
Companies That Sell for Less Than Their Cash - epi0Bauqu
http://www.businessweek.com/magazine/content/08_43/b4105000168724.htm?campaign_id=rss_topEmailedStories
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charlesju
I completely agree with Business Week. This stock market is oversold.

For instance, Yahoo is definitely worth more than a 16 X P/E, no internet
company of Yahoo's reach and size should be worth 16 X P/E. $2B in cash, $4B
in liquid assets, and only $2B in liabilities. $1B in profit, every quarter.
It's just a function of the rest of the world going online and using existing
web portals, a lot of them are going to use Yahoo. That, or they'll receive
another offer for a buyout, which is highly possible.

Another good stock buying technique is to buy small chunks of the stock market
over a set amount of time, I believe this is called "averaging down". It
relies on the fact that you don't know where the bottom will be, so it
averages that risk across multiple investments, which is a lot safer than just
placing 1 bet for where you think the bottom will be. I think that if you were
to average down into a leveraged index ETF right now (ie. MVV), you'll be
making buttloads of money in 5-10 years, with an averaging down investment
schedule to take the money you want to invest, and split that investment up
over a 2 year span.

Of course, I'm just a lowly tech entrepreneur that has also lost a little bit
of money in this recent downturn, so what do I know, haha

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vlad
I heard that the strategy of investing the same amount of money every month
("stock goes up, good, stock goes down, you just bought more shares, good") is
not actually a very good strategy at all. Supposedly, brokers use it to get
you to spend money with them on a regular basis, especially if the fund or
broker makes commission or a fee per trade.

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ced
How could it possibly be a good strategy?

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charlesju
It's all about risk minimization. Assume for a second that you don't read the
news and all you see are numbers. (This kind of scenario is kind fairly
accurate for most investors because most investors don't beat the index, so
they might as well be news agnostic anyways.) Right now, in our hypothetical,
you want to invest in the market. You saw that it fell 30 odd % since the top
and that if you compare that % to previous great depressions and recessions,
it's on par with the bottom of those analogous situations. If you buy in at
one single point, you have a high risk that the stock market will drop and
you'll lose a lot of money. But if you averaged in, you'll minimize the risk
of catching the exact bottom of the stock market, and overall, should increase
the average buy-in price.

The main reason why this works as opposed to just reading the news and
choosing based on logic is because more than 50% of professional investors
fail to out-invest the index. That means that you have a much better chance of
catching the lowest buy-in to the stock market than if you were to use
"logic".

It's pretty counter-intuitive, but it makes sense if you just come to the
realization that we're not that good investing.

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jsdalton
"Notwithstanding debt"

This entire article hinges on those two words in the second paragraph. Sure,
these companies are holding some cash. But if I have $10,000 in my checking
account and owe $100,000 in credit card debt, does that make me solvent? No --
especially if I have negative income as many of these companies do.

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tocomment
It doesn't sound like this metric means you could buy one of these companies
for the current market price, liquidate it and come out ahead since they don't
take debt into account. Or am I reading it wrong?

I still think someone or some group should buy Microsoft outright, halt all
R&D and get a nice 20-30% per year in dividends for the next 10-20 years until
it dies. (similar idea)

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chollida1
> I still think someone or some group should buy Microsoft outright, halt all
> R&D and get a nice 20-30% per year in dividends for the next 10-20 years
> until it dies. (similar idea)

And what happens to the employee's who get part of their pay based on stock
grants? How motivated would you be to work there knowing that you will be out
of a job when the owners have milked you for all you are worth, and cut back
on all the fun parts of your work to keep their dividends up.

This is a neat thought exercise but would be a complete non starter in the
real world.

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helveticaman
What if they paid you in a different way?

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chollida1
Then you still have the thought that your job won't be around long term, that
you aren't building something that will last forever, that all you would be
doing is maintenance on the existing releases as now that R & D is no longer,
no new versions will go out. Remember that any code writing is considered to
be R & D for tax purposes (SRED), etc, etc.

It would be a pretty demoralizing job.

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tocomment
Welcome to the corporate world, my friend.

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Tichy
"either the price is too low or the company should be liquidated."

Either one should buy stock of the company, or one shouldn't.

Information gained: zero.

~~~
mwerty
Don't you make money in either case?

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Tichy
I don't know, I was guessing that in case of liquidation, investors only get a
fraction of their investment back.

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fallentimes
This old PE firm I used to work with (not for), Platinum equity, was notorious
for these kinds of deals. Sometimes they would even get paid to take over the
company. I don't think they've ever had a losing deal.

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ericb
Ben Graham was interested in companies selling for less than their net working
capital, which is current assets minus current liabilities, not merely less
than the cash on their books. Bank of America has 312 billion in cash and 629
billion in debt. The article's "conclusion" does not follow from looking at
the market or companies mentioned through the lens of Ben Graham. _sigh_

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eserorg
Benjamin Graham looked for equities trading at less than 66% of their Net
Current Asset Value.

Where, NCAV (Net Current Asset Value) = Current Assets - TOTAL Liabilities.

Note that Graham calculated NCAV using total liabilities, and not just current
liabilities. By using only current assets he also excluded plant and
equipment, and goodwill in his calculation of NCAV. This is important, because
during liquidation all creditors will demand repayment, but the valuation of
plant and equipment will be impaired.

The 66% discount to NCAV provided Graham a "margin of safety".

The modern-day equivalent of NCAV is "book to tangible book value". What you
want is equities that have a "book to tanglible book" ratio less than 1, a
debt-to-total-equity ratio of less than 1, a price-to-earnings ratio that is
competitive with peers in its sector, and a "book-to-total-free-cash-flow'
ratio in the low single digits.

See ExxonMobil, for instance.

You can find all of these valuation ratios on the Reuters website.

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midwestward
Is it possible to access this information reasonably inexpensively without
digging into SEC filings?

