Bill Smead’s Wednesday News & Notes

When deciding on the title of today’s post, I wanted to stick to the business and investing theme of this blog and honor a person or event with significance to capitalism or capital markets that relates to July 20th. I debated intensely on whether to honor Ford Motor Company, who celebrates the 108th anniversary of their first automobile shipment today, or the 47th birthday of Kool G Rap, who MC’d the LP Roads to the Riches, which certainly inspired budding entrepreneurs of the mid 1980s everywhere.  However, I was reading an article on the upcoming Amazon tablet and its potential impact on Apple when I came across this brilliant analogy by Seattle money manager Bill Smead (emphasis added):

“At the margin, maybe they can make some money selling a tablet. But Amazon is really doing it to support their core business,” said Bill Smead, chief investment officer of Seattle-based investment firm Smead Capital Management. “If you sell a new bong once in a while and keep the water clean, people will keep smoking more pot.

Smead follows timeless value investing principles and obviously provides unique insights into business outside the realm of traditional money managers, so this post goes out to you Bill Smead! (By the way, are there any publicly traded bong makers? That business could be pretty lucrative if decriminalization/legalization occurs). Now onto the notes:

  • In a previous post, I mentioned Research in Motion (RIMM), the maker of Blackberry. While RIMM’s corporate business has a strong moat, it is being encroached on, and any potential investor has to form an opinion on how long that moat will last and if the current stock price is underestimating its strength.  This article demonstrates how management’s arrogance has put it behind its competitors. The key will be if the same management can see their mistakes before it is too late.
  • The media world is abuzz with the saga of Rupert Murdoch and News Corp (NWS). With all the negative publicity, is there investment potential? Dan Gross argues that there is a significant Murdoch discount and value investors at Gabelli & Co say there is a lot of untapped value in the global media holdings. As great as those properties are (WSJ, Fox, Times of London, Hulu, etc), at around 16x last year’s FCF, the stock would need to get much cheaper for me to bite, especially considering that the Murdochs likely aren’t going anywhere.
  • Speaking of investment potential, Elie at Valueslant has a phenomenal post on Providence Service (PRSC), a social services and health transportation company.  Elie makes a great case for buying the stock that has been hammered by a misunderstanding of the business economics.
  • ITT’s (ITT) breakup is moving forward and the new defense and water companies chose some interesting names. I’ve written about ITT before and despite their apparent fascination with the letter ‘X’ I think there is a lot of value in the company. I haven’t bought the stock yet, but  I just started digging into the Form 10 of the new companies and hope to report back something soon.
  • Since many investors get confused when looking for documents on the SEC’s website, Magic Diligence walks us through a basic document search.  Even many professionals don’t read the SEC reports thoroughly which can be a major mistake. Listen to Warren Buffett, and take the time to read the annual reports. Magic Diligence’s post is good for newbies and veterans who have started to cut corners a bit.
  • Finally, one of my investment heroes, Michael Burry, was on Bloomberg TV Tuesday. I missed the episode (I don’t have Bloomberg TV) but hope to see it online somewhere. Jacob at ValueWalk posted a brief transcript. I’m planning a series of posts on Dr. Burry and would love to see more of him in the spotlight.

Thats it for now. Stay cool- the heat is coming.

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2 Responses to Bill Smead’s Wednesday News & Notes

  1. James Huddleston says:

    FYI — The whole Burry episode is streaming on bloomberg’s website.

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