Barel Karsan - Value Investing

Born A Crime

noreply@blogger.com (Saj Karsan) — Wed, 01 Apr 2026 02:32:00 +0000

I really enjoyed reading Trevor Noah's book Born A Crime. The book recounts Noah’s unconventional upbringing in apartheid and post-apartheid South Africa. The title refers to the literal crime of his existence: as the son of a Black Xhosa mother and a white Swiss father, his birth violated the Immorality Act, which forbade interracial relationships.

Noah is a master storyteller with the timing of a seasoned comedian (which he is). He weaves hilarious anecdotes with sharp insights into race, identity, poverty, and resilience. One moment you’re chuckling at a story about his mischievous childhood; the next, you’re reflecting on how apartheid’s rigid racial categories shaped every aspect of daily life, including family dynamics and community belonging.

Beyond the personal stories, Born a Crime offers a vivid, accessible window into South African history and culture. Noah explains complex social issues with clarity and wit. Highly recommended.

Black Jacobins

noreply@blogger.com (Saj Karsan) — Mon, 30 Mar 2026 07:35:00 +0000

C.L.R. James’s The Black Jacobins (1938) is one of the most powerful history books ever written. It tells the story of the Haitian Revolution, the only successful slave revolt in history, which overthrew French colonial rule and created the independent nation of Haiti in 1804.

The book starts a bit slowly, carefully setting the stage with the brutal conditions of slavery in Saint-Domingue and the early sparks of rebellion. But once Toussaint L’Ouverture steps into the spotlight, it becomes absolutely gripping.

James brings Toussaint to life as a brilliant strategist, visionary leader, and tragic figure who transformed a slave uprising into a full-scale revolution. Written with passion and sharp analysis, James shows how the enslaved people of Haiti took the ideals of the French Revolution further than the French themselves, fighting for true liberty and equality. The battles, political intrigue, and moral dilemmas make the middle and later sections of the book terrific.

If you push through the slower opening, you’ll be rewarded with one of the most inspiring and insightful accounts of human courage and resistance.

The Guns of August

noreply@blogger.com (Saj Karsan) — Wed, 04 Mar 2026 02:27:00 +0000

Barbara Tuchman's The Guns of August (1962, Pulitzer Prize winner) examines the first thirty days of World War I, from the outbreak to the Battle of the Marne. The book is highly detailed, covering troop movements, orders, and decisions with precision.

I found I often needed a map nearby to follow the geography. The place names and army paths can otherwise be hard to track.

The Germans advanced rapidly through what was supposed to be a neutral Belgium and northern France, reaching within about thirty miles of Paris by early September 1914. A shift in direction by General von Kluck and the French counterattack at the Marne prevented them from taking the city.

Tuchman also describes German reprisals against Belgian civilians, including the burning of Louvain. German troops deliberately destroyed much of the town, including its historic university library containing irreplaceable medieval manuscripts and books. Similar acts occurred in other areas as collective punishments.

These events, widely reported, damaged Germany's image among neutral countries—especially the United States, fueling outrage and shifting global opinion against them. The book focuses narrowly on August–September 1914 but illustrates how early decisions shaped the long conflict ahead.

The Highest Calling

noreply@blogger.com (Saj Karsan) — Sat, 14 Feb 2026 02:24:00 +0000

I've been looking for a business book written in novel form that captures the same magic as Goldratt's The Goal, which is a rare gem where deep operational and management insights feel like a gripping story rather than a dry textbook. The Goal nailed it with its compelling narrative about a plant manager racing against time. Recently, I picked up The Highest Calling by Lawrence Janesky, a business parable centered on Troy Becker, a struggling remodeling business owner who's been grinding for 12 years without much to show for it.

The book follows his journey of transformation through mentorship, self-reflection, and applying practical entrepreneurial principles. It's framed as an inspirational story about doing the right things in business and life, emphasizing helping others, leadership, and personal growth.

It's solid and worthwhile, especially if you're a small business owner or entrepreneur feeling stuck. The lessons on top-down leadership, common-sense strategies, and turning around a stagnant operation come through clearly, and the parable format makes them easier to absorb than straight advice. Some readers (and awards like Best Business Book nods) praise it as enjoyable and impactful.

That said, it doesn't quite reach the heights of The Goal. The pacing drags in places. The core message and most valuable insights hit their stride relatively early, but the story stretches on longer than necessary. Honestly, it could have wrapped up about halfway through and still delivered. The emotional arc and business revelations feel a bit repetitive toward the end, diluting what starts as a strong, engaging read.

