Fructivore Investments

As you may recall, I commented on the dangers of being a yield hog, which is a constant temptation for those of us who seek investments that produce high and sustainable cash flows. Sustainable but not high is not good enough, and high but not sustainable is even worse, because when the cash flow runs out all the other yield hogs will dump the security in question, depressing its price even below fair value. Not surprisingly, just running a stock screener to rank all stocks by yield is inadequate, but it nonetheless can produce candidates that are worthy of further investigation.

Calumet Specialty Products (CLMT) is an investment partnership that produces various petroleum products. It currently pays a dividend of 12.3%, and has a P/E ratio of 10.68, so it is almost covered. However, their earnings seem to have been fairly variable over the years and sales have been dropping from their heights, so this is probably not a good source of sustainable cash flow, although their dividends have been covered by operating cash flow, if not net earnings, for three of the last four quarters.

However, you wouldn’t deduce any of the dividend coverage issues from the partnership agreement. Unlike investing in stocks, where the status of the shareholder is tolerably well known, in partnerships the terms of the partnership agreement must be considered individually before investing. Like LINE’s agreement, they are required to distribute all available cash. However, Calumet’s agreement further requires the distribution of 45 cents per partnership unit every quarter, subject to their credit limit. Furthermore, as the available cash exceeds 45 cents, the general partner takes a larger and larger share of the distribution, from 2% for 49 and a half cents up to 50% of the marginal cash when the distribution exceeds 67 and a half cents. So, where corporate managers are often accused of keeping dividends too low in order to expand the size of their empire, the general partner here could potentially be accused of deliberately starving the company by increasing its own incentive distributions. Of course, there are rules as to what is “available cash,” but there has to be some discretion available.

At any rate, a policy that requires the payment of dividends even when the cash is not earned and has to be borrowed is generally a recipe for disaster. In the 80s companies borrowed money and distributed it to shareholders in an attempt to frighten off the takeover artists, which was a questionable strategic move, but Calumet’s policy isn’t even strategic. It puts them dependent on raising additional capital, either from their lenders or from the public (they did make new offerings of equity in 2007 and 2006). And, since they are under an obligation to pay the 45 cents to the new equity as well, the possibility of a Madoff-like ending (although fraud would not be involved) cannot be ignored. As Benjamin Graham stated in response to a Supreme Court ruling denying relief to holders of preferred stock with noncumulative dividends, it is only what the parties agreed to, and a court cannot just rewrite a contract.

So, if you are looking for a high and sustainable dividend, I suggest looking elsewhere for the moment. Given the number of potential investments out there, compromising our standards of safety for a specific one is unwise.

I suppose the ideal solution for me would be to align this blog with a subscription newsletter. Telling you what to buy would be free, but telling you when to sell would cost you. Since that strikes me as a little mercenary, I’m telling you all that I’m out of CMO.

If you’ll recall, I recommended CMO because the low interest rates have produced a huge financing spread for their mortgage portfolio, and I did warn that if interest rates went up, CMO’s dividend would lag. Although interest rates presently show hardly any signs of going up, what has gone up is CMO’s price; it hit 14.60 today. The company’s book value per share is in the neighborhood of $11.50, and the face value of their debt per share is about $3.50 lower. Although the mortgages are probably entitled to a premium over face value while trading because of the government explicitly guaranteeing them,  interest is paid on the face value, and principal repayments are also made at face value.

Now, interest rates are going to rise eventually, and when that happens CMO’s fat dividend will diminish, or depending on the speed of the rate change, may even disappear, at which point the yield-hungry investors will look elsewhere, collapsing the price back down to book value or even face value. At any rate, the dividends that CMO is likely to generate until then are probably equal to or exceeded by the current premium over book value, so there is no real purpose in holding on any longer to collect a dividend that is already priced in.

Benjamin Graham wrote in Security Analysis that a great deal of financial analysis involves recasting financial reports to get a full sense of a firm’s baseline ability to produce earnings. A lot of the process involves removing nonrecurring or irrelevant events from a single year’s results, as we did with LINE’s profits on its derivatives. Over a longer period of analysis, like five or ten years, we leave the nonrecurring events in or perhaps even distribute them on average over the period. Nonrecurring events still tell us how unlucky or unskilled management is over time, and even though for a single year’s earnings we may forgive a large nonrecurring writeoff all at once, a writeoff is still money gone, and there is a limit to forgiveness.

