Here’s what I think is going on with these notes.
Sometimes I will search a company’s website to see what PDF files and other files they have uploaded onto the website (e.g. use Google to search “filetype:pdf site:JuniorMiningCompany.com”). Junior mining companies often repost analyst reports, presumably for stock promotion purposes. It so happens that I did not bother to do this until after I closed my Altius Minerals position at a large profit. Had I figured this out earlier, I’m not so sure I would have invested in Altius.
Previously, I wrote about Buffett’s brilliant derivatives deals. He will be paid to borrow money. The deals are structured so that Berkshire Hathaway avoids counterparty risk (people who make dumb deals have a very high chance of blowing up). So who are the counterparties?
According to this 2010 news article, two of the counterparties are Lehman Brothers and Goldman Sachs. Buffett knows who all of his counterparties are. Presumably, he had somebody shop around Wall Street to figure out who would give him the best pricing on these derivatives deals. He should know which companies were and weren’t willing to make dumb derivatives deals. He knows that Goldman Sachs was willing to do a dumb deal with him. So I find it incredibly interesting that he decided to invest $5B into Goldman Sachs for preferred shares and warrants. On the preferred shares, Buffett is exposed to any other number of dumb things that Goldman Sachs may have done. If Goldman was essentially giving him free money, it was likely that it was giving away free money to other people.
Here’s how I see it.
Some people are superstars at operating a cable company while the majority of people are bad at it. One way to figure out who the superstars are is to figure out how much money is made per home passed. Liberty’s investor day presentation uses adjusted EBITDA per home passed, which is a rough proxy for this. (I would prefer to subtract maintenance capex from adjusted EBITDA.) Each home passed represents a potential customer. Good operators will turn a high percentage of its homes passed into customers and sell them as many services as possible (television, premium channels, Internet, voice, video-on-demand, etc.).
Liberty’s investor day presentation (PDF) compares various cable companies:
I have a few speculative out-of-the-money puts on COH. The thesis is simple. Coach’s same store sales dropped 21% in North America (press release). This is an outlier. It is highly unusual for same store sales to drop so fast. It is a sign that the CEO will eventually destroy the company if left unchecked.
Glenn Chan's Random Notes on Investing 