Gannon On Investing

> one hunter says to the other hunter, "boy i hope WE can out run
> that bear"...and the other hunter smiles starts to run faster and
> says "I dont have to out run the bear, I just have to out run YOU."

If you read about the great money managers, they'll talk about selling at 80% of Intrinsic Value. This is equivalent to not outrunning the bear, but outrunning the people that hold out for the full 100%.

I don't believe in long-term investing. I believe in buying at a Margin of Safety and selling at 80% or below of Intrinsic Value. Some of my stocks turn into long-term investments because the earnings keep rising and the bar keeps getting raised. Or, perhaps, positive catalysts keep getting piled on a stock, forcing me to hold it longer. Buffett says it best, "My favorite holding period is forever". I agree with that, but with one important qualifier - as long as the earnings keep going up, the positive catalysts far outweigh negative catalysts, or the stock stays within the holding range. Once euphoria hits my stock, I'm selling it to the person behind me and moving onto the next best investment.

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> (i mean do you really think the bird flu is going to wipe out
> every chicken in america, because that is how everyone is acting
> with chicken stocks, i am starting to get real greedy about SAFM
> by the way, thanks to Bill and Geoff)

As the holder of a bird flu stock, APT, I don't believe the full panic mode has hit yet. I'm waiting for the "pandemic"-type fear, when the bird flu mutates into a human-transferable problem. So far, we haven't seen anything close to it - so far, only a few people dead here and there.

I would think the U.S. Government would pay for the destruction of chickens if it came to that, so I don't see any risk there. However, I do see risks associated with nobody wanting to buy chicken because the disease is transferred between humans, chickens, birds, and cats. If things get worse enough, people won't be eating beef or any meat for a couple years. Perhaps low prices will entice some people to eat chicken - 30% of the population is oblivious to the situation anyways. But, low prices translate into losses, and we can all probably agree that losses don't do much to prop a stock's price up.

The time to buy SAFM is when projected future earnings are heading upward, not downward, like you see today.

For those owning SAFM right now, your sitting on dead money for at least another year and the possibility of buying SAFM shares at an even lower price down-the-road is still viable. I feel that people buying SAFM now are buying it and not considering the higher risks associated with owning the stock. We all agree that SAFM and PPC is cheap, but I think the risks are also higher for those stocks.

A U.S. Government chicken farmer bailout may be enough justification to own the stocks. Perhaps U.S. Government intervention greatly reduces the risk of very low sales, low chicken prices, and tremendous losses because nobody is buying the product. If that's true, then perhaps it's time to buy SAFM or PPC. I haven't thought out it in this regard, but it could be valid.

What do you think of this theory?

Well, I'm out of SAFM and waiting. Wash rule. I do think SAFM, PPC, and others will be a good buy soon, but not now.

I think at least the end of flu season, but I will be watching the technicals from time to time ...

The bailout theory really doesn't blow up my skirt, but if it actually happens, I'll pay attention.

Some interesting and valid points.

I am sitting on SAFM but very small position. And I agree it might be dead money for a year, if not longer. It would make sense that we have not seen the bottom until there is a bird flu case in U.S. You describe worst case scenario though, Vooch.

Pandemic is possible but I'm not sure if it is probable. Mutations are likely and human to human transfer would soon follow. Chicken, ducks, whatever current carriers are is the least of our concern during pandemic.
But it would take time for the irrational concerns to die down.

Wow

My comment was a post by Gannon!!! for a guy who has been only investing for about 3-4 months its like an oscar...

I would like to thank the academy...my agent...etc...

anyway...looking at chicken stocks is a good example of the G and B (my shorthand for Geoff and Bill) discussion.

while SAFM might be the better small cap play lets look at Tyson TSN (which is the big dog in the industry or should I say big rooster) in the context of the ongoing discssion.

Please remember that I have only been learning about investing for 3-4 months, so my opinions are not to challenge G or B or anyone else, only to provide a novice viewpoint as I understand it (see valueblogreview.blogspot.com)

Now I have not done an indepth analysis on TSn but I will take a few quick measurments using G and B.

TSN is going for about 13.60 today. Is that a good price?

