As it is my job to analyze everything that Warren Buffett has purchased for my website, I began to analyze his latest purchase of Iron Mountain. I have not been able to find anything about it that fits the usual pattern of what Mr. Buffett looks for when buying a company for Berkshire Hathaway. I have analyzed some 40 purchases that he has made in the past 30 years and nothing about Iron Mountain fits the usual pattern that I found in those. For example Iron Mountain is trading for about 30 times 2004 earnings estimates and has twice as much debt as it has in Shareholders Equity. Its Book Value growth over the last four years has grown annually at only around 1.75% per year. Its Capital Spending is always more then its Cash Flow and that is the complete opposite of what Mr. Buffett looks for. Then according to Value Line it lists in its latest Iron Mountain report that Mr. Buffett has a personal stake in the company and owns 9.4 % of the company. My only conclusion is that he likes the management lead by C. Richard Reese. Other than that reason I cannot locate one reason, based on his previous purchases why Mr. Buffett is so high on Iron Mountain (IRM). If anyone has an answer I would love to hear it, Thanks in advance.
With both Simpson and Chieftain running concentrated portfolios, I did find it interesting that they were investing in the same handful of stocks over the years...Shaw Communications, Cox, Jones Apparel, Iron Mountain, etc. Now you've solved the puzzle...I didn't realize that Greenberg had once worked for Simpson ;-) I'll have to dig out my Greenwald book and re-read the chapter on Greenberg.
I've had Yankee Candle on my farm team for a number of years, since the business has attractive attributes...steady growth, high returns on equity, strong cash flow, solid balance sheet, etc...however, I've never lit a match to actually buy the stock...since the stock price never quite got into my strike zone.
I did see Chieftain in there as a major investor when I first recruited the Yankee to my farm team...although Chieftain and the insiders have been selling substantial stakes in the company in recent years.
The candle business is very competitive. I've owned Lancaster Colony for a number of years...and when I first invested in LANC, the candle biz was on fire...now they're lucky if they can keep the flame flickering in that part of their business...so "stinky paraffin" might be an apt fragrance for the candle biz ;-)
"Lou and the fellows from Chieftan often can be found pumping iron in the same companies ;-)"
There is a good reason for that, Greenberg worked for Lou before Chieftain!
"Glenn Greenberg, co-head of money manager Chieftain Capital and a former Simpson employee ..."
Glenn runs a very concentrated portfolio, currently just eight different stocks. For a peek at what he has been holding at Chieftain Capital Management, Inc., check this out:
I though Glenn was one of the more interesting individual studies in Bruce N. Greenwald's book "Value Investing - From Graham to Buffett and Beyond", see: chapter 11, pages 211 to 224.
He has had Yankee Candle for a long time. I wonder what he sees in overpriced (the product, not necessarily the stock), stinky paraffin?
In the past he has held quite a few Canadian stocks. Maybe we should be searching "The Great White North" for value also, eh?
Yeah I think Lucent is a zero, or close. Maybe the way to think about them is a call option on a technolgy recovery. But I dont think their assets come close to covering their debt.
Anyhow, I thought that the company in question was Level 3. And in that case, assets are pretty relevant. Longleaf said about their investment, that their loan was covered by sufficient assets to make it safe. My mistake if you were refering to Lucent.
Its late, I'm signing off for the night...
"Certainly a company with no earnings but high quality assets in excess of debt is not worth zero."
I wasn't referring to good companies that report negative earnings once in a while, before. I meant companies with consistent negative earnings, combined with a lackluster management, and a mountain of debt. Companies like Lucent. What is the point in even trying to determine the "value" of such bottom-of-the-barrel companies? Isn't it fair to label them valueless?
>>>book value, replacement value, and private market value are three different things...
...and liquidation value is another.
Book value is an accounting figment. But it's a starting point.
My point was, though, that future values of cash flow or earnings is one way of measuring value, but it is not the only one. Certainly a company with no earnings but high quality assets in excess of debt is not worth zero.
Re: your last point, of a company selling "soon enough", Mario Gabelli has this idea that he wants to buy asset plays but only in the presence of a 'catalyst' (his term) to make sure that he isn't buying a cheap stock that stays cheap. Its an interesting idea but I'm not sure its of any use to me personally. Gabelli is not as forthcoming as I would like in terms of explaining his methods.
POST OF THE DAY
TMF Money Advisor
October 2, 2003
According to recent 13-f filings, in December Berkshire reported no position in Duke Energy; on March 31 they owned 4.8 million shares, a position that had been reduced by June 30 to 1.4 million shares. While this type of trade might seem out of character for Berkshire, (holding period somewhat short of forever) a look at the chart provides some interesting insight.
book value, replacement value, and private market value are three different things.
To the extent book value approaches replacement value the number may be a fine metric to use if there are other companies in the same field that are going concerns.
A going concern (in my book) is a company that makes enough money on each sale (over time) so that it can pay all amortization and depreciation of equipment AND provide a rate of return above and beyond say... the prime rate...which has a bit of risk premium built in.
The replacement value is especially useful if the cost of replacing the current equipment, assetts, and real estate in their current condiditon could be relized in cash by selling to other operators. The more special purpose the assetts and invetory are, the less margin of saftey the goods have since if there is excess capacity in an industry no one would pay replacement cost. However... that makes replacement cost sort of recursive....If you could buy equipment second hand on a glutted market well below the price someone could manufacture it for...perhaps thats the true replacement cost.
A private market value for assetts and customer lists is a good way to find a margin of saftey in a firm that isn't bleeding cash too bad. That is if you trust the company to sell out to a competitor soon enough to give you a high rate of return on the time you held versus the price you paid.
I dont know if you can say that or not.
Buffett has bought a lot of pfd and conv bonds of companies that are good companies.
G was one that is now long term hold, yet we never bought any common shares(i dont think anyway).
LVLT could have been Buffett helping out Scott knowing that it was also make berkshire money.
Buffett is willing to buy the company.
1. LVLT gets capital
2. LVLT Stocks goes up
3. LVLT can pay off debt with equity
4. LVLT can float a 2 bonds at good rate
5. LVLT can pay off credit line
6. Berkshire makes a nice quick profit
Where was the harm to anyone?