I Need Your Help

I Need Your Help

I need your help...

I told Value Investing Journey and Press On Research subscribers last week that I'm opening an investment holding company.  After getting some great feedback from them I'm ready to ask you loyal readers for help as well.

The short 9 question survey below should take you about two and a half minutes to finish.  So if you could please spare two and a half minutes of your day to do the survey below it would mean the world to me.  And help towards the next step of starting the company.

The information provided will be shared with no one else but myself.  And it will be extremely valuable to this process of starting everything.

Thank's so much to the people who have already given their opinions.

And for those of you who have shown interest in the company I will be contacting you as soon as I finish putting the information together.

Create your own user feedback survey

How To Find Float On The Balance Sheet – On Float Part 4

How To Find Float On The Balance Sheet - On Float Part 4

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 continue to 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 I'm going to illustrate how to find float on the balance sheet.  And show you what float means in terms of the companies margins.

I'm going to do this by showing you float from two different companies I've evaluated and written up for Press On Research subscribers.  One is an insurance company.  The other isn't.

On Float Part 4

How To Find And Evaluate Float

I've removed the names from both the companies below.  If you'd like to know which companies they are and see the full write ups on them you need to subscribe to Press On Research.

Insurance Company Float

When most people think of float they think of insurance companies so this is where we'll start.

Below is the unedited float analysis I did on an insurance company I wrote up for Press On Research subscribers.

***

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 explain what everything above means.

Why Does Float Magnify Margins?

As talked about in the post Buffett's Alpha Notes - On Float Part 3 float is positive leverage instead of negative leverage like debt.  The positive leverage - float - boosted ROA 43% higher than its normal I calculated.

This magnification of margins happens at any company with float.  The more float - and profitability - the company operates on and produces the higher margins are magnified.

But why?

Let's go back to the April 2016 Press On Research issue this to find out what this means over time for a company operating well.

***

Float is things like prepaid expenses.  Billings in excess of expected earnings.  Deferred taxes.  Accounts payable.  Unearned premiums.   And other liabilities that don’t require interest payments.

But they are the farthest thing from “normal” liabilities.

With normal liabilities you have to pay an agreed upon amount within a certain period or your customers and suppliers will stop paying you.

Float are things you won’t have to pay back for a while the company uses in the mean time to grow the business.

Instead of paying this money out now like normal liabilities.  Companies can use these “liabilities” to fund current operations.

Float is positive leverage instead of negative leverage like debt and interest payments.

Think of float as the opposite of paying interest on a loan.  Instead of paying the bank for the cash you’ve borrowed.  The bank pays you interest to use the money you borrowed.  And you can use this money to invest.

A nice example is long-term debt versus unpaid premiums.  Both liabilities are listed on the balance sheet.  But each is far different from a real world perspective.

With long-term debt you get money in exchange for agreeing to pay back a loan at an agreed upon rate for an agreed upon period.  If you don’t you can go into bankruptcy and/or go out of business.

With unpaid premiums you get paid a monthly amount from a customer – say for house insurance – and only have to pay back any amount when a disaster occurs.

If your clients don’t make big claims for a long time – or ever over the life of an individual policy – the company keeps using this “liability” to continue investing and growing the business.

Now let’s keep going with this example…

If you own a home with a mortgage you have home insurance in the United States.  The ranges of this vary but let’s say you own a home and pay $300 a month towards home insurance costs.

This $300 a month - $3,600 a year or $36,000 after 10 years – goes to the insurance company every month.  Year after year even if you never claim any insurance.

The insurance company holds this money on the balance sheet as a liability because the assumption – probability – is you’ll make an insurance claim at some point.

In the mean time the insurance company invests this money to grow assets.  This way it makes sure it has enough money to pay claims when it has to.

Now imagine this multiplied by thousands, tens of thousands, hundreds of thousands, or even millions of customers.

If the insurance company produces underwriting profits on top of the float it gets and invests this money well over a long period this money compounds exponentially.

This is how Buffett and Munger grew Berkshire to the giant it is today.

***

Remember also from Buffett's Alpha On Float Part 3 of this series...  The paper found almost all Buffett's excess performance was due to float and the positive leverage powers it has on a company.

This is why float and the positive leverage it produces for the companies using and growing it well over time is so important.  It magnifies all margins at a company not just the ones mentioned above.  And if a company operates well the internal value of the company compounds exponentially.

If you're a Warren Buffett/Charlie Munger type value investor this is the exact situation you're looking for.

Now let's get to the non insurance company to finish explaining everything.

