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Monday, September 12, 2005

Disclosure

To avoid having people front-running my possible investments, I will typically keep posts in draft (not publicly posted) until I finish buying the stock. This was the case with EDAC and probably for future investments as well. My intent with these notes is to keep a record of what I'm doing for my own benefit (I have a terrible memory). Allowing other people to observe these notes makes the process* I use for making investment decisions a bit more specific/measurable/accountable (hopefully) regardless of whether anyone actually reads them or not. If other people gain from these posts either for investment ideas or whatever else, then that's fine. But I intend to buy into stocks before posting about them and selling the stocks before making that clear here. If I were writing articles for an investment magazine, it would be unethical. But these are just my notes that I happen to be posting for anyone to see.

* there are parts of that process I don't post here, such as my checklist.

Comments:
Bruce, a perfectly reasonable policy. Your ideas are valuable and your approach to this blog is generous as it is. And hey, it's not like you single handedly blasted Edac into space today! The company and its valuation look very good, I'm just wondering how they will fare in the next downturn, esp. since it seems like a cyclical business and their renaissance in the last couple of years has coincided with economic tailwinds. Given the geography, I would think their long time big customer is Pratt & Whitney, a company dear to my heart as it employed my grandmother during and after WWII, thereby lifting the family from depression era poverty. Best, Jay
 
East Hartford is about 14 miles from Farmington, so that would make sense. P&W revenues are up to $2.27 million in Q2 vs $2.01 million in Q1 and both are up from the year before. I believe civil air travel and the military gas turbine engine business won't be disappearing any time soon. I have another investment related to military plane repair, CPI Aerostructures (CVU). It's turning into a waiting game for when the planes come back from Iraq and get repaired/overhauled. It'll happen eventually.

I've been meaning to make some sort of disclosure like the one I made. At times, I've posted stuff before I bought it and then worried about someone else driving the price up. I wanted to make it clear what I was doing and why.
 
I agree with you on aerospace, it's the recently fast growing
non-aerospace part of the business that I would be more concerned about in the next downturn. Jay
 
Hi Bruce, you're my new hero. Thanks for sharing. I'm curious about your process so I wanted to be clear about when you wrote the first post on EDAC. Did you do that before the Q2 earnings came out and then came the other two posts and a buy decision? Or was all this at the same time around Sept 10? You didn't post any of this until Sept, right?, but were you working on it before then?
 
Regarding the investment in EDAC I think it is an attractive possibility but so far, after a couple hours of research, I'm not as optimistic as you regarding the "2.5M in FCF". That seems about right for EBIT but I subtract about 600k each for both taxes that will kick in next year and interest. I don't see any gains from working capital or depr/cap-ex differences so that leaves about 1.3M for FCF and the stock seems to be at a reasonable level currently around 3 for that level of FCF and growth prospects.
 
Bubby,

I write stuff down as I'm going through it and I usually don't skip ahead.

As far as taxes go, I can see that something is off. It looks like I removed the benefit from taxes, but didn't add in a typical amount of tax. And I was just recently talking about not accounting for NOLs on TMF regarding someone's stock pick. D'oh!

Looks like I'll have to update my "mistakes" post.
 
Bubby,

Getting back to your first question again, the three posts were all done on Sept 10, but I generally keep stuff in draft form (where no one else can see it) until I'm done buying stock. On Sept 10, the Q2 earnings had been out since August 8.

The earliest I could have possibly looked at EDAC was Sept 9, 2005. You can rely on the dates and times stamped on posts, although they're sometimes too early because I start saving results and adding to them over time. So if a post says 7:00 AM Saturday, that's when I created it. There are times when I keep adding to posts for two or even three days, but not much more than that. I use the "UPDATE" tag when I add something much later, unless it's correcting a spelling mistake or something not material... I think. I've probably violated that rule at times. I've been trying to improve my methods over time, so the way I do things changes.
 
Thanks for the clarification. So your Blog here is going to be a combination of following existing investments, following or eliminating potential investments, and occasionally a new investment will appear that previoiusly had not been mentioned. It sounds like most of your buy decisions come after some months of following a situation but sometimes the decision comes quickly. I'm the same way. Most of my best investments come after just a few hours of DD but also some losers happen that way as well.

It might be helpful if you date those "UPDATES" and I'm assuming there is no way we would know when a post has been updated? Also is there a way for us to know when a comment has been posted to an old thread? You must be able to track that I assume? I'm new to blogs, so sorry if these questions are stupid, I'm just trying to figure out the best way to navigate around here.
 
Bubby,

This blog is really just notes for whatever I'm doing with investing. You'll notice the short detour I made in looking at startup community banks. I've gone in various directions with investing, including oil paintings in the late 1990s which was brief but profitable.

Normally, it takes me a week or so to determine if something is a good investment. Sometimes less, sometimes more. I've been covering a lot of ground in the last few months, probably too much too fast.

I've known about the lack of dates on updates and even comments. Sometimes I put dates on updates, sometimes I've missed. I really don't plan to have any sort of flagging when I update something... and I'll definitely be going back and evaluating things again over the next week or more. I did update something with BakBone Software very recently.

This blog is definitely different from other blogs since it's really just notes for myself which other people are free to observe.
 
I understand and thanks again Bruce. I will probably stick my nose in on occasion if I think I have a worthy comment.
 
Bubby,

I definitely welcome your comments.
 
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