Grantham - Against Graham and Dodder's

http://www.gmo.com/websitecontent/JGLetter_ALL_1Q10.pdf

Excellent interview with Mohnish Pabrai

As you know I am a huge fan of Mohnish. I have started using check list and ultimately I think this will really help me in the long run. http://www.forbes.com/2010/04/09/pabrai-leisure-china-intelligent-investing-technology_print.html. There is no shame in copying from the best

Old Article by Mike Burry - Excellent analysis

Here is an old article of Mike Burry. you can clearly see the excellent analysis he provides. I plan to learn a few things from him. After June, I will start providing a little detailed analysis on my picks.

Strategy lab article by Mike Burry

The periodic table of finance bloggers

  See the top bloggers under various categories. Even though the post is little old but still some good bloggers classifed under various categories.

This week news roundup - 10/03 - 10/10

1. Business world has an excellent article about the dish network in India. What is so interesting is these folks are spending crores of rupees. Some one is going to lose their shirt. Just imagine, what will happen to cable and dish network companies where their additional capex is supposed to break even after 5 -10 yrs. They also assume that they are going concern. Behind the numbers.

2. Can  you believe the telecom companies in India are consuming so much diesel.

3. Trying to be next Amazon in India. 

4. How a little know company made it to No.3 in mobile sets in India

5. Just imagine, how apple could if it would penetrate into India with lower cost phone. Nokia has 60% marketshare in India

Delia - Unfit Managment robbing shareholders

I recently bought the cheap stock Delias (Dlia). It is typically graham selling less than the liquidation value. It is never a good feeling when the stock drops 20% (10% from the time I bought). I have seen 50% drops before and made more than 3000% in tstocks like GGP.  This bothers me. This company historically never made money. Looks like I will be happy only two times like what warren buffett said, the time I bought the stock and the time I sold this stock.

The company had lofty goals of improving gross margins by 50 bps points. In 2006 - 39%, 2007 - 36%, 2008 - 35.7%, 2008 - 35%

Operating expenses - 2006 - 43.7%, 2007 - 45.2%, 2008 - 44.3%, 2009 - 42.4%


I also saw something funny in cash flow statement. It says Prepaid catalog costs of $6.8MM. Did they already spend this or postponing the expense?

 It looks like they spend around $25MM - $30MM on catalogs. I am not sure how much of these catalogs are driving the internet sales.

All the senior executives have atleast $3MM compensation and $1MM options. This is outragious when they are losing money and not making a single cent. Almost 5% of the market cap.

Is their retail stores a profitable business at all?

Technically if they expand more stores, the operating expenses as a percentage should decrease. But it is pretty flat in the last 4 years, how are they going to make a profit? They are still expanding. Very interesting.  Is this worth more than dead by selling and liquidating. Ofcourse they have off balance items for $113MM. Even though I recently bought this position, I don't know how they are going to make money. They need to find another buyer like Footlocker and sell this for $100MM as they sold CCS for $100MM. 

Here are few things Delias mgmt should do

- Cut Mgmt salaries by 50% until they make profit.  I am ok with giving more options as long as the strike price is more than $3.5.
- All senior managemnt should buy atleast $4.0MM of stock to have more skin in the game. With out proper incentives and skin in the game, it is tough for share holders to trust them.  As they put in more money, they should get more options at higher strike price.
- Reduce operating expenses and bring it close to 33%-35% from 43% typical to other retailers. you are not a start up company. you already have close to 100 retail stores.
- Reduce catalog expenses. I cannot comment a whole lot on this as I cannot see how much of the direct sales are driven by catalogs. But the expenses are pretty high though - almost  $30MM
-  Do not renew any of the leases ($15MM), unless they are performing stores. Better to close rather than having unprofitable stores. Renegotiate all the leases even though they are not expiring. In this market all the retailers are renegotiating their expenses
- Improve gross margins by atleast 2%. If you think, you cannot raise the prices then you should ask all the supplier to cut the rates by 3%-5%
- Reduce overhead expenses, travelling expenses and any other fancy expenses
- It is better to have lower revenue and profitable rather than higher revenue and unprofitable
- If you cannot do any of these, find another foot locker and sell this for atleast $150MM - $200MM. 1 times the sales.
- Since the brand is valuable, why not find other deals where they can lease their brand name

I had high hopes from both Royce and Tilson. Both of them own close to 25% of the company and so far they have disappointed me. We need Dan Loeb, third point management who has guts to call a spade a "spade".

Since I am trying to be more patient with my stocks after learning from Chris Browne and  Walter Schloss. I will give this atleast a year for this to  turn around unless I find other values.