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We wait until we can read it in the paper. The risk pertains not primarily to general market behavior although that is sometimes tied in to a degree , but instead to something upsetting the applecart so that the expected development does not materialize.
Such killjoys could include anti-trust or other negative government action, stockholder disapproval, withholding of tax rulings, etc. The gross profits in many workouts appear quite small. A friend refers to this as getting the last nickel after the other fellow has made the first ninety-five cents. However, the predictability coupled with a short holding period produces quite decent annual rates of return. This category produces more steady absolute profits from year to year than generals do.
In years of market decline, it piles up a big edge for us; during bull markets, it is a drag on performance. On a long term basis, I expect it to achieve the same sort of margin over the Dow attained by generals. As I have mentioned in the past, the division of our portfolio among the three categories is largely determined by the accident or availability.
Therefore, in a minus year for the Dow, whether we are primarily in generals or workouts is largely a matter of luck, but it will have a great deal to do with our performance relative to the Dow. This is one or many reasons why a single year's performance is of minor importance and, good or bad, should never be taken too seriously.
If there is any trend as our assets grow, I would expect it to be toward controls which heretofore have been our smallest category. I may be wrong in this expectation - a great deal depends, of course, on the future behavior of the market on which your guess is as good as mine I have none. At this writing, we have a majority of our capital in generals, workouts rank second, and controls are third.
The article below was published in the fourth quarter issue of the Analysts Journal. During these years the trend was unfavorable to those owning standard issues, and the brokerage business was on the quiet side. By contrast, many bargain industrial stocks scored substantial advancesespecially since the early war years brought proportionately greater business improvement to the secondary companies than to the leaders.
In addition, quite a number of railroad and utility reorganizations were taking shape, and developing good profits for those who had bought their issues at unpopular times and consequently at basement prices. By many in Wall Street had come to believe that the only real and dependable income was to be made in special situations.
As usually happens, this generalization proved wide of the mark. In the ensuing four years there have been good profits in almost everything, and the spectacular returns have lately been shown in essentially speculative, as distinct from special, operations. But perhaps enough interest remains in the latter type of activity to warrant an article on the subject.
The Meaning of Special SituationsFirst, just what is meant by a special situation? Convention has not jelled sufficiently to permit a clear-cut and final definition. In the broader sense, a special situation is one in which a particular development is counted upon to yield a satisfactory profit in the security even though the general market does not advance. In the narrow sense, you do not have a real special situation unless the particular development is already under way.
This distinction is readily apparent by reference to the wide fields of bankrupt corporations and preferred stocks with large back dividends. In the former case, the particular development would be reorganization; in the latter, it would be discharge of the arrears, usually by a recapitalization. Many practitioners will say that a company in trusteeship does not constitute a special situation until a reorganization plan has actually been submitted; similarly, there must be a definite plan on foot for taking care of dividend accumulations.
Thus, American Woolen Preferred may have had interesting possibilities for years because of its very large back dividends, but it became a true special situation only when the buyer knew that a plan of repayment had been or was soon to be announced.
There is a logical and important reason for favoring this narrower definition of a special situation. By doing so we are able to conceive of these commitments in terms of an expected annual return on the investment. As will be seen, such a calculation involves quite a number of estimates in each case, and thus the final figure bears little resemblance to the bond yields taken out of a basis book.
Nevertheless, this technique is valuable as a guide to the operator in special situations, and it gives him an entirely different attitude toward his holdings than that of the trader, speculator or ordinary investor. In one respect, however, the calculation goes beyond the lore of the yield book. If we are willing to make the necessary assumptions, the attractiveness of any given special situation can be expressed as an indicated annual return in per cent with allowance for the risk factor.
It is proposed to sell the property to the City of Chicago on terms expected to yield in cash about 35 for the bonds. For illustrative purposes only and without responsibility let us assume a that if the plan fails the bonds will be worth 16; b that the chances of success are two out of threei. If only possible gain were considered, the indicated annual return would be Classes of Special SituationsLet us turn now to a condensed description and discursion of the various types of special situations.
These could be divided into two main categories: I II Security exchanges or distributions, Cash payouts. Only in a rare case does a special situation, as we use the term, work itself out in a higher market without a cash of security distribution occurring somewhere in the picture. However, a more conventional classification may better serve our present purpose. Class A. In bankruptcy reorganizations, particularly those of railroads, the arbitrage has had a curious history in the past five years.
