ett purchase, 147–148Nike Inc. (NKE)brand story, 71earnings, 72holdings, 71–72ROE, 72Nippon Telephone, 124Non-cash charges, 47–48Northrop, collar (drop), 113OOil embargo (disaster), 209–210Open TV (OPTV), bid. See ACTVOperating levels, 49Operating margin, 48Options market, liquidity,104–105Options-related expenses, 47Orrico, John (interview), 81,102–119anticipation, 112–113background, 102deals, 109–112playing, 117portfoliobalance, 103selection, 102–103prime broker, interaction, 110sellers, interaction, 110–111stock examination, 105–107Otter Tail, 232Outback Steakhouse Inc. (OSI)book/share, growth, 74holdings, 73–74ROE, 74PPabrai, Mohnish (interview),179–190background, 180concentrated portfolio,initiation, 181–182edicts, 184–185investment funds, 180–181opinion. See Buffett
special situations, discovery,186Pampered Chef, 1Pan American Silver, 232Partch, Megan, 130Partnership rules, 181–182Partsbase, Inc. (PRTS), 24, 27Patent portfolio, quality, 16Pearl Harbor, bombing(disaster), 204–205Peer-group valuations, 108Perelman, Ron, 135Pfizer acquisition. See EsperionTherapeuticsPharmacyclics (PCYC), 24PIPE. See Private Investment inPublic EquityPNM, 232Poland, invasion (disaster), 204Portfolios, 118diversification, 17performance, 18Prepayment risk, 224–225Price-to-book ratio, 9Price-to-earnings (P/E) ratios, 3,47, 191increase, 48multiples, 109Price-to-free-cash-flow ratios,170Prime broker interaction.See OrricoPrivate Investment in PublicEquity (PIPE), 5,129–132, 177deals, 140–141, 238financing, 139investment, 70, 136types, 131Profit realization, 38Promises safety, 19Pseudo equity investments, 195PTIE, 234Pullback. See Ten percentpullback method,alternative, 218–219Pulvino, Todd, 94, 125–126RReal estate investment trust(REIT), 150–151, 180purchases, 154Real Networks (RNWK),performance, 229Regulatory risk, 83, 117Relative value arbitrage, 11, 81,121. See alsoGuggenheim ExplorationCompanyRepublic Services, 231Research & development (R&D)expansion, focus, 15Return on capital (ROC), 48
Return on equity (ROE), 3, 48companies, 9decrease. See Coca-ColaReturn on investment (ROI), 41Revenuesstability, 23targets, 108Reverse merger, 22. See alsoSOFNRichey, Matthew, 170Rick, Timothy, 183Riskarbitrage, 82diversification, 38management, 112Risk Arbitrage Index Manager(RAIM), 96RJR Nabisco, bonds/target,146–147Royal Dutch Shell, interaction.See Long-Term CapitalManagementRoyce Funds, 23SSafety margin, 1, 19concept, 12, 35demands, 8–9determination, 82double-edged margin, 79examination, 140Graham-Dodd sense, 129increase, 38justification, 131obsession, 81quantification, 170–171Salad Oil Scandal, 43–44, 80,236Sales growth, focus, 15Salomon Incorporated, analysis,134–136Sanborn. See D. A. SanbornSanborn Map, 35SAP, Commerce One Softwarepartnership, 178Satisfactory return, 19Schmitz, John, 48Schnitzer Steel, 232–234payment, 233Scholes, Myron, 225Scott, Walter, 137, 138Secondary offering, 143Securities and ExchangeCommission (SEC)actions, 116filing, 152requirements, 130See’s Candles, 1, 7Senior Housing PropertiesTrust, 153Sequoia Fund, 184–185Serverance packages, 21Shared activism, 232
