Bob,
I agree with your analysis on the trend of the Zloty as compared to the actual present exchange rate. Further, I recently also began to appreciate the actual cash flows. As long as you’re not dealing with MBA’s Gone Wild at Enron --- you can usually scope out company lies by looking at their cash flow statement in conjunction with their Balance Sheet and Income Statement.
Never underestimate the predictability of stupidity. The human mind loves trends and always expects them to continue. Hence, the dilemma of the Thanksgiving Turkey. It’s from the Black Swan. I’ve picked up a few basic concepts that I plan on applying to how I manage the time in my life.
1. Use what you know to put yourself into situations of huge opportunity with limited risk.
2. The best you can do for someone is give them an opportunity and incentive to take it. The choice to take it is theirs --- and theirs alone.
3. Each individual has their own bounded rationality and I’m convinced that people fall into patterns of behavior and the kind of investing that I’m trying to do is not for everyone. It lacks the “really obvious” positive feedback loop that normally is associated with getting work done. For example, if I am shingling a roof --- I can see the impact of every nail I hammer. On the contrary, when I am investing --- a good investment premise might yield negative returns in the short and possibly long run.
Buffett takes these to the extreme and simply does everything he can in his power to eliminate the risk of loss from the equation. Soros tests every idea by trading money both ways and by being willing to get out/change his mind if the reverse of his initial hypothesis seems to be coming true. I like the structure of the CEDC deal. I’ve seen a lot worse and like you said, this looks like something that sucks now but will get better before the deal is over.
I’m getting pretty good at relating mostly everything to companies --- and it helps when describing companies to people who don’t understand them. I run into so many personal optimists that in my opinion really don’t have a chance at this future they have dreamed up because it’s simply not feasible and their short term actions are not leading to their long run targets. As far as companies go, these would be the ones that aren’t making cash. Usually, you can figure these out by looking at their Income Statement and see if they are posting profits while following the laws of accounting. If only it were this easy. But you actually have to run the Balance Sheet to see their Accounts Receivables and Cash Flow Statement to look at if they are even making Cash in their Operating Activities. I get mild entertainment reading stock market headlines and analyst reports.
I’m going to have to agree with your timing and location idea. I’ve never considered it as a trade-off. But, when you look at the scope of opportunity --- it is the only trade off.
1. Where?
2. When?
The questions apply to how you allocate your money, time, casual clothing vs. business clothing, your ability to close a deal, etc.
If a marriage only includes 1 orgasm, I might find myself in the judgmental department.
Anyway, I don’t write for the sake of writing and I only write when there is something worth writing about (in my opinion). Sometimes, I don’t even publish what I write because the opportunities would dry up if more people knew about them. I do at least hint about them on my blog. I don’t really come up with my own ideas very often. Mostly, I perpetuate ideas of others who have made it big in the past and apply them to what I understand the world to be today. There are a lot of math gurus that want to come up with the ultimate stock market equation and love finding plausible correlations. I’d rather spend my time outside of theory and in practice of something that empirical evidence indicates to be highly successful. I was always the kid in class that went against the grain whenever the teacher was trying to stump the class --- no reason not to apply that same ego in the stock market where it pays $ to be right.
My grandfather got lucky and turned a farm into a golf course.
Glen
From: Bob Bannon
Sent: Sunday, April 26, 2009 2:18 AM
To: Bradford, Glen Richard
Subject: RE: Conference call, CEDC
Glen,
Comments in no particular order:
1. I have thoght that CEDC options were thinly traded, and had concerns that I couldn't get out of a position in a timely fashion. Didn't have the 'nads to take a position in that manner. MY mild manner preferred simple ownership, at least until I became comfortable with how managment is handling the company. in these highly unusual times.
2. I like the dorky analysis. Good for the noggin. Had already read your articles. I appreciate that you are not using them as rifle shots, but rather as tests to see if you can try to figure out, say, "why is this thing so LOW?" As you develop depth of experience, hopefully you will come to think "Why am I making money by stating the obvious?" I have a 30 year real estate background in Anchorage, lots of development/finance/a little buiding. It is a tiny market, water on a couple of sides, mountains on the others. Half Alaska's population is in this petri dish. Very human scale. You can get to know the players. Sarah and Ted are real people. Ted is not only the US Senator convicted and now no longer convicted, he is the attorney who worked next door, and who loves my wife's pumpkin pies. I used to watch some local developer putting in a subdivision and think "He is 12 months away from being a success, but 6 months away from being bankrupt." They were enthalled with the projected P&L of a project, but failed to project each month's cash flow. Cash flow is more important than P&L, in my experience. That is what I am watching on CEDC. Can they afford to carry on in their specific markets? So far, I think "absolutely."
Another "take away" from Anchorage: You may have heard that the three most important things in real estate are location, location , location. Don't go for banality. Dead WRONG. Timing, timing, timing. I had 40 Acres on Klatt Road. Value was $3,000 an acre . . . or $80,000 an acre, and a year later $10,000. I guaranty you the location did not change. The market did. Timing. That is what is happening with CEDC.
3. The agreement to acquire the balance of RAG I believe will demonstrate that the TERMS of a transaction are more important than the PRICE, which is simplly one component of a transaction. I think I am forming the opinion that the transaction is very well structured, specifically to allow CEDC to earn their way across the minefield of the Zloty over time. Ome aspect which I like is that if the share value increaseses and the market allows, CEDC can gen some cash through equity placement and pay off the entire transaction early, BUT is not required to do so.
3. "Of course it must be legal, because otherwise they would not do it." A cynical comment on my part. Followed instantly by "More specifically, they probably have an attorney's opinion that it is legal, which is not exactly the same, now, is it?" Visit a law library. Huge. A scrillion books. Look at the ethical guidelines for the state bar. It is a pamphlet.
