Bob Howard has been in the stock market game for over 23 years. Since 1992 he
has written the "Positive Patterns" newsletter, valued by money managers and stockbrokers for its take on long-term investments. Free samples of his newsletter are available by request.
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Have you ever heard of Leucadia Corporation (NYSE: LUK)? Probably not, but you should get to know this outstanding company.
Now, if we were to mention Donald Trump, then of course, you would have heard of him. He is a very rich guy, he dates beautiful women, and he loves to talk about “The Donald.” But, has he ever made any money for stock investors?
Take a look at the miserable performance of “The Donald’s” publicly traded Trump Hotels (NYSE: DJT), down about 85 percent since it went public during the mid ’90s and there is your answer.
Yet the media fawn all over Trump and continually sing his praises while ignoring the reality that the only one Trump has made a lot of money for is himself.
Now let’s look at LUK and see what they have done for their stockholders. Since LUK was taken over by Joseph Steinberg and Ian Cummings in 1975, the stock has been a fantastic performer. If you bought LUK when they did, you would have an annualized return of about 31 percent a year (which, by the way, even beats Warren Buffett’s record during this time by about 4 percent a year).
Even if you had bought LUK on Dec. 31, 1990, the next 10 years would have seen your annualized rate of return at a bit over 27 percent a year. Numbers like that will make you rich — if you have the patience.
Consider this: Not one Wall Street firm covers Leucadia.
If your company goes public in an IPO, and you do it through a big Wall Street firm, the research side of Wall Street will churn out all sorts of nice little reports about how good your company is.
After all, they make big money (usually 10 percent of funds raised) for doing the IPO, and that is (most often) why they will hype your stock.
Leucadia does not do this. They know how to raise money all by themselves, without paying Wall Street juice.
What does LUK do? For the most part, LUK picks up seriously wounded companies, brings them back to health, and then sells them for big profits — again, and again, and again.
Leucadia does real estate deals. They buy insurance companies. They buy wineries. They buy industrial companies. They own a bank. They buy finance companies. They buy power companies in foreign countries, and a lot more.
The most important thing for you, the investor to know, is that LUK is very good to their shareholders.
I would encourage you to order LUK’s annual reports. They are filled with all sorts of neat information and witty asides that we guarantee will make you a better investor. No pictures, no ego trips, just useful information.
Most recently, LUK announced they will be doing a deal with Warren Buffet and his company, Berkshire-Hathaway (NYSE: BRK. /a/or/b shares). The company they are taking over is Finova (NYSE: FNV), a moneylender that has fallen on hard times. This is where LUK shines, picking up fallen-angels.
The thing that makes this deal different is that LUK is doing this one with Warren Buffett. The fact that Mr. Buffett is entering into a partnership with Cummings and Steinberg is a fact that investors should not miss.
This is actually the second deal that Buffett and LUK have done in the last six months. Last year it was announced that LUK would be buying a chunk of White Mountain Insurance Co. (NYSE: WTM) in partnership with Mr. Buffett.
These kinds of deals are “boring” to Wall Street (especially since Buffet and LUK pay cash, and don’t need Wall Street financing), so don’t expect to get a call from your broker telling you about LUK.
Your goal (as it should be with all investors) is to build a successful portfolio, and in this portfolio you want to own the very best companies around. I suggest that you take a closer look at LUK, and put these guys to work for you.
Cummings and Steinberg (known as C&S to those that know them) own 30 percent of LUK themselves, so they are not going anywhere. That’s good for you, if you are a LUK shareholder.
Now, the chances are that most of you will read this article and then promptly forget all about C&S because, lets face it, they are not exciting. But in fact, they are just the kind of people you want managing your money:
They are much smarter than you or me (especially me!).
They have the track record to prove it.
Right now, while many companies are running short of cash, LUK has lots of cash to do deals. This is the time to do deals — when things are “hurtin’.” LUK was very quiet while market valuations were high. As the market has collapsed in the last 12 months, all of a sudden they are very active. That makes sense, doesn’t it?
Buffet and LUK have started a new partnership called Berkadia, which suggests they will be doing more together in the future.
Conclusion: What often appears sexy in the markets can often be very dangerous. What often appears boring can be very profitable. Do you want to truly build wealth, or are you just looking for something to brag about at the cocktail party? The next time you see Mr. Trump on TV telling you how great he is, I want you to think about C&S, and how great they are!