Monday, December 15, 2014

Recent News From World Acceptance Corporation Indicates Worrying Operating Trends At The Company

In my most recent article, I discussed how installment lender World Acceptance Corporation’s (WRLD) current situation offers an opportunity to investors. In March 2014, the Consumer Financial Protection Bureau, or CFPB, sent the company a Civil Investigative Demand, or CID, asking about its lending practices. This caused the company’s shares to fall nearly 30% in the course of a few days.

Since then, the company’s share price has been roughly flat. As I put it in my last article, it is in a sort of “limbo”—too high if the company’s business model is illegal, as short sellers argue, but too low if the company is fundamentally sound. In the short run, this situation will only be decided when the CFPB releases the results of its investigation.

In the long run, however, if the CFPB does not shut down the company, World Acceptance Corporation’s share value will be governed by its operating results. Those operating results have shown some worrying trends over the past several quarters. (Read More)

Friday, December 12, 2014

Uncertainty About World Acceptance Corporation's Future Offers An Opportunity To Investors

In my most recent article, I described how installment lender World Acceptance Corporation illustrates the risks and rewards of investing in the alternative finance industry. On the one hand, the company embodies many of the industry’s best traits, such as rapid growth, high returns on investment, and pricing power. On the other hand, the company’s main business line of installment lending has come under increasing competition. Moreover, it has been accused of building its entire business upon the misbehavior of improper lending.

Most seriously, World Acceptance Corporation is currently under investigation by the Consumer Financial Protection Bureau, or CFPB. The company received a Civil Investigative Demand, or CID, from the CFPB in March 2014 asking for information about the company’s business practices. Some short sellers believe this investigation will lead to severe penalties, or even bankruptcy. On the other hand, it is possible that regulators will only give the company a slap on the wrist, such as a small fine, or let the company off altogether.

I believe the large distance between these two possibilities offers an opportunity for investors. (Read More

Thursday, December 11, 2014

World Acceptance Corporation Illustrates The Risks And Rewards Of Investing In The Alternative Finance Industry

In my article series about Broke, USA, journalist Gary Rivlin’s book on the alternative finance industry, I have described how Rivlin illustrates both the risks and rewards of investing in the industry.

On the one hand, businesses such as payday lenders, pawn shops, and rent-to-own companies have strong growth opportunities, high returns on capital, and pricing power. On the other hand, such companies are affected by government regulation that threatens to curtail their returns or even shut down their businesses. This regulation is, of course, in part because the alternative finance industry has a reputation for corporate misbehavior, such as lending practices that encourage borrowers to enter a debt spiral. Finally, the many strengths of the industry have also drawn many competitors, who threaten to erode the industry’s once high shareholder returns.

Few companies illustrate these risks and rewards like World Acceptance Corporation (WRLD), an alternative finance lender that makes installment loans, generally to those with poor credit. (Read More

Tuesday, December 2, 2014

Understanding The Alternative Finance Sector Through Gary Rivlin's 'Broke, USA': Part 4 - Competition And The Price Of Gold

In my two most recent articles reviewing Broke,USA, Gary Rivlin’s book on the alternative finance industry, I have written about what are probably the best known threats to the industry: regulation and corporate misbehavior. I believe that many of those who refuse to invest in the alternative finance industry refuse because of those risks. They fear that government regulation, such as interest rate caps, will end the industry’s high returns. They are unnerved by the industry’s risk of misbehavior. Such misbehavior includes not only obviously illegal activities, such as fraud and illegal collections practices, but also questionable if legal activities, such as lending in ways that encourage borrowers to enter a debt spiral.

However, I believe that it is often not the obvious risks that are the most important to an investor’s returns, but rather the ones that people are unaware of. As I wrote in my article about regulation, alternative finance companies have consistently found ways to work around regulation. Even persistent accusations of misbehavior have not kept companies in the industry from outperforming the overall stock market year after year.

Rather, I believe it is the risk of competition, one that I feel many investors have failed to consider, which may be the most dangerous to the alternative finance industry’s returns. (Read More)

Tuesday, November 25, 2014

The Reason For The DFC Global Buyout, Or Why You Should Read Corporate Filings Carefully

In June 2014, US alternative finance company DFC Global (DLLR) agreed to be bought out by private equity firm Lone Star Funds for 1.3 billion dollars. The company made 280 million dollars in EBITDA, or earnings before interest, taxes, depreciation, and amortization, in 2012, and at least 200 million dollars in EBITDA in each of the three years before the transaction. Thus, the deal was done at a price of somewhere between 4.6 and 6.5 times EBITDA. In an environment where companies generally trade at double digit multiples of EBITDA, this deal was unquestionably a bargain for Lone Star.