Much of this fiddling with nonrecurrent events is the fault of accounting rules anyway. When it comes to goodwill, writeoffs take on an unusual character. Goodwill represents the purchase price paid to acquire a company that is in excess of the assets of that company. It represents the excess returns available from buying an established company instead of just replicating it, or, if you believe Damodaran, some of it comes from the “growth assets” of a company – the assets it will one day acquire to produce its growth and future excess returns. A lot of analysts advocate ignoring goodwill entirely, when it first shows up as an asset and when it is inevitably written down when conditions deteriorate. After all, if there are excess returns in a business they will show up in the income statement anyway, so counting both the excess returns and the goodwill looks like double counting. Goodwill nowadays, instead of being linearly written down over time, is now written down whenever, in the opinion of accountants, the excess returns it generated are no longer there. Since this essentially trades one accounting fiction for another, I can’t say that it’s solved the problem of dealing with intangibles, but it does make the data more frequently subject to large, discrete abnormalities.

ConocoPhillips (COP) is an integrated oil producer and refiner that wrote down $25 billion of goodwill last year, plus more than $7 billion for their interest in a joint venture, on the grounds that with the price of oil and the economy down, returns on their business and its recent acquisitions are going to suffer. With our policy of ignoring goodwill, we might say that without the writedowns they earned $15 billion last year, and earned $12 billion the year before that and $15 ½ the year before that. And since the market cap is less than $70 billion, even looking at the worst case their PE ratio was less than 6.

However, as I’ve stated, goodwill writeoffs have to go somewhere, or to be precise they have to come somewhere since the company paid for that goodwill. This year, earnings have been running far behind what the previous years’ performance suggests they would have been, only $2 billion in the first two quarters when last year they were $9 ½. I should point out that unlike Linn Energy in the last post, COP does not hedge its commodity exposure , which is understandable because COP’s production is orders of magnitude larger and the integrated nature of its  business theoretically leaves them less exposed to price changes, as with Rayonier.

We can reconcile the irrelevance of goodwill with the fact that the company has run into a wall by considering return on equity, since equity is where goodwill writeoffs come from. If we double this year’s earnings, and divide it by the book value of equity at the end of last year, we get 7.8%, which looks pretty reasonable, although since COP trades at a moderate premium to book value that is not the return on a purchase at this price. If we put the writeoffs back in and look at last year’s return on equity, though, we get 16.9%. The year before, 13.6%, and the year before that, 19.1%. So, although the goodwill writeoff made more sense than leaving the goodwill in, it hasn’t accomplished what the rules intended it to, which was reconciling earnings power with asset values.

I’m not sure how much of this is temporary and can be blamed on the recession, but it seems simplistic to me that goodwill can always be ignored. Since it represents extra money paid for an acquisition, and since its being written off represents overpayment, I think the more conservative solution is only to look at it in a negative fashion; not counting it as an asset but definitely counting it as a writeoff, at least for a multi-year analysis. And if COP is representative, jumping in after a big writeoff is dangerous. And identifying where the low-hanging fruit isn’t is just as important as identifying where it is.

A stock screener is a useful toy for an investor. In most markets bargains cannot be found by checking stocks at random, and a good screen is a good way to narrow the field. However, a screen is only a first step; a poster at a forum I visit (the same one who referred me to Linn Energy, actually) complained that the first thing new investors do once they finish a copy of Graham’s The Intelligent Investor is run a screen for stocks with a PE ratio under 10, pick out a few names they recognize, and that is their portfolio. There is a certain logic in this plan, since the annual return from the market indexes is said to have been between 9 and 11% depending on who you ask, and without projecting growth a PE ratio of 10 at least gets you what you pay for. And a PE ratio significantly less than 10 looks very appetizing.

However, the trouble with screeners is that they can produce some perfectly ridiculous results. For example, Linn Energy LLP (LINE) has a PE ratio of 1.39 right now. Obviously, this means that you can buy it and get your money back within a year and a half, and still own the stock, right? Well, although the value investor acts under the theory that the market occasionally gets things wrong, rare is the occasion indeed when it gets things crazy (although it does happen). It’s much more likely that the “real” P/E ratio is different. And yet, with a yield of over 11%, LINE is worth a second look. Just because the data make no sense doesn’t mean that the market can’t still be wrong.

