Book Giveaway – Giving Away Another $100 Of Books For Free

Book Giveaway - Giving Away Another $100 Of Books For Free

When I started learning about value investing I had no one to turn to for help or guidance except the infinite internet.  I sifted through thousands of articles, websites, books, videos, and other etc. information to get to where I am today.

Now that I have a solid knowledge base built I'm helping other value investors so they don't have to struggle as much as I did when starting.

One of the ways I help is by giving away valuable books free to subscribers.  And I detail these book worth more than $100 below.

I'm a huge believe in Charlie Munger's Mental Models and Worldy Wisdom philosophies that the more we read the more we can know.  And the more we know the closer we are to reaching our goals, making a ton of money, and changing the world.

These books represent knowledge, power, goal and wealth attainment, and much more.  True knowledge is one of the most powerful forces in the world.  But few hold this power...

My goal is to help spread this power to as many as possible.  And next week a lucky subscriber is getting a step closer to their goals by winning the following 10 books valued at more than $100.

Benjamin Franklin by Walter Isaacson

Now on the Recommended Reading and Viewing Page in the Financial History/Regular History section.  I'd give it a 4/5.

This book offered some new things - especially when it came to some of the back room diplomacy Franklin was involved in - that were interesting but not enough to make it a great read.  If I hadn't studied this time period and Franklin so much this would have gotten a higher rating from me.

Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon

I've not read this book yet.  It's been in my ever-growing to read pile for a while now though as I've heard nothing but great things about the book.

When I came across a cheap copy of the hardcover I had to buy it to give away.

Below is the description of the book from Amazon.

The New York Times's Pulitzer Prize-winning columnist reveals how the financial meltdown emerged from the toxic interplay of Washington, Wall Street, and corrupt mortgage lenders.

In Reckless Endangerment, Gretchen Morgenson, the star business columnist of The New York Times, exposes how the watchdogs who were supposed to protect the country from financial harm were actually complicit in the actions that finally blew up the American economy.

Drawing on previously untapped sources and building on original research from coauthor Joshua Rosner—who himself raised early warnings with the public and investors, and kept detailed records—Morgenson connects the dots that led to this fiasco.

Morgenson and Rosner draw back the curtain on Fannie Mae, the mortgage-finance giant that grew, with the support of the Clinton administration, through the 1990s, becoming a major opponent of government oversight even as it was benefiting from public subsidies. They expose the role played not only by Fannie Mae executives but also by enablers at Countrywide Financial, Goldman Sachs, the Federal Reserve, HUD, Congress, the FDIC, and the biggest players on Wall Street, to show how greed, aggression, and fear led countless officials to ignore warning signs of an imminent disaster.

Character-rich and definitive in its analysis, this is the one account of the financial crisis you must read.

Profit from the Core: A Return to Growth in Turbulent Times

A great book that talks about competitive advantages.  How to gain them, how to cultivate them, and how not to lose focus on growing them.  This book is on the Recommended Reading and Viewing page in the Competitive Advantage/Competitive Strategy section.  I'd give the book a 5/5.

Messi

This is a great book even if you're not a soccer or Lionel Messi fan.  The lessons I took from this book were what it takes to become great.  What it takes to stay great.  And the trials you'll face on your way to greatness.

Now on the Recommended Reading and Viewing page designated as a MUST READ!!! in the Learning/Self-Improvement/Productivity section.  I'd give the book a 5/5.

The Black Swan

I've not read this book yet either like some mentioned here.  But I came across a copy of the paperback and had to get it to give away.  Heard nothing but great things about this book as well.

Below is the description of the book from Amazon.

A black swan is an event, positive or negative, that is deemed improbable yet causes massive consequences.

In this groundbreaking and prophetic book, Taleb shows in a playful way that Black Swan events explain almost everything about our world, and yet we—especially the experts—are blind to them. In this second edition, Taleb has added a new essay, On Robustness and Fragility, which offers tools to navigate and exploit a Black Swan world.

Good Strategy Bad Strategy: The Difference and Why It Matters

Another great book talking about competitive strategy and competitive advantages.  This book is in the Recommended Reading and Viewing page marked as a MUST READ!!! in the Competitive Advantage/Competitive Strategy section.

The first 1/4 of this book is bland generalities and theory about strategy.  But the last 3/4 of the book are great once it gets to the real world and business case studies.

I give the book a 5/5.

Team of Rivals: The Political Genius of Abraham Lincoln

I've not read this book yet either like some mentioned here.  But I came across a copy of the paperback and had to get it to give away.  Heard nothing but great things about this book as well.

Below is the description of the book from Amazon.

Winner of the Lincoln Prize

Acclaimed historian Doris Kearns Goodwin illuminates Lincoln's political genius in this highly original work, as the one-term congressman and prairie lawyer rises from obscurity to prevail over three gifted rivals of national reputation to become president.

On May 18, 1860, William H. Seward, Salmon P. Chase, Edward Bates, and Abraham Lincoln waited in their hometowns for the results from the Republican National Convention in Chicago. When Lincoln emerged as the victor, his rivals were dismayed and angry.

Throughout the turbulent 1850s, each had energetically sought the presidency as the conflict over slavery was leading inexorably to secession and civil war. That Lincoln succeeded, Goodwin demonstrates, was the result of a character that had been forged by experiences that raised him above his more privileged and accomplished rivals. He won because he possessed an extraordinary ability to put himself in the place of other men, to experience what they were feeling, to understand their motives and desires.

It was this capacity that enabled Lincoln as president to bring his disgruntled opponents together, create the most unusual cabinet in history, and marshal their talents to the task of preserving the Union and winning the war.

