Sunday, May 13, 2007
Top 20 Losers

A statistics collection published weekly in the Globe, listed in order of greatest share price percentage drop. There must be a pony in there somewhere, ne? Not this week. Nothing but twisted smoking wrecks as far as the eye can see: perpetually money-losing XS Cargo Income Fund, owner of a chain of bargain stores; Liquidation World, ditto; gold miners and biotech, which in my world means an automatic pass; Fairfax Financial Holdings, with its byzantine financial statements and penchant for legally harassing its critics; IAT Air Cargo Trust, owner of buildings leased to airline companies, freight forwarders, etc., which looks pretty attractive until you run across this interesting statistic: 52 cents earned per unit, 67 cents distributed per unit. What does Dickens say? "Annual income one pound, annual expenditure nineteen shillings and sixpence; result happiness. Annual income one pound, annual expenditure one pound and sixpence; result misery."

Of the twenty companies on the Losers list, there's only one that seems even remotely suitable for a rational investor: metal building product maker Vicwest Income Fund (metal roofing; "steel containment products," etc.), which appears to be marginally profitable, and to also be involved in a stable boring industry unattractive to the gold-and-biotech crowd. So, not a total washout, but close.

I learn a lot from plowing through the annual reports of business failures like XS Cargo Income Fund; the red flags come fast and furious, like cattle flushed into the open from under the trees. Another worthwhile exercise is to read the annual reports of two businesses in the same industry side-by-side, eg., XS Cargo and Liquidation World, with an eye to determining which is the better business, and why. A no-contest decision in favor of Liquidation World, with the proviso that both businesses seem to be suffering from poor economic conditions, which show no sign of improving soon. Why is this? I don't know, but it would, at least superficially, seem to contradict the received wisdom that liquidation retailers and dealers in secondhand goods' sales improve when the economy tanks. Food for thought.

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