Non Insurance Company Float

When most people think about float - if they think about it at all - it's when thinking about insurance companies.  But non insurance companies have float as well.  Remember from the previous post What Is Float? On Float Part 2:

To summarize the above float is anything listed in the liabilities section of its balance sheet you don't pay interest on.

Interest based liabilities - NOT FLOAT - include capital leases, and short and long-term debt.

Most of the time these are the only interest based liabilities on a company's balance sheet.  Make sure by checking the off-balance sheet transactions and total obligations notes - if any - in the companies footnotes.

Examples of non interest based liabilities - FLOAT - include prepaid expenses, accounts payable, taxes payable, accrued liabilities, deferred tax liabilities, unearned premiums, etc.

This means any company that has these kinds of liabilities have float.  And since most companies have at least small amounts of these liabilities most companies have float.

How much float a company operates on is what affects their margins.  Higher amounts of float compared to operating assets means a higher leveraging of margins.

Now let's get to the float analysis of the non insurance company... Again, the following is unedited except for the removal of the company's name.

***

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
  • 18.7/134.4= 13.9%

Compared to a Morningstar ROA of 10.1%

  • Pretax profits/ (total assets-float) = levered ROA
  • 18.7/101.3 = 18.5%

When I evaluated (NAME REMOVED) in 2012 I knew what float was. But not how to calculate and quantify what float meant for a company. So when I began looking at (NAME REMOVED)again in recent weeks I was shocked to see a big chunk of float helping operate and grow the company.

Why?

Because I expected a manufacturer to operate more on short and long-term debt than float. But (NAME REMOVED) float is 2.30 times higher than its short and long-term debt.

What this means for you is that (NAME REMOVED) operates and grows in a healthy way.

This is why its book value per share talked about above rose so much in recent years. But this isn’t all operating on float can do for a company… It also magnifies margins as well.

As you can see from the levered ROA calculation above. This is its true ROA when considering float. Float magnifies its ROA by 8.4 percentage points when compared to the “normal” ROA shown on Morningstar.

This will make a gigantic difference in the long-term. How big? Let me show you below using an example…

Let’s say we have one million dollars that compounds at a 10.1% rate every year for 10 years. With no additions the original million dollars will turn into $2.617 million at the end of 10 years. Great of course. But let’s see what an extra 8.4 percentage points every year will do to this same money over time.

Using the same numbers above. Same time frame. But 18.5% compound rate the original one million dollars will turn into $5.460 million at the end of 10 years. The 8.4 percentage point difference over 10 years time means we make an extra $2.843 million. Or more than double what we would earn with only a 10.1% compound rate.

This helps explain why (NAME REMOVED) book value has grown 2.61 times in only six plus years. And this is why I’m not worried about (NAME REMOVED) other “below exceptional” margins talked about above.

Float magnifies all these as well. Not as much as ROA. But by at least a few percentage points each bringing them up to the exceptional level of other Press On Research picks.

***

Now let's get back to explaining what everything means.  Starting with the things I didn't mention above.

The first thing to notice is the huge reversal in the amount of financial assets and operating assets the two companies have.  The insurance company had huge amounts of financial assets and few operating assets.  And the non insurance company had the inverse.

An insurance companies balance sheet should always look like this.

Non insurance companies vary more but in general they will have more operating assets than financial assets.

Float supporting operating assets is the amount of float that supports the harder assets of a company.  The ones regular companies - non insurance and financials - earn profits from in most cases.

Everything likely makes sense in its place of either financial assets or operating assets except goodwill and intangible assets.  Why are these included in operating assets and not financial assets?

Intangible assets (IA) is the easier to understand of the two.

Generally IA are things like patents, customers lists, trademarks, and brand names.  These have direct effect on the company operations and is why they're included in operating assets.

For goodwill its more murky... Goodwill is a form of intangible assets that occur when a company acquires another and pays above book value for the company.  In effect this means the company pays extra in an acquisition for the companies operations so this is why goodwill is included in operating assets.

There are other reasons as well but for simplicity I stuck with the above reasoning.

The amount of float that supports operating assets line is important for all companies.  This is because as mentioned above the more float a company has compared to its operating assets the higher margins are magnified.

For companies having a lot of float and financial assets like insurance companies this number can go well over 100%.  For most normal companies this number will be below 100%.  But as always the higher this number is the better because it magnifies margins the higher it is.

Separating debt and float in the float analysis is a lot easier to do.  Any interest bearing liability - short and long-term debt, capital leases - goes into the debt category.  All other liabilities go into the float category.

Now lets sum this all up and bring it back to the beginning to explain how this all affects a company's value.

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.
  • And maybe the most important thing - why float affects a company and its margins.