Ambrose Bierce in "The Devil's Dictionary" defined an attorney as "One skilled in the circumvention of the law." My memory, but you get the gist.
4. One last constructive thought on your dorky analysis. My review of the Zloty exchange rate over, say, 6 months, led me to believe that the Zloty exchange rate is not as important to the CEDC share price as the TREND of the exchange rate over a short time frame. Observe that there are many times when a specific exchange rate exists, 'frinstance 3.2. CEDC price wil be increasing, or decreasing, I believe depending on the trend obvious to the market at that instance, rather than the specific rate of 3.2. IF the market perception is that exchange rate trend is favorable, the share price she move up. If the perception is that the exact same exchange rate sucks and is getting worse, the price she goes down. All I am suggesting is don't look at something as a snapshot, look at it as a movie clip. A snapshot of a plane landing tells us very little. A ten second clip of the landing shows the floats ripping off and plowing in, OR a greased landing and the pilot waving to his wife and friends.
Anchorage went through an earthquake, say 8.4 Richter scale. A certain amount of destruction. My thought: the highly esteemed Richter scale not a good indicator of what is going on in a quake, but it has become the news clip cliche, sort of the "Dow Jones Industrial Average" of earthquakes. If the quake had lasted 30 seconds, they would have written books about how great the Anchorage building code was. Unfortunatley, the quake lasted over 3 minutes, plastic failure (liquification) occurred in the underlying clay, which ran out from underneath some buildings, which sort of . . . turned over, broke the connections, collapsed. Not a good thing for a multi-story building. Not good if you are standing on the wrong side of that building. So they wrote books on how our building code failed. The Richter scale, you see, does not address the duration of the event.
I think truly important things should be viewed over some time period.
Marriage should not be judged by an orgasm.
I appreciate your comments, and I give them significant weight. I find I often do that when I agree with someone!
Bob
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Bob,
I’ve been bullish on CEDC for a long time (since about $40). I also noticed the Zloty destroying my position in CEDC. That’s why I dumped the stock and used the proceeds to buy Call Options on CEDC that expire January 2010 --- effectively leveraging up anticipating that the global appetite for risk would eventually turn from ‘widespread panic’ to ‘risk is sexy.’ I did this back when CEDC was around $25 on its way down. I also did this with a few other companies. With this position, I’m not really watching the daily trading shenanigans that I’d be watching if I owned the stock. I’m just waiting patiently for everyone to drive the price back up so that I can make some big money.
I ran some dorky engineering/statistical analysis with some basic assumptions on CEDC a couple months ago which still apply: http://seekingalpha.com/author/glen-bradford/comments/symbol/cedc
I say this thing will appreciate back to $40 by then. As far as what happens this week, or Monday specifically--- it looks like this is a stock exchange deal. The higher CEDC goes in the short term, the better it is for CEDC.
I don’t plan on listening to the conference call. I’m biased to reading the transcripts that come out within a week. I’m not a believer in the efficient market hypothesis --- so I don’t think that news released instantly changes stock price to reflect value. I believe achieving value takes time. Otherwise, looks like some huge news is on the way.
You did say something that’s not always true: Of course it must be legal, because otherwise they would not do it.
This is one of the stocks I am incredibly confident in as far as outperforming the market over the next year goes.
Only time will tell if any of my ideas are right: http://caps.fool.com/player/bradford86.aspx
Glen
From: Bob Bannon
Sent: Saturday, April 25, 2009 7:56 PM
To: gbrad
Subject: Conference call, CEDC
Glenn,
WE have not met, but I am a fellow shareholder in CEDC. Read Alpha for various items. I assume you will be listening to the CC before the market opens Monday?
I picked up on two interesting details when reading their previous filing, where they discussed increasing their RAG position by purchasing/renegotiating with LION, which is the Kravitz stable of fast movers in London.
(Seen their website? 'Barbarians at the Gate' with James Garner? Got to. Requisite for understanding Lions folks.)
My opinions: One, in retrospect, managment is jumping up and down with their hair on fire, very much is trying to put out signals that the share value should go UP. When you realize that they have to issue additional shares of CEDC to LION if the share values dwell below certain benchmarks, ($12 and $20 range) we can see that CEDC managment must have been wailing when share price was around $6. Mucho happier now, as am I. TWO, very unusual item, I thought, to find tucked away in the discussion of RAG a factoid that certain "Executive Sales" folks were NOT on the CEDC payroll, they were compensated by CEDC customers, who were their employees, and CEDC provided discounts to those customers, which kicked . . . er, provided the compensation to the employee of the customer firm. My guess is that those individuals are decision makers on which booze/who's booze to buy. Call me cynical, but I found that interesting. Of course it must be legal, because otherwise they would not do it. More specifically, they probably have an attorney's opinion that it is legal, which is not exactly the same, now, is it?
In another part of their filing, they crowed about how successful their executive sales arrangements had been, but were pretty vague about exactly what they were talking about. That raised the flag.
Don't know what to do with that, but I like knowing what is going on when people are trying not to use English in a clear manner.
I don't like the "huh?" factor.
Zloty. Basically, I have come to the conclusion that I have no control over it, but I have a clear map of the negative correlation between share price when
http://finance.yahoo.com/echarts?s=USDPLN=X#chart1:symbol=usdpln=x;range=5d;compare=cedc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined
and since I can use that link to peek at the zloty trade in europe every stinking day for hours before NYSE opens, I will watch like a hawk and adios if a 'trend to grim' emerges over several days. Not going to ride the roller coaster down from 20 to 6 again, now that I have found THAT little detail!
Had enough of the "Wheeeeeeeee!" factor last time. All I want now is the chain ratchetting us up.
Have you an expectation for Monday's CC?
Bob
My Radar
Labels: CEDC