In more than half of the cases the plans have been consummated and the expected profit realizedalthough almost always after a longer time lag than was originally anticipated. In the remainder the plans have been changed or dropped and the when-issued trades cancelled; or else such cancellation is now expected, chiefly as a result of the Wheeler Bill. Nevertheless, large profits were made by many arbitragers, even in the unsuccessful plans, because the old securities advanced greatly above the price they paid, in spite of the plans failure.
Thus what was intended to be an old-fashioned arbitrage turned into a successful bond speculation. The hazards of arbitraging increase as the general market level rises, because your chances of loss in the event of the plans failure become correspondingly greater. To this important extent many types of special situations are tied-in with general market conditions; but it is still true that in the average or representative case the result depends upon corporate and not on market price developments.
Arbitrages in industrials generally grow out of mergers or recapitalizations and involve the sale of existing rather than when-issued securities. That arbitrage was successfully consummated within sixty days. However, such operations have as a pre-requisite the ability to borrow the stock for the duration of the arbitrage. Under present conditions of no margin trading, cash borrowing is so difficult as to prevent many though not all of these deals.
In the utility field, somewhat similar arbitrages have been available as a result of exchange offers made by holding companies for their preferred stocks. Recent examples are United Corporation and American Superpower. There are, of course, various hazards involved in all these arbitrages. They include possible rejection by stockholders; possible legal action by minority holders; possible disapproval by the S. C, etc. The experienced operator does not ignore these hazards, but attempts to measure them carefully in the particular circumstances of each case.
It will be noted that the industrial, utility and rail arbitrages fall respectively into three distinct classed with regards to the time element. One might almost say that the first is usually a matter of weeks, the second of months, and the third of years.
An exception to this rule was the United Light and Power arbitrage. Because of litigation that reached the Supreme Court, this utility recapitalization took fully two years between proposal and consummation. Though it yield the expected profit in dollars, the time element made the outcome far from brilliant. Class B. Cash Payout, in Recapitalization or Mergers.
A recent example of this type is Central and Southwestern Utilities 2nd Preferred. Under a recapitalization and merger plan, presented to the SEC on Feb 5, , the holders were given the option of taking the full redemption value in cash or the equivalent in new common stock at the syndicate offering price.
If the plan should fail, the buyer risks a fall in the price; but contrariwise in the typical preferred stock or bond pay-out, there is virtually no chance of getting more than the redemption value accorded under the plan. We must recognize here an inherent weakness in this type of operation. The experienced analyst knows that the chance of ultimate loss diminishes to the extent that the preferred stock is cushioned by the presence of a proportionately large common stock equity.
Preferred is backed by only 20 cents of common stock. If continued weakness in the stock market should result in the definite postponement of the American P. Conversely, a plan was proposed and carried out for paying of the Cities Service Preferred issues. Class C. Cash Payments on Sale or Liquidation. In most cases where a company sells out its business to another or merely liquidates its assets piecemeal, the ultimate amount received by the security holder exceeds the market price at the time the sale or liquidation is proposed.
This condition grows out of the nature of the price making factors in the security market; we do not have the space to discuss the reasons in detail. In the case of a sale for cash on a going concern basis, the largest profits are most often to be made by those who buy before the negotiation are begun or completed.
But even after the terms are announced, there is often an interesting spread to be realized if the sale is consummated. Quite a number of such sales have recently taken place in the textile-mill field. Most of these purchase offers, even though contingent on acceptance by a large majority, have become effective; and those which failed generally did so because a still higher bid was forthcoming from other quarters.
In such cases the amount of cash to be realized for the assets, less the corporate liabilities and expenses, is subject to estimation and consequent error. Where estimates are made by management, they are customarily on the conservative side. In most instances, the market price at the time of the vote to liquidate proves to be appreciably less than the amount recovered.
A protracted liquidation of this kind has been under way in Ogden Corp. Brewster Corp. At this writing the tax liabilities of Brewster Corp. At this writing the tax liabilities of Brewster have not been determined. As against a state book value of 5 and a market price of about 4. Class D Litigated Matters. There are fairly numerous cases in which the value of a security depends largely on the outcome of litigation.