The purchase of DFC Global was a particular bargain because the company was not a declining enterprise that might deserve such a cheap multiple. In the company’s last investor presentation before the buyout, management trumpeted annualized revenue growth over the past nine years of over 15%, and annualized adjusted EBITDA growth of over 11%. It is noteworthy that such growth came despite a major slump in the company’s operations in 2013. That slump was caused by regulatory difficulties for the alternative finance industry in the United Kingdom, where DFC Global is the country’s largest pawnbroker. In its presentation, management argued persuasively that these difficulties were only temporary and that the company had significant long term growth prospects in the UK and the rest of Europe.

Thus, why did the same management allow the company to be bought out on the cheap mere weeks later, depriving shareholders of those growth opportunities? (Read More

Tuesday, November 4, 2014

Analysis Of An Alternative Finance Bankruptcy - Why Did Albemarle & Bond Go Under?

While doing research for my next article about Broke, USA, Gary Rivlin’s book on the alternative finance industry, I found an answer to a question that has always bothered me: Why did Albemarle & Bond (ABMLF), the British pawnbroker that was 30% owned by American alternative finance company EZCorp (EZPW), go bankrupt earlier this year?

The Consensus View

At first, it seems absurd to still be asking this question. (Read More)

Monday, July 21, 2014

Understanding The Alternative Finance Sector Through Gary Rivlin's 'Broke, USA': Part 3 - Corporate Misbehavior

In my previous article, I described how Broke, USA, Gary Rivlin’s book on the alternative finance industry, shows why regulation is the industry’s most prominent risk. Regulation is the industry’s best known risk because it can totally eliminate parts of the alternative finance business, especially payday lending. Moreover, the book also shows why such regulation is popular, describing many people’s visceral response to an industry that profits largely through high interest lending to the poor and middle class. As a result, support for the restriction or even illegalization of the industry is widespread and bipartisan.

However, in my opinion, Rivlin’s book also shows why regulation is not necessarily the threat to investors in the alternative finance industry that many believe it is. As I described in my previous article, the industry has consistently found ways to work around regulation, with the larger companies in the industry even turning regulation into a competitive advantage. Not only can the largest companies diversify from its riskiest parts, such as payday lending, but they can also gain market share from smaller operators, who are disproportionately affected by regulation related compliance costs. One company that has done this is DFC Global (DLLR), whose strategy was vindicated in June 2014 when it was acquired for $1.3 billion.

Instead of regulation, I believe that one of the most serious risks to investors in the alternative finance industry is actually corporate misbehavior. (Read More)

Tuesday, June 17, 2014

Update To Geoff Gannon RSS Feed

As you've no doubt noticed if you've been using it, the Geoff Gannon RSS feed I posted a while ago no longer works. The feed now provides all of Gurufocus' most recent articles rather than just Geoff's. I think the issue is that Gurufocus changed their format for the URL address of writer articles, so that the original URL now points to all of their recent articles.

Fortunately, Gurufocus now has a link below the author picture by each article that links directly to an RSS feed for the author's articles. This feed does the same thing as mine used to, but without the occasional errors, so rather than go fix my feed, I'm going to just provide a link to the new feed. Geoff's author RSS feed can be found at

Tuesday, April 8, 2014

Understanding The Alternative Finance Sector Through Gary Rivlin's Broke, USA, Pt. 2: Regulation

In my previous article, “Understanding The Alternative Finance Sector Through Gary Rivlin's Broke, USA, Pt. 1: Competitive Advantages,” I described how one can learn about the alternative finance business by reading Broke,USA, Gary Rivlin’s book on the industry. In that article, I noted that the book shows how the strengths of such companies as payday lenders, pawn shops, and rent-to-own stores include high returns on investment, pricing power, and growth opportunities.

That said, it would be wrong to focus on only the industry’s competitive advantages. This is an industry that, after all, focuses on making high interest loans to lower and middle class people. As a result, an investor in this industry faces many risks, the most prominent of which is regulation.

Regulation is the best known risk to the alternative finance industry because it can totally eliminate some parts of the industry, especially payday lending. As Billy Webster, the founder of America’s largest payday lending chain, Advance America Cash Advance, says in Broke, USA, “it’s hard to invest in the future earnings of a company if you don’t know if it’s going to have a future.”

And yet, Broke, USA also shows how regulation is not necessarily the threat to the alternative finance industry that some would believe.  (Read More)

Thursday, March 6, 2014

Bloomberg View Introduces RSS Feeds For Contributors

As you might already know, a few months ago, I created an RSS feed for Matt Levine, one of my favorite financial bloggers, since at the time Bloomberg View didn't offer RSS feeds for its bloggers.

