Francis Chou Comments on Overstock.com
If you take a cursory glance of OSTK prices over the last 18 months, it may appear that we had a huge winner in OSTK, but there is more to the story. The investment in OSTK did not pan out as expected. When you are investing, the time value of money must be given serious consideration. We first invested in OSTK in 2006 and since then, the results have been positive but sub-par to say the least. Looking back, we paid too much for it and the intrinsic value that we estimated seven years ago was too high. Since we are a patient investor and can hold on to stocks for seven years or more, it is imperative that the intrinsic value of the company we invest in grows satisfactorily. In that regard, OSTK's growth in intrinsic value was anemic at best.
We held on to the stock because there were several positives to the company. Management has been quick to admit that it made many missteps along the way, and the corrective actions it took has put the company back on the right path. We especially like OSTK's fulfillment partner business, through which they sell merchandise of other retailers, cataloguers or manufacturers via their website, which accounts for approximately 80% of its revenue. Further, it is debt free after taking into account the cash on its balance sheet, management over the past few years have been buying shares and the founder owns a huge chunk of the company.
In the end we made some money but not to the degree we expected. And, because the price of OSTK has now risen significantly and is trading closer to its intrinsic value, we have drastically reduced our position.
From Francis Chou's semi-annual report 2013.