#$fcau

[danielphowley]

Stocks plummet as North Korea fires short-range missile

Dow futures are off triple digits after North Korea launched a missile over Japan. Yahoo Finance’s Justine Underhill, Seana Smith & Dan Roberts will discuss these and the other big stories we’re covering today.

Today’s topics:

Markets on edge following North Korea missile launch

Tropical storm Harvey paralyzes Houston

Finish Line shares crash on lowered guidance

Amazon announces new fulfillment center, creates 1K jobs

Best Buy shares up on earnings beat

FDA rejects Acorda Therapeutics’ application for Parkinson’s treatment

Tim Cook gets $89.2M from Apple

Apple announces the date it will unveil the new iPhone

Ford and Domino’s test self-driving pizza deliveries

Tell us what you think: Twitter Poll: Are you planning on getting the new iPhone? Yes, No, I’m not an Apple fan

[estimize]

Estimize Roundtable: Who are the winners and losers in the rapidly changing auto industry?

This week on the Estimize Roundtable, Estimize's CEO, Leigh Drogen and SVP of Media, Christine Short, are joined by Jeff Macke, head of Macke Asset Management, and Nicholas Colas, former Chief Market Strategist at Convergex soon launching a new independent research firm. The group discusses everything automobiles, including auto names such as Fiat Chrysler, GM, Ford, Ferrari, Tesla, auto parts retailers such as Advanced Auto Parts, Autozone, O’Reilly, as well as ride sharing services such as Uber, and the future for electric and autonomous driving vehicles.  

[danielphowley]

Car thieves are hacking and stealing Jeeps

Remember those halcyon days when car thieves had to actually work to steal your car by cutting a few wires or jamming a screwdriver into the ignition? Well kiss them goodbye, because the dude boosting your new baby is going high tech.

According to Engadget, which picked up the news from ABC13 in Houston, a pair of alleged car thieves was using nothing more than a laptop and a special type of software to steal Jeep and Dodge vehicles over the past several months.

A video of one of the incidents provided by ABC13 shows one of the alleged crooks breaking into a vehicle, plugging in a laptop with software that can start the car and then taking off without incident.

The duo is accused of stealing about 30 vehicles in the same way and driving them across the border to Mexico.

This isn’t the first time Jeep and Dodge’s parent company, Fiat Chrysler Automobiles, has run into trouble with hackers. Last year, Wired reported that hackers had proven they could disable a Jeep’s transmission on the highway through the car’s on-board internet connection.

This year, those same hackers revealed to Wired that they could further compromise a vehicle by controlling its steering and accelerator. Fortunately, the hackers had to plug into the car to take it over, but still, it’s a troubling and worrisome problem.

Obviously, the thieves in the Houston case weren’t interested in taking over another driver’s vehicle just to crash it. But the fact remains, if our vehicles are going to continue to transform into giant rolling smartphones, automakers are going to have to work harder to ensure they’re as secure as possible.

Via: Engadget, ABC13, Wired

Hackers have developed autonomous programs that’ll hunt down and fix your vulnerablities

What to do if hackers hold your computer hostage and demand cash

Most of us will risk getting malware for a killer beach bod: Survey

The 7 biggest computer hacks

Email Dan Howley at [email protected]; follow him on Twitter at @DanielHowley.

[seana-smith-blog]

Tesla to offer cheaper Model X; Sequoia Fund sells Valeant position; Pandora upgrade

Yahoo Finance is tracking the stocks you’re following, based on your Yahoo Finance ticker searches.

Tesla (TSLA) – The electric carmaker has added a cheaper version of its Model X crossover. The new Tesla Model X 60D will start at $74,000, which is $9,000 cheaper than the other model.

Valeant (VRX) – Sequoia Fund, once the largest shareholder in Valeant, has exited that position. In a letter the shareholders, the fund noted that it was no longer holding a position in the drug maker as of mid-June.

Pandora (P) – Piper Jaffray upgraded the music-streaming service to overweight and raised its price target to $18. Piper Jaffray noted that the upcoming release of its new on-demand product could attract more than 9 million subscribers.