In the next and final chapter of this series we'll go back to the beginning and explain how float affects a company's value alluded to in On Float Part 1.

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.

Answering A Question On Quora – Is it possible to learn invest securities simply by reading?

Is it possible to learn invest securities simply by reading? If so name the books

Below is an answer I wrote on Quora to the above question.  The question and answer are important to how we all learn our craft of value investing so I've decided to post it here as well.

In this post I even show my first ever "analysis" article I wrote less than four years ago to prove how much someone can improve in a relatively short amount of time.

***

As Matus said the answer is no.

Books are a great place to learn concepts and theory but if you don’t know how everything works together in the real world it won’t matter. One of the best ways to learn this is by practicing a lot.

How does someone practice value investing?

There are several ways but the best thing to do once you know the basic finance and value investing terms is to begin reading company financial reports - 10K, 8K, Proxy, 10Q’s, etc - then taking notes while reading these financials. Value the company if you know how. And then build an investment thesis from all that information.

It’s then best to show this analysis to someone who knows more about value investing so they can give you feedback on where you can improve. Things and concepts you may have not thought of that you want to add for the future. Etc.

The best way to do this if you don’t know anyone personally who knows about value investing is to start a value investing blog to get feedback. And/or also by posting analysis on sites like Seeking Alpha and Guru Focus.

Beware and don’t take it personally but your first shots at analysis will be crap. Mine was and I post my unedited first ever written “analysis” below to prove this. Be prepared for the suck.


Vodafone Group PLC, ADR, (VOD) info

All information taken from Morningstar - Independent Investment Research, Vodafone's website, The Motley Fool, or Vodafone's most recent annual financial report.

Overview:

With 343 million proportional customers (total customers multiplied by its ownership interest), including its 45% stake in Verizon Wireless, Vodafone is the second-largest wireless phone company in the world behind China Mobile. It is also the largest carrier in terms of the number of countries served. Vodafone has majority or joint control in 22 countries and minority or partnership interests in more than 150 total countries. The firm's objective is to be the communications leader across a connected world. They have four major markets that they break their financials into: Europe, Africa Middle East and Asia Pacific or AMAP, India, and the United States through a partnership with Verizon.

Pros:

1. Huge company operating in more than 150 countries making them more diversified and able to withstand drops in revenues and profits coming from a single region or country.

2. Generates huge free cash flows of at least $8.25 Billion in each of the last 8 financial years. Free cach flow or FCF is basically the money thats left over after expenses, dividends, payments, etc. that the Vodafone can use as it pleases. Generally VOD uses their FCF to increase their dividends, buyback their own stock, acquire other companies, or pay down debt.

3. Current dividend yield of 6.97%, the average company in the S&P 500 has a yield of around 2%. Pays a semiannual dividend in June and November of each year. Also receiving a special dividend from Verizon, $ 1 billion of which will go to paying down Vodafone debt, $3.5 Billion will go to pay a special dividend to Vodafone shareholders in January or February of 2012.

4. FCF/Sales ratio over 16% each year since the 2002 financial year. Anything over 5% means they are generating huge amounts of cash.

5. Interest coverage ratio of 23.4, anything over 1.5 is good. Interest coverage ratio is how many times they can cover the payments of interest on their debt.

6. Payout ratio of around 50% for the dividend meaning the dividend should be safe for the foreseeable future.

7. Raising their dividend an average of 7% per year for the next 3 years.

8. Lower debt/equity than their industy competitors.

9. Growing a lot in Asia, Middle East, India, and parts of Africa. Also still a lot of room to grow in those areas as they are relatively new to them, especially India.

10. Paying down debt with FCF.

11. Gross margin, net margin, and EBT margin all over 17% which is very good.

12. Still a lot of room to grow their revenue through people upgrading to smartphones and paying for data packages which they make more money off of then regular phones.

13. Executive pay is linked to how well the company does, and they encourage their executives and directors to own company stock.

Cons:

1. Still a lot of debt even though they are paying it down, around $40 Billion

2. Most of Western Europe except Germany, are having huge economic problems which has led to lower sales an profits in those areas.

3. The fear or actuality of another global recession would hurt their sales and profits.

4. Problems at Verizon which VOD owns 45% of would hurt future payments from Verizon to VOD.

5. Most of their revenue is generated in Europe where as above, there are big financial problems.

6. Since they are in so many countries they have to deal with many regulations and sometimes even lawsuits from other goverments or companies in those countries.

