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.

The Worst Run Company I’ve Ever Seen? ICON Case Study Part 2

The Worst Run Company I’ve Ever Seen? ICON Case Study Part 2

We’ve all got our favorites in life… Favorite sports teams, colors, movies, etc.

When I started investing I didn’t think there was any way I would ever have a favorite type of business to invest in.  I thought I looked at every company “unbiased” and hoped for the best when evaluating something.

This was naïve…

We all have our biases no matter how much we learn about and try preventing them.

Maybe its human nature.  Maybe its happy thoughts from prior past experiences that lead to these biases.  Or maybe its something inherent in our brain structures that lead us to do things we know we like.

I think it’s a combination of the above.  And this isn’t necessarily bad because biases aren’t always awful when investing.

The value investing concept of circle of competence is a form of bias in that it helps separating out your favorite businesses to invest in and which you want to avoid.

Biases can keep you away from things you don’t – or don’t want to – understand.  For example one of the industries I’m biased against as of this writing are banks.

My mind goes numb reading through all the legalese BS in their filings.  I get annoyed reading their financials every time I try because it seems like they’re written to make sure there are as many ways as possible for them not to get sued.

They seem purposely convoluted and confusing and this further annoys me until I stop reading the financials.

These are several of the reasons up to this point I still haven’t taken the time to understand how to evaluate banks.

Does this make logical sense?  It doesn’t even to me since banks and insurance companies are similar in how they make money and I love insurance companies.

But I’ve taken the time to understand insurance companies that I’ve not taken with banks.  Maybe I will some day.

For now I’m fine sticking to my circle of competence – my biased favorite businesses to invest in – when searching though companies.  And even in my circle of competence I do have favorites I love to invest in.

In no particular order they are:

  • Insurance Companies.
  • Companies that earn royalties.
  • Asset managers.
  • And businesses based on consulting.

Of the four types of companies above only one – insurance companies – are hard to operate well in a healthy way.  And the difficulty in operating insurance companies is mostly from having strict discipline making sure you underwrite policies that can be profitable in the future.

The other three are in the easier to operate category where you have to concentrate on growing sales and contracts more than having in-depth technical knowledge.

I’m not saying the three non insurance kinds of companies listed above are easy to operate and grow.  But I am saying they’re easier to run than most other companies.

As long as you don’t have morons running the company insiders should do well for themselves and shareholders over the long-term.

This goes back to another bias/checklist item of mine that Warren Buffett always says: “Always try to invest in a company that a monkey could run and still reward shareholders because eventually a monkey will run it.”

The three non insurance kinds of companies pass this test which is another reason I love them.  As long as you don’t have morons running the business they should do well over time.

But what Buffett doesn’t talk about in his quote above is what happens when you have someone or a group of people through hubris, incompetence, corruption, or some combination of these things are worse than monkeys at running a company.

When this is the case even the best business models can be ruined.  This is what’s happened to ICON the past few years.

Who knew a company based on collecting royalties which produces the biggest FCF/Sales margin I’ve ever seen would have been better run by monkeys than the people who have run it.

ICON Case Study Part 2 – Digging Into The Financials

In part 1 of this case study I did my preliminary analysis and showed that while ICON produced a 48.8% FCF/Sales margin.  The best I’ve ever seen.  The company had way too much debt for me to consider investing in it.

I kept the case study going because the high FCF/Sales margin and huge debt load intrigued me.

Most of the time when a company produces a ton of free cash it allows the company to have low or no debt.  And since I also knew ICON was a royalty based company I knew their costs were low so I was wondering why its debt load was so high.

I assumed the worst and even my worst case expectations weren’t bad enough.  ICON’s turned out to be the worst run company I’ve ever evaluated.

To find out why click below to get the 20 pages of notes on I took on ICON.

20 Pages of ICON Financial Notes

Or if you want to evaluate the company yourself go to the following pages for the financials I dug through.

The only company I’ve come across that’s even close to this bad was Koss and its business model was a lot more difficult to manage than ICON’s.

As a company that collects royalties ICON could have just sat back, collected those royalties, done nothing else, and made a ton of money for themselves and shareholders.

Monkeys could have run this company better than its current and recent managers who’ve driven it near bankruptcy.

For now ICON takes that cake as the worst run company I’ve ever researched.