We view the long, horrifying struggle from the vantage of the White House as Lincoln copes with incompetent generals, hostile congressmen, and his raucous cabinet. He overcomes these obstacles by winning the respect of his former competitors, and in the case of Seward, finds a loyal and crucial friend to see him through.

This brilliant multiple biography is centered on Lincoln's mastery of men and how it shaped the most significant presidency in the nation's history.

Only The Paranoid Survive

This book is on the Recommended Reading and Viewing page in the Competitive Advantage/Competitive Strategy section.  I give the book a 4/5.

Below is a mini review I wrote of this book in January 2014.

I read Only The Paranoid Survive after it was recommended by Charlie Munger in Poor Charlie's Almanack and I am glad that I did.

This book is mainly about the decisions Mr. Grove (Former COO, CEO, and chairman of Intel) made, and helped make, to completely reform Intel from a memory company that was suffering a slow death against Japanese competitors to helping it become the worlds biggest semiconductor company.

He walks you step by step on how and why the decisions were made within Intel which in and of itself is fascinating to me.  He also goes through some case studies on decisions that other companies made (and still make) that lead to companies losing market share or possibly even dying altogether.

The case studies and examples specifically from Intel do a great job of showing you examples of how you can spot these trends or potential trends in companies that you are managing or looking to invest in.

Is it as good as Competition Demystified?  In my opinion no, but it is not specifically a book about strategy like CD is.  It is one mans advice, stories, and case studies about decisions he made and helped make that helped start to turn Intel into the powerhouse it is today.  Along with Mr. Munger, I also highly recommend reading this book.

Traffic: Why We Drive the Way We Do (and What It Says About Us)

I've not read this book yet either like some mentioned here.  But I came across a copy of the paperback and had to get it to give away.  Heard nothing but great things about this book as well.

Below is the description of the book from Amazon.

Would you be surprised that road rage can be good for society? Or that most crashes happen on sunny, dry days? That our minds can trick us into thinking the next lane is moving faster? Or that you can gauge a nation’s driving behavior by its levels of corruption? These are only a few of the remarkable dynamics that Tom Vanderbilt explores in this fascinating tour through the mysteries of the road.

Based on exhaustive research and interviews with driving experts and traffic officials around the globe,Traffic gets under the hood of the everyday activity of driving to uncover the surprisingly complex web of physical, psychological, and technical factors that explain how traffic works, why we drive the way we do, and what our driving says about us.  Vanderbilt examines the perceptual limits and cognitive underpinnings that make us worse drivers than we think we are. He demonstrates why plans to protect pedestrians from cars often lead to more accidents. He shows how roundabouts, which can feel dangerous and chaotic, actually make roads safer—and reduce traffic in the bargain. He uncovers who is more likely to honk at whom, and why. He explains why traffic jams form, outlines the unintended consequences of our quest for safety, and even identifies the most common mistake drivers make in parking lots.

The car has long been a central part of American life; whether we see it as a symbol of freedom or a symptom of sprawl, we define ourselves by what and how we drive. As Vanderbilt shows, driving is a provocatively revealing prism for examining how our minds work and the ways in which we interact with one another. Ultimately, Traffic is about more than driving: it’s about human nature. This book will change the way we see ourselves and the world around us. And who knows? It may even make us better drivers.

The Long Tail: Why the Future of Business is Selling Less of More

This book is on the Recommended Reading and Viewing page in the Competitive Advantage/Competitive Strategy section.  I give the book a 4.5/5.

I read this book so long ago that I don't remember a lot of the specifics about it.  But the lessons I do remember - the powerful economics of the long tail as one example - stick with me to this day years later.  It's a powerful book that I recommend.

Since its been so long since I read the book I'll let the Amazon description tell you more about it.

What happens when the bottlenecks that stand between supply and demand in our culture go away and everything becomes available to everyone?

"The Long Tail" is a powerful new force in our economy: the rise of the niche. As the cost of reaching consumers drops dramatically, our markets are shifting from a one-size-fits-all model of mass appeal to one of unlimited variety for unique tastes. From supermarket shelves to advertising agencies, the ability to offer vast choice is changing everything, and causing us to rethink where our markets lie and how to get to them. Unlimited selection is revealing truths about what consumers want and how they want to get it, from DVDs at Netflix to songs on iTunes to advertising on Google.

However, this is not just a virtue of online marketplaces; it is an example of an entirely new economic model for business, one that is just beginning to show its power. After a century of obsessing over the few products at the head of the demand curve, the new economics of distribution allow us to turn our focus to the many more products in the tail, which collectively can create a new market as big as the one we already know.

The Long Tail is really about the economics of abundance. New efficiencies in distribution, manufacturing, and marketing are essentially resetting the definition of what's commercially viable across the board. If the 20th century was about hits, the 21st will be equally about niches.

A lucky subscriber will win these 10 books - valued at more than $100 - free next week.  And I will even ship the books at my cost to anyone anywhere in the world.

All you have to do to have a chance to win is subscribe to Value Investing Journey for free.  Or be a Press On Research paid subscriber.  And this isn't all you'll get when you subscribe either.

You also gain access to three gifts.  And a 50% discount on a year-long Press On Research subscription.  Where my exclusive stock picks are evaluated and have crushed the market over the last four years.

And you can subscribe to Press On Research for only $49 if you're a free Value Investing Journey subscriber.

If you have further questions about Press On Research go to its FAQ linked in this sentence or email me at jasonrivera@valueinvestingjourney.com

***

My new investment holding company Rivera Holdings is now open to investors.  There is no minimum required investment.  And you DO NOT have to be an accredited investor to invest.

