From: Bradford, Glen Richard
Sent: Sunday, November 02, 2008 2:35 PM
To: Rebecca
Subject: RE: Stockpickr article
Just got your message. They’ve been sorted into my junk mail until now. It’s hard to find companies that are so bad that they’re not worth owning in this kind of environment with everything down as much as it is. The trick though, is sorting out the absolutely crazy bargains with enough people watching the company to show signs of a rebound and ride the rebound. These are definitely 5 companies that I wouldn’t own. The only reason that I can think of owning them is because you believe that the worst is over and there’s a lot of growth potential. My initial focus is to not lose money. Buying companies that are losing money and owe a lot of their assets to creditors is irrational to me unless there’s a thunderous upside.
Warren Buffett’s advice in this market is to buy American stocks. Sometimes when I’m researching potential investments I come across such duds that I have to ask: “How are you even in business?” [Examples? We could use some more tickers in this story, so if you have any other stocks in mind, we could just mention them briefly–their names and maybe a quick reason why you don’t like them.] CKEC, CPY, HTC, THC, SVVS
In this market — and one could argue that this is always true — every investment you make runs the risk of losing you money. Some, though, almost guarantee it. Some people believe that to reap the greatest rewards in life, you have to take the highest risks. But does that mean jumping off the highest cliff or trying to make it across the tracks in front of the fastest train? To me, risk is uncertainty. The higher the cliff and the closer the train — the lower the risk because you’re certainly dead.
Here are two excessively leveraged companies (which happen to have similar tickers) that I think you should stay far away from. When a company is leveraged in debt as much as these two going into a global recessionary environment — I say, bon voyage. Leveraging up is best done in times like this, where interest rates are dropping to historic lows and these companies are at a disadvantage to say the least.
[I think this intro needs more. It sets up that “American” is going to be the key ingredient to the article–which it is not. Why did you really decide to put these two stocks in an article together? Did it have anything to do with Buffett? What is similar about them? Why are they linked in your mind?
Also, why only two companies? It doesn’t make much of an article–suggests that the thesis isn’t strong enough to support more than two companies. Are these just two random companies that you don’t like, so we’re creating an article around that? Or are there more-compelling reasons for it?] A: To find these companies, I come across balance sheets and income statements that look pretty terrible. There’s no real link except that when Buffett says it’s time to buy, what he means is that it’s time to buy companies that are proven and consistent and reliable and priced to perform far below what they are likely to perform.
Tenet Health Care (THC) is an investor-owned health-care-services company. The last time that it announced it was closing a hospital, its stock price went up. [I’m not exactly sure what this means about the company. Is this a bad thing or good, and why? A: This is just something worth mentioning. It’s not positive.] The question I ask when I look at THC is: If Americans are struggling to pay their mortgage payments, will they be able to pay their hospital bills?
I suppose you could play this one the way people were playing some African-related stocks awhile back: Things can’t get any worse, so they have to go up from here. But I think THC’s going to close up shop. [This means shut down, right? A:Yes] The best part [is this sarcastic? A: Yes] is the earnings upside. Even if earnings come through at 12 cents this next year, that’s still a P/E of more than 30. [Are you interpreting this as good or not? A: This is terrible] Also, analysts have it underperforming its industry. [This is bad, right? A: Yes, terrible] Sounds like Doogie Howser is still in business. [That’s good? I’m not sure I understand. A: The idea was to relate that Doogie Howser’s TV show doesn’t’ exist anymore — and THC is on the same chopping block]
Hungarian Telephone and Cable (HTC) is a telecommunications provider operating in Hungary.
OK! You caught me red handed. It’s not a U.S. stock. [So why did you choose to include it in this particular article? This goes back to the fact that I think the intro could be stronger.] But even Buffett’s drawn some stocks into his portfolio from outside the U.S. [I’d love some examples here and maybe even what you think of them–just briefly! A: Buffett bought a stake in BYD — a Chinese company that plans to sell electric cars in America by 2010. In my opinion, he overlooked HOGS “Zhongpin Inc.” and several other Chinese companies. Buffett bought BYD because he sees a company with good management and huge growth opportunity on the cheap.] This isn’t one of them.
HTC is panicking. [Why? Anything news-related? A: They’re updating investors on their strategy. TDC tried to sell HTC but backed out.] Revenue is up, but the company is operating at a -25% profit margin. A current ratio of less than 1 indicates that THC is likely paying its bills strictly by taking out longer-term loans. I can’t read its Web site (it’s in Hungarian), but its business summary sounds mostly landline. [Where did you find this if not on the Web site? How have you done your research? A: company profiles/investment blogs/just sifting through lots of company statements and investor opinions — sometimes I find great companies at bargain prices — sometimes I find companies that should be closed.] HTC’s offerings include voicemail, fax, dial-up, ISDN and DSL.Where’s the high-speed Internet and cell phone service?
