The stock market has been in a steady downtrend these past few weeks, and we have approached the 10% level that indicates the possibility of an inventory creation event. My approach to the markets, and especially my time frame, allow me the comfort of viewing market declines positive events. Although my account may experience losses, I view these time periods a chance to buy more assets and decent businesses at a cheap price.
As long as I am confident that the stocks I own are safe and cheap, I don't care much about what the market does over the five to 10 years that I intend to own them. If things get too richly priced, I will sell them. If they decline and become cheap, I will buy them. In the interim, I will search for other stocks that fit my criteria or offer a high risk/reward. Oddly enough, this approach of buying low and selling high seems to work as well as (if not better than) most of the complex trading strategies I have run across over the years.
When I checked for new inventory this morning, I ran one of my basic market decline screens. I looked for stocks that had dropped more than the market in the past few months, that were in the S&P 500 and that had fallen below tangible book value. The name that really stood out on the list was Leucadia National (LUK). The shares have declined back to just under tangible book value. This is a stock that I have owned and followed for years, and I am excited about the opportunity to buy it on the cheap again.
Leucadia National is an incredible collection of businesses. The company is involved in natural gas, coal gasification, liquefied natural gas, beef processing, wine, real estate, casinos, biotech, plastics and timber. Leucadia National also owns large stakes in several public companies, including Jefferies (JEF) and Mueller Industries (MLI). Since 1978, Ian Cumming and Joseph Steinberg have grown the company's book value by 18.5% annually. They are distressed and vulture investors, who attempt to buy out-of-favor companies and hold them until they approve. If you understand why they bought the Biloxi Hard Rock casino after Katrina and partnered with Berkshire Hathaway (BRK.A/BRK.B) in a mortgage servicing and commercial mortgage origination company in 2009, you start to understand how these guys approach business.
I can give you a lot of reasons to own this stock. You have a collection of businesses bought on the cheap with brilliant management. You also have a collection of businesses that will respond positively if all the global money printing leads to a high inflation rate. At 90% of tangible book, the stock is not a solid buy on its own merits, but it may prove to be an inflation hedge for your portfolio.
I do not have the room here to break down all the businesses that Leucadia National owns and the company's corporate strategy. Go to the bare bones website for a better overview of the company. While you are there, read the past 30 years of annual reports and shareholder letter for an MBA in opportunistic, patient vulture investing.