Thank you Professor Andrew for sending this recommendation to me to do a case study on.  It was a great learning experience on what not to look for when evaluating an investment.

A great use of Charlie Munger’s principle of inversion.

Normally I would value the company next but ICON is so bad I won’t even value it.

No matter what my numbers say, with everything I know about it I would place a value of zero on the equity.

This is because unless something changes radically and fast there is a high likelihood of default/bankruptcy here.  And as mentioned in the notes this would mean the first lien holders would take full control of the company and shareholders would be left holding nothing.

Let me know in the comments below your thoughts on ICON.  If I missed anything.  If you disagree with my analysis.  Or if you have any questions about the analysis.


Remember if you want access to my exclusive notes, preliminary analysis, a chance to win future giveaways, and access to all posts as they come out 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.

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

March 2016 Press On Research Issue Released Tomorrow

Below is an excerpt from the March 2016 Press On Research issue to release exclusive to subscribers tomorrow March 15th.  If you’d like to subscribe to Press On Research go to the links above or below.

Press On Research High Def

What Do You Do When A Company You Own Drops In Price?

March 2016 Press On Research Issue

By Jason Rivera

Press On Research Volume 1 Issue 10

What do you do when a company you own stock in drops in price?  What about when it drops a lot in price?

Do you panic and get anxious?  Do you buy or sell more without doing any extra work?  Do you ask your buddies what they think of the company even if they know nothing about investing?

If you do any of these things don’t worry as you’re not alone.  This is how most investors react when something they own drops significantly in price.

But the goal of Value Investing Journey and Press On Research is not only to find the best investments possible to build long-term wealth.  But also to teach so we can become better investors and thinkers.

And a major trait of any great long-term investor is the ability to control emotions.

If you can’t control your emotions it doesn’t matter what you invest in because you’ll always buy and sell at the wrong times.  This is what most investors do.

Study after study shows most normal – average – investors buy at the height of stock prices and sell at the bottom of the price swing.

This is awful and is one reason most people don’t beat the market over time.

So how can you stop being an average investor?

There are several ways but today I want to talk about how to control emotions.

If you can’t control your emotions it doesn’t matter how great of an analyst you are you’ll still be a terrible investor.

In April 2015 I recommended what I thought was a great asset manager NAME REMOVED.  Since then the stock price has dropped ~35% depending on what price you bought at.  And I’ve gotten email from several readers asking for an update on the company.

Because of this today’s Press On Research isn’t a normal recommendation issue.

We’re going to reevaluate NAME REMOVED to see if I made a mistake in my analysis last year.  And to show you the step by step process I take when reevaluating companies I own to take emotion out of my decision making processes.


I go on from here to reanalyze the company in full and show the step by step process I use so you can learn to do this yourself.

I found that while the company has dropped in absolute dollar terms and the economics have deteriorated a bit that the company is cheaper now than it was last April compared to its profits.  And the business model and economics are still fantastic.

The company has an FCF/Sales of 40.3%.  Pays a huge dividend.  Is selling at only ~2 times its estimated 2015 full year profits.  And is now selling below its book value by a significant margin.

I found nothing new that would destroy the investment thesis I laid out last April.  And I was so happy after reevaluating the company that I recommend subscribers up their position in the company.

To find out what this great company is and to learn a valuable lesson on what you need to do when reevaluating a company you own 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.

Buffett’s Alpha Notes – The Power of Float – On Float Part 3

Buffett’s Alpha Notes – The Power of Float – On Float Part 3

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: Charlie Munger On Deferred Tax liabilities and Intrinsic Value – On Float Part 1. And What is Float? On Float Part 2.

Today I’m going to illustrate how powerful float is over time.

Buffett’s Alpha Notes – The Power Of Float

My notes aren’t in the quoted areas unless in parenthesis.  Bolded emphasis is mine throughout.

“Further, we estimate that Buffett’s leverage is about 1.6-to-1 on average. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks.”

“We show that Buffett’s performance can be largely explained by exposures to value, low-risk, and quality factors.”

“Looking at all U.S. stocks from 1926 to 2011 that have been traded for more than 30 years, we find that Berkshire Hathaway has the highest Sharpe ratio among all. Similarly, Buffett has a higher Sharpe ratio than all U.S. mutual funds that have been around for more than 30 years.

