Value Investing Congress 2011 Notes

http://www.scribd.com/doc/54958483/2011-Value-Investing-Congress-Notes

Charlier Munger : "Why be mad at the way the world is ? "

As usual the Mr Rational speaks in his unique way
http://www.youtube.com/watch?v=vBbd2dMGarM

Charlie: "Trump is stark raving mad"
http://www.youtube.com/watch?v=RGLMnTzQIh8

Argan, Inc. (AGX)

This company has three businesses: GPS,SMC and VLI.

GPS: Constructs gas fired power plants, Wind farms,etc. Contributes 95%  of revenue and earnings.
SMC: Telecom business for government. Contributes a small fraction to the business
VLI: They have disposed this business in Dec 2010. It has contributed to losses of 3,9 and 6 million dollars in year 2010,2009 and 2008 respectively.

So basically we need to focus on GPS portion of the business. This business earned net income of about 8M in 2009 and 10M in 2010. The income increased in 2010 even though revenue fell about 16% because the building of gas fired power plant is low margin business compared to wind turbine construction.

Company has 83M in cash on hand. Current Market cap is 123M.

Insiders own about 35% of the company (MSR Advisors is owned by Levinson).

		Shares				Beneficial
		Beneficially				Ownership
Name and Address		Owned (1)				Percentage (1)
Daniel A. Levinson (2)			1,386,270				10.15	%
William F. Griffin, Jr. (3)			1,256,839				9.24	%
Rainer H. Bosselmann (4)			420,660				3.06	%
Arthur F. Trudel (5)			139,124				1.01	%
James W. Quinn (6)			99,570				*
Daniel L. Martin (7)			50,000				*
W.G. Champion Mitchell (8)			20,000				*
William F. Leimkuhler (8)			20,000				*
Henry A. Crumpton (8)			20,000				*
Cynthia A. Flanders (8)			20,000				*
DeSoto S. Jordan (9)			5,000				*
Officers and Directors as a Group (11 Persons) (10)			3,437,463				24.37	%
NSB Advisors LLC (11)			4,643,098				34.14	%
Richard L. Scott (12)			1,673,000				12.30	%
MSR Advisors, Inc. (13)			1,363,270				9.99	%
Utility Service Holding Co., Inc. (14)			1,110,850				8.17	%
John W. Blackburn (15)			817,106				6.01	%

Valuation:
Enterprise Value = 50M
Normalized Annual FCF = 10
EV/FCF = 5x

That is a pretty cheap. Given that insiders own quite a bit of the stock.....the odds that they will make foolish decision when allocating the 85M in cash is somewhat mitigated. Basically they have skin in the game.

This is not a recommendation to buy or sell. Please do your own due diligence.

Sold half of my Moody`s holding at 39.14

I purchased Moody`s in June of 2010 at around $ 20/share. At that time it was trading at enterprise value of 10x free cash flow. Although there was a risk that the dodd-frank law will change the way the whole ratings system works, I estimated that the government will be slow to enforce any of the big regulations. Meanwhile we had a high moat business selling at such cheap valuation.

At present its priced at around 17x free cash flow. I would rather sell it at 20x FCF but I thought it would it be wise to sell at least half of the holdings. Also having the stock in my IRA allowed me to sell it without worrying about the tax consequences.