LINE is an oil and gas producer, and the bizarre PE ratio comes from the fact that, like many producers, they use derivatives to hedge their exposure to the price of oil and natural gas. However, accounting rules require them to record the changes in value of their derivatives during each earnings period, but they are not permitted to record the counterbalancing change in the oil and gas they hold. Since LINE holds three to five years’ worth of production of these derivatives, any hiccup in the price of oil or natural gas will affect those derivatives by several times what their current results will be affected by. So, ironically, the derivatives that are supposed to make their operations more stable make their reported earnings quite unstable.

In 2008, if you remove the unrealized portion of the derivative gains from their results, their income from operations drops from $825 million to $141 million (much of this income appeared in the most recent two quarters, hence the bizarre PE ratio).  This is an issue considering they paid out $287 million in distributions in that year. YTD 2009, removing the unrealized losses moves their results from a $147 million loss to a $138 million income from continuing operations, and they distributed $145 million to date. The terms of the partnership require them to distribute all excess cash, hence the high payout ratio. At least for the last six months depreciation has equalled cash spent on investing activities, and before then they were still in the capital-raising phase, which clouds the picture.

I don’t know that I see much capacity for near-term growth; virtually all of their projected production is hedged at prices well above current prices; about $7.50-8.50 for natural gas when the current price is less than $5. For oil, half of it is locked in at $90/barrel, or higher. Because of the collars and locked in prices, they don’t benefit if prices go up, just as they’ve avoided suffering as prices have come down. And if they develop a new field, they’d have to lock in the current prices, not the historical ones they had when prices were higher.

What concerns me, though, is stability of operations. WIN, our other high yield candidate, has a long history of producing enough cash flow to cover their distributions, while LINE doesn’t have a long history at all. Even adjusting for derivatives, I’m not sure that its earnings will be stable at this level; utilities have a reputation for stable operations and LINE claims to develop long-lived fields, but that doesn’t tell us how they will do once they have to reset their hedges. If they do keep their earnings stable, for 2008 earnings as adjusted by me they’d have a PE ratio of 18.23, and for doubling 2009 YTD earnings, 9.31, which is not bad. It’s an earnings yield of 10.74% which would almost cover their dividend, and if their depreciation and amortization are not commensurate with future capital costs the dividend may well be covered. Normally one would want to see higher dividend coverage so the company doesn’t have to sell debt or equity to keep up the dividend, and indeed LINE has been raising additional capital by selling new partnership units, which would be unnecessary if they would drop the policy of distributing all available cash. So, if you think they’re going to be stable at this level, they probably would be worth considering for investment. But their PE ratio is certainly not 1.39.

John Maynard Keynes described speculation as essentially trying to guess what other people are going to guess, and doing it better than they guess how you’re going to guess. I think this also describes macro-level investing, i.e. allocating capital based on economic data. As I stated in my last article, focusing on a decent cash flow avoids many of the problems that come from market correlation, leaving you with only the strength of your own analysis to worry about. However, the New York Times has given us a macro indicator that even the most cynical and suspicious of us can get behind. And it’s not even in their business section.

It is, in fact, the New York Times Bestseller List. In a classic investment comedy book, Rothchild’s A Fool and His Money, the author found a newsletter that went through the bestseller lists, and found that the optimum strategy was to peruse the lists for finance and investment books and then do the exact opposite of what the books recommend:

“In the early 1920s Edgar Lawrence Smith wrote…Common Stocks as a Long Term Investment. This book was ignored during the entire period when it would have been a good idea to buy stocks. Suddenly it became a best-seller in 1929…During the entire period from 1932 to 1967…not a single investment book became a best-seller…until Adam Smith’s Money Game was published in 1968, after which the stock market promptly topped out and collapsed. In 1974 Harry Browne’s You Can Profit from a Monetary Crisis…turned half the reading public into gold hoarders, and was followed by a severe decline in the price of gold. Gold didn’t rise again until there were no gold books on the best-seller list…Then it hit $800 an ounce. In the early 1980s, several national bestsellers (most notably Howard Ruff’s How to Prosper During the Coming Bad Years) predicted high inflation forever…a sure sign that inflation had abated. Later in the decade, Jerome Smith’s wildly popular book The Coming Currency Collapse, a terrifying rationale for the total collapse of the US dollar, sold out several editions just as the dollar began its remarkable three-year bull market. Megatrends, a summer favorite in 1983, predicted the triumph of high technology and pronounced the smokestack industries dead. Along…came a genuine depression in the microchip and computer industries and a huge drop in the value of technology stocks, while smokestack industries revived.”

