Dear founding members of Cannibal Stocks,
I have written posts that thousands of people read. I have never written one to you. There are only a few of you, and you supported this work early on. William Gazonas was the first. I remember seeing the name and not knowing what to do with it. Somebody I had never met had paid for a newsletter about coal and offshore rigs, written by someone still finding his voice, in a language that was not his own. Then more of you came. I have shared a few updates in the chat, but I have not properly thanked you. So let me say the thing I never said. It mattered. It still does.
I want to tell you how I invest, because you should hear it from me and not work it out from the numbers.
On Substack there are many writers who show that they beat the market every year, beat the professionals, beat the S&P by a lot. I do not know if it is true and I do not really care. I am less eager to see my share prices rise while the companies are buying back stock. As long as the businesses keep generating cash and use it to retire shares, low prices can work in my favour for years. I own cannibals, and a cannibal eats fastest when its price is low.
This year my portfolio is very green. I know that sounds like something to be happy about. For the companies buying back shares, lower prices could actually work better for me, provided the businesses remain healthy. The one exception is Transocean. It is not a cannibal yet. I expect it to become one once the debt is paid down, and that is probably two more years. Until then I would rather it did not go deep into red, because a lower price does not give me the same buyback benefit when the company is not repurchasing shares.
I think about the Dillard’s case study every day. Not the ending, the middle. The stock did nothing for years, and because the price stayed low, the family was able to remove 80 percent of the shares at those prices. The low price was not the problem. The low price was what made it possible. Then, in a short window, the stock went to over 650. But for most of that time, if you had owned it, you would have felt like a fool.
So now, when I look at a company, I only ask a few things. Can it eventually retire 80 percent of its shares? Is the multiple low enough that every dollar buys a lot of stock? Can it keep generating at least as much cash as it does today? Is it hated, and is there a reason it might stay hated for years? And does management put the cash into shares rather than other people’s companies?
I think I found it. Actually, I found two. This is my portfolio update. Before those, I wanted to explain my decisions to you directly.