Thursday, July 16, 2015

A Balance Sheet Quirk At Bank Of America

Back in late 2011, I read John Hempton's March 2010 post about Repo 105 like transactions at Bank of America on his blog, Bronte Capital. Hempton, an Australian hedge fund manager and one of my favorite bloggers, wrote about how you could detect evidence of the transactions--which he described as being intended to make the bank look less risky before end of quarter reporting--by comparing the bank's average assets in a quarter to its assets at the end of the quarter.

Hempton's example was from 2006, but I used the same method to look at Bank of America's 2010 and 2011 results and was surprised to discover similar results. I initially planned to write about it then, but events intervened and I didn't have the chance to do so.

Well, I've finally written about this, taking into account the additional three and three-quarters years of financial results that have passed since then. The results are a little more ambiguous than they were back in 2011, though I think they're still interesting. Anyway, they can be found in my most recent SeekingAlpha article here.

Thursday, March 26, 2015

Examining The Beer Industry Through Philip Van Munching's 'Beer Blast': The Risks Of Growth

There is a running theme in my articles about Beer Blast, Philip Van Munching’s history of the beer industry in the late 20th Century. That theme is that change is often bad for companies.

In my first article about the book, I described how companies’ introduction of new products often only damaged their brands. In my second, I showed how trying to change a beer brand’s qualities to save money or to make it more modern also damaged their brands. In both of these articles, change was bad for beer companies even when it was desired.

Growth is probably the type of change that companies desire most. Growth, after all, is what drives stock prices up. When a company is growing, it can hire new employees and promote old ones. And, of course, leading a growing company brings benefits for management. Managers, like most people, enjoy seeing their areas of responsibility expand. Such expansion comes with bigger salaries and higher status in their industries. No wonder corporate executives are always trying to grow their companies.

However, Beer Blast shows that even growth, the most desirable form of change, can be more problematic than anyone can imagine. (Read More)

Saturday, March 21, 2015

Special Dividends And A Looser Credit Agreement May Signal A Turnaround At QC Holdings

I recently wrote an article for SeekingAlpha about alternative finance company QC Holdings (QCCO). The company has seen its revenues and earnings fall significantly since 2008, which has caused its stock price to plunge nearly 80%.

That said, the company may be going through a turnaround. It has declared special dividends two quarters in a row after not being able to pay dividends for a year. This shows that management is confident in the company's future--or at least confident that they don't need to hold onto more cash to deal with future problems. The company's credit agreement, which controls the terms of its loans, has also become less restrictive. This mean that the company's bankers are less worried about its financial situation. Given than QC Holdings' management and bankers are probably the people who understand the company's prospects best, this is a strong endorsement of the company's future.

Anyway, the article can be found here. It was chosen for SeekingAlpha's Pro program, meaning that it will only be available to non-paying members for a month, so I hope you'll check it out soon!

Monday, March 16, 2015

Examining The Beer Industry Through Philip Van Munching's 'Beer Blast': Brand Image

In my most recent article, I discussed the beer industry’s quest for new products as seen in Beer Blast, Philip Van Munching’s history of the industry in the late 20th Century. Van Munching argues that the industry’s constant introduction of new beer varieties has diluted the value of existing brands, hurting beer companies’ brand image.

However, Beer Blast does not only discuss brand image in the context of new products. Van Munching was the advertising director at Van Munching & Co., the former US importer of Heineken (HEINY) (HINKF). As a result, his book goes into great detail about the image strategies of several major American beer brands, offering insights about both their successes and failures.

Though Van Munching’s book was written in 1997, I feel such insights remain valuable for investors. For example, Beer Blast shows that beer companies are similar to luxury goods companies. Customers often use the brand of beer they drink to define their self image and the image they project to others. In this, they treat beer the way they treat luxury goods such as fashion items, which are similarly used to craft one’s personal image.

This may seem obvious, but...(Read More)

Wednesday, February 18, 2015

Examining The Beer Industry Through Philip Van Munching's 'Beer Blast': The Quest For New Products

BeerBlast: The Inside Story Of The Brewing Industry’s Bizarre Battles For YourMoney is a history of the beer industry in the late twentieth century. Philip van Munching, the book’s author, was once the advertising director at his family’s company, the former US importer of Heineken (HEINY) (HINKF). Though the book was written almost two decades ago, I feel it still offers valuable insights, both for those interested in investing in the alcohol industry, as well as for investors in general. 

In my opinion, the most important lesson of Beer Blast is how dramatic the beer industry’s history has been. Alcohol companies have been portrayed as safe, “defensive” investments. The common wisdom is that they do well in any environment because demand for their products is persistent. That may be true, but Van Munching’s account demonstrates how even such defensive companies can be surprisingly chaotic. Defensive companies are often driven to innovate, change, and try to grow as much as their more volatile peers.

Beer Blast shows one example of this tendency by depicting the beer industry’s quest for new, disruptive products. When I read the book, I felt this pressure to innovate was stronger than I had expected of a “defensive” industry selling a product with an ancient history like beer. The book also shows how Anheuser-Busch (BUD), the leader in the US beer industry, has used its market position to be successful in this quest for product innovation. (Read More)

Saturday, January 3, 2015

Understanding The Alternative Finance Sector Through Gary Rivlin's Broke, USA, Part 5 - Final Thoughts

In my article series about Broke,USA, journalist Gary Rivlin’s book on the alternative finance industry, I have written about the competitive advantages of an industry that lends money to those with few alternatives. However, I have also written about the risks of investing in such an industry, such as regulation, corporate misbehavior, and competition.

In doing so, some themes have come up again and again. Such themes have been, in my mind, valuable not only for alternative finance investors, but also for investors in general. They include the importance of pricing power and the threat of competition. They also include the strength of the pawnbroking model as well as the value of analyzing a company through its relationships with its lenders.

That said, one area of the alternative finance business which I have not discussed but which Rivlin goes into in much detail is the subprime mortgage business. I have intentionally not discussed that business, since much has already been written about it and its effects on the global economy in the past few years. That said, Rivlin’s book does have some interesting insights on subprime mortgage lending and how it relates to the broader alternative finance business, insights which I feel are useful for investors. (Read More)