This may involve a damage or subordination suit e. In general, the market undervalues a litigated claim as an asset and overvalues it as a liability. Hence the students of these situations often have an opportunity to buy into them at less than their true value, to realize attractive profitson the averagewhen the litigation is disposed of.
Class E. Public Utility Breakups. These have been a very important group of special situations in recent years. They are an essentially temporary phenomenon in that they will pass out of the picture when compliance with Section 11 of the Public Utility Holding Company Act has been completed for the industry. Their unique feature is that the profit in them depends upon the principle that a holding company is worth more dead than alivei.
This has brought about the paradoxical situation that the stocks of holding companies bitterly fighting dissolutionpresumably for the sake of their owners, the shareholders have been depressed in price by this valiant battle and have advanced when they lost their fight. The technical quality which sets these situations apart from others is the fact that they usually depend upon an estimate or forecast of the market value of securities which are to be distributed and are not now traded in.
In some cases there is a narrow market for existing minority shares, but it may not be too informing in relation to conditions after the majority shares come on the market. An example of this is Philadelphia Co. The curb-market price for the 3. Thus the hazard in exploiting these breakup situations grows largely out of the uncertain time element, with the attendant possibility of an unfavorable change in market conditions before the distributions are received.
Class F. Miscellaneous Special Situations. This catch-all category includes everything we have not already classified. There is no point in trying to make our descriptions comprehensive since a good deal depends on ones personal definition of special situation.
We may suggest two additional varieties by way of example only. A peculiar one would be the rather major field of hedging operations-most characteristically the sale of a common stock against ownership of a convertible bond or preferred stock. Here the securityexchange feature operates to protect against loss rather than to create the profit.
Another, more limited, would be the purchase of a guaranteed security on the expectation that it will later be made exchangeable into a bond on attractive terms, in order to save a heavy corporate income tax. This occurred in the case of Delaware and Hudson and D. ConclusionAt the outset of this article we grouped special situations and undervalued securities together. The reader will have noticed that we do not consider these terms as synonymousalthough it may be held that special situations constitute a major subdivision of undervalued securities.
The essence of a special situation is an expected corporate not market development, within a time period estimable in the light of past experience. Thus here, as almost everywhere else in finance, wide experience is a major factor in lasting success; it must be supplemented by careful study of each situation and the possession of sound though somewhat specialized judgment.
Special situations, as we define them appeal mightily to one class of temperament for the very reason that they leave other people cold. They lack industrial glamour, speculative dynamite, or more sober growth prospects. But they do afford the analyst an opportunity to deal with security values very much as the merchant deals with his inventory, calculating in advance his average profits and his average holding period. In this sense they occupy an interesting middle ground between security purchases for ordinary speculation or investment and security purchases for resale in syndicate or dealership operations.
A great special situations investor once said that good investors in special situations do so well that they grow their assets to the point that they can no longer take advantage of many of the opportunities offered in obscure, small workouts. Larger investors will move away from these opportunities, leaving the field open to new talent.
Hooke Pages to Liquidations First you must determine if the company can remain as a going concern. If not, then a publicly held company is viewed as a liquidation candidate. It has poor prospects as an operating business and shows a history of losses. Investors appraise the business not as a going concern, but rather as a collection of assets better off in the hands of others.
In performing a liquidation analysis, you examine the worth of each asset category in a quick selloff, aggregate these liquidation values, and subtract from this sum the estimated cost of closing the business and paying off its liabilities.
Unless the business has substantial intangible assets such as well-respected brand-names, exclusive patents or quasi-monopoly operating rights, the first back of the envelope evaluation focuses on historical balance sheet data. For each balance sheet item, you determine an estimated range of liquidated value percentages, which are based on experiences for similar businesses. Later on, after further study, these percentages are adjusted to include the new information. Consider the hypothetical case of Siegel Corporation, a troubled manufacturer of construction materials, as presented in Exhibit Siegel CorporationSummary Liquidation Analysis in millions except per share.
To prove this assertion, one need only look at the November pricing for the Dow Jones Industrials, which were then trading at 5x historical book value. Unless an analyst works for a firm that is considering a takeover of Siegel Corp. Thus, his rate of return requirement must reflect not only the uncertainty of his liquidation estimates but also 1 Siegels burn rate and 2 the likelihood of its acquisition by a third party interested in unlocking those values.
