Posts In: Gannon on Investing

Geoff Gannon November 23, 2019

F.W. Thorpe: A Good Business Making Durable Products that May Have Already Peaked

Today’s initial interest post is a company I like a lot. It’s trading at a price that could be justifiable – possibly – based on that company’s past performance. But, it’s not a stock I’m going to give a very high initial interest level too. The reason for that is uncertainty about the future. I’ll get to that uncertainty in a second. First, I want to describe what FW Thorpe does. The company makes lights. I won’t go into too much detail here. You can...

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Geoff Gannon November 22, 2019

Gamehost: Operator of 3 “Local Monopoly” Type Casinos in Alberta, Canada – Spending the Minimum on Cap-Ex and Paying the Maximum in Dividends

Today’s initial interest write-up is a lot like yesterday’s. Yesterday, I wrote about an Alberta based company paying out roughly 100% of its free cash flow as dividends. In fact, that company was paying almost nothing in cap-ex. Today’s company is doing the same. It pays almost everything out in dividends. And it doesn’t spend much on cap-ex. So, cash flow from operations translates pretty cleanly into dividends. And like yesterday’s stock being written up (Vitreous Glass) – today’s stock being written-up (Gamehost) probably attracts...

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Geoff Gannon November 22, 2019

Vitreous Glass: A Low-Growth, High Dividend Yield Stock with Incredible Returns on Equity and Incredibly Frightening Supplier and Customer Concentration Risks

Vitreous Glass is a stock with some similarities to businesses I’ve liked in the past – NACCO, cement producers, lime producers, Ball (BLL), etc. It has a single plant located close enough to a couple customers (fiberglass producers) and with an exclusive source of supply (glass beverage bottles from the Canadian province of Alberta that need to be recycled) and – most importantly – the commodity (glass) can’t be shipped very far because the value to weight ratio is so low that the price of...

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Geoff Gannon November 3, 2019

A-Mark Precious Metals (AMRK): A Dealer and Lender in Physical Gold

A-Mark Precious Metals (AMRK) has been written up twice at Value Investor’s Club. The most recent time was this year. You can read those write-ups over there. It was this most recent write-up at Value Investor’s Club that got me interested in the stock. However, it was for different reasons than that write-up itself lays out as the case for buying the stock. The VIC write-up focuses on how low volatility in the price of gold (and silver and other precious metals) in recent years...

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Geoff Gannon October 30, 2019

Daily Journal (DJCO): A Stock Portfolio, Some Real Estate, Some Dying Newspapers, and a Growing Tech Company with Minimal Disclosures

This was going to be one of my initial interest posts. Then, I started reading Daily Journal’s SEC filings for myself. At that point, I realized there just isn’t enough information being put out by Daily Journal to possibly value the company. There just isn’t enough information to even gauge my initial interest in the stock. I’ll still try at the end of this post. But, my look at Daily Journal will be a quicker glance than most.

Daily Journal is a Los Angeles based company (it’s incorporated in South Carolina, however) with 4 parts.

Part one is a stock portfolio consisting mainly of – we’re sure of this part – Wells Fargo (WFC) and Bank of America (BAC) shares. The third part of the portfolio is probably (my guess) mostly shares of the South Korean steelmaker POSCO. Yes, Daily Journal does put out a 13F – this is where sites like GuruFocus, Dataroma, etc. are getting the “Charlie Munger” portfolio to show you. However, the way that kind of filing works is that it would entirely omit certain securities. For example, it’d include POSCO shares held as ADRs in the U.S. (which is probably a small number) while not counting any POSCO shares held in Korea (which is probably a bigger number). Daily Journal does have a disclosure about foreign currency that includes discussion of the Korean Won. We can also see by looking at the 13F for periods that are very close to the balance sheet date on some Daily Journal 10-Qs that the actual amount of securities held by Daily Journal is greater than the amount shown in the 13F. There would be other differences too. For example, we know Daily Journal sold some bonds at a gain. Those bonds would not be included in the table filed with the SEC that websites use to tell you what Charlie Munger owns. Everyone can agree on the two big stock positions though. Daily Journal has a lot invested in Wells Fargo and Bank of America shares.

The value of these stakes are offset to some extent by two items.

One, Daily Journal would be liable to pay taxes if it sold shares of these companies. As long as Charlie Munger is Chairman of the company (he’s 95 now, though) I don’t expect Daily Journal to ever sell its shares of these banks. Therefore, I don’t expect a tax to be paid. If a tax was to be paid – you should, perhaps, trim the value of these stakes by over 15%. A very big part of the holdings are simply capital gains. If a stock has increased in value by 4 times while a corporation has held the shares – then, the final amount of taxes paid will seem very large relative to the size of the stake. This is because most of the stake is capital gains that would be taxed on a sale.

The other offset is margin borrowing. Daily Journal borrows using a margin account. …

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Geoff Gannon October 29, 2019

Psychemedics (PMD): A High Quality, Low Growth Business with a Dividend Yield Over 7% – And A Third of the Business About to Disappear

Psychemedics (PMD) is a micro-cap stock (market cap around $50 million right now) that trades on the NASDAQ. It is not – by my usual definitions – a particularly overlooked stock. The beta is about 0.53 (low, but many stocks I’ve written about have much lower betas). The share turnover rate – taking recent volume in the stock and multiplying it to see how much of a company’s total shares outstanding would turn over in a given year at this recent rate of trading –...

