American Apparel

Michael and I are analyzing a special situation with American Apparel ($APP).  APP secured rescue capital from Michael Serruya and Delavaco Capital on April 26 to help APP avoid filing for bankruptcy.  The company was able to re-negotiate the terms of their debt to avoid default provisions triggered when 2010 financial statements contained a “going concern” clause.  Here are the main points:
  • The new investor bought 15.8mm shares at $0.90 per share and has the option to buy another 27.4mm shares at $0.90 within 6 months of the initial investment.  

  • As part of the terms of the investment, the CEO of the company has an anti-dilution provision.  If APP reaches stock price performance goals of $3.25 by 2013, $4.25 by 2014, and $5.25 by 2015, the CEO receives a total of 39.7mm additional shares.  

  • The company’s 2010 sales were $533mm.  Costs are high in both Cost of Goods and Selling / General & Administrative costs, but with some cost-cutting measures the company may be able to return to profitability.  

  • Total debt is well-collateralized:  

Long-Term Debt as of Year End 2010: Total $139mm

Revolving Credit Facility at Bank of America, $75mm, $53.4mm is drawn, due July 2012

Term Loan at Lion, $81.2mm matures Dec 31, 2013

Assets as Collateral for Debt (as of Year End 2010): Total $287.3mm

Cash $7.6mm

Accounts Receivable $16.7mm

Inventory $178mm

Property and Equipment $85mm

  • The company may now have enough time to return to profitability before cash runs out.  The current rescue investment is for $15mm immediately plus an additional $25mm over the next 6 months at the discretion of the investor, for a total potential cash infusion of $40mm this year.  Total cash usage for operating activities was $32mm in 2010, although it should be noted that in 2010 the company reduced inventory by $37mm (20%).  

We will be monitoring the situation closely to see if it makes sense as an investment.


Simple Investment Principles: Big Money

As the market marches higher, I must keep reminding myself that it is not the bull market that is making me money but the good investment decisions I made a few years back. The decision you make today about what to buy or sell will drive your results two to five years out. Lately, we have been doing some selling and getting ready for the next big opportunity.

In addition to increasing the level of cash in our portfolio, we are getting ready by going back to basics and revisiting some of the investment principles that have made us big money. They include:

  • Understand what makes a company great. Always be on the lookout for the exceptional companies. Learn about them at all times. New players come on the scene frequently: develop the process to identify them. Get ready for the day they go on sale.
  • Are the customers going bananas over the experience? This is the WOW factor. Learn how to recognize it. McDonalds,, Apple, Lululemon, Crocs, and many others are WOW companies.
  • Great companies generate high return on capital.
  • Remember the destructive value of debt. Leverage kills. Great businesses don’t need much debt. Stay away from too much debt.
  • Develop a feeling for how big the economic ramp facing the company is: $CROX (2008), $NFLX (2004), $AMZN (2001), $PCLN (2001), $MCD (1965).
  • Learn simple valuation techniques. Keep it simple.
  • Bear markets create extreme undervaluation. Some stocks will trade at lower than $.10 on the dollar in an environment under stress.
  • Recognize the results of buying a great company under extreme undervaluation during a bear market: the price you pay might be equal or lower to the company’s earning power five years out. Eventually, you could receive the price you paid in the form of an annual dividend.
  • Be patient.

Anything else I should add to this list?


Written by Michael Biggerauthor of How Traders Achieve Creative Flow.


Crocs Channel Checks

Some awesome followers of mine sent me the following tweets about the traffic at different Crocs stores. If you have a position in Crocs, the following threads might be of interest.


Exchange with @danconway:

danconway: Yes. Good  stuff.

biggercapital: awesome! looks good? 14 Mar at 16:24

biggercapital: Wow I like that computer. To order on the internet if not in store?14 Mar at 16:58

danconway: Yes..they just got the computer. Also to see what else is coming in. Smart. 14 Mar at 17:09

Exchange with @graubart:

biggercapital: That is the Soho store correct? RT @graubart: This made me think of @biggercapital (decent crowd inside)$CROX 14 Mar


Exchange with @talentedblonde:

talentedblonde: - Did channel cks yestday at $CROX These were selling out. So cute. All the sales dudes were wearing $$ 13 Mar

biggercapital: I have a pair RT @TALENTEDBLONDE Did channel cks yestday at $CROX These were selling out. So cute. 13 Mar

talentedblonde: @biggercapital $CROX they look awesome. So loving the stock rt now. $$ 13 Mar

biggercapital: @TALENTEDBLONDE my wife bought the KREM (silver) $CROXgr8 design. She loves the shoe 13 Mar


Michael Bigger. Follow me on Twitter and StockTwits.


