So long as you ask, categorically speaking I would lean toward saying no and probably purely by luck: Other stocks that have done well (or badly), when I found the valuation/quote sufficient, I placed limit orders to buy and they did not fill and then I subsequently forgot about them after they walked out of my range or I found another investment idea. It was either Guy Spier's book or somebody else's that had me shaking my head when they sounded all excited about ESL's (both the man and his hedge fund) concentrated bet on KMart-Sears and the actions taken. As I doubt the ink even had time to dry when it seemed obvious retail was too fickle a business to build a business empire around. As even Buffett famously found out too many decades ago.
I really love the Superinvestor flops series. This content is very unique and important among the other value investor channels. Please do as much of this as you can for your subscribers! Just like what Charlie Munger said that all he wants to know is where is he going to die, so he will try to never go there!
it's kind of weird that horsehead suddenly had 500 million impairment charge in 2015 earnings report. in 2014 it had 434 million in equity and 539 million in total debt In my country there is a coal producer that had 756 million equity and 1.2 billion of debt. and it produce a net income loss of 58 million from 2013-2016 totaling loss of 233 million, until coal turn around in 2017. it was 40 bagger(not for me i was at school) Surely there is something wrong with horsehead management and too bad there is no further investigation on the relation between the management and the related parties that receieve the new plant or other asset
Pabrai a super investor! 😂😂😂 That made me laugh so hard. The golden goose Alibaba, the digital Warren buffets at Tencent, the great compounder Shinoken,… He is just white noise😂😂😂
@@LearnEarnInvestol I have seen his letters to investors. some of his funds dramatically underperform the S&P. I totally agree he was really great 20 years ago, yet now he can’t say a single sentence without saying Charlie or Warren. He is a story teller not an investor.
I've always found this story intriguing and asked myself if I would have invested. I think that there is a chance that I would have, especially watching the good thesis and superinvestor interest, but I also generally dislike companies where the debt/equity is over 0.5x, so I might have ruled it out for that reason. Your final point about not learning too much is well taken. If the bet was a good one, it can still go south and you shouldn't learn not to take calculated investments as long as you have some basic diversification and don't go all in on 1-3 things at a time.
In cases like this, I think Graham's approach to spread your bets across 10-20 similar ideas works best if you are investing in lower quality, indebted, or commodity companies. If the odds are in your favor on all of them, you win over time that way. But lower quality companies that are more prone to market/commodity uncertainty carry higher risks the further out you look, and aren't worth a very high concentration individually for this reason imo. The fact that zinc appeared to be at a cyclical low seems to have emboldened many investors to think it couldn't get worse, but if I remember right, prices did temporarily get worse which is why the new zinc plant could be evaluated lower in bankruptcy court. Anyway, all things in moderation. Concentrating in your best ideas can bring good rewards, and Buffet/Munger/Lynch all caution against diworsification. That said, I think high concentration only really makes sense if you are investing in a company for which there is lower than normal long-term risk and a moat. You want to be able to ride out the unexpected. For bargain Graham investing, basic diversification is a part of the strategy. I think Mohnish generally had a rule of "no more than 10%" for even the ideas he was most confident about if they were bargains, and it saved him on Horsehead from worse losses.
Not learning too much is an interesting take - maybe not super intuitive - but makes a whole lot of sense. If you are playing the odds, and something doesn't turn out the way you had hoped, that doesn't change the odds. It just means it turned up tails this time around.
The margin of safety is crucial and honest management is also key, Horsehead had neither. Guy Spier was honorable in standing up for all shareholders during the Bankruptcy, but the fix was in already.
Great video Tom! I don’t get why they couldn’t make the initial interest payment though. Were they manipulating earnings to show them making more than they actually were?
From the sounds of it - the way Tom was describing it - it seemed management was being lazy and unsupportive of shareholders. Tom had mentioned the fact that it is great when management is aligned with shareholders - ie. when management owns shares right alongside us. This can help us by making management act in a way that benefits shareholders (including them). Sounds like they knew filing chapter 11 would solve their problem of not paying the interest payment - but they really hurt / destroyed their shareholders in the meanwhile. It is crazy that this situation can pan out - but I guess that's why we don't put all our eggs in one basket... especially if management is not aligned. A great reason many founder lead companies have done so well - their incentives are aligned and they generally own a lot of stock (think Amazon, Tesla, etc.)
Given the questions of suitability (he wouldn't know his audience's individual circumstances or risk tolerances), that's a terrible idea even if it had done alright.
Would you have invested in Horsehead?
So long as you ask, categorically speaking I would lean toward saying no and probably purely by luck: Other stocks that have done well (or badly), when I found the valuation/quote sufficient, I placed limit orders to buy and they did not fill and then I subsequently forgot about them after they walked out of my range or I found another investment idea. It was either Guy Spier's book or somebody else's that had me shaking my head when they sounded all excited about ESL's (both the man and his hedge fund) concentrated bet on KMart-Sears and the actions taken. As I doubt the ink even had time to dry when it seemed obvious retail was too fickle a business to build a business empire around. As even Buffett famously found out too many decades ago.
no as its not in my circle of competence
Loving these flop case studies Tom. Thanks for going into them.
The point is they are not super investors this is not the first big flop they have had. Monish is a flob master
They're actually just billionaire retail investors.
