Portfolio changes

After long last, I have some portfolio changes.

One month ago, I reevaluated my Apple position. At $1t market cap, the company becomes too big to offer reasonable return with any margin of safety. I remember in December 2018, the market was overly pessimistic with several articles challenging the shift to service and their problems with China etc. Nothing much has changed. But, the stock has climbed nearly 50% from $150 to $220. All things aside Apple is very cheap at 12x earnings but not cheap at 18xearnings.

I would have likely done nothing if an opportunity had not presented itself.

Interactive Brokers came up with an IB Lite product. This is a great move which brings forth the distinction between IB pro and all other brokers.

* IB does not sell order book to market makers

* IB pays reasonable interest on cash (libor-0.5%)

* IB has the lowest commission.

What does not work in IBs favor is it’s platform which is targeted at traders. There is a learning curve.

IB Lite (no comissions, sells orders for money) with a good app will be a game changer!

Meanwhile, Schwab and Ameritrade announced 0 comissions. They will still continue to sell your orders and pay almost no interest on your cash.

IB has a great product and is playing a game that others can’t! Their smart routing tech saves a lot of money for now IB Pro customers.

I have replaced Apple with IB.

On other front, IB is an owner operator with the founder owning ~ 80%. They have ~ $6b of regulatory capital while they only need $1.5b!

It is a well run and safe broker and is the cheapest around. This is a hard product to compete with.

Recent Update

I bought quite a few positions in the last few days. I will go over them one by one.

American Express (AXP) : Started a 3% position in American Express. I had previously bought and quickly sold around $71.

The company is paying 2.34% on its debt (2014 figure) and receiving ~ 8.3% in interest on the loans it has given to the customers. So, it is earning around 5% for the service (approximately $3.5B a year with $69B loan). If this stream does not grow *at all* and at 15% discount rate this part of the business is worth approximately 3.5 * 1/(1.15-1) = $23B. Looking at the income statement, the non-interest revenue – all expenses = $5B. Again, at 15% discount rate, this stub is worth = $33B And now, with $22B cash on balance sheet, I should be willing to pay ($23 + $33 + $22) B = $78B.

There are several risks with this investment thought. Costco is not renewing the AXP partner card (20% of the loan portfolio), V/MA have changed the business landscape and the management does not seem like they have a great plan in place.

I bought because I like the quality of the business and the fact that it is very cheap.

IBM : Started a 3% position. I have talked to several IT people in UBS/CS and have come to realize that even thought they don’t like their IBM mainframes, they have no other options. The reason is actually quite interesting. Setting up a new mainframe is going to cost a lot. Because banks see their IT as a necessary evil (banking is their main business), they find no reason to spend so much money on a complete revamp of the system when it is working perfectly fine with minor upgrades … Finally, at $122, I could not keep myself from buying the stock. Very cheap and I like the business.

TGS Nopec : Started a 2.5% position. This is an asset light company that collects seismic maps for oil companies. They have a great track record of being very disciplined with their investments. They have invested money when the markets were weak and have consistently maintained a great balance sheet. Again, the quality of the business/management is superb here.

CACC : Started a 0.8% position. I would like to buy more if the price is < $150. Also, in car lending (like America’s Car Mart). The CEO letter by Brett Roberts are worth a read.

Cullen/Frost bankers (1%), Svenska Handelsbank (2%): Svenska and Cullen/Frost are very well run banks. I had made a promise to not invest in banks but after reading their annual reports I was very impressed by the management. CFR has significant management holding (~ 7%) and Svenska’s management summary and compensation are a thing of beauty.

Baidu (2%), Apple (2%) : Again, cheap and great businesses.

Berkshire (1%), Bam (1.5%), Aggreko (3%).

In all these cases, I have tried to shift towards buying great business at good prices.


Tandy Leather

Market Cap ~ 80M (Price $7.87)

A whole-seller of leather (derived products) with over 100 stores worldwide.

Management has big shareholding (~ 33.63%). They have been able to the grow the business moderately 5% revenue in the last 10 years and 7% income. So, this checks out.

The company probably has some moat in terms of locations/quality/variety of products they sell. Unfortunately, this does not seem very sustainable to me. This goes into the “Too Hard Pile”.

Lesson: Arcelor Mittal (MT), Posco (PKX)

Why did I buy MT ?

  • Cheap on EV/EBITDA. Started buying around $18 and kept it up until $10. Sold at $7.
  • Management owns ~ 40% shares.

I coat-tailed in PKX because of Mohnish and because this is also cheap over EV/EBITDA.

What I learned ?

  • Importance of the business. The iron & steel business is difficult, capital intensive and is a commodity business.
  • I did not want to sell PKX because I think it  has a competitive advantage. But, I feel uncomfortable because I have problems understanding the management culture especially after some of them are being sued.

Distribution Now (DNOW)

Awesome balance sheet (Q2, 2015)

$114M cash/$1.9B equity/$457M Goodwill/$80M LT Debt.
EV ($18) = $1.7B


Same people who ran National Oilwell Varco (Pete Miller, CEO of NOV for 13 years, is executive chairman).


A 5% net margin is quite achievable. With P/S of 0.5 at the moment one is paying a P/E of 10.


Pipe, valves and valve automation, fittings, instrumentation, mill and industrial supplies, tools, safety supplies, electrical products, drilling and production equipment, fabricated equipment, and industrial paints and coatings.

Colfax Corp (CFX)

Background: read about Danaher and the Rales brothers [The Outsider]

CEO was changed this year but the previous and the next guys are related to Danaher. The older CEO was around 59 year so it is not very clear why he moved (was CEO since 2012).

Management Compensation:

Screen Shot 2015-09-09 at 10.13.00 PM

Shareholding 2014

Screen Shot 2015-09-09 at 10.15.28 PM

Shareholding 2013

Screen Shot 2015-09-09 at 10.19.24 PM

So, BDT as well as Rales have sold shares in the last two years.

Balance Sheet

$305M cash/$2.8B goodwill/$1.5B LT debt/$3.3B equity.
No debt convenants. There are some clauses about interest coverage but this seems quite safe.


EV = ~ $6B ($37/share)

Business: Fluid handling, equipment/filler metal for welding, precision air and gas handling equipment.

Hunter Douglas


Maker of window coverings and architectural products.


The Sonnenberg family owns 28,764,039 common shares (81.2%) and 34,242,517 preferred shares (99.4%). CEO Ralf Sonnenberg’s two sons work as COO and Co-president.

Balance sheet

$373M Long term debt/$160M cash/$1B equity.


EV ($1.5B)/ EBITDA ($281M) ~ 5.33