconomic and sociopolitical events will play out, nor how they will affect the markets. The best we can do is predict that past inertia will continue into the future – e.g. the stock market will return about 7.0%. We know this is an illusion since, within any chaotic, complex system, inertia is ephemeral at best, but it’s a nice illusion.
Continue reading “Year in Review: 2017”
The resiliency of the economic expansion continued throughout the third quarter. GDP growth remained steady, unemployment remained low, the US dollar weakened, and the Fed remained on track for its second interest rate hike of the year. On the other hand, geopolitical concerns increased, the chance of tax reform decreased, and market valuations rose to a level that leaves little room for error.
As always, I have no idea what the near-term future will bring. This post is merely an attempt to see if we are closer to the top or the bottom of the economic cycle.
Continue reading “Analysis: Q3-2017 Macro Update”
Now Inc. (NYSE: DNOW) hit $11.85 today and I began to build a position. This document contains an independent analysis of the company. Information on my investment philosophy can be found here.
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Say we throw a ball up in the air and want to predict what will happen next. Newton tells us that transferring kinetic energy to the ball will accelerate it upwards, and the force of gravity will accelerate it downwards. We can confidently say the ball will eventually come back down to earth. Now, try predicting what would happen to the ball if instead, a random survey of the human population decided its movements. If more people felt like the ball should go up it would go up and vice versa.
There is no shortage of forecasters who would take a simplified approach to this problem – just assume the physics bound world and ignore the human element. Eventually, the two should match up. We can think of this as the efficient market camp. Contrast that to the behavioral camp, which focuses primarily on the human element. They note that the fear and greed of a crowd can push the ball to further extremes than the constraints of physics would suggest.
Our goal today is to predict where that economic ball is going. We will borrow from both camps, while not forgetting that this is an exercise in art, not science. We can’t predict where the ball is going nor when it will get there with any certainty, but we can get a decent idea of where the ball is. If the ball is closer to earth, odds are it will begin its journey upward. If the ball is closer to space, odds are it will begin its journey downward. Give or take ten years.
Continue reading “Analysis: Q2-2017 Macro Update”
Another new year is upon us, and it’s that time again to reflect on what went wrong since the last time we reflected on what went wrong. The goal is to relearn the same lesson we relearn every year: Nobody, including myself, has any idea how macroeconomic and sociopolitical events will play out, nor how they will affect the markets.
Continue reading “Analysis: 2016 Reflections”
The story of the 2016 election centers around the unconventional, unprecedented rise of Donald J. Trump. Last night, with no elected office experience, a grab-bag of policy ideas that reflected neither party’s establishment, and a complete disregard for political correctness, Donald Trump attracted some 59 million votes and was named president-elect of the United States of America.
This has left many on the left in a state of panic and disillusionment. They feel that the election of Donald Trump marks the end of tolerance, diversity, and progressive ideals in America. On top of that, with the republicans winning both houses congress and multiple Supreme Court nominations in the balance, they feel that this might also mark the end of Democratic Party influence in government. This is probably an overreaction.
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This document contains an independent analysis of Monsanto Co. (NYSE: MON). Information on my investment philosophy can be found here.
Continue reading “Analysis: Monsanto Risk Arbitrage”