Nanocaps: why I don’t like them

Nanocaps are stocks with a market cap less than $50M.  (To be honest, I used to think that the correct term was microcap.)

There are two main reasons:

1. The overhead of being a publicly-listed company is going to be a huge drag on performance.
2. Often these stocks are intentionally created knowing #1.  The brokers know that shareholders will have a hard time making money but they don’t care.

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Tracking John Malone (Part 3) – Liberty Media (LMCA)

Liberty Media is John Malone’s flagship.  Of all of Malone’s companies, I am interested in Media the most since:

1. It is likely that Malone will continue to put his best ideas into it.  This is probably the company that will grow the fastest.
2. Continued share repurchases suggest that it trades at a slight discount to the value of its assets.

Liberty Media is difficult to understand.  Historically, John Malone has used complexity as a weapon against institutional investors to mislead them into selling stock at too low a price.  Malone’s complex Liberty companies have always tended to trade at a discount to what its assets are worth.  This allows Malone to continually buy back shares at low prices (this is like free money).  A secondary effect of this is that size becomes less of an anchor on future performance.  Historically, you would have done the best if you had stuck to buying the most complex part of Malone’s empire that he owns the most of.  He keeps the best businesses hidden in his flapship and spins off the mature businesses (e.g. Global’s cable assets), the slow-growing ones, and the not-so-great businesses (e.g. production companies/Ascent).  So, I would expect that his flagship company (Liberty Media) will grow faster than the rest of his empire.

This is a great business at a good price.

Tracking John Malone (Part 2)

Where I think Malone thinks the media industry is headed

“I think it’s at a point in history when the most addictive thing in the communications world is high-speed connectivity,” he said. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”
– John Malone, CNBC interview (http://www.cnbc.com/id/100637283)

Tracking John Malone (Part 1)

I think that John Malone is one of the best CEOs and capital allocators out there.  Here’s what he does and why he’s good.

Issues with mining stocks

I think that institutional investors generally don’t know what they’re doing when it comes to mining stocks.  If they were smarter, many problems with mining stocks wouldn’t be so widespread.

Dollar stores and Dollar Tree (DLTR)

Dollar Tree is a quickly growing retailer with a P/E around 18 and revenue growth in the ballpark of 17%/year.  I don’t think it’s that cheap right now but it’s on my radar since it is a quality business with very high returns on capital.

Valuing mining assets

The big picture is this:

1. Mining projects in the earliest stages of development are the most difficult to value.  As more and more drillholes are sunk into a property, we know more and more about the size and the nature of the deposit.
2. When senior miners invest in a project, they will have (A) access to engineering data and (B) a team of specialized engineers.  Institutional and retail investors virtually never do this level of due diligence.
3. In general, mining assets are very difficult to value precisely or accurately.  Mining professionals will often come to different conclusions about the same property.