Commentary

With the S&P up 75% from its March 9, 2009 market bottom, it's smart to take a step back from individual stock valuations to look at the market as a whole.  A good way to do that is with Robert Shiller's S&P 500 P/E data, which he used to predict the internet bubble of 2000 (weeks before it popped) in his book Irrational Exuberance.  His excel spreadsheet is regularly updated at http://www.econ.yale.edu/~shiller/data/ie_data.xls. His methodology is simple.  He compares the current price of the S&P 500 to the average index earnings per share of the composite companies over the past ten years.  The resulting product is a chart of how the P/E ratio has fluctuated since 1880…

In this post, we're going to profile The Cash Store Financial Services Inc., which trades as CSF on the Toronto Stock Exchange. Accounts managed by Kerrisdale currently hold CSF, and we may buy or sell shares at any time. We will not disclose our sale if and when we sell, and we will not necessarily disclose that we have changed our thesis if we discover something faulty with our analysis at a later date. Our PDF materials for CSF can be downloaded here. All figures in this email are in Canadian Dollars. Financials have not been updated for 3-31-10 figures released late last week. Although we own CSF, the main purpose of this post is to provide background information for our monthly investment writeup AUC. AUC is essentially a startup version of CSF in a new country where the payday lending market is a fraction of the size of Canada's. AUC management are former Canadian executives from CSF, and the business strategy is to simply export the successful Canadian business model to Australia. Understanding CSF's historical growth in Canada is integral to envisioning how AUC could grow in Australia…

In this post, we profile the payday lending industry. We discuss how payday lenders make money and the regulatory landscapes that have evolved in Canada, the United States and Australia. This discussion is meant to be read in conjunction with our posts on CSF and AUC. Payday Lending Payday loans are small-value short-term, unsecured personal loans to borrowers requiring short-term funds until their next payday. Neither assets nor credit ratings are taken into account when determining a borrower's creditworthiness. The borrower must have a job, a bank account, picture identification, a permanent address, and several references. A recent bank statement, pay stub, and proof of address (such as a current utility bill) are required as verification. Normally, upwards of 33-50% of the person's paycheck is loaned for up to 15 days. The borrower writes a post-dated check for the repayment of the loan. The lender / broker will charge a fee, or several fees, for making the loan, as well as interest that the loan will accrue. Annualized interest rates can exceed 500%, but because much of that “interest rate” comes in the form of a $20 or so fee for each $100 borrowed (keep in mind that these are typically 2-week loans), many borrowers don't view that they're paying 500% interest rates on their loans…

We’ve split up our blog into an “Investment Ideas” Blog and a “Commentary” Blog. Previously, we’ve published our blog postings in the form of a long, in-depth investment idea on an approximately monthly basis.

We’re going to continue doing that, under the Investment Ideas section of our website. In addition, we’re going to gradually a ramp up a “Commentary” blog, whereby we provide general commentary on investing, industry trends, interesting investment situations, unusual corporate transactions, etc. Our Commentary blog will often not be related to any underlying investments, and will act as more of a free-form forum by which we can share research and insights that are not related to specific investments that we have made…