Canadian value oriented fund, McElvaine Investment Trust posted 2011 Annual Report.It wasn't the best year for the fund, but it is well worth a read for anyone of value orientation.
Disclosure: No position
Thursday, April 19, 2012
McElvaine Investment Trust 2011 Annual Report
Canadian value oriented fund, McElvaine Investment Trust posted 2011 Annual Report.It wasn't the best year for the fund, but it is well worth a read for anyone of value orientation.
Disclosure: No position
Wednesday, April 18, 2012
Curious case of Consolidated Tomoka Land Co
I came across Florida based land and property owner called Consolidated Tomoka Land Company (CTO). CTO owns:
CTO's book value is 113.16M or 19.41/shr. At the current price of 29.32/shr, CTO is available at a P/B of about 1.5, which is certainly not cheap by any measure.
In fact, tangible book value is close to 18.79/shr, which makes this company even more expensive.
But digging further into this company I have discovered a hidden asset that is grossly understated on the balance sheet. Specifically, the 11,000 acres of land in Daytona Beach is recorded on the book at around $3900/acre. That isn't a typo. Daytona Beach land, touching the I-95 is on the books for about $4000/acre. (see March 14 investor presentation)
The company's land straddles Interstate 95 for approximately 6.5 miles
between International Speedway Boulevard (U.S. Highway 92) and State
Road 40.
I see CTO has an hidden asset play which may not go anywhere in the short term. Although, interesting catalyst is already at play (read latest string of press releases), the company is hemorrhaging cash due to their Golf operation. I suspect that this will stop at some point over the next year.
That being said, this organization of just seven employees is quite a simple business to understand. Even if the company never realizes the intrinsic value represented by the land, once the company gets back on the profitability path, market will eventually reward the patient investor.
In the meantime, to wait for that day, CTO pays a nominal dividend of 4¢.
Disclosure: No position, yet
- 11,000 acres of contiguous Daytona Beach land,
- 25 single-tenant properties,
- two multi-tenant office complexes (with anchor tenants such as Bank of America Merrill Lynch and Walgreen),
- subsurface mineral rights to 490,000 acres of land, and
- 22 billboards.
CTO's book value is 113.16M or 19.41/shr. At the current price of 29.32/shr, CTO is available at a P/B of about 1.5, which is certainly not cheap by any measure.
In fact, tangible book value is close to 18.79/shr, which makes this company even more expensive.
But digging further into this company I have discovered a hidden asset that is grossly understated on the balance sheet. Specifically, the 11,000 acres of land in Daytona Beach is recorded on the book at around $3900/acre. That isn't a typo. Daytona Beach land, touching the I-95 is on the books for about $4000/acre. (see March 14 investor presentation)
I see CTO has an hidden asset play which may not go anywhere in the short term. Although, interesting catalyst is already at play (read latest string of press releases), the company is hemorrhaging cash due to their Golf operation. I suspect that this will stop at some point over the next year.
That being said, this organization of just seven employees is quite a simple business to understand. Even if the company never realizes the intrinsic value represented by the land, once the company gets back on the profitability path, market will eventually reward the patient investor.
In the meantime, to wait for that day, CTO pays a nominal dividend of 4¢.
Disclosure: No position, yet
Saturday, April 07, 2012
Market Climate Update
Equity markets have risen significantly since the local minima in autumn of 2011. However it is very important to note that this market rise is one of Mr. Market's classic mood swings.
Underlying Problems
Nothing of fundamental nature has changed since the autumn of 2011. The risks still abound. Euro crisis is still a clear and present danger-- albeit European banks are enjoying the vast liquidity injection in form of the ECB LTRO action. It is important to note that Euro zone has a solvency problem, of which a symptom is lack of liquidity.
Providing liquidity brings temporary relief, but this only removes the symptoms until they present themselves again. This is because the underlying problem isn't addressed. The underlying problem is large amounts of debt and an incomplete political union structure.
I believe that it is just a matter of time before the symptoms of the problem are visible again.
As for other risks, there are too many to explain here, but I will just run down my list:
What is an intelligent investor to do in this scenario? With so many dangers on the horizon and the market valuation at relatively high levels, the best thing to do is wait it out. The portfolio strategy I am following is to sell my fully priced positions now to raise cash, which is about 30% of the portfolio.
My particular problem is that the market rise that started late 2011 and into Q1 2012 has raised market value of my positions significantly, but most of them are still not close to my [conservative] fair value measures. Unfortunately, my portfolio businesses have not received any buyout bids in the recent M&A activity.
This is almost exactly the same position I found myself back in 2011 when I posted these two posts.
That tactical move to build up cash in early 2011 helped me deploy it to build sizable position in Bank of America (BAC) when the pessimism enveloped it. I intend to continue to own BAC even after the recent 90% rise, since I believe the real value of this structurally crucial institution is much higher than the market is realizing. That move to cash also helped me average down on some of my other positions.
Underlying Problems
Nothing of fundamental nature has changed since the autumn of 2011. The risks still abound. Euro crisis is still a clear and present danger-- albeit European banks are enjoying the vast liquidity injection in form of the ECB LTRO action. It is important to note that Euro zone has a solvency problem, of which a symptom is lack of liquidity.
Providing liquidity brings temporary relief, but this only removes the symptoms until they present themselves again. This is because the underlying problem isn't addressed. The underlying problem is large amounts of debt and an incomplete political union structure.
I believe that it is just a matter of time before the symptoms of the problem are visible again.
As for other risks, there are too many to explain here, but I will just run down my list:
- Unsustainable debt levels in Japan
- Unsustainable debt level at the U.S.
- Chinese economy slowdown
- Immense scale-back of Chinese infrastructure spending
- Housing at very high valuations in many of the developed economies
- S&P 500 CAPE over 23
What is an intelligent investor to do in this scenario? With so many dangers on the horizon and the market valuation at relatively high levels, the best thing to do is wait it out. The portfolio strategy I am following is to sell my fully priced positions now to raise cash, which is about 30% of the portfolio.
My particular problem is that the market rise that started late 2011 and into Q1 2012 has raised market value of my positions significantly, but most of them are still not close to my [conservative] fair value measures. Unfortunately, my portfolio businesses have not received any buyout bids in the recent M&A activity.
This is almost exactly the same position I found myself back in 2011 when I posted these two posts.
That tactical move to build up cash in early 2011 helped me deploy it to build sizable position in Bank of America (BAC) when the pessimism enveloped it. I intend to continue to own BAC even after the recent 90% rise, since I believe the real value of this structurally crucial institution is much higher than the market is realizing. That move to cash also helped me average down on some of my other positions.
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