It has been a busy week around Chez Melvin. I have barely had time to watch the Orioles whipping up on the New Your Yankees in the midst of all the chaos. We just put the August issue of the new monthly Banking on Profits together and it will be out tomorrow. There are various fed filings and 13D notices scattered all over the floor along with various earnings reports and research material. Of course tomorrow we have the regular Banking on Profits and Deep Value letters so we have stacks of earnings reports and valuation material laying around for those as well.

If that’s not enough to drive my mildly OCD wife over the edge it is 13F season as money managers of all stripes have until tomorrow to get their list of quarter end holdings in to the SEC. I am pretty old fashioned and have found enough errors at the popular tracking sites that I print out the reports and hand check them against the previous quarter. The wife has taken to sending the little one in to fetch if she needs me for any reason as the sight of all this clutter just might send her over the edge.

As I peruse the most recent filings one thing that stands out to me are that here is a ton of smart money selling going on out there. Tweedy Browne has been steadily lightening their positions not too long after admitting that they were carrying very high cash levels in their funds because they simply cannot find any bargains. Tweedy said in their most recent shareholder letter that ““We think of ourselves as being in the business of chasing value, not performance, and we do know that we have to pay, on average, a whole lot more for a dollar of value today. Our experience has taught us that if we keep looking, and exercise some patience, opportunities will turn up.” That sounds vaguely familiar to me.

David Tepper said back in June that the ECB moves made him feel better about the markets but he didn’t feel good enough to raise his positions much as his total equity exposure dropped by 21% form the March quarter. Third Avenue Funds appear to have been net sellers in the quarter as well. Wilbur Ross was a seller of common stocks in the quarter. Of course he recently said that even in his private equity operation he was selling six times as much as he was buying.

I don’t make market calls as you know but there a lot of very smart people are selling more than they are buying. There are still very few cheap stocks around and pretty much no new ones that we don’t already own in either the Deep Value Bundle or Banking on Profits. I keep looking all the time but we are not doing much finding. It reminds me of the late 90s and 2006 as to the lack of real safe and cheap opportunities. Of course I looked kind of stupid for an extended period of time then and I suspect that will be the case this time as well. I am quite content to sit here with my cash stockpile and wait until Iget smart again.

The real opportunity right now is in the community banks stocks. I own a bunch of them and in the portfolio we still have a bunch of adequately capitalized banks that trade around 80% of book value or so. Another dozen or so are just a small correction away from being too cheap not to own. Taking a long view of the sector consolidation is inevitable and those small banks that are not acquired are going to be those super strong local franchises that dominate their local market and churn out ever increasing earnings and dividends. It really is a win –win sector.

Consider this as well. Small bank shareholder bases don’t contain high frequency traders or swing traders. They tend to hold up much better in a bear market because its long term investors like me that own the shares as well as local business men and the officers and directors of the banks. In true panics they will take a hit as margin selling kicks in and investors have to sell their last quality asset to meet calls but that is

• A.Rare; and
• B. An opportunity of massive proportions

I have seen some massive opportunities in my career. Texas real estate when oil prices collapsed. The Junk Bond collapse of the early 1990s. Utility common and preferred stocks when nuclear costs over runs were crushing profits and balance sheets. Tech and telecom net-nets post internet bust. The S&L crisis. Japanese non-life insurers. Hotel REITs in 2009.Candian Government bonds pre-Nafta. Aircraft trust certificates in a bankruptcy of issuing airline. These were all huge opportunities and made smart patient investors a ton of money. This is as big if not bigger.

As we close out the week the Orioles are comfortably in first place for now and are heading to Cleveland tomorrow night and then onto Chicago for the Sox and then the Cubs. When all these filings are consumed I have a kindle full of great novels to read and Randy Wayne White has a new book out next week to which I am greatly anticipating. If you have never read his stuff go back to book 1 of the Doc Ford series and read forward. If you love good stories, good writing great character and solid plots you will thank me.

If you have never read my E-Book ‘Why isn’t everyone a value investor” you can get a copy free here

http://vip.marketfy.com/value-ebook/

If you are not a member of Banking on Profits to take advantage of the trade of the decade in community banks you can sign up for the regular service here http://www.marketfy.com/item/banking-on-profit/

Or the new monthly report here: http://www.marketfy.com/item/banking-on-profit-monthly-newsletter/ The new issue is out tomorrow.

Cheers,

Tim

Song of the week. If you aren’t in the trade of the decade in small banks your shoud be asking yourself

https://www.youtube.com/watch?v=kOtHFukQ5-Q