Author: TenStocks
Model: TenStocks
Disclosure: Long HTCH
Some years ago I began collecting little nuggets of wisdom as I came across them in the course of my work. Some of these nuggets are from famous investors like Buffett, Munger and Templeton. Some are from totally unknown independent investors, and some are from me. In some cases I know the source, and sometimes not. I call this file the Tenstocks Bible. This month I thought I’d share some wisdom from this file.
Here’s the first one: Eat when the carcasses are plentiful.
That’s simple enough. Are carcasses plentiful right now? Is there blood and fear in the street? Is it safe? I don’t think so. We recently made an investment in Hutchinson (Nasdaq: HTCH) at roughly a third of stated tangible book. It’s a cheap stock in a fully valued market. In my opinion, it’s a rare carcass among too many fat turkeys.
But buying cheap in a fat market carries its own risk. Cheap can and does get cheaper. In the case of HTCH, anyone who read the SEC filings or listened to a conference call would know the company was cutting back operations in the US and shifting business to Thailand to be more competitive. This ‘bad’ news should already be in the share price – after all, it’s public knowledge. But public knowledge isn’t always public because very few investors read SEC filings or listen to company conference calls. They can get surprised when a press release becomes a newspaper article and old news becomes new news.
This was the case with HTCH, when a press release stated they were laying off US workers and moving production to Thailand. The stock sold off. Anyone who invests in the market for any length of time will get to experience “catching the falling knife.” We are not immune. Ask us to show you our cuts sometime.
All investors make mistakes (we do not think HTCH is one of ours). Nobody will be all right all of the time, but you can increase your ratio of success if you invest when the carcasses are plentiful, and tread warily when they are not. With our current 35% cash position we are wary. We await carrion… patiently.