The book was published in 1988, but a sequel would bear up this conclusion. During the dot-com era, Dow 36,000 was published in 1999. The next year the Dow hit 11,750 and then fell to 7286, hit an all-time high of 14164 in 2007, and it looks right now like 36000 is decades of inflation away. And, who could not have predicted the death of the real estate market from the popularity of the Rich Dad series? In 2007 one of Amazon.com’s bestselling books was Bogle’s Little Book of Common Sense Investing, which advised focusing solely on index funds, right before the indexes collapsed, prompting a swarm of articles  about a negative return over ten years (although counting from a bubble to a collapse is kind of cheating).

Right now the New York Times list is devoid of financial books, which is tentatively a good sign for the financial public. Although Rothchild and his newsletter deemed it significant that books on a given subject were not on the list, I think the presence of a book is more important than its absence. #19 this week, however, is Fareed Zakaria’s The Post-American World, about the rise of China and India and the global middle class. It is more optimistic than the title would suggest (and why not? It was first published in April 2008 when the world was better stocked with optimism).

As an aside, China has pegged its currency to the United States dollar for a number of years, in order to perpetuate the trade deficit and build up a substantial pile of Treasury holdings. We ran the price of oil up to $140 a barrel just to shake them off, and now they have the flaming nerve to complain about inflation and suggest that the world needs a new reserve currency. Interestingly, that article also talks about China seeking to switch from export dependency to internal consumption. The trouble is that China’s rapid growth built half of an economy, with the United States and its other importers providing the other half. Since demand creates supply, but supply does not create demand, it’s fairly clear who got the right half. So, for everyone worried about the decline of America’s economic influence, rest assured that when we go down we can still take the rest of the world with us. And, if the New York Times indicator works true to form, the global middle class is doomed anyway.

If you have been reading the financial news since about last May, journalists have been disturbingly preoccupied with the level of the indexes, and have been calling for, say, the S & P to correct from 900, as it sailed merrily past 1000 just to spite them. One imagines that they’ve been going for the stopped clock being right twice a day approach, and after yesterday, (Sept. 1), it seems very much as if they got their wish, at least for the moment.

Should a value investor care about the level of the broader market? Benjamin Graham himself counseled us that when the market is overvalued, even safe investments can be caught in the retreating tide. Warren Buffet, for his part, told his investment partnership in 1969 that nothing he knew how to do would make money in the present environment, so he was liquidating the partnership.

Obviously, when the market is in a depressed mood bargains are more likely to be available, but the central tenet of value investing is that a security’s price and value behave like a comet orbiting a star; they’re locked together as if by gravity but only on rare occasions are they close. However, it is the nature of all financial assets that they turn into cash sooner or later; for bonds, it’s not only sooner but according to schedule, for stocks, often but not always later because they are constantly selling, buying, and shuffling around assets.

If an asset produces cash, now or later, it is worth the cash it produces, and if it does not produce the expected amount of cash it gets written down when that becomes apparent. No matter what happens, cash is always worth cash (although Damodaran, in Damodaran on Valuation, cited some studies to show that this is usually but not always the case). That said, our desire for high current and potential cash flow will insulate us from temporary disruptions in the market, and if our time horizon is shorter than the duration of these disruption, we should be invested in something other than securities.

This cash flow is why CMO, one of my earlier recommendations, has a floor built in to it. With the government explicitly guaranteeing all of its holdings, there is a frozen limit below which its price cannot go (which happens to be about $2 a share below its current price), and that is the present value of the cash it can produce, either from the mortgagors or from the government. If the price does drop below that limit, we can buy it literally without a second thought. Or even a first one.

So, is this yesterday’s action the start of a new leg down for the market, a correction, an event that enough people think is a correction that it will become a self-fulfilling prophecy, or just a coincidence? I don’t know, and whatever the answer is I’m not worried.

I was on vacation last week, but I’m back and I brought Compass Minerals (CMP) with me.

Compass Minerals operates a number of salt mines, and sells rock salt for road de-icing and more refined salt for industrial purposes and consumption by humans and animals. They also produce potash fertilizers. Compass claims to be one of the lowest cost salt providers in the nation, and in the last three years has produced excellent earnings growth, although last year’s high earnings may have something to do with the high price of salt last year.

