Value Investing Congress West 2007: Recap
As I sit in LAX waiting for our redeye back to Philly, my wife somewhat annoyed that I’d rather write than talk (she just peered over my shoulder, saw what I wrote and now she’s really annoyed…I deserve it), I am reflecting on the excellent Value Investing Congress that ended earlier today (May 9th) in Hollywood.

The Congress, held twice a year, once in NY, and once in CA, is the ultimate gathering (besides Berkshire Hathaway’s annual meeting) of cheapskates, defined as those of us in the investment world who seek to pay as little as we can for a company, with a built-in margin of safety. We are a fickle bunch.

Hats off to Value Investing Congress founders John Schwartz and Whitney Tilson. Two class guys who are well on their way to orchestrating perhaps the best value conference out there. They assembled an excellent slate of speakers, and put on a world class conference.

Here are some of the highlights of the conference:

*Monish Pabrai, with an excerpt from his new book The Dhando Investor. I read this book in one sitting, poolside at the Renaissance Hollywood, just after the conference ended. Pabrai is a natural, and his track record demonstrates this.

*Carlo Cannell, from Cannell Capital, with a somewhat offbeat, and perhaps un-actionable, but still interesting and thought provoking presentation on of one of the new hot markets, Vietnam. Cannell discussed his adventures visiting, and investing in Vietnam, and the potential bargains that exist as this still Communist country begins to see its equity markets come to life, and state owned monopolies are put into public hands. Unfortunately, much of the audience was left with the question; “How do I get exposure?”, a question which unfortunately did not have much of an answer.

*Newcomer Zeke Ashton of Centaur Capital Partners, and his excellent discussion “How Concentrated Should Your Portfolio Be?” Your Cheap Stocks editor was thrilled to hear Ashton mention the concept that our website was built on: Companies Trading Below Net Current Asset Value. Just like us, though, Zeke is not finding many viable candidates these days. Ashton also discussed four actionable ideas , all micro or small caps.

*Robert Hagstrom (What was he doing at a value conference???) discussed “Growth Investing in a Value Based World”. The author of 3 Warren Buffet related books is not exactly a value investor, and proved as much in his discussion of why Amazon will be going through the roof. Still, Hagstrom is an excellent speaker, gave a great presentation, and it never hurts to hear from the other side (growth).

*Legend Bob Rodriguez was on fire, and unapologetic, taking on everything from Morningstar’s tax efficiency calculation to impatient shareholders who never read shareholder letters.

*Whitney Tilson’s discussion of Berkshire Hathaway’s intrinsic value ($150,000 per A share, by Tilson’s calculation) was excellent, and shows why Whitney is an up and comer in the value world.

All in all, this is a great conference, and the east coast version will take place in November. Visit the Value Investing Congress website for more details. See you in November.

The Pickings are Getting Slimmer

Man, we sound like a broken record, and for that we apologize. But we still aren't finding many net/nets these days. As the Dow sets new highs, and the Nasdaq gets back to half of it's peak level, the cupboard housing companies trading below net current asset value is bare. Be that as it may, this week, we list the top five net/nets, by market cap:

Audiovoxx (VOXX)
Atlantic Coast Entertainment Holdings (ACEH)
Zapata Corp (ZAP)
MedicNova Inc (MNOV)
Glu Mobile (GLUU)

Regular readers may recognize Audiovoxx and Zapata, they seem to be perennial net/nets. Each of the others, however, are new to the list.

*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

Investor’s Beware: Wide Bid/Ask Spreads and Market Orders are a Dangerous Combination
As investors, we love to see our stocks heading up (if we are long, that is). I was pleased on 5/1 to see tiny, sometimes troubled, and always mysterious historic document provider Gallery of History (HIST) spike upward about 30%. About time I thought. Finally, the market is catching on to the story: A company that will never make any money, whose major shareholder has not done the company any favors, but whose inventory of historic documents may be worth substantially more than the company’s enterprise value, let alone carrying value.

Upon further inspection, however, this 30% spike actually represented one single 100 share trade. Subsequently, the bid/ask spread headed downward significantly, and it was clear that the price spike was a phantom, created by an eager investor who placed a market order on an illiquid security. Never a wise course of action.

A company such as HIST, with a tiny market cap of $11.5 million, average daily volume of just 2000 shares, and most recent bid/ask spread of 1.91/2.19 is a poster child for one of the small investor’s best friends, the limit order. Placing a market order in a security with such tiny volume, and large spread will just set up the unsuspecting investor for disaster. Who wants to purchase a stock worth $2.00 for $2.75, only to see the next trade at $2.00? And it happens more often than you might imagine.

So, our unknown buyer of 100 overpriced shares of HIST is automatically out 30% of his or her money, granted, that’s less than 50 bucks in this case. But what if that order had been for 1000 shares or 5000 shares? Illiquid security buyers beware. Use limit orders, be aware of bid/ask spreads, be cognizant of the average daily trading volume, and how large your intended trade is compared to average volume. If you set a limit order, and the order is not filled at your price, either try again another day, or reevaluate what you want to pay for the stock.

*The author has a position in HIST. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

Cheap Stocks featured in WallST.net Podcast
Today, your Cheap Stocks editor was interviewed by Dennis Olson of WallSt.net . The podcast lasts about 10 minutes, and we certainly appreciated the opportunity to get some airtime.