Somebody send Angelo Mozilo to jail. I can only think that it is a matter of time. If you think investing in stocks is as simple as looking at past earnings (or cash flow) and buying, you have another thing coming. As a silent partner in business, you have to dive into the financials and filings, and determine whether or not your management is acting like partners...or thieves.

Countrywide's Angelo Mozilo? Let's explore the tell-tale signs of a thief.

Continue Reading When To Watch Out For Insider Selling ››

There have been a lot of great questions regarding workouts over the past week of the Workouts Work Out In Down Markets series (beginning here). Some visitors jumped into the comments and posted free resources to track upcoming mergers, acquisitions, and going private transactions.

We all have that looming question in the back of our heads: Can I really make low-risk money when all these smart people are seeing the same deals and passing?

Continue Reading Workouts Work Out In Down Markets - Part 4 ››

I'll have to finish Workouts Work Out on Friday. Let me get some housekeeping done regarding the book and the markets. I'm not going to give you the standard "stay the course" or "now is the time to buy" garbage — there are plenty of other places to go for noise. Let's, instead, look at the news of what's happening.

Continue Reading The Markets, The Book and Comments ››

In Part 1, we looked at the various steps involved in a merger, acquisition, or going private transaction. As the transaction progresses along those steps, the spread between the market price and the closing price tends to close as the transaction becomes more finalized and less risky. In Part 2, we looked at a few deals and analyzed the risk vs. reward as well as the need to really dig in to the SEC filings.

Workouts are meant to be virtually "risk-less" transactions for idle cash in your portfolio. Let's dive in with that in mind.

Continue Reading Workouts Work Out In Down Markets - Part 3 ››

So, you're sold on using arbitrage to enhance your portfolio. In fact, you've always known that arbitrage can offer virtually risk-free profits; still, it can be somewhat scary to jump in with both feet. Rather than getting into the theoretical aspects of arbitrage, let's take a look at some real life examples of when you can have a high degree of confidence...and when you should be leery.

Continue Reading Workouts Work Out In Down Markets - Part 2 ››

If you"ve read Mohnish Pabrai's The Dhandho Investor, you"ll likely recall a chapter entitled "Use Arbitrage!" If you"ve been following F Wall Street for a while, you"ll remember (and possibly have made money on) Use Arbitrage! The Tribune Company Example. Why do we say you should use arbitrage? In fact, what is arbitrage and is it a strategy for the faint of heart?

Well, in a down market, it is one of the few strategies that can save your portfolio...and your nerves.

Continue Reading Workouts Work Out In Down Markets - Part 1 ››

There is a school of thought that says that the value of a business is entirely in its future cash flows and that all assets are tools that provide that cash flow. In essence, many people believe that assets and equity should be ignored entirely. Let's look at it from a private owner perspective and follow it up later in the week with an examination of Buffett's early partnership letters:

Continue Reading Don't Ignore The Assets ››

This post is totally out of sync with my 1950s & 1960s Buffett discourse; however, Night ran into a problem that needs fairly quick solving. His sister gave him a sum of money to begin investing and, after explaining how the markets work, that price follows value, etc., he purchased a stock for her. In just days, she was down 15% (though it rallied again after hours to bring her loss to just 1% or 2%.

How can he convince her to stay the course over the long term? Buy her a Happy Meal!

Continue Reading Make Your Loved Ones Get It ››

If you recall from an earlier post, I showed a quick potential profit from Sharper Image — in that case, a few-day return of more than 40% because the stock was trading so far below its break-up value. As time marches on and the ability to generate cash seems a distant goal, the value of that company continues to slip, as does its break-up value. (Remember: Every day that it can't generate enough cash is another day that the company will need to dip further into savings, assets, or debt to finance operations.)

Quick, large profits can come from buying companies for well below their break-up value. I was revisiting some of Buffett's early partnership letters (no, I can't send them to you and I won't post them without Buffett's express permission), and I came across this 1960 play that resulted in massive, short-term profits from conservative value investing.

Continue Reading Intrinsic Value, With Short-Term Results ››

Welcome to 2008 all. I am going to spend the next day responding to all of the comments from the past two weeks. Let's get to the heart of the matter: What is going to happen in 2008? It is a question I have been hearing for the past three weeks, and is worth answering.

Continue Reading Focusing On The Calendar Year and Markets ››