• 008 05/22/2014 Buy or Rent: An Elegant Solution

    I am consistently impressed by the range of free tools websites are offering to help readers make informed decisions. The New York Times posted a LINK this morning for an online calculator that uses a series of simple inputs to determine the economics of buying vs. renting a home. The user interface is elegant (see photo above) and so inviting you may feel compelled to test it even if you're already committed to a 30 year mortgage...

    Taken from the website:

    The choice between buying a home and renting one is among the biggest financial decisions that many adults make. But the costs of buying are more varied and complicated than for renting, making it hard to tell which is a better deal. To help you answer this question, our calculator takes the most important costs associated with buying a house and computes the equivalent monthly rent. 




  • 007 05/17/2014

    JPE.com may be the coolest private equity website I’ve seen. It has one page (excluding Contact), and just lists the professional accomplishments of the man behind the fund: Bradley S. Jacbos. Turns out he has founded or co-founded four companies, all of which became multi-billion dollar entities:

    In 1997, Mr. Jacobs co-founded United Rentals, Inc. (NYSE: URI) to capitalize on the early-stage consolidation opportunities in the construction equipment rental industry in North America. Under his direction, United Rentals achieved industry leadership in just 13 months, with a brand globally recognized for its quality of operations and depth of resources.

    As chairman of United Rentals from 1997 through 2007, Mr. Jacobs' strategic vision was instrumental in helping the company attain $3.9 billion in revenues, with more than 700 branch locations, 13,000 employees, and a ranking as the 536th largest public corporation in America by Fortune magazine. During his chairmanship, United Rentals stock outperformed the S&P 500 Index by 2.2 times.


    In 1989, Mr. Jacobs founded United Waste Systems, Inc. During his eight years as chairman and chief executive officer, he built the company into the fifth largest solid waste management business in North America. United Waste Systems generated pre-tax margins that were among the highest in its industry. Its stock outperformed the S&P 500 Index by 5.6 times and delivered a 55% compound annual rate of return from IPO until the company was sold for $2.5 billion in 1997. At the time of sale, the company had 40 landfills, 86 collection companies and 79 transfer and recycling stations in 25 states.


    In 1984, Mr. Jacobs founded Hamilton Resources (UK) Ltd., a worldwide oil trading company, and served as its chairman and chief operating officer through 1989. During that time, he grew the company to annual revenues of approximately $1 billion through the execution of numerous large contracts with major oil companies and oil-producing countries and complex countertrade transactions.


    In 1979, Mr. Jacobs co-founded Amerex Oil Associates, Inc. and served as its chief executive until the company was sold in 1983. Mr. Jacobs led the team that grew Amerex from a concept into one of the world's largest oil brokerage firms, with an annual gross contract volume of approximately $4.7 billion and offices in Houston, London, Tokyo and New Jersey. He oversaw all aspects of the business, including brokerage activities for refined petroleum products, residual fuels and energy futures, and personally directed all brokerage operations for international and domestic crude oil.

    I came across the website while reading the 10-K for XPO Logisitics, where he is presently the Chairman and CEO. According to the filings, Jacobs Private Equity, LLC is the largest stockholder. With so much invested, it will be interesting to see what he accomplishes in this role. He is certainly not timid. In the letter to shareholders he lays out his 2014 objectives in bold type:

    “By year-end 2014, we expect to be on annual run rates of $2.75 billion in total revenue and $100 million in EBITDA. We anticipate acquiring at least another $400 million of revenue in 2014, excluding Pacer.”

    Disclosure: I have no positions in any stocks mentioned. 


  • 006 05/16/2014

    We probably look at 175 – 200 investment opportunities annually (someone actually employs me...). Most of these are brought to us by investment banks, and some come with projections offering a range of outcomes. The best-case projection often looks like a hockey stick: historically flat or with a slight positive trend, but showing explosive growth for the projected period. In stark contrast, the worst-case projection hardly ever shows revenue declining. At worst (according to the materials provided) revenues will remain constant.

    We then take this information and develop our own scenarios to appropriately stress test various capital structures under a variety of conditions. In this process I occasionally think back to this entertaining quote from Howard Marks:

    We hear a lot about “worst-case” projections, but they often turn out not to be negative enough. I tell my father’s story of the gambler who lost regularly. One day he heard about a race with only one horse in it, so he bet the rent money. Halfway around the track, the horse jumped over the fence and ran away. Invariably things can get worse than people expect. Maybe “worst-case” means “the worst we’ve seen in the past.” But that doesn’t mean things can’t be worse in the future. In 2007, many people’s worst-case assumptions were exceeded.

    About Howard Marks: 

    “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book.”
    Warren Buffett


Models are:
A) really boring
B) pretty sweet
C) super important
D) somewhat easy
E) kind of hard
F) fun
G) all of the above



*Answers a, b, c, d, e, f and g are all correct.