No, I think I’ll stick with companies that have proven track records and that know how to make money. [Again, partly because we need more tickers, some examples would be great.] Benjamin Graham [a little strange to start with Buffett and end with Graham–maybe we should just start with Graham? Again, where is the focus? A: Graham was Buffett’s teacher. I think they’re pretty much the same minus the fact that Buffett believes in finding good predictable companies, and only buying them when their Graham valuations become reasonable. Graham felt it was best to own a variety of the “cheap companies”] calls it the difference between investing and speculating. And I’m an investor. [I wasn’t quit sure where “You decide” came from–the article really hasn’t been about a choice you’re encouraging people to make. If we pulled the Graham thing into the beginning, maybe we could make that work? A: There’s all sorts of investment heroes to choose from — Lynch, Buffett, Graham, Piotroski, Zweig, Livermore, O’Neil … Maybe I should do an article that features a stock from each strategy?].
From: Rebecca
Sent: Wednesday, October 22, 2008 5:20 PM
To: gbradfor
Subject: Stockpickr article
Hi Glen:
My name is Rebecca, and I’m the one who edits your articles for TSC and Stockpickr and puts them up on the sites. Dan has sent me something you’ve written about THC and HTC, and I have a few questions about it. I’ve tweaked it a bit and then put my queries in brackets throughout the text. Could you look it over and see what you can do? The sooner the better, because Dan would like to put this up tomorrow morning, but I understand if you need more time. Just let me know.
In general, I’m not really sure what the premise for this article is. I talk about that a little in my queries, but if it’s not clear what I mean, let me know.
Excuse, me, too, if any of my queries seem strange or like I’m missing the point. I actually read this
through the first time thinking you were recommending these companies (I didn’t catch the sarcasm in “doing a great job of it”), so that caused a little confusion. There are some questions, though, about whether points you make are meant to be positives or negatives. I think in these cases some extra explanation would be helpful. Rather than just mentioned a number or fact, explain what it means (particularly what it means to you). How are you interpreting a P/E of 30, for example?
Thanks so much!
Rebecca
Warren Buffett’s advice in this market is to buy American stocks. But obviously, just because a company is based in the U.S. doesn’t make it a sound investment. Sometimes when I’m researching potential investments I come across such duds that I have to ask: “How are you even in business?” [Examples? We could use some more tickers in this story, so if you have any other stocks in mind, we could just mention them briefly–their names and maybe a quick reason why you don’t like them.]
In this market — and one could argue that this is always true — every investment you make runs the risk of losing you money. Some, though, almost guarantee it. Some people believe that to reap the greatest rewards in life, you have to take the highest risks. But does that mean jumping off the highest cliff or trying to make it across the tracks in front of the fastest train?
Here are two excessively leveraged companies (which happen to have similar tickers) that I think you should stay far away from.
[I think this intro needs more. It sets up that “American” is going to be the key ingredient to the article–which it is not. Why did you really decide to put these two stocks in an article together? Did it have anything to do with Buffett? What is similar about them? Why are they linked in your mind?
Also, why only two companies? It doesn’t make much of an article–suggests that the thesis isn’t strong enough to support more than two companies. Are these just two random companies that you don’t like, so we’re creating an article around that? Or are there more-compelling reasons for it?]
Tenet Health Care (THC) is an investor-owned health-care-services company. The last time that it announced it was closing a hospital, its stock price went up. [I’m not exactly sure what this means about the company. Is this a bad thing or good, and why?] The question I ask when I look at THC is: If Americans are struggling to pay their mortgage payments, will they be able to pay their hospital bills?
I suppose you could play this one the way people were playing some African-related stocks awhile back: Things can’t get any worse, so they have to go up from here. But I think THC’s going to close up shop. [This means shut down, right?] The best part [is this sarcastic?] is the earnings upside. Even if earnings come through at 12 cents this next year, that’s still a P/E of more than 30. [Are you interpreting this as good or not?] Also, analysts have it underperforming its industry. [This is bad, right?] Sounds like Doogie Howser is still in business. [That’s good? I’m not sure I understand.]
Hungarian Telephone and Cable (HTC) is a telecommunications provider operating in Hungary.
OK! You caught me red handed. It’s not a U.S. stock. [So why did you choose to include it in this particular article? This goes back to the fact that I think the intro could be stronger.] But even Buffett’s drawn some stocks into his portfolio from outside the U.S. [I’d love some examples here and maybe even what you think of them–just briefly!] This isn’t one of them.
HTC is panicking. [Why? Anything news-related?] Revenue is up, but the company is operating at a -25% profit margin. A current ratio of less than 1 indicates that THC is likely paying its bills strictly by taking out longer-term loans. I can’t read its Web site (it’s in Hungarian), but its business summary sounds mostly landline. [Where did you find this if not on the Web site? How have you done your research?] HTC’s offerings include voicemail, fax, dial-up, ISDN and DSL.Where’s the high-speed Internet and cell phone service?
No, I think I’ll stick with companies that have proven track records and that know how to make money. [Again, partly because we need more tickers, some examples would be great.] Benjamin Graham [a little strange to start with Buffett and end with Graham–maybe we should just start with Graham? Again, where is the focus?] calls it the difference between investing and speculating. And I’m an investor. [I wasn’t quit sure where “You decide” came from–the article really hasn’t been about a choice you’re encouraging people to make. If we pulled the Graham thing into the beginning, maybe we could make that work?]
Rebecca