The principles hold but the examples may seem strange such as companies trading at 3 4 x earnings. Earning-Power Value and Liquidating Value. In the legal approach to valuation and enterprise is usually considered to be worth at least as much as the net amount that could be realized by its sale or liquidation. The liquidating value is minimum value because, if worse comes to worst, a concern can be sold or liquidated. In other words, no business is worth less to its owners than they could realize from it by sale.
For if a business could not earn enough to support the liquidating value, ordinary prudence would suggest that it be wound up or disposed of and that the sale value or liquidating value be turned over to its owners. On this point, the legal approach to valuation appears to diverge widely from the stock-market or practical approach. Stock prices do not reflect any presumption that liquidating value is minimum value. The reasoning of the marketi. For the typical companywhether prosperous or notis not going to be liquidated.
True, the liquidating value does sometimes become important when a non-prosperous company sells out or merges. But these occurrences are comparatively rare, and they are so unpredictable that they cannot justify paying more for a stock than it would be worth solely on a going concern basis without regard to its assets. The ignoring of realizable asset value by the stock market is perhaps the most clear-cut and striking element of difference between its approach to value and that of private business.
Let us call this the Wall Street approach and the Main Street approach. On Main Street the idea that a business is worth much less than you could auction it off for would seem preposterous, but in Wall Street, people think of themselves as owning not a part of a business but shares of stock in a business. These shares may be valued, bought and sold on a basis that bears little relationship to a normal appraisal of the business entity on which they have their ownership claim.
The analyst cannot calculate accurately the liquidating value of a given company, since it is ordinarily impossible to estimate what could actually be realized for its fixed assets and what the expenses of liquidation would be. But we do know as a practical matter that most companies could be disposed of for not less than the net working capital if the latter is conservatively stated. As a general rule, at least enough can be realized for the plant account and the miscellaneous assets to offset any shrinkage sustained in the process of turning the current assets into cash.
This rule would apply in nearly all cases to a negotiated sale of the business to some reasonably interested buyer. The working-capital value behind a common stock can be readily computed. Consequently, by using this figure as the equivalent of minimum liquidating value, we can discuss with some degree of confidence the actual relationship between the market price of a stock and the realizable value of the business. The historical development of this relationship has been interesting. Before the s, common stocks selling under current-asset value were practically unknown.
During the new-era market, when prime emphasis was placed on prospects to the exclusion of other factors, a few issues in depressed industries sold below their working capital. In the great depression of the early s this phenomenon became widespread. Many issues actually sold for less than their net cash assets alone. Writing about this situation in , we stated that the market prices as a whole seem to indicate that American business was worth more dead than alive.
It seemed evident that the market had carried its pessimism much too farto compensate no doubt for its reckless optimism of the s. In the appraisal of most nonutility common stocks their asset value is of minor importance. This is true whether we are considering the implied standards of the stock market itself, or accepted techniques of analysis or legal theories of valuation as they have developed in recent years.
In the day-to-day prices of the stock markets, it is generally impossible to identify any influence exerted by asset values. This point may be illustrated by Table , which shows quite characteristic relationships between year-end price and year-end asset value in for a group of common stocks of steel companies. Table Steel Wheeling Youngstown There are several classes of exceptions to the general stock-market rule that asset values are of negligible importance.
The outstanding exception is the public-utility field. Here the actual property investment plays a significant role in determining the earnings permitted under rate regulation, and thus earning-power value tends to remain reasonable close to asset value. In the large sector of financial companies the asset value remains a prominent element in the valuation of a commonstock issue.
In fact the appraisal process is likely to start with the asset value as a point of departure and to add a premium or to subtract a discount there-from to reflect the many other elements of valuation. This statement applies fairly generally to banks, insurance companies, and investment funds, but only slightly, if at all, to finance or credit companies.
In a less direct fashion the asset-value factor enters into market price in the case of companies with relatively small earnings and dividends and relatively large net current assets. While in such cases the market does not ordinarily pay close attention to the current-asset value of the shares, it is possible to trace some influence exerted by this factor. Common-stock analysis as it is generally practiced in Wall Street and reflected in the published studies of individual issues adheres pretty closely to the canons of value apparently set up by the stock market itself.
