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Apr 21 14

Why We Continue to Think the ISS Approach Toward Corporate Governance and Executive Pay is Moronic

by Cove Street Capital



The opinions expressed herein are those of Cove Street Capital and are subject to change without notice. Past performance is not a guarantee or indicator of future results. Consider the investment objectives, risks, and expenses before investing. You should not consider the information in this blog a recommendation to buy or sell any particular security and this should not be considered as investment advice of any kind. You should not assume that any of the securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of the securities listed in this report. Recommendations made for the past year are available upon request. These securities may not be in an account’s portfolio by the time this report has been received, or may have been repurchased for an account’s portfolio. These securities do not represent an entire account’s portfolio and may represent only a small percentage of the account’s portfolio. Partners, employees or their family members may have a position in securities mentioned herein. CSC was established in 2011 and is registered under the Investment Advisors Act of 1940. Additional information about CSC can be found in our Form ADV Part 2a.

Mar 20 14

CSC Strategy Letter | Number 16 | What Would You Do if You Were Prem Watsa?

by Cove Street Capital

CLICK HERE to download Cove Street Capital’s March 2014 Strategy Letter, Number 16, “What Would You Do if You Were Prem Watsa?”

Jan 24 14


by Cove Street Capital

Here are some thoughts that didn’t make it into our January Strategy Letter but that I wanted to clean off the plate for the New Year:

  • Becoming a celebrity investor as a result of being a serial presenter on the investment conference trail is clearly a cool thing for the investor. Whether the clients benefit commensurately from that point onward is an entirely different question.  Sub-text: there is no correlation between the length of a power-point presentation and the likelihood of investment success.
  • Buy the drug war, sell the flamboyant billionaire. Betting on Mexico has been a better investment than wagering on Brazil over the past five years. You would never know it by the financial press.
  • Bitcoin and public entities associated with Elon Musk are likely to experience a number of eventual disasters. Even if you can’t “value” gold, it at least has been around for 5000 years and still brings smiles when offered in a small blue box with a ribbon. Bitcoin is simply another spelling for tulip and represents a neat fulfillment of a libertarian instinct. The fact remains that betting on the end of the world as we mostly know it has generally proven to be unrewarding (at least as of this writing). Additionally, even if you are right, collecting is likely to prove problematic.

As cool as the Tesla S may be—and as much as you have to love an American visionary—the valuation of the company is absurd in relation to anything but complete global auto domination. I see a magnificent but declining financial arbitrage of what could very well be temporary regulatory policies that do not justify a rapid buildup of fixed costs. In addition, Mr. Musk has committed what seems to be to be the cardinal error: guaranteeing the residual value of three year leases—on a product for which the battery cost represents a huge and utterly unguessable value given the money being presently spent on developing a better mousetrap.  I am only glad I do not run a short fund where I would inevitably be tempted to be terribly early.

  • When your work speaks for itself, don’t interrupt.
  • The way to come to terms with economic inequality is to recognize that the market system is not something that governments either create or effectively manipulate. Markets revolve around sets of unplanned, spontaneous exchanges and thus nobody scripted in inequality and no one is responsible for it. It is simply the price we pay for a general level of prosperity that is unimaginable in any other economic system.
  • People are buying not what is cheap but what is “working,” a sad fact that means equities are in weaker hands and thus are likely to be more volatile. The same risks are always there but currently more people—en masse—are choosing to underweight/ignore them.
Jan 15 14

CSC Strategy Letter | Number 15 | The Fear Pendulum: From End of the World to Market Melt-Up?

by Cove Street Capital

CLICK HERE to download Cove Street Capital’s January 2014 Strategy Letter, Number 15, “The Fear Pendulum: From End of the World to Market Melt-Up?”

Dec 16 13

The Soft Stuff

by Cove Street Capital

Every December, the Cove Street Capital team spends both time and money on behalf of a charity. This year we spent an afternoon at the Alexandria House, a transitional residence providing safe and supportive housing for women and children in the process of moving from an emergency shelter to permanent housing. We helped them prepare for an onslaught of 1,000 kids coming for Mrs. Claus and her gifts and were awed by the staff and its founding director, Judy Vaughan.

There are immense and truly difficult problems that perpetuate a vicious cycle for the many people who are less fortunate. These are day-to-day issues, far from celebrity pleas and fancy dinners. You should give large and give often:

“Be the change you wish to see in the world.”  Mahatma Gandhi

Oct 31 13

CSC Strategy Letter | Number 14 | Steve Jobs Didn’t Give a *!@% About the Debt Ceiling

by Cove Street Capital

CLICK HERE to download Cove Street Capital’s October 2013 Strategy Letter, Number 14, “Steve Jobs Didn’t Give a *!@% About the Debt Ceiling”

Aug 19 13

CSC Strategy Letter | Number 13 |Who Are You Going to Believe—These Non-GAAP Numbers or Your Lying Eyes?

by Cove Street Capital

CLICK HERE to download Cove Street Capital’s August 2013 Strategy Letter, Number 13, “Who Are You Going to Believe—These Non-GAAP Numbers or Your Lying Eyes?”

Jul 2 13

Holiday Reading – Dundee Annual Report

by Cove Street Capital

I am not sure I am 100% in alignment with “Gold is the Answer” but this ramble is worth reading on a number of fronts from a guy who has put up a terrific record and doesn’t get a lot of play south of the border.


CLICK HERE to download.

Jun 11 13

Attention Almost Every Public Company with an A/B Ownership Structure: How to Create 35% More Shareholder Value in a Single Day and Set a Course for Further Gains

by Cove Street Capital

(Reprint) RICHMOND, Va., June 6, 2013 /PRNewswire/ — Media General, Inc. (NYSE: MEG) and privately held New Young Broadcasting Holding Co., Inc., both local broadcast television and digital media companies, today announced a definitive agreement to combine the two companies in an all-stock merger transaction. The new company will retain the Media General name and will remain headquartered in Richmond, VA.

Media General owns 18 network-affiliated stations, and Young owns or operates 12 network-affiliated stations. The combination will create a company with 30 stations operating in 27 markets, reaching 16.5 million, or 14%, of U.S. TV households. On a pro forma basis, 2012 revenues were $605 million, including approximately $115 million of political revenues. 

The new company will have a strong balance sheet, including significant tax carryover net operating losses that will survive the merger, and an enhanced credit profile, creating opportunities to refinance existing debt at a significantly lower cost of capital. The merger will be accretive to free cash flow in the first full year. The companies have identified $25-30 million of operating and financing synergies.

The balance of network affiliations will include CBS (11), NBC (9), ABC (7) Fox (1), CW (1) and MNT (1). Sixteen of the 30 stations are located in the Top 75 DMAs. The new company will be more geographically diverse and will have a presence in more markets that generate strong political revenues. Its increased size will enhance its ability to participate in retransmission revenue growth, share growth of national and digital advertising, and syndicated programming purchasing. 

read more…

Jun 5 13

CSC Strategy Letter | Number 12 | Harleys and Leather Jackets

by Cove Street Capital

CLICK HERE to download Cove Street Capital’s May 2013 Strategy Letter, Number 12, “Harleys and Leather Jackets”