If you're looking for that novel-style business enlightenment fix, The Highest Calling is a decent contender and better than most in the genre. But if you're holding it up to The Goal's benchmark, prepare for solid execution rather than masterpiece status. I'd love recommendations for others that come closer!

Karsan Value Funds: 2025 Q4 Results

noreply@blogger.com (Saj Karsan) — Fri, 09 Jan 2026 14:06:00 +0000

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the fourth quarter ended December 31st, 2025, KVF lost $1.57 per share, reducing the value of each share to $82.61. This represents a pre-tax loss of 2%, which underperformed the S&P 500, Russell 2000 and S&P/TSX, which were either flat or up in the low-single digits. As a result, KVF's return for the year was 9%, which was KVF's worst return since 2018. Consequently, it has been a very good last seven years.

The biggest contributor to this quarter's loss was Perdoceo. While it only fell around 10%, it has become a large holding by virtue of having almost tripled in price since it was added to KVF's portfolio in 2020. Shares of Bumble are also down a lot, as the market discounts the company due to AI risks and recent revenue declines. Not a lot has to go right for the company at the current price to cash flow, making the shares too good to pass up for KVF.

It wasn't all negative this quarter, as shares of Rayonier advanced to recent highs, allowing KVF to exit very profitably. Banking shares like Citigroup and Barclays also have shown tremendous strength lately, allowing for more highly profitable exits. Unfortunately, these financials were only basket positions thanks to the black-box and highly leveraged nature of this industry.

While prices for the overall market are remarkably high, there are definitely pockets of value out there. KVF's cash position was reduced significantly this quarter as new positions were added and some old positions were increased where pessimism reigns.

KVF's income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

From Barista to Billionaire

noreply@blogger.com (Saj Karsan) — Fri, 02 Jan 2026 19:25:00 +0000

I just finished Never Enough: From Barista to Billionaire by Andrew Wilkinson, and it hit differently because Andrew and I hail from the same region and so we know some of the same people.

Reading about his early days grinding it out in local cafes and launching MetaLab felt incredibly relatable. The book itself is a raw, no-holds-barred look at Wilkinson's rocket from $6.50-an-hour barista to building Tiny, a "Berkshire Hathaway of the internet" worth billions by his mid-30s.

But it's not just a success brag; it's refreshingly honest about the downsides: the burnout, strained relationships, and that nagging "never enough" feeling even at the top. What resonated most with me was Wilkinson's deep admiration for Charlie Munger.

He recounts meeting his idol and weaving Munger's wisdom into his investing philosophy, which is something we have in common as fellow value investing fans. It made the business lessons feel like shared ground. If you're into entrepreneurship, wealth psychology, or just a great underdog story, this one's a must-read. Highly recommend!

Lies I Taught At Medschool

noreply@blogger.com (Saj Karsan) — Wed, 19 Nov 2025 19:01:00 +0000

If you've ever felt like the standard medical advice on diet, cholesterol, and chronic disease just doesn't add up with what you're seeing in real life, this book will feel like a breath of fresh air. Dr. Robert Lufkin, a seasoned physician and professor, pulls back the curtain on some of the biggest "lies" (or at least massive oversimplifications) he himself taught for decades in medical school.

He dives deep into topics like:

Why the low-fat diet dogma has been a failure
The truth about cholesterol and heart disease (spoiler: it's not the villain we've been told)
How Big Food and Pharma have shaped guidelines that keep us sick
The metabolic roots of obesity, diabetes, cancer, Alzheimer's, and more

It's genuinely fascinating and well-researched, backed by studies that the mainstream often ignores. Lufkin writes with the authority of someone who lived the old paradigm, saw its failures up close (including in his own health scare), and then had the integrity to change his mind when the evidence demanded it.

That said, the book does get repetitive after a while. No matter what disease or topic he's tackling—whether it's hypertension, autoimmune issues, or even mental health—the prescription almost always circles back to the same core advice: ditch processed foods, sugar, and refined carbs, and eat real, natural foods with plenty of healthy fats. In other words, some version of keto, paleo, or low-carb ancestral eating. It's not that the advice is wrong (far from it—it's probably the most powerful lever we have). It's just that by the tenth chapter, you’re thinking, “Yes, I get it—eat like your great-grandmother and move your body. Got it.”

