Carnival of Money Stories #1

Carnival of Money Stories #1 has just been posted over at Andy's Money Walks Personal Finance blog. There's quite a wide variety of stories in this edition of the carnival. I would encourage you to head over for a look. I came across a couple of really interesting posts.

The other reason for mentioning the Carnival of Money is that my post on Biotech Capital was included in the carnival. Blog carnivals are a great way for new bloggers to generate interest in their blogs. I would strongly encourage other bloggers out there to contribute to and support blog carnivals in whatever is their area of interest.

Thanks again to Andy for including my post.

Gannon On Investing

Gannon On Investing was one of the first blogs I stared reading. The blog is written by Geoff Gannon - a hard-core value investing aficionado. The blurb from Gannon's site is as follows.

Value investing blog and value investing podcast influenced by Benjamin Graham, Joel Greenblatt, and Warren Buffett's value investing model. Built upon the value investor insights of intrinsic value, margin of safety, competitive advantage, and protection of principal.

I like the straight-forward style of writing which appears on Gannon on Investing. Geoff's no nonsense down to earth approach to investing provides inspiration for other value investors in the making.

However, what first attracted me to Geoff Gannon's blog was the series of podcasts he has recorded and put on his site. There are currently about a dozen podcasts to choose from. The podcasts mainly cover general value investing concepts, but Geoff occasionally discusses specific companies.

My only criticism of the Gannon On Investing Blog would be that he seems to post infrequently (although having said that, a flurry of posts has appeared recently). My guess is that Geoff would argue that quality of material is more important than quantity.

Read about other investment resources.

CDO - Colorado Group

Colorado Group (ASX:CDO) was recently the subject of a partially successful takeover bid by Affinity Equity Partners (one of a long line of Private Equity deals). The takeover was only partially successful because Solomon Lew emerged at the last minute 10% (blocking) stake in the company. While Affinity control the Colorado Board, Lew's stake prevents Affinity from attaining the 90% ownership required to compulsorily acquire the company.

The Australian Financial Review reported today that Affinity would be able to make another bid for Colorado in March 2007.

Affinity, it is thought, can make a new bid for Colorado from March 16 next year. Market observers are already suggesting Affinity will waste little time in bidding around the $5.20 mark in an attempt to get rid of Lew and get 100% of the company's cash flow.

Given that Colorado closed at $4.00 yesterday, this creates an interesting opportunity. At yesterday's closing price there is a 30% gain available assuming that a bid does in fact arise at $5.20 as suggested.

While this all sounds quite reasonable, the current share price would indicate that investors in the Australian stock market think this is certainly not a sure thing. Still, it's worth considering...

Disclosure: The author does not own shares in Colorado Group.

Festival of Stocks #15

The Festival of Stocks #15 post has just gone up over at SINLetter Blog.

My post on Biotech Capital Limited has been included in this carnival - thanks Asif. Make sure you head over and have a look at some of the other posts selected for this edition of the carnival.

You can read my post on Biotech Capital here.

Carnival of Investing #53

The Carnival of Investing #53 has just been published. Head on over and have a look.

My post on Biotech Capital Limited has been included. It's good to see international submissions being chosen in the blog carnival. This was my first submission and I think Blog Carnivals are a great idea.

Warren Buffett - Berkshire Holdings Shareholder Letters

Although Warren Buffett has not written any books (at least not to my knowledge), there is a website which contains an invaluable selection of Buffett's writings. The Berkshire Hathaway Shareholder Letters page of the Berkshire Hathaway website contains Warren Buffett's letters to shareholders for the years 1977 through 2005 (the most recent one available).

I highly recommend reading (or at least browsing) through each of the letters written by Warren Buffett. In addition to discussing the performance of Berkshire Hathaway and its various businesses, Buffett also discusses more general concepts.

For example, in the 1987 letter to shareholders, Buffett discusses how Benjamin Graham's famous Mr Market metaphor is useful in developing a mental attitude suitable for dealing with market fluctuations.

And in 2000, Buffett discusses valuation. Among other things, he debunks the myth that growth and value investing are two contrasting styles. He argues that they are simply part of the same equation.

So if, like me, your are keen to read pearls of wisdom straight from the oracle's mouth, then head over to the Berkshire Hathaway website for some enlightenment.

BTC - BioTech Capital Limited

If you are interested in the biotechnology sector of the Australian stock market then BioTech Capital Limited (ASX:BTC) might be worth a look.

BioTech Capital Limited is an investment fund which invests in both listed and unlisted Australian biotechnology companies. Read more on the company's website. One advantage of investing in a company like Biotech Capital is that you will be exposed to a broader range of biotechnology companies than might otherwise be the case if you were investing in biotech companies directly. You also have a dedicated manager (hopefully knowledgable in the biotechnology industry) picking the investments for you.

Biotech Capital held the following listed investments as of the end of November 2006.

• Alchemia (ASX:ACL)
• Clinical Cell Culture (ASX:CCE)
• Phylogica (ASX:PYC)
• Prima Biomed (ASX:PRR)
• Starpharma (ASX:SPL)
• Stem Cell Sciences (ASX:STEM)

In addition Biotech Capital held the following unlisted securities.

