Thursday, July 31, 2008

Blogger Roundtable

Many thanks to Geoff Gannon of the excellent Gannon on Investing Site for including us in his recent roundtable, with the editors of three outstanding value oriented blogs. Its also great to see Geoff posting regularly again.

Wednesday, July 16, 2008

“Dear Bill….”: A Letter to Bill Miller, Manager, Legg Mason Value Trust

Dear Bill,
I hope you are well these days, I understand it’s been a difficult time for you lately, and I’d imagine you’ve had many sleepless nights. I trust that there are better days ahead for you. I hope for your sake, as well as for others who have trusted you with their money, that this is indeed the case.

When I hired you several years ago to manage a nice chunk of my retirement portfolio’s large cap allocation, I did so knowing that our investment philosophies are quite different. We view “value” in very different terms, but that was ok. I understood the differences, and I took the risk. I was actually quite pleased that my company’s 401K plan brought you aboard.

We had a great run, Bill. In fact, your streak began years before I hired you, and I certainly did not expect it to continue forever. After all, how many managers beat the S&P 500 Index 15 consecutive years? You did, Bill. But just like all streaks, yours came to an end. Unfortunately a very abrupt and painful end; more painful than either of us could have ever imagined.

When I hired you, I never dreamed I’d be writing you this letter. But after a great deal of thought, it pains me that I am hereby replacing you as my primary large cap manager. I can no longer take the risk that your investment process is indeed broken, or is no longer effective.

I know, Bill, every active manager hits bumps in the road, and the market environment has been extremely difficult. But your underperformance the past two years has gone way beyond normal market gyrations.

How is it possible that you are down 32% year to date, or 39% over the past year? Looking back, do you think that your positions were too concentrated in financials? Yes, Bill, I know hindsight is 20/20, and I sound a bit like Captain Obvious here, but Bear Stearns, Washington Mutual, Citigroup, Merrill Lynch, Freddie Mac, AIG, Countrywide? Where was your risk control? Was it deep conviction or wishful thinking on your part that financials would turn around? I know that what has transpired over the past couple of years in financials was essentially the perfect storm, but I hired you because I trusted that you’d be able to navigate even the worst market events. I certainly never expected things to turn out like this.

Unfortunately, your recent performance has been so devastating that it essentially renders your 15 year streak irrelevant. Over the past five years, you’ve underperformed the S&P 500 by more than 800 basis points…per year. Over the past ten years, you are under 90 bps per year. You have to go back to 1996 in order to find a multi-year period (through now) that you’ve outperformed. Guess I should have indexed large cap all along. My bad.

Unfortunately Bill, what many investors fail to understand is that average returns are meaningless. What truly matters is the time path of returns, i.e., the order in which returns occur. Your huge losses the past couple years all but wipe out the previous gains your shareholders enjoyed.

Finally, Bill, just a word of advice about where you are spending your time these days. I know you want the Yahoo situation to work out to the advantage of your shareholders, and you do hold a fairly large position in the company (4% of your portfolio). But are you devoting too much time and energy to this?

In closing, I can’t place all of the blame on you. I should have pulled the trigger several % ago. I admit I got too caught up in “Bill Miller: The Legend”.

Bill, best wishes for the future.



Tuesday, July 15, 2008

Premier Exhibitions (PRXI) Update

In our last post regarding Premier Exhibitions, we reported that Sellers Capital had recently increased their stake to 10.84%. On 7/10, the day prior to the release of this piece, Sellers Capital filed a new 13D/A, reporting a 15% stake in Premier.

Friday, July 11, 2008

Premier Exhibitions Update: The Controversy Continues (PRXI)

Premier Exhibtitions can't seem to steer clear of contoversy these days. A few months back, the issue was the source for bodies used within the company's "Bodies...The Exhibition" show (see our March 29th post). Now it's a generally disappointing quarter, and a shareholder calling for action.

Premier Shares fell 17% on Wednesday following a less than stellar earnings release. For the quarter, Premier lost 912K, vs net income of $3.26 million for the same period last year. Revenue increased 34% to $15.2 million, but this was well below estimates, and not nearly sufficient to offset increased expenses.

Costs of goods sold rose dramatically, namely exhibition costs, which more than doubled from $3.06 million to $6.36 million. SG&A more than tripled from $2.54 million to $8.02 million. On the revenue side, management blamed the shortfall on the fact that 13 of the company's 22 exhibits moved during the quarter, which resulted in the loss of 330 "revenue-producing days". Be that as it may, this has led one shareholder to call for change.

Bill Vlahos of Odyssey Value Advisors LLC, fired off a letter to the board calling for the sale of the company, or at least the sale of the Titanic assets Premier owns. Vlahos complained of bloated management compensation, and a strategy that is fraught with too much risk. While we can't determine Odyssey's current stake in Premier, reaction to Vlahos' letter sent shares up 12% yesterday, to $3.8.

While we are also extremely disappointed with Premier's performance both operationally, and from an investment perspective (shares are down 33% since May, and 78% since this time last year), we don't think that now is the time for the sale of the company. While the Titanic assets alone may be worth several times current market cap, a sale at this point would be a sale into weakness. We don't believe that these assets would fetch anywhere near their true value (if they could indeed be sold) given the state of the economy.

We've noted that Seller's Capital continues to gobble up Premier shares, having purchased another 1.19 million recently, and now owns 10.84% of the company. We'll continue to add to our position as well as opportunities present themselves.

*The author has a position in Premier Exhibitions (PRXI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.