Still, the repetition kind of drives the point home: almost all modern chronic diseases share the same root cause (metabolic dysfunction from processed foods), so yeah, the solution is going to sound similar every time. Bottom line: if you're already keto or low-carb, this book will feel like a victory lap with extra science ammo. If you're new to this world or still trusting the food pyramid, it could legitimately change (or save) your life. Highly recommended, especially if you're tired of being told to "eat less and move more" while everything keeps getting worse. Just be prepared to hear "eat real food" about 47 times.

Karsan Value Funds: 2025 Q3 Results

noreply@blogger.com (Saj Karsan) — Fri, 03 Oct 2025 13:19:00 +0000

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the third quarter ended September 30th, 2025, KVF gained $5.13 per share, increasing the value of each share to $84.16. This represents a pre-tax return of 8.1%, roughly matching the S&P 500's 7.8% return, while trailing the ~12% returns of the the Russell 2000 and the S&P/TSX. Whenever KVF's eclectic mix of sleepy/boring industrials can match the returns of the index which contains the darling tech megacaps when they are in favour, it is a good one.

Usually there are a couple of major stock movements which are responsible for the majority of KVF's gains in a quarter such as this one, but this quarter was instead characterized by broad-based gains throughout much of the portfolio. Gains in the share prices of Perdoceo, Rayonier, Mastercraft and ZoomD contributed some, but were only responsible for part of this quarter's gains.

Another positive contributor this quarter was the performance of Paramount Skydance, which KVF has now completely sold out of. This was originally purchased as Viacom a few years ago, and overall has caused major losses to KVF (this quarter aside). Investing in companies facing obsolescence in parts of their business, where there is supermajority management control, may not be the best way to generate stock market gains. If only such a large tuition payment wasn't required to educate your humbled manager on this point.

Prices are currently elevated in developed markets. As such, KVF's cash position has been growing and will continue to do so if general equity prices remain strong.

KVF's income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

A Crack in Everything

noreply@blogger.com (Saj Karsan) — Thu, 11 Sep 2025 21:14:00 +0000

A Crack in Everything: How Black Holes Shine by Marcus Chown is an engaging dive into the mysterious world of black holes, crafted for the lay reader.

Chown’s ability to distill complex astrophysical concepts into accessible writing is commendable, making the book a fascinating read for non-experts.

Particularly interesting were the sections on how black holes emit radiation (Hawking radiation) and their role in shaping galaxies, which spark wonder with vivid analogies and historical anecdotes about figures like Stephen Hawking.

However, despite its layman-friendly approach, some parts—especially the quantum mechanics underpinning black hole evaporation—felt dense and hard to fully grasp without prior physics knowledge. While Chown’s enthusiasm shines, a few technical explanations left me lost. Overall, it’s a compelling read for curious minds, though it occasionally stretches the limits of accessibility. Perfect for those eager to explore cosmic mysteries.

G-Man: J. Edgar Hoover and the Making of the American Century

noreply@blogger.com (Saj Karsan) — Fri, 15 Aug 2025 00:28:00 +0000

In Beverly Gage's Pulitzer Prize-winning biography G-Man: J. Edgar Hoover and the Making of the American Century, we get an unflinching look at one of the most powerful figures in U.S. history. Hoover, who led the FBI for nearly five decades until his death in 1972, transformed a modest Bureau of Investigation into a formidable national security apparatus. But as Gage meticulously details, this rise came at a steep cost: rampant surveillance, political blackmail, and the erosion of civil liberties, all in the name of protecting "American values."

Reading it today, it's hard not to see eerie parallels to political disagreements: history definitely rhymes. Hoover's FBI was born in an age of fear: the Red Scare after World War I, where communists and anarchists were hunted with little regard for due process. And it continued to grow every time there was a new fear, its capabilities becoming further-reaching incrementally into the behemoth it has become.

Gage paints Hoover as a master bureaucrat who created a system for storing and retrieving files on criminals, including a national fingerprint database. Of course, this system was abused as government programs often are and was weaponized against opposition politicians and civil rights leaders like Martin Luther King Jr., whom the Bureau wiretapped and harassed.

To be fair, Hoover was constantly fighting revolutionaries who sought to overturn the country's principles, those principles being presumably what has made the United States so successful. While the KKK terrorized blacks and their sympathizers in the south, it was Hoover's FBI that picked up the mantle and conducted investigations that southern cops preferred to turn a blind eye towards.

The book weaves in broader American history, showing how Hoover's actions mirrored national anxieties over immigration, radicalism, and social change.