McDonald’s (MCD) – The Financial Times is reporting that McDonald’s is struggling to attract bidders for the sales of its China and Hong Kong franchises.

Fiat Chrysler (FCAU) – The automaker is giving up to $1,500 in rewards to hackers that can detect bugs in its vehicle software. The offer comes about a year after cyber security researchers used a wireless connection to take control of a Jeep Cherokee’s engine.

American Airlines (AA) – The airline reported its revenue passenger miles rose 2.2% in June while its capacity climbed 2.8%. The company also announced it expects Q2 passenger revenue per available seat mile to drop about 6% to 7%.

[valuewalkposts]

The Checklist Investor Crushing the Market by 1100%

By Jae Jun

What You’ll Learn

Mohnish Pabrai’s uniquely not so unique investment framework

How Pabrai crushes the market with checklists

Pabrai’s investment advice

Recommended books on Checklists

With an outperformance of 1100% compared to the market since inception in 2000, Mohnish Pabrai is a classic value investor and household name.

I heard about Mohnish around the time he and Guy Spier famously won a lunch with Warren Buffett for $650,100 in 2008.

One of the reasons why we like Mohnish Pabrai at Old School Value is that he is the perfect model of what ordinary people can do when they find something that they love and have the plan, perseverance and discipline to do it.

If you don’t know what I mean, here’s a quick background on how Pabrai became an investor.

Mohnish Pabrai: The Relatable Super Investor

Mohnish Pabrai is an Indian born investor, came to the United States to attend Clemson University in North Carolina in 1983.

He didn’t major in finance.

Pabrai was an engineery by trade and running a successful IT business and never heard of Buffett until he was 30. In fact, the first investor Pabrai discovered was Peter Lynch, not Buffett.

Anyway, here's the part of the story that resonates with me and a lot of other DIY investors.

I found very strange was how you can have an entire industry which does not function with a solid framework. To me, it is like people doing brain surgery by just ‘winging it'.

That is how I saw mutual funds work – they were just winging it, or they come up with any nuance or ‘flavor of the day' they want to pursue.

I had a thought that if novices like me simply adopted Buffett's approach and invested in the equity markets with a concentrated portfolio, etc. that I was likely to do better than most of the industry professionals.

So I said it was worth testing this hypothesis out. I was lucky at the time in 1994; I had about $1 million in cash. I had just sold some assets of my business and I decided to go ahead and manage that in a Buffett-style concentrated portfolio, buying things I understood, etc. That is how I got into value investing.

He was an immigrant, didn't have any formal investing training and realized how nonsensical the investment industry was.

Starting with his own money to launching a fund, it's a good thing Pabrai “got” into value investing.

Pabrai's long-only equity fund has returned a cumulative 517% net to investors vs. 43% for the S&P 500 Index since inception in 2000. An out-performance of 1,103%. - H/T Valuewalk.

Did he have a unique process to achieve such returns?

No.

If you go through the material available on Pabrai, you'll realize what a diehard Buffett and Munger fan he is. From an old interview in 2008, he said that he read Poor Charlie's Almanack 7 times.

And if you listen to any of his interviews, it's full of Buffett and Graham lessons.

Monish Pabrai's Investing Philosophy

In a nutshell, Pabrai's investment framework is:

focus on long-term investing and the power of compounding based on Warren Buffett's “moat-based,” Graham's “Special Situations” and Munger's “Latticework of Mental Models” approaches to investing.

Pabrai lays out his framework in his book The Dhando Investor (highly recommended in my must read book list) where he discusses the Dhando framework.

Focus on buying an existing business

Buy simple businesses in industries with an ultra-slow rate of change

Buy distressed businesses in distressed industries

Buy businesses with a moat

Bet heavily when the odds are overwhelmingly in your favor

Buy businesses at big discounts to their underlying intrinsic value

Look for low-risk, high-uncertainty business

Nothing new.

Just super common sense along with application of Buffett's timeless principles.

The difference is that he stuck with it while his peers were rushing to find the next shiny object, the next big thing.

One of the takeaways he got from his lunch with Buffett was this very idea when Buffett asked him:

‘Would you prefer to be the greatest lover in the world and be known as the worst, or would you prefer to be the worst lover and be known as the greatest?' And [Warren Buffett] said, ‘If you know how to answer that correctly, then you have the right internal yardstick.'

