Thursday, April 24, 2008

Richard Pzena Interview: Doubling Down in Financials

Anything Richard Pzena has to say is a must read. Pzena was interviewed by Forbes magazine yesterday and shared his thoughts on his current investments and the financial industry in general. Pzena believes many of his financial investments are trading for less then 5 times their normal earnings power. Pzena's current picks are : Alacatel-Lucent, Freddie Mac, Citigroup, Allstate, Capital One Financial, Torchmark, Fannie Mae, Bank of America, Johnson & Johnson, Whirlpool,

Excerpts from the Forbes interview:

But we are in a recession right now, won't these companies suffer

There is a difference between what gets hurt and what stock prices go
down. People don't understand that concept. Typically, in a recession, when
are in the worst environments, the companies most negatively impacted
are the
ones that actually do the best in the stock market.


Because they do poorly before the recession. Everyone knows it will be
for retail in a recession. So they kill retail stocks before they get
into a
recession. Once they're in it, people start to look out to the other
side. All
the speculation shifts to this question: When is the recovery?
That is when you
see cyclical kind of companies bottom out. That has
happened in every single
prior economic cycle. I think it's impossible for
housing stocks to get killed
any worse. Banks and finance companies have
gotten killed. Credit card companies
have already taken provisions so their
earnings and stock prices have gotten
killed. People expect the worst in the
credit card business.

Full Interview Via Forbes

Pzena Investment Management: First Quarter Commentary

Another Interview from December 31, 2007 Via Barrons:

Opportunity Amid the Ruins

Monday, April 21, 2008

Mohnish Pabrai Interview

Mohnish Pabrai started the Pabrai funds in 1999 and has since had returns of 25% a year on average net to investors. I have been following Pabrai since I read an article about him in Forbes Magazine in 2004. I recommend the article , in it Pabrai talks about his investment in Frontline. In the interview published today by Smart Money Pabrai talks about one of my largest holdings Pinnacle Airlines.

Smart Money: What stocks do you like now?

Mohnish Pabrai: Pinnacle Airlines. Depending on
things work out, it's anywhere from a double to five or six times return in
the next two or three years.

SM: An airline?

MP: It's a regional jet
company. The large airlines,
like Northwest and Delta, outsource the small planes to Pinnacle. Many of the
reasons why airlines are so terrible — load factors, price wars — don't
The revenue is the same whether there is one passenger or the plane
is full and
whether Northwest charges $200 or $2,000 round-trip. The
contracts are
long-term, usually 10 years, and will hold up in the event of
a merger. So you
can estimate what their cash flows will be many years into
the future.

What's the investment case?

MP: Pinnacle has more than $10 a share in cash
on the
balance sheet. In the next few years, free cash flow will be $3 to $6 a
share, depending on how much more business they get. With a simple 10 or 15
multiple on those numbers, you end up with $30.

SM: Why are the shares so

MP: One overhang is that they have a past-due contract with
But not a lot of Wall Street analysts follow Pinnacle, and the
business itself
is changing. The evolution away from hub-and-spoke and
toward more nonstop
flights is driving demand for their services. When you
connect one small city to
another directly, you aren't going to run a jumbo
or a 737.

Full Interview Via Smart Money

I also highly recommend Pabrai's book The Dhandho Investor: The Low - Risk Value Method to High Returns.

Thursday, April 17, 2008

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