Final Thoughts:

Overall I feel very good about Vodafone's prospects to be a great investment for the long term. We are buying them when they are valued at a very good price, especially compared to their competitors. They have huge growth potential in India, a country that has over 1.3 billion people, as they have only penetrated that market by around 10%. They are paying down debt, upping their dividends and receiving a special dividend from Verizon. Even if their share price doesn't go up over the next few years, which I believe it will by quite a bit, then we are still covered by the near 7% dividend that they are going to keep growing atleast 7% a year for the next 3 years. Also, with their huge FCF they can maybe pay down debt faster, acquire other companies to keep growing, pay more dividends, or buyback their stock.

As always if there are any questions let me know. I believe we will all do well with this stock in our portfolios over the long term.

Jason Rivera


Man that’s painful to look back on. But it's also inspiring as well.

The analysis is painful to look at because along with the obvious misspellings I didn’t even attempt to correct for whatever reason the analysis doesn’t do anything but spout off random stats I pulled from it financials and places like Morningstar.

That’s not analysis. That’s a regurgitation of facts.

You can see glimpses of analysis in the above piece such as the paying off debt with FCF line. But I don’t take these lines any further. I again chose to just leave off by stating facts. Not what the underlying effects of these things would have on the company. That’s analysis.

At this point I’d been learning about value investing off and on for years but wasn’t improving much because I hadn’t written anything down or shown it to anyone else until the above post.

I actually sent the above “analysis” to a family friend who I was managing some investment money for. Bless their hearts they still stuck with me. They must really love me to have done so 🙂

But the above is also inspiring because in less than four years I’ve gone from the above train wreck to being hired by a prominent investment newsletter due to my analytical ability.

Writing regular 30 to 50 page analysis reports on companies for subscribers and investors I manage money for.

Have written an acclaimed value investment education book teaching everything from the concepts of value investing, to various valuation techniques, how to develop the proper mindsets and processes. Etc.

My stock picks and portfolio have crushed the market in the last four years 2014 And 2015 Portfolio Reviews - Still Kicking Mr. Market's Ass.

And am told a version of the following on a regular basis - “If I were to go to anyone in the entire company to get a second opinion on my company analysis I would go to your first.”

Posting analysis - and the above one less than four years ago was my very first written remember - jumped my analysis articles, abilities, thought processes, and education into hyper speed.

Doing analysis on a company. Writing it down. Showing it to someone who can give you feedback. Implementing that feedback into future analysis. And then repeating over and over. This is a great way to learn value investing.

But it's still not the best.

Study after study shows that teaching is the best way to learn any skill and value investing is no different.

This is also another reason you should start a value investing blog so you can teach others.

The below learning pyramid graphic is from the National Training Laboratories showing the best way to learn things.

Now to get back to your original question you see reading at the top showing you only retain ~10% of the information you read and why I struggled before writing things down.

This is how my value investment education jumped into hyper speed by combining practice by doing and teaching.

Anyone asking me how to learn any skill I always tell them to do the same thing that worked best for me.

Doing analysis on a company. Writing it down. Showing it to someone who can give you feedback. Implementing that feedback into future analysis. And then repeating over and over. Then start teaching others as soon as you can to help retain even more information.

If you are looking for book recommendations to learn value investing I recommend going to this post I wrote the other day on Quora What advanced books would you recommend for an aspiring self taught value investor? And this post for more information on How do you learn value investing?

Within the last post is a post on my blog titled 10 Tips To Becoming A World Class Investment Analyst.

I hope this all helps and if you have any further questions please reach out to me at jmriv1986@gmail.com

***

In the comments below please let me know your method and processes for learning and retaining information.

Book Giveaway Update

Book Giveaway Update

Well that didn't go as planned...

In the post at the end of March The Winner of The Book Giveaway Is... I announced a subscriber as the winner of more than $300 worth of books.  The books were supposed to go to David at my cost.  Key word being supposed.

At this point I've tried multiple times to get a hold of David with no response so another subscriber is getting these books sent to them at my cost anywhere in the world.

I'm a huge believe in Charlie Munger's Mental Models and Worldy Wisdom philosophies that the more we read about a wide range of things 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 today a lucky subscriber is getting a step closer to their goals by winning the following 20 books valued at more than $300.

And the new winner of more than $300 worth of books is now Andrealiz.  Your email starts with reyesa.  I will get a hold of you today to get your contact information so I can send you more than $300 worth of books at my cost.

What I Do To Fight Depression

What I Do To Fight Depression

I talk about my past experiences to try to help anyone I can in whatever situation they may be dealing with.  I'm an open book and always have been.  If you ask me a question I'll do my best to answer it if I know the answers or can just share personal experiences.

I share the good and the bad because no matter what you read from others.  And no matter how good appearances are.  Everyone goes through rough times.