Mohnish Pabrai: The Checklist Investor

Pabrai probably talks about checklists the most (along with Guy Spier).

He is known to have page an intense set of checklists accumulated throughout his investment career. He stated that he doesn't talk about too many specific parts of his checklist because it is his competitive advantage.

Makes sense.

However, he provides plenty of high level information on how you should build a checklist and the types of things he looks at.

Here's a one of his checklist presentations you should check out and a quick summary of how Pabrai and Munger use checklists from The Checklist Manifesto .

It just comes down to putting in the time to create your own checklist.

Instead of constantly being on the lookout for new stocks to buy, take a step back and go over your past mistakes.

Pabrai simply started making his checklist by studying the mistakes of Warren Buffett and as of 2013, he had 97 or 98 broad questions on his checklist that takes about 15-20 minutes to run through.

He also saw that most of the mistakes made by the guru investors fell into five groups.

valuation

leverage

management and ownership

moats

personal biases

A good starting point, if you don't use a checklist, will be to focus on these five parts.

So for example, Berkshire Hathaway lost money on Dexter Shoes, when they bought Dexter Shoes. A question that comes up on the checklist is, is this business a business that can be affected negatively by foreign competition? Can it be affected negatively by low-cost labor in other countries? Those came out of, for example, the Dexter Shoes example. - source

Since I put the checklist in place, in 2008 till today, we have made I think more than 30 different investments in the last five years or so. We only have so far, we invested about $200 million. We've already exited a bunch of positions and we've exited with about $500 million on those positions, and we only lost money on two investments. And the total amount of money we lost from those two investments is less than 5 or 6 million dollars. And I think a large part of that is the checklist significantly brought down the error rate.

If you need some guidance on how to build a checklist, or want a template to start, I have a checklist collection that I share with people

If you want to make it easier on yourself, you can download a collection of checklists that I've compiled. Just click the image below and enter your email to get the download link.

Mohnish Pabrai's Holdings

What you also have to know about Mohnish Pabrai is that he has nerves of steel and has conviction in his own ideas.

He only holds seven total positions total with his biggest position being Fiat Chrysler, followed by GM warrants making up close to 70% of his portfolio.

A lot of people on boards on the internet criticize Pabrai for continually averaging down on ZINC – which goes back to that lover analogy Buffett told Pabrai and Spier during lunch.

Everyone thinks he is a loser for holding and buying ZINC, but he believes otherwise.

The other thing to remember is that you also have to put things into context.

Ridiculing an investor like Pabrai by isolating ZINC is ridiculous. Whether it's a mistake or not is yet to be seen. Everybody is going to make mistakes, but the key is whether you make a mistake with your 48% holding or your 5% holding.

Must Read Books Related to This Article

The Dhandho Investor: The Low-Risk Value Method to High Returns

The Investment Checklist: The Art of In-Depth Research

The Manual of Ideas: The Proven Framework for Finding the Best Value Investments

Further Reading and Related Links

Mohnish Pabrai, Guy Spier and Michael Shearn on investment checklists

How Mohnish Pabrai crushed the market by 1100% since 2000

Pabrai Funds Annual meeting notes 2014

Making Heads and Tails of Mohnish Pabrai

Mohnish Pabrai 2015 Investor Meeting

Pabrai's Checklist presentation

Valuewalk Pabrai resources

A checklist for investors

How Mohnish Pabrai and Charlie Munger use a checklist

Checklist investing and how to avoid errors and learn from mistakes

Interview and Talk by Mohnish PabraiAdditional Articles I Recommend

The Education of a Value Investor

7 Low Risk Investments Strategies You Should Apply Today

15 Words of Wisdom on Finding an Edge

My Answers to 12 Important Investing Questions

10 Investing Principles Every Value Investor Should Live By

The Finest Collection of Value Investing Checklists

Get our free newsletter , follow us on Twitter, Yahoo Finance/Tumblr, like us onFacebook, connect with us on Linkedin

[Photo Credit:  Alan Cleaver, Flickr]

[thedealnewsroom]

At Fiat Chrysler, a big merger would shield Marchionne's reputation

His continued pursuit of GM is a bit self-serving. Marchionne only has a couple more years to get the automaker on sound footing and a deal would secure his legacy.

by Lou Whiteman

Sergio Marchionne's very public courtship of General Motors Co. (GM) has not gained much traction to date. But the Italian executive has positioned himself to benefit even if his Fiat Chrysler Automobiles NV (FCAU) is unable to secure a deal with a rival automaker.

