I posted on ENWV back in December when they had the illusion of a Net Net stock with a margin of safety. But it was all in the details. They had a slog of Preferred shares that weighed on the balance sheet. They were losing money, and seemed to have a lot of unhappy shareholders. There have been some changes since and I wouldn’t want anyone to be stuck with my previous assessment as the only look at the company. I still don’t own any shares. I am still on advocating buying ENWV, but the situation has changed enough to make it worth looking at least.
Margin of Safety is a concept I write about a lot. It is the make or break for any investment. While I may fudge the amount from time to time, all investments have to have a margin of safety to be worth shelling out my cash. But what is a Margin of Safety?
I came across a new investing blog that I think is terrific for beginning investors. It is the Fallible Investor. The writer is an Australian value investor who shares a lot of the same tastes as I do: Taleb, Montier, Klarman.
Shadowstock posted this analysis of Clarus (CLRS). It is an interesting idea.
CLRS is essentially a shell company with Net Current Asset value of approx. $4.78/share. All its assets are either cash or short term investments. At its closing price of $4.45 today, it is trading at a small discount to its NCAV value.
I was perusing Musings on the Markets, Damodaran’s blog and came across a post entitled Thoughts on the Risk Free Rate. Perhaps, because I am not an academic, I usually reject ideas that seem contrary to logic or that seem designed for an academic and not practical use. The Risk Free rate is one of these notions.
In surveying some of my favorite blogs recently, I have come upon something that hadn’t previously occurred to me, but could potentially alter how I invest. That is the problem with back testing Investing Strategies. Greenbackd posted an interesting starter piece on this subject called Walking the Walk, that led me back to the original blog from Aswath Damodaran called Transaction Costs and beating the Market. I have often thought there were practical problems with back testing, but I had not tried to articulate them until I read these posts. Both are excellent and worth reading. Damodaran, who is a Finance professor at NYU, and an author of Investment Fables (which I own), writes about the many ways to beat the market in general terms and then goes on to say, “Most of these beat-the-market approaches, and especially the well researched ones, are backed up by evidence from back testing, where the approach is tried on historical data and found to deliver “excess returns”.
One of my readers, Parker, pointed out in his comment on my post about Mistakes in Investing, that “one of the trickiest things about investing is determining when a bad result stems from a mistake (an oversight or error in process), or just from inevitable bad luck.” I felt that it was such an important distinction I would post about it.
As yesterdays post on TGAL shows you, we all make mistakes in investing. The question isn’t whether we will make mistakes but how we respond to the mistakes we make. My response was to sell by position in TGAL this morning. Yesterday’s press release with Q3 financials changed my valuation of the company substantially, from one having a comfortable margin of safety, to one with none. Given that TGAL was also losing money made selling at a loss a cinch. I sold at $1.20/share plus $4.95 commission for a loss of $85. Be clear. I am not saying the stock will continue to go down. But the valuation proposition changes so much that it no longer looked like a good investment. When that happens, even if it is only after a matter of days. I sell. I am not in market to hope a company recovers. I am about preservation of capital first, then appreciation of capital. The important thing is to move on.
On Tuesday I bought 1400 shares of Tegal Corp (TGAL) for $1.25/share plus a $4.95 commission for a total investment of $1754.95. Subsequent to my purchase of their shares, the company has issued a press release which outlines their 2009 Q3 results, with dramatically different assent situation that Q2. I will review this situation as it currently exists and not as it existed when I bought it. I no longer recommend this stock. This is a good example of what can happen to a Net Net stock. They are volatile and valuations can change dramatically.
Yesterday I bought 1000 shares of Linktone (LTON) for $1.69/share and $4.95 commission for a total investment of $1694.95. inktone is, according to their latest 6k, ” one of the leading providers of wireless interactive entertainment services to consumers in China. Linktone provides a diverse portfolio of services to wireless consumers and corporate customers, with a particular focus on media, entertainment and communications. These services are promoted through the Company’s strong distribution network, integrated service platform and multiple marketing sales channels, as well as through the networks of the mobile operators in China. Through in-house development and alliances with international and local branded content partners, the Company develops, aggregates, and distributes innovative and engaging products to maximize the breadth, quality and diversity of its offerings.”keep looking »