For more information please go to the Rivera Holdings link above or email me at JasonRivera@valueinvestingjourney.com.

Rivera Holdings Is Now Open To Investors

Rivera Holdings Is Now Open To Investors

More than one year ago I remember sitting at a restaurant eating breakfast with my wife and two daughters nervous to tell them something I'd been thinking about for years.  And seriously building in my mind for years.

I had to tell someone else at that point to make it real.  Because until I told someone else it was all still a far away dream with no plans, no direction, and no chance of happening.

I finally got the courage up that day to tell her.

I felt like a teenager going in for their first kiss and looked into my wife's eyes, butterflies in my stomach feeling like I was going to throw up.  I hoped when I spoke the words my voice wouldn't crack or vomit wouldn't come out.

The following words came out of my mouth sounding surprisingly confident...

"I'm going to start a company and raise $10 million."

My wife looked at me in shock and almost choked on her breakfast potatoes.

She stared at me for a few seconds before responding something like "Okay... what?"

I don't remember her exact response because of the nerves.  And because of the immense relief and excitement I felt after finally telling someone what I'd been planning in my head for years.

I felt relief and then immediate terror because I knew the amount of work I'd have to now put in to make this happen.  And since I've never done anything like this before I didn't even know where to start.

So that's what I did...  I began working and researching about what I needed to do to make this happen.

Since I began learning about value investing almost 10 years ago now I've planned to open a company of my own.

I've thought all these years about how I'd run and structure the company.  But there's a gigantic difference between an idea of how to do something.  And what you actually need to do to execute.  I found this out the hard way when I wrote How To Value Invest.

What I thought would be a few month project turned into 10 months of work on the book.

Having gone through that process this time I didn't put a time frame on when I wanted to open the company until I got a lot closer to finalizing things.

Fast forward almost a year where I'm still grinding to start things and the only people I'd told about what I was doing were my close family members.  And when I told them they had a similar reaction to my wife.  I saw a lot of shock and heard things like "Okay... what?" when telling anyone.

Don't take anyone's reaction mentioned here as a negative response though.

I'm lucky to have a close-knit family who believe in me.  But we're a typical middle class family who looks forward to taking vacations once or twice a year.  Upgrading TV's and computers when necessary.  And spending time together barbecuing and watching football on Sunday's.  Talk of starting multimillion dollar companies isn't normal in our family.

I continued to grind closer to this goal and then a few months ago as I told more people my plans I began telling them: "by the end of the year 2016 Rivera Holdings will be open."

Fast forward another few months of work, research, and writing and we're here today.  And I can finally tell everyone that my investment holding company Rivera Holdings is now open to investors.

I will be posting more information on the blog in the coming weeks about the company.  But if you'd like more information about becoming an investor now please fill out the form below.

And if you know you'd like to invest you need to contact me as soon as possible.  This is because due to law Rivera Holdings is only allowed to accept a set number of non-accredited investors.

Yes you read that right...

You DO NOT have to be an accredited investor to invest in Rivera Holdings.

If you'd like more information about becoming an investor in the company please fill out the form below.  Once doing this you'll get all the details about the company and my contact information.

I will continue to post on this blog but I wanted to say thank you to everyone who has ever read, commented on, emailed, or talked with me about investing.  You've had a gigantic positive influence on me and helping this happen.

I look forward to talking with many of you soon about becoming investors in Rivera Holdings.

Sincerely Yours,

Jason M. Rivera

Chairman, CEO, and Founder of Rivera Holdings

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15 Questions With Jason Rivera – An interview I did with P.j. Pahygiannis of GuruFocus

15 Questions With Jason Rivera - An interview I did with P.j. Pahygiannis of GuruFocus

Below is a brief excerpt to the 15 question interview I did with P.J. Pahygiannis of GuruFocus.  The questions range from how I began as a value investor, to books I recommend, my investment focus and style, my investment icons, and more.

To view the full transcript please go here or also to the link further below.

Today, I had the pleasure of having a conversation with Jason Rivera. Jason tells us his favorite books, the investors he looks up to, the books he recommends, as well as his findings in the OTC market.

How did you get started investing? What is your background?

I started learning about investing out of necessity. About 10 years ago I was dealing with severe dizziness issues, so I could not do much. But when my wife told me she was pregnant with our first daughter, I knew I had to do something that would allow me to provide for my family at some point when I got healthy.

At the time I thought about going into three different lines of work.

One was to become a politician but I figured the world didn’t need any more scum bag politicians.

The second was becoming a writer but I remember being told in high school by one teacher, “I hope you never want to become a writer because this paper is terrible.” And it was the truth then.

And third was that I remembered learning some basics about investing my senior year in high school and I remember being interested in it.

So almost by default I chose the path of learning about investing because it was the only path I was even a bit interested in.

To view the full 15 question interview go to the following link.

Link to Full Interview Here.

Thanks a lot for the opportunity P.J.

On Float The 60 Page Book Released

On Float The 60 Page Book Released

Over the last seven months I've detailed investment float a lot here.  All the nuances, and both the positives and negatives of float.

The hope being we'll have a huge advantage over other investors by knowing the immense power float holds.  How to evaluate it.  And how it affects a company's value among many other things.

Over the last seven months, seven parts, 12,000 words, and 60 pages of content I explain all the following in detail.

  • What float is.
  • Why it's important.
  • How companies can use float as positive leverage.
  • How Buffett got so rich using float.
  • How to find float on a balance sheet.
  • How to evaluate float.
  • How float affects a company and its margins.
  • Maybe the most important thing why float affects a company and its margins.
  • How float affects a company's value.
  • And answered the question is float ever bad?

