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  • Review of Current Losing Positions: NZT, ACAS, SKM, GE
    jjason: I think you're missing several of the points.

    Your #3 is nice, but when the book value of a company is largely determined by a number that they make up for loans that may or may not be repaid and business interests that may or may not be profitable, it's concievable that the book value might drop in the future. The fact that the company can be bought for less than said book value is one indication that maybe their internal valuations aren't quite accurate.

    Your #4 is also very nice, but companies love to make this claim when they write assets down and it's not always the case. If it's Warren Buffett noting a share-price decline in Coke, maybe you should believe him. If it's some guys telling me that their junk bonds and mortgage-backed securities totally won't default because those underwater homeowners and small companies paying 15% interest are risk-free money, I'm a little skeptical.

    #5 really depends on your definition of "over-leveraged&q... What kind of rate are they paying on that debt? How well is it covered by income? If income craps out, how long before the debt eats up the equity and company has to raise capital at unfavorable terms?

    #6 would be sweet if any evidence were attached.

    I don't know why people can't just accept that risk and reward go hand-in-hand. You're not getting a risk free 15-20% yield when you buy shares today in companies like ACAS and ALD. You could make a lot of money or you could lose all your money. If you want risk-free you have to put up with Treasury yields.
    Jul 21 01:34 am |Rating: 0 0 |Link to Comment |View article

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