I just had my first podcast interview ever and I say “Turn the drill bit to the left” Left??? Really, I said left? Was I on drugs? There is nothing that will turn your brain into mush faster than being worried about saying “um” and “ah”. Oh well, at least I didn’t say “um right”.
The interview came about because after I met Eric Schleien at the Berkshire AGM this year. I mentioned that I enjoyed his podcasts (https://intelligentinvesting.podbean.com/) and then after twenty minutes spent chatting about microcap stocks, he’s inviting me on his show.
Last week, I talked with Eric Schleien again for the podcast. We discussed two of my favorites, Contura Energy (CNTE) and Hostess Brands (TWNK), but frankly his Travis Wiedower and Geoff Gannon interviews make for much better listening.
As I mention in the podcast, “Turn the drill bit to the right” was one of the late CEO of Contango Oil and Gas, Kenneth Peak’s, favorite things to say. Because as Ken saw it, virtually all the exploration and production industry’s value creation occurs through the drilling of successful exploration wells, and if you’re going to drill that successful exploration well, then you need to turn the drill bit to the right to actually make the hole and prove your idea right or wrong.
Ken was also one of a kind, he not only named his largest field discovery after his parents, he also once named a set of three exploration wells after The Big Lebowski’s protagonist: the prospects Dude, His Dudeness and El Duderino. He was anything but ordinary.
I will close this post with my favorite example of his non-traditional thinking from this August 2012 investment disclaimer slide.
Contango Oil and Gas August 2012 Investment Presentation
No Called Strikes 
Dear Mr. Mohn,
I wanted to reach out after listening to your podcast this week and tell you how much I appreciated your insight. I thought your input into the supply chain of Twinkies as well understanding of natural resource value creation was extremely helpful for me comprehending the industries. I do not know why you would hold any humiliation for it, foolish! Thanks for helping me. Cheers!
-Trey Taylor
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Thanks Trey. I appreciate your kind comments. My faux pas (I basically said the sun rises in the west) only bothered me because I said it just after I mentioned how frequently I come across investors who don’t know the subject matter that they are talking about. On the plus side, this post did give me an excuse to put the late Ken Peak’s legal disclaimer slide on the site which is the most honest investment disclaimer I’ve ever seen, so it wasn’t all bad.
Hope to met you at at investing conference some day.
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Hi,
Enjoyed listening to your podcast and appreciate the color you provided on the investments. I had a couple of questions – (i) since it appears you do a lot of scuttlebutting, and assuming these are high conviction investments, how do you position size, and (ii) TWNK seems to be out of your core competency, what was the thought process behind making this investment?
Thanks again, and hope to have a regular exchange with you.
Best,
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I usually weight my highest conviction stocks around 10% and about 10-12 positions make up about 65-80% of my portfolio at any given time. The biggest factor guiding weighting is not upside opportunity, but downside protection. For instance, my Hostess position is in the warrants (TWNKW). Warrants are inherently leveraged and could easily zero, so there is no way I will ever weight them highly. However, with 4 years left on the warrants they aren’t nearly as risky as say options expiring in 3 months.
You’re right. Hostess is not a subject matter area I am strong in. I compensate with a higher margin of safety in those cases. It also isn’t one of my highest conviction stocks, but I thought talking about Twinkies would be more fun to talk about than Berkshire Hathaway. My thesis is basically that I expect Hostess to return to its pre-bankruptcy size which implies sales growth of another 25-30%, and its excellent margins will increase with even more scale. If this happens the stock will go up 30-45% and the warrants will increase 40-80%. These are all ballpark estimates because I lack the knowledge to be more accurate, but I don’t think you need precision when working with conservative estimates, what I need to know most of all is will I be horribly wrong on the downside.
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Turn to the left? If you give up on investments, you can always go fishing.
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Righty tighty, lefty loosey
Righty righty, lefty loosey
Not exactly the most difficult concept…
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What do you think about Contura’s postponed IPO? Management cited lack of interest (or “market conditions”) as the reason.
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The complete lack of interest in coal stocks is lasting longer than I had estimated. The perception that metallurgical coal prices are going to collapse again is the only reason I can come up to explain the lack of interest. And true, met coal is volatile and subject to wild swings, but I don’t expect them to test the 2015-16 prices again barring a recession in China.
However, I have sold down my shares considerably after seeing the sweetheart deal management obtained to sell $20 million of their MIP shares at $56.40 ahead of the current tender offer at $58-$64. Talk about a vote of no-confidence, if management is so anxious to get rid of their shares, then maybe I should be too!
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Thanks for your reply. It does look attractive valuation wise, but its possible that other coal stocks re-rate downward than Contura re-rating upwards towards rest of coal stocks. And long term prospects don’t look good. So I am going to pass on this idea.
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