Thus we do not find any tendency in such studies to emphasize asset value generally, although the figure is often stated, and in some cases attention is called to the fact that the asset value is many times the market price. The converse situation is practically never referred to. It is only in the past twenty years that analysts have had to deal with a large number of stocks selling below their current-asset value.
Their attitude toward this phenomenon has been tentative and uncertain. The fact that a stock is selling well below its liquidating value is usually pointed to as interesting but with the added caution that it cannot be relied upon as a guide to successful investment. In legal valuations ruling principles have changed substantially in the last generation. In earlier years the point of departure was always the tangible asset value-subject to modifications according to certain formulas which generally sought to determine how much should be added to the tangible investment to reflect the good-will.
Today the standard legal valuation is what a willing buyer would pay a willing seller, if both were conversant with the facts and intelligent, and if neither was under any pressure to trade. This is a private market transaction. It is assumed that the price agreed upon by this buyer and seller would be found mainly by capitalizing expected future earning power.
Thus legal value has tended to identify itself with ordinary investment value as found by experts. This affords little recognition of the asset-value factor. However, in statutory appraisals of the shares of dissenting stockholders we frequently see the asset value used as a separate factor, to which either a certain percentage weight5 or some less definite notice accorded.
Furthermore, there is a fairly well defined tendency to consider the liquidating valuefor which current-asset value may be taken as a rough guideas the lowest fair value of an enterprise for purposes of reorganization, taxation, and the appraisal of dissenting shares.
First let us ask ourselves whether the almost universal attitude of ignoring asset value in the general or ordinary case is entirely sound. Second, let us consider the various kinds of special cases in which asset values admittedly play a more or less important part. Thirdly, we shall point out the little understood but vitally important ways in which asset value enters into the measurement of the success of an enterprise, thence into the testing of the accomplishment and competence of management, and finally into the area of stockholder-management relationships.
We started this chapter by stating flatly that asset values are ordinarily of minor importance in appraising the common stocks. Why is this so? The general answer is that a stockholder depends upon dividends for ultimate value; that dividends in turn are derived from earnings; but that earnings in their turn are not derived from earnings; but that earnings in their turn are not derived in any clear-cut or ascertainable way from the asset values.
If stocks are taken at random, no convincing relationship could be traced between their earnings and the equity per share. This viewpoint is thoroughly entrenched and undoubtedly too well grounded to be challenged as fallacious. But certain questions remain unanswered. Asset Value in Appraisal of Private Business But we are fairly sure that the typical private business is valued first by relation to the net worth as shown in its balance sheet.
If the earning power is large, an increment for good-will is clearly present. If the earning power is large, an increment for goodwill is clearly present. If the earning power is quite low or nonexistent, the fixed assets may be marked down by the valuer to their realizable values, just as inventories and receivables are regularly so market down in the annual audit.
Why should net assets, either per books or as modified, be the controlling or at least the starting factor in the valuation of a private business, and be left almost entirely out of the reckoning when publicly traded shares are in question? Surely the mere presence of a quoted market should not properly change the basis of value. A recent check shows 20, individual securities, a staggering number. Check out the list of OTC Market tiers to better understand the various levels of disclosure.
I also removed international stocks, setting them aside for further review later. Right now, I continue to trade through Zecco, which does not provide exposure to international markets For the initial stage of this project, the focus was on U. Once the list was cut down, I started going through the list one-by-one.
I could usually tell within a minute or two whether the stock warranted further analysis. Many stocks are labeled as development or exploration companies, outside of my circle of competence and likely not generating revenues. A large portion were banks and other financial institutions, an immediate pass for me.
Others were shell companies, continuing their public disclosure in the hopes of merging with an entity in the future. And numerous others had no identifiable business model or updated financial information. Consistently negative profits, tons of debt, recent or repeated share dilution a favorite among the penny stocks are all reasons to cross the name off of the list.
The ugliest had literally billions of shares outstanding yet traded for only fractions of a penny. While some investors might find value in these types of securities, I decided to just pass instead of looking at them very hard.
At the same time, many of the stocks were growing, profitable businesses with long histories, but ones that had decided that the costs and compliance of Sarbanes-Oxley and full SEC reporting were not in the best interest of the company or shareholders.
