I am spending as much of today in Brexit denial as I possibly can. Wall Street and the bookies seem confident that the UK will stay in the EU but we won’t know for sure until much later or possibly even tomorrow. Of course the vote is a referendum and not really binding on the UK government so if it is close they could just decide to ignore the vote and do whatever they want. Personally I would like to see a surprise leave vote that drags stocks prices a lot lower followed by a slow recognition of the fact that the UK is a huge market and the Eurozone will still do business there and buy British products leading to a rally. I doubt it will work out that way but a guy can hope.

It has been another week of funerals, rallies, procession and speeches here in post Pulse Orlando. The local paper has articles every day about the victims, their families and new charitable efforts on their behalf. These articles have actually pushed tales of corrupt expressway officials, horrific water management policies, Marco Rubio and trash loving suburban bears off the front page for a period of time. As we drive around town we see signs proclaiming Orlando United and Orlando Strong. We have seen similar outpourings in Boston, Paris, Brussels,New York and many other cities where we have experienced terror attacks or other disasters. While I love the communities drawing together and the charitable outpouring of gifts and efforts I am compelled to ask. Do we always have to have an act of terror, violence or tragedy to start caring about neighbors and communities?

I rarely talk politics here but let me confess that I am very much of Libertarian bent that favors a “you leave me alone, I’ll leave you alone” approach to government and life. One thing I think many of a similar bent get wrong is thinking that this means we don’t need to give back to our community. I think it means we should be free to give back to the world in the form, fashion and place we choose and not the ones the government chooses for us to help. For example I feel very strongly that a well-educated well-read society is the answer to almost all of our social problems so I am sucker for literacy and education gift requests. My wife loses her mind at the idea of mistreatment of animals and the idea of a hungry child brings tears to her eyes so she is quick to give and assist with programs that help those areas. We all have some idea of how to make society better or some ill not matter how small we want to see addressed. My suggestion is we do so without government direction and without needing a tragedy to compel us to action.

It doesn’t have to be a grand gesture or obsession. Coach a little league team. Donate books to a poor school district or adult literacy program. Write a check to a favored cause. Give a homeless guy 10 bucks and a sandwich, don’t’ be a moron to the cashiers and servers that serve you every day, read a book to a senior citizen in a nursing home, play catch with a kid. Whatever it is. Just do something that makes the world a little better place because you passed through it today.

At this point some of you are asking what this has to do with value investing and my answer is “actually, quite a lot.” Not long before he died Ben Graham, the Father of Value Investing, told a friend that as he went through life he tried to “something foolish, something creative, and something generous each day.” I accomplish the foolish each day in some fashion shortly after arising but need to work on the creative and generous and would urge you to do the same.

The highlight of the week for me was talking to John Allison of Home Bancorp (HOMB) last Saturday. He reached out to me after I suggested that the price of his bank was too high right now. I was impressed that a CEO of a $9 billion bank would follow up on a two paragraph mention on Real Money and I was even more impressed after our conversation. This is the CEO I want running every business I ever invest in. He describes himself as a business man whose business happens to be banking and not just a traditional banker.

He and his team have taken a bank that had $25 million in assets when they bought it back in 1998 to a financial institution with $9.6 billion in assets today. Along the way they have purchased what he called broken or underperforming banks and fixed them His approach to making money in banking is to buy a low performing bank and take the ROA from a low level to a very high one. He will not do a dilutive deal and buys at his price and his term or he passes. On a conference call last year he described his approach to buying banks as “Everyone thinks their baby is prettier than the next one.And they expect that same crazy prize on the next deal, and they want more for the baby. I don't mean to be getting on the bankers. The bankers are brainwashed.A lot of these sellers with these stupid prices put them in their head. When we present a realistic price, they think we're trying to steal their baby." Later in the call he said “"There's lots of deals. Lots and lots and lots of deals out there. You just have to move on. The expectations are sometimes not realistic. So, we have to move on. It's just next, next, next. You don't fall in love with one."

On his last conference call he was asked about the companies repurchases earlier this year when the stock sold off and he said “I’m a businessman that looks for opportunities and if Lowe’s has a sale, I go down to see what they got on sale; they had Home BancShares on sale. So, you don’t get many shots at Home BancShares on sale. And the only thing I’m aggravated about is we didn’t buy 1 million shares.” That my friend is the essence of value investing.

I came away from the conversation with a few thoughts One, Mr Allison and I think almost exactly alike with the one difference being that while he is looking for underperforming bank to fix and run I am doing the lazy version of that by buying underperforming banks very cheaply and selling my shares to him at a higher multiple. Second, if you want an education in business and banking go read a few years of HOMB earnings call transcripts. Third, if the CEO of all my bank thought like him I would be a very rich man. Finally, if he ever writes a book I hope he calls me to co-author it!

I won’t pay up for Home Bancshares at current levels but I expect to be invested in Mr. Allisons bank before too much longer. They are committed to growing in Florida and I own shares in pretty much all the remaining Florida publicly traded banks. I also own banks in his footprint that are cheap and need to be part of a larger organization. It is really only a matter of time before I am invested in Home Bancshares at my price on my terms.

It has been a long week around Chez Melvin this week and I am looking forward to a weekend of books and baseball with a healthy side of sangria and BBQ. I have no idea how the markets will react to Brexit of the lack thereof but I am sure we will another interesting week to close out June. With stock prices near all-time highs and trading at high multiple so fast and earnings value I see little reason to chase the markets right now. We aren’t selling nay of our cheap stocks or little banks but I see no reason to be an enthusiastic buyer of anything but a few special situations. Our day will come, just not on our time table!

Have a great week everyone

Tim

PS. As you go through the day try to be just a little kinder to

https://www.youtube.com/watch?v=HaZeFIbYxr0&list=PLhrjLxfhlrq0xpyCPoLVPSOVRXxFLBE-c&index=79