I released the last part of the On Float series on the blog last week so why am I writing this post?

Because I've compiled all the information above and put the content into a 60 page PDF book that's releasing free today.

And by free I mean free.

You don't have to pay me a cent.  Don't have to pass this along on Twitter or Facebook.  And don't even have to give me your email address to gain access to this book.

All you have to do to download this book is click on the link below.  That's it.

On Float The 60 Page Book

Feel free to share this with anyone you'd like and as many people as you'd like.  No restrictions and no hassles.

The only things changed from the blog posts to the transition into book were I deleted some redundancy from the blog posts and changed/fixed some formatting issues that popped up in the transition.

All other content to my knowledge is the same.

I hope you enjoy and learn as much from this information as I have.

Conclusion and Further Recommended Reading – On Float Part 7

Conclusion and Further Recommended Reading - On Float Part 7

This post is the last one in the On Float series started way back on February 2nd 2016.  Yes that date is correct.  I posted the first article in this series Charlie Munger On Deferred Tax Liabilities and Intrinsic Value - On Float Part 1 seven months ago.

If I've done my job well in the seven parts, more than 12,000 words, and 60 pages of content including this post we all should know the following now.

  • What float is.
  • Why it's important.
  • How companies can use float as positive leverage.
  • How Buffett got so rich using float.
  • How to find float on a balance sheet.
  • How to evaluate float.
  • How float affects a company and its margins.
  • Maybe the most important thing why float affects a company and its margins.
  • How float affects a company's value.
  • And answered the question is float ever bad?

But as with any great thing in life and investing there's always more to learn and improve on.  Knowing this I've included the things I've learned the bulk about investment float from below.

Also make sure to read the comments sections of any of the following as well as there is usually great commentary there on the specifics of float.

All the following are in no particular order.  Have been added to the Recommended Reading and Viewing page.  And are designated as MUST READS!!! on the Recommended Reading and Viewing page.

My posts about float.

I specifically want to thank Warren Buffett, Charlie Munger, Professor Sanjay Bakshi, and The Brooklyn Investor for sharing their knowledge on float.  Without their knowledge none of my posts would have happened.

Reading the above things and taking notes where necessary will help you further understand the nuances of float.

But if you really want to continue learning about float make sure to read company filings, take notes, analyze the company fully, analyze its float, and value the company.

Doing this over and over - like with almost everything in value investing - not only ingrains these concepts in your thought processes.  But the more you do it the more nuances you'll spot.  And the more intimate knowledge you'll have of investment float and its immense power.

If I've done my job well over the last 60 pages we should now have a huge advantage over other investors who either don't know what investment float is.  Don't know how to value and evaluate it.  Or won't take the time to learn how to do these things.

But as always there's always more to learn and improve on so on to the next one...

Please leave any comments, questions, or concerns you have about float in the comments section below.

***

Remember if you want access to my exclusive notes and preliminary analysis you need to subscribe for free to Value Investing Journey.  And this isn't all you'll get when you subscribe either.

You also gain access to three gifts.  And a 50% discount on a year-long Press On Research subscription.  Where my exclusive stock picks are evaluated and have crushed the market over the last four years.

Is Float Ever Bad? On Float Part 6

Is Float Ever Bad? On Float Part 6

The goal of this blog is to help us all improve as investors and thinkers so we're a little wiser every day.  The hope being that our knowledge will compound over time so we'll have huge advantages over other investors in the future.

The aim of today's post is to continue this process by talking about a topic few investors know about.  And even fewer understand.

Most people overlook float when evaluating companies because they either don't know what it is.  Don't know the power it can have within a business.  Or don't know how to evaluate it.

This won't be an issue here.

Press On Research subscribers already know this as I talk a lot about float in many of the issues I've written.  But I want to begin talking about it more here because float is one of the most powerful and least understood concepts of business analysis.

Today's post is a continuation of the earlier posts:

Today we're going to answer the question "Is Float Ever Bad?

Is Float Ever Bad?

I'm a guy who likes to live by the above quote.  If I can make things simpler I always do.  Not only does this make things easier to understand but it also can save a ton of time.

When analyzing investments and dealing with complex topics like investment float this isn't always possible.

Understanding the good things about investment float is definitely one of those things you can make only so simple.  The concept is simple to understand but the there are a ton of different nuances to understand which leads to complexity.  You can likely tell since it's taken me 51 pages thus far in the five earlier posts to explain the good things about investment float.

Luckily the answer to the titled question is a simple one.  And also involves simple and easy to understand concepts as well.

Yes, certain investment float is bad.  And no, not all float is equal.

The heuristic or mental model I use when evaluating float is that if the company isn't profitable - or near profitability - its float is useless.  And can even be a negative burden for a company.

Why?

Remember, float are liabilities that can become positive leverage if used well by management and the company is profitable.  But always remember leverage can go both ways as well.

If a company isn't profitable and hasn't produced profits in several years float turns into negative leverage.  This is because in the long run float are liabilities the company will have to pay at some point.

The longer a company goes without earning profits the longer it will take a company to pay its liabilities because it's not earning enough money.  This also makes it harder to fund operations and grow in a healthy way without taking on a ton of debt or even more liabilities.

Let's go through a quick example to show this.

Let's say we have two insurance companies.  Company A has an average combined ratio of 90% over the last five years and Company B has an average combined ratio of 110% over the last five years.

Not only does this mean Company A's profits are 20 percentage points better on average than Company B.  But it also likely means that Company B has continued racking up liabilities it can't afford to pay when due or when a catastrophe strikes.