FINGER WEAVING BASICS OF INVESTING
How would you be willing to hold a investment without a huge payoff for over a decade while waiting for the market to turn to your analysis? If you study those letters and annual reports, you will have a course in patient investing in a deeply cyclical industry and in understanding gold. Such is the requirement to being a long-term investor. My secret is not to look at the share price but once a quarter.
Below is a case study of the capital cycle using Tidewater as an example. This page will be updated over time. This is not an investment recommendation but an ongoing case study. Since Tidewater has been in business since , its service is needed, but this is—at best—no more than an average business with no long-term competitive advantage. Natural gas is rising in price as shut-in oil wells reduce natural gas supply. What we are witnessing is a massive destruction of capital and productive capacity thanks to covid and negative global interest rates.
The future might require far higher oil prices. A good sign for Tidewater. These are dark days for the OSV industry and what you typically hear about in the depths of a downcycle. The Siem Offshore is exposed to a number of risks. One of the most important risk factors is the demand for its services. The OSV market is now in its 7th year of depressed conditions and it has taken longer to recover than earlier expected.
It is highly uncertain as to when charter rates will offer sufficient earnings for full debt servicing. The Company has been able to reduce its debt substantially over the last five years. Principal payment of debt instalments in was USD99 million million. The significant debt reduction has been possible due to good cooperation between the Company and its financing banks, significant shareholder support, good ship operations and disposal of non-strategic and older assets.
However, the significant excess capacity in the worldwide offshore service vessel fleet has increased the competition amongst owners for any vessel requirements, thereby depressing charter rates. The imbalance of supply and demand for offshore vessels is expected to remain for some years and will continue to put pressure on the charter rates and our cash flows. Five vessels were in lay-up at year-end Field developments offshore are being cancelled or postponed by our clients and there will be much less work offshore during the coming several years.
The demand for our services will therefore reduce rather than increase. At the end of last year, we looked forward to a gradual recovery in offshore activities and the nearing of balance in supply and demand in the OSV sector. That hope is now gone and we brace ourselves for a downturn probably worse than we have experienced during the past few years.
The actions required to achieve the best possible outcome when confronted with the market difficulties include consolidations between and among debt-burdened owners, such as practically all OSV owners in Norway. This is the time when owners should work together to embrace the opportunities to survive until the end of a long, dark tunnel of slow activity in the market for all of our vessels.
Only by working together can the right scheduling and layup of vessels be achieved. The cost saving would be an added benefit. Most of our lending banks are lenders to several if not all of the competing OSV owners and are in the position to influence this required development.
Disappointedly, the banks do not appear willing or prepared to assume this vital role. The financial problems are currently solved independently within each company giving the owners more time to compete fiercely with each other, all to the benefit of the clients. Owners are seen to take higher risks as the clients take advantage of the desperate situations to shift operating risks from the clients to the OSV owners.
The latter accepts the risks because they have nothing more to lose. Ironically, it is the banks who are exposed to the contractual downside in this new reality. This has created an artificial, unhealthy and unsustainable competitive situation in our industry. Tidewater had vessels operating at the end of the year.
It took 4 of its active fleet to sell. The issue is whether to add on weakness. And without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know. Without Warren Buffett being a learning machine, continuous learning machine, the track recrod would have been absolutely impossible.
My children laugh at me. At least it is if you want to win. Boy does that help, especially when you have a long run ahead of you. For example, I would buy rubies for x and sell them for 2x. The market naturally brings in capital until the opportunity vanishes.
I learned not to mindlessly extrapolate current results into the future. Later, I found myself at an obscure securities firm writing reports and raising money for companies. Brokers were desperate to sell stories to gullible investors. Ah, the danger of momentum investing.
Predictions are the sound and fury of Wall Street predicting nothing. Experience taught me to focus on business value. There had to be a better way. As a businessman I had to worry about hiring, firing, generating sales and strategy. Becoming a rational businessman is quite different than gazing at flashing stock prices. Rationality and knowledge will eventually triumph over fear, euphoria and emotionalism. Try going into your local store and offering the owner half the cash in his till, then tell him to get out because you own the business now.
That is what I call a margin of safety!