Fast-forward to 2025, and those rhymes are striking. Today's surveillance state, turbocharged by post-9/11 laws like the Patriot Act, echoes Hoover's unchecked wiretapping—now amplified by digital tools from the NSA and FBI. We've seen the FBI accused of political meddling, from investigations into election interference to monitoring dissidents, much like Hoover's era of targeting rival politicians, anti-war protesters and civil rights groups.

What G-Man teaches us is that power without accountability breeds tyranny. Hoover's legacy isn't ancient history—it's a cautionary tale for our polarized times, where fears of "threats" justify overreach. If you're into history that hits close to home, pick up G-Man.

Karsan Value Funds: 2025 Q2 Results

noreply@blogger.com (Saj Karsan) — Fri, 04 Jul 2025 13:59:00 +0000

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the second quarter ended June 30th, 2025, KVF gained $4.76 per share, increasing the value of each share to $79.02. This represents a pre-tax return of almost 8%, which was just under the S&P 500's 10% return and right around the 8% returns of the Russell 2000 and the S&P/TSX indices.

KVF's quarter was better than it looked, however. Currency changes over the quarter hurt returns by $1.78 per share, as US dollar weakness made the substantial USD portion of KVF's portfolio worth less. Currency fluctuations are expected to continue to have large effects on any one quarter's results, but tend to even out over the long term.

The quarter started out very poorly, as the market reacted negatively to Trump's tariff impositions. This weakness allowed KVF to deploy some of its cash in both new positions, as well as in lowering its cost basis in several existing positions. As the market's tantrum receded, KVF then benefited from having a larger invested portfolio experience higher prices.

Some examples of new positions include another home builder, LGIH, that has fallen to highly pessimistic levels, and consultant RGP, which has seen its stock get demolished as the labour market has weakened.

Helping generate this quarter's strong returns were buyouts in shares of LSEA and BGFV, and a better-than-expected tariff position for outsized holding DRX.CA. While the LSEA buyout was very profitable overall for KVF, the BGFV buyout caused overall losses (despite the quarterly bump), as business conditions have deteriorated substantially since its initial purchase.

KVF's income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

Patriot

noreply@blogger.com (Saj Karsan) — Wed, 23 Apr 2025 17:44:00 +0000

Patriot is the memoir of Alex Navalny, the now-deceased opposition leader to Vladimir Putin. He dedicated his life to exposing corruption in Russia, and paid the ultimate price for going against those in power.

Democracy is a fragile thing. Once the people in power have too much power, they use that power to entrench and protect themselves from opposition. Such appears to be the case in Russia, where Navalny fought the power but the power ultimately shut him down.

In the book, Navalny shares with the world where he comes from, what he tried to do and why, and details the governments shenanigans that ultimately led to his downfall.

I highly recommend the book to anyone interested in this topic.

Karsan Value Funds: 2025 Q1 Results

noreply@blogger.com (Saj Karsan) — Fri, 04 Apr 2025 13:24:00 +0000

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the first quarter ended March 31st, 2025, KVF lost $2.80 per share, reducing the value of each share to $74.26. This represents a negative 4.5% pre-tax return, which exactly matches this quarter's S&P 500 return, while the Russell 2000 lost 10% and the S&P/TSX returned almost 1%.

More than 100% of KVF's losses this quarter were due to the 27% decline in KVF's top position, ADF Group (DRX). This position has been a major contributor to returns in the past, but because of it's size now, volatility in this stock will cause volatility in KVF's returns.

Helping mitigate this quarter's losses was the cash receipt from the legal settlement over Alloy Steel. KVF sued over the unfairness of the Alloy Steel takeover, and after many years, the cash was finally received. You can read more about the case here.

KVF sold out of its CULP position this quarter, as the turnaround just isn't happening as fast as I would like. KVF also sold out of its AGAE position, as management has undertaken a more risky direction than when KVF first purchased shares. Because the shares of these two issues were purchased with such large margins of safety, the shares were sold at a profit despite the financial losses these businesses are currently seeing.

This quarter, KVF also finally realized the cash payment from the TARO buyout. This was a profitable investment for KVF, but the buyout price was kept deliberately low in my opinion, to the disadvantage of minority shareholders.

Prices for many issues fell this quarter, but unlike previous market dips, it became harder to find value rather than easier. The tariff situation has made it more difficult to evaluate margins of safety. As a result, KVF's cash position grew this quarter despite the general decline in stock prices.