Their PE ratio is 9 ½, which to me implies that the recent growth they have experienced is not built into the share price. However, it does assume that the recent growth is here to stay. This is a bold assumption since rock salt purchases will be constrained by lowered municipal budgets and fertilizer purchases by diminished demand, but when the economy returns to normalcy as it most likely will eventually, Compass will remain a low-cost provider in an excellent competitive position. They also claim to be diversifying into consumer and industrial salt. Between 2006 when they shipped 8000 tons of salt, and 2008 when they shipped 12000 tons, their cost of production increased from $180 million to $318 million, making a ratio of 1.5:1 for volume and 1.77:1 for costs. This suggests that most of their costs are incremental, which seems to me to be a good thing for a mining company.

They have also been deleveraging their balance sheet, which is most likely a good idea in this environment. On paper, they have $836 million in assets and $692 million in debt, and in prior years their debt has exceeded their asset value. However, this $836 million in assets produced $274 million in operating income and $144 million in 2007 (compare Rayonier, which produced $223 million in operating income based on $2 billion in assets), so there is an argument that Compass’ book value understates the productive capacity of its holdings (or perhaps Rayonier’s is overstated). Certainly the market thinks so; Compass’ market cap is $1.7 billion against $144 million in book equity.

Compass’ capital expenditures have recently exceeded depreciation charges, but they are well covered by operating cash flow. However, apart from last year’s excellent results, operating cash flows  less capital expenditures have covered dividends less than twice, even with Compass’ modest dividend, currently yielding 2.7%. But, if they can keep their current position in the market (on their last 10-K they estimated that the areas they service consume 21 million tons of salt in a year, of which they sold 12 million tons last year), their pricing advantage should carry them through.

At any rate, Compass is a well-positioned company at a reasonable price, and salt is cheap and useful enough not to have many replacements, so Compass Minerals is definitely worth considering.

My loyal reader(s) who have been following this blog may recall that I called Coinstar a candidate for shorting . At the time it was at 25.91, and it is now at 36.15. So, that’s probably not my best work, although I maintain that the company’s return on its investments is too low to justify its prices. Anyone can spend 97 cents to earn a dollar; if they can do it with 87 cents I’m satisfied and if they can do it with 77 I’m intrigued.

Part of the runup was from the announcement that they reached an agreement to spend 80 million a year on Sony DVDs, and had a promising-looking earning announcement. A similar deal from Lions Gate films announced yesterday, though, failed to excite investors.

However, when Coinstar can’t reach an agreement they are perfectly willing to sue. They announced this morning that they were suing 20^th Century Fox for not allowing their distributors to sell new releases to them for 30 days after they come out. This suit parallels an existing one against Universal Studios that was filed five months ago. The grounds for the suit is violation of antitrust law, which, although a lawyer, I’m not an expert in. Much of the law about trusts and monopolistic behavior is fairly nebulous and open to clever argument, but at least in the intellectual property field there seems to be enough articulated law to guide the investor.

Antitrust laws in the US forbid generally any attempt to monopolize, and this includes attempting to maintain a monopoly by any means other than competition on the merits, including a refusal to deal with competitors.  Assuming that some clever economist expert witness can conclude that this denial will harm competition, 20^th Century Fox can still easily claim that they have the legitimate business reason of protecting the perceived value of their own products in the marketplace.  There is broad support for the view that antitrust law permits holders of intellectual property to unilaterally refuse to license it. After all, the Constitution provides for temporary monopolies for patents and copyrights, and although this does not provide a blanket immunity for antitrust actions (just ask Microsoft), most legal commentators allow them to retain that monopoly as long as they do not try to leverage it into a non-monopolistic area, although the 9^th Circuit has ruled that even this is permissible unless the owner is “not actually motivated by protecting its IP rights.” Since they have a legitimate business reason, which they seem to, they should be in a fine position for this suit. There is caselaw to suggest that there is a heightened standard for situations where a monopolist refuses to sell a product to one competitor that it makes available to others, or has done business with a competitor and then stops, but this seems to be more of an indicator of monopolistic action than anything imposing a higher legal standard, and a legitimate business reason will still defeat it. There is also case law to the effect that there is no difference between selectively granting a license and refusing to grant it all, so no worries to Fox and Universal on that front.