Well looking at key stats on yahoo finance I can see that book value is 13.27 per common. (as a new investor i understand book value per common to simply mean that this is what in theory each share is actual worth net after everything is sold)

so the G part of my analysis tells me that I can buy Tyson for about 30 cents. But wait dont I have to put out 13.60.

well as I understand G no I dont because as the owner of the company I have just paid 13.60 for something that is worth 13.30 or so.

So assuming book value does not change, even if the stock (meaning the ability to market the secuirty to another person)were to tank to 0 my loss is only 30 cent per common because as a owner I would recieve 13.30 after settlement. (now maybe I undertsand this wrong so let me know if i do)

so now that what I have learned from G tells me that I am getting a good deal as an owner in the company...lets see if what I have learned from Bill tells me that I might actually be able to unlock some of the theoritcal value...

well now if someone where to ask me what does Tyson as a company do I woudl say obviosuly "they sell chicken" (much like most people would answer that Mcdonalds sells hamburgers) But the answer is not that simple because as I beleive Ray Kroc famously said Mcdonlads business is real estate.

Lookink at Tyson again at yahoo finace we see that its profile describes a company that not only sells chicken, but beef, and pork as well as other stuff.

Now i ask , myself, what is a chicken company (as i understand it) doing selling beek, pork etc???

well i know that chicken is a commodity and like most commodities it is cyclical in nature, so if I am a good manager of TSN i would realize that a good hedge against chickien might be beef pork etc.

Why? well because unless everyone goes veggie on us (which makes me think that bird flu, mad cow, mercury in fish is a planned plot of veggies to get everyone away from meat, just kidding) people like a little meat/fish on their plate. so when people stop eating chicken they go to beef/pork.

So to me that seems like good management especially when I see that the tyson family is in charge and that isiders own 34% of the comapny (thats both G and B happy there)

Now i have not taken the time to break it out but lets take chicken out of the analysis...G or B propably can do it better...but whay is TSN EPS or FCF without chicken and cost per share of chicke operations.

meaning worse case scenar that TSn gets no money from chicken operations what will they still earn per common based on beef pork sales ( and will the rush away form chicken translate inot more earnings form other dicvions)

So juts right off the bat the Bill side tells me that TSN probably has a lot of upside potnetil (asuming my feelings are borne out by 10-k etc)because too many other hunters out there are seeing TSN as a pure chicken play when it might be more than that. And if the analysis shows that Beef pork etc can make up for the differnece than TSn might be a good quick play (and for me quick is a 2-4 year turnaround)

So my eample may or may not play out the way I se it...but that is not why I brought it up...the point is like i originally said that G and B are both right.

Even if the common price satys at 13.60 over the next 10 or 20 years but management grows book value by 10% per year thna i have made a lot of money, although I undertsand that I cant force TSN to unlock my share value (but realisatically if a marcket cap stays the same while book value goe sup wont a private equity firm come along and force the issue for me?) So I win using G's analysis, because i am not asking whether someone needs to agree with me to realize a gain

and as for Bill's point of view and why it is important, i am pretty sure that i am gonna win and be able to unlock someof my ownership value because i bet that as soon as enough people figure out that TSN is a) not a pure chickien play and can make money on other parts of the business; and b) that bird flu is not the end of the world (and if it is i am gonna be worried about more than how much TSN is selling for) then TSN aint gonna be selling for book for too long.

So to sum it up i read G and B because they are both teaching me the same thing, do your homework and make a decision because I(YOU) know it is right despite what others say, and if someone comes along who wants to give me more for my ownership share dont be stupid and say no (i think Graham makes this poiint in intelligent investor)

Anyway dont mean to ramble on (by the way TSN's debt is kinda of high too) but one of the reasons I started my own blog, valueblogreview.com, was because there must be a lot of new investors like me who are trying to make sense of a lot fo different perspectives and i thought i might be able to share what i am learning in a langauge and perspective tat might sav ethem the time i have speant to get to where i am (which is about two feet from where i started lol)

Steven

Regarding every chicken catching bird flu... There is a vegetarian alternative. Quorn!

I've tried a few of their products, and they're pretty good.