246Shareholderscommunication/openness, 15dividends, 22return, management incentive,21Sharesbuyback, 67purchasers, 131value, 21Shorting, frequency, 86Short-term market forecasts,193Short-term profits/losses, 41Short-term trading, 81Sialm, Clemens, 17Siemens, 169Silver, Buffett investment, 10Simpson, Lou, 64, 67Size effect, 216Sleary, Sean, 48Smith, Adam, 5–6Smith, Lawrence, 199SOFN, reverse merger, 22Source Capital, 162–163South Korea, North Koreaninvasion (disaster), 205–206Spin-offs, 5, 6Spreadsnarrowing. See Arbitragerelationship. See Valuationstightness, 113–114trades. See Asset-backedsecuritiesvalue, 84Sprint, Worldcom purchasefailure, 67SQUARZ bonds (2003), 44Stafford, Erik, 125–126Standard & Poor’s500 (S&P500), 191, 198, 209bidder status, 101index funds, 171index, 196McGraw-Hill ownership, 70Mid-cap 400, 216, 220Stanton, Jack, 79–80Stefanescu, Irina, 96Stewart Enterprises, valuationparameters, 186–188Stock market, 37return, 6, 42Stockholdersapproval, risk, 94disapproval, 80Stocksbasket, shorting, 86–87deals, 85Graham-Dodd analysis, 81–82investment, 12liquidation, 37value, 79Moody’s report, 3–4price movement, 86–87, 195
INDEX
purchaseBuffett evaluation, 42example, 173–174risk, 115safety, 19sale, Buffett evaluation, 42sell-off, irrationality, 23shorting, 83example, 177–179trades, 47worst-case scenario, 116–118Stock-specific risk, 86Strategic Distribution, Inc.(STRD), 24, 32Street Insight, 21Style drift, 100Suntrust Banks Inc. (STI),holdings, 74Syncor International, CardinalHealth acquisition, 115Systemic risk, 46TTakeover, 84. See also Hostiletakeoverbid, 87candidates, 22offer, 23Tanger Factory Outlet Centers,personal holdings,151–152Tax rulings, withholding, 80Tax-exempt bonds, 146Technology, Buffett investment,138Ten percent pullback, 216–218Texas National Petroleum (TNP)merger arbitrage situation, 83Union Oil acquisition, 93Thaler, Richard, 125TheGlobe, 21Thorough analysis, 19Tier one investment bank, 42Tilson, Whitney, 174, 193Toxic convertibles, 132Train, John, 163TRW deal, 113Tsai, Gerry, 162TSCM, business turnaround, 22Twenty percent discount, 131Tyco, 67, 214UUbid, interaction. See CreativeComputersUnion Oil of Californiaacquisition. See TexasNational Petroleumcommon stock, 93Upside risk, 87U.S. Department of Justice, 116First Data settlement, 85impact, 66
U.S. economy, growth, 48U.S. Treasury bills, 42interest rates, 47U.S. Treasury notes, 224US Air, investment, 19VValuations, spreads(relationship), 115Value investing, 4–6Value investors, 68, 174–175ValueClick (VCLK), 24, 29,173–176Value-Weighted Risk Arbitrage(VWRA), 96VarsityBooks, 21VCNT, Microsoft takeover, 22Venture capitalist portfolio,45Viatical and Life-SettlementAssociation of America,222WWarrants, usage, 93Washington Post Co. (WPO), 49,195board, Buffett influence,75–76holdings, 74–76shares, accumulation, 7Washington Public PowerSupply System (WPPSS),145–146Wells Fargo (WFC), holdings,77West End Capital Management,223Western Union, 61White knight, involvement, 83,132, 137Williams Companies, analysis,139–141Wilmers, Robert, 70Workouts, 5, 6, 80–81trades, 9World Trade Centerfirst bombing (disaster),212–213terrorist attack (disaster),213–215, 238Worldcom, 214marketing expense,amortization, 48purchase failure. See SprintYYield curve bets, 224ZZero-interest loan, 44Zheng, Lu, 17Zumwalt, J. Kenton, 161
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