Got a bunch here in the low 6's. Set it and forget it.

Do you guys think it's possible to be a successful value investor without having to do all the complicated financial models and number crunching?

I've been watching more of the Shrekli videos, currently on IBM's model, and I'm just not seeing the benefit of doing the amount of modeling that he is doing. Then I think of Damodaran who lives and breathes intrinsic value models. I just don't understand why people are so fixated on trying to come up with an exact value down to the penny.

For something like intrinsic value that is impossible to put an exact number on, couldn't it be possible to find companies that are obviously undervalued? I read that really good investments will be obvious and will jump out at you and the hours of modeling that some people do don't matter at all.

One example that I found was Nautilus (NLS). I was looking at that company in Dec. 2013 when it was $7.50/share. It is now $17.05 and was higher at one point. I didn't do any math, ratios, or models. Just looking at the financials made it appear to be undervalued and got me interested to dig in a little more. A little bit of reading told me that they went through some problems and were now coming out of the other side. I talked myself out of an investment, but I still kick myself.

I tend to think about this quite often and haven't really been able to come up with a definitive solution. I sort of dream of being a full-time investor as I enjoy the prospects of it, but thinking, and dreaming, and reading books causes me to procrastinate way more than I care to admit.

yes, it's just another way to invest...

what people do not realize is that almost anyone knows what the mathematical models tell you, so you rarely generate any alpha by betting on the model.

also some problem arises at that point:
why do you chose *that* model?
what do you know it's true and the market is getting wrong?
what entry does maximize my return, relatively to the risk?
why did it actually happen for the stock to go down like that? etc

etc etc... basically, the model can tell that BIDU is worth 420$ if you run a DCF, or if you use lynch model is worth 365$, so it's undervalued at 172$, but if you use grham number, it is worth 96$
__________________________

in this environment the easiest way to make a lot of money was/is buy oversold things with high p/e and >20% eps growth 5y -> eventually they recover.

Not looking at any ratios makes no sense, and is definitely not value investing. If you did look at the financials, then you essentially had mental criteria by which you determined it was "cheap." You DID use ratios of sorts, albeit probably crude and informal.

But you are correct that dcf isn't needed to be a value investor. In fact, a lot of value investors shun dcf since it is effectively glorified guessing (Buffett said he's never done it). There is, however, a value in having some approximation of whether the business is going to exist X number of years in the future without trying to project out earnings.

I would advise at a bare minimum, you need to know the EV/EBITDA as well as the EV/EBITDA in the context of its peer group. That should be your starting point for any type of value investment.

That is an interesting perspective and one that I did not think about. I sort of begin by eyeballing the financials to see if there is anything outstanding. The idea is to look at as many as I can and get rid of anything that looks obviously ugly. This will cause me to miss a lot, but I think it helps to narrow down the thousands of companies into several hundred. From there I can narrow it down from several hundred to maybe 5 or 10 companies.

Of all the examples I see of other analyst reports it seems like they are throwing together charts and numbers and projections, etc. and coming up with values as if they are following a cookie-cutter checklist based on what "everyone else" does or expects them to do based on models.

I guess I will have to learn about the EV/EBITDA. It is interesting to hear how Shkreli thinks about his models and does his research, but I'm not really sure what he gets out of it in the end.

Price to EBITDA is better. For the I Interest is permanent and we are in a period where this number is going to start going up as debt is rolled over. T Taxes, a profitable company is paying taxes instead of the debt holders. D Depreciation must be offset with Capital expenditures.

You have to make sure the debt is structured properly I learned that the hard way with DXMM. Now with private equity you have to worry if the debt holders are making deals with management so they get the company for free in bankruptcy (I learned that the hard way with MCP and AROP). Companies with high cap ex and r and d, seem to outperform those without. Look for non-cash impairment (goodwill) charges to hide hidden profit. When T-mobile lost those it quadrupled.

No it isn't.

Yeah sure. I think Shkreli is just trying to show how all of the modeling is done. I think many people take it too far and believe that if the model says IBM is worth X and IBM is trading at 0.6 * X, then it's a good buy. IMO modeling is just one piece of information to help you make a decision. It's not a strategy all together.

Solution: Don't buy the common stock of bankrupt companies. The equity is almost always wildly overpriced thanks to retail.

I did a screen on portfolio123. For the top 200 stocks EV/EBITDA earned abut 5.9%, while EBITDA/mktcap returned 15.3% annually rebalanced since 1999. The 200 lowest EV/EBITDA returned 6.48%. Not even close. EV/EBITDA may not even beat the market.

if EV/EBITDA returned 6.5% annually since 1999, it massively beat the market. i know overall it has massively beat the market over decades, although year to year variations may not be in its favor.

never heard of EBITDA/marketcap as a metric, will have to look at that

it's a little confusing what you just said as far as the parameters and the results, can you clarify a bit?

EBITDA/marketcap is equivalent to EVITDA/price. I like it because bigger numbers are better as compared to price to sales where you look for smaller numbers. The above stats were for 500 MM or above in size and U.S. only. Also they include dividend re-investment.

EBITDA ($) / (shares *price ($/share)) = EBITDA per $ invested.

From the time period, the market return 4.5% including dividends. However, in the screen above the graph ended below the market, it probably lost too much in the correction of 2008. Big drawdowns can put a big dent that take long to make up.

Guess what stock has the highest EBITDA/mktcap? FMCC so you have take a comb to results.

"Since 1999" is a really bad idea when doing backtests.

Isn't steelhouse an obvious troll.

