Key Metrics:
4.9x earnings
2x EV/EBIT
0.6x book value
Huge pile of cash
No long-term debt
“If you want to have a better performance than the crowd, you have to do things differently from the crowd.” –John Templeton
It’s a famous quote. I’m sure you’ve heard it before… buy what others are selling, buy fear, sell euphoria. The message is clear.
But the interesting thing is that although it’s an often-used phrase, it’s practiced far less often than you might think.
If you look at the portfolios of most large investment funds, you’ll see the same securities over and over again. Some of that is just a size issue, if you manage $10 billion, there are only so many stocks you can buy.
However, a lot of the similarities come from the fact that it’s hard to go against the crowd. It’s hard to buy unknown stocks. And it’s especially hard to buy stocks with problems.
This is true for amateurs and professionals alike, even for value investors.
So how do you get returns that actually stand out?
How can we replicate what Buffett did in the past and achieve returns that crush the S&P 500?
You have to think differently. You have to do things differently.
There are two ways to do that.
You can concentrate, really concentrate, like Eddie Lampert or Mohnish Pabrai did. Both averaged around 25-30% returns for nearly two decades while rarely holding more than ten stocks. Buffett occasionally did the same when he had high conviction in an idea (remember, he once had 75% of his net worth in GEICO).
Or, if you want to stay somewhat diversified, you can do what Graham and Schloss did, and own a basket of dirt-cheap stocks trading far below their earnings power or asset value.
This often means buying cheap stocks, most people don’t want. Businesses the market has written off. This is difficult to do, because there are often good reasons why you shouldn’t buy them.
People will call you crazy. But that’s where the edge lies.
Now, I follow Buffett more than any other investor. But I’m not talking about Buffett in the 2000s. Sure, there’s a lot to learn from that version of Buffett too, but to understand how he achieved those 50% annual returns, you have to look at what he was doing in the 1950s.
Back then, he wasn’t buying “great businesses”, at least not at first… He was buying extremely cheap stocks, selling them at fair value and repeating that process again and again. He used a Graham-like approach with Buffett-like concentration.
Today’s stock is that kind of setup. A Buffett/Graham-style bargain.
It’s a small, profitable business that’s been ignored by the market and now trades at just 4.9x earnings, 2x EV/EBIT, and 0.6x book value.
It’s printing cash year after year, carries no long-term debt, and has built up a cash pile almost the size of its market cap.
It’s the kind of company Buffett might’ve bought when he was still running his partnerships. Profitable, cheap, and cash-rich.
And aside from already being cheap, there’s a real possibility that the massive pile of cash sitting there could eventually be returned to shareholders.
Let’s get into it.