Curious about Japan

I am curious about Japan because once every three to five years, we buy one stock. And we usually buy this stock during a crisis.

If you look at the following charts, they reveal the best investments we have ever made:


1. We bought in 2001 below $10.
2. We started buying Crocs in July 2008 and purchased aggressively below $1.
3. We bought McDonald’s in 2003 at about $13.00.
4. We bought Netflix in 2005 in the low teens.
5. We bought Priceline at about $2 (pre-reverse split of one for six).


These are all companies we know quite a bit about because we use their products. We don’t need to do extraordinary things to get very good returns. The most difficult thing for us as an investor is to be patient waiting for the simple opportunity. When we force it, we don’t do well. We have the scars to prove it.


It has been almost three years since we started purchasing Crocs. We have not added a new holding since then. With the market starting to show some weaknesses, we are starting to get excited. Our immediate focus is Japan.


"Bear Markets make people a lot of money; they just don't know it at the time."
-Shelby Davis


Written by Michael Bigger. Follow me on Twitter.




You Are Playing Hockey against Wayne Gretzky

If you absolutely need to win a sports match, you must play it against a team you can beat hands down. Investors were offered such an opportunity in 2008. With a little bit of homework, you could have found securities that offered five to ten times the return on your investment with very little risk. It felt like playing hockey against a bunch of two-year-olds.

In 2011, the situation has reversed. Equity valuations are fair at best and stretched in some sectors. Now you are playing hockey against a professional. It is a game most people can’t win, no matter what the return merchants are saying. Were they pounding the “buy, buy, buy” table in 2008? No, they weren’t.

The worst part about this metaphor is that as investors, we don’t fully grasp whom we are playing the game against. My guess though is that right now, we are playing hockey against Wayne Gretzky.

Good luck with your game!

Michael Bigger. Follow me on Twitter and StockTwits.


Ten Thousands Crocs Stores Globally?

Friday night, my family and I were in New York, and we took the time to visit the Crocs (CROX) store located on Spring Street in SoHo, New York.

We own a significant position in Crocs, which I purchased in 2008 at an average price below $2. I often post about CROX on my investment blog.

The stock price, which dipped to a low of $0.89 in late 2008, is now trading above $18. In April 2010, I wrote about why I thought CROX could reach $20. Since the stock is currently trading near my price target, one might think that the potential upside for CROX stock price has evaporated.

I don’t think so, and I am writing this post to explain why.

This visit allowed me to figure out how big the Crocs retail opportunity really is.

We were stunned by the number of people shopping and buying at Crocs|SoHo. We were impressed by how well the products displayed on the shelves. The staff was friendly, and the store looked immaculate. My wife bought a pair of Ularoo, and my son and I each bought a pair of Ocean Minded Nomad Rover. All in all, we spent more than $300 in the store.

We observed other interesting things while roaming through the store.

  • We saw some people you would expect to see at an Apple store trying on and buying Hover sneakers.
  • We asked an employee to describe how busy the store is throughout the year. He said the store is crazy busy most of the time. Totally nuts, he said.
  • My wife, who is from Europe, noticed many Europeans shopping in the store during our visit.
  • Most of the other shoe stores on Spring Street were empty. Crocs was jam-packed with customers.

As I watched happy faces walk around the store to find what they were looking for, I was reminded one more time about how unique and powerful this brand is.

I think management is up to something with that retail concept. Since the company has the highest margin in the footwear industry, it is in a great position to exploit commercial real estate opportunities that are becoming available as traditional retailers pare back their businesses in the face of mounting pressure from Internet retailers.

Crocs management has made a big push on the retail front, and the company will be operating 400 stores by the end of 2010. The stores allow the company to merchandise the depth of Crocs’ more than 250 styles. In my opinion, looking at the store we visited, there is no reason to believe the company can’t expand its retail footprint to more than 10,000 stores globally. Why not?

When you overlay Crocs’ retail opportunity with its aggressive global Internet business initiatives and a solid turnaround in its wholesale division, the Crocs story holds promise for the next ten to twenty years.

The road will be bumpy at times, but there is so much Big Mac in this investment thesis that as a family, we have decided not to pare down our position

Written by Michael Bigger. Follow me on Twitter and StockTwits.


The Pitfall of Feeling Like a King

Last weekend I updated my wealth spreadsheet and I felt like a king. It reminded me of days when as a teenager selling knickknacks on the street of La Tuque I would go home at night counting my bounty countless times, even smelling it. Hey, money smells better than the local paper mill.

