Here’s how I see junior mining.
The promotional game
Almost all junior mining companies are promotional to some degree. All of the explorers have pretty much zero cash flow and are dependent on raising capital to fund their operations and the insider’s salaries. Most juniors are usually some mixture of a pyramid scheme and a genuine business. Here are some of the things they do: Continue reading
Looking back on my past investing, I have invested in stocks that I don’t really understand.
I went long First Solar thinking that its unique technology gave it a low-cost advantage over the everybody else. This was true until polysilicon prices crashed and the situation reversed. First Solar is the high cost producer that’s at a severe disadvantage in the solar industry. The ex-CEO and the short sellers were very adept at anticipating the future and were strong sellers of the stock when First Solar was trading at several times today’s price.
The short Tesla trade is extremely crowded. 60%+ of the float is sold short and the borrow was over 90% at one point.
I believe the main reason to short Tesla is because it has historically lost a huge amount of money every year. For every dollar in revenue, it has had at least a dollar of GAAP losses. The valuation is also ridiculous. The market cap is roughly $3B for a company that has less than $300M in book value ($62M as of June 30 2012, which is before the latest secondary offering).
From reading through various financial filings, it struck me that many large corporations don’t pay a lot of attention to their bond holdings. They allow investment firms to buy dubious bonds on their behalf.
In my opinion, the most important points about Google are as follows:
I believe that Google call options are compelling since the options minimize the tail risk and they aren’t expensive.
I believe that online advertising offers significant value compared to traditional advertising because online advertising can be tracked very easily. Internet advertisers can track the click-through rate on their ads and how many of those clicks convert into a sale. This gives instant feedback on the ad’s return on investment. Advertisers can optimize their advertising budget to maximize their profits and split-test different ads and landing pages (the webpage that the ad points to).
KBH is up 16.4% after it announced a profitable quarter. A quick glance at the press release shows that the profitable quarter is entirely due to an income tax benefit. Operationally, the business has higher revenues and lower losses. Looking at the revenues for the 2012 quarter versus 2011, revenues were $424M compared to $367M. Total pretax loss was -$7.439M versus -$9.649M.
I haven’t been having a good year so far. Going into the year, I was basically long QXM/XING, long natural gas, long junior explorers, short long-term US treasuries, and short some US stocks (AGNC and JOE mainly). These were all the wrong trades to make. My stock picking has not been good since I would have lost less money if I was only allowed to index asset classes. I would have went long commodity futures (RJI is up 4.3% YTD). I would have lost money shorting treasuries (up ~3% YTD) and also on US stocks (SPY up 17% excluding dividends).
Here’s what my portfolio looks like currently… (long junior explorers, long commodity stocks, short treasuries, short some US stocks)
Currently, Premier Exhibitions is losing some money in its exhibition business and is in the process of trying to sell its Titanic assets. Premier paid Guernsey’s to auction its Titanic assets but it looks like this auction has failed to meet Premier’s reserve price. The failed auction suggests that the market price of the Titanic assets is not that high. In the future, it may be more difficult for Premier to fetch a good price for its assets as the Titanic story is getting played out, it will no no longer be Titanic’s 100th anniversary, and excitement over James Cameron’s film re-release fades away.
Premier’s operating business is likely worth no more than $30M ($30M is likely far too generous). Premier has a market cap of $117M. The difference between the market cap and the value of the operating business can be attributed to the implied value of the Titanic assets. Valuing Premier basically comes down to how much these assets are worth.
Homebuilder shares have been rallying strongly and there may be a short squeeze happening in KBH. 53.70% of the float is sold short according to Yahoo Finance. It may be possible to make a small profit by shorting into the squeeze.
KBH is GAAP unprofitable and has negative cash flow from operations. Either way you look at it, it is unprofitable. It seems clearly overpriced as it has a price/book ratio of 2.85.
Glenn Chan's Random Notes on Investing 