This is because Company B hasn't earned a profit on average over the last five years.  And of course all else remaining equal a company earning 20 percentage points better profit's on average is the higher quality company.

The same general rule goes for non insurance companies as well.  If they aren't, haven't been, and show no signs of becoming profitable float should be viewed as negative leverage for a company.

I use the following rules when evaluating all companies float...

  • To view float as a giant positive for any company I like to see consistent profitability in the last five years.  And/or seven of the last 10 years.
  • If a company has off and on profitability I view float as neutral.
  • And if the company is consistently unprofitable I view float as a huge negative for the company.

I consider profitability of operating margin, ROIC, ROCE, and FCF/Sales.  The company doesn't have to produce huge excess profitability in each category.  I look for consistency and trend of profits more than anything when evaluating float.

This idea is a lot simpler to understand than the concept of what float is and makes it potentially great for companies and investors.

One last thing to remember when evaluating float is that whether the company has positive or negative acting float doesn't matter if the company doesn't allocate capital well.  And the management doesn't know what float is or how to use it.

To evaluate these potentials see the previous five posts on this topic.

Summary

If I've explained everything well enough in the series so far we should understand -

  • What float is.
  • Why it's important.
  • How companies can use float as positive leverage.
  • How Buffett got so rich using float.
  • How to find float on a balance sheet.
  • How to evaluate float.
  • How float affects a company and its margins.
  • Maybe the most important thing why float affects a company and its margins.
  • How float affects a company's value.
  • And answered the question is float ever bad?

In the next and final seventh chapter of this series I'll share the best resources I've learned from about float with you.

Knowing what we know now we should have a gigantic advantage over other investors who either don't know about float.  Or aren't willing to put in the time to learn what it is and what it can do for a company and investment.

If you have any questions, concerns, or comments on float up to this point please let me know in the comments section below.

***

Remember if you want access to my exclusive notes and preliminary analysis you need to subscribe for free to Value Investing Journey.  And this isn't all you'll get when you subscribe either.

You also gain access to three gifts.  And a 50% discount on a year-long Press On Research subscription.  Where my exclusive stock picks are evaluated and have crushed the market over the last four years.

How Does Float Affect Valuation? On Float Part 5

How Does Float Affect Valuation? On Float Part 5

The goal of this blog is to help us all improve as investors and thinkers so we're a little wiser every day.  The hope being that our knowledge will compound over time so we'll have huge advantages over other investors in the future.

The aim of today's post is to continue this process by talking about a topic few investors know about.  And even fewer understand.

Most people overlook float when evaluating companies because they either don't know what it is.  Don't know the power it can have within a business.  Or don't know how to evaluate it.

This won't be an issue here.

Press On Research subscribers already know this as I talk a lot about float in many of the issues I've written.  But I want to begin talking about it more here because float is one of the most powerful and least understood concepts of business analysis.

Today's post is a continuation of the earlier posts:

Today we're going to talk about how float affects valuation.  The issue brought up way back in part 1 of this series linked above.  But before we get to this let's go back to On Float Part 4 to continue this talk about valuation with those companies.

Insurance Company Float and Valuation

Below is the unedited float analysis I did on an insurance company I wrote about in the April 2016 Press On Research issue.

All numbers below are in USD $ millions unless noted.

Assets

  • Financial Assets: Fixed maturity securities of 94.3 + equity securities of 4.9 + trading securities of 0.1 + loans of 1.9 + cash and cash equivalents of 6.8 + accrued investment income of 0.8 + premiums and other receivables of 11.3 + deferred income tax assets of 3.8 = 123.9
  • Operating Assets: Deferred policy acquisition costs of 8.5 + PP&E net of 2 + other assets of 13.9 = 24.4
  • Total Assets = 148.3

Liabilities

  • Equity of 44.9
  • Short-term debt of 0.9 and long-term debt of 17.4 = 18.3
  • Float: Future policy benefits of 35.2 + policyholder funds of 1.6 + unearned premiums of 29.9 + taxes payable of 0.1 + other liabilities of 18.3 = 85.1

Total liabilities are 103.4

Float/operating assets 85.1/24.4 = 3.49.

Float supports operating assets 3.49 times.

And Float is "free money" because (NAME REMOVED) earns consistent underwriting profits as it’s earned underwriting profits in six of the last nine years.

Pretax profits have changed to underwriting profit below because normal pretax profits mean nothing for insurance companies.

(NAME REMOVED) had an underwriting profit – profit from operations before taxes here – for the full 2015 year of 6.4.

Underwriting profit/total assets = ROA

  • 6.4/148.3 = 4.3%
  • Compared to a Morningstar ROA of 3.2%

Underwriting Profit/(total assets - float) = levered ROA

  • 6.4/63.2 = 10.1%

If I were to rely only on Morningstar to get estimates for margins (NAME REMOVED)looks below average at only 3.2%.

Yes I know this isn’t an apples to apples comparison.  But normal profit metrics mean nothing for insurance companies.

When considering underwriting profit.  Its ROA is a still below average 4.3%.

But (NAME REMOVED) float magnifies its ROA higher.

When considering float, its levered ROA goes up to 10.1%.  Or 43% higher than what I calculate it’s normal ROA as.

Having a levered ROA of 10.1% isn’t great compared to normal companies I invest in… But for an insurance company this is a great margin.

One of my investment icons the great insurance investor Shelby Davis looked for insurance companies having an ROA above 10% so this meets his threshold.

Another important metric for insurance companies is ROE.  Most great insurance companies fall in the 10 – 15% ROE range.