Sharpe ratio is a measure for calculating risk adjusted returns. I don’t use this metric but It’s talked about a lot in the Buffett’s Alpha PDF so you need to understand what it is to understand the context of the article even if you never use it.

Alpha is another metric I don’t use… It’s a measure of risk adjusted performance.  It’s the return in excess an investor/business generates when compared to an index.

For example if your stock picks have returned 20% every year over the last ten years while a comparable index has returned 10% every year for those ten years you’ve generated an alpha of ten percentage points every year.

“So how large is this Sharpe ratio that has made Buffett one of the richest people in the world? We find that the Sharpe ratio of Berkshire Hathaway is 0.76 over the period 1976-2011. While nearly double the Sharpe ratio of the overall stock market, this is lower than many investors imagine.

Adjusting for the market exposure, Buffett’s information ratio is even lower, 0.66. This Sharpe ratio reflects high average returns, but also significant risk and periods of losses and significant drawdowns.

If his Sharpe ratio is very good but not super-human, then how did Buffett become among the richest in the world?”

“The answer is that Buffett has boosted his returns by using leverage (FLOAT) and that he has stuck to a good strategy for a very long time period, surviving rough periods where others might have been forced into a fire sale or a career shift. We estimate that Buffett applies a leverage of about 1.6-to-1, boosting both his risk and excess return in that proportion.”

Thus, his many accomplishments include having the conviction, wherewithal, and skill to operate with leverage and significant risk over a number of decades.”

If you read the article linked below ignore the academic talk of beta, efficient markets, and other academic terms that have little to no relevance in value investing.

“Buffett’s genius thus appears to be at least partly in recognizing early on, implicitly or explicitly, that these factors work, applying leverage without ever having to fire sale, and sticking to his principles. Perhaps this is what he means by his modest comment:”

Ben Graham taught me 45 years ago that in investing it is not necessary to do extraordinary things to get extraordinary resultsWarren Buffett, Berkshire Hathaway Inc., Annual Report, 1994.

“However, it cannot be emphasized enough that explaining Buffett’s performance with the benefit of hindsight does not diminish his outstanding accomplishment. He decided to invest based on these principles half a century ago. He found a way to apply leverage. (FLOAT) Finally, he managed to stick to his principles and continue operating at high risk even after experiencing some ups and downs that have caused many other investors to rethink and retreat from their original strategies.”

I disagree with the high risk mentioned in this entire article.

The academic version of risk is a lot different from what we as value investors think of risk.  Most of the “excessive risk” mentioned throughout the article is attributed to volatility.  Which isn’t risk in what we do.

Why then does Buffett rely heavily on private companies as well, including insurance and reinsurance businesses? One reason might be that this structure provides a steady source of financing, allowing him to leverage his stock selection ability. Indeed, we find that 36% of Buffett’s liabilities consist of insurance float with an average cost below the T-Bill rate.” (FLOAT)

In summary, we find that Buffett has developed a unique access to leverage that he has invested in safe, high-quality, cheap stocks and that these key characteristics can largely explain his impressive performance.

Buffett’s large returns come both from his high Sharpe ratio and his ability to leverage his performance to achieve large returns at higher risk. Buffett uses leverage (FLOAT) to magnify returns, but how much leverage does he use? Further, what are Buffett’s sources of leverage, their terms, and costs? To answer these questions, we study Berkshire Hathaway’s balance sheet, which can be summarized as follows:

We would like to compute the leverage using market values (which we indicate with the superscript MV in our notation), but for some variables we only observe book values (indicated with superscript BV) so we proceed as follows.

The above means the estimated 1.6 to 1 leverage the paper states Berkshire gets from its float is a low estimate.  This is because they had to use book values as estimates for the wholly owned Berkshire subsidiaries.

These book values don’t represent any growth in value of the subsidiaries only the original purchase price in most cases.  And knowing what kind of companies Buffett buys these companies have gained a ton of value over time meaning more leverage according to the papers logic.

The magnitude of Buffett’s leverage can partly explain how he outperforms the market, but only partly. If one applies 1.6-to-1 leverage to the market, that would magnify the market’s average excess return to be about 10%, still falling far short of Berkshire’s 19% average excess return.