That said, KVF still initiated new positions in the quarter. One example is Beazer Homes (BZH), which fell to a fraction of its book value as there are fears of a slowdown in demand for new homes. In the short-term, this may be true, but in the long term the ability to buy Beazer's land and inventory at a fraction of its historical cost is likely to pay off. The company appears to agree, as it pivoted to a share buyback initiative following the price drop; this is exactly how I like to see management behave when its shares trade at a discount.

KVF's income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

Everything is Predictable

noreply@blogger.com (Saj Karsan) — Wed, 19 Mar 2025 23:57:00 +0000

Tom Chivers' book Everything is Predictable is a fantastic dive into a formula known as Bayes' theorem. A book about a formula sounds extremely boring, but its application is extremely useful in everyday life.

Humans appear to have a built-in mechanism for employing something like Bayes' theorem when we encounter new information, even when we don't realize it. The author cites a number of examples. It also helps explain why we have different reactions to new info: our different priors.

But when we use the theorem explictly, we can really harness its power. The authors pits Bayes' type thinking against other probabilistic schools (like stats), but I think they can all be very useful depending on the circumstance.

The most interesting part of the book is the real-world applications that Bayes can be applied to. For example, I've previously believed that medical pre-screens should be how we conduct health-care, in order to find little problems before they become big problems. With the help of some calculations as illustrated by Chivers', I now understand this presents its own set of problems that may cost more than the benefits!

If you think probabilistically, I think you will enjoy this book.

Trusting in Claros Mortgage

noreply@blogger.com (Saj Karsan) — Fri, 14 Feb 2025 19:06:00 +0000

Claros Mortgage Trust trades at an 80% discount to book value, despite a more measured decline in book value per share.
The company's high debt level amplifies the impact of asset write-downs on equity value, contributing to the stock's decline.
Management's expertise and low exposure to troubled office space, along with a focus on multifamily projects, offer some stability.
The recent dividend cancellation likely caused a non-financial share price drop, presenting a potential buying opportunity for undervalued shares.

Sachem Capital

noreply@blogger.com (Saj Karsan) — Sat, 18 Jan 2025 01:09:00 +0000

First mortgage real-estate lender Sachem Capital (SACH) has seen its shares annihilated as of late, having declined almost 80% from their 2022 high. This puts it at a 73% discount to book value, making it a very enticing investment from a value standpoint.

The company's CEO bought some shares about 2 months ago, and stated on the company's most recent conference call that he believes the shares to be undervalued. The company has also dramatically slowed its lending, so is bringing in more cash than is leaving, which should shore up the balance sheet.

But there are a few items which reduce the potential value of this investment.

First, common shares are not the only claim on the company's book value. There is a significant number of preference shares, which take a big bite out of that headline discount.

Second, the company is in the process of selling some of its mortgages for 70% of their remaining unpaid principal. Eek! That is a massive discount, and suggests the company made some big mistakes when it issued these loans during the good times. Not only can you go ahead and knock some more millions off the discount for this particular deal (albeit less some reserves for these loans that have already been made), but there are other non-performing loans on the books that should probably be given big discounts as well.

If it were just these two issues, I could probably pinch my nose, make some conservative write-downs, and still be willing to take a poke at this stinker. But there is another red flag that is keeping me away: what the company is doing with its excess cash. Rather than buy back shares at what is still a large discount, management is instead investing good money into non-controlling stakes in some investment partnership.

Maybe that partnership turns into the next NVIDIA, who am I to judge? But this behaviour is not that of an owner. It's that of someone more interested in rent-seeking off of shareholders rather than shareholder return. They've invested $51 million in this partnership, which is almost Sachem's entire market cap. If management believes in their loan book, this amount of money would have done wonders for shareholder returns in the form of repurchases.

Sure enough, insiders are not big owners of this company. Despite the aforementioned insider purchase from two months ago, the CEO's ownership to annual salary ratio is roughly one, which means he's much better off growing the company than growing returns. He's doing exactly what his incentives are telling him to. This company may be ripe for an activist takeover, however. Interestingly, the preference shares are an intriguing opportunity for fixed-income investors. These trade publicly, are at a discount to face value, and at the current price derive an almost double-digit yield. Disclosure: No position

Karsan Value Funds: 2024 Q4 Results

noreply@blogger.com (Saj Karsan) — Fri, 03 Jan 2025 06:06:00 +0000

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the fourth quarter ended December 31st, 2024, KVF gained $1.22 per share, increasing the value of each share to $77.06. This represents a 2.1% pre-tax return, which exactly matches this quarter's S&P 500 return, while the Russell 2000 was flat and the S&P/TSX returned 3%.