I calculate (NAME REMOVED) ROE – underwriting profits/shareholders equity – as 14.3% not levered by any float.  Compared to Morningstar’s ROE estimate of 10.7.  This puts (NAME REMOVED) into the great insurance company category.  And there’s still more.

***

I continue on from here detailing this great small insurance company but now let's get back to talking about how float affects valuation.

The unedited valuations below are from the April 2016 Press On Research issue except for the removal of the company name and ticker.

My notes talking about float now are bolded and capitalized.

How Does Float Affect Valuation?

As Warren Buffett once said, “Price is what you pay, value is what you get.”

The price of a company is what the market says it is. But how do I establish value?

When I recommend a stock, I try to find its “intrinsic value.” Intrinsic value measures a company’s true value considering tangible and intangible assets and the company’s operations.

Think of intrinsic value this way: What would this company be worth if we were to buy it outright? It’s like appraising the value of a house or car.

If I find the intrinsic value of a company to be higher than its market price, that’s a good sign of an undervalued stock.

I valued (NAME REMOVED) four ways.

The first is by assuming 1% interest rates for the long-term.  And that (NAME REMOVED) float won’t grow over time.

The second is an asset reproduction valuation.

The third is adding the reproduction value of (NAME REMOVED) to 1/5th of its float and then dividing by its number of shares.

And the fourth is adding (NAME REMOVED) float and equity together then dividing this by its number of shares.

Valuations done using (NAME REMOVED) 2016 10K. All numbers are in millions of US$, except per share information, unless otherwise noted.

(NAME REMOVED) current market cap is (REMOVED; BELOW $100 MILLION) and its current share price is $15.20 per share.

Float X 1% Interest Rate + Equity Valuation

This valuation is expecting 1% interest rates for the long-term and no growth in float over time.

  • (float X 10%) + Equity = estimated value/number of shares.
  • (84.9 X 10%) + 44.9 = 53.4/2.5 = $21.36 per share.

This valuation is the minimum (NAME REMOVED) should sell for because interest rates won’t stay as low as they are forever.  And it still shows (NAME REMOVED) is selling at a 28.8% discount.

(NAME REMOVED) has consistent underwriting profits and conservative managers so float should grow over time as well.

JUST THIS COMPANIES FLOAT EQUALS $33.96 A SHARE.  OR 223% HIGHER THAN ITS THEN TOTAL SHARE PRICE.  REMEMBER THOUGH THIS NEEDS TO BE DISCOUNTED IN MOST CASES BECAUSE OF THE LONG TERM NATURE OF MOST FLOAT AND BECAUSE THEY'RE LIABILITIES.  WE'LL TALK ABOUT THIS FURTHER BELOW.

Next up is the asset reproduction valuation.

Asset Reproduction Valuation

Assets Book Value Reproduction Value Notes
Fixed Maturity Securities 94.3 84.9
Equity Securities 4.9 3.9
Trading Securities 0.1 0
Loans 1.9 1
Cash and Cash Equivalents 6.8 6.8
Accrued Investment Income 0.8 0
Premiums and Other Receivables 11.3 6.9
Deferred Policy Acquisition Costs 8.5 5.1
Deferred Income Tax Assets 3.8 2
PP&E Net 2 1
Other Assets 13.9 8.3
Total Assets 148.3 119.9
Minus
Future Policy Benefits 35.2 21.1
Policyholder Funds 1.6 0
Unearned Premiums 29.9 17.9
ST Debt 0.9 0
LT Debt 17.4 10.4 I could have discounted this even further since its not necessary for insurance companies to carry debt.  This would have made reproduction value even higher below.
Taxes Payable 0.1 0
Other Liabilities 18.3 11
Total Liabilities 103.4 60.4
Equals 44.9 59.5 The note above also explains why reproduction value is higher than net asset value.  This is rare when I find this.
Divided By Shares 2.5 2.5
Equals $17.96 $23.80
Current share price = $15.20 $15.20
Discount to current share price = 15.40% 36%

This valuation does not take into account any of (NAME REMOVED) float.  This is an asset – at least in the short-term – because of (NAME REMOVED) long sustained history of underwriting profits.

And as mentioned throughout this issue these act as a cost-free form of positive leverage which boosts (NAME REMOVED) value.

Even in this still ultra conservative valuation (NAME REMOVED) is selling at a 36% discount to its current share price.

Asset Reproduction + 1/5 of Float Valuation

Add float (1/5 of float after reading this discussion in part 1 of the On Float series here) asset reproduction value gets us to:

  • 59.5 + (84.9 X 20% = 16.98) = 76.48/2.5 = $30.59 per share. Or more than a double from its current $15.00 share price.

This also considers no growth in float.  Any rise in interest rates.  Or a turn to a better insurance market.  All which will help (NAME REMOVED) shares explode but this valuation still shows it’s selling at a 50.3% discount.

REMEMBER THE DISCOUNTING TALKED ABOUT ABOVE?  HERE IT IS.

USING ONLY 1/5TH OF THIS COMPANIES FLOAT - OR $6.79 PER SHARE - FLOAT ADDS SUBSTANTIAL VALUE TO THE COMPANY.

IN THE CASE OF THIS VALUATION 22.2% TO THE COMPANIES VALUE.  1/5TH OF FLOAT MAKES UP 45% OF THE COMPANIES THEN CURRENT SHARE PRICE.

AS TALKED ABOUT THROUGHOUT THE APRIL 2016 PRESS ON RESEARCH ISSUE THIS COMPANY IS CONSISTENTLY PROFITABLE AS WELL.  AND THIS VALUATION DOESN'T COUNT ITS VALUABLE OPERATIONS AT ALL.

