Company of the week

30 years ago, out of the wreckage of an imploding company, Leucadia National Corp (Ticker: LUK) was born. Ian Cumming and Joseph Steinberg have since transformed the firm from its early days of a shareholders' equity deficit of -7.7mn to +2.7bn. Albert Einstein's reverence of the miracle of compound interest has been at work: a $1,000 dollar investment in 1978 would be worth 1.98mn as of 12/31/08; that's a 28% annualized return. Book value has grown at a slightly more impressive rate.

The recent past has been less than stellar. From its zenith in May 2008 to Friday's market close price, the per share value has dropped 80% while the S&P 500 has declined 52%.

The source of the underperformance has to do with the nature of Leucadia. From the 10k we read: "In identifying possible acquisitions, the Company tends to seek assets and companies that are out of favor or troubled and, as a result, are selling substantially below the values the Company believes to be present.(1)" Unloved companies tend to underperform in spurts. By definition they have problems that others would rather avoid.

The company is a hodge podge of subsidiaries involved in timber, plastics, telecommunications, real estate, medical product development, wineries and others. The firm also owns a sizeable portfolio of publicly traded stocks ranging from mining, auto finance, Argentine agriculture, to Jeffries: an investment bank. In addition, Leucadia owns limited partnership interests in several asset management firms.

I'm still trying to grasp the estimated worth of the the company many call a "mini Berkshire." With such diverse companies, capital needs, and volatility of certain assets, estimated intrinsic value cannot be conveyed in a short blog post. But at a discount to book value, and with such an impressive track record and philosophy I mostly agree with, I decided a dip in the pool was worth it, even when I wasn't certain of crocs or the exact water temperature.

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Full Disclosure:
The author recently purchased a few shares of Leucadia. He also has a job interview with the company this Thursday.

Notes:
(1) 2008 form 10k