Well, Bloomberg View has introduced a new site format for contributors, which includes an RSS feed that can be accessed via the RSS symbol next to the contributor's name. Unfortunately, their format change has also made their site incompatible with my custom feed. I could probably edit it so that it would still work with the changes, but there's no real reason for me to do so, since their feed works just as well as mine.

Thus, to access Matt's posts via an RSS reader, just use this feed:

Wednesday, February 12, 2014

St. Louis Public Library Branch Map

I recently put together a little project which I've been thinking about for some time. Specifically, I created a map of the St. Louis Public Library's branches in which you can see each branch's hours of operation when you click on the icon for the branch.

I've always found it inconvenient that the SLPL's website has no map of their branches. There is a list of branch addresses, but that's somewhat difficult to use if you don't have an intimate knowledge of St. Louis geography. Since there are seventeen locations, it's hard to figure out which branch is closest to you, especially since you have to keep track of all of them without a map.

Friday, January 31, 2014

Understanding The Alternative Finance Sector Through Gary Rivlin's Broke, USA, Pt. 1: Competitive Advantages

Broke, USA by Gary Rivlin is a book about the alternative financing industry. This industry, which focuses on lending money to lower and middle income individuals, includes payday lenders, tax preparation companies, and pawn shops.

It is easy to tar this industry, which Rivlin calls "Poverty, Inc," with the same stigma as the subprime lending industry that got the US into so much trouble during the 2000s. Both industries serve many of the same customers, and both appear in the book.

That said, from an investing perspective what is interesting is the difference in performance between the two industries. Unlike most subprime mortgage lenders, companies such as payday lenders and pawn shops passed the 2008 financial crisis with flying colors. In turn, though, such companies face unique risks that their mortgage lending brethren do not. Broke, USA shows us both the competitive advantages and risks of this sector.

Before we begin, though, it is worth noting that Broke, USA was written to criticize the alternative financing industry. Its heroes are those who campaign against payday loan operators and tax refund lenders. Thus, there is a certain irony in mining such a book for investment ideas in the industry it criticizes-an irony which some may not be comfortable with.

That said, it is because of the very success of this industry that a book such as Broke, USA exists. Without the various characteristics that have made payday lenders, rent to own stores, and pawn shops so profitable, (Read More)

Friday, January 10, 2014

Book Review Of Distant Force: A Memoir Of The Teledyne Corporation And The Man Who Created It

I first read about Distant Force, the biography of Teledyne and its founder Henry Singleton, in an article by Geoff Gannon titled "What Would Value Investing 101 Look Like?" Teledyne Corporation was a conglomerate founded in 1960 as an electronics company by Singleton and George Kozmetsky. The company would eventually diversify into such areas as aeronautics, steel, and insurance before breaking itself up into such successor companies as Allegheny Technologies (ATI), insurance company Kemper (KMPR), and of course, Teledyne Technologies (TDY) through a series of spinoffs in the 1990s and early 2000s. During that time, the company’s stock gave investors 17.9% annual returns for 25 years, causing Warren Buffett to describe Singleton as having "the best operating and capital deployment record in American business." The reasons for that record are in this book.

That said, Distant Force isn't one of those investing books that neatly gives each concept its own chapter before wrapping up with a nice summary at the end. The author began his career as a metallurgist, and the book focuses heavily on technology rather than finance.

Thus, it is necessary to read between descriptions of rocket nozzles and rolled steel, of managers and mechanics, to understand the basis of Teledyne's extraordinary performance. Once you do so, though, you discover that there were five key factors to this performance—(Read More)

Thursday, January 9, 2014

RSS Feeds for Geoff Gannon and Matt Levine

Two of my favorite financial writers are Geoff Gannon and Matt Levine. I learned much of what I know about investing by reading Geoff's posts on Gurufocus, while Matt's posts on the financial world on Dealbreaker and Bloomberg View are always amusing and insightful.

The one problem with both of these writers is that there isn't an RSS feed available for much of their work. Though Geoff blogs extensively at Gannon and Hoang on Investing, his Gurufocus work isn't available there, and since it lacks an RSS feed, it can't be accessed by a blog reader like Feedly. Similarly, there are no RSS feeds available for Bloomberg View columnists.

Thus, I created my own feeds for both Geoff's posts on Gurufocus and Matt's on Bloomberg View.

Hello World

My name is Xinyun Hang, though I go by Charles Hang. This is my blog.

In the near future, this blog is mostly going to be about investing. I'm going to be writing reviews of books that I think will be useful to an investor, especially a value investor. I'll also post some writeups of interesting investing opportunities from around the world.

Thank you for reading!