Analysis: NOW Inc. (NYSE: DNOW)

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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Book Review: Competition Demystified

In Competition Demystified, Bruce Greenwald and Judd Kahn simplify Michael Porter’s five forces framework (threat of new entrants, threat of substitutes, customer bargaining power, supplier bargaining power, industry rivalry) into a single force from which all others derive: barriers to entry. According to the authors, there are three sources of this competitive advantage:

  1. Supply Advantages: Lower input costs, proprietary technology, complicated processes, etc.
  2. Demand Advantages: Captive customers, habitual products, high switching costs, high search costs, network effects.
  3. Economies of Scale: High fixed costs spread across high market share.

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Investment Theory #21: Klarman’s 1999 Letter

I’ve been awol while studying for the CFA. With level 3 hopefully behind me, I’m going to get back into the habit of writing. Let’s jump back into our series on the 1990’s with Seth Klarman’s letters as our guide to the period.

Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s activity during the period 1995 to 2001. Links to past posts: 1995, 1996, 1997, 1998

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Investment Theory #20: Klarman’s 1998 Letter

Lately, it appears a fresh wave of animal spirits has gripped the markets — just look at the post-election rally in equities. Investors seem to have bought into the narrative that tax cuts and deregulation will jump-start the economy, while at the same time ignoring the risks inherent in an “America-First” protectionist agenda.

In times of market loftiness, it serves us well to reexamine how similar cycles have played out in the past, and there is probably no better case study than Seth Klarman’s handling of the late 1990s. Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s activity during the period 1995 to 2001. Links to past posts: 1995, 1996, 1997

Continue reading “Investment Theory #20: Klarman’s 1998 Letter”

Investment Theory #19: Klarman’s 1997 Letter

Lately, it appears a fresh wave of animal spirits has gripped the markets — just look at the post-election rally in equities. Investors seem to have bought into the narrative that tax cuts and deregulation will jump-start the economy, while at the same time ignoring the risks inherent in an “America-First” protectionist agenda.

In times of market loftiness, it serves us well to reexamine how similar cycles have played out in the past, and there is probably no better case study than Seth Klarman’s handling of the late 1990s. Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s activity during the period 1995 to 2001. Links to past posts: 1995, 1996

Continue reading “Investment Theory #19: Klarman’s 1997 Letter”

Investment Theory #17: Klarman’s 1995 Letter

Lately it appears that a fresh wave of animal spirits has gripped the markets — just look at the post-election rally in equities. Investors seem to have bought into the hype that tax cuts and deregulation will jump-start economic growth, while at the same time ignoring the risks inherent in an “American-First” protectionist agenda.

In times of market loftiness it serves us well to reexamine how similar cycles have played out in the past — and there is probably no better case study than Seth Klarman’s handling of the late 1990s. Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his hard to find book: Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s thinking throughout the period 1995-2001.

Continue reading “Investment Theory #17: Klarman’s 1995 Letter”

Investment Theory #16: Performance Appraisal

This is the last post in a three-part series on investment performance evaluation. The series explores: 1) Performance Measurement, 2) Performance Attribution, and 3) Performance Appraisal. In other words, how much we made, how much we made compared to a benchmark, and how much we made adjusted for the amount of risk we took on.

Performance evaluation allows us to examine the effectiveness of our investment process. It provides us with a systematic way of judging our decision-making process and improving on it, which is what investment theory is all about.

Today’s post deals with performance appraisal, which is a technique used to compare returns with an account’s corresponding risk. Risk is a hard thing to pin down, but for our purposes we will stick with two typical measures: systemic risk, measured by beta, and total risk, measured by the standard deviation of returns.

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