The stocks in KVF's portfolio, however, performed worse than these numbers would suggest, as currency changes helped performance by $1.91 per share. In other words, KVF's stocks were down this quarter; the headline number only looks good because a weak Canadian dollar made our ownership in international stocks more valuable in Canadian dollar terms.

Returns this quarter were hurt by continued weakness in shares of ADF Group, a position that remains a 10-bagger and therefore remains a significant part of the portfolio despite continued sales. In addition, portfolio company Zytronic, trading at a large discount to its assets, appeared poised to go on a risky (i.e. expensive) endeavour to change its business model, causing KVF to sell its shares at a loss.

Helping mitigate these losses were strong returns in the shares of BK Technologies (BKTI), which had a run-up on strong results. KVF no longer owns any shares of this company.

Stock prices are high. It is difficult to find opportunities with large margins of safety. When such opportunities are found, it is often in smaller companies where it's difficult to buy shares at sizes that KVF needs in order to move the needle. As a result, KVF's cash balance has been rising. It is expected to rise further still this quarter as portfolio company VOXX has agreed to a buy-out, which will cause KVF's shares to be sold.

KVF's income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

On The Edge

noreply@blogger.com (Saj Karsan) — Thu, 02 Jan 2025 19:32:00 +0000

I'm an avid consumer of Nate Silver's work, so I was excited to read his new book On the Edge. It's a book about mastering risk, and the people who seek to gain advantages through superior risk management.

There were some interesting sections. For example, the section on Sam Bankman-Fried was pretty inciteful as SBF granted Silver some interviews just as FTX was collapsing. I also found the AI section very interesting.

But otherwise, I found the book too long and difficult to get through. I'm usually pretty quick to put books down nowadays if they can't hold my interest, but I made an exception for Silver and as a result I read less during this period than I otherwise would have. I much preferred (and highly recommend) his other book, The Signal and the Noise.

Deep Nutrition

noreply@blogger.com (Saj Karsan) — Wed, 09 Oct 2024 23:01:00 +0000

My dive into the world of health and nutrition continues as I recently read Deep Nutrition by Catherine Shanahan, MD. The book covers a lot of topics about nutrition, ranging broadly from our evolutionary history to the nitty gritty of how to make a healthy salad dressing.

The book formally introduced me to two new areas I need to learn more about. The first is that seed oils are bad for you, even uncooked. These oils have already been intensely heated (that's how they are extracted for maximum value by their manufacturers) and therefore changed into molecules our bodies have not been conditioned to handle well, leading to some long-term problems. Sometimes I'll come out of a restaurant thinking I did a good job avoiding sugar, and yet find that my weight still rose more than expected. The restaurant's liberal use of seed oils may be the reason.

The second is the field of epigenetics. While our genes already exist and get passed down to our descendants, what turns those genes on and off are influenced by our environment, and those "epigenes" are indeed passed down to future generations. As a student of the whole Darwin random-mutation/natural-selection process, some of the author's discussions sounded unbelievable to me, but I look forward to learning more.

I recommend the book to anyone looking to eat healthier.

Karsan Value Funds: 2024 Q3 Results

noreply@blogger.com (Saj Karsan) — Fri, 04 Oct 2024 13:06:00 +0000

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the third quarter ended September 30th, 2024, KVF lost $1.17 per share, reducing the value of each share to $75.84. This represents a 1.5% pre-tax loss, comparing poorly with the S&P 500, the Russell 2000 and the S&P/TSX, which were all up in the mid-to-high single-digit range.

One stock accounted for about 600% of this quarter's loss, meaning the rest of the portfolio was quite positive. That stock was KVF's largest holding, which fell from $16 to $11. Its price is still ten times higher than KVF's initial cost basis, and the business itself is doing fine. But because it had become such a large position due to its appreciation, when it fell it had a huge effect on KVF's returns.

Last quarter, I felt like a fool for selling so much of it as it appreciated over the last few years. This quarter, I feel like a fool for not selling more of it. The market is fickle, as are opinions that are based on it!

Mitigating this quarter's loss was an incredible stroke of lucky timing on shares of Audiovoxx. Just as I completed purchasing shares of the company (for the reasons outlined here), it announced a potential sale of the entire company, sending the share price dramatically higher.

