Important Variables

August 22, 2007

Interesting post at about important variables in valuation, including perhaps how Warren Buffett looked at his orginal investment in Coke.

“There are an infinite number of facts that you can learn about a company, but there are usually two or three very important variables that make the company succeed or fail. A lot of Wall Street gets so bogged down in the minutiae and details that it misses these two or three big things that make or break the investment. Part of what worked for me over the years is being able to distinguish what matters from what doesn’t. That’s one of Buffett’s great gifts. He focuses on the critical issues involved in analyzing. I don’t pretend to be able to do it like he does but it’s one of the most important things you can do.” – Wallace Weitz

When Buffett looked at Coca-Cola he was probably looking at the total servings sold per annum and the profit per serving of each Coke. Those are Coke’s key variables, the number of servings people consume and the profit per serving for Coke products. Buffett was certain that consumption would increase through taking share of other liquids consumed. As well, he figured they could squeeze more than a penny per serving, which they were earning out of the product over time.


Risk Arbitrage

August 21, 2007

I spotted this article on Bloomberg about risk arbitrage spreads increasing as a result of the current “credit crisis”. provides a list of all pending merger and buyout transactions. The two that caught my eye were Sallie Mae and Penn National Gaming.

Sallie Mae

Sallie Mae currently trades at US$48 a share, while the buyout offer from JC Flowers stands at US$60 a share. The deal includes a break fee of US$900m should either of the parties try to cancel the deal. The US Government may cut subsides to Sallie Mae, which could hurt the chances of the deal being completed.

Quote from the Bloomberg article:

A global rout in equities helped send SLM, or Sallie Mae, 20 percent below the US$60 a share offered by J.C. Flowers & Co., the buyout firm led by former Goldman Sachs Group Inc. partner Christopher Flowers. Despite the tumble, Alves (fund manager at Braga, Portugal-based Spot Gestao Financeira) is convinced the deal will go through.

Penn National Gaming

Fortress Investment Group has made an offer to buyout Penn National Gaming an owner of casinos and horse-racing tracks for US$67 a share, while the company currently trades at US$56 a share.

Couple of points from the company’s press release:

  • The deal is subject to shareholder approval, FTC approval and approvals from state gaming and racing authorities.
  • The merger agreement does not contain a financing condition.
  • If the merger is not consummated by June 15, 2008, the per share purchase price will be increased by US$0.0149 per day.

Quote from the Bloomberg article:

Penn National Gaming Inc which agreed to be bought for US$6bn in June, offers the “biggest opportunity” among deals that have yet to close, said Penn Capital Management’s Eric Green.

Penn National, the owner of 18 casinos and horse-racing tracks, agreed to be taken private by buyout firms including Fortress Investment Group LLC on June 15. New York-based Fortress in February completed the first initial public offering by a U.S. manager of private-equity and hedge funds. That limits the possibility the firm will walk away from the deal, Green said.


August 20, 2007

Quick list of resources I use when doing any research.


Industry / Company

  • SEC: Annual (10-K) and quarterly reports (10-Q) which contain information, including industry estimates. IPO and M&A documents are another source of information.
  • Yahoo finance: company financial data (mostly US listed).
  • ADVFN: company financial data.
  • New Zealand companies office: documents filed by NZ companies, as required by law.
  • Google: search by filetype, filetype:pdf works well for finding presentations of industry research.
  • NZTE: free research paid for by the Government.
  • Big four accounting firms: tend to publish lots of research on specific industries.
  • Reuters: good industry profiles.
  • PwC cost of capital report: beta and discount rates from NZ listed companies.

News / In depth Articles

Private Equity and Venture Capital Industry Information

Information About Other Investors


  • Damodaran On-line: website of the Professor of Stern School of Business at New York University. It contains lots of valuation related data, plus lectures about valuation and corporate finance.
  • website from the Wellington Public Library, with a library card and a login you can access a number of databases, including:
    • Business Source Elite, full text from top management and marketing journals including Harvard Business Review, Business Week, Forbes, MIT Sloan Management Review, California Management Review. And detailed company profiles for the world’s 5,000 largest companies.
    • MasterFILE Premier, a database with full text for nearly 1,950 general periodicals covering current affairs, business, entertainment, education, health, general science, multi-cultural issues and much more.
    • ProQuest ANZ Newsstand offers full-text access to Fairfax New Zealand newspapers including The Dominion Post, Sunday Star-Times etc and The Australian and ABC news sources.
    • ProQuest Newspapers offers full-text access to 14 of the world’s best newspapers including the New York Times, Washington Post and the Observer.


August 20, 2007

A list of my favourite free / open-source software:



  • GIMP: replacement for Photoshop.
  • Paint.NET: replacement for Photoshop.
  • Dia: good for creating diagrams.
  • Inkscape: drawing tool.




  • Pidgin: instant messaging client that works with the MSN and Gtalk networks.
  • Skype: free VoIP to other Skype users.


Plain Talking

August 10, 2007

In scanning through this week’s The Economist I came across this article about the recent volatility in the financial markets, which included this quote:

If someone has staked all his wealth on a leveraged fixed-income hedge fund, then he is too stupid to deserve to be rich.

Top Six Email Newsletters

August 9, 2007

My top six email newsletters:

  1. Dealbook, NY Times daily newsletter that covers financial news including M&A, IPOs, private equity and venture capital news.
  2. FT, daily newsletter from the Financial Times that has a list of their top news stories.
  3. Morningstar’s Ultimate Stock Pickers Portfolio, email updates from Justin Fuller whose portfolio tracks the performance of selected shares from Morningstar’s five star companies (those that trade at a significant discount to their intrinsic value).
  4. AltAssets, weekly newsletter from AltAssets that gives a summary of the weeks private equity and venture capital transactions.
  5. RBNZ, email updates from the Reserve Bank of New Zealand.
  6. NZVCA, updates from the New Zealand Venture Capital Association. These don’t seem to come out very often, but do keep track of venture capital and private equity activity in NZ.

I do subscribe to a number of blogs and news sources via RSS with Bloglines. But I still find these email newsletters helpful.

Value Of M&A Advice

August 6, 2007

Dealbook has an article about the value of M&A advice, and a great graph showing the results of their research.

The graph shows the share market performance of companies after hiring a particular bank for M&A advice.