On this blog I've shared my failures and triumphs when it comes to investing.  Some issues both health and personal in my private life.  And have a series called Famous Failures detailing now hugely successful people and some of their failures, problems, and haters they had to deal with on the way to success.

The hope being with all this like everything else on this "investment" blog is to help people.

One of the things I've talked about here besides value investing and finance that strikes a chord with readers is how I've dealt with my depression.

Even in the developed world mental health issues are still a huge taboo due to fear, embarrassment, masculinity, arrogance, shame, and other emotional responses.

But this is nothing to be ashamed of...

According to research about 20 percent of people in the United States deal with a mental illness in any given year.  Classified as minor anxiety and going all the way up to schizophrenia.

This site breaks down those numbers even further to specific illnesses.  And this three page PDF talks about some of the demographics and economics of mental illness.

Today I want to shed some more light on this topic...

Below is an unedited email I sent to a reader/emailer who asked how I've dealt with depression.  How I continue to battle it when it crops up.  And some of the things I do to keep myself out of that state.

I was going to keep this private but with the blessing of the emailer I've decided to make this public.  I'm doing this because in the last several weeks a person I went to high school with committed suicide after silently dealing with depression.

Like in many cases everyone I've talked with said they had no idea he was dealing with anything.

I hope by releasing this someone who may be dealing with similar issues may find some answers.

The person who emailed me asked specifically about habits I used to get and keep myself out of a depressive state.

I also want to preface the following advice by stating that I'm obviously not a medical expert in any fashion.

I'm only stating what worked for me in the hope of helping others.  If you are seriously depressed please talk with a professional or someone you trust to start getting help.

***

Hey (NAME REMOVED),

Thanks for reaching out.  And hope you're doing well.

The problem with recommending specific habits is that changing any habit - either good or bad - takes time.  Hard work.  And dedication.  Only you can know what your true passions and goals are.

The best thing specifically I recommend for you is to read the books The Power of Habit.  Willpower: Rediscovering The Greatest Human Strength.  Choose Yourself.  Mindset.  And The Brain That Changes Itself: Stories of Personal Triumph from the Frontiers of Brain Science.  Also my blog posts "You Can Do Anything You Put Your Mind To."  And 17 Things That Changed My Life - which it looks like you've already read.  These will help you learn for yourself what may help you when you need it.

Outside of that I can recommend some more general things that helped me fight through depression.

  1. Find someone you trust absolutely that you can talk to when you need to.

I'm close to all my family but didn't want to burden them with how I was feeling.  And didn't want to be embarrassed if I told them what I was thinking about and dealing with.  If I didn't have someone I could have talked to - my wife - I don't know what I would have done.

      2. Read as much as possible about things that interest you.

I'm interested in a variety of things now so this is easy.  But growing up I never read and I hated it.  I've learned more in the past 5 years about things I'm interested in - including how to make myself get out of a depressive state when I'm falling back into one - than I have in my previous 20+ years of life.

This is a dual goal as well...  At least for me the more I learn the happier it makes me because I love learning and am curious about everything.  Not sure if this will work for you or not.  But if you're like it me its crazy how much learning helped me.

     3.  This may be the most important thing - Find something you're deeply passionate about and pursue it.

When I was at my worst health and depression wise it was when I felt worthless to everyone and everything.  Finding some passions and feeling like I was useful to others helped me out of that state more than anything.  For me it was learning, value investing, and helping others.  I've added saltwater fishing to that list now that I've moved to Florida and I'll talk more about this next.  Again, these helped me more than anything else.

     4.  Find something that helps you think and relax.

I'm a workaholic, especially now that for the most part my dizziness is gone and I can do more things.  I also have two young daughters I have to take care of and a wife that I'm always trying to make money to contribute towards supporting our family.

To this day I have to force myself to stop worrying about what I'm going to work on next.  What needs to get done now.  How many hours did I work today. And what I "should" be doing instead of taking some time for myself.

***

MY UPDATED NOTE HERE: This is all pressure I put on myself...  No one else says I need to be doing anything.  Even as a kid I can remember always being like this and pushing myself as much as possible.  Many times in the past to the detriment to my physical and mental well-being.

Yes, I know this isn't the healthiest way to live.  And it's still something I have to work on every day.  But I want to work, learn, and improve as much as possible to help build a better life for my family and others I'm helping.

To me if I'm not doing this I'm failing not only myself but others.

Now let's get back to the unedited email I sent to the reader.

