A riches-to-rags story

Probably, you've heard of the Carlyle Group.

The Carlyle Group is one of the premier global private equity groups and focus on opportunities in multiple growth sectors. The Carlyle Group has $81.1 billion under management and is invested in more than 200 companies. The group employs a conservative, proven and disciplined approach to investing (here). The Carlyle group is active in India with investments in Allsec Technologies, Newgen Imaging Systems, HDFC, Great Offshore Limited etc.

Here's the story.

The Carlyle Group listed it's USD 22bn mortgage-backed securities fund on the Amsterdam stock exchange in July 2007 and was listed at USD 19. In less than an year, the stock has plunged over 85% and today lingers at USD 0.44 - making it perhaps the most dramatic casualty in the financial markets.

Shockingly the fund had $31 of debt for every $1 of its own and had hoped to use its massive borrowings to generate higher returns from investments in highly rated mortgage securities. Its strategy was undone by the turmoil in the mortgage markets, dealing a heavy blow to the reputation of Carlyle.

The stock chart is given below :


The latest news filed at the Amsterdam exchange relates to the compulsory liquidation of the scrip (here). Additionally, the company has also filed a preliminary assessment of the company (here).

Imitation is the best form of flattery

Millions have tried to learn from Warren Buffett - the undisputed guru of investing. Of this bunch of hopefuls, a handful of them have benefited from his wisdom, read books and have created their millions by putting his principles to practice (and executed them well).

Which should kinda make you wonder - "So, if this man is as good as people say he is - then why not just copy his strategies and make my first million"

In a recent study, professor Gerald Martin studied the results of just that.

His premise was very simple - "If I didn't have to do any research himself and just copied Buffett’s trades a month after the trades are disclosed to the public - will I end up making any money?"

The results were quite flattering (imitation being just that ... hmm). The professor's plagiarized portfolio would still have managed to beat the S&P 500 by more than 14% a year over the same period of Buffett's investment. (article here)

The period under consideration is not given but I wont be surprised if the professor is talking about 20-30 year periods. Hence, for this stock-picking technique to be successful .. you should not only invest in what Buffett picks (one month prior to you) but also have the discipline of holding out to that portfolio as long as he does it.

Albright Wilson Chemicals India Limited

In a fairly expensive market, Albright Wilson comes close to a Ben Graham netter in terms of an cursory evaluation of assets. Although the company is extremely low on the earnings front (and I am not suggesting a Buy), thought it might be useful for discussion sake.

The company specs are enclosed (Dec-2006 data) :
Share capital - Rs 3.38 crs
Secured loans - Rs 4.04 crs
Net current assets - Rs. 48.27 crs
Face value - Rs. 10 per share
Book value - Rs. 179.77 per share
Current market price - Rs. 115.50 (Apr-07)

Re-drawing the ratios, I find that the NCAV is Rs. 130.28 per share, which is higher than the CMP of the stock. Interesting the cash inside the company was a healthy Rs. 21.69 crores (or Rs. 64.17 per share).

The bane of the company is it's inability to improve it's sales (FY2007, sales declined by 20%) and the profits of the company dived into the red.

The company's data has been quite a mystery. Interestingly, the company has declared a dividend of 10% in Apr, 2008. They also announced the sale of their phosphate unit in Sep, 2007 (here).

Questions -
1. Is this company better dead, rather than alive?
2. The equity base of the company is very small. Can an infusion of cash help improve operational efficiency and profits?

The lecture of a lifetime

Randy Pausch (born October 23, 1960) is a 47 year-old Professor of Computer Science, Human-Computer Interaction, and Design at Carnegie Mellon University (CMU) in Pittsburgh, Pennsylvania. In September 2006, he was diagnosed with metastatic pancreatic cancer was told in August 2007 to expect a remaining three to six months of good health.

Pausch delivered his "Last Public Lecture," titled "Really Achieving Your Childhood Dreams" at CMU on September 18, 2007. This talk was modeled after an ongoing series of lectures, where top academics are asked to think deeply about what matters to them, and then give a hypothetical "final talk," i.e., "what wisdom would you try to impart to the world if you knew it was your last chance?"

The complete transcript is available here (pdf, 248 Kb)

The video of the lecture can be viewed here. It's quite brilliant.