Friday, October 21, 2011

Excerpts from Phil Fisher`s book

The book "Common Stocks and Uncommon Profits" was published in 1958. The following excerpt describes how the monetary system has been intentionally biased in US towards devaluing the currency after 1932.

Fisher

Sunday, October 16, 2011

Revisiting buying PUT options on TLT

Over a year ago I thought about buying PUT options on TLT expiring on Jan 20,2012 for 2.6$/share.Basically this investment would have had a huge payout if we had a runaway inflation and interest rates went up significantly on government bonds.

http://stalking-value-stocks.blogspot.com/2010/08/thinking-about-buying-put-options-on.html

Looking back that investment would be worth 0.13$/share....a loss of 95%.

But I think betting against treasury bond yields is still a good idea. In my perfect world I would buy a TLT PUT expiring in 2022 but nobody is willing to sell that long dated PUT option.

So here is an investment which makes all the sense in the world ....but you just need someone willing to take on the opposite side of the bet.

Thursday, October 6, 2011

Bought Henderson Land(HLDCY) at US $4.38/share

About Henderson Land
Henderson Land(ticker HLDCY) owns a significant amount of land in Hong Kong (21 million square feet)and China (150 million square feet, primarily in secondary cities). In Hong Kong the government owns most of the land and sells it to the land management companies like Henderson in the auction market. The auction process can end up being a costly way to acquire the land. Instead of bidding on auctions Henderson Land acquires land by buying up old decaying buildings and tears them down to make skyscrapers. Hence the cost of land is the cheapest among their competitors.They have also acquired huge amounts of agriculture land over the past two decades at low costs and is working with the government to convert it into residential lots.I personally saw their AIA financial center building in the heart of downtown Kowloon during my visit to Hong Kong this summer.

Unlike US, as per HK accounting, land and property needs to be restated annually based on present market values on companies balance sheet. Hence the book value of the company accurately represents the present value of assets.

Valuation

BHKD = Billion Hong Kong Dollars

The latest stated book value of Henderson Land stock is about 190 BHKD. At my purchase price the company is selling for 80 BHKD. Henderson owns 40% stake in Hong Kong and China Gas which is also listed in stock market and is worth 54 BHKD. Hence at current price I bought Henderson`s real estate in Hong Kong and China with current market value of 190-54 = 136 BHKD for 80-54 = 26 BHKD. I know that Hong Kong real estate is currently a bubble and the governments is taking significant steps to reduce the property price appreciation but, at 80% discount to book value I feel I have a significant margin of safety for any losses. Even if Hong Kong real estate prices fall by 50%......the company will still be worth 122 BHKD vs my purchase price of 80 BHKD.

Insider Ownership

Companies having high insider ownership is a huge plus for shareholders since you can trust that they will take capital allocation decisions in best interest of the shareholders. Lee Shau-kee family(Chairman of Henderson Land), who already owns 56% of the companies stock, boosted their stake in April by investing 10 BHKD in Henderson stock and raising their ownership to 59%. I view this as a vote of confidence in the companies future as well as proof of its undervaluation. While Lee Shau-kee purchased the shares at $58 HKD/share my purchase was made at $31 HKD/share......a 47% discount to his purchase price.

This stock comprises 4% of my portfolio.

To read more
Lee Shau Kee Purchase
http://www.bloomberg.com/news/2011-04-13/lee-shau-kee-s-1-3-billion-investment-in-henderson-may-fund-home-projects.html

Page 11 and 12 of Third Avenue Shareholder Letter
http://www.thirdavenuefunds.com/ta/documents/reports/2Q2011ShareholderLetters.pdf

Mid Year Report
http://www.hld.com/en/pdf/investor/presentations/1011.pdf