by

Valeant: Is giving away cheap drugs a good business model?

Valeant has a reputation for significantly increasing the prices of its drugs.  The truth is a little more complex than that.

Through its so-called “specialty pharmacy” channel, Valeant engages in an unusual practice of sending drugs to consumers without a guarantee of receiving insurance reimbursement from private payors.  If the reimbursement claim is ultimately denied, Valeant ends up selling a drug at firesale prices.

Continue reading →

Advertisements
by

Kobex Capital: A pile of cash, trading at a discount, with an impending catalyst

(KXM is an illiquid Canadian stock with a market cap of $26M.)

Kobex’s liquidation value is in the ballpark of 70 cents/share and currently trades at 55 cents/share.

Kingsway Financial Services is going activist on Kobex Capital.  This makes me like the stock a little more as the catalyst of activism should raise the internal rate of return on a position in the stock.  However, I’m a little wary of activist investing mainly because management teams often like to fight activists with shareholder money. The legal fees and any severance payments will likely reduce the value that’s left for shareholders.

Continue reading →

by

Residential solar makes little sense

Residential solar makes little sense compared to larger forms of solar energy such as utility-scale solar (building solar farms in non-urban areas) and commercial solar (solar panels on the roof of commercial buildings).  The economics are inferior for various reasons:

  1. Economies of scale in labour costs (engineering, installation) and in equipment costs.
  2. Larger scale solar tends to place solar panels in areas with the best sunlight conditions and other economic factors.  Some residential roofs are obscured by trees or are not strong enough to support solar panels.  There are some frictional costs when people waste time figuring out that a particular residential roof is not a good place to place solar panels on (e.g. customer service, engineering).

Larger scale solar projects have inherent advantages over residential solar.

Continue reading →

by

AAMC update Aug 2015

I previously described AAMC as a “royalty on yield chasing“.  AAMC’s economics can potentially be extremely attractive because asset managers can generate extremely high returns on capital.  Currently, the stock is trading at very depressed levels.  Two explanations for the share price:

  1. Luxor capital and other major shareholders may be liquidating.  Luxor suffered a lot of losses on the Bill Erbey family of stocks.
  2. AAMC generated close to no fees in the past quarter.  Either you think that management screwed up or that there is a temporary hiccup in revenue recognition.  Rental revenue, selling the home/mortgage, and marking the asset to BPO value all generate GAAP profits.  There is a time period after a BPO (broker price opinion) and before a home is rented out (or sold) where the home will not generate any GAAP profits, which can result in less fees for AAMC.

Continue reading →

by

My approach to diversified shorting

The investing strategy I understand the best and feel most comfortable with is diversified shorting- taking a large number of very small positions in common shares of crappy stocks.  I mainly short stock promotions and pump and dumps, where I think I have a sizable edge over other market participants.  The performance of my strategy backtests to ~15% from May 2014 to August 2015.

The key to making this strategy work is being able to quickly find a large number of awful stocks.  This is possible because stock fraud is an industry.  Scumbags network and share knowledge with each other.  Fortunately for me, this makes them really easy to find.

Continue reading →