quinta-feira, agosto 25, 2011

Palestra de Prem Watsa

Prem Watsa gere a seguradora canadiana Fairfax no mesmo estilo e filosofia que Warren Buffett gere a sua Berkshire Hathaway.

Esta é uma palestra que Watsa concedeu ao Ben Graham Center for Value Investing na Richard Ivey School of Business.


terça-feira, junho 28, 2011

Corticeira Amorim, SA

CORTICEIRA AMORIM is the world's largest producer of cork products and one of the most international of all Portuguese companies with operations in dozens of countries from all continents. For over a century that is present in this sector, having contributed significantly to the worldwide spreading of the advantages of cork products.

Brand Recognition: An industry leader for over 130 years.

The World Leader: The biggest market share in all product segments,

Corks: 25%
Finishes: 65%
Cork Composites: 55%
Insulation: 80%

Distribution: Sales Force dedicated to supplying customers in over 100 countries. 95% of sales outside of Portugal.

Vertical Structure: Integrated management of the value chain, from procurement of raw material, processing and optimization of all sub-products, production of a diverse range of products, direct presence in major consumer markets knowing the final customers, able to anticipate trends in demand (and discovering the potential for more applications of cork), and for providing an excellent service.

The cork industry in Portugal: Portugal is the biggest producer of cork and simultaneously, holder of the largest cork oak forest area of the world. The Portuguese cork industry absorbs 2.3% of total Portuguese exports, employs about 17,000 people and accounts for 70% of the worldwide transformation of cork, with 90% of its production for exports.

A sustainable product: Cork is 100% natural and recyclable, being extracted from cork trees. The cork oak is a native species with a key role in fixing CO2, in preserving biodiversity and combating desertification.

Inovation at CORTICEIRA: €5 million invested annually in R&D and Innovation; 17 patents subject to registration in the last three years; 11 units with FSC certification.

Américo Amorim: CORTICEIRA is controlled (76.56%) by the personal holding of the richest person in Portugal, Mr. Américo Amorim, with a fortune of about 5 billion euros. The company is in the Amorim family since it was created, being runned since 2001 by António Rios de Amorim, nephew of Mr. Américo Amorim.


CORTICEIRA AMORIM has demonstrated the resilience of its business and even during the worst recession of the last 80 years it managed not to deliver losses. Indeed in 2009 the company reported profits of 5.1 million euros and in 2010 it reported 20.5 million euros, justified primarily by sales growth of around 10%. CORTICEIRA has a very clean balance sheet with 33.3 million euros in cash and equivalents and has been reducing debt (Debt to Equity is 0.5).

CORTICEIRA is trading at historical low multiples with PE being 7.7 and PBook 0.61. Its not a very profitable company (2010 ROE is about 8%) and looking and the very conservative leverage ratios, it could release some cash, reduce the company's assets and improve their profitability ratios. With 2010 earnings the company reinstated a dividend of 0.10 cents or about 8.62%.

A 10X 2011 earnings is a conservative PE multiple and gives us a target of 2.2. But just book value alone more than 2, so this is a good target for CORTICEIRA, which implies a potencial growth of 68%. The company has much more potencial that can come from: sales growth; operational and profitability improvements; dividends and buybacks. These steps can boost valuation. Until then we have book value to protect this investment.

Markets right now are focusing and the struggles of Portuguese government to overcome the debt crisis. And stocks and their companies suffer as a result of that. But the are very valuable companies in Portugal, with great balance sheets and with large share of exports of their sales and they are being ignored. CORTICEIRA exports 95% of its sales and its an opportunity.

segunda-feira, março 28, 2011

Seth Klarman - A Framework for Investment Success

Seth Klarman had a section in his annual letter to investors on creating a framework for investment success.

I think Klarman's writings may be even more valuable to investors as a learning tool than the Berkshire annual letters. Although obviously brilliant, both Klarman and Buffett can explain in very simple terms how to create an investment approach that will outperform.

Here is Klarman this year:

Two elements are vital in designing an investment approach for long-term success. First, answer the question, ''What's your edge?" In highly competitive financial markets, with thousands of very smart, hardworking participants, what will enable you to reliably outperform the field? Your toolkit is critically important: truly long-term capital; a flexible approach that enables you to move opportunistically across a broad array of markets, securities, and asset classes; deep industry knowledge; strong sourcing relationships; and a solid grounding in value investing principles.

But because investing is, in many ways, a zero-sum activity in which your returns above the market indices are derived from the mistakes, overreactions or inattention of others as much as from your own clever insights, there is a second element in designing a sound investment approach: You must consider the competitive landscape and the behavior of other market participants. As in football, you are well-advised to take advantage of what your opponents give you: If they are defending the run, passing is probably your best option, even if you have a star running back. If scores of other investors are rigidly committed to fast-growing technology stocks, your brilliant tech analyst may not be able to help you outperform. If your competitors are not paying attention to, or indeed are dumping, Greek equities or U.S. housing debt, these asset classes may be worth your attention, regardless of the currently poor fundamentals that are driving others' decisions. Where to best apply your focus and skills depends partially on where others are applying theirs.