For capitalists money is a way to keep score and man does it feel good when the magic Excel grand total cell updates to a new all time high.

My excitement lasted a brief moment though as I reminisced about how different I felt during the bear market of 2007 and 2008.

In late 2008, I went kiteboarding with a very successful friend of mine who told me before we hit the liquid for a sick session that he had suffered major losses in his investment portfolio. He was considering going back to work to refill his money tank. Ouch!

Our investment portfolio suffered as well. However, following the sage advice of Shelby Davis, I bought stocks with both hands.

“Bear markets make people a lot of money; they just don’t know it at the time.”

–Shelby Davis

The action I took then drove the magic Excel cell all the way to a new all time high. For investors, it is the actions taken then that are making money now.

What should we be doing now? The way I go about answering this question is to flip Davis’ statement on its head:

Bull markets lose people a lot of money; they just don’t know it at the time.

I guess this explains why I recently tweeted this —@biggercapital: I will probably be miserable for the next two years. All I want to do is sell $$

Feeling like a king makes me real nervous. I never make money one or two years down the road when I feel like that.

Are you feeling the effect of the magic Excel grand total cell?

Written by Michael Bigger. Follow me on Twitter and StockTwits.


An Ear to the Ground

Bear markets make people a lot of money: they just don’t know it at the time. ─Shelby Davis

I got really excited on November 10 after @fledgingtrader pointed me to the following blog post written by Curtis Faith Be Careful – Market in Danger Zone.

Faith predicts a bear market that might retest the 2008 bear market low. Most big market predictions like this one usually turn out to be wrong. However, Curtis has been right before and there is something to say about keeping an ear to the ground and verifying if his prediction is unfolding.

Here is a passage about the timing of bear market from our e-book In Praise of Speculation!:

When stock prices do not rally beyond the prices at which they were before the break occurred, it is a sign that the turning point has been reached and that the bear market has started, although the majority of people do not realize this until a long time afterwards.

I recently wrote the post titled Why Our Investment Blog Is Boring. This post explains why we love bear markets so much.

What do you think? Are we on the verge of a big bear market? If so we have the cash, and are ready for it!

Written by Michael Bigger. Follow me on Twitter and StockTwits.


Marketplaces and Inflation

Written by Michael Bigger. Follow me on Twitter and StockTwits.

Inflation has been in the news quite a bit lately. On Sunday, Howard Lindzon posted a great piece about printing money titled Printing Money…I Mean Quantitative Easing. The video embedded in his post is hilarious but alarmingly Right On!

This piece got me thinking one more time about what else other than the traditional vehicles (agricultural products, gold, silver, etc) could benefit from inflation.

Here is an idea…

Businesses that could thrive during a period of high inflation are the hard-good online marketplaces such as Amazon, Craigslist, eBay, and others. The reasons supporting their potential success are as follows:

1. Traditional retailers will have a tougher time managing price increases compared to their agile technology-skilled competitors.
2. As the prices of hard goods and the volatility of the market increase, activity on the online exchanges should increase.
3. Arbitrage opportunities will abound on the online space to the benefit of the marketplaces’ owners.
4. Online supplies of used merchandise should increase as prices increase, as sellers trade hard goods for hard goods.

Google Search might also benefit as a hard-good and price-discovery tool.

eBay is really interesting right now because its stock is reasonably valued and its marketplace is heaven for value shoppers. Inflation could unleash a powerful catalyst for this company.

What do you think?

Are We Traders or Investors?

Written by Michael Bigger. Follow me on Twitter and StockTwits.

There is so much debate these days about trading versus investing. Recently, I have heard some people say investing does not work and the only way to go is trading. At Bigger Capital, we trade very actively, yet we think this is nonsense.

We view investment as an activity that creates true wealth—basically, creating much output with relatively little input. We have been very successful investing. We made more than 600 times our investment on Innovative Fibers (a private investment). We did extremely well buying securities such as Amazon, Crocs, and others when no one wanted to own them because we held a long-term view about those securities that turned out to be correct.

Yet, we know that regardless of a security's intrinsic value, its price will fluctuate a lot in the short term. We view trading as taking advantage of those fluctuations. We are pretty good at that too.

Very few securities qualify for our investment capital. We usually commit to an investment once every three to five years. When that happens, we commit for size. In the meantime, we are very happy trading.

So I guess we are both of these animals. We trade and invest.

In addition, we are a business builder. We are building trading businesses, which, in a sense, is also an investment. You see the pattern here. The lines between trading and investing are often blurry. So if someone shows you the next Innovative Fibers and you decide to pass because you are a trader, please give me a phone call.