***

Until I got down to Florida and started saltwater fishing nothing I did would get me out of the above mindset.  But when I'm in or on the water casting, retying line and lure, baiting up my hooks, and trying to catch fish I don't think about anything else for the few hours I'm out there each week instead of what I'm trying to do at the time.

Ever since I can remember I've had horrible insomnia... Some days it takes me three, four, even five plus hours to fall asleep.  But now that I've started going fishing more I've also slept better at nights after letting my mind rest for a few hours each week while on the water. This all has helped my mental and physical health.

Try to find your version of fishing that will help you relax and take your mind off other things.  Something you can do by yourself or with a few close friends. Even if its only for a few hours a week.  This short amount of time has helped me a lot already.

I hope this helps.  And I'm looking forward to hearing your thoughts.

***

Please let me know your thoughts on this in the comments below.  If it helped you in any way.  And please let me know if you have any tips you personally use to put yourself in a better mood.

If you know someone this article may help please pass it along to them.  You never know whose life you may change today with one of your actions so be as helpful as you can to everyone.

Alert: Corning To Buy Company I’ve Recommended

Alert: Corning To Buy Company I've Recommended

Note: I just sent versions of the following message to both Value Investing Journey and Press On Research subscribers.

Thanks for being a loyal email subscriber.

While working at the investment newsletter from September 2014 to February 2015 I recommended three companies to subscribers.

I wrote in my 2014 and 2015 Value Investing Journey and Press On Research Portfolio Reviews that while I couldn't reveal the research or the names of those companies.  I may write new research reports about them at some point in Press On Research.

While doing research on them to write-up in Press On Research one of them ended up agreeing to a buyout offer from Corning (GLW).

Alliance Fiber Optic (AFOP) agreed to the buyout price of $18.50 per share.  A 22% premium to what I recommended the company at.

I can't release the full analysis article I wrote but in short my thesis on the company was that it was undervalued by 22% to 65%.  That it had some minor competitive advantages.  That there was a huge $140 billion trend in the companies industry that could explode its shares.  And it crushed bigger competitors in terms of profitability.

Just to name a few margins that were spectacular it produced a 19.3% FCF/Sales Margin.  Had an ROIC of 34%.  And had an unlevered return on net tangible equity of over 100%.  The only time I've found a company whose margin was above 100%.  And this means it's one of the best run businesses on the planet.

And this still wasn't all...

Insiders owned 14% of its shares.  It paid a 1.2% dividend.  And planned to buy back 6% of shares outstanding.

I loved this company.  And its profitable operations were some of the best I've come across when evaluating companies over most of the last decade.  Especially considering it was only a $250 million company.

The buyout price of $18.50 per share in cash from Corning is a low-ball offer though.

AFOP is worth between $20 and $25 per share with no growth expected.  And like I said above there's a huge $140 billion trend in the companies industry that could explode its growth and share price further.

At this point I'm not sure if shareholders will fight or not but lawsuits have been filed by at least two different law firms saying AFOP insiders breached their fiduciary responsibility to shareholders by not seeking a higher price.

I agree the price AFOP agreed to is low.  But it's not egregious so I'm not sure if these lawsuits will continue or if shareholders will get any money at some point.

Either way the subscribers of the investment newsletter I worked for will gain ~22% in 14 months owning this great company.

If you'd like to see my other exclusive company recommendations where my picks have crushed the market over the last four years you need to subscribe to Press On Research.

And remember as Value Investing Journey subscribers you get a 50% discount on a one year subscription.  Full year price for you as a subscriber is only $49 instead of $97.  And newsletters similar to mine sell for several thousand dollars at prominent investment newsletter companies.

Thank you for being a subscriber

Jason Rivera

Value Investing Journey

Press On Research

Author of How To Value Invest

***

To find out all the great companies I've recommended you need to subscribe to Press On Research.

And if you're a Value Investing Journey subscriber remember you also get a 50% discount on a one year Press On Research subscription.

Similar newsletters to Press On Research sell for several thousand dollars at a big newsletter company.

If you have further questions about Press On Research please go to the link in this sentence or email me at jasonrivera@valueinvestingjourney.com.

April 2016 Press On Research Issue

April 2016 Press On Research Issue

Below is an excerpt from the unfinished 40 page April 2016 Press On Research issue to release exclusive to subscribers tomorrow April 19th.  If you'd like to subscribe to Press On Research go to the links above or below.

Press On Research High Def

Investing In The Greatest Investment Secret In The World Again

To Earn Up To 71%

April 2016 Press On Research Issue

By Jason Rivera

Press On Research Volume 2 Issue 1

If you ever think of insurance companies like I do – yes I know this is odd 🙂 - one of the first things that may come to mind is catastrophes.