I really love the Superinvestor flops series. This content is very unique and important among the other value investor channels. Please do as much of this as you can for your subscribers!
Just like what Charlie Munger said that all he wants to know is where is he going to die, so he will try to never go there!
Great video Tom. Very interesting case study.
Thank for this series Tom, these lessons from the past are great to try to avoid future mistakes!
it's kind of weird that horsehead suddenly had 500 million impairment charge in 2015 earnings report. in 2014 it had 434 million in equity and 539 million in total debt
In my country there is a coal producer that had 756 million equity and 1.2 billion of debt. and it produce a net income loss of 58 million from 2013-2016 totaling loss of 233 million, until coal turn around in 2017. it was 40 bagger(not for me i was at school)
Surely there is something wrong with horsehead management and too bad there is no further investigation on the relation between the management and the related parties that receieve the new plant or other asset
Great summary!
Pabrai a super investor! 😂😂😂 That made me laugh so hard. The golden goose Alibaba, the digital Warren buffets at Tencent, the great compounder Shinoken,… He is just white noise😂😂😂
He has a killer track record over the long-run. Sure, not all investments have worked - but that's investing for ya. 🙂
@@LearnEarnInvestol I have seen his letters to investors. some of his funds dramatically underperform the S&P. I totally agree he was really great 20 years ago, yet now he can’t say a single sentence without saying Charlie or Warren. He is a story teller not an investor.
@@LearnEarnInvest made $$ when cloning WB.
Thank you for this. I find these lessons from history more very valuable.
My attorney friends sure know how to make the best of a bad situation 😀
Whoa this one is scary. Especially as someone that owns a lot of industrial and some commodity based companies.
Thanks Tom!
great series tom really need to do your own due diligence and not blindly follow these investors
Great Video, Tom! Love the learning from others' experiences videos! 🙂
I've always found this story intriguing and asked myself if I would have invested. I think that there is a chance that I would have, especially watching the good thesis and superinvestor interest, but I also generally dislike companies where the debt/equity is over 0.5x, so I might have ruled it out for that reason. Your final point about not learning too much is well taken. If the bet was a good one, it can still go south and you shouldn't learn not to take calculated investments as long as you have some basic diversification and don't go all in on 1-3 things at a time.
In cases like this, I think Graham's approach to spread your bets across 10-20 similar ideas works best if you are investing in lower quality, indebted, or commodity companies. If the odds are in your favor on all of them, you win over time that way. But lower quality companies that are more prone to market/commodity uncertainty carry higher risks the further out you look, and aren't worth a very high concentration individually for this reason imo. The fact that zinc appeared to be at a cyclical low seems to have emboldened many investors to think it couldn't get worse, but if I remember right, prices did temporarily get worse which is why the new zinc plant could be evaluated lower in bankruptcy court.
Anyway, all things in moderation. Concentrating in your best ideas can bring good rewards, and Buffet/Munger/Lynch all caution against diworsification. That said, I think high concentration only really makes sense if you are investing in a company for which there is lower than normal long-term risk and a moat. You want to be able to ride out the unexpected. For bargain Graham investing, basic diversification is a part of the strategy. I think Mohnish generally had a rule of "no more than 10%" for even the ideas he was most confident about if they were bargains, and it saved him on Horsehead from worse losses.
Not learning too much is an interesting take - maybe not super intuitive - but makes a whole lot of sense. If you are playing the odds, and something doesn't turn out the way you had hoped, that doesn't change the odds. It just means it turned up tails this time around.
This was a great video, thanks Tom
Debt was the issue - nice vid
I did invest in horsehead! Learned a lot more about risk management
What did you learn. Position-sizing related or more focused on the actual evaluation of the business itself?
Well done Tom great video
The margin of safety is crucial and honest management is also key, Horsehead had neither.
Guy Spier was honorable in standing up for all shareholders during the Bankruptcy, but the fix was in already.
Great video Tom! I don’t get why they couldn’t make the initial interest payment though. Were they manipulating earnings to show them making more than they actually were?
From the sounds of it - the way Tom was describing it - it seemed management was being lazy and unsupportive of shareholders. Tom had mentioned the fact that it is great when management is aligned with shareholders - ie. when management owns shares right alongside us. This can help us by making management act in a way that benefits shareholders (including them).
Sounds like they knew filing chapter 11 would solve their problem of not paying the interest payment - but they really hurt / destroyed their shareholders in the meanwhile.
It is crazy that this situation can pan out - but I guess that's why we don't put all our eggs in one basket... especially if management is not aligned. A great reason many founder lead companies have done so well - their incentives are aligned and they generally own a lot of stock (think Amazon, Tesla, etc.)
I know this might sound irrelevant but you look quite the same like Ken Williamson
What surprises me the most is that this company is located in the US
Commodity business
So the question is, did horsehead have any insider ownership?
Reysas next !!!! Big gap between bid and ask
Curious - what are you meaning by this comment?
@@LearnEarnInvest Down 44% Friday
I remember Phil Town pumping this stock on his podcast
Given the questions of suitability (he wouldn't know his audience's individual circumstances or risk tolerances), that's a terrible idea even if it had done alright.
I've heard him mentioned horsehead a couple of times in his podcasts. I'd say he talked about it more in the context of a failure case.