Online Valuation Model

September 27, 2007

Just came across www.istockresarch.com they have a online DCF valuation model. And use it to value a number of companies in the S&P 500, NASDAQ etc.

You can plug in your own numbers to their model to get your own valuation.


Smart Orthotics

September 21, 2007

No 8 Ventures has invested in Smart Orthotics, a company developing a robotic exoskeleton for disabled users.  

I picked up the news from the No 8 Ventures blog, with the most recent post about Smart Orthotics.

Key points from the post. 

  • The new capital will be used to support further product development, production engineering and enable a release to market of their Robotic Mobility Aid for disabled persons.
  • Smart Orthotics’ robotic exoskeleton is worn on the lower limbs by a disabled person providing the user with a normal range of mobility functions including standing, sitting, walking, ascending and descending stairs and navigating sloping surfaces.
  • Their vision for a robotic exoskeleton that restores mobility was prompted by the limitations of the wheelchair.

A quick search at Companies Office revels Smart Orthotics Limited was registered on 19 March 2007. The shareholders include: 

  • Richard Little (Director of Smart Orthotics): 600,000 shares
  • Robert Irving: 550,000 shares
  • No 8 Ventures: 200,000 shares
  • Total: 1,350,000 shares

Companies Office also links to Smart Orthotics new Constitution (pdf).


Seven Things Learned From Amazon’s Success

September 18, 2007

37 Signalsblog has a post about the secrets to Amazon’s success which they got from the website highscalability.com.

My favourite seven points are:

  1. End up with a design that is as minimal as possible. Simplicity is the key if you really want to build large distributed systems.
  2. Work from the customer backward. Focus on value you want to deliver for the customer.
  3. Teams are small. They are assigned authority and empowered to solve a problem as a service in anyway they see fit.
  4. Start with a press release of what features the user will see and work backwards to check that you are building something valuable.
  5. Use measurement and objective debate to separate the good from the bad. I’ve been to several presentations by ex-Amazoners and this is the aspect of Amazon that strikes me as uniquely different and interesting from other companies. Their deep seated ethic is to expose real customers to a choice and see which one works best and to make decisions based on those tests.
  6. If you have a question about what you should do code it up, let people use it, and see which alternative gives you the results you want.
  7. Create a frugal culture. Amazon used doors for desks, for example.

Customer Feeback

September 12, 2007

The Economist has a good example of customer feedback in this article Past rites – How companies can benefit from looking backwards as well as forwards. It talks about how companies are becoming more interested in their corporate history and how they communicate this to customers, employees etc.

It mentions the fruit smoothie company, Innocent (quote from their website: make lovely natural fruit drinks like pure fruit smoothies and fresh yoghurt thickies).

Innocent sold an initial batch of smoothies from a market stall in London. They asked customers to put their empty bottles into one of two labelled bins to indicate whether they should focus on their new venture or stick to their day jobs.

Just thought this was a great example of getting customer feedback, and giving the customer a sense of involvement in the company.


Centaur Capital Partners – How Concentrated Should You Be

September 12, 2007

Value Investing News highlighted this presentation (pdf) from Centaur Capital Partners about how concentrated an investment portfolio should be.

A few quotes from the presentation:

Not every idea has to be worthy of a very large position allocation to be included in our portfolio so long as each idea adds an unique element that contributes something to the favourable asymmetric payoff profile for the portfolio as a whole.

Value comes in many forms, including:

  • Out-of-favor blue chips
  • Stubs
  • Out-of-favor cyclicals
  • Net-nets
  • Distressed industries
  • Discounts to cash
  • Turnarounds
  • Declining cash cows
  • Overlooked small caps
  • Oddball companies
  • Fallen growth angels
  • Sum-of-the-parts
  • GARP (growth at reasonable price)
  • Activist opportunities
  • Spin-offs
  • Post-bankruptcies

There are several common “portfolio models” used by successful value investors that we have come across:

  • Ultra-concentrated portfolio model
    • Fewer than 10 stocks with large position sizes routinely comprising 20-25% of portfolio assets and larger.
    • Practitioners: Chieftain, Eddie Lampert, Tom Brown.
  • The 10 stock model
    • Standard position size of around 10%, though there may be one or two larger positions, and a handful of smaller positions for a total of 12-20 ideas.
    • Practitioners: Mohnish Pabrai, Clipper.
  • Standard 20-stock model
    • Standard position size for a good idea is about 5%, though best 2-3 ideas may be modestly larger and many ideas are somewhat smaller. Total portfolio of 25-40 ideas.
    • Practitioners: Many of the value mutual fund managers on the previous slide: Robert Hagstrom, Bill Miller, Wally Weitz, Longleaf Partner, Tweedy Brown Value, etc.
  • 20-stock model (super-sized)
    • Essentially the same as standard 20-stock model, but two or three best ideas are “super-sized” to 10-15% of the portfolio, and there are fewer sub-5% positions. Total of 20-30 ideas.
    • Practitioners: Tilson Focus, Fairholme, Sequoia, Oakmark Select.

 “Confronted with the challenge to distil the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.” Benjamin Graham, Intelligent Investor.

Why is having a margin of safety important?

  • Valuation is an imprecise art.
  • The future is inherently unpredictable.
  • Having a margin of safety provides protection against bad luck, bad timing, or error in judgment.

McKinsey – Delivering Software As A Service

September 11, 2007

Just came across this article (free registration required or use bugmenot’s login) from McKinsey Quarterly about delivering software as a service. Thought it is relavent to the high profile Xero, who provide accounting software as a service.

Main points in the article:

  • An IDC report projects that 10% of the market for enterprise software will migrate to a pure software as a service model by 2009.
  • Software as a service vendors are less profitable than some traditional software vendors today, this gap is primarily caused by a lack of scale.
    • A few service vendors already have much higher margins (WebEx, at 26%, and Digital Insight, at 19%) because they’ve been able to achieve scale and a leading position in their niches.
    • Other leaders, such as salesforce.com (which provides on-demand CRM and sales force automation tools) and ADP (the world’s largest automated check processor) have also gained mainstream uptake among midsize and large companies.
  • Software as a service offers several advantages to IT buyers:
    • More frequent (and potentially less painful) upgrades.
    • Lower cost of ownership.
    • Higher level of service from vendors that must become more responsive to customer needs or risk losing subscription revenues.
    • Countering these benefits are the acknowledged risks of reliability and security.
  • The article has a great graph showing the migration of software applications, broken down software catergory, large enterprises, SMEs, if the speed of migration is different for each customer segment).
    • The conclusion was for core financial applications that SMEs are already migrating (pace depends on customer segment) while it may be unlikey for for large enterprises to migrate at all.

Whitney Tilson’s 2007 Wesco Annual Meeting Notes

September 5, 2007

Value Investing News has a link to Whitney Tilson’s 2007 Wesco annual meeting notes (pdf). They make for good reading. Charile Munger is Chairman of Wesco.

Some selected quotes from the meeting are below:

If you really want a lot of wisdom, it’s better to concentrate decisions and process in one person.

I talked to a leading person in the accounting field and said it didn’t make sense to let companies mark weird stuff to their own models – that it would lead to disaster. She looked at me like I was out of my mind and asked, “Aren’t you for the most current data in accounting? My system is more current and therefore should be better.” This mind would score highly on an IQ test, but is scarcely able to throw out the garbage.

If you’re really wise and fortunate, you get to be like Berkshire. We have high opportunity costs. We always have something we like and can buy more of, so that’s what we compare everything to.