Berkshire’s more anomalous cost of leverage, however, is due to its insurance float. Collecting insurance premia up front and later paying a diversified set of claims is like taking a “loan.”

Table 3 shows that the estimated average annual cost of Berkshire’s insurance float is only 2.2%, more than 3 percentage points below the average T-bill rate.

 Hence, Buffett’s low-cost insurance and reinsurance business have given him a significant advantage in terms of unique access to cheap, term leverage. We estimate that 36% of Berkshire’s liabilities consist of insurance float on average.

Based on the balance sheet data, Berkshire also appears to finance part of its capital expenditure using tax deductions for accelerated depreciation of property, plant and equipment as provided for under the IRS rules. E.g., Berkshire reports $28 Billion of such deferred tax liabilities in 2011 (page 49 of the Annual Report). FLOAT

Berkshire Hathaway’s overall stock return is far above returns of both the private and public portfolios. This is because Berkshire is not just a weighted average of the public and private components. It is also leveraged, which magnifies returns.

While Buffett is known as the ultimate value investor, we find that his focus on safe quality stocks may in fact be at least as important to his performance. Our statistical finding is consistent with Buffett’s own words:

I could give you other personal examples of “bargain-purchase” folly but I’m sure you get the picture: It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. – Warren Buffett, Berkshire Hathaway Inc., Annual Report, 1989.

Given that we can attribute Buffett’s performance to leverage and his focus on safe, high-quality, value stocks, it is natural to consider how well we can do by implementing these investment themes in a systematic way.

In essence, we find that the secret to Buffett’s success is his preference for cheap, safe, high-quality stocks combined with his consistent use of leverage to magnify returns while surviving the inevitable large absolute and relative drawdowns this entails.

Indeed, we find that stocks with the characteristics favored by Buffett have done well in general, that Buffett applies about 1.6-to-1 leverage financed partly using insurance float with a low financing rate, and that leveraging safe stocks can largely explain Buffett’s performance.

This is the power of float illustrated over a long time period.

The above means his excess returns are attributed only to smart use of float and buying cheap great businesses over a long period.

This is why we must understand what it is and how to use it to our advantage to become better investors.

If you want to read the full 45 page PDF that includes the math, examples, and references download the paper Buffett’s Alpha here.

Most of Buffett’s and Berkshire’s float comes from insurance companies.  But float can be found at any company.  And next up I’ll show you how by analyzing a company’s balance sheet to find float.


Remember if you want access to my exclusive notes, preliminary analysis, and access to all posts as they come out 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.

Iconix Brand Group (ICON) Investment Case Study Part 1 – Preliminary Analysis

Iconix Brand Group (ICON) Investment Case Study Part 1 – Preliminary Analysis

Researching and analyzing as many companies as you can is the best way to learn how to evaluate businesses for investment.  And evaluating companies from different industries case study style not only allows us to learn.  But also allows us to learn what our circles of competence are.

The more case studies we do the faster we learn.  And the closer we get to our goals of becoming excellent investors.

This is why I’m trying to do as many case studies as possible here.  And why I’ve asked Value Investing Journey or Press On Research subscribers to send me their recommendations for companies to analyze.

Today’s company and investment case study was recommended by Professor Andrew.

Thanks so much for subscribing and writing in with this suggestion.

Iconix Brand Groups (ICON) is a brand management company focused on owning, licensing, selling, marketing, and extending clothing stores and brands in the women’s, teen girl, sports, and entertainment segments.

Below is a list of the brands it owns and or manages.

All these brands focus on the medium to lower end of the clothing brand and cost spectrum.  And I know this arena well from my experience running an EBay store focused on selling these things.

But we’ll get back to evaluating this when we dig into the financials in the next part of this case study.

For now let’s get to the preliminary analysis of the company.

The following analysis is the preliminary analysis I do on all companies.

Subscribers to Value Investing Journey and Press On Research have exclusive access to numbers calculated and notes taken for ICON and all other case studies.  But below is a video highlighting everything I found important while doing my preliminary analysis.

If you want further explanation on anything in this video please go to the following pages.  Aramanino Foods (AMNF) Case Study Part 1 – Preliminary Analysis.  Why the P/E Ratio Is Useless and How to Calculate EV.  And Earnings Yield Explanation Video.

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.

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If you have any questions about the case study or have a company you’d like me to do a case study on let me know in the comments below.