Value Investing Congress Blog

Zeke Ashton, of Centaur Capital, opened with some observations of some of the things that we, as value investors, think we should not do. Among them:
• Don’t sell short
• Run concentrated portfolios
• No leverage
• Buy and hold
• No technology companies
• No stocks with commodity price risk
• Must accept high volatility
• Don’t use derivatives
• If Warren wouldn’t do it neither should you
Zeke’s point was well taken: we often become so beholden to the concept and textbook notion of value, that we tie our hands in the process, leaving opportunity on the table. Ashton also made the case for utilizing covered call strategies in our portfolios, in an intelligent way.

His favorite idea was American Oriental Bio (AOB,$9.50):
• $733 million market cap, $130 million cash, $603 million EV
• Fast growing manufacturer/distributor of pharma/nutritional products in China
• Continues to acquire small, undercapitalized Chinese companies at bargain prices
• Despite recent bad press, China risk, high short interest, Ashton believes fair value is in the $15 range

Randall Abramson of Trapeze Capital presented a more technically oriented proprietary method his firm uses to time buys and sells. This unique strategy is based on historical trends and levels of price to adjusted book value, and can be applied to stocks and indices.

Abramson revealed this analysis on a number of stocks, and indices, suggesting that:
• Office Depot (ODP, $13.51) Ruby Tuesday (RT, $8.52) and Walgreen (WAG, $35.45) are significantly undervalued.
• Berkshire Hathaway (BRK/A, $130,200; BRK/B, $4,345) now appears overpriced. (Abramson deserves credit for making such an assertion in a roomful of Berkshire devotees, many of whom were in Omaha last week).
• As for the major indices, the Dow Jones Industrial Average, S&P 500, NASDAQ Composite , and Russell 2000 are all undervalued at current levels

Jonathan Heller, CFA
*The author does not have positions in any of the securities mentioned

It has been a long time since we’ve had extreme fear in the U.S. equity markets, an observation supported by the historically low volatility in recent years and the low prices one could pay for disaster protection in various forms (U.S. equity index puts, credit default swap spreads, etc) prior to this summer’s credit crunch driven sell-off.

Clearly, we’ve got fear now, and at the epicenter of that fear is the U.S. real estate market. This fear is reflected in extraordinary volatility and stock price declines for those companies seen most vulnerable to the real estate bust – most notably homebuilders, mortgage lenders, and mortgage guarantors – coupled with all-time high prices for disaster protection on these names.

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