Ann: Media Release December 31 2016 Results, page-32

But SDI could be in a death spiral and if so when would you exit?

The company has been in existence for 45 years.
That's almost my entire life and certainly more than the lives of most people on this forum, I'm sure.

It has been through all kinds of cycles, trials and tribulations.

Fore example In 2011 - when the A$ went to US$1.05 and the silver price went to $45/oz - not only did the company not experience die then, but it remained profitable and even declared and paid a dividend.

So what makes you think that SDI now - in 2017 - is about to die, when the company's:

- Net Borrowings are zero,
- Current Ratio is at a record 3.7 times,
- Current Assets alone exceed all of its liabilities by a factor of 2.5x,
- Operating Cash Flow exceeds the capital requirements of the business by more than double.

Not sure what school of financial analysis you hail from but that all looks to me far more like financial potency, rather than the financial demise which you are describing.

By the way, the stock is at the same price level as it was a mere 7 months ago. All that happened in the interim is that it went to a dollar and back.

Hey - who knows - maybe $1 was the wrong short-term price to begin with and it should never have reached there in the first place?


It's hardly paying a great dividend, 1 cent up from 0.8 and the cynic in me says when a company loses 30% of it's profit it tries to sweeten SH 's by increasing the dividend. Not great management. Recall BHP tried that and SH's revolted.

SDI's dividend has grown by over 50%pa over the past 5 years that I have owned SDI shares. Personally, I find that to be quite good. Do you not? Would that more companies I own might replicate that outcome.

Have you compared BHP's dividend has done over that same time frame?
Maybe BHP's shareholders "revolted" because they thought that increasing the dividend was unsustainable.


So in all seriousness do you ever cut out a loss making trade even tho it's still paying a dividend? You must have a pain threshold , is it 20, 30 , 50% ?

And in all seriousness, like all stockbrokers, you are very good at talking, but listening... not so much.

For starters, when I invest, unlike you and people like you, is not.... "for a trade".
Doing things in the stock market "for a trade" is - experience has taught me - mostly the domain of stockbrokers and their poor unwitting clients.

Totally contrary to what the stockbroking profession requires, when I invest I see myself becoming an owner of the business.

And, in 90% of cases, I only want to become an owner of businesses that I assess as being able to increase their intrinsic value over time; and that's how my personal wealth has been created.


Through the ownership of businesses such as ARB, ASX, AUB, AZJ, BRG, CSL, DLX, DTL, IFL, MQG, NCK, NHF, REH, RHC, TCL, SNL, SYD, WES, WFD.

These are all wonderful, well-managed companies with unique or differentiated product or service offerings and wide commercial moats that provide them with customer retention, scale, pricing power, and all such beautiful things, resulting in superior returns on invested capital, and whose intrinsic value increases over time.

Have a look at the share prices of those businesses.
They go up over time.
Inexorably.
In line with their rising intrinsic value.

But - certainly - from time to time the publicly-quoted prices of the shares of even these businesses go down temporarily (for whatever reason.... sentiment, the economy, interest rates, exchange rates, the GFC, the Asian financial crisis, the commodity boom, the commodity bust, politics, wars, famines, droughts, floods, tsunamis, September 11, George Bush, Saddam Hussein, the GFC, Labor governments, Coalition governments, the pixies living at the bottom of the garden etc. etc., etc. and all the umpteen other factors that we aren't even aware of).

But when that happens, I don't see it as "a loss-making trade".
Because - for me - the thing was never "a trade" to begin with.
I never bought ASX, CSL, NCK, REH, RHC, TCL etc. for a "trade"; I bought them because they are businesses whose intrinsic value rises over time.

So why should I "cut my position" in a business that I think is worth X, at a price that is lower than X, just because some random strangers, whose motives I am unable to begin to know, choose to act in certain indeterminate manner in terms of where they are happy to trade transact with one another, on a given day/week/month?

To my way of thinking, taking my investment cues from other people is a simply astonishing proposition. I would never in a million years do such a thing.

I respect my capital far too much.


If you were really after a serious and meaningful discussion, I'll help you a bit: I think you are asking me the wrong questions.

The really important question you should be asking me - because that's where my investing process has serious potential to fail me - is what happens when my assessment of "X", the intrinsic value, turns out to be wrong.

And like everyone, I have no monopoly on getting everything right.
Far from it.

Therefore, of all the things I think about, this - by far - is the most critical element.

Infinitely more important than how or why the share price happens to be zigging or zagging today or this week, month, quarter or even six-months or year.

Because if I get "X" wrong, then that's the point at which I will experience pain.

And that is why everything I do is focused on "X" and the things that drive it.


You must have a pain threshold , is it 20, 30 , 50% ?

Inexplicably, you keep referring to "pain" I must experience when the price of a share goes down.

But as I said, when I assess something to have a value of X, and I have the ability to buy it at, say, 40% of X, instead of 50% of X, then I fail to understand how that can possibly be a pain-inducing circumstance.

Put another way, the thing that I am buying, namely SDI's cash flow stream, just became available to me at a 20% discount compared to what it was a few weeks ago.

That's a source of pleasure to me, not pain.
How can it possibly not be?