It has been more than three months since Marchionne first publicly proposed a combination of Fiat and General Motors, a suggestion that was quickly rebuked by GM CEO Mary Barra and her board. Marchionne has so far refused to take no for an answer, continuously pitching the merits of a deal to Barra, analysts and large-scale investors despite those pitches largely falling on deaf ears.

Marchionne's argument is that global automakers suffer from overcapacity and face massive future expenses to develop new technologies to make engines more efficient and interior systems more entertaining. The exec touts his finance background and his success rescuing Fiat from near failure and engineering a relatively successful merger between Fiat and Chrysler, arguing that he is uniquely positioned to navigate a GM-Fiat-Chrysler combination through the next down cycle.

General Motors partisans counter that Fiat, with its $8 billion debt load, weak position in certain parts of the globe and other issues, is more vulnerable to a potential downturn than GM is and therefore needs a deal more than their company ever will. Given the complexities of a merger, and potential cost overruns of appeasing various constituencies like unions and regulators, those sources maintain that the cons outweigh any benefits of a merger from a GM point of view.

So who's right? Well, both arguments actually make sense, which explains why Marchionne can continue to credibly pound the table about the benefits of a deal without having much luck with GM.

Investors buying into Fiat on the hope that eventually Marchionne's persistence will pay off would be well advised to consider that the person making the comments figures to benefit from the talk even if no merger is consummated. Marchionne last October announced plans to step down at the end of 2018, and the continued aggressive call for one last big transaction has been viewed by some as having more to do with securing his legacy than with trying to woo GM.

Fiat Chrysler, though larger and more secure than it was when Marchionne took over in 2004, is, in fact, loaded with debt and among the most vulnerable of the world's largest automakers in the event of a downturn. Going on the record with calls for consolidation serves to shield Marchionne from future blame if his Fiat Chrysler experiment should sputter after he has left the executive suite.

If GM was to fall into disrepair, Marchionne would look downright clairvoyant.

This isn't to say the Fiat executive is doing anything unseemly: Marchionne has sound reasons to advocate for a Fiat Chrysler-GM deal. Just understand that persistence is not always a sign of inevitability.

Marchionne has good reason to continue to publicly pursue a deal even if privately he's convinced there's little chance it will ever come to fruition.

[dragonflycap]

Shopping for a new Fiat with their stock

I think I may have just found the perfect new ride for me.  This Fiat 500l could be the perfect car for my little 10 mile jaunts around town, often with a couple of kids.  Cute, small, easy to park.  What is not to like?  And I think I found an easy way to pay for it too.  Use the company stock.

The chart below shows the stock price since October last year.  It had a run higher into early December before a pullback.  And then another run higher to a peak in March.  From there it has built an expanding wedge.  The top of the wedge at 16.35 is being tested again this week.  

It has support for a push higher from the momentum indicators.  The RSI is bullish and the MACD is rising.  And the Bollinger Bands® are shifting to the upside.  The bull flag that is building would give a target to 18.35 on a break to the upside.  That would mean buying just 10,000 shares to make the $20,000 MSRP.  

But what if it does not break to the upside?  What if it falls back instead, failing to break higher?  Well that might make it even less capital intensive to buy one.  A retrace down to the 200 day SMA at 14 would be first support, but if it were to make it to the bottom of the wedge at 13 then you would only need to short about 6,000 shares.

