Neglected Stocks: Little Coverage, Large Shareholders

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Neglected stocks — I measure it by the ratio of market cap to average dollar volume.  15% of my portfolio is allocated to such stocks, but I would be happy for it to be 50%, if not more. Many of my companies have a single large holder or group — Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), National Western Life Insurance Company (NYSE:NWLI), CVR Energy, Inc. (NYSE:CVI), and Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B).  These companies have few analysts; there is no way for a brokerage to make money off of them.

Yes, there is a control discount for such companies, because they can’t be taken over, except by the dominant owner.  But if they are well-run, they can be great places to invest.  The dominant investor has his interests aligned with yours over the long haul.  This means that in good and bad times, a large amount of the stock is locked up, and is not available to be bought or sold.  Strong hands hold the stock, which is typically a good place to be.

I like holding cheap, illiquid companies, where there is no hint of financial stress, and they are earning decent money.  I don’t care if they are in dull industries.  If they are compounding their earnings at a decent clip, the stock will eventually catch up.

Despite 60% Loss On Shorts, Yarra Square Up 20% In 2020

Yarra Square Investing Greenhaven Road CapitalYarra Square Partners returned 19.5% net in 2020, outperforming its benchmark, the S&P 500, which returned 18.4% throughout the year. According to a copy of the firm's fourth-quarter and full-year letter to investors, which ValueWalk has been able to review, 2020 was a year of two halves for the investment manager. Q1 2021 hedge fund Read More


The point is to own good businesses at good prices.  That’s what I aim to do.

Full disclosure: long BRK/B, CVI, IBA & NWLI

By David Merkel, CFA of Aleph Blog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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