Restaurant Woes
Eating out in the United States has almost become a national pastime. An astoundingly large industry has been built around the American consumers’ desire to, well, consume. But the expansion of the US restaurant industry looks to be grinding to a halt and we think this could be the structural driver of a number of […]
Separating process from outcome
In any activity involving a process that leads to an uncertain outcome, humans tend to dwell on the outcome and judge the quality of the process based on the attractiveness of the outcome. The same is true for investors, who as a group tend to attribute skill to good outcomes and bad luck to bad […]
You get what you pay for
Don’t worry, this is not a discussion about hedge fund fees. This is a discussion about management incentives. We were recently asked an astute question by an allocator around the extent to which we examine management’s economic incentives in the businesses we buy and sell. The answer is that they matter a great deal and […]
HPQ – Good Value or a Value Trap?
HP Inc (NYSE: HPQ) on the surface looks cheap – the stock trades on a trailing P/E of 8.4x and has a relatively clean balance sheet. However, we would caution those that rush to make a case for HPQ as a value investment. A deeper analysis reveals that even with a seemingly low price-to-earnings ratio, […]
The curious case of Seven Group Holdings
At the beginning of this month, Seven West Media (ASX: SWM) announced its full year financial results which fell short of market expectations. In addition, earnings guidance for the next financial year were also below expectations. The challenges facing the traditional media industries have been well documented: at a time when eyeballs are increasingly hard […]
Atlas Air weighed down by Amazon
Earlier this year Atlas Air Worldwide agreed to lease 20 cargo planes to Amazon. The deal will significantly expand Atlas’ asset and revenue base, but it will also accelerate the company along a path of shareholder value destruction – a path that has been well worn by Atlas before. Perversely, the senior management team has […]
A Short-Seller’s Dilemma
Imagine a firm that sells mattresses in the U.S. – in fact, this firm is the largest U.S. mattress retailer with over 3,500 store locations. The firm has been expanding its store count at a breakneck pace, growing its number of locations at an average annual rate of over 35% since 2013, and doubling its […]
The Joy and Pain of Short Selling
There is a saying in the world of short selling: “Either you’ve been short a stock that’s been acquired, or you’re going to be. It’s just a matter of time.” We have always remained acutely aware of this risk. We mitigate this risk by sizing all of our shorts to be relatively small. At the […]
What makes a great short? (Part IV)
The fourth and final characteristic that we look for in an attractive short candidate we call Misperceptions. This type of short relates to the masking of a business’ true underlying economics, typically through the use of clever accounting techniques. CFOs are typically highly-skilled at twisting accounting rules to paint a better-looking picture of a company’s […]
What makes a great short? (Part III)
The third (of four) characteristic that we think makes an attractive short is called Asymmetries. (For a review of the first characteristic, Thematics / Structural Declines, click here; and the second, Divergent Expectations, here). Asymmetries are specific drivers of asymmetric risks that can result in a stock price collapsing rapidly over a short period of […]
