random investment thinking aloud, page-20

@barewitness,

"...would you not say that KOV is your classic cigar butt too?, all things considered it does not have the most durable business model, but most directors have a fair amount of skin in the game."

Make no bones about it... KOV = Cigar Butt Investment
(but cigar butt in the context of a company whose assets are real and tactile and when they are called on to operate at full capacity, the cash flow spews out of them like a hot geyser gushing hot water hundreds of meters into the air)

My investment in KOV started out in 2004 as a deep value investment, but the company in subsequent years performed surprisingly well. so I kept holding the shares for a lot longer than I initially thought I would.

But then management - like so many do - had a rush of blood to the head at the top of the cycle and made some acquisitions in 2013 which I thought were not that great.

And then - because I tend to be a bit of a lazy, do-nothing-most-of-the-time investor, I neglected to consider just how severely the downturn in the resources sector might impact these guys, so I missed exiting the business right at the peak and instead sold my shares after the DH14 result, when they slashed the interim dividend by one-third.

I am a mild-mannered guy ordinarily but there are few things that make me more mad (at myself) for failing to foresee a dividend cut coming (especially one as obvious as that one).

Long story cut short, I sold my shares for a basically the same price that I initially paid for them more about a decade earlier. But, on a more consoling note, I more than recouped my capital in the form of the dividend stream I enjoyed in the interim (which, I think, is a lesson in itself, in terms of how significant dividends are in the overall long-term total shareholder return equation...something that I think few people appreciate. But that's a sermon for another time.)

If you don't mind me asking, why the interest in KOV? (Also, your reference to management having skin in the game surprised me, because I don't believe that to be the case...one of the problems, I think, is that there is not enough alignment of the interests of the company's executives with those of its shareholders).



In terms of which business I think would be a beneficiary of enhanced volatility/disorder, that's an interesting question and one I've seldom thought much about, probably because I don't view the future in terms of increasing/decreasing volatility and/or disorder, on the basis that these market conditions are not possible to predict nor anticipate.

Nonetheless, if you held a gun to my head and told me I had to pick a few, then I'd say they would be (in decreasing order of relevance):

TCL
RHC
RMD

(not that these businesses would be outright beneficiaries of any sudden dramatic economic deterioration - which I'm guessing is what your "disorder" is referencing; rather, they would be somewhat immune to it.)