I strongly suspect that the reason that you struggle to comprehend this concept is because you are trapped in an approach to investing which is an outworking of your time in the stockbroking profession.

The stockbroking model, as you know full well, is really a business of agency.
And, thereby, it is in the deep-rooted habit of "putting on -or taking off - of a trade".
Elevated levels of activity on the part of their client is what brokers require/need.

That's the stockbroker's overarching KPI: to get his clients to not do nothing.
Because commissions don't happen when clients of stockbrokers are merely quietly contemplating their world.

The job of a stockbroker is to prompt, convince, motivate, tempt, goad, prod, coerce, exhort, cajole, scare - any conceivable technique - to get the client to ... "put on trades."
Any sort of trades.
As long as there are trades.

Having for more that twenty years being seated on the other end of the phone line and at the opposite seat of the coffee shop table from stockbrokers, sales traders, sales researchers, stockbroking analysts, ECM people, investment bankers and the like, as they tried to galvanise me into transacting activity by peddling me the merits of their latest "trade", I am of the very, very firm view that they have no idea of how to actually invest in publicly-listed companies with a view to creating wealth. No idea.

On the other hand, what I saw them being extremely good at is creating wealth for themselves and for their employers by "getting the orders" and churning stock; that they are absolute masters at. [#]

And the reason I know that is because every working day for most of my working life they were in my face trying to do it.

But when it comes to really understanding businesses; how businesses generate, consume and allocate capital, and what drives their fundamental valuation and whether or not they are able to generate economic profit (as opposed to mere accounting profit)... of that stockbrokers have close to zero understanding.
(They say they do, but really, they don't. Demonstrably).

So it comes as absolutely no surprise to me that the notion of buying shares in a business and then holding it for many years as it grows its intrinsic value is a complete anathema to someone like you, who has emerged, after a long time, out of the stockbroking stock churn machine.

Which is why, while some people might not believe your boast about your being a veteran stockbroker, I certainly do. You fit the mould perfectly, judging from the tone and content of your posts. No doubt about it, you are the real deal, authentic stockbroker.

So when you simply cannot fathom understand why I don't feel "pain" or "unhappiness" when the market value of a share I own happens to go down, then I i its because you frame of reference is that, not of a true investor, but of a stockbroker.

It's not your fault; its merely a result of your circumstances.


In closing, here's an interesting anecdote I sometimes like to share:

Invariably, when stockbrokers conduct account reviews with their clients, the one question that the representatives of those stockbrokers always get round to is, "How can we tailor our service to you so that we can get more of your business?"

As a client of these brokers, what I liked to do in these client review meetings is say,

"We currently pay you guys 30bp or 40bp in brokerage. Under the certain scenario that I'd like to propose, we will increase that to 100bp, 200bp or even 300bp. Would you be interested in hearing more?"

The sudden upright posture and the lighting up of the eyes of those in their expensive suits sitting opposite me at the table was palpable, accompanied by the animated, "Why, yes, indeed Ms. XYZ. We would be very interested in learning more about your proposal."

Then I'd follow with,

"Well, there are over 2,000 shares listed on the Australian Stock Exchange. We believe that 95% of those are not of an investment-grade (i.e., they do not have the ability to increase their intrinsic value over time). Accordingly, we do not what you to call us, phone us, send us research about those businesses, or offer for us to meet with their management. We don't want to hear about these businesses. Because we have no intention nor reason to be dealing in their scrip.

All we want is for you to talk to us only about the 100 investment-grade businesses or introduce us to new businesses that can be included as investment-grade companies. If you do that, we will - when they are undervalued enough - buy their shares through you, pay you 3% commission (a whopping ten times what you currently charge us) on the transaction, and then we will continue to hold those shares for years to come as their intrinsic value rises. But we won't be doing any further buying and selling of them, or others like them that we own.
So, gentlemen, what do you think of that proposal of ours?"

Stunned mullets is how I would describe their ensuing body language.

Because the the words "BUY AND HOLD", and its close relative, INTRINSIC VALUE, strike sheer terror into the minds and hearts of the stockbroking community. No stockbroker gets rich when his clients sit on their hands.

So when you describe Intrinsic Value as B/S, it comes as no surprise whatsoever to me. I expect nothing other.

For "Intrinsic Value" (my thing) is to "Trading The Pips" (the stockbrokers' thing), what cheese is to chalk.


[#] Forget about the obvious stuff published by Munger, Buffet, Lynch etc, one of two investment-related books I - if asked - would insist most investors read is, "Where Are The Customers Yachts?" (Author:Fred Shwed), which was written as long ago as 1940, but which is probably even more relevant today, given some of the technological advancements.

If you don't have time to read it, here is what I think is an accurate precis from the book by some anonymous reviewer:

"Humorous and entertaining, this book exposes the folly and hypocrisy of Wall Street. The title refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, he asked where all the customers' yachts were? Of course, none of the customers could afford yachts, even though they dutifully followed the advice of their bankers and brokers. Full of wise contrarian advice and offering a true look at the world of investing, in which brokers get rich while their customers go broke, this book continues to open the eyes of investors to the reality of Wall Street."