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Andrew Tobias
Andrew Tobias

Money and Other Subjects

Don’t Sell

February 22, 2007January 9, 2017

But first . . .

Peter Thibeau: ‘How does one watch the sun rise over the Pacific?’

☞ With an elaborate series of strategically placed mirrors, or from Japan.

Jeff Bauer: ‘You write: ‘They have poisonous toads. One lick and you’re dead.’ Forget the toads. How do I avoid whatever’s out there that eats the toads?’

☞ Good point.

And now . . .

DON’T SELL YOUR TXCO

The company appears from this press release yesterday to be doubling its domestic reserves, financed mainly by added – yet not excessive – debt. You never know, but, at $11.70, I am holding on. (We paid $4.50 three years ago.)

DON’T SELL YOUR WARRANTS

With GLDD closing at $7.25 and the warrants at $2.29 (a tiny premium over their $2.25 intrinsic value, in that they give you the right for another two years to buy the stock at $5), we’ve now either tripled or sextupled our money in under a year, depending on what we paid for the warrants. It remains a speculation, but a good one, I think. If you own it in a tax-free account, you could sell a third (or a sixth) to get your initial cash back out. Otherwise (famous last words), I’d wait at least until the warrants go long-term – not because they are sure to be higher, but because they are as likely to be higher as lower, which means the odds are with you. (That’s because the tax will be less if you wait.) Tax advantages aside, my real hope is that the stock might rise three or four more points over the next couple of years, which would more than double the value of the warrants. But – no kidding – this is a speculation. It is not for money you can’t truly afford to lose.

DON’T SELL YOUR FMD

Post split, we’re still doing fine on First Marblehead despite the recent sharp dip (from around $56 to around $46). Split-adjusted, we paid under $30.

The dividend was just raised again, the earnings growth is rapid (my guru is looking for $4 a share or so for the year that ends in June), insiders own half the stock (so their interests are the same as ours), and the CEO just bought another $250,000 worth – peanuts to a CEO, but still nicer than seeing him sell.

Add to that an expanding market (the cost of college is going up by 6% or 7% a year even as the student population increases by roughly 3% per year) and a proprietary database that can’t be replicated by competitors in the short to medium term.

Analysts continue to increase their earnings estimates on this stock, while never raising their rating. They don’t believe its growth can continue. The shorts, meanwhile, believe this is a rotten business. But having a large short interest is not a bad thing if the shorts are wrong.

The company has a large cash position, no debt, what my guru considers an admirable management team, a rapidly expanding client roster, and very significant advantages versus the competition.

If my guru is right, it’s sort of like Progressive Insurance in the old days (or Berkshire Hathaway): if you’re smarter than the competition in knowing which risks to accept and which to reject, you can make money even when competitors don’t.

DON’T SELL YOUR DD

Suggested a year and a half ago at $38.61, DuPont closed at $53 last night and has paid out a couple of dollars in dividends along the way, giving us about 42% on our investment so far. I know nothing about chemicals or biofuels, but the company seems to have good management and to be selling for a modest 16 times earnings. It’s certainly done better than the GE and CBH suggested that same day, and up a much more modest 10% or so. I’m keeping all three.

(And no, of course, I’m not selling my you-know-what, either.)

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