Or he is an experiment by google, they try to see how credible they can make their latest algorithms.

He reminds me a lot of the investment version of Tay.

I've always thought LendingClub (LC) is a industry changer but could never get around to justify it's valuation, after todays plunge though I'm taking a closer look. The asset light model is very attractive to me and there is no denying the value proposition they offer to borrowers and investors. Its currently trading at 10x next years number while growing revenue/loan origination at 60%+ a year. Cash on hand now accounts for close to 40% of the market cap.

This plunge just seems like a huge overreaction and has no material impact on their long term operation. Am I missing something here?
Quarter was solid even in a tough environment

Quarter Ended March 31,
($ in millions) 2016 2015 % Change
Originations $ 2,750.0 $ 1,635.1 68 %
Operating Revenue $ 151.3 $ 81.0 87 %
Adjusted EBITDA (1) $ 25.2 $ 10.6 137 %
Net Income (Loss) $ 4.1 $ (6.4 ) N/M

Bear case is we're at the top of the credit cycle and a downturn is coming once interest rates go up. Rates are not going to normalize anytime soon and in the current environment LC value to lenders and borrowers is very strongly intact.

Bear case is also people total spooked by the fraud and much tighter regulations on the whole industry. I think it's certainly worth watching, but right now seems like a really scary time to buy (even for a value investor). You'll get cheaper shares than here, that's nearly certain. Lawsuits and more downgrades will see to that.

anyone got a analyst research subscription they can recommend. I pay $16/month to morning star through my brokerage, but find their research a little superficial.
thanks

Most analyst research is crap.

Bough first batch of LC today at $4

Agreed. I've often wondered why they're so bad - I think it's primarily a combination of group think and having perverse incentives, i.e. if the bank you work for is trying to win a company's underwriting business, you're not going to be allowed to write a bearish report.

Not to say there aren't good ones, of course, but they are rare.

If you're good at analyzing stocks it doesn't really make sense to be one. Sort of a self defeating occupation.

You've got more balls than me on LC with the fraud + the part where the business seems like it's effectively loans to risky people. That one is definitely not for me.

I'm getting kinda squeamish on the overall market, for me there's more things I'd rather sell than buy atm. Think I'm gonna try hunting for specific (and/or tailing some here that make sense to me) rather than general index fund stuff for now and see how that goes. At least I'll learn something, hopefully not the hard way.

why? Sell side analysts get paid 500k and can do their own research on small caps they dont cover on the weekends and invest there. May as well get paid good coin while you hone your skills or stay sharp. Plus you get better access to management

I get your point in the long run, that once you have enough saved that your excess investing profits can rival that 500k/yr it may not be worth the hassel.

First ever NVTR earnings reported yesterday (they make spinal chord stimulators for people with really bad chronic pain). They lost 70 cents a share (which is not remotely surprising) since they're basically creating a new (global) sales team from scratch and haven't really begun to sell beyond the last few Q's. The stock's been heavily manipulated from the word go after the spinoff (such a small float), and I think shorts are going to use that loss to attack it again. It would seem that they have all the right pieces in play despite the crowded space they're in:

-FDA approved product(s) and rolling out global sales team
-Sales so far just International, but they're approved for all markets now
-what I think amounts to 90m in cash and cash equivalents, which is 7 to 9 quarters of cash given that the CEO was vague on how costly the new sales force would be (but said it would be costly)
-very little debt but access to 45m in credit
-rockstar management team with incredible experience. They were formally with ANSI who St Jude bought (so they know everything about the competing product leader and somehow non-competes didn't keep them from this project)
-really deep and valuable patent set, they've got a lot of IP they can sell off too


The world wide market is being cited at 1.7 to 2B and growing at 6% per year. They go up against big players in St Jude, Boston Scientific and Nevro. St Jude was clever enough to integrate with Apple products which these days strikes me as a big competitive advantage. Their product maturity and the massive size of their sales force is why they're at the top of the food chain. But St Jude's device gets a ton of negative feedback on just about any message board I read. It's either "it ruined my life" or "it saved my life". The tech at the heart of these things is old and these companies have been working hard on improving them for decades (more comfort, bluetooth, less side effects, better controller, ease of use, battery life, efficiency). Conservative analyst estimates have NVTR at 55m in revenue by 2018 (3% of the market). With the amount of reps deployed and the CEO citing between 1 and 1.5m target per rep per territory that sounds pretty safe. Nevro (wall street darlings and big competitor) reported 69m in revenue last year. They make 1 product, and their current market cap is 1.8B. NVTR's current market cap fluctuates between 60 and 80m. They sell 2 products (the SCS and a pelvic stimulator) and have more in development. If you believe the CEO's estimates of his salesforce needing 12 to 18 months per territory to reach maturity, then this strikes me as a great value play. But given that it's a microcap in a currently hated space and the float is so easily manipulated, you've got to be ready for crazy swings. I average $6.50 right now and I think I'll buy more if the shorts attack it the way I expect them too. I just can't justify a 60m market cap even in a space with so much competition.

Interesting, thanks for writing that up. Why do you think it will get so much short interest - what's their thesis?

I don't think it's so much short interest as just sophisticated investors crushing retail ones with a whole array of typical tricks. The after hours bids last night were a bit of a clue, and I expect the bids today to reflect that too. It ran from $4 to $10 back to $6 (in a month) before moving to $8 in just two days . Some folks are having a lot of fun at the expense of retail. I just think the word "loss" on such a small float is going to spook the people who just bought at $8. But I think the smart money knows exactly what they're doing here. Long term I don't really think the short float will be all that big.