Currency gains also helped returns by $0.23 per share in the quarter.

There remain some attractive prices for companies in the small-cap space. KVF has been building some positions in companies that will hopefully generate strong returns in the years to come. But the short-term remains unpredictable. Losses can continue for several quarters or even years. The important thing is to continue to be opportunistic with pricing in order to secure the kinds of margins of safety that deliver strong returns in the long run.

KVF's income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

Little 5 Sporting Goods

noreply@blogger.com (Saj Karsan) — Fri, 30 Aug 2024 19:26:00 +0000

Big Five Sporting Goods is no longer worthy of its name, its stock price having been harpooned more than 95% from its 2021 high. The sporting goods retailer of 425 stores trades for just $40 million, or about $94,000 per store. But the company's inventory averages $680,000 per store, so this is worth a closer look!

The company's tangible book value is $225 million, for a price to book ratio of 18%. The reason for the massive discount is a drop in same-store sales resulting in a negative turn on the income statement, and cancelation of the dividend. The former darling has lost money for three straight quarters, and has guided to another loss in the current quarter. But the way I see it, the risk reward ratio is very favourable to the investor at the current price, even though there is a non-zero risk of total loss here.

Big Five has assets of $669 million and liabilities of $443 million.

The liabilities are mostly made up of lease obligations. Over time, these will roll off the books through the normal course of business as the company closes more stores than it opens and re-negotiates terms to avoid burning cash. We don't need management to be rocket scientists here, but simply let stores close that are doing poorly and keep the stores that are worth keeping.

The assets are mostly made up of inventory ($290 million) and the rights to use the stores (the asset side of the lease obligations). Every investor will have his own preferences for how to discount the assets to determine a conservative value of what they're worth. Myself, I end up chopping off some $75 million to arrive at my adjusted book value of $6.64, still 3.5 times the current stock price.

As a sanity check, I compare my $75 million haircut to the current quarter's guidance. The most pessimistic end of the company's guidance range is for a loss of $0.35 per share, or $8 million. If the company continued to do this for 9 more quarters, then it would hit my $75 million haircut, but that's a lot of time to turn things around.

This is no sure-thing, however. Things could spiral out of control due to a poor economy or competitor actions that bankrupt Big Five. For that reason, I consider this only a basket-sized position. The odds of a triple or quadruple are pretty good here in my opinion (what it would require is a return to consistent profitability), but the odds of a zero are also significant!

Though management is slowly closing stores and cutting capex, I'd like to see more significant efforts in this area, in order to protect the downside. The California (where roughly half of Big Five's stores are located) minimum wage increases appear to have run their course, so hopefully there are no more headwinds on that front.

There is also the potential that investors can be saved by an activist or bought out by a competitor or someone who thinks they can do better. There is very little insider ownership, so with a market cap of just $40 million, there are a ton of potential suitors. Even I, with my tiny fund, could take a run at controlling this company at its current price. (But I won't, as that's not what I do.)

The risk of complete loss here is very real. But the upside potential of a multi-bagger is also a strong possibility, in my opinion. As a result, I think Big Five is an excellent candidate for a basket-sized position.

Author has a long position in BGFV

VOXX Unpopular

noreply@blogger.com (Saj Karsan) — Fri, 26 Jul 2024 19:20:00 +0000

Audiovoxx (VOXX) is a cyclical manufacturer of automotive and consumer electronics. The auto industry is going through a downturn at the moment, so Audiovoxx has been losing money and sitting on high inventory levels. But the stock has fallen almost 90% from its 2021 high, which may be on the excessive side, resulting in a potential opportunity.

The company trades for $55 million despite a tangible book value of $160 million! Much of this is made up of current assets like inventories and receivables.

Though Audiovoxx had negative EBIT of $7 million last quarter, management has vowed to cut expenses such that it will be profitable by the end of the year. They are being pretty transparent about how they plan to do so, which gives me even more confidence that the stock trades too low.

First, they have a sale contract on their facility in Orlando, which at closing will reduce debt by $19 million. Manufacturing will now be done in Mexico for lower costs.

Second, they are in "advanced discussions" to sell two "non-core" brands, which in aggregate could add up to tens of millions in proceeds. The term "non-core" is an interesting one. I always wonder how companies come to decide something is "non-core". It must have been considered "core" or "core-potential" at some point, or they would not have entered the business. So my best guess is that "non-core" means it's losing money right now, in which case a sale likely helps improve the bottom-line.