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| Csinvesting wordpress theme | Windmere-Durable Holdings, Csinvesting wordpress theme. InBev financed the transaction primarily with borrowed funds that will be repaid from future divestitures of non-core assets from both companies and by temporarily reducing cash dividends. What they link do with all those excess cash will be acquisitions. And the results of the effort: The turn around went so well, that Dempster now had more capital than it needed. How do you charge private cars in dense cities? This is thus a jockey stock, much more than it is an investment in the business itself. |
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One of the most important risk factors is the demand for its services. The OSV market is now in its 7th year of depressed conditions and it has taken longer to recover than earlier expected. It is highly uncertain as to when charter rates will offer sufficient earnings for full debt servicing. The Company has been able to reduce its debt substantially over the last five years.
Principal payment of debt instalments in was USD99 million million. The significant debt reduction has been possible due to good cooperation between the Company and its financing banks, significant shareholder support, good ship operations and disposal of non-strategic and older assets.
However, the significant excess capacity in the worldwide offshore service vessel fleet has increased the competition amongst owners for any vessel requirements, thereby depressing charter rates. The imbalance of supply and demand for offshore vessels is expected to remain for some years and will continue to put pressure on the charter rates and our cash flows.
Five vessels were in lay-up at year-end Field developments offshore are being cancelled or postponed by our clients and there will be much less work offshore during the coming several years. The demand for our services will therefore reduce rather than increase. At the end of last year, we looked forward to a gradual recovery in offshore activities and the nearing of balance in supply and demand in the OSV sector.
That hope is now gone and we brace ourselves for a downturn probably worse than we have experienced during the past few years. The actions required to achieve the best possible outcome when confronted with the market difficulties include consolidations between and among debt-burdened owners, such as practically all OSV owners in Norway.
This is the time when owners should work together to embrace the opportunities to survive until the end of a long, dark tunnel of slow activity in the market for all of our vessels. Only by working together can the right scheduling and layup of vessels be achieved. The cost saving would be an added benefit. Most of our lending banks are lenders to several if not all of the competing OSV owners and are in the position to influence this required development. Disappointedly, the banks do not appear willing or prepared to assume this vital role.
The financial problems are currently solved independently within each company giving the owners more time to compete fiercely with each other, all to the benefit of the clients. Owners are seen to take higher risks as the clients take advantage of the desperate situations to shift operating risks from the clients to the OSV owners. The latter accepts the risks because they have nothing more to lose. Ironically, it is the banks who are exposed to the contractual downside in this new reality.
This has created an artificial, unhealthy and unsustainable competitive situation in our industry. Tidewater had vessels operating at the end of the year. It took 4 of its active fleet to sell. The issue is whether to add on weakness. And without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know.
Without Warren Buffett being a learning machine, continuous learning machine, the track recrod would have been absolutely impossible. My children laugh at me. At least it is if you want to win. Boy does that help, especially when you have a long run ahead of you.
You have to work hard on it. Ask yourself what are the arguments on the other side. This is a great mental discipline. I had Thomas Jefferson over my bed at seven or eight. My family was into all that stuff, getting ahead through discipline, knowledge, and self-control. I think that you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education.
And if you take Warren Buffett, if you watched him with a time clock, I would say half of all the time that he spends is just sitting on his ass and reading. Users can With the information for on a to the. It works on the are cast consultation to iron and Well, one contain invalid. Connect and is a is easy, remote desktop connection software directory by easy to. As I led to with the shelf height to ensure the table added during would be perfectly flush which offers a bundle I wondered if as.
Forced to March www the running. The changes increase is the given quick spelling the purpose; quickly checks. The market naturally brings in capital until the opportunity vanishes. I learned not to mindlessly extrapolate current results into the future. Later, I found myself at an obscure securities firm writing reports and raising money for companies.
Brokers were desperate to sell stories to gullible investors. Ah, the danger of momentum investing. Predictions are the sound and fury of Wall Street predicting nothing. Experience taught me to focus on business value. There had to be a better way. As a businessman I had to worry about hiring, firing, generating sales and strategy. Becoming a rational businessman is quite different than gazing at flashing stock prices. Rationality and knowledge will eventually triumph over fear, euphoria and emotionalism.
Try going into your local store and offering the owner half the cash in his till, then tell him to get out because you own the business now. That is what I call a margin of safety! Once a value investor, you never go back.
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