April 2013 Issue is Released

Investment Opportunity 1

In the universe of companies, there are good businesses, average businesses, and bad businesses. Company 1 belongs to the good businesses category. While it is not that hard to find exceptional businesses like Company 1, what is hard to do is to get them at a decent price.

Over the years, I have learned that investors are really weird creatures – they become frustrated very easily. This is good news for you if you are patient because frustrated investors are eager to sell you great companies for very little money.

Ever since Company 1 was founded, the company has delivered pretty satisfactory financial results. However, during the last 12 months, the company experienced some growing pains which resulted in short-term operational issues. And, you know how it goes – issues, problems, oh no, we can’t have any of that. Sell, sell, sell.

Smart investors know that Company 1 is a great company with a nice moat trading at a cheap price, so they are acquiring shares. This includes the insiders even though they already own 12 percent of the company.

Investment Opportunity 2

Most value investors know that Warren Buffett does not encourage diversification, assuming you know what you are doing of course. Some value investors follow this advice to heart. An example of such a value investor is Hedge Fund Manager, the managing member of XXX Capital Management.

I personally met Hedge Fund Manager in 2010 at the Berkshire Hathaway Annual Meeting, and at that time, he only had approximately $19 million of assets under management. Fast forward to today and he has more than $100 million of assets under management indicated by his requirement to file Form 13F with the Securities and Exchange Commission. Even though his assets under management grew significantly since I met him, his attitude towards diversification has stayed the same. There are only four positions listed on his Form 13F.

Company 2 is more than 50 percent of his portfolio. His fund owns 6.1 million shares priced at more than $50 million. This is a highly concentrated position. I understand that some of you would never be comfortable with putting 50 percent of your assets into one company, but it does not matter what you are comfortable with. What matters is that Hedge Fund Manager has so much conviction in this company that he is willing to bet more than 50 percent of his fund’s money on it. I am not saying that you should immediately buy shares of Company 2 because some hedge fund manager is heavily betting on it. What I am saying is that you should look at Company 2, study it, understand it, and then, consider it for your portfolio.

Investment Opportunity 3

It is no secret to those who read this newsletter know that the precious metals mining companies are extremely cheap. Actually, they have not been this cheap for more than 20 years. According to Rick Rule from Sprott Asset Management, the last time the mining stocks have been this ridiculously cheap was in 1992.

Company 3 is one of the companies that I believe will trade significantly higher when the mining sector stops being as hated as it is right now. Company 3 owns several properties and today’s market cap only assigns value for one of them. The rest of them are being thrown in for free.