When observing your competitors, your focus should be on their approach and process, not their results. Short-term performance envy causes many of the shortcomings that lock most investors into a perpetual cycle of underachievement. You should watch your competitors not out of jealousy, but out of respect, and focus your efforts not on replicating others' portfolios, but on looking for opportunities where they are not.

Much of the investment business is centered around asset-gathering activities. In a field dominated by a short-term, relative performance orientation, significant underperformance is disastrous for retention of assets, while mediocre performance is not. Thus, because protracted periods of underperformance can threaten one's business, most investment firms aim for assured, trend-following mediocrity while shunning the potential achievement of strong outperformance. The only way for investors to significantly outperform is to periodically stand far apart from the crowd, something few are willing or able to do.

In addition, most traditional investors are limited by a variety of constraints: narrow skill-sets, legal restrictions contained in investment prospectuses or partnership agreements, or psychological inhibitions. High-grade bond funds can only purchase investment-grade bonds; when a bond falls below BBB, they are typically forced to sell (or think that they should), regardless of price. When a mortgage security is downgraded because it will not return par to its holders, a large swath of potential purchasers will not even consider buying it, and many must purge it. When a company omits a cash dividend, some equity funds are obliged to sell that stock. And, of course, when a stock is deleted from an index, it must immediately be dumped by many.

Sometimes, a drop in a stock's price is reason enough for some holders to sell. Such behavior often creates supply-demand imbalances where bargains can be found. The dimly lit comers and crevasses existing outside of mainstream mandates may contain opportunity. Given that time is often an investor's scarcest resource, filling one’s in-box with the most compelling potential opportunities that others are forced to or choose to sell (or are constrained from buying) makes great sense.

Price is perhaps the single most important criterion in sound investment decision making. Every security or asset is a "buy" at one price, a “hold” at a higher price, and a "sell" at some still higher price. Yet most investors in all asset classes love simplicity, rosy outlooks and the prospect of smooth sailing. They prefer what is performing well to what has recently lagged, often regardless of price. They prefer full buildings and trophy properties to fixer-uppers that need to be filled, even though empty or unloved buildings may be the far more compelling, and even safer, investments. Because investors are not usually penalized for adhering to conventional practices, doing so is the less professionally risky strategy, even though it virtually guarantees against superior performance.

Finally, most investors feel compelled to be fully invested at all times—principally because evaluation of their performance is both frequent and relative. For them, it is almost as if investing were merely a game and no client's hard-earned money was at risk. To require full investment all the time is to remove an important tool from investors' toolkits: the ability to wait patiently for compelling opportunities that may arise in the future. Moreover, an investor who is too worried about missing out on the upside of a potential investment may be exposing himself to substantial downside risk precisely when valuation is extended. A thoughtful investment approach focuses at least as much on risk as on return. But in the moment-by-moment frenzy of the markets, all the pressure is on generating returns, risk be damned.

What drives long-term investment success? In the Internet era, everyone has a voluminous amount of information, but not everyone knows how to use it. A well-considered investment process— thoughtful, intellectually honest, teamoriented, and single-mindedly focused on making good investment decisions at every turn—can make all of the difference. Investors with short-time horizons are oblivious to kernels of information that may influence investment outcomes years from now. Everyone can ask questions, but not everyone can identify the right questions to ask. Everyone searches for opportunity, but most look only where the searching is straightforward even if undeniably highly competitive.

In the markets of late 2008, everything was for sale as investors were caught in a contagion of selling due to panic, margin calls, and investor redemptions. Even while modeling very conservative scenarios, many securities could have been purchased at extremely attractive prices—if one had capital with which to buy them and the stamina to hold them in the face of falling prices. By late 2010, froth had returned to the markets, as investors with short-term relative performance orientations sought to keep up with the herd. Exuberant buying had replaced frenzied selling, as investors purchased securities offering limited returns even on far rosier economic assumptions.

Most investors take comfort from calm, steadily rising markets; roiling markets can drive investor panic. But these conventional reactions are inverted. When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focusing on risk. When one feels in the pit of one's stomach the fear that accompanies plunging market prices, risk-taking becomes considerably less risky, because risk is often priced into an asset's lower market valuation. Investment success requires standing apart from the frenzy—the short-term, relative performance game played by most investors.

Investment success also requires remembering that securities prices are not blips on a Bloomberg terminal but are fractional interests in—or claims on—companies. Business fundamentals, not price quotations, convey useful information. With so many market participants fixated on short-term investment performance, successful investing requires a focus not on how one is doing, but on corporate balance sheets and income and cash flow statements.