More at Dragonfly Capital

[convergex]

7 and a half ‘Good Reasons to Buy a Bad Company’

Originally posted on Convergex.com

Summary: All the good ones are taken.  After six-plus years of a bull market in U.S. stocks, great companies tend to have equally great valuations and wide followings.  What’s left – the names that aren’t working – are cheap for a reason.  Or many reasons.  Yet in that slurry must be some gems.  Today we consider a checklist of potential investment catalysts to help separate the genuine turnarounds from the stuck-in-the-muds.  High on the list: new management, anticipated breakups/spinoffs, and industry-wide rationalization. Low on the list – and with a cautious bias – is the presence of an activist investor demanding only stock repurchases.  And one reason that should never be the sole basis to buy the stock of a troubled company: valuation

There are some 53 companies in the S&P 500 that are down more than 20% over the last year even as the market as whole is up 7.2%. Just over half of them are in the Basic Materials sector, which includes many energy names.  Easy enough to understand how they ended up in the dog house – the sharp decline of oil prices late last year dramatically reshaped the earnings profile of these companies.  The second largest group of red-numbered stocks belong to Industrial names that by and large service the energy sector.  After that come a series of one-off stories in the Consumer and Tech spaces. Makers of fashion-sensitive accessories or high-priced coffee machines, for example.

What’s remarkable about this list is just how many “Good businesses” are passing along lousy returns to their investors.  No one doubts that “Big Oil” or manufacturing large and complex earthmoving equipment are fundamentally decent businesses over a cycle.  Selling popular, if perhaps slightly overpriced, handbags has rarely driven business owners to the poor house.  There’s even a well-known casino operator down +45% over the past year.  No one has rescinded the law that says “House always wins”.

There are big differences between a bad stock and a bad company.  The former is often a function of an unforeseen macro event combined with valuations that become stretched on the up cycle and then break as investor euphoria diminishes.  Casinos are a good business, but the Chinese casino business has some challenges just now.  Oil is a good business, unless you view the world solely through the eyes of a conservationist, but a 50% decline in oil prices is going to hurt even the largest and lowest cost producers in the near term.  “Bad companies”, by contrast, lose money over a cycle or, best case, make too little in the way of returns on capital to compensate their owners for their investment.

“Good industry/company” and “profitable sector/stock to own” don’t have to be the same thing either.  I covered the auto industry from 1991 to 2003, as both a brokerage analyst and portfolio manager, so I know a bit about lousy industries and the companies that inhabit those rabbit holes.  I mention that mostly because Sergio Marchionne, the current CEO of Fiat Chrysler, recently gave a presentation entitled “Confessions of a Capital Junkie” where he outlined just how bad a business the global auto industry has become.  Spoiler alert: it’s been bad since the 1980s. Overcapacity and rising capital requirements have been the crumbling cornerstones of the industry since Honda opened its first auto assembly plant in America in 1982 and GM decided to counter with its Saturn small car operation just three years later.  Hope springs eternal in the auto industry, even if decent profits seldom follow.

And yet, there has been good money to be made over the years in auto stocks. Ford Motor Company, for example, bottomed in late 2008 at less than $1.50/share. It now trades for close to $15. American Axle troughed at $0.70 about the same time as Ford, and closed today at $20.70. Even after a pullback from $26 earlier this year, that’s an obviously outstanding return. You can actually make very good money in a very bad sector.

Now, there’s obviously a method to the madness of finding these outsized returns.  Here’s a cheat sheet for finding the intersection of “Bad company” and “winning idea”:

Cyclical Upturn.  That’s the magic behind the historical returns at Ford and Magna, of course.  Car sales have improved by +50% from the cyclical lows of the Financial Crisis and that helped first assure ongoing viability and then boost earnings and cash flows.  In practical terms, this is the easiest intersection of “Lousy industry” and “big returns”.  The global energy industry is shaping up to be this year’s big cyclical trade.  You’ll just need a strong stomach to load up at the right time, because it truly is darkest before the dawn.

New Management.  Going back to the early 1990s but staying in the auto industry, Goodyear Tire was one of the big winners of the 1990s automotive cycle because the company’s Board brought in Stanley Gault to run the place after a brush with bankruptcy in mid-1991.  Gault had turned around Rubbermaid in the 1980s, and dramatically expanded Goodyear’s retail footprint by selling through Wal-Mart, Sears and other third party retailers. That incremental demand, plus the turn in the U.S. economic cycle, took the stock from $8 in 1990 to $75 in 1998.

