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Oct 20

Vonage’s Free Cash Flow Story

I have a tendency to go overboard when I’m writing up a new company. There is so much to say. The business, the growth opportunities, the competitors, the financials, the risk factors, it goes on. I get half way through the write-up, look at the novel I’ve written and say, what am I doing here?

This is a blog. Its meant to be bite sized quips. Its intent is to share the investment ideas I have, discuss the reasons behind them and hopefully get feedback from others that help me distill the ideas down further and maybe get a few new ones as well. I’m not getting anything for, nor do I think anyone is looking for, an exhaustive multi-page diatribe outlining every nuisance of the idea at hand. If you are you should probably pay for it.

So after I’ve written a rambling soliloquy that no one is going to read, I take a step back and ask myself: what is the most important point here? What’s the thing that makes this investment worthwhile? Read more

Oct 13

Week 119: Getting Back on Track

Portfolio Performance

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

Recent Developments

I always write words like those in the title with some trepidation. I’m never really sure if things are back on track, or just bouncing on their way to oblivion.

Nevertheless, the tangible evidence is that my portfolio has recovered and made new highs in the last month. I had a blip to the downside in August, and when I look back on that blip, I can attribute it to a few bad decisions. There was Niko Resources, Walker and Dunlop and Dex Media obviously and to a lesser extent Vitran and AMBAC. All of these stocks had flaws that I should have recognized and gave greater consideration to, and none of these stocks deserved to be allocated outsized starter positions, yet in the case of Niko and Dex Media that is exactly what I did.

I’ve gone back to the drawing board since then. I’ve tried to be more careful with my stock selection, tried to spend more time thinking through each idea before adding a position, and tried to work with the attitude that an opportunity passed up is better than one taken and lost on. Read more

Oct 2

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Returning to PHH Corp

On September 19th I received an email from a friend (hat tip @VermeulenGold) that an activist investor, Orange Capital, had taken a 5% position in PHH and written a letter to management outlining their recommendations on creating shareholder value. I immediately took a position in the stock.

In order to describe why I acted so quickly, let’s go back to why I sold PHH in the spring. There were two reasons. One was my concern that gain on sale margins would compress significantly – a concern that remains valid today (and could still be my undoing with the stock). The other was that there just didn’t seem to be a catalyst to realize the valuation gap that I saw.

Now, with that catalyst having materialized, I want to be along for the ride.

I wrote about PHH over a year ago. I described the company as having Joel Greenblatt type of spin-off potential. The company had two disparate businesses with little in common. There were aspects of the one business that clouded the accounting of the other. And one of those businesses, mortgage origination, had a not well understood but valuable asset in the mortgage servicing rights that were held.

Now that I have had a chance to read the Orange Capital letter in full, I am happy to see them draw similar conclusions. I added to my position in the company on Monday. It’s a 4.5% position.

The Orange Capital Letter

I would recommend reading the letter in full, it is available here, but briefly, these are the four initiatives suggested by Orange Capital: Read more