I DON'T WHEN EVALUATING INSURANCE COMPANIES BUT IF I WERE TO ADD A MULTIPLE OF ITS TTM UNDERWRITING PROFIT TO THIS VALUATION SO THE VALUE OF ITS OPERATIONS ARE CONSIDERED IN THIS VALUATION IT WOULD BE WORTH...

  • 6.4 x 8 + 76.48 = 127.68/2.5 = $51.07

THIS IS A CONSERVATIVE ESTIMATE OF THE COMPANIES REAL INTRINSIC VALUE.  THE VALUE A CONTROL INVESTOR MAY EXPECT THE COMPANY TO BE WORTH WHEN ACQUIRING THE WHOLE COMPANY.

PROFITABLE OPERATIONS COMBINED WITH LOW COST OR COST FREE FLOAT HAS IMMENSE VALUE AS SEEN FROM THIS VALUATION.

AND REMEMBER THIS ALSO ASSUMES NO GROWTH IN FLOAT GOING FORWARD.

AGAIN, THIS IS THE POWER OF FLOAT ILLUSTRATED.  THIS WILL ALL HELP COMPOUND THE VALUE WITHIN THE COMPANY OVER THE LONG-TERM BARRING SUDDEN POOR MANAGEMENT.

Float + Equity Valuation

  • Float + Equity = estimated value/number of shares.
  • 59.5 + 44.9 = 129.8/2.5 = $51.92 per share.

This high end valuation doesn’t discount float at all.  But also doesn’t expect any growth over time.  And still shows (NAME REMOVED) is selling at a 71% discount to its current share price.

So not only is (NAME REMOVED) an ultra conservative and safe to own insurance company.  But it’s also undervalued by as much as 71%.  And we should expect to earn at least 28.8% owning them.

But there’s still more that makes (NAME REMOVED) a safe investment…

***

From here I continue detailing the company in the issue but let's finish talking about the insurance company above.

All insurance companies have a lot of float that makes up the value of the company.  This is because most of any insurance company's balance sheet and operations are based on float.

Now let's go to the non insurance company talked about in On Float Part 4 to see the contrast here.  And also that float can still add substantial value to non insurance companies.

Non Insurance Company Float and Valuation

All numbers below are in millions of dollars unless noted.

  • Financial Assets: Cash and cash equivalents of 2.7 + deferred tax assets of 1.9 = 4.6
  • Operating Assets: Accounts receivable of 39.1 + Inventories of 12.6 + prepaid expenses of 1.1 + other CA of 0.3 + net PP&E of 73.7 + goodwill of 2.4 + other IA of 0.6 = 129.8
  • Total Assets = 134.4

Liabilities

  • Equity of 86.2
  • Debt of 14.4
  • Float = Accounts payable of 13.3 + Taxes Payable of 0.5 + accrued liabilities of 8.9 + other CL of 1.3 + deferred tax liabilities of 1.4 + pensions and other benefits of 8 = 33.1
  • Total liabilities 47.5

Float/operating assets = 33.1/129.8 = 25.5%.  This means (NAME REMOVED) float supports 25.5% of its operating assets.

Pretax profits/total assets=ROA

  • 7/134.4= 13.9%
  • Compared to a Morningstar ROA of 10.1%

Pretax profits/ (total assets-float) = levered ROA

  • 7/101.3 = 18.5%

Now that we remember this let's continue to show how float affects this companies valuation.

The information below is an unedited excerpt from the January 2016 Press On Research issue except for the removal of the company name and ticker.

***

As Warren Buffett once said, “Price is what you pay, value is what you get.”

The price of a company is what the market says it is. But how do I establish value?

When I recommend a stock, I try to find its “intrinsic value.” Intrinsic value measures a company’s true value considering tangible and intangible assets.  And the company’s operations.

Think of intrinsic value this way: What would this company be worth if we were to buy it outright? It’s like appraising the value of a house or car.

If I find the intrinsic value of a company is higher than its market price, that’s a good sign of an undervalued stock.

I valued (NAME REMOVED) five ways.

The book value per share valuation talked about above.  An asset reproduction valuation.  A float plus equity valuation. A 8 and 11 times EBIT + cash – debt valuation.  And a combined asset reproduction and 8 and 11 times EBIT + cash – debt valuation.

Book Value Per Share Valuation

The first way I valued (NAME REMOVED) from earlier shows (NAME REMOVED) should be worth $11.18 a share.  An 11.5% premium to what its selling at now at $9.90 a share at the time of this writing.

This is the absolute minimum (NAME REMOVED) should be selling for because it doesn’t count any of its valuable and profitable operations at all.  Or any growth.

Next up is the asset reproduction valuation below.

Asset Reproduction Valuation

Assets Book Value Reproduction Value
Cash and Cash Equivalents 2.7 2.7
Accounts Receivable 39.1 33.2
Inventories 12.6 7.6
Deferred Income Taxes 1.9 1
Prepaid Expenses 1 0
Other CA 0.3 0
Net PP&E 73.7 44.2
Goodwill 2.4 1
Intangible Assets 0.6 0
Total Assets 134.3 89.7
Minus
Short Term Debt 4.1 4.1
Accounts Payable 13.3 6.7
Taxes Payable 0.5 0
Accrued Liabilities 8.9 4.5
Other CL 1.3 0
LT Debt 10.5 6
Pensions And Other Benefits 8 6
Total Liabilities 46.6 27.3
Equals 87.7 62.4
Divided By Shares 7.6 7.6
Equals $11.54 $8.21

While (NAME REMOVED) is selling above its reproduction valuation – and it should since it’s a great company – it’s selling below its net asset valuation.  The middle bar above.

