General ThoughtsSaber Capital Management

Thank You to Readers, Clients, Other Investors for a Great 2013

I’ve really enjoyed writing this blog over the past year. I didn’t expect all of the great things that have since occurred when I started writing this blog just over a year ago.

I started the blog as an outlet for my own thoughts and ideas on investing, but really had no idea where it would go. The launch of Base Hit Investing coincided with the beginnings of my investment management firm Saber Capital Management, LLC. I’ve since had the great fortune to meet new clients—who are now part of the “Saber Family” of partners who I value very much. I am lucky to have a great group of like-minded investors who have placed their trust in me, and I’m very grateful for that. I’ve also had the great fortune of talking with a few great investors—some who have been in the game for decades.  They’ve given me great advice and I value their experience and counsel. I’ve also met some new up and coming investors, a number of which I now call my friends.

I love investing, but the experience of connecting with new friends, clients, and investors has been—as one wide moat/high return on capital credit card company likes to say—priceless.

So it’s been a very rewarding experience for me, and I am very thankful and grateful that I happen to be so lucky. It has made writing Base Hit Investing very enjoyable.

And that leads me to something I’d like to say to my readers: Thank you for reading! All of this wouldn’t have happened if you didn’t take the time to read my posts, make your comments, send me emails, feedback, criticism, ideas, etc… I appreciate you reading my content and I hope I can continue to provide you with value in the future.

In 2014, I’ll continue to share ideas that I have along with commentary on value investing theory as well as ideas on specific investments. The market is making the latter more difficult to find, but over time, a long-term oriented disciplined value investor who goes about their business in a patient, methodical manner should do quite well over time. That’s what Base Hit Investing is all about. I have significant goals for my business and for my long term investment results, and I look forward to continuing to share my ideas and thoughts as we go forward.

Thanks again, Happy New Year, and have a great weekend. 

P.S. I wrote a post earlier this week with some Key Links for 2013 and mentioned it wasn’t a “Top Posts” post, but since I’m a glutton for just about any group of numbers or statistics, and since many readers are new, here is a list of the top 5 most read posts this year on BHI. Thanks again for reading and I look forward to your feedback in 2014!

  1. Mohnish Pabrai Lecture at Columbia University-My Notes
  2. More Notes & Articles on Allan Mecham of Arlington Value-The 400% Man
  3. How Buffett Made 50% Per Year? By Thinking Differently…
  4. Some Thoughts on Joel Greenblatt’s Magic Formula and its YTD Results
  5. Case Study-The Story of GEICO, Graham, and Buffett


3 thoughts on “Thank You to Readers, Clients, Other Investors for a Great 2013

  1. hey happy new year john, quick question, I know you are a “quantitative” investor, my question for you is, what merits do you invest on? are your clients comfortable with net nets? (assuming you invest in net nets in the first place)

    1. Hi Jonathan,
      I’m very much interested in the numbers… but I also work hard to try and understand the qualitative aspects of a business. But I generally agree with Buffett when he said the most “sure” money is made on the quantitative side, while the real big money is made when both qual and quan line up…

      But to answer your question–very generally speaking–my ideal investment is a great operating business that produces consistent free cash flow and high returns on capital that for some reason trades at 10x earnings or so. But those investments are relatively rare. So I’m always on the lookout for undervalued situations such as hidden or cheap assets or other special situations resulting from some corporate event like restructuring (B&N for example), or spinoffs, etc…

      But very simply, I’m just trying to low risk large gaps between price and value. I try to make everything very simple. I want obvious value…

      Regarding net-nets, the strategy seems to continue to work according to all of the tests, and I know investors who have done very well just mechanically buying these things (net-nets, negative EV stocks, etc…) Although I look at net-nets occasionally, I’m usually not very excited about them. As a basket they tend to work, but I would prefer to own a basket filled with better businesses that collectively are growing intrinsic value (my experience is that most net-nets today have shrinking intrinsic values). This means that over time, your margin of safety will erode, meaning you need the investment to work out sooner rather than later.

      As you know from reading, I love cheap stocks, and many of them are unloved cheap stocks with temporary problems, but I’d rather own a business that can grow its intrinsic value over time, because my margin of safety increases over time and gives me more room for error in my analysis work. So I love cheap, but I want cheap AND good, a combination that I feel provides me with lower risk and greater potential for outstanding results.

      It’s a confluence of things I’ve learned from Graham, Schloss, Buffett, and Greenblatt.

      I think Graham and Schloss had a field day with net-nets in the 30’s-50’s because of the opportunities available. The significance of the discounts that were widely available in the shadows of the Depression cannot be overstated. Schloss often found companies that weren’t necessarily great (some might even be losing money temporarily), but they had “$35 worth of liquid assets with a stock price of $15 and a 6% dividend”. It’s hard to lose money with a basket filled of situations like that. Most of the net-nets today are burning cash at a rate that will erase the margin of safety you initially get in just a year or two. Some of those will work, but they have much higher risk than I think Schloss would have wanted to take on.

      Another example–this time with the Master: In the late 1930’s, a company called A&P was the largest retailer in America, if not the world, and in 1938 it traded so cheaply that it was a net-net. (Imagine if Walmart had a bad year and traded below liquidation value)… In the late 20’s A&P traded close to $500 per share. By 1938, it had sunk as low as $36, thanks to a bad year and general pessimism. To put this price in perspective, A&P had net current assets $38 per share, including $24 of cash. So basically, the market was pricing A&P at liquidation levels–assigning no value to their business. But the average earnings per share of the previous 5 years (1933-1937) were about $6 per share. So A&P had a P/E based on avg 5 year earnings of about 6, and it traded below net current assets (which were largely liquid).

      These might be some of the more extreme examples, but there were many opportunities to invest in good stable operating businesses that might be experiencing a temporary bad year, but were extremely low risk situations.

      The net-nets today (at least in the US) are not of this caliber. However, this is not a reason to abandon the idea or the principles. It’s just that we need to try and locate the same type of low risk gap between price and value.

      Just some thoughts… remember to keep it simple, look for obvious value… and focus on cheap and good stocks.

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