So, it would appear that Coinstar is facing an uphill battle in this area, and will probably have to deal with Universal and 20^th Century Fox on their terms. And, now that those companies and the rest of the market know that Coinstar will go whining to the courts whenever it doesn’t get its way, one can imagine those terms will end up more restrictive than bargaining from a clean slate.

My good friend Mike (here and here) recently left a comment about copper mines, which got me thinking about copper pennies. In 1982, the US Mint stopped making pennies out of 95% copper, and started making them out of copper-plated zinc. Even now that the price of copper dropped back down, copper pennies presently contain 1.8 cents worth of copper apiece. And some people are in fact sorting copper pennies out of the new zinc ones. Better than stealing copper from foreclosed homes, I suppose.

Copper penny enthusiasts pride themselves on what they see as high returns on investment. I suppose, at a .8 cent premium and perhaps 20% of 95% copper pennies left in the typical mix, they see themselves as making 16% on each lot of pennies they get—if they place absolutely no value on their time. And making 16% on a handful of pennies is not like making 16% off a wise stock purchase. Now that melting pennies is illegal, it is even less easy to turn a dollar’s worth of pennies into $1.80 cents in copper, not to mention the expense of the melting. If they cannot ultimately realize the value of the copper they have made -20% by taking perfectly good pennies and hiding them away somewhere.

But, where there’s a will there’s a way. There is a device called the Ryedale that can sort the two types of pennies out of each other, allowing people to get pennies in bulk from banks, run them through the machine, and fill their basements with copper coins at a vastly increased rate. It also puts banks to the trouble and expense of shipping a lot of very cheap coins around; after all, $100 in pennies weighs 64 pounds. Naturally, many of the penny people, unlike me, think a great deal about hyperinflation, but they almost seem to be looking forward to it. After all, in Zimbabwe during its hyperinflation they allowed old coins to trade at the new value when they revalued (i.e. chopped ten zeroes off of)  their currency, which was a nice bonus. And, well, without hyperinflation turning all your money into copper pennies would seem like kind of an odd thing to do.

Well, everyone needs a hobby, but there are easier ways to get something for nothing. Retail Ventures Inc. (RVI), market cap of $163 million, owns 62.9% by value (and 93.1% by vote) of DSW, market cap of $565 million, and this relationship has curiously persisted for some time. This implies that the remaining assets of RVI are worth negative 192 million dollars, which is not really possible. Instead of arbitraging pennies, we could arbitrage these two companies by buying RVI and shorting 59% as many shares of DSW (one of RVI’s 50 million shares is one 75 millionth of DSW, and 44 million shares of DSW divided by 75 million is .59). By virtue of their relationship, the two companies are unlikely to permanently shoot off in opposite directions, and so the fructivore who makes this trade should profit when this value discrepancy is resolved. There is, of course, a risk that a corporate relationship is severed before then (unlike merger arbitrage, here the risk comes from the restructuring happening instead of not happening). You may also find it difficult to borrow the shares; DSW has a 28% short interest and because a lot of them are doing this arbitrage, it would take dynamite to dislodge them.

So, for the diligent fructivore investor, there are easier ways to wealth than by one copper penny at a time. But in all fairness I must admit that I found two silver dimes in my change within the last year, and I still look. But I look harder for valuable opportunities in the securities market.

It now appears that the Department of Energy has agreed to defer a ruling on USEC’s loan guarantee application until “specific technological and financial goals have been met. The general consensus before the announcement of the pending denial a week ago was that the legislation for the loan guarantee program was tailor-made to allow USEC to pass it, and apart from the upstart French company Areva, no one else even bothered to apply. It seems very much as if the Department is waiting to make sure USEC qualifies for the guarantee before they rule on it, which is a good sign.

However, I am not sure what this implies for the timetable. During the initial denial, the Department had a schedule of 12-18 months before USEC could reapply (possibly also signaling that Areva is not going to get it, I hope). But it does save USEC the trouble of withdrawing its application, which allows the CEO, who publicly refused to pull it, to save himself some embarrassment.

The stock is up after hours, but I sold half of my position after the dead cat bounce over the last couple days. I’m a little better than even overall, which is surprising considering how dramatically the “story” of USEC changed last week. This either shows the wisdom of buying a stock for less than its working capital minus all its debts, or shows that I’m pretty lucky. However, value investors seem to get lucky often enough that something other than luck must be involved.