This is also an ultra conservative valuation that shows (NAME REMOVED) is undervalued by 14.2% now.

Float Plus Equity Valuation

The third way I valued (NAME REMOVED) was by adding float to equity and then dividing by its numbers of shares.

  • 33.1 + 86.2 = 119.3/7.6 = $15.70 per share.

This again is an ultra conservative valuation because it doesn’t include cash.  Or (NAME REMOVED) valuable and profitable operations.

But this still shows (NAME REMOVED) is undervalued by 37% now.

EBIT Valuation

The fourth way I valued (NAME REMOVED) is by using its TTM EBIT.  Multiplying this by eight and 11.   Adding cash.  Subtracting debt.  Then dividing this by the number of diluted shares outstanding.

  • 8X 19 + cash of 2.7 – 14.6 = 140.1/7.6 = $18.43. This means (NAME REMOVED) is undervalued by 46.3% now.  Almost a double from current share price.
  • 11X 19 + 2.7 – 14.6 = 197.1/7.6 = $25.93. Or undervalued by 61.8% now.  Or more than a double from current prices.

Yet again this doesn’t show the whole story because this valuation doesn’t include its valuable assets.

EBIT Plus Reproduction Valuation

Adding in the net value – after debt – of its estimated reproduction assets gets us values of:

  • 140.1 + 62.4 = 202.5/7.6 = $26.64 per share. Or 2.69 times higher than its current share price.
  • 197.1 + 62.4 = 259.5/7.6 = $34.14 per share. Or 3.45 times higher than its current share price.  Or a 3.45 bagger from current prices.

THIS COMPANIES THEN CURRENT SHARE PRICE WAS $10.  ITS FLOAT EQUALS $4.36 PER SHARE.  THIS MEANS JUST ITS FLOAT MADE UP 43.6% OF ITS THEN CURRENT SHARE PRICE.

IN OTHER WORDS FOR ONLY $5.64 YOU GET THIS COMPANIES CONSISTENTLY PROFITABLE GREAT MARGINS, ASSETS, OPERATIONS AND EVERYTHING ELSE OTHER THAN FLOAT.

WHEN EVALUATING NON INSURANCE COMPANIES I DON'T INCLUDE FLOAT IN THE VALUATIONS MOST OF THE TIME BECAUSE AS ALWAYS I LIKE TO BE AS CONSERVATIVE AS POSSIBLE.

BUT IF I WERE TO ADD 1/5TH OF THIS COMPANIES FLOAT ($6.62 MILLION OR $0.87 PER SHARE) TO THE EBIT PLUS REPRODUCTION VALUATION THIS WOULD GET US VALUES OF $27.51 AND $35.01 RESPECTIVELY ABOVE.

1/5TH OF FLOAT ADDS ~3% TO THIS COMPANIES VALUE.  NOT MUCH IN THE SHORT TERM BUT REMEMBER IF FLOAT IS USED WELL OVER A LONG TIME IT COMPOUNDS AND COMPOUNDS THE VALUE WITHIN THE COMPANY.

MOST PEOPLE DON'T CONSIDER FLOAT AT ALL WHEN EVALUATING NON INSURANCE COMPANIES.

AT THE TIME THE COMPANY WAS A ~$75 MILLION COMPANY.  IF THE COMPANY CONTINUES TO COMPOUND FLOAT AT 3% OVER 10 YEARS THE COMPANIES INTRINSIC VALUE WILL COMPOUND BY ~$26 MILLION TO $101 MILLION.

AND THIS ASSUMES NO GROWTH IN FLOAT.  NO GROWTH FROM ITS VALUABLE OPERATIONS.  AND NO ADDITIONS OF NEW CAPITAL FOR 10 YEARS.  ALL SHOULD CONTINUE TO GROW AT THIS GREAT COMPANY.

THIS COMBINED AFFECT OF COMPOUNDING FLOAT, INTERNAL VALUE, AND OPERATIONAL PROFITABILITY COULD EXPLODE THIS COMPANIES SHARES OVER TIME.

BUT I DON'T COUNT ANY OF THIS POSSIBILITY IN ANY VALUATIONS DUE TO CONSERVATISM.

THIS IS WHY FLOAT IS IMPORTANT EVEN FOR NON INSURANCE COMPANIES.  IT CAN ADD SUBSTANTIAL VALUE TO A COMPANY EVEN IF ITS ONLY ICING ON THE CAKE AS I OFTEN VIEW IT.

The above means that we’re buying (NAME REMOVED) at a massive discount to its true value.

***

Again, from here I continue detailing this great company.  For now let's sum this all up before moving on to the next part of this now extended series.  Is Float Ever Bad?  On Float Part 6.

Summary

If I've explained everything well enough in the series so far we should understand -

  • What float is.
  • Why its important.
  • How companies can use float as positive leverage.
  • How Buffett got so rich using float.
  • How to find float on a balance sheet.
  • How to evaluate float.
  • How float affects a company and its margins.
  • Maybe the most important thing why float affects a company and its margins.
  • And how float affects a company's value.

In the next and sixth chapter - yes I've now added two more parts to this now extended series - I'll answer the question is float ever bad.

Knowing what we know now we should have a gigantic advantage over other investors who either don't know about float.  Or aren't willing to put in the time to learn what it is and what it can do for a company and investment.

If you have any questions, concerns, or comments on float up to this point please let me know in the comments section below.

***

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