Industry Rationalization.  If there was a worse structured sector than making new cars and trucks from the 1980s to 2009, it was likely the airline industry.  Old timers will recall the usual cadence of earnings estimates for any company in the sector as ranging from a loss of $10/share in year one, breakeven in year two, and making $20/share at the top of the cycle in year 3.  Now, with industry rationalization finally complete – at least for U.S. carries – United Continental has gone from $3 in June 2009 to $56 today.  Flying may be a miserable experience, but at least all those full flights show that industry rationalization has finally worked.

Breakup/Spinoff.  In most “Bad companies” there are still “good” operations.  Even the auto companies have their jewels in the form of pickup truck businesses that generate virtually all the profits in many years.  Now, GM can’t sell off GMC truck assembly, but troubled companies can improve their value by selling underperforming operations.  The big trick here as an investor: look to see where the management goes in a breakup or spinoff.  They know more about the opportunities in each business than you. 

Bad Company as Acquisition Target.  Animal lovers know the saying “There are no bad dogs, just bad owners.”  The same is true for companies.  For years I covered a large tire and battery distributor based in Memphis.  They had serious economies of scale, for they controlled 6% of the market for replacement tires in the U.S. and had a million square foot warehouse to show for their efforts.  But selling low end private brand tires is a tough business.  Pricing power?  No.  Unit volume growth?  Not so much. They ended up selling to a foreign tire maker anxious to gain market share in the U.S. for roughly twice the current share price, as I recall.

Fixing the Balance Sheet.  Sometimes it’s not really the company that is “Bad”, but rather the company’s mix of debt and equity financing.  Yes, corporate finance theory says this isn’t supposed to matter.  But sometimes it does, as when the debt burden calls into question the sustainability of the business through a cycle.  Or when the company needs fresh financing to take advantage of acquisition opportunities.  In those cases, redeploying all available operating cash to debt paydown, plus asset sales to give that repayment a further boost, is an excellent way to solve the problem quickly.

(Very Rare) Bankruptcy/Workout Opportunities.  Never doubt that the automotive industry, broadly defined, is a one-stop shop for every single “Troubled company becomes great investment story” you’ll ever need.  In June 2003, AMERCO files for Chapter 11 bankruptcy.  AMERCO owns U-Haul, the self-moving business.  Because one family owned the majority of the stock, they had a strong incentive to retain some equity value even through bankruptcy.  The reorganization worked, and the stock went from $4, split adjusted, to just over $329 today.  Even famed investor Wilbur Ross didn’t think the stock would be worth anything substantive.  Quoted in a 2003 New York Times article about the company CEO talking up AMERCO’s stock to investors, Mr. Ross said “It does seem to me that flogging his stock is not the best use of his time”. And... Activists Getting Involved (Sometimes).  Make no mistake – a good activist is worth 1,000 brokerage “Buy” recommendations, especially when they have a proven track record and a serious game plan for their involvement.  Where things are less clear is when they invest in a bad business and then ask for only share repurchases.  I have seen numerous iterations of this in the auto industry.  Over the last 20 years activist investors have pushed automakers to buy back their stock when the cycle was running hot and these companies were making good profits.  The trouble with that is, of course, that they run short of money when the cycle turns down.  Would GM and Chrysler have had to file Chapter 11 in 2009 if they had stored up their cash in the 1990s and 2000s?

We’ll close out with one reason that never seems to work when it comes to buying “Bad” companies: valuation. At first blush, it would seem that simply buying a poor performer for a steep discount to its peers should give enough room for error that more often than not you’ll get a decent return. Yet without some catalyst, such as the ones we’ve listed here, it is too easy to end up in a value trap.  No – bad company/sector investing requires more than simple valuation math to generate reasonable returns.  It needs a roadmap, which itself is a good reminder of the “Good company/bad investment” conundrum.  Rand-McNally, famous maker of maps and atlases, was sold in a prepackaged bankruptcy deal in 2003 after taking on too much debt as part of an LBO and then falling behind to more tech-savvy competitors.

You really have to keep your eyes on the road… Originally posted on Convergex.com