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Geoff Gannon October 28, 2019

Vertu Motors (VTU): A U.K. Car Dealer, “Davis Double Play”, and Geoff’s Latest Purchase

Accounts I manage own some shares of Vertu Motors (VTU) – bought last week – but, far less than a normal position. Whether we end up owning a full position – that is, having something like 20% of the portfolio in Vertu – or not depends mostly on whether the stock’s price comes down and stays down for a while. As I write this, shares of Vertu trade for about 40 pence. They were as low as 31 pence not too long ago. I wrote...

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Geoff Gannon October 24, 2019

Nekkar: Why We Bought It – And is It Cheap?

Someone emailed me a question about Nekkar: “I was just curious to understand your thesis on Nekkar. Although they quite correctly have a net cash position of MNOK 0,3bn, they also have close to 0,2 in negative WC (95 in receivables/inventory minus current liabilities of MNOK 274), and I believe most of the cash in Syncrolift (0,2) comes from pre-payments, which over the course of the project will be used for buying raw materials, paying sub-suppliers etc. I am not sure of the percentage but...

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Andrew Kuhn October 2, 2019


Originally posted at on June 01, 2011

by Geoff Gannon

Someone who reads the blog sent me this email:

Dear Geoff,

in your article “Should you Buy Microsoft?” on GuruFocus, you said, that it makes sense for some investors to use LEAPS instead of the stock.

After thinking long about that, I came to the conclusion, that LEAPS can be viewed as a form of leveraged investment with an insurance against a falling stock price included…So LEAPS would make sense, if you want to leverage your portfolio with relatively low risk.

I’m not endorsing LEAPS.

I think they make sense only in situations where there is a level of catastrophic risk in the underlying stock that is not priced into the option. In general, this means low volatility stocks that nonetheless can fail catastrophically if infrequently.

Like banks.

I would use LEAPS to buy a bank because there is always the risk that a bank will go to zero. In that sense, LEAPS leverage your investment and provide protection – basically an involuntary surrender – where you cut down a huge loss while still betting on a favorable outcome.

The problem with LEAPS is that they aren’t long enough dated. 5-year LEAPS would be good. 10-Year LEAPS would be virtually indistinguishable from a stock in terms of a correct analysis resulting in profit. But 2 years is not long enough for a value investor. If Warren Buffett had bought Washington Post 2-year LEAPS instead of Washington Post stock in the 1970s he would have lost his entire investment. By buying the underlying stock, he had a return of 30% a year compounded over the first 10 years.

I’ve had stocks that didn’t work out for 2 years. But, boy, did they work out over 5 years. I would’ve lost money on the LEAPS.

Any bet that depends on the market recognizing something within 3 years is a bet where a value investor can be completely right in terms of analysis and yet lose everything simply because the clock runs out.

Value investing is largely based on being able to hold a position until the market changes its mind. I’d say it’s very unreliable to assume mean reversion in the market mood on a stock within 3 years.

The exception to this is when you’re diversifying both across a group of separate bets and across a period of time. For example, if you buy one stock a month every month and turn over the portfolio every year (by swapping out one stock each month), you may average an acceptable result because you’re actually making a dozen different bets on a dozen different stocks that depend on prices at a dozen different future moments in time.

That’s not what you’re talking about. You’re talking about making one bet on one stock that will succeed or fail based on whether or not the stock reaches a certain price fast enough.

Personally, I’m not interested in LEAPS.

And I really …

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Andrew Kuhn September 28, 2019

How to Come Up With Investing Ideas

December 23, 2010

A reader sent me this email:

Hi Geoff,

…I was wondering if there was any other advice you had on how to pick what companies I should look into. You mention a few blogs that I should look to for ideas but what about stock screens? Should I employ those in order to get a rough list of stocks and then choose a few and analyze them by reading their 10-K, etc.? I am just worried I am not sure how to get all the stocks to read their 10-K…


You won’t run out of ideas.

Start with one idea and follow that thread wherever it leads. Don’t obsess about any one stock. Just sketch the investment idea quickly in your mind. Does it grab you? No. Then move on.

You can use screens. I recommend Magic Formula InvestingGuruFocusMorningstar, and RobotDough.

GuruFocus also has 2 newsletters for subscribers to the site. One is about Ben Graham NCAV bargains. The other is about Warren Buffett / Charlie Munger bargains.

Use Bloomberg to “watchlist” stocks. Whenever you find an interesting company, go to Type the company name in the blank box in the upper right of the screen. It will give you the symbol (and exchange) of the stock you want. Click on that stock. To the right of the stock price, you’ll see an option that says “+ Add Security to your Watchlist”. Do that. You’ll need to create a account for this. It’s free.

The beauty of the watchlist is that Bloomberg tracks the stock’s percentage price move since you watchlisted it. Once a week, log into Bloomberg and just look at the stocks that are red. If the company was interesting when you first saw it, it’s even more interesting now that it’s cheaper.

Bloomberg is the best place to follow foreign stocks. So enter any names you get from reading Richard Beddard’s blog over there. Don’t try to track foreign stocks at sites like Yahoo and Google. Or at your American broker.

That brings me to another point. Pick the right broker. If you’re looking to invest like Benjamin Graham and Warren Buffett, don’t use Charles Schwab. Go with an online discount broker that does international and over the counter stocks well like Noble Trading or Interactive Brokers.

Here’s the big mistake most investors make. They refuse to follow their best ideas!

Right now, some people reading this thought: “Really? I have to switch brokers?”

Nutty, I know. But totally true.

Someone will hear about some little company that trades in New Zealand or Denmark and realize Morningstar, GuruFocus, EDGAR, etc. doesn’t have financial data on that stock. Or their broker won’t do a trade there. So they don’t follow up on the idea.

Never limit yourself because you can’t get data on the company. Screens limit you. Pretty soon you’re focusing only on screens that are running in

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