Everything I’ve ever read about the business of insurance has talked about catastrophes both natural and manmade.  And how insurance companies lessen the risks of these disasters.

Disaster is the business of insurance.  But insurance companies insure against risk to protect clients.  And reinsures against them to protect themselves from financial disaster.

Until humans can control hurricanes, tornadoes, fires, death, theft, floods, health issues, and other disasters the business of insurance will be a great one to invest in.

And I love investing in businesses that should remain great for generations.

This is one of the many reasons I love insurance companies.  And today this is the industry we’re heading back to again.

As an investor I try to stay away from risk as much as possible but the entire insurance industry is based on the probabilities of risk.  When something bad will happen not if it will happen.

There’s no way to avoid risk in insurance.  This is because the business of insurance is all about shifting risk to other parties so you’re not crushed when disaster strikes.

When investing in insurance companies you have to make sure the company reserves its premiums well and conservatively.  That you can trust management to keep doing this.  And that management is more focused on underwriting profits than growing revenue.

These are the most important things when evaluating insurance companies.  Because if a company doesn’t do these things well it will go out of business at some point.

Today’s pick does all these well.

It’s a (MARKET CAP REMOVED) million life and property and casualty insurer that pays a 1% dividend.  Is undervalued by 28.8% to 71%. Has produced an underwriting profit in six of the last nine years.  And has produced cumulative redundancies every year of the last nine.

I’ll explain all this below but it’s all great.  And this isn’t all that’s great about the company.

Its float supports 3.49 times its operating assets or 349% of its operating assets.  And its float is also better than cost-free because of the company’s ability to consistently produce underwriting profits.

This acts as a better than cost-free loan the company can use to invest and grow the business.

Another advantage we have over other investors is that we’re willing and love to invest in insurance companies.  Most others hate this business.

Investing In Insurance Part 2

Most people won’t research insurance companies.  I wouldn’t early in my investing journey.  And many professional analysts stay away too.

This is because insurance companies are hard to understand at first.  Have new and confusing terminology to learn.  And normal profit metrics don’t matter for them.

But if you learn how to evaluate them not only will you learn they’re easy to evaluate once you know what you’re doing.  But you can use the same repeatable process on every insurance company.

And Buffett has continued to buy into insurance – his favorite industry – constantly over the decades.  This is one reason he’s so successful.

In reality insurance companies are easy to understand.

Insurance companies take premiums as payment for insuring things like businesses, equipment, health, life, etc.  Premiums are the insurance version of revenue.

The insurance company doesn’t have to pay you a dime of the money it earns over the years until there’s some kind of damage or theft of whatever’s insured.

When this happens they pay the agreed upon insurance rate out to the policyholder minus a deductible from you when you make a claim.

While the company continues to earn money – premiums again - it invests some of it so it can pay back your policy in the future.  And also make a profit in excess of the amount earned, invested, and paid out.

If the company writes its policies and invests well over time it will earn underwriting profits.  This is the main profitability metric to care about when evaluating insurance companies.  And grow the assets it can use to write policies and invest more money.

When done well this can turn into a virtuous circle for insurance companies and shareholders producing great profits and returns for both.

When done poorly this can also turn into a negative cycle for those involved.

If it doesn’t do things well the company will go out of business when a major disaster strikes.

Think of insurance companies like investment management companies.  But instead of only earning management fees insurance companies earn underwriting profits on top of investment earnings.

These effects can double profits over time…  If management is great at what they do.

The insurance business while easy to understand is one of the hardest businesses to be great at.

Other than being a low-cost operator like GEICO owned by Berkshire Hathaway.  There are no competitive advantages in this industry.  And it also experiences wild swings of huge profitability than massive losses on a regular basis.

But if the company writes policies and invests money well over a long period they can grow to great sizes at almost no extra costs.  The only new costs may be to hire more staff.

Insurance companies also hold the greatest secret in the investment world…  Float.  This is how Buffett built his fortune.  And how we’ll start to build ours.

But before we get to this we need to know why float is so important.

Brief Berkshire Hathaway History

Buffett began buying Berkshire Hathaway stock in 1962 when it was still a textile manufacturer.  And when he still ran his investment partnership.

He bought Berkshire stock because it was cheap compared to the assets it had.  Even though the company was losing money.

He continued to pour millions of dollars into Berkshire to keep up with foreign and non-union competition.  But none of this worked.

In time Buffett realized he was never going to make a profit again in the textile industry.  So whatever excess funds Berkshire produced he started buying other companies.

The first insurance company Berkshire Hathaway bought was National Indemnity Company in 1967.

Since then Berkshire’s float grew from $39 million in 1970 to $84 billion in 2014.

