I have been reading Seth Klarman's book Margin of Safety and I must say it is an outstanding book. One of the best I have ever read. He explains his thinking and his strategies with such simplicity and clarity it is amazing. I highly recommend it. One thing that seem to separate him from other value investors is that not only he wants value, but he also wants to see a catalyst that can unlock the value.
More recently on Oct 2, 2008 Klarman said:
speachhttp://boards.fool.com/Message.asp?mid=27052728
"We have had a 10% or so concentrated position about a dozen times over the last 20 years. Most of the time we have 3,5 and 6% position. We will take it higher if we see a catalyst for increased value. We would not own 10% position in a common stock, only because it seemed under-valued. We would have a greater than 10% position if there was a margin of safety. I see managers make mistakes with concentrated positions in similar industries."
If he only did it 12 times in 20 years, Klarman does not easily allocate above 6% of his portfolio to any stock, unless he feels very safe that he has a huge margin of safety he will not go to 10%. Obviously he rarely feels he has such a margin. Well now Klarman has 12% of his stock portfolio in NEWS CORP (NWS-A). So he must feel there is a huge margin of safety in NWS-A. If he alocated 12% to NEWS Corp he is telling us this is his best pick, and he only found such a great situation a dozen times in the past 20 years.
Newspapers and broadcast television stations depend on advertising revenues and in these hard times, companies can not afford much advertising. In fact, in their latest fillings, NEWS CORP earned $515 million, or 20 cents a share, compared with $732 million or 23 cents a share in the first fiscal quarter of 2008. On top of that they gave warning that operating income in fiscal 2009 will be far below its previous expectations. in 2007, Murdoch spiced up his End of the year gala by building an ice ring inside a hotel, complete with cartwheeling Santas, this year no party at all. So things are not good and may even get worst.
But we can now buy NWS-A for 50% below what Klarman paid when he felt he already had a large enough safety margin, something he rarely feels. Klarman obviously knows better than most how bad the economy can get since he had been putting aside around 50% of his money in cash for the past 2 years. (Yes, he made his 20% ROI with the other 50% only) so I assume he priced the bad economy in when he purchased NWS-A. Klarman would definitely not buy NWS based on the future expected earnings of MySpace or some Fox movie blockbuster. So I have to assume he thinks, as it is, NWS-A is worth substantially more than twice the price it is trading at today. (substantially more than what he paid).
P/E: 6.86
P/S: 0.47
P/B: 0.8
based on the Fair Value Calculator, Gurufocus Fair Value: $ 30.7
Margin Of Safety: 72%
5 yrs 12 months
Revenue Growth (%) 9.8 8.1
EBITDA Growth (%) 17.2 16.1
Earning Growth (%) 27.6 30.9
Free Cash Flow Growth% 5.5 6.5
2009 will NOt be like 2008, it will be worst.
Now I have been trying to understand this trade as it seems a good value, but does anybody know what would be the catalyst Klarman sees or does anybody have opinion on NWS-A. This is a stock I have not been able to put my hand around, yet i feel Klarman is telling us this is his best bet in years.
More recently on Oct 2, 2008 Klarman said:
speachhttp://boards.fool.com/Message.asp?mid=27052728
"We have had a 10% or so concentrated position about a dozen times over the last 20 years. Most of the time we have 3,5 and 6% position. We will take it higher if we see a catalyst for increased value. We would not own 10% position in a common stock, only because it seemed under-valued. We would have a greater than 10% position if there was a margin of safety. I see managers make mistakes with concentrated positions in similar industries."
If he only did it 12 times in 20 years, Klarman does not easily allocate above 6% of his portfolio to any stock, unless he feels very safe that he has a huge margin of safety he will not go to 10%. Obviously he rarely feels he has such a margin. Well now Klarman has 12% of his stock portfolio in NEWS CORP (NWS-A). So he must feel there is a huge margin of safety in NWS-A. If he alocated 12% to NEWS Corp he is telling us this is his best pick, and he only found such a great situation a dozen times in the past 20 years.
Newspapers and broadcast television stations depend on advertising revenues and in these hard times, companies can not afford much advertising. In fact, in their latest fillings, NEWS CORP earned $515 million, or 20 cents a share, compared with $732 million or 23 cents a share in the first fiscal quarter of 2008. On top of that they gave warning that operating income in fiscal 2009 will be far below its previous expectations. in 2007, Murdoch spiced up his End of the year gala by building an ice ring inside a hotel, complete with cartwheeling Santas, this year no party at all. So things are not good and may even get worst.
But we can now buy NWS-A for 50% below what Klarman paid when he felt he already had a large enough safety margin, something he rarely feels. Klarman obviously knows better than most how bad the economy can get since he had been putting aside around 50% of his money in cash for the past 2 years. (Yes, he made his 20% ROI with the other 50% only) so I assume he priced the bad economy in when he purchased NWS-A. Klarman would definitely not buy NWS based on the future expected earnings of MySpace or some Fox movie blockbuster. So I have to assume he thinks, as it is, NWS-A is worth substantially more than twice the price it is trading at today. (substantially more than what he paid).
P/E: 6.86
P/S: 0.47
P/B: 0.8
based on the Fair Value Calculator, Gurufocus Fair Value: $ 30.7
Margin Of Safety: 72%
5 yrs 12 months
Revenue Growth (%) 9.8 8.1
EBITDA Growth (%) 17.2 16.1
Earning Growth (%) 27.6 30.9
Free Cash Flow Growth% 5.5 6.5
2009 will NOt be like 2008, it will be worst.
Now I have been trying to understand this trade as it seems a good value, but does anybody know what would be the catalyst Klarman sees or does anybody have opinion on NWS-A. This is a stock I have not been able to put my hand around, yet i feel Klarman is telling us this is his best bet in years.