• Biocomm
• Continence Control Systems
• Pacific Knowledge Systems
• XRT

As of the end of November 2006, Biotech Capital's listed securities were valued at 19.05 cents per share. The unlisted securities were valued at 16.99 cents per share and net cash on hand was at 8.46 cents per share. After a small allowance for tax, the net tangible assets per share come to 44.64 cents. This compares with a closing price today of $0.40. This is a discount of almost 10%.

While Biotech Capital is not a screaming bargain as a pure asset play, it does appear to be reasonable priced given the assets it has. Also, the Australian Biotechnology sector has been somewhat overlooked in recent times so asset valuations should not be stretched.

There are a couple of risks to be noted with regard to this company (beyond the normal risks involved in investing in biotechs). Liquidity is quite low so establishing a holding or selling out of a position may require patience. Also the company has a very small capitalization ($36M).

One further point to note - Biotech Capital is registered as a Pooled Development Fund (PDF). As such, investors are generally exempt from tax on capital gains, but equally capital losses are not available to be claimed as tax loses.

However, on balance Biotech Capital Limited looks like quite a reasonable situation for those looking for a broad exposure to the Australian stock market biotechnology sector and who have an appetite for higher risk. As with any investment in Australian shares, do your homework and seek professional advice where necessary.

The author does not own any shares in Biotech Technology Limited.

Listed Investment Companies (LIC's)

One sectors of the Australian Stock Exchange I find fascinating is the Listed Investment Companies. There have been a plethora of new Listed Investment Companies in recent years and there are the more established stalwarts like Argo (ARG) and Australian Foundation Investment Company (AFI) among others.

Listed Investment Companies are deceptively easy to value as their Net Tangible Assets are published to the stock exchange every month. It is then a simple matter of comparing the NTA (either before or after tax depending on your preference) to the current price to determine the discount or premium. As most Listed Investment Companies hold only listed investments, their NTA is calculated using the current market price of all of the securities they hold (plus some cash and cash equivalents).

If for example a LIC is trading at $0.80 and the latest NTA is $1.00 after allowing for any tax payable, it is then a simple matter to buy $1.00 of listed securities for $0.80. As a value investor it would easy easy to buy shares in the example company for a sure profit of 25% (a 20 cent return on an 80 cent investment). If one were to buy a selection of such companies one would almost certainly profit from the exercise.

However, there are some gotchas.

The first problem is that the company in question may trade at a discount for a long period of time - maybe indefinitely. However, history shows that these companies trade at lower valuations during stronger markets as investors believe they can do better by picking stocks for themselves. This implies that such a discount would reduce or disappear under less favorable conditions.

Secondly, some of these companies have what could be considered excessive investment management fees. You should always check what the arrangement is with the investment manager. Fees of 2% of assets plus an out-performance fee are not unusual (check for catchup in performance from previous years before an out-performance fee is paid). For this type of fee one would expect to get outstanding performance. A languishing share price may be an indicator that this is not the case.

Investment management is crucial in these companies. Do they have a strong track record, particularly in both strong and weak markets? If you are planning on holding this company while you wait for the difference between price and NTA to reduce, you want to make sure the reduction is not due to a decreasing NTA.

Lastly, as with any investment in the Australian stock market, make sure you do your homework. Check the recent announcements to find out if there is any corporate activity (like a capital return or rights issue) or any other news which may be having a dampening effect on the share price.

The Rediscovered Benjamin Graham Lecture Series

Here is a great resource relating to Benjamin Graham which I came across a little while ago. I can't remember who referred my to the site so unfortunately I can't give credit.

The site contains The Rediscovered Benjamin Graham Lecture Series. This is a series of (transcripts of) 10 lectures presented by Benjamin Graham to the New York Institute of Finance in 1946 and 1947. The content is very informative, but what I really liked about the lectures was the insight they give into Benjamin Graham as an educator. It must have been a real buzz to be at the lectures.

So, what are you waiting for? Go and have a look.

Disclaimer

I am not a financial planner or stock broker.

I am not qualified or licenced to give specific or general financial advice. The content of this weblog are my own personal thoughts and ideas. Professional independant advice should be obtained before investing in any of the companies or products mentioned on this weblog.

All reasonable care has been taken to ensure that any information presented on this blog is accurate. However no resposibilty is taken for any loss incurred by any person as a result of incorrect information presented on this weblog. All information should be independantly verified.

All interests in securities dicussed in this weblog will be disclosed at the time of writing. A holding by the author should not be considered a recommendation. The author may buy or sell securities at any time without publishing the transactions in this weblog.

Introduction

The purpose of this blog is to capture my somewhat random thoughts on investing. While I hope the concepts are global, any individual stocks and other investments covered here will be Australian.

I have a bias towards a value style of investing. By value I mean that approach first put forward by Benjamin Graham and later popularized by Warren Buffett of Berkshire Hathaway fame. I have read 2 of Benjamin Graham's books and much of what Waren Buffett has written (in addition to much of what has been written about him as well). This style of investing makes alot of sense to me and as such I try to apply its principles in my own investing.

I hope to present some information which new investors (like myself) will find helpful as they start out investing in public companies. I will also be presenting my ideas on some individual companies. Please read the disclaimer for more on this.

Lets get started then.