We don't need these guys to be rocket scientists for us to make a lot of money here. If they can cut costs by selling unprofitable lines, reducing overhead, and consolidating their footprint, a return to something near book value seems likely. If they can make a hit product by some accident (like they occasionally have in the past), returns from this level would be amazing.

There is a dual-class share structure here though, so don't expect someone to come along and bail us out if Plan A fails. We are stuck with this board, for better or worse.

Good luck!

Disclosure: Author is LONG shares of VOXX

Karsan Value Funds: 2024 Q2 Results

noreply@blogger.com (Saj Karsan) — Fri, 05 Jul 2024 13:16:00 +0000

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the second quarter ended June 30th, 2024, KVF gained $8.51 per share, increasing the value of each share to $77.01. This represents a 16% pre-tax return, comparing well with the S&P 500's 4% return, and the Russell 2000 and S&P/TSX's low single-digit negative returns. Currency gains helped returns by $0.40 per share in the quarter.

Most of KVF's $1.7 million in pre-tax gains this quarter can be attributed to just one stock. In 2020, while the financial markets were panicking, I bought shares of a little known Quebecois engineering/industrial company trading at a massive discount to its book value. Shares were trading for about $1 each, though I was kicking myself for not buying them at 50 cents just months earlier. Today, the shares trade for more than $15 each, having doubled this quarter.

Though I've been selling the shares all the way up, it still remains an outsized position for KVF because of its massive appreciation over the last few years. The sales were done to reduce KVF's downside, but so far all they've done is reduce its upside! In fact, if I had just taken a massive vacation at the beginning of this quarter, KVF's investors would have been much better off. The hope is that the proceeds from these sales have been or will be deployed in the next stock that goes this wild, but there are no guarantees there.

There are some small-cap stocks available at favourable prices at the moment, in my opinion. But valuations are nowhere close to being as attractive as they were in 2020; those valuations have fueled KVF's remarkable returns since then, and are still paying off to this day as described above.

KVF's income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

Troubled

noreply@blogger.com (Saj Karsan) — Fri, 10 May 2024 23:58:00 +0000

The people I grew up with and the people I know were generally from two-parent homes where the parents were generally the biological parents. So it was with a lot of fascination that I read Rob Henderson's book Troubled, which was a look inside the lives of his childhood network, where most kids were from single-families or foster care.

It reminded me a lot of Hillbilly Elegy, JD Vance's book of a similar nature. Like Vance, Henderson managed to escape the destructive lifestyles around him to become a Yale graduate.

The stories of self-destructive behaviour from those in Henderson's past are sad and bewildering. But they are so much more likely to happen to children of broken homes.

The most interesting part of the book may be the last couple of chapters, where Henderson offers some solutions to reduce the problems that plague this population segment. Henderson blames ideologies of the elite (e.g. defunding police, permissive drug/alcohol use policies, polyamourous relations) for a lot of society's problems. The vulnerable need police protection, avoidance of substances, and traditional family units to succeed. But the elites hypocritically benefit or are robust enough to survive the harmful effects of the ideologies they profess, so life becomes relatively worse for those who don't.

I highly recommend the book.

What I Learned About Investing From Darwin

noreply@blogger.com (Saj Karsan) — Wed, 01 May 2024 22:09:00 +0000

What I Learned About Investing from Darwin is a terrific book that made me think deeply about my portfolio, particularly when it comes to selling.

Author Pulak Prasad runs a fund and follows Buffett's principles seemingly to a T, but in India. He buys terrific Indian companies (as measured by ROIC) when they go on sale, and then never sells them as long as the business remains strong.

In the book, he goes through a great deal of market and business lessons through the lens of Darwin's theory of natural selection.

The question of when to sell is a difficult one for value investors, including myself, to grapple with. But it isn't for Prasad, who never sells a great company no matter how generous a valuation the market gives it.

But I struggle with this point of view. Logically, I don't see how it doesn't make more sense to sell even an outstanding company at a ridiculously high P/E in order to buy a different outstanding company at a much more acceptable P/E. But at the same time, KVF's portfolio would have done much better had I held on to some cheaply acquired shares of Apple (2016) and Microsoft (2012) rather than sell them when they crossed some hypothetical estimate of intrinsic value.

I'm much more liable to hold on to great companies now than I was before, but that may just lead to more round trips going forward (i.e. stocks that rise, and then fall back down without my having sold).

The never-ending "when to sell" thought-process continues...