Float compounds like interest does if you use and invest it well.  But not only does float compound, if you use it well it also compounds the value of the company that owns the float.

Since buying National Indemnity in 1967 Berkshire’s stock price has risen from $20.50 a share to today’s price of $210,130.  Or a total gain of 10,250%.

This is the power of insurance companies when operated well.  And today’s recommendation is an insurance company that operates the right way too.

But before we get to that I need to explain how float makes this possible.

The Biggest Investment Secret Revealed Part 2

‘Float is money that doesn’t belong to us, but that we temporarily hold.”  Warren Buffett

Float is things like prepaid expenses.  Billings in excess of expected earnings.  Deferred taxes.  Accounts payable.  Unearned premiums.   And other liabilities that don’t require interest payments.

But they are the farthest thing from “normal” liabilities.

With normal liabilities you have to pay an agreed upon amount within a certain period or your customers and suppliers will stop paying you.

Float are things you won’t have to pay back for a while the company uses in the mean time to grow the business.

Instead of paying this money out now like normal liabilities.  Companies can use these “liabilities” to fund current operations.

Float is positive leverage instead of negative leverage like debt and interest payments.

Think of float as the opposite of paying interest on a loan.  Instead of paying the bank for the cash you’ve borrowed.  The bank pays you interest to use the money you loaned.  And you can use this money to invest.

A nice example is long-term debt versus unpaid premiums.  Both liabilities listed on the balance sheet.  But each is far different from a real world perspective.

With long-term debt you get money in exchange for agreeing to pay back to loan at an agreed upon rate for an agreed upon period.  If you don’t you can go into bankruptcy and/or go out of business.

With unpaid premiums you get paid a monthly amount from a customer – say for house insurance – and only have to pay back any amount when a disaster occurs.

If your clients don’t make big claims for a long time – or ever over the life of an individual policy – the company keeps using this “liability” to continue investing and growing the business.

Now let’s keep going with this example…

If you own a home with a mortgage you have home insurance in the United States.  The ranges of this vary but let’s say you own a home and pay $300 a month towards home insurance costs.

This $300 a month - $3,600 a year or $36,000 after 10 years – goes to the insurance company every month.  Year after year even if you never claim any insurance.

The insurance company holds this money on the balance sheet as a liability because the assumption – probability – is you’ll make an insurance claim at some point.

In the mean time the insurance company invests this money to grow assets.  This way it makes sure it has enough money to pay claims when it has to.

Now imagine this multiplied by thousands, tens of thousands, hundreds of thousands, or even millions of customers.

If the insurance company produces underwriting profits on top of the float it gets and invests this money well over a long period this money compounds exponentially.

This is how Buffett and Munger grew Berkshire to the giant it is today.

Using better than cost-free float to fund operations can improve margins by up to a few percentage points each.  And this happens when a company produces consistent underwriting profits.

The best way to explain why float is so important is with the following quote:

“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of free – other peoples money – in highly productive assets so that return on owners capital becomes exceptional.”  Professor Sanjay Bakshi adding to something Warren Buffett said about great businesses.

I said in a past issue: “When a company’s float/operating assets ratio is above 100% it means the company is operating with “free” or cost-free money.”

But this isn’t true with insurance companies.

For an insurance company to operate on a cost-free basis it has to produce underwriting profits for a sustained period.

I look for underwriting profits of at least five years straight to consider its float cost-free.

And the company I’m going to tell you about today has earned an underwriting profit in six of the last nine years.

Cost-free float and the power of positive leverage it generates is explained more in my posts in a still ongoing series about float:

When you come across companies that generate all the above on a consistent basis you should expect exceptional returns in the future.

This is because when a company operates its entire business on a cost-free basis it means several things. 1)  It’s a great business.  2.)  It’s an efficient business.  And 3.) That float magnifies margins which will compound value in the company for shareholders over time.

So what is the wonderful company that checks all my – and Buffett’s – marks for a great insurance company?  But also fits into the criteria of Press On Research focusing on small companies?

***

I go on from here to reveal and detail the company in full in this 40 page issue.  I also compare it to a past Press On Research pick and some of its competitors

To find out what this great company is subscribe to Press On Research.

And if you're a Value Investing Journey subscriber remember you also get a 50% discount on a one year Press On Research subscription.  Or you can join for only $49 to get tomorrow's released issue and all back issues.

Similar newsletters to Press On Research sell for several thousand dollars at a big newsletter company so you're getting a great value here.

If you have further questions about Press On Research please go to the link in this sentence or email me at jasonrivera@valueinvestingjourney.com.